My name is Koji Ikeda. I'm one of the software analysts here at Bank of America. Welcome to day three of our technology conference. I am absolutely thrilled to have ZoomInfo join us today for a fireside conversation with Graham O'Brien, the Interim CFO. Thank you so much for doing this. We appreciate you being here today.
Thanks, Koji. Really happy to be here.
Yeah, of course. Maybe just a brief introduction for those in the room and on the webcast that may be a little bit unfamiliar with ZoomInfo. Introductory question: what do you guys do? What's the opportunity you're looking at? Where is it all going in the future?
Yeah, ZoomInfo is the go-to-market intelligence platform. Our combination of best-in-class data, AI-powered technologies from ZoomInfo Copilot, the recently announced Go-to-Market Studio, are critical to businesses finding the right buyer at the right time. We help those businesses intelligently and efficiently accelerate customer acquisition, customer and customer expansion. We've developed best-in-class personas for best-in-class solutions for sales, marketing, talent, and operations personas, and we are the de facto provider of B2B data in the enterprise.
Got it. So I've been going to my Bloomberg screen, and I look for ZI.
Yeah.
I notice it's gone. I always have to go to G and go to GTM. You guys changed your ticker recently. Why change the ticker? What was the kind of reasoning for that? I'm just curious to want to know.
Yeah, so we changed the ticker from ZI to GTM, go-to-market, back about two and a half weeks ago when we announced our Q1 earnings from the NASDAQ. We viewed this as a really efficient marketing campaign. I think that in pockets of our space, there's still a perception that ZoomInfo is a company and just a company and contact data provider. We wanted to take this opportunity to go out and really share that we are a go-to-market intelligence platform, that we have built technologies on top of that data that kind of remove the burdensome go-to-market workflows that many of our customers and our future customers experience when we build an end-to-end solution for that space.
Got it. Got it. Curious to hear how you guys are thinking about the growth algorithm broadly. I know you guys have 2025 guidance out there. I'm not going to ask for 2026 guidance, but just how do you think about the growth algorithm? How does that stack up? How should we be thinking about ZoomInfo from a durable growth rate broadly for the long term?
Yeah, so we'll start with net dollar retention. Net dollar retention was 87% in Q1. That was actually up a little bit from Q4. It was still rounding to 87. It was up from the 85 that it had stabilized at earlier in 2024. We're on the right path there from net dollar retention. I think our view is that we need to get that back into the 90s. If we can do that midterm, then with kind of stable new business, we start to see ourselves to low to mid-single-digit annual growth. You combine that with stable and improving adjusted operating margins in the mid to high 30s, and you start seeing a path back to a rule of 40 company. One level below that, I would frame it as we have our up-market business and our down-market business. Our up-market business is growing.
It's growing 3% in Q1. That was an acceleration sequentially from Q4. Our down-market business is down 10% year- over- year. That's a deliberate motion on our part to make that a smaller and healthier version of itself. Taking the up-market business from its 71% of business right now, getting that closer to 75, taking the retention in that business from mid-90s back up to 100, you start to get a compounding effect of the biggest part of our business is growing. That growth is accelerating, and it's becoming a bigger mix of the business. If we can do that, get that on a path to 75% to 80% over time, you start to see a path to your mid to high single-digit overall growth.
This up-market, down-market classification for you guys is still relatively new. I think it's two or three quarters old now. Why did you guys decide to recategorize up-market versus down-market? Maybe talk a bit about the characteristics of what an up-market customer looks like and a down-market customer.
Yeah, you're right. It's basically two quarters in. So we kind of introduced this framework on our Q4 call in February. Really, it was to simplify this for investors that 71%, 70% of our business is back to a place of growth and is increasing as a mix of the business. The actual definition of our up-market business is what we've historically viewed as our mid-market and our enterprise customers. So really, any customer that has 100 or more employees is considered up-market for us. Any customer that has 99 or fewer employees is considered down-market. Those up-market customers generally are less sensitive to macro trends. They renew at higher rates. They expand at higher rates. They have higher customer lifetime values.
