Awesome. Thank you, everyone, for joining us here today. My name is Chris Quintero. I am a software analyst on the US Equity Research Team. Subbing in for my colleague, Elizabeth Porter, who couldn't make it this year, but really excited to be joined by Graham O'Brien, the CFO of ZoomInfo. Graham, thanks for joining us.
Chris, thank you for having me.
Awesome. So, Graham, maybe to start, for those who might not be familiar with the ZoomInfo story, the business, could you give us an introduction, the portfolio of your products and the end customers you serve?
Great. Yeah. ZoomInfo is the Go-to-Market Intelligence Platform. We provide data and software to go-to-market professionals. So think anywhere from sales leaders to marketing professionals, customer success, data practitioners, anyone that works at a company that 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 our proprietary data asset that use AI to surface to those professionals when to engage with their next best customer, what that next best customer looks like, how to grow and grow existing relationships, and then equips those professionals with the context to go execute that engagement and grow that business. We serve over 35,000 customers, more than 50% of the Fortune 500, and you know, we view our business kind of from an up-market, down-market perspective.
Our up-market business is 73% of our total mix at this point, five points more than it was a year ago, 10 points more than it was two years ago. That business is growing, 6%, and our down-market business is 27%.
Got it.
Nice.
You mentioned a proprietary data set. What is that data set? How large is it? How did you build it?
Yeah. It's basically the best proprietary B2B data set out there. You know, there's several vectors we have to build and maintain and improve that data set. One of them is our contributory data network where we have, you know, users and companies that contribute their own data that we're able to essentially build up at scale. Other companies will give us access to their CRM so we can refer to that data set. We also have custom data teams that go out and purchase not publicly available data, bespoke custom data sets, and we kind of marry all of that together to create this proprietary B2B data asset. Like I said, it has, you know, certainly companies, contacts, but then, you know, lots of other data points around those contacts.
Then we start to build or add in insights or signals or kind of live, you know, much more kind of current-focused data points to make it a much more living and actionable data set.
Got it. I would love to touch on the macro environments. Obviously, a lot has happened for sales reps, the sales industry over the past few years. So, you've recently highlighted some more improvement in the demand for sales development reps. So talk us through that history of, you know, COVID, post-COVID, and what kind of you're seeing now in terms of, the macro environment, sales rep kind of growth.
Yeah. I think post-COVID we saw a correction in sales headcount. We saw a lot of businesses, specifically in our software vertical.
Mm-hmm.
That were, you know, effectively at growth at all costs in 2019, 2020, and 2021, and then kind of turned the corner towards slower growth and focus on profitability. There was a lot of seat compression that came along with that. Our software vertical went from being almost 40% of our total ACV down to the low 30s. We went through a few years of seat compression with those customers. We largely kept the logos, kept the relationships, but I, you know, I think we're largely through that overhang now. I think what we're seeing now from a seat perspective in the broader space is it's kind of neutral. Like, there's pockets where folks are hiring. We've started to see the early signs of a return to outbound hiring.
Mm-hmm.
To help offset some of the inbound disruption that some companies are seeing from the AI impact on SEO. And then if you, you know, if you look at the kind of the makeup of layoffs back in 2022 and 2023, they were very sales and marketing front office focused, you know, folks that are generally our users. I think if you look at the layoffs that are happening now, they tend to be a little bit more R&D or G&A or support focused.
Got it. I wanted to go back to the business segments that you mentioned earlier. So the up-market segment, the down-market segment, you mentioned up-market has grown faster. It's a larger percentage of the overall mix today. What's driven that growth, that success there? And how do you expect the mix to shift over the next, you know, few years? Do you expect stabilization, down-market? Do you expect enterprise and up-market to continue to accelerate? What are the kind of puts and takes there?
Yeah. I think at the beginning of 2025, when we initiated our full-year guidance, you know, the up-market business was closer to 70% mix. And we talked about a path to getting it to 75% over 2 to 3 years and then 80% over 4 to 5 years. We're already at 73%, so we're ahead of schedule. You know, I think we've got line of sight to get to 75% nearer term, and maybe in the, you know, even in the next year. And that means that we could get to 80% in the next couple of years instead of 5 years out. I think that 80/20 mix is kind of the next, like, significant milestone for the business.
You know, I think longer term, we hope to be able to get the up-market business to a place where it's growing, you know, low double digits, get the down-market business to a place where it's, you know, not down negative 10% anymore, but it's close to 0%.
Mm-hmm.
