ZoomInfo Technologies Inc. ($GTM)

Welcome, everybody. It's great to be here with Henry Schuck, Founder and CEO of ZoomInfo; and Graham O'Brien, Chief Financial Officer. Thank you for joining us here. For anybody who might not have the pleasure of knowing you guys, you guys want to do a 30-second introduction?

Sure. I'm Henry Schuck, I'm the Founder and CEO of ZoomInfo, founded the company in 2007.

Okay. Graham O'Brien, CFO of ZoomInfo. I've been with the company for almost 10 years.

Great. Thank you. I think we can kind of hit the nail on the head. One of the dominant themes on the road right now is what we publicly called AI confusion. I think everybody has kind of gotten that phrase now. Customers know that AI is the future Between now and then they feel like overwhelmed. You called that out directly on the Q1 call. Note that even through the early part of Q2, customers are still in that pause phase. So can you walk us through what the conversations actually sound like when you're sitting across the [ C-suite ] leadership team from a Fortune 500 company and they talk about this pause?

Sure. Yes. I think it's 2 things. One, Obviously, I'm having conversations around Go-To-Market and revenue as it relates to AI. And I think a lot of customers got a first, sort of, boost in AI productivity as they put AI solutions into their support organizations. And support is a really interesting channel for AI to be adopted because all you really need for support to be really successful from an AI perspective is all of your first-party data, your knowledge base, your tickets, your past support conversations, you feed that into the AI and it does a pretty good job of being able to handle the next support ticket. And so they had a lot of success there, and then they're saying, okay, we want to do this in revenue and Go-To-Market now. And what they're realizing is that, number one, Go-To-Market very unlike support or engineering doesn't just sit on top of one data store. The data is spread out across calls and conversations and tools like ZoomInfo and your CRM and your marketing automation tool and your forecasting tool. And all of that data needs to be stitched and brought together before you have like just your code base for engineering or just your knowledge base and support tickets for support. And so what the -- they brought in sort of like new leadership or they've anointed someone inside of the organization to lead the AI efforts for Go-To-Market or revenue and then they're trying to figure out how to get all of that data together, how to have reference data underneath it and how to use that data to then build account plans, build prospecting, understand their total addressable market. So the jobs that happen in Go-To-Market, there are like 20 of them. None of those jobs have changed at all in the AI era where those jobs get done and how customers want to do those jobs, that's changed. And so where you might have done forecasting in one application and call coaching another and prospecting in another and territory management segmentation design in another. Customers are now building custom workflow and solutions for all of those different activities that really match how work gets done inside of their companies. But what we're -- the conversation we're having with those customers is to do that, you need referential B2B data at its core and then you need to unify all of that data that's sits in silos across the Go-To-Market and revenue organization.

Got it. So the complexity is just kind of a magnitude order greater?

It's a very different complexity than the other areas that you've sort of implemented AI inside of an organization so far.

And is that the complexity that causes customers a little bit to kind of have that pause and try to figure out what the right path forward is?

Yes. And then a lot of times, what happens is they get focused on the sort of the AI layer of the work and not the data layer of the work. And so they've gotten some solutions out to their teams and then their teams are coming back and saying, well, it missed this and I missed that, and I didn't know this, and I didn't know that the company just had a great earnings or hired a new CFO or is researching my competitor. I didn't know what my last conversation said. And so I'm not getting the context necessary to actually get value out of the new AI tool. And so I think that what we expect to see is a shift back to the core foundational layer to get that going. And when that -- and we're seeing that happen across a number of our customers. And as that happens, we're in a really good position to step in and say, we're the B2B reference data that sits at the core and then we're the unification platform to bring that all together.

Yes. I mean even in our work, we hear constantly that data and our organizational sophistication is what's really needed more than the capabilities themselves. But if we think about -- to finish up the thought we have this phenomenon happening, customers are kind of trying to figure out the right path forward. What would have to happen for this pause to kind of lift off in the second half of 2026? Or do you think it's just going to take longer than that for sure?

