Morning, everyone. My name is Brian Peterson. I'm the application software team here at Raymond James. Very happy to have ZoomInfo back with us. Here, Cameron and I are gonna go through a fireside chat, but let's keep this interactive. If you guys have any questions, raise your hand. Happy to make this as interactive as possible. All right, Cameron, maybe just maybe to get started, a company background, you know, ZoomInfo's obviously hit an impressive scale to margins. You know, love to maybe kind of start with a higher level overview for people that are a little bit newer to the story.
Great. Thanks for having me. At ZoomInfo, we provide a platform to sales and marketing teams and also talent acquisition teams that really is focused on helping them be more efficient and more effective. We do that by providing really high-quality data about the companies that they're selling to, the people that work at those companies, and providing triggers, we think of that as intent, around who's in the market for their particular solution. We have over 30,000 customers and, you know, over 1,900 customers that spend over 100K with us. We've grown to, you know, roughly $1.2 billion in run rate revenue in Q4.
One of the things that we've always focused on, it's kind of a hallmark of what we do, is super focused on being efficient in terms of how we're delivering that revenue. We operate at, you know, 40+% adjusted operating margins, and a big part of that is actually using our own system to drive a really efficient go-to-market motion, kind of set an example for all of our customers on what they could potentially do as well.
I wanna hit on the efficiency side, but, actually, I'm gonna start with kind of a competitive mode question.
Sure.
Actually, I get this a lot and you know, when I talk to customers, you always ask about the quality of the data you provide and the ability to add insight. Can you maybe double-click on that and where you see kind of the biggest competitive mode for you guys versus the competition?
Yeah. Our view has always been that high-quality data drives better outcomes for customers. It has been the hallmark of ZoomInfo, you know, from the very beginning when Henry founded the company, it was called DiscoverOrg. It was known in the market as the only place where you could get really high-quality data. We've guaranteed, you know, parts of our dataset at 95% plus accuracy, largely since the beginning. The way that we do that is we have a couple contributory networks where we're gathering information from our, from our, you know, customers and from freemium users, as well as, you know, gathering information from, you know, basically any publicly available or even semi-publicly available source that's out there. We've developed a lot of technology around quality.
It's a, you know, machine learning engine that basically, you know, takes a number of different data points. You know, if you think about the billions of different data points that we can, you know, come to, many of those are often conflicting or, you know, could actually, you know, support a conclusion that's different from the truth. The engine is really about comparing all of the different data points that we get, bringing those into a single kind of view of the world, and then publishing what we feel is the most accurate. One of the things that we do that no one else does is we actually have a team of over 300 researchers that are creating ground truth around that data.
If you think about any particular data point like, you know, revenue for a private company, it's not something that's easy to get and oftentimes modeled. We'll go out and call 10,000 of the companies within our database. We might get 3,000 responses back when you say, "Hi, I'm from ZoomInfo, doing some research on your company. How much revenue do you have?" Then we'll take that, you know, ground truth that we developed, feed it back into the engine and data scientists to tune those algorithms on the things that weren't necessarily correct. We do that across, you know, contact information. We do that across company information. We do that across, you know, our intent information to an extent as well. You know, that kind of constant research and focus on quality is really what creates a difference.
Plus the contributory networks, you know, ultimately, like you're not gonna contribute into a network unless you're getting value back. Having those be, you know, the largest opportunities to gather data, you know, creates a differentiation that no one else has. Between the, you know, decade plus of learning and, you know, continuing to tune our engines as well as the unique data sources that we have, we feel that we have a real lead and continue to build a bigger and bigger moat around quality versus anything else you find out there.
All right, that was great. Then to the qualities there, can you talk about, you know, what you've done in terms of like adding the application layer on top of that and where you are in those efforts?
Yeah. You know, I think having high-quality data is great. What we focused on over the last, you know, few years is really accelerating the time to value for customers and integrating that data into their workflows and creating software that can really drive value for them and make that data more powerful over time. Yeah, when we merged with ZoomInfo, we created a new platform, and the first thing we built into that platform was workflows. It's basically a kind of if this then that engine that would, you know, you can basically script specific motions that you wanna run.