Our down-market customers, depending on where in that kind of down-market spectrum they are, do not always renew at higher rates, but are still very valuable contributors into our contributory data network. We kind of view up-market as where we are resourced and continue to shift resources to drive growth, and down-market where we are becoming more and more focused on efficient product-led customer acquisition.
Yep. That makes sense. Let's focus on the up-market for a second. You said 100-plus employees, and that kind of creates a wide range. Let's start with the 100. I know you sell to companies with tens of thousands, if not hundreds of thousands of people in there from a total company perspective. What does that look like from the low end of that range to the high end? Is there a massive difference in NRR retention? Is it roughly the same? Walk me through maybe the high and low end of enterprise.
Yeah, I think as a general rule, it goes up retention as the customer size goes up. Some of the largest, to your point, and most sophisticated companies in the world buy data, software from us, and continue to grow that investment with us. When you look at kind of the lower end of down-market, or you're giving kind of mid-market 100-500 or 100-1,000 employees, you can think about this as what has largely been, or historically, a lot of times a software tech-heavy vertical. These are customers that were growing in general very fast in 2019, 2020, 2021, and then experienced some pressure from increasing interest rates, inflation in 2023 and 2024. We generally kept those customers but went through about two years of down cycle with them to right-size their spend.
Hypothetically, these would be, for example, they'd have three or 400 sales seats, and overnight they'd be down to 100 sales seats. We showed up as good partners. We kept the logo. I think that was a significant driver to our deceleration from 2023 to 2024. We think we're basically past that now and in a place to potentially start to grow with those customers again. At the higher end of up-market, kind of like the mega enterprise customers, these are very, very durable customer relationships. These are often customers that we have had relationships with for many years. These customers buy a diverse set of solutions from us. We have lots of Copilot customers where their sales forces are using Copilot. We have a lot of penetration opportunity to expand into other parts of their sales force.
Something like account management is kind of an under-penetrated area for us with Copilot. These also tend to be our largest operations customers. Operations is our DAS or data services offering. This is not a seat-based model. Generally, we are selling our best-in-class B2B data to a Chief Information Officer or a head of RevOps or a Chief Data Officer. We are selling that as a data access subscription. We are enriching, routing, cleansing that data on a continuous basis. They are leveraging that data for territory planning, TAM analysis, internal AI projects.
Can we dig into DAS a little bit more on the pricing model? How does it work? What could it potentially become as a percentage of, or what is it as a percentage of revenue now? Where could it potentially go?
Yeah, so operations, which includes DAS, is growing 20% plus. One of our fastest-growing products. It was a year ago over 10% of the business, so significantly higher than that now. It's a data access subscription. It is priced based off of the kind of size of the data records under management that we are providing. It's going to be like a data cube. Are we selling North America contact for this vertical? Are we selling intents and signals for this geo? We are able to kind of add cubes and different types of data into those subscriptions. I think that this can and will continue to be a significant driver of growth for us as accurate third-party data or the value of it becomes increasingly clear to large enterprises.
There's an NRR component to DAS then. You could buy San Francisco specific if you wanted to. I guess, how do you guys sell it? Do you go for the land and expand opportunity with DAS, or do you kind of go for all of it at one time?
Land and expand. I think that generally when you think about our success with DAS, I would say that it is right now largely driven from expansion with current DAS customers, which one is great that we have an opportunity. They see the value we're able to expand kind of those data sets that we are selling them. It also means that there's a lot of logo opportunity out there, both within current ZoomInfo customers who are not DAS customers and then non-ZoomInfo customers for us to go to continue or continue to sell DAS.
What does DAS mean for AI? Data is important for AI. You guys have your Copilot. Great adoption on the Copilot front too. When customers are buying your DAS product, are they using it more for sales enablement enrichment today and less AI, or are you actually having customers buy it for AI?
I think it's shifting towards the latter. I think the core use case was go-to-market operations, the data layer for that kind of go-to-market structure that you need. I think as there's more and more of an interest and a commitment to AI projects, whether they're basically for internal operations, folks are getting down the road on building the actual AI technology to do it internally. As soon as they layer it onto their internal data layer, they run into kind of a roadblock of like, it's only going to be as useful as the data.