I think that the thing that has to happen is people get deeper and deeper into these AI initiatives for Go-To-Market and realize that the actual missing piece is the data. And we're seeing that happen across our customer base. They're starting to talk about this now. I don't have the context. They don't have the data necessary to really automate processes end to end and Go-To-Market. And I think as that continues to happen, we're really well positioned to step in and be a really great partner to those customers.

And do you have a sense of how long that process might take? Or does it just vary a lot across customers, industries?

Varies a lot across customers and industries. If I was to guess, I would say somewhere towards the end of Q4, you probably see a large majority of the customers making that realization.

Got it. Got it. If we switch gears a little bit. You guys restructured a little bit, approximately 20% of the workforce. I think that's one of the largest restructuring actions you guys have taken in your history. So help us understand the strategic nature of this decision. I don't think it was just about cost-cutting, right? How does that reorient the company towards what you expect the future to be? And where do you expect to deploy the incremental investments now?

I would really think about this across kind of 2 vectors. One is we closed our Israel operations, which was primarily R&D in Israel. And that was more of a decision to consolidate our operations over the last number of years, more and more of our R&D efforts, our CTO, that leadership team has moved to the United States. And we -- and even with some reinvestment, we -- of the heads in Israel, we still think we'll come out a leaner, faster, more agile R&D organization. That's one side. The other component was our downmarket sales and marketing spend in organization. And one of the things that happened in Q1 is our path to mid-single-digit growth got disrupted. And we've always talked about how the downmarket part of our business is an anchor to the upmarket part of the business. And so we wanted to be more aggressive in our transition out of the -- out of a sales-led motion, downmarket and into a PLG-led motion down market.

Yes. A lot of good threads to pull on there. We'll just kind of hit the reset in the guidance upfront. Graham, you guys came into the quarter guided to $1.185 billion to $1.205 billion, a little bit below where you had it below before, excuse me. So can you just walk us through the decomposition? How does that map to some of the challenges you're seeing? And why should investors have that confidence in the new current framework?

Sure. And I'll actually add on to Henry's answer from before. We also continue to get more efficient in our G&A operations too, and that was part of this action. We have a solid track record of effectively cost discipline. And every quarter or so, we update a long-range plan. We look at what growth we want to target 2 quarters, 6 quarters, 8 quarters, 5 years out. And what the margin profile of the business would be when we get to those growth milestones. So when we looked at kind of this transition opportunity from our top line from shifting more towards or away from seats, rightsizing the downmarket business, we were well positioned to go and understand what kind of that restructuring plan would look like and move fast when we got into April. When I think about the guidance revision that we announced last week, there's really kind of 3 core tenets. The first is the rightsizing of down market. The second is some of the softness we saw in software at the end of the quarter and taking a cautious approach to that moving forward. And then the third is our opportunity to more rapidly transition the top line of the business away from dependency on seats to a non-seats model. We're really excited about accelerating that path. Right now, about 1/3 of our total ACV is attributable to non-seats to all of our operations business, which is almost 20% of our business, which is growing 20% plus year-over-year is in that 1/3. That 1/3 of the business has better gross retention outcomes, better net retention outcomes, and we're excited about trying to get that closer to 50-50 over the next 1.5 years or so. When we -- when I decompose the revenue adjustment in the guidance, the $62 million change from the initial guidance. About 1/4 of that is from the downmarket restructuring. So we're taking out some of the more inefficient resources that we had down market. We're going to shift more of that to PLG. About 1/5 of that $62 million comes from lower entry points for downmarket customers -- sorry, 1/4. And then 1/5 of that would be the softness in software, taking a more prudent view of some of that AI confusion that we saw at the end of Q1 and extrapolating that over the rest of the year. And then another 1/5 or so is the migration that we're going to do, taking customers -- existing customers who are on a seat-based model today, shifting them over to a consumption or non-seats model and then leading with that consumption or that hybrid pricing model, for new business beginning near the end of Q3. That gets you about $40-some million of the $62 million revision. The rest of that revision is kind of accounting for the fact that we have multiple variables at play here. and applying an incremental level of conservatism to the full year.

