ZoomInfo Technologies Inc. (GTM) Earnings Call Transcript & Summary

Awesome. Thank you, everyone, for joining us here today. My name is Chris Quintero. I am a software analyst on the U.S. equity research team, stepping in for my colleague, Elizabeth Porter, who couldn't make it this year. But really excited to be joined by Graham O'Brien, the CFO of ZoomInfo. Graham, thanks for joining us.

Chris, thank you for having me.

Awesome. So Graham, maybe to start, for those who might not be familiar with the ZoomInfo story, the business, could you give us an introduction, the portfolio of your products and the end customers you serve?

Great. Yes. ZoomInfo is the go-to-market intelligence platform. We provide data and software to go-to-market professionals. So think anywhere from sales leaders to marketing professionals, customer success, data practitioners, anyone that works at a company that sells products and services to other businesses. Our data foundation begins with 100 million companies, 500 million business professionals and then billions of signals that are layered on top of our proprietary data asset that use AI to surface to those professionals when to engage with their next best customer, what that next best customer looks like, how to grow and -- grow existing relationships, and then equips those professionals with the context to go execute that engagement and grow that business. We serve over 35,000 customers, more than 50% of the Fortune 500. And we view our business kind of from an upmarket, downmarket perspective. Our upmarket business is 73% of our total mix at this point, 5 points more than it was a year ago, 10 points more than it was 2 years ago. That business is growing 6%, and our downmarket business is 27%.

Got it. And you mentioned a proprietary data set. What is that data set? How large is it? How did you build it?

Yes. It's basically the best proprietary B2B data set out there. There're several vectors we have to build and maintain and improve that data set. One of them is our contributory data network, where we have users and companies that contribute their own data that we're able to essentially build up at scale. Other companies will give us access to their CRM, so we can refer to that data set. We also have custom data teams that go out and purchase not publicly available data, bespoke custom data sets. And we kind of marry all of that together to create this proprietary B2B data asset. Like I said, that has certainly companies contacts, but then lots of other data points around those contacts. And then we start to build or add in insights or signals or kind of live much more kind of current focused data points to make it a much more living and actionable data set.

Got it. I would love to touch on the macro environments. Obviously, a lot has happened for sales reps, the sales industry over the past few years. So you've recently highlighted some more improvement in the demand for sales development reps. So talk us through that history of COVID, post-COVID, and what -- kind of what you're seeing now in terms of the macro environment, sales rep kind of growth?

Yes. I think post-COVID, we saw a correction in sales headcounts. We saw a lot of businesses, specifically in our software vertical that were effectively growth at all costs in 2019, 2020 and 2021 and then kind of turned the corner towards slower growth and focus on profitability. And there was a lot of seat compression that came along with that. Our software vertical went from being almost 40% of our total ACV down to the low 30s. We went through a few years of seat compression with those customers. We largely kept the logos, kept the relationships, but I think we're largely through that overhang now. I think what we're seeing now from a seat perspective in the broader space is it's kind of neutral, like there's pockets where folks are hiring. We've seen -- started to see the early signs of return to outbound hiring to help offset some of the inbound disruption that some companies are seeing from the AI impact on SEO. And then if you look at the kind of the makeup of layoffs back in 2022 and 2023, they were very sales and marketing front office focused, folks that are generally our users. I think if you look at the layoffs that are happening now, they tend to be a little bit more R&D or G&A or support focused.

Got it. I wanted to go back to the business segments that you mentioned earlier. So the upmarket segment, the downmarket segment, you mentioned upmarket has grown faster. It's a larger percentage of the overall mix today. What's driven that growth, that success there? And how do you expect the mix to shift over the next few years? Do you expect stabilization downmarket? Do you expect enterprise in upmarket to continue to accelerate? What are the kind of puts and takes there?