If a company is spiking on intents and it happens to be in my region and it fits these criteria, maybe it's over thousand people in a specific industry, whatever it is, I wanna send them this template or I wanna kick off a motion, send it to a SDR or, you know, someone like that. You know, we continued to, you know, build upon that. We built Engage, which is an automation engine. We acquired a company called Chorus. What we really have found that, like, providing a full platform across not just the data, but also being able to provide automation and other tools in order to drive better efficiency for our sales team, you know, is resonating with our, with our customers. You know, that's been the focus over the last couple years.
You see that, you know, up to we've grown the, call it, advanced functionality up to 31% of overall revenue. We've, you know, even been able to drive, you know, success outside of just the sales team, so we rolled out an OperationsOS, which allows you to leverage a lot of these tools for your sales operation team and, you know, really focus on, you know, how is data integrated into other motions across the world. We've rolled out last year a MarketingOS, which is, you know, one of our fastest-growing kind of areas right now to really create that bridge where the marketing team can also, you know, work more directly with the sales team and to, you know, drive specific business-to-business audiences in terms of their advertising and other things.
Then we've had a number of recruiters that, you know, were basically using the SalesOS and then come to us and ask us for things like, "Can we get employment history into the platform?" You know, we'd look at them and says, "You don't really need employment history to sell to someone." They'd say, "Well, you do if you wanna recruit them." That was actually the, like, big, the big drive to, you know, reskinning the platform to actually make, you know, sales flows look like recruiting flows, for our customers.
A lot of good stuff on the product side. If I take a step back, obviously the macro is kind of the key topic du jour for everybody right now.
Mm-hmm.
I'd love to understand maybe what you saw from the macro in 2022, and how are you thinking about some of those puts and takes for 2023.
Yeah. I kind of think of 2022 in kind of thirds of the year. The first third of the year, the first quarter plus the beginning of Q2, you know, started out similarly to the beginning of 2021. You know, we saw a kind of acceleration through 2021. You know, we didn't start at the high point, but, you know, it felt good. I think we felt, you know, like in striking distance of where we're going. We started talking about kind of midway through Q2 about the macro environment really starting to impact, you know, our sales efficiency effectively and kinda how things were working. You know, that kind of middle part of the year was, you know, tougher.
Then, you know, around the early September timeframe, we really saw a pretty big change in buyer psychology. You know, I think you went from, well, there could be a soft landing and things are going okay in the kind of June, July timeframe to, it's definitely gonna be a recession. The Fed's raising rates kind of come hell or high water. They don't care about the economy. All they care about is inflation. That change in mentality certainly drove, yeah, made the world a lot harder. We started spending a lot more time just going out and like re-educating senior decision-makers about the value that we provide. It made renewals harder for us. It, you know, we saw a more significant kind of decline in the upsell opportunity that we had at clients.
You know, that last four months of the year certainly were tougher. I think you saw that in the kind of trajectory in numbers, and you know, we continue to see that as we go into the first quarter as well.
Maybe just kind of unpacking that from like a net new lens.
Mm-hmm.
Can you talk about where you're focused there? I know there's been some productivity conversations, so maybe some different end markets. How are you thinking about the trajectory of net new next year or this year?
Net new is actually a little more interesting 'cause it did hang in better than our existing client business. Part of the reason that it's been hanging in better is that net new, at least for the last, you know, few years, has been more heavily weighted towards, call it, more traditional industries that are a little bit more stable than, say, software. Software's been, you know, more heavily impacted. The efficiency around net new continues to be reasonably good. Net new did grow even in Q4 relative to Q4 of 2021. When we think about how we've constructed our guidance, our assumption is that, you know, net retention will be lower, and a little lower than it was if you were just to kind of annualize the activity in Q4.
Net new, our expectation is that we'll be flat to down in 2023, despite the fact that we're adding, you know, continue to add more resources and capacity, you know, on both of those sides. You know, really a reflection of the fact that, you know, I don't know when the kind of buyer psychology and world is gonna stabilize. We're gonna plan for, you know, it gets worse and stays worse for the entire year. At some point when that stabilization starts to occur, we wanna put ourselves in a position where we can then, you know, accelerate back with the environment and, you know, continue to drive the value that we that we derive for customers.
