We'll go ahead and get started if we can. Everybody wants to take a seat. Great. All right, everybody, welcome to the first day of the 26th annual KeyBanc Capital Markets Technology Leadership Forum. My name is Jackson Ader. I'm the Enterprise Software Analyst here at KeyBanc. We're thrilled to have Graham from ZoomInfo join us this morning. So, Graham, I think just quick run of show. We're going to have, if you just want to very briefly introduce yourself, introduce the company, talk about the interim tag coming off from the Chief Financial Officer role. And then we'll get into some fireside chat discussions. I'll ping the audience. If people have any questions, be thinking of them. I'll come to you a couple of times. We're not just going to save 30 seconds at the end and try and go rapid fire. So if you think of any questions, you can either raise your hand, but I'll be conscious of it. Graham, with that, if you want to go ahead and introduce yourself and the company, that'd be great.
Great. Thank you, Jackson. Thank you for having us. Graham O'Brien, CFO at ZoomInfo. So ZoomInfo provides data and software to go-to-market professionals, sales, marketing, customer success, data practitioners, anyone who 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 that data asset to alert these professionals as to when to engage with their next best customer, what that next best customer might look like, how to manage existing customers and grow revenue from existing customers, and then equips them with the context to execute that engagement and grow their businesses.
Okay. Great. I would like to start kind of bigger picture, and then we'll narrow into some different topics. A question we get a lot is your exposure to the number of salespeople that actually exist in the world. What does that exposure look like, and is it under any kind of threat from AI?
Yeah. I think we're in a much different place than we were in, say, early 2023 when we saw massive layoffs in the software space. I think we feel really good about the sustainability and durability of our revenue streams. We have persona expansion opportunities from a seat-based perspective with ZoomInfo Copilot, where we're able to sell into account management and sales leadership seats that we previously hadn't focused on as much with legacy ZoomInfo. We also have growing businesses that are not seat-based, specifically ZoomInfo Operations. This is kind of our data access asset that is growing 20% or higher than 20% year over year. And we are seeing pretty strong tailwinds from an AI perspective in Operations.
What are you seeing in hiring trends, though? Are people kind of overly focused on productivity, or are they starting to hire again? And not just, I think we'll leave maybe tech and software to the side because that has a very specific impact on the business. But what are you seeing broader? Are people hiring?
I think it's mixed. I think there are pockets and verticals where there's hiring. I think there's some where it's stable, and there's some places where you're still seeing reductions. I think from a budget perspective, there's ample budget out there for consolidation of technologies into one or two vendors. And there's also ample budget out there for anything that's going to accelerate adoption of AI. And I think both those trends work in our favor.
Do you care which happens? I guess, I don't know if it's faster, slower, more, but the focus on efficiency and productivity also helps ZoomInfo, right? And so it's like, all right, if you had to choose, would you rather have a period where your end customers are hiring or care more about productivity?
Can I say both?
No. Choose one.
Yeah. I think that the focus on productivity is a tailwind for us. I think that the more and more we get out there and we're able to show customers kind of the incremental productivity and efficiency they can get from ZoomInfo Copilot, the consolidation opportunities we have out there with ZoomInfo Marketing, and then kind of the mission criticality of operations for any kind of AI initiatives that our customers are looking to do.
Okay. If we now, we kind of said, all right, let's set aside the software sector. That was a source of a headwind in 2023. Where's that business now? Where do you think it's going to head as we go through the end of the year and then into 2026?
Yeah. Software, that vertical was probably our fastest growing vertical in 2019, 2020, 2021. End of 2022, a lot of our customers in that vertical stopped kind of going for growth at all costs and had to right-size a lot of their spend in teams. We went through about two years of downsell pressure with the customers in that vertical, and I think we're past that now. We've had five quarters in a row of sequential improvement in net dollar retention in the software vertical, and Q2 that we just had was basically our first meaningful quarter where software was a contributor to growth again instead of being a headwind to growth.
Right. Okay. And you feel that those trends are sustainable?