If we fast forward to next year, and you've outperformed your guidance where do you think the upside most likely comes from? Where do you see the kind of the most pin action across those different variables?

I would bet on the things that we control. So there's some macro things here that we've talked about I would say, better product adoption, faster progress moving towards a consumption model and really expanding the surface area exponentially where we plug into the GTM work.

Yes. I mean one of the things that we've noticed is where, historically, a customer would buy a seat to ZoomInfo, and they would access ZoomInfo data through our SaaS application. They give those seats out to sellers, there would be one application to consume data. What we're seeing now is particularly across tech and our more sophisticated customers is that they're building their own applications internally. We're using LLMs to build a custom application for sales prospecting or lower TAM prioritization or territory segmentation. And then they're plugging our APIs into all of these internally built applications. Then they're using our MCP in Claude or ChaptGPT or inside of Gemini. And so what was one surface area where ZoomInfo was plugged into has now become multiple surface areas across the enterprise, where Go-To-Market work happens. And so I think another way that we drive growth, not just in the back half of this year, but in the future, is that everywhere Go-To-Market work is happening, our APIs, our MCP, our data gets plugged into those places. You actually see that same construct in our operations business. Our operations business is primarily upmarket. And those customers have taken our data, our APIs, our data files, whether in Snowflake or Databricks or BigQuery, and they've built a number of critical revenue workflows around it. And that business, like Graham said, is growing 20%. It's almost 20% of our total ACV. And it's sticky. It's our highest net retention business in the company. And so I think what that informs for us is that when our data is plugged into critical revenue workflow, it's very sticky. When it's used primarily in the SaaS application to look up contact information or companies. it's more under attack as these new surface areas get built. And so what we want to do is instead of forcing our customers into just using the one SaaS application that's been there is if they want to build their own applications to shift them to a consumption model and then get plugged in across a number of different go-to-market service areas.

Got it. A lot of threads I want to pull on, but before we get to those, just on the consumption point, we hear a lot of kind of mixed feedback and through how customers receive those, right? It does introduce a little bit of uncertainty. As a CFO, I'm sure you appreciate that. So it seems like your customers are more comfortable with it? Or if they're not, it would be great to just kind of hear what your offtake on that topic is?

I can kick off yes. I think generally, customers are pulling us in this direction. We're able to effectively tie price closer to value in these scenarios. But there are going to be existing customers for sure who are on a seat-based model who don't want to move to consumption who want kind of being known budgets of seats, and we're not going to force them off.

Yes. If we go back to the move to the PLG for the down market, can you help us understand -- I think the phrase is almost exclusively product-led, what does that mean? What does that look like for the customer? And how does that kind of change how you guys structure the business?

Yes. I think, first, when we think about the downmarket business, what was it's historically been what it is today is the customer fills out a form on the website, they talk to a seller or a seller walks them through the platform, they get pricing, they decide to transact with us or not transact with us. What we're moving that downmarket segment to be is self-service, product-led, so a customer can come in. We're -- they won't have a difficult or long term that they have to sign up for. They can get started at a much lower price point. And as they sort of go through consumption effectively of what they buy, they can buy more from us. And then that can also be a lead generation engine when those customers are upmarket. for our upmarket sellers to engage with them. But starting off, we're going to take away the higher platform fees and the higher and the longer term and let customers come in and simply transact and onboard in a self-service way. That's how we're thinking about that change.

Yes. A lot of our partner work across our coverage has kind of shown a little bit of weakness in that very low end of the market. I think some of the companies have spoken to it. Some of it related to the AIO, SEO shifts, all these sorts of dynamics. Do you think you're kind of a part of that broader trend? Do you think it's somewhat idiosyncratic to ZoomInfo?

No, for sure. I think we saw -- we've talked a number of times about the sort of disruption in the top of the funnel that happened as AIO sort of went out through Google. And as questions started getting answered more in ChatGPT, I think we're very similar to any other company that has a downmarket business where it's gotten disrupted that way. We've made a big shift in the way that we generate content that drives traffic to our website. We're starting to see early indications of that being really successful. But for sure, from a top of the funnel perspective, we're very much the same as anybody who's trying to attract a downmarket customer. And I think part of that is now that when we're attracting them, we want to transact with them in the most efficient way possible. And the sales-led motion downmarket was not a very efficient way to transact with them.