Plus or minus a point in a given year. And then, you know, if you weight that, you've got a, you know, a high single-digit grower. The down-market business is still valuable to us. It's a great data contributor to our data asset. It's a great logo acquisition engine. And then, you know, to the earlier question on what's driving the up-market improvement, it's really two things. We reoriented our go-to-market teams over the past few years to be focused on up-market. We've been able to take resources away from the down-market. You know, that means hiring enterprise pedigree, account managers. That means investing behind customer relationships and becoming less transactional.
And then the second part is building products that are, you know, the right fit for those customers, building products that are optimizing for year one and year two and retention outcomes instead of the, you know, kind of new business, transactional sale.
Got it. Okay. The goal is to essentially get the down-market business, you know, call it stabilization, up-market business to be double-digit growth, so overall growth kind of in the high single-digit range.
I think that's the long-term goal. Yeah.
Got it. Wanted to shift gears to the product. One of the biggest changes in your product portfolio has been Copilot. About 25% of your customers have adopted that so far. How can we think about adoption going forward? Like, what exactly is it? What are the capabilities that you're offering with Copilot 2.0?
Yeah. We've been really pleased with the success of Copilot. We released Copilot at the end of Q2 in 2024. And the first year plus there has largely been a migration story. You know, we've been taking a lot of our customers who were on our legacy Sales OS product and shifting them onto Copilot. We've been able to get uplift on a per-seat basis through that process, progress, and that's contributed to an improvement in net revenue retention. We've also sold a lot of it as new business as well. What I'm really excited about now, though, is we're starting to see what the renewal outcomes look like for these early cohorts of Copilot. So while the first year or so was like, "Can we expand and migrate folks onto Copilot?" We were successful in doing that.
Now it's, you know, after they've been using the product for a year, are they seeing the value that's gonna lead to better renewal outcomes? During that period, we were able to track, you know, engagement, usage stats that were positive, that were leading indicators to better retention outcomes. Now in Q3, we started to see the first signs of those better renewal outcomes.
Mm-hmm.
And the stat that we shared was that customers that were on, you know, sold onto Copilot for the first time relative to lookalike customers that came on, on a, you know, lookalike or, sorry, on a legacy Sales OS product, the Copilot customers, that first renewal rate performed mid- to high single-digit better points-wise than customers that weren't on Copilot. So if we're able to continue kind of that, you know, benefit relative to our more legacy products as we scale up the amount that's actually renewing, that could be a tailwind to retention.
Got it. Another really interesting product, I think Henry has cited that, Go-to-Market Studio is potentially one of the biggest products that ZoomInfo has ever, has ever released. So what does it exactly do? What are the kind of key workflows, processes that it really enables for customers here?
Yeah. GTM Studio is our, our orchestration engine. It's gonna be part of our operations suite. So our operations business is our, essentially, our DAS or our data access subscription. It's not seat-based. It's our fastest-growing business. It's now over 15% of our total ACV. It's growing 20% plus year over year and accelerating. This is a place where we are truly an AI beneficiary. So you can think of GTM Studio as a complement to that product suite as, and, you know, kind of a UI, application that sits on top of it. They, you know, GTM practitioners are going to use GTM Studio to organize and enrich all of their GTM data in one spot and then use the AI that's in, you know, built into the product to generate things like talking points for sales reps or GTM plays on a row-by-row basis, but at scale.
Then they're able to seamlessly push that out to the front lines for execution in a ZoomInfo Copilot or a GTM Studio or a GTM Workspace. GTM Studio really is kind of the next step.
Mm-hmm.
In the evolution of our Go-to-Market Intelligence Platform.
How does the connection between GTM Studio and the operations suite work? Do our customers require to purchase those two together? How should we kind of think about the durability of growth as you kind of?
Yeah. You know, it kind of depends on whether they're already an operations customer. If they're not, then GTM Studio will come with, you know, a level of access to the data that's in OperationsOS. But it will be case by case. It will largely be, you know, priced based off of kind of the records under management that they would have access to. And then we will start to introduce an AI action credit dynamic where we're actually performing AI actions on behalf of the customer and then selling them credits to use those actions.
Got it. AI action units. It's another offering you all have recently rolled out to a small number of customers. Can you frame the opportunity with these units? Specifically, how does this really benefit your customers and the monetization of them?