Yeah. I think we're kind of on the uptick of that curve again.
Got it, so two other kind of key topics I want to hit on. One is certainly AI, and then the other being your kind of move-up market, but let's hit AI first. What are the specific SKUs or the things that ZoomInfo have launched? You've mentioned Copilot. You've got AI Studio. There are many different SKUs. What are the ones that you feel like have seen the most traction? What do you think that you've developed recently where it's like, you know what, watch this space because a little early in 2025, but in 2027 or 2028, this could be a real place where AI is meaningful?
Yeah. I think AI is informing all of our product development, and we're basically developing those products to optimize for retention outcomes. We view ZoomInfo as an AI beneficiary, and that starts with our operations product. The demand for accurate and actionable data and signals is greater than it's ever been as customers or companies of all sizes seek to leverage AI agents on top of a data layer to automate processes. That data layer was and is incomplete and inaccurate, and ZoomInfo solves that fundamental problem with our proprietary data asset. We basically enrich, cleanse, and then marry that data asset with our customer's first-party data to create this kind of fluid, always-on intelligence asset that drives effective, identical outcomes for our customers.
Okay. But why is ZoomInfo in a position to be the central data hub? Why wouldn't it be? Why wouldn't it be? I don't know. Isn't that what Salesforce wants to be with Data Cloud? Isn't that what SAP, I guess this is more for the back office, but Datasphere and Databricks. What puts ZoomInfo at the center of all that?
Yeah. It's actionable and proprietary data. I think when you think about Data Cloud, this is kind of a statement of where first-party data lives and how it's organized. I think when you complement that with our third-party data, our data origination, bringing in signals and marrying that third-party data with that first-party data, that's what allows you to put agents on top of that data and have effective outcomes.
What are the kind of attach rates you're seeing for something like a Copilot or any of the new SKUs that you've launched?
Yeah. I mean, Copilot is largely becoming our core offering, so basically, we have two kind of growth vectors there. The first one was the migration of our existing ZoomInfo customer base to Copilot. We launched Copilot a little over a year ago in May of 2024, and we're well down that path of probably a three- or four-year migration effort of moving existing customers to Copilot. We're also starting to see the early renewal outcomes, kind of a year in of customers that have been on Copilot for a period of time, and we're seeing better renewal outcomes led by better usage, better utilization trends. So we've been able to get uplifts on that migration, and now we're actually seeing benefit at expiration of renewal for customers that have been on Copilot for some period of time.
Is it possible for you to parse out? Because this has also been something that the company has done just strategically. It's like, hey, we got to be better about the renewal processes, having a team in place. Is it possible for you to separate just the basic run-of-the-mill standard blocking and tackling, versus, oh, wow, these customers are seeing incremental value, and so now they're coming back to pay more? Is it possible to separate those two?
Yeah. I think the blocking and tackling in my mind is just a downsell versus kind of flat renewal conversation. We've built products that I think have optimized for retention. So we're less focused on what we're getting on that first initial sale. We're much more focused on customer value and kind of getting to a renewal outcome where it's kind of made at that point. And then beyond that, it's the unlock of taking resources out of downmarket, putting them upmarket so we can reduce account loads for our account managers upmarket, and developing product that we can then potentially cross-sell, which we haven't really done for several years now.
Okay. So I don't want to jump ahead from upmarket or to upmarket, but keep that in mind just for a second. The competitive landscape for whatever you want to call it, sales enablement, pipeline, data discovery, is that changing at all with the advent of artificial intelligence? Do you feel like ZoomInfo now is competing against your competitors on your AI capabilities and not just the data asset?
Yeah. I think it creates an opportunity for us from a kind of application or software on top of the data asset. I don't think it's really changed the competitive dynamic downmarket. I think that that's been fairly static for a couple of years now. And then upmarket, I think that we have, because we have our foot in the door with so many large enterprise customers at this point, as a data provider, as a purveyor of Copilot, that we can kind of be that partner that's already in the door to help them think about their AI roadmap.
