Okay. Good morning, everyone. I am Mark Murphy, software analyst with JP Morgan, and it is a great pleasure to be here this morning with Cameron Hyzer, who is the CFO of ZoomInfo. First off, Cameron, thanks for taking the time and making the trip across country to be here with us.
Absolutely. Thanks for having me.
Pleasure's all mine. Maybe you could spend a moment just giving us the super brief version of the overview of ZoomInfo for the benefit of anyone out there who's not familiar.
Sure. At ZoomInfo, we provide a platform to sales and marketing teams as well as talent acquisition teams that help them be more effective and efficient in their go-to-market motions. We do that by providing high-quality data and insights on the companies that they sell to, the people that work at those companies, and signals about when those companies may be in market to buy. We wrap that with software that really helps orchestrate and automate their motions through that process. We generate about $1.2 billion in annualized revenue and aim to do everything we do with a high degree of efficiency, roughly 40% or 40%+ adjusted operating margins.
Thank you for that. It's a great intro. At the absolute highest level, when we look at this market, Cameron, you know, the notion is that companies are in this process, right? They're moving from these kind of outdated, very heavy, kind of archaic go-to-market motions. They're trying to convert that to data-driven. They're trying to become digital in the go-to-market motion. The question we get is, how far along is the typical company, you know, in that journey? What is it that you encounter out there in the environment that might cause you to look at this and say, "Well, there are a lot of companies out there that still have a long way to go"?
You know, we talk to sales and marketing teams all the time, and they are a long way from really embracing high-quality data and insights to drive their motions. There are some very large companies. One example is a company that we talked to, they service copier machines and so forth. You know, they were really excited, this was like last year, really excited about the fact that they used ZoomInfo to, you know, marry their CRM data and look at the companies in a particular zip code that, you know, weren't in their CRM.
The head of sales came and said, "Look, I went to all my salespeople, and I said, 'Look, you have 30% more territory now than you did before because there's all these companies that you hadn't identified.'" That's a super basic, you know, workflow, and use case for ZoomInfo, and there's so much more that we can take that company on in terms of their journey. That's, you know, they're actually ahead of the curve for a lot of folks that are, you know, still using motions that they've developed over decades, to, you know, go to market and haven't really taken that next step to incorporate data and insights and really digitize their go-to-market.
That's a company with just gaping blind spots.
Yeah, absolutely.
Just companies they're not aware of.
Yeah, I think we're constantly out there educating folks on what they can do in a more advanced way. There are hundreds of thousands of companies that, you know, sell to other businesses that are literally relying on the motions that they've developed over, you know, in the sixties and seventies and eighties.
Mm-hmm.
to continue to go to market.
What are the most important moves that you think the company needs to make, if we're looking forward three to five years, just to make sure that you are actually going to realize, you know, and be able to capitalize on that opportunity? What I mean by that, Cameron, is it more about taking what you have already product-wise, integrating it, congealing it? Is it more about developing the next new products with the R&D budget? Is it more about having to go out and maybe fine-tune the distribution model that you've been working on? There's international expansion, there's privacy. Is it something else?
Yes.
Okay.
I think the biggest thing is we feel we do have most of the tools and software that, you know, can really help drive better go-to-market motions for our customers. We feel that, you know, we wanna continue to, you know, widen the moat between other, between us and other vendors that are out there in terms of data quality, in terms of, you know, ease of use of the platform. A lot of the software that we're developing now is really focused on speeding the time to value and making it really intuitive for customers to be able to drive better motions and realize the efficiency that's, you know, potential there for them. You know, ultimately, you know, this continues to be a solution that, you know, folks aren't necessarily looking for.
They're out there trying to close their next deal, and so it's really about getting in front of folks at the right time to help them realize that they can become more efficient with their motions.
If we rewind, and becoming more efficient with the motions is something that you're always working on. If we rewind the clock and look a bit back just to the recent Q1.
Mm-hmm.
You did comment that the spending environment continued to degrade during the quarter. We heard that broadly across the software industry. So you had contraction in the number of customers that spend $100,000. Your net revenue retention down-ticked. At the same time, you were talking about in a positive light, you were talking about trends that had improved in April. You actually reaffirmed the guidance for the year, right?
