All right. Hey, everybody. My name is Koji Ikeda. I'm one of the mid-cap software analysts here at Bank of America. I am super thrilled to have the CFO of ZoomInfo, Cameron Hyzer, with us today. Thank you so much for joining us.
Thanks for having me.
Of course. Super appreciated, as always. Just real quick, high-level background. I know a lot of people know ZoomInfo, but for those in the webcast and those in the room that are unfamiliar with it, maybe just a quick minute or two of what is ZoomInfo? What's the opportunity, and who is Cameron Hyzer?
Yeah. So I'm the CFO at ZoomInfo. I've been here for, this is getting closer to, six years. And, ZoomInfo provides a platform for salespeople to help them sell, you know, more effectively and more efficiently. We do that by delivering high-quality data to them about the companies that they're selling to the people that work at those companies, and signals about those companies that might indicate that they're in the market for any particular, you know, service.
And so, you know, we're really excited about the value we've been able to deliver to people historically, you know, with that, and we're rolling out right now our Copilot that effectively brings all of those things together so that people can understand who are the companies that they should be reaching out to, what's the buying committee within that company, and what's the context under which they should be reaching out to those companies. Maybe you're a, you know, benefits administrator brokerage or benefits brokerage firm.
You wanna know when people just hired a new CHRO or a VP of benefits. You wanna be able to reach out to that person, congratulate them on the job, talk to them about maybe where they worked before and how you can deliver value to those companies. Those are things that our Copilot product would... You know, you walk in every morning, and you see, here's the thing that you should do today and why you should do it, and how that'll help you move something forward.
Yep. Yep. What is the pain point that you guys are trying to solve now, specifically when customers are coming to you? I'd imagine over the past several years, especially with generative AI coming into the marketplace, things have changed. Maybe they haven't. I mean, when they're coming to you, what are they talking about? What they're saying, "ZoomInfo, help me with this." What is that specifically?
Yeah. So I think the pain point that we're really trying to solve is that, you know, a lot of companies haven't necessarily changed their sales motions historically. So if you're a freight forwarder in New Jersey, you know, you probably wanted to know all the businesses around you that were shipping bins. You know, frankly, you probably had a motion that you set up in 1972 when you founded the company to go out and find those businesses. Maybe you joined the country club to, you know, meet CEOs, or you sponsor the town fair in order to meet folks, or you go to conferences, you know, whatever it is.
Realistically, you know, our belief and what we've proven with a lot of our customers is that by having high-quality data and third-party data about all the things that you, you know, don't see or can't see, or your salespeople aren't in the weeds of everything, by having that high-quality data, you can run those motions much better. You can get signals on people that might be in market or frankly, more automated signals across a broader universe on the things you already use. If you're an accounting firm that specializes in, you know, helping people do valuations on intangible assets when they sell their company, you know, you probably wanna reach out to people before they send out an announcement that they're gonna sell their company. You wanna introduce yourself. You wanna be in front of them.
There are plenty of signals on this company has grown, this company has just taken investment, this company is four years into their private equity firm, like you should reach out to them. All of those things are, you know, really important to driving the best motion that you can in order to... You know, sales at the end of the day is often a hand-to-hand combat, you know, sport, and providing better tools to those salespeople to drive better motions and more efficient motions is something that, you know, we've gotten really good at.
ZoomInfo is one of the most real-time sensors of front-office demand with your customer enablement platform. For sure, I believe that. And so maybe the question here is about the demand environment. You know, how are you categorizing the demand environment today versus the beginning of the year versus a year ago? How different does it feel? Does it feel like it's getting better, worse, stable?
Yeah, I think it's been a tough go for, you know, front-office folks, particularly people who are really helping salespeople do a better job. I think, you know, when you think about who we're selling to, we're selling to sales teams that are looking to invest into growth. You know, I think that's been higher beta to, to the economy than other things. So when salespeople are excited about their opportunities for growth, they invested a lot more through, you know, 2020, 2021, you know, et cetera. When they've been less excited about it, they tend to pull back a little. So I think it's been a tough environment.
We, in particular, 'cause we're—I think we're still earlier in our, you know, overall penetration of the market, have had a relatively high concentration of software companies as customers. I think if I roll back a couple of years, software was over 40% of our business. You know, realistically, those companies have gone through a bit of a reckoning in terms of their operating models and really look to pull back on costs, so that's been, you know, tough. I think if we, you know, think about where we are right now, we're seeing that mid-market, where a lot of those software companies has, you know, started to stabilize in terms of net retention. Enterprise is, you know, looking better. It's starting to improve over the last couple of quarters in terms of net retention, and I think the...