That is where we're seeing more and more opportunity to not only come in and say, yep, we have that third-party data that you're looking forward to marry with your first-party data, but we've also built the technology to efficiently marry and dedupe and rank and prioritize several sources and silos of data across first and third-party data to effectively get that source of truth as a data layer to put these AI applications on top of.
Gotcha. I want to spend some time on Copilot. Before that, I completely forgot to ask you the demand question. It is June. You guys did report a while ago. Any sort of update you can give us, if you can, on how demand trends have been trending since you guys reported results, if that's possible? No worries if you can't. How are you guys thinking about the durability of demand over the next 6 to 12 months?
Yeah, the demand's as expected. When we reported, we said that we hadn't seen any impact from kind of heightened uncertainty in the macro environment. That's still the case. It's worth noting that Q2 and Q4 are becoming seasonally bigger quarters for us as we move up market. We have structured our sales, our quotas to be on a half-year basis. So more and more of the growth in our business comes at the end of Q2 and end of Q4. Q1 and Q3 are becoming slower up-market quarters for us.
Is that sales comp change new for this year, or is that something that's maybe changed last year? Just walk me through that sales comp change and what sort of different activity has it been driving?
Yeah, this is like the first full year where we've been kind of set up like this. I would point back to middle of 2024 when we really started to reorient specifically our new business team to be more segmented and saying that if you are an account executive, you can only sell to enterprise customers. If you are a down-market account executive, you can only sell to down-market prospects. What that's done is it's forced those teams to invest in longer sales cycles up market where we do want those longer sales cycles in general. We want to make sure we're investing the time to get the right price, to get the right buy-in, to set up for the next opportunity to grow with those customers. We effectively made that change in the middle of last year.
This first half of this year is kind of the first Q1, Q2 where we are in this more kind of regimented new business motion world.
Was there any, as you guys went through your sales kickoff process for this year, was there any meaningful changes to the sales organization, thinking about territory reassignments or shifting capacity, down-market, up-market? I mean, anything you could share there if there was any change?
The up-market down, like the up-market down thing, which should not be a surprise, but we are continuing to focus on the new business side, making sure that we are differentiating between a sales cycle for a large enterprise land versus a high-volume, high-velocity down-market land. Because in the past, we treated those more as the same than we should. We are, again, investing in those up-market relationships and treating them less from a transactional view. From an account management and renewals and growth perspective, it is really just taking resources up-market, pushing our account loads down for those up-market customers so we have more time to devote to each customer there. Like I mentioned it earlier, but taking retention up-market from in the mid-90s right now to high 90s to eventually 100 to 105, that is the core assumption to get us back to mid-single-digit growth.
That's where we are taking resources from down-market, focusing on efficiency down-market, and then taking those resources, putting them up-market. It's also worth noting it's not a one-to-one reallocation. We do have better economics up-market. As we reallocate those resources up-market, we can drive better growth outcomes, but we also get some net costs that come out as we do that.
Got it. Remind me how you guys have been talking about sales capacity investments, maybe specifically on quota-bearing reps. Are you kind of investing ahead of the curve? Are you waiting for some sort of signal to invest more? If you are waiting, what is that signal that you're looking for?
Yeah, I think we are pretty fully invested from a net resourcing perspective on the sales side. I think we positioned our kind of we've articulated that we are resourced for growth. You could think of we are fully resourced up-market. We are still somewhat resourced down-market. As we kind of right-size that over time, we'll continue to shift that balance to drive up-market ACV from 71% as of Q1 to I talked about getting it to 75% over the next two to three years, 80%, three to five. I think our just one quarter of doing it and getting a point of shift there, starting to feel more confident that we can get this business to three quarters up-market in the next one to two years, and then 80% soon after that.
Is 80% kind of the goal?
Exactly.
Yeah? Never going to be 90, 95%? I mean, once you hit 80%, optimize for that kind of mix?
I think that is the midterm goal here. I believe that if we get it to 80% and you've got an up-market business that's growing high single, low double digits, and you've got a down-market business that is stable and is a great customer acquisition engine in an efficient manner at the right price point, then you've got a business that is growing high single digits with potentially high 30s, if not 40% margins. I think that's a really great midterm goal. I don't think we would stop there. I think we would have options to continue down that path if we wanted to.