Mm-hmm.
We didn't have to cut any numbers. Could you describe the changes that you were seeing there in the months of April and May and what just in terms of the customer behavior?
I mean, I think the macroeconomic environment has been tough. We saw fairly material headwinds in both Q3 and Q4 of last year.
Mm-hmm.
The rate of change got, you know, better, so it's a lighter downtick in Q1. As we got through the end of the quarter, we really started to see stabilization. I think about a lot in terms of sales efficiency. Our sales efficiency, how well our team is getting through deals, you know, stabilized as we got through March and April. Yeah, I think that's reflected in, you know, when I think about the net new ACV that we're adding, you know, April was better than January, which.
Mm-hmm
you know, is a good trend. Frankly, March was better than December, which very rarely happens.
Okay. The shape of Q1 had a bit of a, was it a U shape, a saucer shape, or kind of an L shape?
Yeah.
Something with-
I don't think the world is necessarily getting better, though, so I don't want people.
Yeah
...to say we're, you know, very much on the upswing, but certainly, you know, flattening out at a lower level, and hopefully gives us the opportunity to continue to drive sales efficiency and, you know, ultimately, you know, all cycles go up and down. It will go, you know.
Mm-hmm
at some point. I just don't know exactly when that is, and I don't know that we have visibility to say it's already normalizing right now.
Mm-hmm.
it is-
Yeah
...stabilizing at a less than wonderful level.
If you figure out when it is, let us know.
yeah, we'll all be happy to know that.
There's another metric, Cameron, that you've been providing, which is helpful. It's helpful and it's a unique metric.
Mm-hmm.
It's this, sequential days adjusted revenue growth. It's adjusting for the number of days in a given quarter.
Sure.
That metric, if we go back and look at what it was doing in 2021, the economy was running hot. There was a stimulus and a money spray, and things were a little overheated. That was chugging along at 11%-12%. You know, as you pointed out, things slowed in the back half of the year. That metric compressed, and it came into mid-single digits. When we look at it in Q1, it dropped to 1.9%. Does that feel like a metric that might have bottomed? I mean, could it have bottomed, barring a recession, which everyone is wondering if it's coming, but is that something could we see that coming back 3%-4% range, 3%-5% range in the coming quarters?
Is there a scenario you could lay out?
I mean, certainly we've guided to a level where even in Q2, we see that, you know, accelerating, and then, you know, as we look into the second half of the year, we view, we view that as, you know, getting back to somewhat better levels. You know, certainly not as frothy as we saw in 2021. There are a couple, you know, just kind of basic things in the business that'll help drive that as well. You know, currently, we're feeling a lot of pressure, particularly from our software clients, which is a significant part of our business. It's close to 40% of our revenue. As a result of that, you know, net retention is a headwind right now. It's, you know, actually below 100%.
When we're in a situation where we have net retention as a headwind, the shape of renewals actually matters. The expirations that we have from a seasonal perspective are largest in Q4.
Mm-hmm.
Q1 is less than Q4, Q2 is less than Q1, and Q3 is less than Q2. That headwind actually gets less, less dramatic as we go through the year. As we're adding more and more sales capacity, which again is as long as sales efficiency remains constant, that sales capacity increases the amount of ACV that we're gonna add to overcome that, you know, less and less headwind during the course of the year. Seasonally, my expectation is that, yeah, barring, you know, the bottom falling out of the economy or, you know, something, you know, really dramatic happening, that we should see that acceleration in terms of, it's really annualized revenue growth.
Okay. Those are the elements that get you to a kind of a modest uptick the rest of the year in that, sequential days adjusted.
Yes.
Okay. Now if we flip that around, I think that that's the more important discussion, but if we flip that around and think about the year-over-year growth, we try to look at it organically. Again, you go back in time, it had been as high as the 40s. It slowed to 34% by our math exiting last year.
Mm-hmm.
23% is what we calculated in Q1. per the guidance, right? This is almost, you know, it's kind of more of the lagging effect, but that would slow to something like low double digit range in the second half of the year. What would have to happen in the environment for us to look back from that and say, "Well, that was the trough"? to set you up for kind of a more interesting level as we're heading into 2024.