Where we see now versus maybe the end of last year that's a little tougher is that small business, in particular, has gotten tougher. I think there are people, you know, there's more uncertainty about growth within those small businesses than there had been. And, you know, that's an area where we've seen net retention tick down, particularly at the end of Q1.
I wanted to dig into that SMB commentary and thinking about the first quarter results and guidance, right? You did lower the full year guidance by about $50 million, and a lot of the questions that I got from investors post-print was, why $50 million? What happened there? It sounded like it was-
The number was not $50 million.
What did you specifically see that changed, and those pressures that you saw. A re they still there? Are they abating? Does it feel even, you know, does it feel better from that standpoint?
Yeah. So, you know, certainly, you know, again, we've kind of seen our business, if you think about, you know, enterprise, which is, you know, a little less than 40% of our business, you know, start to improve a little. You see mid-market, you know, stabilize at some level, that's kind of high 20s, mid-20s of our business. And small business, you know, whereas that's a third of our business, you know, degrade. I think the issue with small businesses that had been relatively consistent over the past, call it 18 months, and so the, you know, movement for small business by itself was, you know, relatively significant. I think we wanted to make sure that we were in a view where we're taking that weakness into account as we think about the rest of the year.
But, you know, the upper end of the market continues to do pretty well. I think we see a lot of customers that are, you know, really positive about their investments in ZoomInfo and what they're getting out of it. And certainly, that's something we want to continue to capitalize on with those larger customers in particular.
When we look at the full year guidance, it does assume things kind of get a little bit better in the second half, maybe slightly on the Days Adjusted Revenue perspective. But what are you seeing out there that's maybe giving you the confidence in the second half of the guidance for this year?
Yeah. So, you know, I think it gets better from a sequential growth in each quarter perspective. It doesn't get better in terms of what our assumptions are around net retention. So, you know, that improvement in sequential growth is more a reflection of, you know, Q2 and Q3, in particular, have lower expiring, you know, periods within them, which means there's less opportunity for people to either cancel or downsell, allows the, you know, upsell and, you know, new business that we're seeing, you know, shine through a little bit more and obviously add, you know, add to the ARR in a way that we didn't necessarily see in Q4 and Q1, which are our biggest expiring quarters.
So, you know, to some extent, that's a natural impact of just the expiring, more so than it is that we're assuming that, you know, the actual, you know, renewal rates or retention levels for different customers change in a significant way.
Got it. Got it. Let's talk about those renewal cycles a little bit. You know, you have called out in the past some sort of chunk of ACV that still needs to renew. What is that chunk of ARR or ACV that needs to renew? What does that look like today? How is those renewals going? How are you feeling about those?
Yeah. So certainly, you know, we have the majority of our revenue, it's a little over half of our revenue is actually on annual cycles. So those are renewing every year. And then we have a number of customers that, you know, had signed up for or are on a cycle that's either a two-year or a three-year cycle. You know, at this point, if I start at September of 2022, which is, I think, when we started to see real pressure and, you know, kind of litany of layoffs and other things after that, we've transacted with roughly 90% of our customer base between, you know, September of 2022 and, you know, March of 2024.
So there's obviously 10% of our customer base that are on long-term contracts that last transacted with us before before September of 2022. Those will roll off over the, you know, coming quarters. It's not like there's a big chunk, you know, in any particular spot, but those will roll off.
I think getting through March of 2024 was very important for us, though, because, you know, many of those longer-term contracts that are still to come are, you know, with really big companies that hadn't necessarily built in a lot of growth into their contracts or they are generally more stable. I think while there are some, you know, smaller companies in there, the kind of biggest and most risky companies, you know, have transacted up with us since that period, and we've seen a number of, obviously, downsells for them. Obviously, we're, you know, focused on being in a spot where we've reset those to healthier levels, that ideally, we can go forward with, you know, better renewals going forward.
Got it. No, thank you for that, Cam.
Yep.
I wanted to ask you a question about TRAs.
Okay.
I am not a TRA expert.
What does TRA stand for? That's the important question for you.
Something receivable something.
Yeah, it's a Tax Receivable Agreement. That's pretty good.
So, I get the question, and I have a hard time answering it clearly.
Yep.
Please walk us through the TRA. What is it? What does it mean for ZoomInfo?
