All right, awesome. I think we'll get going. I'm DJ Hynes. I'm the Senior Software Analyst here at Canaccord. This is the 45th year we've put this event on. We couldn't do it without the support of the corporates who come and bring all the great content, the investors who come to eat and drink and support us along the way, so thank you, everyone, for being here. We're delighted to have the ZoomInfo team here. We have founder and CEO Henry Schuck, CFO Graham O'Brien. We're going to do this as a fireside chat, so if there are any questions in the audience at any point, please raise your hand. We can work them into the conversation. Henry, I think at this point, everyone's probably familiar with the ZoomInfo business and what you guys are doing, so we'll spare you the intro.
Great.
But there's some interesting evolution happening as part of the story. Maybe we can talk a little bit about Q2, just to kind of level set everybody, what you saw in the quarter, obviously some favorable trends with AI and enterprise. But kind of what was top of mind for you coming out of the quarter, and what excites you as you look forward?
Yeah, I think what we have been embarking on over the last year is to shift the business up market. We think about market as companies with over 100 employees. We want to shift our business up market away from micro SMBs and the down market. In doing that, what we believed were a couple of things. One, we would improve net revenue retention in the up market. It's stickier. We're more plugged into workflow. That we would have an opportunity to accelerate the growth in the up market business. And that would put us on a path to also increase margins. The up market business is significantly more profitable than the down market business. And so we've been really focused on moving the business that way. In the quarter, we now have over 72% of our business up market now.
That growth in that up market segment accelerated from 3% last quarter to 4% this quarter. Net revenue retention moved two points. It's moved four points in the last three quarters. And so we're really happy with that execution. Our 100K cohort grew. Our million dollar cohort grew. And then I think maybe the piece that we're most excited about and presents a really meaningful tailwind in our business is our operations business. Our operations business grew over 20% year- over- year, continues, and that's on a trend of that type of growth. And what the operations business actually is, is customers who come to us who want to leverage our data inside of their data warehouses, their CRMs, their ERPs. And what they do is they connect their systems of record to ZoomInfo's data.
And they use ZoomInfo's data to cleanse and append and enrich and complete all of that data that lives inside of their systems of record. And historically, for 20 years, I've been telling people, hey, the data inside of your systems of record and your data warehouse is outdated and it's not accurate and it's hurting everything that happens downstream of those systems of record. And it was like, OK, yeah, it's bad. And the sales reps complain about it here and there, but it doesn't really matter that much. Today, what we're seeing is that companies want to build AI agents and AI software on top of their own data.
And when they go to build that for go-to-market, they're realizing that the data that they have in those systems of record is inaccurate and is not complete and doesn't give them a whole view of their total addressable market. And so there's an incredible demand now to bring our data, our insights, our signals, and then plug them into our customer systems of record to really give them a data foundation that they can build their own AI solutions and productivity suite on top of. We think that's a tailwind that's going to continue. So we were excited to see the growth in that business. We released our Go-to-Market Studio product, which is essentially a robust software layer on top of the data as a service solution that sits inside of operations.
I think what we're most excited about, the early feedback that we're seeing there, is where historically that operations business sold to the most strategic enterprise accounts, the largest accounts in the world and in our customer base. Now, with Go-to-Market Studio, it actually gives us an opportunity to move down from the super enterprise into the enterprise and the upper end of the mid-market with a solution and software that's going to be significantly easier for our sellers to sell and take to market. And so in the back half of this year, that'll go into a more broader release. And we're excited about the opportunities there.
Yeah.
We named Graham.
Cool. I got that on my list. We're going to get there shortly. I'm curious, when did you sense the change in tone of the conversations were becoming more strategic? If we rewind, right, it's been a lot has happened in the last 12, 18 months. You guys have brought new product to market, et cetera. When did you get the sense that the strategic value, not that it wasn't delivering value before, but that operations use case, the go-to-market studio, when did that stuff really start to inflect?
I remember about 18 months ago, I went and met with one of our enterprise customers in New York. They had displaced a legacy vendor that had been there for a number of years. That legacy vendor was historically very difficult to replace because there was usually the person who owned the contract around that legacy vendor was an IT administrator or an IT director in the business. I could show up and tell you, I'll give it to you for 10th of the price, and it's 10x better. They'd say, like, gosh, I don't feel like replacing this thing. There wasn't a lot of business sense behind those decisions. I went and met with this customer. They had pulled that vendor out.