Yeah. You know, look, I think the hardest thing to deal with in any sales cycle, which, you know, is a big part of what we're talking about, is uncertainty. I think, you know, the uncertainty, particularly for most of our clients, has increased, you know, as we went through 2022, and as we got to the beginning of 2023. I think stabilization in the environment will certainly, you know, help us. You know, a lot of that has to do with the macroeconomic environment and what people are investing into. Barring, you know, improvement in the macroeconomic environment, like, I don't know that I'd expect annual, you know, revenue growth to really accelerate until we get to the point where there's normalization in the, in the macroeconomic cycle.
That being said, like, at some point it will get better, buyer behavior will normalize, and I think at that point, we'll see an improvement in our sales efficiency and, you know, we're continuing to build sales capacity. That improvement in sales efficiency doesn't have to get back to 2021 levels, but when it improves, you know, a little, that'll actually enable us to accelerate, you know, revenue growth.
Mm-hmm.
Realize some of the operating leverage that's actually inherent in our sales and marketing line item.
Okay. Let me take that comment and try to drill into, drill into Europe a bit because...
Mm-hmm.
thinking back on it it really was this conference a year ago.
Yep.
where you had commented on that you had started to see some elongation in sales cycles in Europe. There were a few companies at our conference a year ago that kind of put that out there, right? At this event one year ago. I think at the time, you know, people heard it very clearly. It was relevant enough to mention, but it wasn't, you know, the magnitude of it and whether it would spread was very difficult to-
Mm-hmm.
to assess, right? Can you give us a recap of what you have seen, since then? Because I think economically, at least we could say Europe avoided the worst case scenario. They avoided the.
Yep.
kind of the worst possible energy crisis that they could have had, and the European stock market is actually making new highs. Just wondering what you're seeing in Europe.
Yeah. I mean, Europe continues to be a tough environment from sales teams investing, but it does continue to be a higher growth area for us than, you know, in the U.S. you know, part of that is we're much more lightly penetrated into Europe...
Mm-hmm.
Kinda coming off a smaller base. It is driving, you know, reasonable growth. I think our expectations are, again, as, you know, uncertainty wanes, which, you know, over time that should be the case, that we'll be able to, you know, re-accelerate in Europe as well. Frankly, it's a, it's an area where there's a lot of opportunity for us given that their kind of digitization of their go-to-market motions is, you know, at least three to five years behind where...
Mm-hmm.
it might be in the U.S.
Mm-hmm. Okay. Let me ask you one last one on the macro.
Mm-hmm.
Not to kind of beat this to death, but if I zoom out and look at it globally, the, you know, I think even at this conference, there's a huge debate right now. Are we gonna have a soft landing, or is it gonna be something more difficult? Jamie Dimon yesterday said, you know, pencil in 20%- 30% odds of something a lot worse than people are expecting. What is the read that you're getting, right? Because your I think your teams are sensitive to it. You've got, they've got a great read on the, on these shorter term sales cycles. What are they saying about business confidence and, you know, propensity to buy out there at this moment?
I think there are, call it countervailing forces that we're dealing with. You know, certainly a large percentage of our business comes from the software universe, where, you know, frankly, the macroeconomic environment is tough, but actually the bigger thing that they're focusing on is just becoming more profitable.
Mm-hmm.
Kinda cutting costs despite, you know, anything else is actually the bigger driver, which is impacting our software business significantly. If you zoom out to the kind of macroeconomic environment overall, like I don't think it's getting better yet. I don't necessarily think it's getting much worse right now, but there's still uncertainty in people's minds in terms of what they're, you know, focusing on. The countervailing part to that, though, is that people are looking for where they can be more efficient, those are actually really good conversations for us to be having for when you can connect, you know, having high quality data about the companies and people that work at those companies with making your motions more efficient.
Those sort of leaders are actually leaning in, and we're seeing, you know, good upsells, and, you know, good environment to make those sales.
Mm-hmm.
particularly with many of our largest clients.
Since you just brought up the software industry, Cameron, I wanted to dive into that for a moment.
Maybe I shouldn't have brought it up.