Yes. So you guys still think you're on that customer journey of figuring out -- excuse me, the journey of figuring out the AIO in the search process?

I think we've made a lot of progress. We've made a lot of progress there and made a lot of changes to the way that we generate content that drives traffic to our website, and we're going to keep on investing in those areas where we're seeing good return. And then there are areas that like programmatic SEO that were really healthy for us pre these changes that are less healthy for us today. So we're just shifting investment from a traffic perspective.

Yes. You've emphasized it a lot, and I think it's critical to the story, and that is the fact that you're going towards this non-seat-based consumption, data utilization it's under 20% of the business, but it's growing over 20% year-over-year. talked about, I think, 1/3 of ACV. You've called it out repeatedly. Help us understand API, MCP integrations, all these kind of concepts how are customers using it, how does it fit in with Claude Cursor, custom agents? Help paint the picture of what's really happening out there for the customer?

Sure. I think, first, we're seeing thousands of our customers who now have plugged our MCPs into Claude and have plugged our MCP into our MCP connections into ChatGPT. And so within those chat interfaces, they're able to build lists, enrich lists, prioritize their total addressable market, effectively anything that you could have done with [ Cliques ] inside of ZoomInfo. You can now do a natural language inside of Claude or ChatGPT or using our MCP in Gemini or Copilot or Perplexity. And so the prospecting motion, the enrichment motion, that can largely be done through natural language inside of those chat interfaces. And that's exciting. We see a lot of customers doing that. And then internally, with our APIs or if you're in Cursor or Claude code, you could use our MCPs, but most of those customers are using our APIs and you can use our APIs to build dashboards internally to enrich an internal application that you're building. So any of our customers who want to build something custom of their custom interface where they bring first party -- their first-party data together with our data and then build a custom interface for their sellers or their marketers or their account managers to take advantage of. Our APIs can sit underneath that, and you can build those applications in Claude or Replit or Lovable or anywhere, and the APIs are really flexible to plug into any of those interfaces. And so then every time you make -- in the MCPs and the APIs, anytime you call ZoomInfo, ZoomInfo returns information, that's a consumption credit that -- that you paid for and then gets drawn down. And so the more of those surface areas you plug this into the more consumption we're able to drive.

Got it. And when we're thinking about these different Claude ChatGPT, Gemini, Grock even out there? Do you expect that over time, that's going to become a layer that becomes a little bit more commoditized? And what's important is just the data underneath? Or do you see customers having a lot of preference for which one of those intelligence tools they're using?

It depends on if they're building their own internal applications or they're leveraging the chat interface. I think if you're building your own internal applications, you're selecting the model that you're going to use for different tasks. And so -- and you're probably doing that on its ability to solve the task at hand and the cost per call. If you're using the chat, I think that becomes a preference thing. And so we're seeing a lot of our customers. We see a lot of our customers on Claude. We see still a lot, but a lesser portion in ChatGPT. And then we're getting -- in the enterprise, we get a lot of pull for Gemini for plugging into Gemini as well.

Interesting. Graham, if we're kind of on the same subject here. At what point mechanically does this non-seat-based mix get large enough to where it starts to change how you think about the business, long-term even guide, but how does it impact that side of it?

Yes. I think it's -- once we get closer to that 50-50 mark is when I think you'd start to see the growth advantages of the non-seat model really start to take over in the business. So we're thinking about this, call it, 18 months out to potentially get back to a place, call it, end of Q2, where we're starting to get kind of the tailwind of ARR growth from this migration. We'll be about 6 to 9 months into it by that point. So the unknown here really is kind of the ins and outs upfront as we sell or lead new business with this different entry points. And as we migrate customers over, how much upside and in some cases, downside or downsell, we have at migration. What we're really confident is after we get them on to the seat or the non-seat-based model, that we have much better or I guess, lower downsell pressure and actually significantly more upsell opportunity. So really, that window of kind of middle of next year is where I think we have an opportunity for this to kind of support a return to growth for us. And I think, I believe that, that return to growth would come with significantly higher margins, potentially 40%.

