All right, I guess we could get this started. Hey, everybody, my name is Koji Ikeda. I am one of the analysts on the BofA Equity Research team for software. I'm super thrilled to have Cameron Hyzer.
Thank you.
CFO of ZoomInfo here. I have a little fireside conversation for 30 minutes. Cameron, from a very high level, I guess, you know, for those in the room that aren't familiar with ZoomInfo, and for those on the webcast that may be unfamiliar with ZoomInfo, maybe spend 30 seconds to a minute on what ZoomInfo is, value proposition, and maybe a little background on yourself, please.
Totally. We provide a platform to sales and marketing teams to help them run their go-to-market motions more effectively and efficiently. The way that we do that is we provide high-quality data and insights about the customers that they're selling to or prospects, and the people that work at those companies and, you know, when they may be in market. Then we wrap that with automation tools and data orchestration tools to help them, you know, really, essentially sell better and sell more efficiently over time.
Okay, maybe 30 seconds on yourself?
Sure. I'm the CFO. I've been at ZoomInfo since 2018. I've been working for subscription kind of software companies for a long time, too long. I think I started working for Thomson Financial in, like, 2002 or something like that, and just, you know, enjoy the subscription world. Obviously, it's gotten a lot bigger and a lot more exciting over time. I did start out as an investment banker, so forgive me about that, you know, before that.
Thank you. I guess, you know, topical for me, last Friday.
Yep.
After the close, you guys filed an 8-K, you know, announced a 3% reduction in force. Maybe, you know, walk through that a little bit. Why, you know, why 3% reduction? What type of, maybe departments did it hit? You know, what type of employees were affected? You know, why now? Just help us understand this reduction in force.
We're always focused on running an efficient company and making sure that we're investing in the, in the things that'll drive the best re-return in terms of the company. Been working on this project for a little while to really think about spans and layers within the company, and flattening the company in order to make our ability to make decisions and execute on projects go a little faster. You know, this was the, one of the first steps in kind of executing against that and flattening the organization. It also enables us to invest in areas that we think are super important. We've been talking for a long time about continuing to expand our sales and marketing capacity.
You know, I think our view is that as the world normalizes, we want to be in a great position to take advantage of that and accelerate growth. We'll continue to hire in sales and marketing, then there are a number of engineering areas where we also want to continue to build up. We obviously have, you know, a very big AI team already, you know, leaning more into that and leaning more into some of the automation capabilities that we've developed as well.
Got it. Got it. When I was reading through the 8-K, I noticed, there was no reiteration of the guidance. You know, help us understand, is this RIF included in the guidance when you gave it, when you updated, you know, for the first quarter results? Or I guess, help me understand, you know, the reduction in force and how it plays with guidance.
Yeah, because this is a project that we've been working on for a while and analyzing, this was, you know, already, you know, contemplated in how we thought through our guidance for the year.
Okay. Thank you for that, Cameron. I've been asking every management team, you know, a couple of questions around the macro, you know, very, very standardized, and also about generative AI. Starting with the macro question, you know, I guess how would you characterize the environment that you're selling into today, June 2023, versus maybe January of 2023, and then a year ago in June 2022? You know, what's different? What's different about those three environments?
Yeah. It's still a tough environment out there, particularly for sales and marketing teams that are looking to invest. Yeah, I think our situation is slightly complicated by the fact that we're still really early in our penetration of the overall market. Therefore, a lot of our customers are still the early adopters of, you know, go-to-market technology, which also happens to be a lot of software companies. Yeah, I think software companies have been more impacted by the macroeconomic changes over the last year than a lot of other folks, and certainly that has impacted, you know, our kind of potential to grow with those companies as well. If I look at, you know, June of 2022 or 2023, Well, let's rewind a little.
If we go back to 2022, you know, I feel like the first four months of 2022 were, like, reasonably good, not quite on the same kind of level as 2021, but you know, reasonably good. It was really as we started to get into Q2 of last year, that we started to see more scrutiny being placed on deals. We saw, you know, particularly software companies starting to think about, you know. Let's say the second third of 2022 and got to September, that was a point at which I think there was a much bigger emphasis on, you know, cutting costs, on, you know, really preparing for what was, you know, perceived at that point to be a, you know, real recession coming in a bigger way.
Particularly for software companies, the idea of, like, becoming profitable became, like, very much front and center. That dynamics, you know, made for a very tough kind of end of Q3, Q4 last year, largely persisted into the beginning of Q1. You know, at this point, as we look at, like, June, I look at a lot of things based on sales efficiency, so how well our salespeople are, you know, generating outcomes. Sales efficiency took a big hit in Q3 and then in Q4, and then at the beginning of Q1, and I think we've stabilized at a, you know, albeit much lower level than where we want to be, but at least the rate of change has leveled off.