Yeah. 40% of ARR, in round numbers-
Yeah.
In round numbers, 40%. I know that that's been down ticking a little. It's an extremely high outlier, right? In the exposure to the software industry. It's been a bit of a perfect storm, I think.
Yeah.
From that dimension. Can you remind us just how did that exposure become so elevated? I know that part of it goes back to the roots of DiscoverOrg.
Right.
and the assets that they had. I think one of the questions we get is, well, maybe that's a leading indicator, right? Software industries are tech forward. They're gonna lean in, do this first. The rest of the world will kind of figure it out later. Should we actually, in some way, think of ZoomInfo as a little bit more of a vertical provider in software and tech?
I do view it's 39% of our business being in software as really an indication of how lightly penetrated we are into the overall market. It's a massive market that we're serving. It's any business that sells to another business. You know, the history of that is those are our early adopters. I think that's true for a lot of software companies, is their early adopters are more tech-forward companies. You know, we're continuing to grow and grow much faster in industries that are outside of software. As you mentioned, DiscoverOrg, you know, when we started, was really focused on high-quality data for our customers. We had a smaller data set that was largely focused on IT decision-makers at companies.
Mm-hmm.
you know, you rewind into the DiscoverOrg days, you know, it was almost all software. We acquired ZoomInfo, we were 60% of the business at that point. ZoomInfo also had a number of software companies as customers, but it was the predominant piece of that.
Mm.
The really interesting thing that happened when we acquired ZoomInfo is that ZoomInfo was much more focused on quantity, so really kind of getting information about every person and every company that's out there. We went from having, you know, I don't know, 15 million kind of contacts within our database to 100 million basically overnight. That really exploded the addressable market for us. All of a sudden we could sell much more readily to transportation logistics companies or pharmaceutical companies or financial services companies to retail companies. We've seen all of those other industries really accelerate and, you know, continue to grow much more quickly than software has over the last, you know, two or three years.
Yeah, at this point, while, yes, I realize that software is a big part of our business, you know, at $1.2 billion and it being 60% outside of software, like, that's over a $700 million business on its own.
Mm-hmm.
That continues to grow more quickly than software. Even in 2021 when it was a frothy environment and software was doing well, all of those industries were growing more quickly as well, and it's really a function of just being more lightly penetrated into those industries. Frankly, you know, if you think about the inertia of your go-to-market motions, most software companies were not founded in 1972 and were building their go-to-market motions at that point. They were founded within the last, I don't know, 20 years.
Right.
They've been able to develop motions centered around more, I don't know, modern tools.
Mm-hmm.
Getting the rest of the world to that spot is a really exciting opportunity for us that's, you know, really large, and we continue to penetrate.
Okay. The trend line is already there actually from a multi-year perspective on diversifying pretty quickly outside of software.
Yeah.
If we do click on it though, on the concept of the layoffs, where do you think we are in that cycle? Because we've heard so much of that and it's been a little bit quick and brutal, the cycle of software layoffs. They're letting go AEs. They're letting go marketing heads. They're letting go the SDR people. I'm wondering what inning you see that being in. You know, there is a thesis out there that across a cycle, software companies, they're not gonna do that at the top. They'll never do that at the top.
Mm.
You're gonna be somewhere into the down slope. I think a lot of people figure, "Oh, they're probably gonna do it at the worst possible time," right? They're probably gonna end up doing that at the bottom. I'm wondering how you would interpret what's happening?
Yeah. Again, hard to predict exactly where the world is gonna go and what's gonna happen. You know, my personal guess is, you know, mid to late innings on that. Yeah, it kind of depends on how you see the environment moving forward for folks. Honestly, I'd break this out between there are smaller companies and there are more mature companies. I think the more mature companies, you know, they're trimming because they probably had excess capacity relative to what was going on. Smaller companies are very much changing their operating model. You know, initially it was, we need to be able to operate at break even if you're a venture funded company to extend your runway or at least get closer to that.
Mm-hmm.
They still are not, in my mind, like focusing on being kind of truly profitable. You know, operating at 5% or 10%, you know, operating margins is not a long-term story for folks. You know, one of two things has to happen. Either they need to get to a point where they can grow into their cost structure or they need to continue to fix it. A lot of that depends on the environment that they end up operating in.