The other thing I would add from a consumption perspective is you also saw last quarter, Salesforce released their prospecting agent on Agentforce. We were the native data and intent plug-in to prospecting agent. And so as Salesforce customers start building on top of prospecting agent, every time they build a prospecting workflow that calls ZoomInfo and it triggers consumption. HubSpot also released their own Breeze prospecting agents as well. and we were a native plug-in inside of HubSpot's prospecting agent as well. And my sense is you're going to see more and more companies build unique offerings that need data as the underlying foundation and B2B data as the underlying foundation. And every time that happens, we want to show up and plug into those workflows.

Yes. Graham, does the shift towards the consumption at any point kind of change the visibility in the business? Or...

I think longer term, it will improve it once we have kind of more experience in that consumption model. But we do kind of see what that looks like today with the operations business. So we have that level of experience that's informing the shift to this model, but there is this window of 6 to 9 months where kind of outcomes are less certain, and that's where we're going to be really cautious about expectations.

Yes. Let's talk about that now. You have this path towards being sustainably positive by the second half of 2027. I think at the latest that was the quote. So help us understand that framework. That's decent amount of way, but you can also have visibility into it. What's going to be different about you guys then versus now? And where does -- again, your confidence come from if you're saying, hey, second half of 2027 at the latest, it seems pretty robust.

Yes. Look, I'll split it up into the upmarket and downmarket business. Our upmarket business is 75% of our ACV. Our downmarket business is 25% with the accelerated rightsizing of the downmarket business that we're now undertaking. We're going to continue to really shift that mix. So a couple of years ago, we said we thought we could get the downmarket business, which was almost 1/3 of the business then to 20% mix by the end of 2028. Earlier this year, we said we think we could do it sooner. We think we could get to 20% by the end of 2027. Now I think it's in play that we get there by the end of this year or early next year. So you start to get the mix benefit of a smaller downmarket business, we're going to deliberately drive the growth of that business down. It's negative 11% right now. It could get down to negative 20% over the rest of the year. But if we get it to a smaller and healthier place, by early next year. And with the upmarket business, taking a prudent view and kind of being cautious around software. And just from your mix shift alone, call it 80-20 on a path to 85-15 and with an upmarket business that is starting to get some tailwind from the shift away from seats. That's where I get to my middle of next year, we're back to growth. That starts to show up a sequential revenue growth in Q3 and then year-over-year growth at the end of -- or into Q4 of next year.

Got it. Got it. Henry, on the Agentic side, is there a future, whether it's 3 to 5 years from now where a lot of the users utilizing ZoomInfo are going to be just agents?

I was wondering if I've said this before or if you've just picked up on that, question. Yes, I think we're -- we believe that 3 to 5 years from now, there are going to be significantly more agents accessing ZoomInfo than there are humans accessing ZoomInfo. And that's what we're building for. That's how we're building our APIs. That's how we're building our transaction layer. That's how we're building our MCPs, that's how we're building our provisioning and consumption credit modules. We -- and we want to win the agent today. We want to be the easiest docs to read the easiest ways to onboard our API, the most understandable for an agent. And so we are building for a world where more of our user -- more of the users of the ZoomInfo data asset are agents than they are people.

What do you think if I can get you to extract a little bit what do you think that means in terms of headcount across a lot of these companies where there's people doing that sort of clicking now?

Yes. Look, I think that they're going to be doing the action part after the clicking because a lot of the clicking today is happening to understand an account to figure out what my talk track in that account will be to figure out what my conversations at that account have been to figure out if I had an opportunity at that account before to figure out who the last person. I talked to what that account is who my buying committee at that account is, who to call at that account, what my talk is. All of that work will get done by an agent that delivers for you the actual thing that a human needs to do which is to engage with the account to have context on the account and use that context to drive a deal forward to understand which accounts are the best and in market today. All of that work where a human is doing, I think will get replaced by an agent and then the work that you really want the human for engaging another human, driving a deal forward, understanding your point of view on an account, is going to be what a human is going to still be doing, but we'll be doing it in a higher velocity than they're able to do it today.