Yeah, I think we're happy to see that there's some stabilization with respect to sales efficiency, but in reality, like in any sales cycle, the hardest thing to deal with is uncertainty, and there's still, you know, a fair amount of uncertainty out there, so it's still a tough environment to sell into.
Okay. Okay. You know, I think that's a good segue into kind of the guidance question. You know, you've framed stabilization, feels like things are getting better, you know, following a tough Q3, Q4, even Q1 from a demand environment stabilizing. From a guidance perspective, what are you seeing in the end market demand environment that is really giving you that confidence to reiterate the 2023 guidance on the last earnings call?
Well, when we look at, you know, our customers that are out there, and, you know, frankly, the new customers that we're continuing to sell, there is still a fair amount of demand and interest in people becoming more efficient with their go-to-market motions and becoming more effective, particularly on the new customer side. You know, for us, the good thing is new customer is not constrained by an overweighting towards software. We can go out and sell to anyone. There's still a fair amount of demand, and we do pretty well. You know, new sales in Q1 were, you know, roughly flat to where they were last year. You know, I think we're continuing to see some good uptake in terms of new customers.
You know, the real question is on existing customers, you know, us seeing that sales efficiency start to stabilize, albeit at those lower levels, gives us more confidence that as we continue to add more and more sales and marketing capacity, that that'll, you know, turn into incremental sales for us as we, you know, continue to drive through the year.
Okay. Okay, I know you guys like to talk about your DAR metric, days adjusted revenue metric, you know, just walking through the guidance, is it the same type of drivers that you just talked about? When we look at the guidance, it looks like the DAR metric actually sequentially improves throughout the year.
Yep. Yeah, part of that improvement in that annualized revenue metric is that, you know, our largest quarter for expirations is in Q4, then Q1 is less than Q4, and Q2 is less than Q1, and Q3 is less than Q2. In a world where there's a lot of pressure on net retention, and net retention ends up being a headwind for us, that headwind actually ends up being reduced as we're moving through the year, and that, you know, certainly helps. The other underlying assumption with respect to the guidance is that we are continuing to build sales and marketing capacity, you know, throughout the year.
Mm-hmm.
In a world and, you know, I think we're assuming that we've kind of, that we're gonna maintain a stable level of sales efficiency, albeit at lower levels. That stabilization of sales efficiency enables us to, as we add more and more salespeople, add more and more revenue as well, on top of, reducing headwind from the shape of renewals.
Okay, and thinking about sales capacity—
Mm-hmm.
—you know, you mentioned right now that the sales efficiency is a little bit lower than historical, but you also just mentioned that.
Fair amount lower than normal.
Fair amount lower than normal. You also, you know, just mentioned that you are planning on adding capacity at some point in time.
Yep.
You know, when you're looking at your internal metrics, or how are you thinking about at what level of sales efficiency it needs to get back to before you start adding more capacity?
Well, we're continuing to add capacity either way. You know, I think our view to a large extent is there are certain things that we're gonna continue to do and invest in order to improve sales efficiency. That's part of the reason why we're as profitable as we are and part of the reason that, you know, we're as successful as we are. You know, using our own system, training people, you know, being aggressive in terms of, in terms of how we're automating different parts of the process, that's something that we're always gonna look to improve. Yeah, the bigger kind of change in sales efficiency more recently has largely come from, you know, a tougher macroeconomic environment.
Where it's harder to sell to people, that requires more effort, that, you know, lowers the efficiency of what our sales team can do. My view is, I don't know when this is gonna happen, but at some point, buyer kind of mentality is going to normalize, and when that buyer mentality normalizes, that'll actually help our sales efficiency over time, and having more and more capacity to be able to capitalize on that is important for us. Yeah, I don't know that it's like, sales efficiency is gonna go back to, you know, a frothier period like, you know, 2021, but it's certainly gonna be better than what we're seeing in 2023.
That improvement will, you know, not only help us to accelerate the revenue growth but will also help us to realize some of the natural operating leverage that you should get from a, you know, efficient go-to-market motion.
Just thinking about sales capacity, you just want to be super clear.
Mm-hmm.
Is that when you set up the guidance, I just want to make sure I understand that the guidance assumes no improvements in sales efficiency, or does it improve throughout the year to get to the guidance?
Yeah. The guidance assumed that sales efficiency ticked down in Q1, which it did, and then it stays, you know, consistent at those levels throughout the year.
Is there a broad way to think about, you know, hey, with the if you weren't to hire any more salespeople today or just for a while, call it 12 months, and the sales efficiency gets back to kind of the internal target levels, what could growth look like? You know, is it significantly higher than where we're at today? Just, you know, help me understand that a little bit.