Are you able to pretty accurately forecast any of the down sell risk on renewals?
And-
Are you able to get the telemetry and say, "Okay, this company is coming up for renewal in Q3 and it's gonna be down 5%?
Certainly we focus on that a lot. Yeah, we have our engagement data, how people are interacting with the platform, how much they're using it. We also have really good data on, like, who they are, how fast are they growing, you know, what industries are they in and so forth. We actually have a number of models that we push to our, to our account management teams that really, you know. It's a predictive model that says you should either be asking for price because they're using it a lot, they're in a good industry, they're continuing to grow.
Mm-hmm.
You should just be protecting your renewal because they're more challenged, or, you know, it's a low usage, you know, kinda customer and really you're just, like, making sure that they don't churn. We're giving that information to all of our salespeople every time. You know, realistically, what one of the things that has happened is engagement has actually improved over the past year. Part of that was is that there were a number of companies, particularly in the software space, that were over-investing and kind of predicting growth within their contracts that didn't materialize, so we had to unwind a lot of that excess capacity that they had bought.
Mm-hmm.
you know, part of it is that at a particular engagement level, we saw, you know, less renewal activity. I can think about it as like your renewal rate.
Okay.
It was particularly evident in the small kind of slice of the business where there's really low engagement. You know, it's interesting, when we have really low engagement, historically, you would've seen a 60%, you know, renewal rate against that. That has dropped to, like, 30%, which, you know, makes sense. It's like, why are you renewing if you're not using it that much?
Mm-hmm.
There are still a number of customers that renew despite, you know, a low engagement. Even at, you know, more average engagement levels, the renewal opportunities are just, or the renewal risk is elevated relative to what it was in, say, 2021.
Sure. Yeah. Okay. It sounds like you're on the ball with this and have a pretty good methodology. Coming back to the total exposure to software, where do you want it to be at maturity? What would rise up? If software continues to decline in your mix and other industries are gonna kinda rise up and make up the delta there, what would it be?
You know, I'd really focus on what is B2B GDP and the contribution of software versus, you know, other industries, and I think it's, you know, really low. Definitely below 20%, maybe even below 10%.
Mm-hmm.
You know, there is still a lot of opportunity in software. You know, even at the end of Q4, if you back into the numbers and you look at, you know, 35% or 34% overall growth rate, software went from 44% to 39% of revenue.
Mm-hmm.
The software was still growing 20% in 2022, despite, you know, a tough environment.
Mm-hmm.
Obviously that slowed as you got into the second half of the year. It means that everything else was growing in the high 40s. You know, we continue to see, you know, those other industries, and there's just a ton of opportunity out there that, you know, we're really excited about helping people drive better motions in terms of how they go to market.
you know, Cameron, I'd love to get your perspective on another aspect of this I've been trying to ask multiple companies at the conference. This cycle has been quite unusual because we've It feels like we've had a tech recession without having an actual economic recession, at least so far, right?
Yep.
Software growth rates, I mean, you know, new bookings are down year-over-year everywhere, right? I mean, that feels like a tech recession. Is it possible that that would mean whenever we do go into a recession, the next one, would we look at it and say, "Well, tech spend and software spend, it's already been purged. The spend has already been optimized," and then it somehow doesn't feel as bad in the next recession?
Yeah, I mean, I personally think that this environment is, you know, kind of a perception reception more than anything else.
Yeah.
It's people thinking it's coming, and they've been thinking it's coming for quite a long time. That does mean that they're focusing on, you know, discretionary, you know, spend, and really, I think, reducing their kind of growth-oriented spend more than anything else.
Mm-hmm.
I do think that that is gonna impact technology and, you know, software in particular more than other folks. You know, when there's an actual recession, I do think that people have started to cut many of those discretionary things, and they need to think more about their own capacity as opposed to trying to optimize capacity, which probably does have a less impact on software than it does on other things. You know, hard to predict exactly what's going to happen.