So not all doom and gloom for humans out there?

I don't think it's all doom and gloom in Go-To-Market for humans.

That's good to hear. Last one on that topic, does that -- think about Agentic world a few years ago, that wouldn't have even been in people's [ vocabulary ] does that change the market opportunity? Do you think that shifts it up where there's a lot more agents doing work out there, a lot of people investing. Obviously, it's one of the hottest areas. Does that potentially set you up more attractively?

Yes, we hope so. Look, we think that agents need -- I mean, this is not going to be revolutionary. Agents need clean data to do their work in an effective way. Where you would have a human go do work. If they ran into a piece of bad data, they would recognize it's bad data. They would go self-correct that data, they keep moving forward. If I give -- if I -- and they could only do a certain number of tasks a day. If I give an agent bad data, it goes right through it. It scales infinitely and it makes many, many, many more mistakes. And so I think the way that we think about the world today is that an agent will be able to consume significantly more data of hours than a human will be able to. They'll do it across a bunch of different areas than a human would be able to do, where we might just be working with an SDR team. Our data has flexibility for SDRs, account executives, account managers. And we have the best B2B data asset in the world. We cover more companies more accurately, more data points. We have a robust identity graph that ties companies and people together. And we think that, that data asset becomes significantly more valuable in an agentic age than it did in a human non-agentic age.

Yes. I think that makes a lot of sense when we look at some of the data companies out there and how fast they're growing, they've accelerated. You would assume that to be the case. Graham, ZoomInfo, you guys have been very clear about what you're seeing happening in the market. You're going through this transition. At the same time, you've been taking pretty decisive actions to kind of preserve profitability, even expand it. Same thing with cash flow. How are you thinking about using your capital, your cash and then where you're going to allocate it and how aggressively?

Yes, we continue to weigh kind of several attractive options when it comes to deploying our cash. And I think we'll be opportunistic depending on where the shares are trading, where our debt is trading and with the cash flow that we're going to continue to generate, we'll be opportunistic on those fronts.

Yes. One last topic to hit. If you're kind of seeing this transition towards 80% upmarket ACV, looking at the low end of the market and saying, hey, maybe we don't need all of that. How should we think about the pathing for NRR between now and when you return to growth in a year or so?

Yes. Look, we've been pleased with the NRR improvement over the last couple of years. The updated guidance would assume that NRR goes down for a period here during this growth transition. We may deliberately drive it down market as we shift more and more of the renewal and expansion there experience there to a digital motion. But yes, look, I still think structurally, the upmarket business should be a 100%-plus retention business. And the next step there would be getting it closer to 105%. That will be dependent on our success in executing this pricing model shift. But I think longer term, 80-20, 85-15 mix, you've got an upmarket business that's got triple-digit net retention, and you've got a downmarket business that's just less dilutive to the overall business that we are potentially starting to get some better gross retention outcomes as we optimize the entry point for more flexible access to ZoomInfo for our smaller customers.

And not to get ahead of our skis, but for the upmarket could that NRR, you're targeting 105%, is there a potential for beyond that over time?

Yes, absolutely. We talked about the expansion of kind of the TAM here when it comes to surface area and plugging into go-to-market work. So I don't think I would put a ceiling on that.

Great. Running on time here. Really appreciate you guys being here. One thing we always like to leave on is when we're back here in 12 months, what do you think you guys are going to be talking about that the audience might be surprised like what's going to develop that you're seeing?

I think we'll see -- if everything goes to plan, I think what we'll be talking about here in a year is that consumption has increased across our customer base. that because we got plugged into significantly more surface areas, consumption increased in the LLMs, it increased with our APIs and then we're monetizing across all of those different surface areas and our B2B data asset has become a key referential data asset for all of Go-To-Market AI.

I hope we're talking about a return to growth with better margins.

Very well said. I'm looking forward to seeing it. Thank you, guys.

Thank you.