Yeah, so the TRA is a Tax Receivable Agreement, and basically came about because before we went public, we were a partnership. There are a lot of tax advantages to being a partnership. When you go public, obviously, public company investors don't want to invest in a partnership. They want to invest in a corporation. When investors convert from being a partnership to a corporation, there are actually tax advantages that the company, company gets out of that. So you'll see that we have a $2.8 billion TRA. That's $2.8 billion that we potentially pay out over the next, you know, 14 or 15 years. We also have a $3.8 billion deferred tax asset. So those are the benefits from a tax perspective that we expect to get.
There's a billion-dollar benefit to the company that we'll obviously realize over time, related to the TRA and the deferred tax assets. Those payments that we make on the TRA are, you know, completely aligned with the taxes that we would have paid and that the deferred tax assets, you know, kind of signify. In basically all cases, although with one exception, in all cases, we're just gonna pay out that TRA when we realize the benefits from the deferred tax assets. The only time when the TRA, you know, would potentially be paid ahead of any of the realization of those deferred tax assets is in a change of control.
At that point, you discount back the kind of potential future payments, and whoever the acquirer would then get the full value of those deferred tax assets down the road. So they're getting value, obviously, but need to pay for it upfront just because the shape of taxes could change over time. And so, you know, I think for a lot of software investors or for a lot of folks in general, like, it's not the thing that you see all the time, but there are plenty of companies out there that are Up-C companies that, you know, kind of have TRAs. Ours is very similar to those, and we account for it very similarly. You know, all of the GAAP and non-GAAP metrics that we have are essentially the same as all those other companies that have TRAs out there.
Got it. No, thank you for that. Appreciate that. I wanted to switch the conversation to boomerang customers and the customers that have come back to ZoomInfo.
Yep.
I thought that the commentary that customers are coming back was very interesting because I think one of the debates on ZoomInfo was competition and potential attrition of ZoomInfo going to either competitive, lower price competitors, different types of competitors out there.
Yep.
But here they are coming back. And so talk to me a little bit about the pace of boomerang customers. You know, what are they telling you? Why are they coming back? Is this a trend that could continue to happen over the next several quarters?
Yeah. So we've always had low-price competition, I think, from the very beginning. Henry, you can point to the merry-go-round of different competitors that have been out there. You know, those competitors are offering a much lower quality offering than ZoomInfo, and oftentimes just focused on contact data. That contact data is less accurate, but also isn't wrapped with all the company data and signal data that we're able to provide as well.
But even if you're just using ZoomInfo as a contact data lookup tool or something, you know, having the sort of quality that we have, you know, if you're a salesperson and you're used to going into ZoomInfo and finding an email address, and that actually being correct, and also finding a phone number, and that actually being correct, and finding the positions, and, you know, the kind of recency of data as being as much as you're fine, you can go out and you can find a low-end, low-quality competitor that'll be less expensive. But once you start using it, and the emails are not as, you don't find them as often, the phone numbers might be just the main phone number for the company and not the direct line for whoever you're trying to reach.
The person may have moved jobs or moved to different companies. Once you start seeing that a lot more often, it is frustrating. It slows you down. If you were using ZoomInfo to get to deals before, you're getting to less of those. And, you know, frankly, the cost of our solution is, you know, way less than the cost of that particular person. And so when that person's frustrated and not performing as well and everything else, that's when customers come back. They get feedback from their salespeople that, you know, they're wasting their time with bad data, that they're going down dark alleyways. That's frankly frustrating and causing, you know, kind of contention on the sales floor. Like, those are all really bad things that people are coming back for.
And so, you know, we've always had boomerang customers that has, you know, accelerated of late. I think a big part of that is in tough times, people are more likely to go look for something that's, less, just less. You know, it's less quality, but also a lower price. And you know, what I think they realize is that, you know, they, they miss, they miss having high quality. They miss something being really good.
I think it is interesting, most of our boomerang customers come at the low end of the market or the low end of, you know, mid-market. That almost never happens at the enterprise because, frankly, the enterprise does real tests. They actually really test the data. They want something to be really strong. They also care about how well it's integrated into their systems.
They care about privacy and where things are, where things are ethically sourced for them. So, you know, we very rarely lose, and there's very little competition in the enterprise because they are testing the data, and they're doing it before they switch to something else. You're a really small company, sometimes they're willing to take that flyer, and they figure out that they were wrong.
Is there any data you could share on those boomerang customers in terms of duration of time away? Like, maybe last year, we saw them away for a year, and now they're coming back faster. Is there anything you could share on that?