Can you talk about maybe some of the end markets where you're seeing some success there? I know there's a lot of software exposure, but like in terms of the other end markets that have really driven the net new.
Yeah. I mean, it's interesting 'cause it really is any business that's selling to another business. Our second-largest, you know, vertical is business services, which is a huge swath of companies. Could be anywhere from, you know, consulting companies that are either doing implementations or doing strategic consulting. You know, one of the things that kind of came back a little bit better in 2022 was, like, office services. You can think about that as like janitorial services or catering services, like, people that are, like, serving people that are coming back more into the office. You know, tax advisors are in there, recruiters are in there, that's actually helping as well with the new recruiting platform. That's a big, you know, area that continues to do pretty well.
It actually, you know, grew as a percentange of revenue in 2022. You know, there's a whole smattering of other industries, whether that's financial services, transportation logistics, telecommunications, retail, manufacturing, you know, healthcare. Like, all of these businesses are selling to other businesses and, you know, growing faster than the overall business, and they have been for, you know, the last couple years, and we continue to see that in 2022 and as we move into 2023.
Maybe just kinda as a pivoting from net new to kinda the NRR side of things.
Mm-hmm.
You know, how do you kinda think through some of the employment changes in setting seats' trend lines as thinking about the balance for that figure? Like, looking at what happened in 2022, you know, what do you think about the range for that in 2023 in terms of that kind of employment trends with your customers?
Yeah. You know, one of the ways to think about, net retention, and we saw net retention go from, you know, 116 to 104, so that's about 12 points of degradation. You know, I like to, break that down between, you know, what is the upsell versus what's the, you know, churn rate and down sell.
Mm-hmm.
10 points of that, you know, reduction actually came from a reduced upsell. You know, that's the really big driver, is that we were, you know, less successful in continuing to upsell our customers. That was a bigger, a bigger dynamic in software than anywhere else. You know, it certainly, at least it's obvious to me, should be obvious to a lot of people that, you know, software companies in terms of their sales forces were growing much more significantly in, you know, 2021 than they were in 2022. If you're adding 10% or 20% more to your sales force in 2021, you know, most companies were down or flat and, you know, might even be down if they were laying people off in Q4 in 2022.
You know, that certainly was a headwind. You know, kind of went from being a tailwind to a headwind. You got a bigger dynamic with respect to that. Realistically, like, we still see a lot of opportunity even with those customers that are, you know, laying people off because we aren't necessarily wall to wall across those companies. One of the things that I think we're struggling with is that a lot of people talk about doing more with less. You know, from my experience in companies, if you go back to 2008 or even 2001, you know, the way that that operationally actually happens is people say you have less.
Like, they go and they cut a bunch of costs and then they say, "Now go figure out how to go get more." I don't know that we've seen the majority of our customers actually transition to the, "Now I'm gonna work on investing into ways to be more efficient or change things." I think particularly in Q4 and at the beginning of Q1, it's more of a, "I need to figure out how to control my cost structure." I think software is more volatile from that perspective, just 'cause you have a lot of companies that are going from, you know, like, negative 20% margin and I wanna go to, you know, 10% margin.
Like, that's a big change in your cost structure, that we need to help them navigate and ultimately show them how we can actually help them do that as opposed to be part of the, like, you know, red line part of the equation.
You mentioned kind of the upsell, the downsell. Where does cross-sell factor into that? 'Cause you had the acquisitions, you have more products now.
Yeah.
How do you think about cross-sell maybe in, like, kind of the longer term growth potential-wise?
Yeah. I think of cross-sell as being part of that upsell number. In reality, the biggest decline in upsell was around seats and data.
Okay.
cross-sell has come down, but not as dramatically as, like, the seats part of the world.
I know Dave has come in on the go-to-market side. You know, any thought process there and any areas that may change or where do you see an opportunity to improve? I mean, the go-to-market's pretty efficient, so.