Yes. I think at the beginning of 2025, when we initiated our full year guidance, the upmarket business was closer to 70% mix. And we talked about a path to getting it to 75% over 2 to 3 years and then 80% over 4 to 5 years. We're already at 73%, so we're ahead of schedule. I think we've got line of sight to get to 75% nearer term and maybe even in the next year. And that means that we could get to 80% in the next couple of years instead of 5 years out. I think that 80-20 mix is kind of the next like significant milestone for the business. And I think longer term, we hope to be able to get the upmarket business to a place where it's growing low double digits, get the downmarket business to a place where it's not down negative 10% anymore, but it's close to 0%, plus or minus 1 point in a given year. And then if you weigh that, you've got a high single-digit grower. The downmarket business is still valuable to us. It's a great data contributor to our data asset. It's a great logo acquisition engine. And then to the earlier question on what's driving the upmarket improvement, it's really 2 things. We reoriented our go-to-market teams over the past few years to be focused on upmarket. We've been able to take resources away from the downmarket. That means hiring enterprise pedigree account managers. That means investing behind customer relationships and becoming less transactional. And then the second part is building products that are the right fit for those customers, building products that are optimizing for year 1 and year 2 in retention outcomes instead of the kind of new business transactional sale.

Got it. Okay. So the goal is to essentially get the downmarket business, call it, stabilization, upmarket business to be double-digit grower, so overall growth kind of in the high single-digit range?

I think that's the long-term goal, yes.

Got it. I wanted to shift gears to the product. One of the biggest changes in your product portfolio has been Copilot. About 25% of your customers have adopted that so far. How can we think about adoption going forward? Like what exactly is it? What are the capabilities that you're offering with Copilot 2.0?

Yes. We've been really pleased with the success of Copilot. We released Copilot at the end of Q2 in 2024. And the first year plus there has largely been a migration story. We've been taking a lot of our customers who were on our legacy SalesOS product and shifting them on to Copilot. We've been able to get uplift on a per seat basis through that progress, and that's contributed to an improvement in net revenue retention. We've also sold a lot of it as new business as well. What I'm really excited about now, though, is we're starting to see what the renewal outcomes look like for these early cohorts of Copilot. So while the first year or so is like, can we expand and migrate folks on to Copilot? We were successful in doing that. Now it's -- after they've been using the product for a year, are they seeing the value that's going to lead to better renewal outcomes? During that period, we were able to track engagement, usage stats that were positive, that were leading indicators to better retention outcomes. Now in Q3, we started to see the first signs of those better renewal outcomes. And the stat that we shared was that customers that were on -- sold on to Copilot for the first time relative to lookalike customers that came on, on a lookalike -- or sorry, on a legacy SalesOS product, the Copilot customers, that first renewal rate performed mid- to high single digits better points-wise than customers that weren't on Copilot. So if we're able to continue kind of that benefit relative to our more legacy products, as we scale up the amount that's actually renewing, that could be a tailwind to retention.

Got it. Another really interesting product, I think Henry has cited that Go-To-Market Studio is potentially one of the biggest products that ZoomInfo has ever released. So what does it exactly do? What are the kind of key workflows, processes that it really enables for customers here?

Yes. GTM Studio is our orchestration engine. It's going to be part of our Operations suite. So our Operations business is our -- essentially our DaaS or our data access subscription. It's not seat-based. It's our fastest-growing business. It's now over 15% of our total ACV. It's growing 20% plus year-over-year and accelerating. This is a place where we are truly an AI beneficiary. So you can think of GTM Studio as a complement to that product suite and kind of a UI application that sits on top of it. GTM practitioners are going to use GTM Studio to organize and enrich all of their GTM data in one spot and then use the AI that's built into the product to generate things like talking points for sales reps or GTM plays on a row-by-row basis, but at scale. And then they're able to seamlessly push that out to the front line for execution in a ZoomInfo Copilot or a GTM Studio -- sorry, or a GTM workspace. GTM Studio really is kind of the next step in the evolution of our go-to-market intelligence platform.

And how does the connection between GTM Studio and the Operations suite work? Are customers required to purchase those 2 together? So how should we kind of think about the durability of growth as you kind of sell both?

Yes. It kind of depends on whether they're already an Operations customer. If they're not, then GTM Studio will come with a level of access to data that's in OperationsOS, but it will be case by case. It will largely be priced based off of kind of the records under management that they would have access to. And then we will start to introduce an AI action credit dynamic where we're actually performing AI actions on the behalf of the customer and then selling them credits to use those actions.

Got it. AI action units. It's another offering you have recently rolled out to a small number of customers. Can you frame the opportunity with these units? Specifically, how does this really benefit your customers and the monetization of them?