Yeah. We only count them when they come back within a year. So, realistically, like, I don't think that that duration is changing a lot. Sometimes it's two months. They're, like, super frustrated. Sometimes it's six months, sometimes it's closer to a year. Yeah, the problem with two months is, like, you have to show up, and you're paying—you probably paid—you probably agreed to pay for something else for a year. So, you know, our salespeople and a lot of people have a kind of point of view that if you, you know, if you, you choose badly, you, you pay twice. So I'd say that two months is definitely on the short end, but, you know, being in the six-month, you know, nine-month time frame is pretty normal.
Okay. Okay. I wanted to touch a little bit about data and privacy. You know, always a big topic for you guys. I remember an Investor Day, I think it was two years ago, we had a-- got to see a whole section on how you guys are in the forefront of data privacy, and we definitely appreciated that. So is there any sort of update you can give on how you're thinking about data privacy? Has anything changed? What has changed in the data privacy world? Is there any sort of, you know, upcoming regulations or things that we should be thinking about?
Yeah. So, you know, we're still super focused on data privacy. We continue to roll out tools for our larger customers so that they can manage, you know, how the data that they're getting interacts with their systems. Again, you know, particularly for multinational companies that are operating in, you know, different jurisdictions. In Europe, you have GDPR, in California, you have, you know, CCPA, and, you know, whatever, Brazil, you have something else. Like, having tools to manage those in, you know, specific ways is really helpful for those customers, and, yeah, they want to make sure that they're, you know, subscribing to the regulations where appropriate. You know, certainly from a landscape perspective, like, we've always operated at the far end of being compliant with every rule that's out there.
You know, I think most people would point to GDPR as being, you know, one of the more restrictive areas. We certainly, you know, go above and beyond what GDPR would require in terms of privacy. So, you know, there's been no changes in terms of things that have gotten close to all of the, the processes and policies that we have in place in terms of notification and doing it more than once.
I think the things that have changed are, you know, in the U.S., there's probably more local, state, and local, you know, regulations than there have been in the past. I think there's an ongoing conversation at the federal level of will there ever be a federal privacy law? Like, I don't know if that's any closer than it was before, but it's certainly gone through, you know, iterations.
You know, I think while there are more regulations, again, doesn't really impact us 'cause we're here, and, like, there's one here, and one here, and one here. I do think that a lot of them are starting to coalesce around a certain, certain template. I think, if you ask our privacy people, like, the Washington template is probably the template that, you know, ends up getting used in a lot of places, which, frankly, it's good for us, although, you know, having more complexity in privacy is actually probably good for us.
You know, everyone coalescing around a Washington template that actually excludes a lot of business, a lot of, you know, business to business as being, you know, not something that they care about or not something that they feel is sensitive data, is certainly logical, but it means that everyone's gonna have a little bit easier time complying with it versus super complexity, which when you're the big player in the space, you're able to deal with that complexity, which, you know, certainly happens internationally more than it does in the U.S.
Yep. Yep. I wanted to ask a question about sales capacity and how you're thinking about growth, return to growth, balancing growth and profitability. So specifically on sales capacity, what does the capacity look like today? How are you thinking about managing headcount over the next 12-24 months? And what are some of the triggers that you're looking for, either externally or internally within the business, to know now it's time to step on the gas even?
Yeah. So we're certainly focused on continuing to grow sales capacity. You know, sales capacity has two angles to it. One is just the, the number of people you have and how tenured those people are. You know, that's been a natural kind of tailwind for us in terms of that tenure, just because, you know, us, like a lot of other companies, have seen attrition go down, and therefore, we have folks that, you know, have been with us a little longer.
Obviously, the other part to that is that, there's efficiency around the people themselves. So, you know, one of the things that our sales team is super excited about is that they get to use Copilot. They feel that they're getting a lot of value out of that, both from the new business side as well as from the account management side.
So you know, we're gonna continue to, obviously, invest in that, in that sales capacity. My view is, is that overall headcount in the company will probably grow that, you know, similarly to where we see, you know, revenue growth, maybe a little bit lower than that, in order to, you know, continue to drive, you know, good cash flow and margins. You know, I think we all believe that the hallmark of a good company is driving, you know, cash flow for our shareholders, so we're gonna continue to focus on that. But, you know, really focus on where are the places that we should be investing in order to drive growth. Some of that, you know, particularly this year, is...