What I realized, and then what I started seeing after that, is that all of a sudden, the person who was making decisions about data was no longer an IT administrator. It was somebody that was core to the business. They were giving the power of data decision-making to a more senior business executive. I thought there, and then I started seeing it more and more and more, where our conversations about data were connected to a business executive who, if you showed up and said, I'll give it to you for the same price, and it's 10 x better, or a little bit more, and it's 10 x better, that they were much more willing to lean into those conversations. Because data now, in today's world, is really becoming a strategic differentiator for companies.
If they can get their data foundation right, then they can really outpace the people around them. So that's become a more strategic imperative at companies. It coincided with our shift of resources up market, where those decisions are getting made and they're real dollars to capture.
Yep, yep. Makes sense. Graham, Henry, teed me up for it. Congrats on the permanence of the new role. I know you've been at ZoomInfo for some time now.
Appreciate it.
But it's great to see you, and well deserved. Maybe talk about some of the changes that you brought to the finance organization. I guess it's, I don't know what the interim period was, nine months, 10 months, something like that?
Yeah.
It's been about a year now. So maybe talk about just over the last year, kind of what you've tried to do with the finance org and some of the changes that you put in place.
Yeah, I think when I took over the interim role about a year ago, the focus was on stabilization. We were effectuating this shift to a more stable, more growth-optimized segment with our up market business. And we were trying to kind of qualify and protect our business from working on our more higher risk down market business. So it was really about stabilization for those first two or three quarters. And now that I think we've reached that point of stabilization, it's really basically growth off of much more stable base.
Yeah, yeah. Henry, you talked a little bit about kind of the delineation of the business. It's been very helpful to outsiders, I think, to think about the growth matrix at up market, down market, breakout. You define it for us. You said 72% of the mix is now up market. You alluded to this, but I'd love to unpack a little bit more, just the unit economics between the two different businesses. Obviously, the bigger portion is faster growing, but there's better economics as well. So maybe just unpack kind of what up market versus down market unit economics look like.
Sure. Obviously, the up market business is significantly more profitable for us, and Graham can give some specifics around that.
Sure. The up market business has several thousand basis points better margins than the down market business, and that really shows up in the form of the LTV to CAC of those up market customers, so if you think about a down market customer, yeah, the initial new sales efficiency in that customer acquisition year is better than an up market customer, but the year two, year three, year four renewal efficiency we get from those up market customers is what drives those significantly better margins up market, so we have this opportunity as we accelerate growth up market. We get the compounding effect of greater mix and accelerating growth, and we're able to couple that with margin expansion opportunity.
Yeah, yeah. One of the topics that's come up a lot during earnings season is just yield on organic search for PLG-driven business models. I realize it's a little bit of a higher touch sale, kind of where you're focused further up market. But you do have SMB, PLG components to the business still. I'd be curious just what you're seeing in terms of organic search and yield through the noise now that AI answer engines are becoming more prominent. And if there's anything you guys are doing to kind of change how you show up?
Yeah, I think we're seeing what everyone else is seeing in down market. I think we were way ahead of this with the deliberate down market operational changes we started making last year. And our guidance accounted for down market to get worse in the back half of the year. And we're actually seeing the opposite so far.
Yeah, yeah, that's good. And if we think about the growth matrix going forward, enterprise continues to get better. What's going to have a more dramatic impact, like further improvement on the enterprise business or less degradation from the SMB? How do you think about those pieces building into kind of what the future growth looks like for ZoomInfo?
Yeah, they both matter. But we are focused on accelerating the up market business. This is a business that's growing 4% year- over- year in Q2. We are focused on accelerating that through the mid-single digits and getting that to be a high single digit grower. And then the down market business, this is a place where we've taken some resources out. We've provided a more digital experience at the lower end of down market. At the higher end of down market, there's still good business to go after. And we have line of sight to a kind of a rate of decline improvement in the down market business as we get into the back half of the year.
I think we had an opportunity with kind of the benefit of the higher qualification of that business about a year ago, some of the pricing and packaging changes we made to start getting the renewal benefit of having a smaller and healthier down market business.
Yeah. The other thing is we rolled out Copilot in May of last year. And you build these products, and you have a lot of optimism for them being more central to workflow, driving more utilization. And throughout the year, we saw higher utilization rates. But you don't get a real come to Jesus moment until they start renewing. And we started to see the first cohorts of those customers go through a renewal cycle. And we're seeing better renewal outcomes for customers who are using Copilot versus using legacy ZoomInfo. And in the back half of the year, north of 95% of the new business that we signed last year came on to Copilot. And we were upgrading our customer base to Copilot. So we're going to see more and more of those renewals with better renewal outcomes come up for renewal in the back half of the year.