Yeah. I think it's higher than it is today. You know, part of the way to think of sales and sales efficiency and growth is that, you know, your sales force capacity, if you think about that, as a percentage of revenue, if we weren't going to hire anyone and we continued to grow, then it would actually become a shrinking percentage of revenue, which ultimately makes the kind of ability to grow faster, harder, because you know, you have less resources as a percentage of your base, and you're measuring growth off of that base. Our real focus right now is to continue to grow our sales capacity in line with revenue, and that, you know, that will enable us to accelerate that revenue growth when that sales efficiency starts to come back to a more normalized level.
Got it. No, that makes a lot of sense. wanted to switch the conversation over to kind of the second big topic, flavor of the day: generative AI.
Yeah.
I'm gonna ask you three questions on generative AI.
Sure.
First question: you know, how does ZoomInfo think about leveraging AI, generative AI, technology within your offerings?
You know, there are a lot of really exciting things about the large language models that are being developed in generative AI that's out there. Some of those are super easy for us to do just because we do have a large AI team already that's, you know, helped build a lot of the machine learning algorithms that help us clean our data. One of them that we rolled out on, you know, more or less immediately is, you know, Chorus meeting summaries. You know, we've spent a lot of time in the past really driving, you know, high-quality transcripts for multi-speaker meetings. It's actually a kind of hard problem to solve, and I'd say that Chorus is one of the better kind of capabilities out there.
If you can plug in a transcript that's, you know, highly accurate in terms of the conversation that happened, that's right down the middle of the fairway in terms of what an LLM model can then turn into a summary. A number of our customers are, you know, really been excited about the capability that that brings, 'cause, you know, within seconds of finishing a meeting, or you get a summary that basically gives you what are the key takeaways, what are the, you know, major to-dos or action items coming out of a meeting, and you send out to everyone, you know, immediately without having to wade through the transcript or the video or whatever else.
You know, that's an area where that'll be part of our premium, you know, tier of Chorus and, you know, will help drive people into, you know, a better alignment of the value that they're getting and what they're paying. There are other areas where, you know, we're excited about continuing to, you know, put AI into the platform, whether that's, you know, natural language search, as opposed to going through, you know, five different filters to figure out what you're looking for. Just asking, you know, "Who are the people I should be reaching out today?" Or whatever else. You know, long term that, you know, could very well translate into, you know, generative AI interactions that we're able to power for, you know, our customers, with prospects or customers as well.
That's certainly an area where we think that there's good monetization opportunity. You know, some of that will be getting people into higher tiers. Some of that will be continuing to drive more engagement and retention with our customers, which is exciting. The other part, which may actually be the bigger kind of, you know, opportunity with respect to generative AI, is that there are a lot of businesses out there that are gonna look to deploy generative AI in their go-to-market motions over time. You know, one of the places that they're gonna look to do that might be prospecting or working with their customers. What they're gonna do is they're gonna deploy that on top of their CRM system and the data that they have within their CRM system.
You know, historically, C-level people have not been super focused on, "I want my data in the CRM system to be, you know, highly accurate and up-to-date and fully complete." When you're trying to deploy, you know, AI against that, you're gonna realize that garbage in your CRM system is going to create garbage coming out of your AI motions, and that's, you know, not gonna enable them to really get the benefit of the investments that they want. When they want to employ that foundational layer of making sure that their data is as up-to-date and accurate as possible, you know, the place that they're gonna come is to a vendor like ZoomInfo that has those capabilities to help them enrich and complete their CRM system.
Really, there's no one else that can offer that in a, in as complete and accurate a solution as we do.
I wanted to ask you a question on how AI and generative AI maybe changed the way, or not, the way the customers are addressing the pain points that, and the opportunity that you guys are addressing. You know, since the beginning of this year, lots of awareness around generative AI, lots of imaginations running wild of what it can do. How have the conversations changed or not, you know, with the customers as they're trying to solve their customer engagement?
The pain point that we're helping people with is really helping them, you know, make their, you know, go-to-market motions more effective and efficient. We haven't seen a lot of generative AI kind of get into that yet. You do see some vendors, you know, starting to come up with kind of slideware of what that means. Salesforce has a, you know, presentation out there of, like, what Einstein GPT would do. We haven't seen a ton of companies really start to implement those things yet. Certainly, as they do, that's an exciting opportunity for us that we're, you know, focused on leaning in on.
Got it. I'm gonna ask one more question.
Yep.