Yep. Before Copilot, one more question for you, completely unrelated from growth. I apologize. It wasn't on the question set, but TRAs. TRAs, not ridiculously unique to ZoomInfo, but maybe somewhat unique to software investors out there. Maybe just a recap of TRAs. What does it mean for ZoomInfo? How much do you guys have left on the TRAs? Yeah.
Yeah, so TRA is a tax receivable agreement. It's a liability created next to our deferred tax asset when we changed the company from a partnership to a C Corp. It's something that we pay effectively. We get the tax benefit as a company from those deferred tax assets every year. We do an analysis that shows what would have been the benefit if we didn't have that. We pay a percentage of that to the TRA holders. It's something that sits on the balance sheet as a liability. You can refer to our recent 10Q filing to see what that is.
Got it. No, thank you for that. Okay, Copilot. Good adoption of Copilot. It's been somewhat of a rocket ship over the last several quarters. Tell me why customers are adopting Copilot. What is the reasoning for it today? What do you think the reasoning will be for it in the future?
Yeah, look, I think the pain points for our customers and prospects in our space right now is scattered and bad data and burdensome go-to-market motions. I think Copilot starts to or solves that. I think that the pain point in the future that we're also solving with Copilot is linking data and actions together to create seamless go-to-market motions. You could think about Copilot, at least relative to our legacy ZoomInfo Sales solution, as much more of an intelligent push motion instead of a pull motion. If I was a ZoomInfo Sales customer two or three years ago, I'd log in. I would have ZoomInfo's data. I would go and create my own list based off of my territories or my contacts.
I would start to create my own plan of what I was going to do that day and who I was going to reach out to. With Copilot, it's much more of a bespoke, unique Copilot for every specific customer, for every specific user. When you log in in the morning, it's going to serve up the 10 best or 10 next best actions for you to do, whether you're an account executive and here's the 10 prospects you should reach out to. Here's the last time you reached out to them using first-party data. Here's the new people that work there using ZoomInfo's third-party data. Here's a merger announcement or a funding announcement using ZoomInfo's signals data. It's going to bring all that together, serve up an email for you to propose who you should reach out to and why and what you should say.
Same use case on the account management side. If you are an enterprise or mid-market account manager and you have a book of business of 20 large customers or 50 mid-market customers, you can log into ZoomInfo Copilot every morning, use Account AI. It's going to serve up a similar brief about what the utilization usage trends are for that specific customer. What were the most recent interactions? What were the sentiment of those interactions? What are all the new data points from an external basis? Was there a mention on a podcast? Is there a new CIO at that company that you used to sell to at an old company? And serve up next best actions for that account management motion as well.
When I think about agents, agentic AI, Copilots within the sales organization, I think a lot of enterprises are still testing things out, trying to figure out what's great. I mean, even though you guys are sharing great growth with Copilot, I think the broad ecosystem out there, the customer base, is still trying to figure it out. When I think forward into the future, I think of agent overload. Why would a salesperson use four, five, six agents? Are they using only one? Are they only using two? I quickly come to the thought process of there's two big CRM vendors out there. You partner with them. Why would ZoomInfo's Copilot coexist with the agents that these businesses are also offering? Or does there kind of cooperation within the Copilot?
How do I think about what that salesforce or that salesperson is using from an agent perspective in the future?
Yeah, I think there will be, if you think about the integrations of today, it could look like the cooperation of tomorrow. When we think about some of the differentiation in agentic use cases right now, I think what you're largely seeing from some of the CRM players or even service players is that they are developing and selling agents that are aimed at support or inbound use cases. If you have support coming in from an existing customer support ticket, you generally know everything you need to know about that customer. You're going to know the nature of the support request and an agent is well suited to address that. It's somewhat similar on inbound. If someone's coming in and willingly wants to fill out a form or set up a demo with you, it's also a pretty good agentic use case.
What we've built is a seamless, much more complex go-to-market use case for not just inbound, but for outbound, for account management, for full-cycle account executives. That is where I think the complexity of taking third-party data about a prospect with your own first-party data about that prospect, putting that together and starting to build out an account plan and sequencing around that plan is where Copilot's a differentiator.