Yep, yep. It's just a stronger base to continue to grow inside of. Graham, maybe this is one for you. Just thinking about vertical exposure for the business, I think in Q2, you actually called out some green shoots. Maybe in tech was the first time that it was a positive contributor to growth in some time. The business has since, over the last several years, kind of diversified away from tech, so there's two questions in there. One is that diversification story and then the second is just what you're seeing in tech.
Yeah, the software vertical is a place where we saw significant growth in 2020 and 2021, and then in late 2022, we started facing a lot of downsell pressure there as a lot of those customers went from growth at all costs to trying to get to a point of profitability much faster. We showed up, and we kept those logos generally. We went through downsell pressure. We did the right thing for the long-term customer relationship, and I think Q2 this year was the fifth quarter in a row where we saw sequential retention improvement in that vertical, still below where it was at historical peaks, but Q2 is also the first quarter where we really had a meaningful contribution to growth from the software vertical relative to kind of like flat and certainly dollar down in kind of those peak downsell years.
At the same time as we went through that kind of trough with software, we really went out and focused on selling into other verticals. And we have a nice durable growth base across a much more diversified vertical set now.
Yeah, yeah. We've talked a lot about AI through your comments kind of coming out of Q2 and what's driving the business forward. But I'd love to kind of double-click on some of the products, Copilot, the data as a service offering, the Go-to-Market Studio. Can you just kind of talk about each, a quick overview on kind of what they help customers do and why it's important to the growth story?
Sure. So I think whenever a company is trying to initiate any sort of AI initiative, the first thing they have to think about, the first thing that they're all thinking about, is how do I get the data foundation in order for the AI to be able to help us? And in go-to-market land, there are two types of data that are critically important. You have your first-party data, the data in your CRM, the call transcripts from your customers, the emails you've had back and forth, maybe your support tickets, your product usage data. And then usually with support or chat or lots of other AI products, you can stop with first-party data. You can just take all of your first-party data, put it into an agent, tune it, and then you get a great output on the other side.
You saw this with support right out of the gate. In go-to-market, number one, the data that you have from a first-party perspective is pretty bad. Companies are growing and shrinking every year. People are moving around companies. They're doing acquisitions. They're getting bought. They're getting funding. None of that information just magically appears inside of your systems of record. The world is changing. And so the data that you have on your customers and your prospects also needs to be changing. And there's no organic way that your CRM or your data warehouse keeps up on that. So you have to marry that to a third-party data asset. And so the first thing we do with Go-to-Market Studio and Copilot is we bring that first-party data together with ZoomInfo's third-party data and signals. And we create essentially a virtual CRM layer with complete data, accurate data, and rich data.
That becomes the foundation that our customers start building AI agents and AI workflow on top of. And so what Go-to-Market Studio does is it takes that data foundation, it puts AI on top of it, and it lets you build really unique audiences to then go execute on with your front line inside of Copilot. So for example, I might come into Go-to-Market Studio. I have all of my data in the data foundation with ZoomInfo's data. And I can say, show me all of my customers who in a past engagement through email or phone calls or conversations said that they were interested in X. And we now have a new product that does X. Show me all of them. Now marry that to ZoomInfo's data. Bring me the right people I should be engaging with.
And then use AI to go look at all of the engagements we've had with them to create the best messaging that we need to use to give to our SDR or account executives and our account managers to go execute against an opportunity there on this new product. Once you've built that, you have to execute. Having a really great list and really great messaging doesn't really do anything for you unless your front line is actually taking that to the market. And so then Copilot becomes the interface where your reps can go execute on those audiences on that specific messaging to those specific customers. So the core piece is getting that data foundation right. Then it's Go-to-Market Studio to build really unique audiences and leverage AI to do that. And then Copilot at the front line where sellers can actually activate.
Yep, makes perfect sense. Clearly, lots of complement between Go-to-Market Studio and Copilot. How do you think about kind of pricing and packaging those together? And are we early in that process? Is there more you think you can do on that front? Any comments would be interesting.