Yeah. It ties us closer to the, you know, consumption trends and the value that customers get out of ZoomInfo. So GTM Studio, GTM Workspace, you can think of GTM Workspace as the next evolution of Copilot. Both have this AI action credit dynamic. These products were, you know, mostly released in the past month or so, so we're really early in on this. But what we've done is we've tried to price these action credits in a way that is, one, kind of comprehensible or simple for our customers, and two, doesn't artificially, you know, create barriers to the actual adoption of our products. So the goal here in the next quarter or two is to learn from the trends.
Mm-hmm.
That our customers, you know, how they behave, how they consume these AI action credits. And, you know, there's kind of two other things to note here. One is that because there's a real cost associated with these AI actions.
Mm-hmm.
Like, this could lead to lower gross margins to the extent of a point or two, as we move forward. But while that might, you know, these might be gross margin dilutive, they will be gross profit accretive, and that, that would come with revenue upside.
I wanted to also touch on DaaS, your data as a service product. Clearly, there's been a lot of demand for customers looking to build their own solutions and leverage the data that they have. Can you unpack kind of the increase in demand you're seeing there? Is it from existing customers engaging with go-to-market in a new way, or is it kind of more on the new customer side?
It's mostly existing customers. You know, we talked about DaaS as part of our operations suite. We talked about how great the growth is there. That growth largely comes from customers buying more and more of it, and then, you know, retaining at really high levels. So that's really promising 'cause it also means that we have a lot of existing customers that aren't on operations yet. We have a lot of greenfield customers that aren't ZoomInfo customers yet that, you know, could be operations customers in the future. So the retention trends are really positive there. I think we're, you know, starting to turn the corner on this realization curve.
Mm-hmm.
In the broader market, you know, is AI, you know, does AI eliminate the need for higher quality data? Like, no, it makes that data much more valuable, and we're starting to reap more and more of the benefit of that realization.
Got it. I wanted to shift gears a little bit to your financials. Maybe let's start with net retention rate. Q3 marked the fifth consecutive quarter of acceleration to about 90%. So could you talk a little bit about the sustainability of this improvement, and what are the key drivers to maintain this, this improvement and momentum you're seeing here?
Yeah. It's sustainable. It's coming from improvement up-market. You know, we've largely been able to overcome some of the challenges down-market, and that's, that's showing up in improved retention and improved overall growth. Up-market retention and overall retention are the most important kind of drivers that we have to improving growth going forward. When I think about the puts and takes, getting out of the downsell overhang from COVID that we talked about earlier to a place where we're not showing up to renewal conversations looking at downsell. We're, you know, starting to look at upsell and, and expansion. That's one. Two is that we have products to go, you know, new products to go sell to existing customers.
Mm-hmm.
In 2022 and 2023, it was largely, "Let's, you know, save the logo, renew them, where they kind of need to be to grow again." Now that we've, you know, invested behind Copilot in 2023 and 2024, now that we're rolling out GTM Workspace and GTM Studio, now that we have, you know, even better data accuracy and more actionable data in operations, we have a kind of a, you know, a slew of products that our customers are looking to, expand with rather than, you know, kind of the, the downsell position that we were in a few years ago.
Yeah. Is there a net retention rate you all want to eventually get to or think is reasonable in a kind of more normalized?
Yeah. Like, I'm really pleased that we, we got back to 90%. I think the next step would be, or the next milestone would be 95%. And then, you know, once we have, you know, get there, I, I think we'd have a lot of sight to, to getting back to 100%. If we got back to 100%, I think that largely would come from the up-market business getting into, you know, the 110-plus range.
Got it. Obviously, there's been a lot of investor focus on the retention side, existing customer side. So, wanted to touch on the new business, new customer side. What are you seeing there? Are there any certain vertical segments they're doing better or worse or ones that you're kind of leaning into more?
Yeah. You know, new business up-market is strong. We segmented our new business account executives just over a year ago. So now we're, you know, we've been kind of benefiting from that for several quarters now where the new business ACV is still growing, you know, at a good pace year over year. It's just, you know, most of the growth up-market or most of the growth improvement up-market is gonna continue to come from the retention base, but we're coupling that with that new business growth up-market, and we think that that's pretty durable.
Then down-market, you know, there's largely been a focus on qualifying the new business that we put into that down-market business with an eye on making it a healthier and smaller version of itself and updating pricing and packaging, which we did in Q3 last year, so that those down-market customers were coming in with kind of better-fit packages. You know, hopefully would lead to better renewal outcomes a year or two out.