Yeah. I mean, the go-to-market's very efficient. We're really excited about what Dave brings to the table. He obviously has a... You know, I think his real skill set comes in that enterprise motion. I think if the current environment has exposed anything for us, is that we've always been super efficient on that transactional sale. You know, going and finding someone in an organization, showing them the value of the platform, and closing a deal pretty quickly in terms of getting them access to that. What we haven't been great at is that top-down, you know, call it buying committee/C-level conversation that kind of helps push the platform down into other parts of the organization.
You know, frankly, that's where we kind of feel some of the pain because, you know, we need to go and convince that CFO or procurement person or other people within the organization of the value that we're providing 'cause they weren't necessarily involved in the initial, you know, sale of it. Dave's seen that movie at scale, like really driving a great go-to-market motion from an enterprise perspective and that top-down sale at, you know, places like Cisco and Salesforce in his career, been successful with that. Actually helped bring that top-down, you know, enterprise motion to a transactional company at PagerDuty.
Not only has he seen the movie of where we wanna be in a few years, but also seen and help be successful on that kind of shorter term, you know, six to 12 to 18 month, you know, how we're going to implement it and where we're gonna make it successful. I think that, you know, augmenting the kind of really efficient motion that we've driven with more, call it air support from the kind of C-level executives is something that we're really excited about driving towards and ultimately something that we think can help accelerate, you know, both net retention and growth over time.
I'm gonna open it up to the audience if there's any questions. Go ahead.
Can I just drill into that change in motion just for 1 minute?
Yeah.
That's a pretty profound shift from viral adoption to C-suite, you know, waterfall sales. Can you talk about maybe the cascading effect through the S&M organization? What, if anything, do you now need to do differently from structure? Do you have a relationship manager, technical experts? You know, how does that go to market? Can you talk about how to execute it? What's the current thinking on that playbook?
Yeah. I'll repeat the question or you can repeat the question.
Yeah. Well, effectively, it's as some of the go-to-market changes, how does that look? Like, putting a little bit more, I guess, pen to paper on that, and I'll let you.
Yeah.
Be ready.
You know, I don't think that we're necessarily gonna change everything that we do. We view this as incrementally kind of adding air support as opposed to, like, stopping the transactional motion that we do. You had mentioned that, like, we historically have had a viral sales process. It hasn't actually been viral. It's actually salespeople reaching out to individuals and kind of pushing value more than, you know, users kinda coming to us. Yeah, at some level, it's instead of just pushing value at the users, it's articulating that value to the C-suite as well. Yeah, I think that that, you know, is a slightly different discussion where, you know, our sales process is actually pretty easy, right?
You go and you ask someone, like, "What's your motion in terms of finding new accounts or selling to other accounts?" You know, one of the examples that Henry's talked about before is we had a, an HVAC maintenance company, I think they were in Minneapolis or something, and they literally said, like, "Okay, when we wanna go find new accounts, we send someone out every Friday, and they drive around, and they look at all the big buildings, and they look for the signs that have changed." We're like, "Really? That's your motion?" They've been doing it for, like, 50 years, and it's worked for them to, like, find new customers.
Like, literally, you bring up the demo, and you're like, "Okay, so this filter is here's companies that have moved, here's how much sq ft they have, here's the director of facilities." You know, like it's 10 minutes instead of driving around Minneapolis, like, trying to find new buildings. That's super easy to, like, get someone who's receptive to that to say, "Yeah, I can see how this would help me be more efficient. I can see how it would help me find more deals. It would help me prioritize which ones to focus on." You know, you can't just go to the CFO's office and say, "Let me show you this demo." Like, they don't care. I'm a CFO, I would never take that meeting.
That doesn't work.
Nor would I, like, frankly focus on, like, what the sales guy's, like, day-to-day world looks like. I really care about the fact that that person can show me that it's saving a day a week in terms of routine tasks that he's focusing on. I really care about other people, you know, kind of going through and saying, "Yeah, I achieve higher quota because I'm using this tool." You know, we did a survey largely to start to build that set of data points to go and show, you know, decision-makers that not only is this making people's lives easier, but it's actually generating real return in terms of time saved, in terms of better performance, in terms of prioritizing where they're focusing.