Sure. You know, I think about we start with operations. That is a data access pricing model. So that's a subscription, not seat-based vector for us. So we're still kind of finalizing the Go-to-Market Studio pricing. But that would not be seat-based either. You think about it as a platform fee, potentially with an AI consumption component that we'd be able to take a margin on.
OK. Kind of just the price sensitivity question in general. I mean, I think when times were tough, there was an investor narrative that ZoomInfo is the premium price product in the space. It's because you deliver the best data, the most accurate data. But there's always this narrative like, oh, there are lower-cost alternatives out there. And maybe not as good but cheaper works in a tough environment. Is price sensitivity still an issue in sales cycles? Or does the leaps you've taken in AI kind of remove some of those concerns, I guess I would say?
So first, at the lowest end of the down market, there's still price sensitivity. So you could think of that as companies with less than 10 employees. There's always going to be price sensitivity there. And that still exists. Obviously, Copilot and the AI solutions give us a more competitive position even in those accounts. As you move sort of up market, price sensitivity becomes less. And I think the biggest thing that we're seeing is a continued level of record win-backs where customers at some point, when times got hard, switched to a market alternative. And now are coming back to us saying, OK, that was a mistake. The data is very bad. We realize now why ZoomInfo is the best data and why that actually matters in our workflow.
Where I think during the toughest times where your CFO showed up and said, "I need to cut spend 50% across the sales team," you were kind of looking for anything to help you cut. And you went to an alternative vendor. And then that broke down inside of your sales team. I had a conversation with a customer a couple of months ago where they consolidated to another vendor. And I just said, "listen, I'm certain that soon your sales team is going to be up in arms about this." And so I'm not going to try to move you now. You've made your decision. But if that ever happens, just give me a call. Make it really easy for you to come back to ZoomInfo. And two weeks later, the guy was in his Chicago office with his sales team. And he's like, "this was a mistake.
We need to come back to ZoomInfo.
Two weeks. That's a good session.
I'm seeing that way more today than I saw it two years ago or three years ago. I think part of that is we've continued to invest in data. We view our proprietary data asset as critical in an AI world. We view having high-quality data as even more critical in an AI world. When companies are today trying to think about how they drive efficiency of their sales teams, they need to be putting high-quality data in front of them. It's kind of that cycle is coming back around to us.
Yeah, yeah. That's good to hear. Any AI customer success stories that are kind of top of mind for you that you would point to?
Yeah, I think there are a bunch of really interesting ones. They tend to be around data- first and then how they execute against that data. So in the Go-to-Market Studio example, we had a customer who came to us and said they work with 25% of the roofing supply market. And they said, we know the 25%. We have no idea who the other 75% of the roofing supply market is. We have no visibility into it. And so our data acquisition team was able to go out, collect a complete data asset of every roofing contractor in the United States, in fact, every contractor, and then every roofing contractor. They had detailed data about those contractors. It gives them a full view of their total addressable market that sits inside of Go-to-Market Studio.
And then we layered on top of that fleet data, how many vehicles do each of these roofing contractors have? Because they don't want to put resources in front of a one-truck roofing supply company. But they definitely want to put resources in front of a 10 and a 20 and a 30-truck roofing supply business. And so we bring all of that data in. It's perfected.
And then we're able to use AI to say, across each of these companies, take a look at their fleet size, take a look at their employee size, take a look at their executives, and then build for me a series of messaging that we're going to go take to the field to go execute against each one of these accounts and then push that into Copilot where I can start seeing what my sales team is actually executing against that with my messaging.
Yeah, yeah. I don't want to guess or speculate at the customer, but there was a recent IPO that we were part of. That sounds like it would have been a good fit for them.
Could have been any number of large roofing companies.
Yeah. I want to talk about the record deal that you signed in Q2. I think you said it was the largest TCV deal ever in company history. Pretty significant expansion. Just talk about kind of the evolution of that customer and what led to the commitment and the upsell.
So this is a customer that's been a customer of ours for over a decade or about a decade. They've 40xed their ACV with us over that period of time. I think the thing that's happening here is most of our large deals are going to include some aspect of our operations business. And where historically maybe that wasn't even there, now it's there in go-to-market. It's there in their business intelligence teams. It's there with their chief data officer. And so you're able to sell that data asset across a number of different areas in the business. And that starts like a foundation where you go, OK, well, if this is the core data foundation for all the decisioning that we're doing around go-to-market, then I also want a front-end interface for my sellers to be able to action against that.