Got it. Shifting gears a little bit to competition and the advent of AI, maybe first on, like, the risk side. There's a lot of concerns from investors around, you know, the need for fewer, you know, employees and maybe sales reps in your case. In an event of, like, lower seats but higher Copilot spend, is that what is the kind of net impact there? Is it neutral, positive, negative? And is there kind of a maximum what you would charge per seat if it drives efficiently to sizably reduce the number of seats?
Yeah. I don't think there's a maximum. I think that we have a lot of different options for positive outcomes across a spectrum of seat trends. Largely, when we in like kind of our customer base, we haven't seen this, like, "Oh, seats are going way down quickly." Like, we did see the compression in 2021 and 2022, but that wasn't, you know, AI-related. So we've seen largely neutral trends, pockets of hiring. We talked about the, you know, some of the shift back into outbound SDR hiring. But, you know, we are still diversifying our pricing models 'cause we think that's the right long-term thing to do. Within our seat base, we have a lot, or within our customer base, there is a massive opportunity of unused or, I guess, unsold, too, seats right now.
So if we historically sold legacy Sales OS largely to a top-of-funnel SDR or BDR use case, there are account management and account executive teams that exist at our current up-market customer base that we haven't historically sold to. And GTM Workspace and Copilot were built to sell to those. So even with no net hiring in our seat base, we have a huge seat penetration opportunity alone there. And then, you know, back to operations, it is not seat-based. It is our fastest-growing product. We have had success moving customers who wanna use multiple products into more of an ELA motion where they do not necessarily have a fixed seat limit. They get close to an all-you-can-eat motion. It is a simple, simpler pricing model for them.
So I think, you know, as we get back to a place of consistent growth and we, you know, look forward to the next phase of the company, I think we'll be more and more diverse, diversified from a kind of pricing model.
Yeah. And in terms of expanding the user base outside of SDRs, any way to kind of frame the opportunity there? How big is that kind of opportunity outside of just SDRs into AEs and, you know, customer success managers? And does the go-to-market motion have to change at all to go after some of those new personas? And, you know, when you look out three, five years, how do you think about where the mix goes?
You know, sizing it, I think when we look at our kind of with our data, we think it's maybe like 3X plus.
Mm-hmm.
From an opportunity perspective relative to the SDR population. The go-to-market motion changes a little bit in the kind of, like, you have to really understand how an account manager spends their day.
Mm-hmm.
Right? An SDR might spend their day in a very regimented, procedural way. An account manager, especially like an up-market account manager, with a very, you know, small logo base of high-value logos, like, their day is, you know, often spent across a lot of different systems and bringing that data into a workbook or a sheet where they basically have a much more bespoke manual process, and once you understand that and, you know, with what we've built with Go-to-Market Workspace, it's a really compelling, you know, sales motion where we show them all the context switching they do.
Mm-hmm.
And with Go-to-Market Workspace, how they can do all of that in one place. So the motion's a little bit different. For that product, the buyer is still usually the CRO budget. So it's not, you know, a kind of a wholesale change. It's much more of a, you know, an enablement tweak.
Got it. I wanted to talk about engagement layers. You've added a lot of functionality into the product portfolio, I mean, as it relates to kind of replacing solutions from some of your competitors and vendors in this engagement layer space. So how do you think the market consolidates, and is AI a forcing function to drive a faster pace of consolidation?
I think AI is definitely a forcing function on maybe not consolidation that we've seen yet, but I, I do think, you know, compared to where we were in 2021 or 2022, when it was very much a, you know, you've got heavy SaaS application for one point solution and heavy SaaS application for other point solution. I think AI has kind of facilitated the way to connect those with, you know, a greater level of ease. But it's also made the data underneath it, I think, much more important. And I think that's where we have, you know, accelerated our leave or, sorry, our lead relative to the kind of other players in the space where that, that contextual data layer that we, you know, effectively are best in class at is, it needs to be consistent across those different kind of point solutions.
You know, I think that realization is becoming more common in our space, and we're well-positioned to take advantage of that.
Got it. You announced an expanded partnership with Salesforce in which Revenue Agent is now integrated with Salesforce's Agentforce platform. How should we think about the benefits to ZoomInfo's top line and, you know, what are the drivers between broadening the top-of-funnel for ZoomInfo versus more deeply penetrating with some of your existing customers here?
Yeah. We were really excited about the partnership we announced on stage at Dreamforce with Salesforce. Revenue Agent's available in the marketplace now. We've really formalized the relationship. There's co-selling incentives, you know, for sales reps on both sides. So I, you know, you know, I think it's kind of further evidence that if you're going to market and you need data, it only works if you're using that context data that's grounded in ZoomInfo.