Does AI change at all the configuration, the types of data that you need to ingest to kind of keep your data asset ahead of the competition? Is there any kind of tweak that needs to be made that might mean that you have to go out and make some acquisition or something to get a different data source in?
Yeah. I think it's definitely evolved. And what we've done from day one, I think internally, we've got a great AI and product team that can especially ahead of the curve on this. We also look at usually smaller AI startups, whether they're about to raise another round or they're running out of cash, and we're able to, in many cases, kind of just go to acqui-hires where we're bringing in the folks that have already built some of that technology, and it can kind of give us a six-month or a 12-month jumpstart on our AI roadmap.
Okay. All right, so you've brought it up a couple of times. I want to make sure that we spend plenty of time on it. Yeah, just let's talk about the company's kind of strategic shift, not away from downmarket, but it's reallocating resources, so help me frame that correctly. What decisions are you making in terms of the different segments of the market?
Yeah. We started this just about a year ago in Q2 of 2024, where we had this upmarket business that was 70% or so of the business then, or high 60s of 72% of our total ACV now. This is a business that is growing again. This is a business that has significantly higher margins, and it's much better LTV to CAC than our downmarket business. So we made the deliberate decision to take resources out of downmarket, invest behind the very healthy upmarket business. One of the things we did downmarket was start qualifying our new business at a much more rigorous level so that we were getting cash upfront from these customers, not taking on risk in the customer base, and building out a digital PLG motion for kind of the lower end of downmarket. A lot of those customers that come in, they're very small.
They don't actually want a sales rep in the loop. They want to come in, get into the product, have the product guide them to value quicker. And we've been able to build an offering to do that. But yes, the general story has been, let's digitize the lower end of downmarket. Let's take some of those resources that were there before. Some of those come out. Some of those go upmarket. And we've seen that in improving net dollar retention that we've been able to drive upmarket.
Was the decision born more from strength in the upmarket, or was it born from, like, I'm not really sure if this downmarket thing is really worth the squeeze?
I think we learned not to rely on downmarket for revenue growth or revenue outcomes, and that was a guidance statement. That was a business strategy decision, and it kind of happened at the same time that we were seeing this turnaround in our upmarket business, so it kind of was a little bit more defensive downmarket, and I think has developed into a much more offensive posture upmarket in the past two quarters.
Yeah. This might not be a fair question, but there are many software companies that have done this, right? Reallocated resources away from downmarket, gone upmarket, and then they see their gross retention downmarket decline. And so the unfairness of the question is, I'm asking you to speak on behalf of the entire software sector here. What is it that those downmarket customers need? I think to myself, if the product is good enough, shouldn't gross margin or gross margin, I'm sorry, gross retention hold steady? Because it's still a good product, but what is it that they need that they are no longer getting if you're taking resources away and then they say, like, well, I'm out of here, right? You see my question? I would think that the product would still be of value just because you're downmarket.
I think that, speaking on behalf of all software.
Of course.
They're very price-sensitive downmarket customers, so that if there are multiple vendors that have a product that has parity with each other, they're much more likely to hop around vendor to vendor, and then generally, the smaller customers are going to go out of business at a higher rate than upmarket customers, so I think you have this structural gross retention ceiling down there, depending on kind of the type of software or solution that you're providing.
Right. Okay. Now, the other pushback that I think of when I hear about, okay, we are reallocating resources, is some of those resources might have been well-suited to selling to SMBs, might not be well-suited to selling to a company the size of ZoomInfo. So how do you make sure that you're making the correct marginal decision on which resource to move upmarket versus maybe it's like, actually, I think we're good with where you are?