How much Copilot do you guys use within your own organization?
We are power users of Copilot. I think we were our first customer, as you would expect. We learned a lot from our internal teams. I think the best tidbit I have about our internal use of Copilot is that historically, our account management teams, they were using ZoomInfo Sales, but it was scattered. They were not power users. If you think about an account manager, especially like a tenured enterprise account manager, their day-to-day is not super regimented. It is probably much more email and Google Sheets. There is not necessarily just like a repeatable tech stack that they are living in. When we rolled out Copilot to our account management team, that is where we actually saw the greatest change in adoption and change in usage, where they were leveraging Account AI. They were living in the platform, which is not something we had seen in our account management team.
It's something that we really believe that we've created a technology here for a persona that has not had a dedicated technology in the greater space.
I agree. On the research front, we use you guys for our channel checks and partner checks. Copilot is blocked at Bank of America. I would love to just ask you, give me the top 20 partners I should be talking to right now in ZoomInfo. No, I agree. I think it would be a great efficiency-gaining tool, for sure. I wanted to ask you a question on, you kind of mentioned or were talking about salesforces and how to build pipelines. Question on pipeline build for ZoomInfo. What is the broad way to think about how pipeline builds within ZoomInfo? Is there any sort of seasonality to think about pipeline build? Is it bigger in one quarter versus another quarter tied to conferences, very linear throughout the year? How do we think about pipeline?
Yeah, there's some seasonality from an advertising and marketing perspective where it can slow down at the very end of the year. It can kind of peak kind of around certain conference seasons in October, November, kind of busier pipeline months. Just from a structure perspective, it's similar to what you would expect. We view ourselves as go-to-market experts. We are very fine-tuned when it comes to tracking our pipeline from a data-oriented perspective. You could think about marketing, inbound demand gen, SDR, outbound pipeline creation, self-source AE creation. We take all of that. We bring it in. We score it. We assign an opportunity ACV to it. We track it through a funnel. We are looking at demos booked, demos attended, progressing to opportunity, win rates, and then ASP. We have that across the channels you would expect.
In the last three minutes, maybe two last topics to hit on here. One, competition, and the last question around free cash flow. On the competitive front, it seems like every other month there's a startup going after you guys. How do we think about the competition out there and what truly differentiates ZoomInfo versus the rest?
Yeah, we haven't seen a change in the competitive landscape for us really in the past year. I want to talk about this upmarket versus downmarket. Downmarket, at the lower end of downmarket, there's always been half a dozen or a dozen lower-cost, lower-quality providers. The names have changed some, but generally, that's always been a dynamic that we've had. We're really focused on efficient customer acquisition there, where to include a sales rep, where not to, getting customers in at the right price and providing value that's commensurate with that price. As soon as you get further up in even downmarket, but certainly in upmarket, we do not see competition for our offerings. What we see occasionally, the highest end of enterprises, we'll see like a we used to see kind of a Dun & Bradstreet from a company data perspective.
We'll see some marketing or account-based marketing providers in kind of the tech space as well. Generally, one, as you progress up that customer segment ladder, you start to get a shift towards valuing the actual technology, the data, more so being a little bit less price sensitive. You also start to see kind of a recognition and understanding around data privacy and compliance. That's an area where we've invested a lot to get our customers comfortable with ours and their data practices. That's not something that generally the low-end providers don't have at all.
Got it. The last minute here, free cash flow. You guys generate a ton of free cash flow, unlevered free cash flow. What's the best way to think about levers to drive continued generation of unlevered free cash flow, but also margin expansion potential there?
Yeah, so we guided to $430 million of unlevered free cash flow this year. We expect to have $45-ish of cash interest. After some financing commitments, we should have $325-$350 million of free cash flow after financing available for allocation. We've been aggressive with buying back shares. I think the share price will continue to be aggressive. As you look forward, there are three ways to grow levered free cash flow per share that we're focused on: growing the top line, expanding margins, buying back shares. I think we have a path to do all three.
Got it. Graham, we're out of time. Thank you so much. This has been fun. Thank you so much for being here today. We appreciate it.
Thank you for having us. Have a good day.
Thank you.