Mm-hmm.
I do think the benefit, you know, is largely kind of further integrating with those partners and the kind of net retention benefit we get that with customers over the long term.
Yeah. And are there any other opportunities to strike similar partnerships with other vendors here that may be of interest to you to kind of help, you know, reshape the up-market business?
Yeah. I think we're always interested in kind of finding new partnerships and solidifying existing ones. We've got a partnership team that's dedicated to this, and there's really, like, there's really no go-to-market company out there that doesn't have a need for our data. And I think the ones that are, you know, that realize that to kind of the full extent tend to be the ones most interested in partnerships. And we're, you know, continuously monitoring where we can be more opportunistic on that front.
Yeah. Shifting gears to profitability and margins here, you've mentioned that your up-market business has higher margins than the down-market one. How should we think about the magnitude of the delta between the two? And in terms of the mix shift, like, or outside of just the mix shift, like, what are some of the other levers you all are pulling here to drive greater efficiencies, higher operating margins?
Yeah. The up-market business has margins that are, you know, around several thousand basis points better than the down-market business, and that comes from the much higher LTV to CAC of an up-market customer. You think about a down-market customer, the CAC is still lower down there. It's, you know, a cheaper initial sale, but the retention is generally worse, and up-market, the retention is so much better. We've invested behind the relationships and the products for those customer fits. That's why you get the essentially better margin over time or the better profitability. Outside of kind of that natural progression and the margin that we can harvest, as we shift up-market, you know, we've been really aggressive in adopting AI internally. If you look at our R&D org, it's much smaller than it used to be, but it's more productive.
G&A is a place where I've been, you know, very focused in finance, in HR, in legal, you know, finding, you know, pretty, pretty creative and interesting ways that we can, you know, help our employees be more productive and effectively bring down costs relative to revenue moving forward. You know, if you think about it overall, our headcount is down 8% from where it was entering the year. Our cost base is lower. We're more productive. And I think as you look at that sequentially, as you get into 2026, you start to see the opportunity to, you know, get to a point of even potentially operating leverage.
Yeah. You've also started to focus investors more on free cash flow per share as a metric. As we think about the cash per share generation potential of the business, what driver are you most confident in between, you know, revenue generation and margin expansion and repurchases to generate that free cash flow per share growth?
Yeah. This is our guiding principle, free cash flow per share growth. We've been able to grow it, you know, over the past few years largely through buybacks. We've been very aggressive with our buyback program. We view the, you know, the price of a share of ZoomInfo is well below what we view the intrinsic value as. As we get into 2026, what we're starting to get very excited about is, you know, accelerating growth on a per-share basis. But we have levers to do that, right? We can grow the top line from a cash perspective. We can improve margin, cash flow margins, and we can buy back shares. And, you know, we're very optimistic now that we can effectively do all three. And when you do that, then you start to get this compounding effect on free cash flow share per growth.
So, you know, our most recent guidance for 2025 gets you to high single-digit free cash flow per share growth on a percentage basis. And we're really confident that we can accelerate that as we get into 2026.
Got it. Maybe before I open it up to the audience here, there's a new equity compensation plan for Henry, and it looks quite demanding given the current stock price and the free cash flow guidance for 2025. So can you speak to any of the details about the decision to readjust those compensation interests, and incentives, and the path to hitting these performance targets?
Yeah. As a company, I mean, I think we've shifted our equity compensation strategy to be much more focused on performance shares. That's not just Henry. That's, you know, the full executive team too. I think that aligns very much with shareholder interests. And then on the CEO grant, yeah, I think that kind of shows the upside value, that we kind of can see a path to over the next decade. And most importantly, like, shareholders win first. And I think that was the right compensation strategy.
Got it. Any questions from the audience here? All right. I must be asking all the right questions. All right. Maybe last one here, Graham, to end off. What do you think is most underappreciated from investors about the ZoomInfo story? Where should they really be digging into?
Yeah. I think the, you know, overall, I think the economic fundamentals of the business are still very strong. We talk a lot about the free cash flow per share growth there. I do think from kind of a product or growth perspective, it's the operations business. Like, this is a place where we are clearly an AI beneficiary. I still think we're very early in this story, and we've got a, you know, a business that's, you know, more than 15% of our total ACV that is accelerating at 20% plus growth. It's not seat-based, and it's just like a, you know, incredibly healthy business that we're really excited about the future of.
Awesome. I think we end it there. Thank you so much, Graham.
Thank you.
Thank you, everyone, for joining us.