Yes. It ties us closer to the consumption trends and the value that customers get out of ZoomInfo. So GTM Studio, GTM Workspace. You can think of GTM Workspace as the next of Copilot. Both have this AI action credit dynamic. These products were mostly released in the past month or so. So we're really early in on this. But what we've done is we've tried to price these action credits in a way that is; one, kind of comprehensible or simple for our customers; and two, doesn't artificially create barriers to the actual adoption of our products. So the goal here in the next quarter or 2 is to learn from the trends that our customers -- how they behave, how they consume these AI action credits. And there's kind of 2 other things to note here. One is that because there's a real cost associated with these AI actions, like this could lead to lower gross margins to the extent of 1 point or 2 as we move forward. But while that might -- these might be gross margin dilutive, they will be gross profit accretive and that would come with revenue upside.

I wanted to also touch on DaaS, your Data as a Service product. Clearly, there's been a lot of demand for customers looking to build their own solutions and leverage the data that they have. Can you unpack kind of the increase in demand you're seeing there? Is it from existing customers engaging with Go-To-Market in a new way? Or is it kind of more on the new customer side?

It's mostly existing customers. We talked about DaaS is part of our Operations suite. We talked about how great the growth is there. That growth largely comes from customers buying more and more of it and then retaining at really high levels. So that's really promising because it also means that we have a lot of existing customers that aren't on Operations yet. We have a lot of greenfield customers that aren't ZoomInfo customers yet that could be Operations customers in the future. So the retention trends are really positive there. I think we're starting to turn the corner on this realization curve in the broader market about is AI -- does AI eliminate the need for higher quality data? Like no, it makes that data much more valuable, and we're starting to reap more and more of the benefit of that realization.

Got it. I wanted to shift gears a little bit to your financials. Maybe let's start with net retention rate. Q3 marked the fifth consecutive quarter of acceleration to about 90%. So could you talk a little bit about sustainability of this improvement? And what are the key drivers to maintain this improvement in momentum you're seeing here?

Yes, it's sustainable. It's coming from improvement upmarket. We've largely been able to overcome some of the challenges downmarket, and that's showing up in improved retention and improved overall growth. Upmarket retention and overall retention are the most important kind of drivers that we have to improving growth going forward. When I think about the puts and takes, getting out of the downsell overhang from COVID that we talked about earlier to a place where we're not showing up to renewal conversations looking at downsell, we're starting to look at upsell and expansion. That's one. Two is that we have products to go -- new products to go sell to existing customers. In '22 and 2023, it was largely, let's save the logo, renew them where they kind of need to be to grow again. Now that we've invested behind Copilot in 2023 and 2024, now that we're rolling out GTM Workspace and GTM Studio, now that we have even better data accuracy and more actionable data and operations, we have kind of a slew of products that our customers are looking to expand with rather than kind of the downsell position that we were in a few years ago.

Yes. Is there a net retention rate you all want to eventually get to or I think is reasonable in a kind of more normalized...

Yes. Look, I'm really pleased that we got back to 90%. I think the next step would be -- or the next milestone would be 95%. And then once we have -- get there, I think we'd have line of sight to getting back to 100%. If we got back to 100%, I think that largely would come from the upmarket business getting into the 110-plus range.

Got it. Obviously, there's been a lot of investor focus on the retention side, existing customer side. So I wanted to touch on the new business, new customer side. What are you seeing there? Are there any certain vertical segments that are doing better or worse or ones that you're kind of leaning into more?

Yes. New business upmarket is strong. We segmented our new business account executives just over a year ago. So now we've been kind of benefiting from that for several quarters now where the new business ACV is still growing at a good pace year-over-year. It's just most of the growth upmarket or most of the growth improvement upmarket is going to come from the retention base. But we're coupling that with that new business growth upmarket, and we think that, that's pretty durable. And then downmarket, it's largely been a -- there's largely been a focus on qualifying the new business that we put into that downmarket business with an eye on making it a healthier and smaller version of itself and updating pricing and packaging, which we did in Q3 last year, so that those downmarket customers were coming in with kind of better fit packages and hopefully would lead to better outcomes a year or 2 out.