Yeah, I'm asking you a lot of crystal ball kinda questions here. Let's go back in the time remaining, I wanna ask you a bit about the core data asset, the contact records database. You've had this notification and opt-out system in place for many years now, that the privacy environment is always evolving, so are your own technologies, your own methods for collecting the data, curating the data, right, handling all the privacy. Can you speak to that contact records database itself? 'Cause I went back in my notes at the time of the IPO, I think it was $155 million contact records. Where is it today, and is there, is there a rate of growth we can think about on that?
It's well over $200 million today. You know, we continue to focus on growing that. Realistically, you know, in the U.S., where we're certainly, you know, really strong, you think about how many kind of professionals are there, decision-makers at companies. Like, we cover, you know, probably 90%+ of the U.S.
Mm-hmm.
Like, the growth rate on U.S. is not going to, you know, increase that much. Internationally, there are areas where we continue to drive more coverage. You know, for us, it is much more important that we're adding quality into that, not just growing it, you know, significantly. That growth rate, I'd expect that there's still opportunities to, you know, increase that with respect to our international coverage.
You might have hinted at this in that, in that answer, but would you look at it in saying we don't really care about the growth rate of the data then a whole lot? It's more about. You said the quality, but I always as well think of, I mean, so that's the accuracy of the data. It's also how fresh it is.
Yeah.
Like, how quickly the data updates. How soon do you know if someone has changed jobs or changed a phone number? There's another dimension to it. Well, it's not just the contacts, it's the firmographic data, it's the hierarchies, it's the org chart and actually the intent signals.
Yeah.
How would you weigh all of that? What do you think is most important?
You know, I do think that the signals are becoming the most important thing because, you know, for us, having high quality contact information is, you know, very important, will be something that we're always focused on continuing to improve. But we've, you know, covered up much of the waterfront there. The company information as well as the signals are really helping our customers determine not just who to reach out to, but prioritizing who are the best people to reach out to. How are you going to, you know, dedicate your resources to getting the most out of it?
Mm-hmm.
When's the right time? You know, you really wanna reach out to someone when they're in market, when they're, you know, considering buying a solution or a product like yours. You know, the signals really help drive that in a way that, you really can't get that anywhere else. We've invested a lot into intent and our Scoops data as well as, you know, frankly, just changes in company information mean a lot to go-to-market team.
When you think about that, Cameron, the Intent data, the signals becoming more valuable, also the firmographic org chart, all that, who has purchasing authority, all of this is important in the equation.
Mm-hmm.
What is it that creates a moat? I think especially going into this economic slowdown, you do hear, you know, all these software companies and tech companies are coming under pressure, right? I'm sure they all have a discussion, is there a cheaper alternative than ZoomInfo? There are cheaper alternatives. There are some cheaper alternatives, but they'll kind of wrangle with it. Is it worth it? Is it worth it to get, you know, subpar data? What, you know, can you do a little compare and contrast to some of those, and what is it that creates the moat? Is it the contributory network? Is it the research teams that you have? Do you have better web crawling algorithms? Is, is there something else?
Yes.
Mm-hmm.
It's all of those things.
Mm-hmm.
In reality, I think that the three things that I would point to in terms of creating the moat are, one, quality. You know, quality data drives better outcomes. I think it's, like, hard to dispute that. Having higher quality data, which undisputedly is our focus, and a lot of that is the contributory network, it's the evidence-based algorithm that we've developed. It's all of the, you know, pieces that generate that quality that are important. Two, it's the breadth of data. You can't find any other vendor that provides all the different pieces that we do in one place. If you're gonna replace, you know, Intent and Scoops and firmographic information and technographic information and contact information, you're going to four or five different vendors trying to tie those together.
That's actually, A, hard to do, but B, creates holes in that. The third piece of it is actually our investments into privacy and compliance are unmatched. If you're a large company, if you're SAP or Google or JPMorgan, you know, many of our largest customers, you're never gonna go to some fly by night, you know, company in Silicon Valley.
No
...to try and ingest data that's gonna drive your motions, not just because it's not as good, but also because they haven't invested into making sure that it adheres to all of the regulations and, you know, standards that are out there in the world. At the enterprise, the investment into privacy and everything that we do is actually a really big differentiator.
Okay. Great notes to end on, Cameron. I can't thank you enough for taking the time to be here.
Thank you very much.