It's really just articulating that story to folks and getting more of that, "Yeah, we should use this in a lot of places, not just for the people that have signed up for it so far.
Maybe it's kind of dovetailing on that, but just, you know, thinking about a partner channel and, you know, SIs and the. Is that an opportunity for you? I know there's not typically a big implementation, but thinking broadly.
Yeah.
Top down, like, where would that potentially fit in terms of that motion?
Yeah. Historically, that has not been a motion at all almost for us. Part of that is, like, there's close to $0 to implement our platform. Literally, you go turn it on, you let people get going. I do think there are becoming bigger opportunities for that. If you think about OperationsOS, where it is a more complex integration into other systems, you know, frankly, a lot of where we have seen some success and where we're pushing more is that when people are reimplementing a Salesforce or something like that, there are big dollars there. One of the biggest kind of tripping points for folks is that if the data in your current CRM is not good, just porting that over to a new system, like, makes users, like, less than excited.
Where we have seen success is where we can come in and enrich data and, you know, help create quality in a new implementation. You know, certainly the place where we're also pushing is, you know, where there are strategic discussions around improving the efficiency and effectiveness of your sales team, we plug into those discussions really well as well. It is an area of opportunity that we'll continue to, hopefully drive some growth in as opposed to, you know, not.
Anything else from the audience? I just wanna hit on margins. You know, obviously they're pretty healthy, almost a 40%. You guys are continuing to grow, you're investing. How do you think about that balance between growth and profitability going forward?
Yeah. I think there should be growth and profitability. Kind of been saying that for quite a while. You know, realistically, when I think about how we're kind of driving the business, I think any software company, you know, should, A, focus on sales effectiveness and efficiency, I kind of carved that out a little. Currently, we've seen a lot of pressure on our efficiency. You know, we're still way more efficient than your average software company, but we've seen pressure on efficiency. I do think as the environment and buyer psychology normalizes, we should see that efficiency come back a little.
Mm-hmm.
Our view is that because there's still a ton of demand out there and a ton of opportunity in terms of the customers that we can go after, we wanna continue to build sales capacity in order to attack that. You know, frankly, when we do see that, when we do see the, you know, environment normalize, we'll hopefully be able to accelerate with that with a greater capacity and see some margin improvement from the sales and marketing line item. You know, I think in 2023, our expectation is that we'll grow sales and marketing expense in line or maybe even slightly faster than, you know, revenue. The rest of the business, you know, we operate at, you know, roughly mid-low 30s as a percentage of revenue on an adjusted basis for cost of service and R&D and G&A.
You know, we'll continue to see the natural operating leverage that, you know, we would generate there, probably mostly from cost of service and then G&A, and maybe to a lesser extent from R&D, purely because, you know, we'll be able to continue to, you know, grow the business without growing those teams as quickly. The other thing that's, you know, pretty interesting is that, you know, in a, in the frothier environments in, you know, 2000 and 2021, it was very frothy from an employment perspective for technology skill sets.
You know, I think most companies are seeing, you know, attrition come down with respect to developers and technology salespeople and marketing folks and whatever else, which also, like, adds to the efficiency of those teams, and therefore, yeah, means that we don't need to grow them as quickly because we have more tenured people that can continue to drive value.
and maybe I'll wrap it up after this, but, you know, in terms of the healthy margins, and you generate that cash flow...
Mm-hmm.
The rate environment has changed. You know, how do you think about the priorities? Is it M&A or debt or what are you looking to do with the cash?
Yeah, I think, look, in a, in an environment, in a, you know, kind of, wobbly economic environment, there's a premium to having cash.
Sure.
I think that's where we've landed in terms of those discussions. You know, we're not really focused on M&A in the short term. I think opportunistically, we'll continue to look for things, and we've been successful in the past. That's not the primary driver in the short term. You know, having that cash longer term could be helpful. You know, at some point in the future, I'm sure we'll get to a point where we'll focus a little bit more on returning capital to shareholders versus, you know, maintaining that flexibility. You know, I think that's a longer-term discussion that, you know, we'll get into over time.
Great. Cameron, thanks so much. Everyone, thanks for listening in.
Thank you.