First, we test a lot downmarket. So that's kind of like, where should we draw the line in the funnel that goes through digital versus sales-led? And then as we kind of test that and we are able to shift or shift out some of that sales-led resource, you're right, it's not necessarily the same resource that can go upmarket. What we learned, we did this last year. We segmented our new business account executive team in Q3 of last year. Prior to that, it was if you're our best account executive, you could sell 20 $10K deals to smaller customers, or you could sell one $200K deal. And the incentives weren't really balanced for what we want those reps to do. So what we've learned is that, yeah, there's actually really great reps that are very good at the transactional, high-volume downmarket business. Let's keep them downmarket. Let's focus them on the higher end of downmarket. An 80-person company has a much different LTV to CAC than a five-person shop. So keep those reps that are good at that.
You're saying that the sales motion for five versus 80 isn't all that different? Is that what you're saying? You can just focus those people. It's still high velocity, even though it might be right now.
Right. We know for the five-person one, we just want that to be digital. They probably want digital, but there is still high-quality business at the higher end of downmarket. And we have good downmarket reps that are able to focus on that. And then the type of rep that is going to sell on a 10-month sales cycle to a large enterprise, significantly different skill set. And making sure that, one, we're able to internally develop it that where it makes sense, but also we go out externally and kind of find those reps as well.
Okay. When do you expect that downmarket segment to kind of stabilize and maybe stop being such a drag on things?
Yeah. We're optimistic that the rate of decline starts to stabilize in the second back half of this year. So downmarket was down negative 11% year over year on the ACV basis in Q2. We have a few things that work in our favor as we get into the back half of the year. More and more of that business will have gone through the new business risk model, kind of the optimized level that we found in Q3. We changed our pricing and packaging, specifically downmarket in Q3 last year. So we were getting downmarket customers in at kind of a better fit for a package. Often that meant a lower price. So that historically has created better retention outcomes. So as we start to see retention stabilize there, we're basically lapping all of those operational improvements. I think we have an opportunity to start moving the right direction downmarket again.
Okay. A couple more on this line, but like I said, I want to make sure that I open it up in case anybody has follow-ups on either this or the AI topic. Please be thinking about them. Are there any other incentives that you've made or incentive changes that you've made to the upmarket reps to, again, drive the behavior that you want to see?
Yeah. I think historically we had a very explicit line between new sales and retention. You go land a logo, you pass it off to account manager. I think in some cases, specifically with large strategic customers, we've been able to kind of blend that handoff from an incentive perspective. So we're making sure that we're properly incentivizing a new business account executive to bring that logo in at the right time and the right price and make sure that we have a path to get expansion. If we are able to get expansion, that we're compensating, in many cases, both reps in a way that makes sense for the company. We're not as rigid about what that handoff looks like.
Okay. When you land larger customers, when they come up for because you're generally landing multi-year deals, right? So.
Upmarket would be more likely.
Upmarket.
Yeah. So if I'm an account manager, right, I'm the farmer, right? A hunter-farmer analogy. If I'm the farmer, am I going back to them every year on the anniversary and trying to sell them more products, more seats on the anniversary date? What is the cadence like when you land these larger customers to actually go and upsell them? Yeah. I don't think it's as specific to that anniversary date. I think those conversations, that's a good time to have them, but I think we're having them much more frequently. And those conversations are usually starting with a, are you getting the value that you expected out of ZoomInfo, looking at usage trends and utilization, making sure both from an account management, but also from a customer success perspective, that our customers are happy and they're getting the value that they expect to get out of ZoomInfo. And then that naturally starts to lead into an upsell or cross-sell conversation.
Okay. Okay. Just real quick, I'll ping the audience. Does anybody have any questions before we move on to a couple of different topics? Okay. Seeing none, but before we do, do you build in pricing increases into your enterprise contract? I sign a three-year deal. Am I paying 100, 100, 100, or am I paying 98, 100, 100?
We do have a lot of businesses where it scales up.
Okay. Recent marketing changes, the ticker going to GTM, you're kind of seeing yourself as more of a go-to-market company, getting away from the ZoomInfo moniker. But what really does that change in terms of the ethos of the company? Is there an actual operational change, or is this?
I think the operational changes have happened ahead of this. I think of the actual ticker change as just super efficient marketing. Our view is that we've built kind of the full spectrum go-to-market solution for an AI world, and we want to make sure that we are marketing ourselves as that leader.