Got it. Shifting gears a little bit to competition and the advent of AI. Maybe first on like the risk side. There's a lot of concerns from investors around the need for fewer employees and maybe sales reps in your case. In an event of like lower seats, but higher Copilot spend, is that -- what is the kind of net impact there? Is it neutral, positive, negative? And is there kind of a maximum what you would charge per seat if it drives efficiently to sizeably reduce the number of seats?

Yes, I don't think there's a maximum. I think that we have a lot of different options for positive outcomes across a spectrum of seat trends. Largely, when we -- in like kind of our customer base, we haven't seen this like, "Oh, seats are going way down quickly." Like we did see the compression in '21 and '22, but that wasn't AI related. So we've seen largely neutral trends, pockets of hiring. We talked about the -- some of the shift back into outbound SDR hiring. But we are still diversifying our pricing models because we think this is the right long-term thing to do. Within our seat base, we have a lot -- or within our customer base, there is a massive opportunity of unused -- or I guess, unsold seats right now. So if we historically sold legacy SalesOS largely to a top-of-funnel SDR or BDR use case, there are account management and account executive teams that exist at our current upmarket customer base that we haven't historically sold to. And GTM Workspace and Copilot were built to sell to those. So even with no net hiring in our seat base, we have a huge seat penetration opportunity alone there. And then back to Operations, it's not seat-based. It's our fastest-growing product. We've had success moving customers who want to use multiple products into more of an ELA motion where they don't necessarily have a fixed seat limit. They get close to an all-you-can-eat motion. It's a simpler pricing model for them. So I think as we get back to a place of consistent growth and we look forward to the next phase of the company, I think we'll be a more and more diversified kind of model.

Yes. And in terms of expanding the user base outside of SDRs, any way to kind of frame the opportunity there? How big is that kind of opportunity outside of just SDRs into AEs and customer success managers? And does the go-to-market motion have to change at all to go after some of those new personas? And when you look out 3, 5 years, how do you think about where the mix goes?

Sizing it, I think when we look at our kind of -- with our data, we think it's something like 3x plus from an opportunity perspective relative to the SDR population. The go-to-market motion changes a little bit in the kind of like you have to really understand how an account manager spends their day, right? An SDR might spend their day in a very regimented procedural way. An account manager, especially like an upmarket account manager with a very small logo base of high-value logos, like their day is often spent across a lot of different systems and bringing that data into a workbook or a sheet where they basically have a much more bespoke manual process. And once you understand that and with what we've built with Go-To-Market Workspace, it's a really compelling sales motion where we show them all the context switching they do and with Go-To-Market Workspace, how they can do all of that in one place. So the motion is a little bit different for that product. The buyer is still usually the CRO budget. So it's not kind of a wholesale change, it's much more of an enablement tweak.

Got it. I wanted to talk about engagement layers. You've added a lot of functionality into the product portfolio as it relates to kind of replacing the solutions from some of your competitors and vendors in this engagement layer space. So how do you think the market consolidates? And is AI a forcing function to drive a faster pace of consolidation?

I think AI is definitely a forcing function on maybe not consolidation that we've seen yet. But I do think compared it to where we were in 2021 or 2022 when it was very much a you've got heavy SaaS application for one point solution and heavy SaaS application for other point solution, I think AI has kind of facilitated the way to connect those with level of ease, but it's also made the data underneath it much more important. And I think that's where we have accelerated our leave -- sorry, our lead relative to the kind of other players in the space where that contextual data layer that we effectively are best-in-class at, is -- it needs to be consistent across those different kind of point solutions. And I think that, that realization is becoming more common in our space, and we're well positioned to take advantage of that.

Got it. You announced an expanded partnership with Salesforce in which Revenue Agent is now integrated with Salesforce's Agentforce platform. How should we think about the benefits to ZoomInfo's top line? And what are the drivers between broadening the top of funnel for ZoomInfo versus more deeply penetrating with some of your existing customers here?

Yes. We were really excited about the partnership we announced on stage at Dreamforce with Salesforce. Revenue Agent is available in the marketplace now. We've really formalized the relationship. There's co-selling incentives for sales reps on both sides. So I think it's kind of further evidence that if you're going to market and you need data, it only works if you're using that context data that's grounded in ZoomInfo. I do think the benefit is largely kind of further integrating with those partners and kind of net retention benefit we get that with customers over the long term.