And so I want those licenses for all of my sellers. Historically, Copilot or historically ZoomInfo was focused on the top of the funnel reps, SDR, some account executives. With Copilot, we've really expanded the aperture. And so we're selling Copilot to account managers and customer success managers and more full-cycle AEs. And so we had a broader opportunity from a seat-based license perspective with Copilot. That's not just this customer, but all customers. And then a number of our solutions that we built, we built a marketing platform, an ABM marketing platform. We built it about three years ago with a niche provider in the Gartner Magic Quadrant. Today, it's a leader in the Gartner Magic Quadrant. It continues to get better. And so you have a number of these other solutions that over time have gotten significantly better and have matured.
And it's put us in a position to drive consolidation in those large accounts as well. And so this deal was a combination of data foundation, expanded Copilot access, ZoomInfo Marketing, and it gave us an opportunity to consolidate out a number of vendors in the customer.
Yeah, that's awesome. It's great to get that long-term commitment. Graham, I want to ask you on the numbers, right? So Q2, we kind of got one of the biggest beats we've had in a while. The story here today is enterprise is going really well, growing faster, a larger share of the mix, better unit economics. AI is doing well. But I felt like there was a little bit of tempering of expectations for 2026. Maybe you don't want folks to get over their skis or ahead of themselves. Just what was the message you were trying to convey?
Yeah, I think my guidance philosophy has been consistent. So we were really pleased to raise the full-year revenue guide by $20 million. We guide into positive growth for the first time in quite some time. But we still have to get through and execute in Q3. We still have to get through and execute in a really big up market quarter in Q4. We're optimistic about our opportunity to do that. But we want to make sure that 20/20 success estimates don't start to increase until we've gotten through the year.
Yeah, yeah. Fair enough. As consumption becomes gradually a bigger part of the business, how does that impact your ability to forecast?
I think consumption makes it a little bit more difficult. I think what we're doing right now is testing consumption models at kind of small scale so that if this is kind of the right economic decision, that we have a history there that we can use to inform that forecasting.
Yeah, OK. How do you think about capital allocation these days? Buying back stock? You personally bought stock over the last year, I guess it was. You're generating a lot of cash. Kind of what are the puts and takes as you see it today? And how do you think about kind of the longer-term opportunity for margins?
I think as long as the company that the stock price is dislocated from an intrinsic value perspective, we're going to continue to be meaningful buyers of our own stock because we think it's the best company from an M&A perspective. We bought back nearly $250 million of the company in the first half of this year. Since we started the buyback program, we bought back over $1 billion of the company. We'll continue to be aggressive in the way that we use our free cash flow to buy back shares of our business. From an M&A perspective, it's the first time in a good amount of time that I feel like we're the absolute innovation leaders when it comes to the product that we're building from a go-to-market perspective.
And everything else I see out there, I kind of think I'm going to eat the lunch of over the next couple of years. And so I'm not really excited to go buy a melting ice cube of a company out there. But I think there are really interesting companies that are doing interesting things with AI that could be interesting tuck-ins for us. And we've done a number of those over the last year. I think we'll still be interested in acqui-hires and tuck-ins from an AI perspective. But outside of that, we want to use our cash to buy back the company.
Yeah, good. And then, Graham, I'll give you the margin question. In a low single-digit growth scenario, can you still expand margins? Or do we need faster growth?
Yeah, no, we can still expand margins. We shift up market. We have better margin expansion opportunity. We do not view return to growth and margin expansion as conflicting. We're hyper-focused on growing free cash flow per share. The opportunity to do that with all those levers, returning to growth, margin expansion, aggressive buybacks, and maintaining comfortable leverage ratios.
Yeah. So Henry, maybe just to wrap, I see our tickers wound down on us. It feels like the business is in a better spot than it has been for several years now. What's the message you want investors to leave with?
I think every quarter over the last year, the business has gotten a stronger and stronger and stronger foundation, and for the first time in a while, I'm ready to go play offense with the business. We played defense for the last year, and we're in a position with our products, with the way that our go-to-market teams are resourced, with the customer base that we have to go play offense with new products. And in an age where our data is becoming significantly more important for AI, it's a great opportunity to play offense, and so we're really excited for turning the corner. And we've got a really great foundation to do that.
Yeah, it's a great message. Playing offense, generating a ton of cash, keep stock.
Feels right.
Awesome.
Great product.
Yeah, yeah. I'm sorry. I should have led with that. Thank you to the ZoomInfo team.