Okay. AI monetization. So you mentioned the operations product or the studio product. How are those actually? What are they based on? If they're not headcount-based, what are they based on? And how do you make sure that if there is a future where Jack made a Lemonade Stand function with 100 salespeople and maybe tomorrow it's 80, how do you make sure that your revenue doesn't go from 100 to 80 if that 80 is now using AI?
Yeah. You think about operations, which is kind of our core data access product, and then there's other features on top of that and enriching, then routing, cleansing it. That's largely a subscription that's based off of the number or size of the data sets that they have access to. So kind of records under management.
Still subscription model though?
Yep. So the revenue's still subscription. They're paying for access on a one, two, or three-year basis. Go-to-Market Studio is kind of going to be a complement on top of that. If you think about operations as the core data asset, then Go-to-Market Studio is kind of a UI or an orchestration layer that lets a RevOps leader or a data leader manipulate that data and then organize it, enrich it with AI, and push it out for activation to Copilot or to ZoomInfo Marketing. I think that when we look at Go-to-Market Studio right now, it's out with about 10-plus early access customers that we're kind of building it with. We expect it to be released more broadly later this year. The pricing on that, while still not final, is going to be probably some version of a platform fee.
And then we're kind of tracking AI usage of those early customers to see if there's probably going to be a consumption side of it where we can charge a margin. And then kind of if we think about seat opportunity or seat compression in the future, one, we feel like we've got a lot of persona opportunity outside of SDRs and full-cycle AEs. But I think we've had some success so far with kind of getting some of our larger customers just under an ELA where they have access to a lot of our products. It's not really seat-based, and it's all kind of an all-you-can-eat annual amount.
Yeah, and it lets them tinker with stuff, right?
Yeah. We don't want to artificially suppress usage of the product.
Yeah. No friction. Okay. You said the word margin. It reminded me that you are the CFO. I've already asked you a numbers question. So you guys have put a remarkable upside to your guidance through the first half of the year. I think on the callback, somebody asked, when do we get to the first kind of clean quarter, right? Like year over year, and that's coming, third quarter. So any change in terms of guidance philosophy that we should think about in the second half of the year and then heading into 2026?
No, guidance philosophy has not changed. I think we're going to continue to be consistently conservative. When I think about the $20 million raise we updated guidance with for revenue this quarter, that was not a leaning more into risk or relying more on future sales than we have in the past. In my mind, that was informed by performance in Q2.
Okay. Yeah. And I think probably a little bit of three months ago, the world seemed a little scarier than it does today, right? So removing some of that extra caution.
Yeah. In May, we had added in a little bit more or an incremental layer of conservatism, just kind of a heightened volatility. I think we view the macro, as of the call at least, as more consistent now.
Yeah. Okay. I've got one more, but I just want to make sure before we run out of time, if anybody has a question in the audience. Why is free cash flow per share the right metric for all of us to pay attention to?
Yeah. Well, we've got a few ways to grow it, but I think what I'm excited about is that we have an opportunity to basically hit all three of those or all four of those. So the first is growing the top line. We just guided to growth for the first time in several quarters, and we're very optimistic about with our upmarket momentum getting back to a place of consistent revenue growth. The second is expanding margins. Our upmarket business is significantly more profitable than our downmarket business. So as we shift upmarket, we expect to realize some level of margin expansion. We definitely don't view a return to growth as conflicting with improving margins. And we still view the price of a share of ZoomInfo as well below what we view the intrinsic value. So we've been very aggressive buying back shares and keeping leverage ratios in a pretty comfortable place.
Okay. Great. All right. We are up against it, so thank you, Graham. Thanks, everybody, for joining us. Zane lied to us. It was not lunchtime before, but it is lunchtime now, so we can all eat. Justin Patterson's going to do the keynote lunch. I think it's going to be great, so let's head over to him.
Thank you, Graham. That's great.