Yes. And are there any other opportunities to strike similar partnerships with other vendors here that may be of interest to you to kind of help reshape the upmarket business?

Yes. I think we're always interested in kind of finding new partnerships and solidifying existing ones. We've got a partnership team that's dedicated to this, and there's really like really no go-to-market company out there that doesn't have a need for our data. And I think the ones that are -- that realize that to kind of the full extent tend to be the ones most interested in partnerships, and we're continuously monitoring where we can be more opportunistic on that front.

Yes. Shifting gears to profitability and margins here. You mentioned that your upmarket business has higher margins than the downmarket one. How should we think about the magnitude of the delta between the two? And in terms of the mix shift, like -- outside of just the mix shift, like what are some of the other levers you all are pulling here to drive greater efficiencies, higher operating margins?

Yes, the upmarket business has margins that are around several thousand basis points better than the downmarket business. And that comes from the much higher LTV to CAC of an upmarket customer. When you think about a downmarket customer, the CAC is still lower down there. It's a cheaper initial sale, but the retention is generally worse. And upmarket, the retention is so much better. We've invested behind the relationships and the products for those customer fits. That's why you get the essentially better over time or the better profitability. Outside of kind of that natural progression and the margin that we can harvest as we shift upmarket, we've been really aggressive in adopting AI internally. If you look at our R&D org, it's much smaller than it used to be, but it's more productive. G&A is a place where I've been very focused in finance, in HR, in legal, finding pretty creative and interesting ways that we can help our employees be more productive and effectively bring down costs relative to -- yes, relative to revenue moving forward. If you think about it overall, our headcount is down 8% from where it was entering the year. Our cost base is lower. We're more productive. And I think as you look at that sequentially as you get into 2026, you start to see the opportunity to get to a point of even potentially operating leverage.

Yes. You've also started to focus investors more on free cash flow per share as a metric. As we think about the cash per share generation potential of the business, what driver are you most confident between revenue generation and margin expansion and repurchases to generate that free cash flow per share growth?

Yes. This is our guiding principle, free cash flow per share growth. We've been able to grow it over the past few years, largely through buybacks. We've been very aggressive with our buyback program. We view the price of a share of ZoomInfo is well below what we view the intrinsic value is. As we get into 2026, what we're starting to get very excited about is accelerating growth on a per share basis, but we have levers to do that, right? We can grow the top line from a cash perspective. We can improve margin -- cash flow margins, and we can buy back shares. And we're very optimistic now that we can effectively do all 3. And when you do that, then you start to get this compounding effect on free cash flow share per growth. So our most recent guidance for 2025 gets you to high single-digit free cash flow per share growth on a percentage basis, and we're really confident that we can accelerate that as we into 2026.

Got it. Maybe before I open it up to the audience here, there's a new equity compensation plan for Henry, and it looks quite demanding given the current stock price and the free cash flow guidance for '25. So can you speak to any of the details about the decision to readjust those compensation interests and incentives and the path to hitting these performance targets?

Yes. As a company, we shifted our equity compensation strategy to be much more focused on performance shares. That's not just Henry, that's the full executive team, too. I think that aligns very much with shareholder interest. And then on the CEO grant, yes, I think that, that kind of shows the upside value that we kind of can see a path to over the next decade. And most importantly, like shareholders win first. And I think that, that was the right compensation strategy.

Got it. Any questions from the audience here? I must be asking all the right questions. All right. Maybe last one here, Graham, to end off. What do you think is most underappreciated from investors about the ZoomInfo story? Where should they really be digging into?

Yes. I think the -- overall, I think the economic fundamentals of the business are still very strong. We talk a lot about the free cash flow per share growth there. I do think from kind of a product or growth perspective, it's the Operations business. Like this is a place where we are clearly an AI beneficiary. I still think we're very early in this story, and we've got a business that's more than 15% of our total ACV that is accelerating that 20% plus growth. It's not seat-based, and it's just like an incredibly healthy business that we're really about the future of.

Awesome. I think we end it there. Thank you so much, Graham. Thank you, everyone, for joining.