You know, really growing the team that's rolling out and then supporting Copilot, and then the other part is sales capacity. We're gonna continue to look for other areas in the business where there's the potential for efficiencies in order to, you know, maintain margins in the 40s neighborhood, you know, plus or minus.
Were there any changes to sales compensation plans this year to either push one way or another, land versus expand, geographies, products, anything to call out from that front?
Not significantly. I'd say the place where we're focusing from a sales perspective, whether it's compensation or structure or whatever else, is, you know, starting to push more into the enterprise. And so, you know, we've done a number of things where we are, you know, segmenting the sales force a little bit more based on kind of industry and capability, particularly in the enterprise.
Segmenting the new sales team in terms of, you know, focusing more on, you know, enterprise and mid-market customers as opposed to just small business customers. So those are the things that we're focused on. And, you know, around the edges, there might be, you know, spiffs or other things to kind of help with that as a plan, but there's not an overall, you know, change in the compensation structure.
Got it. Got it. What about from a geographic perspective? Is there any push into certain geographies, whether it's within the U.S. specifically, more international? How do we think about the geographic push?
Yeah, and I think we certainly, we opened an office, you know, three or four years ago in London. That's certainly an area that we want to continue to see grow, although, you know, frankly, I think the macroeconomic conditions in Europe have been, you know, worse than the US over the past few years. Maybe that's starting to, you know, turn around a little. So we'll continue to, you know, focus there. Otherwise, you know, in the U.S. and Canada, you know, we have a very efficient sales motion that doesn't necessarily require people to be on the ground, you know, everywhere.
So, you know, I think we're gonna focus on, you know, hiring where it's most efficient, where we're getting the best kind of return for people and, you know, kind of really helping to drive value for our customers no matter where they are, you know.
How should we be thinking about partnerships, specifically with the different technology vendors out there? Thinking about Salesforce, HubSpot, I mean, you even listed Databricks, Trust Radius, Trade Desk, others as partners of you guys. And so how to think about these relationships as potential accelerators of growth for you?
Yeah. So those are, you know, very different in terms of the partnerships. Some of those, you know, you take, like G2 as an example. You know, we've developed the platform, the Copilot platform, to really be able to ingest signals from a lot of different places. We have the widest and kind of best set of signals out there, but there are signals that other people are gonna be able to provide. G2 is a great example. You know, they can provide comparisons of your product versus someone else's product. That's a great intent signal that either someone's researching a competitor or researching the space in general. So we're gonna bring those in, and there are a lot of partnerships like those.
Something like Databricks or Snowflake is very different, where, you know, we can basically latch on to the commit that you have to, you know, GCP or Snowflake or Databricks or whatever else. You know, they like us 'cause we can help drive, you know, more usage because we're very relevant to a lot of the things that are doing. And so getting in as part of that commit obviously helps us get more stickier with our, with our customers. So, you know, I think we're always looking for where are those partnerships that we can, you know, avail ourselves to really drive more value for the customer overall and, you know, help us with the model.
Yep. Yep. Maybe last question for you here, Cam. Thank you so much for doing this.
Yeah.
Cash flow. Cash flow is an important part, and the ability to generate cash flow is an important part of the-
It's true of every business, but yes.
Of your story, for sure.
Yeah.
So how do you think about managing cash flow? Is there any sort of seasonality that we should be aware of one-time effects or anything to call out within the 2024 cash flow, just so we're not caught by surprise?
Yeah, I mean, you know, there is always some seasonality. If you think about Q4 and Q1 being heavy, you know, expiration periods for us, that also means that that also tends to be when we bill a lot of our customers, and therefore, you know, we collect cash on those in the often the following quarters. So, you know, Q3 tends to be a little bit lower in terms of collections that we'd have. You know, certainly. So I think you can look back at seasonality and kind of see the shape of where we see cash flow throughout the year. And then, you know, certainly there are, you know, some areas where there are one-time things that will impact cash flow.
You know, this year, we obviously have the settlement to settle all the privacy suits, which, you know, is a great thing, but we need to, you know, pay for that. There are some things that we're working on from a real estate perspective, too, that could have a, you know, short-term cash flow impact in, you know, Q2 or Q3. So, you know, those are outside of my normal operating unlevered free cash flow , but, you know, are things that we're obviously focused on making sure we're managing through.
Got it. We're all out of time. Cam, thank you so much for doing this.
Yeah.
Appreciate it.
Absolutely. Thanks for having us.
Had fun. Thank you so much.
Thank you.