On generative AI and then open up to the audience if there's any Q&A out there. My last question is the monetization aspect of it, and you did touch upon it. You know, that it's gonna be embedded within some offerings. It sounds like you're gonna have premium SKU versions out there with Chorus AI. I think we got that part. The third part is new products. You know, what is the potential for new products for ZoomInfo being built with, I guess, generative AI and AI? I recall, you know, we had a webinar with you a couple of weeks ago, and you alluded to maybe a virtual SDR. You know, that sounds like something new. Can you talk about that, if that is something that might be coming out in the next 12 to 18 months?
Yeah. I mean, I don't know that we have a specific timeline—
Sure, sure.
—it is more of a mid to long-term thing. You know, certainly leveraging our experience with, you know, SDR motions and leveraging the data of what is the TAM that you're going after in terms of the companies that are most likely to interact with you, what's the message that you should be delivering to those companies, and which of those companies are potentially in market for a solution like yours? Like, that is the core pain point that we're already solving. Layering on a virtual SDR on top of that, yeah, at the beginning, might be a co-pilot for a salesperson to, you know, generate a bunch of meetings or, you know, kind of initially reach out to folks, and longer term, could just really be a, you know, we're gonna generate X number of meetings, and, you know, that has a activity-based pricing to it.
You know, certainly something that we could imagine, you know, kind of delivering and delivering a lot of value to people, and something that we're currently investing in to make sure that that happens.
Okay, thank you. Any questions from the audience? Please raise your hand and we can get a mic over to you. Any questions? We got one question over here, please.
Is there anything you could do to change or solve for your heavy exposure to the software industry? I mean, or is that just kind of a feature, or have you started exploring other markets that might find your services interesting? I guess that we may never get a 2021 robust—
Yeah
—software market like that again. I'm just trying to think how you think about the next few years.
Yeah, I mean, we certainly think of our exposure to the software market as more of a feature than anything else. In reality, those were the early adopters of our platform, and the fact that they're still a relatively large percentage of our revenue is a reflection on the fact that there's a whole lot of opportunity out there that we haven't tapped into. You know, part of that is history, that, you know, we started off kind of profiling IT organizations, so it was really natural that people selling to IT organizations would be our customers. That's primarily software companies. It really wasn't until we acquired ZoomInfo in 2019 that we expanded the coverage of our database to be really almost every professional that, you know, is working at a company or every decision maker.
It really expanded our TAM to include financial services companies and transportation and logistics companies, retail companies, and everything else. We're still very early in the, you know, expansion of going to other companies. You know, frankly, there is a little bit of inertia there, too, where, yeah, your average software company might have been founded in 2012. It's 10 years old, was developing their motions when a lot of these type of tools were available. Your average, like, you know, local HVAC maintenance firm was probably founded in 1952. You know, it has 70 years of figuring out how to find customers, and that might have included, and frankly, we've talked to some recently, where it does include driving around to local office parks and seeing, like, which companies have new signs up.
Like, that's a fairly antiquated, you know, way to go to market and find new customers, but still very much exists today in a lot of the, call it, less kind of technologically driven part of the market. There's a ton of opportunity for us to continue to convert those customers and to help them be more efficient. Like, literally, their eyes pop wide open when they see, you know, y ou wanna know all the companies that have more than 10,000 sq ft of space in your zip code, filter one. You wanna see which ones moved recently, filter two. You wanna see which ones are industrial versus, you know, office folks, filter three. You wanna know who the VP of, you know, facilities or head of HR is l ike, doing that is, like very eye-opening for a lot of folks.
And something that we just need to continue to chip away on when they become open to, you know, how can they improve those motions. The other thing that's interesting that I like to point out to people is, yeah, software is a little less than 40% of our overall revenue. That means that everything else is a $700 million business. It's not like this small thing that we're just trying to, you know, work out. It's actually a fairly sizable software business that has a ton of room to grow, but is, you know, fairly exciting, you know, big business for us. It's not a, "We think we can do this." There are a lot of people out there outside of software that are already using the solution and deriving a lot of value from it.
Cameron, how are you thinking about capital allocation, given history of fairly transformative M&A, but a pretty recent share buyback announcement?
Yeah. Certainly we are a fairly cash-generative business, you know, 40% cash flow margins on an unlevered basis. Something that, you know, we focus on, you know, continuing to drive and feel it's important for any business to do. As a result of that, you know, we're still a, you know, relatively new public company, but have, you know, started a buyback motion opportunistically to buy shares recently. We're working our way through that, you know, first mandate of, you know, of buybacks, and then we're gonna go back to the board and reevaluate kind of how we did and where and when we should continue or expand upon those buybacks. You know, certainly from a acquisition perspective right now, you know, we're not super focused on going out and doing a ton of acquisitions.
I think over time, there are opportunities that will hopefully present themselves. You know, part of being good at doing acquisitions is also being disciplined, about doing acquisitions. We are, you know, waiting for the right things where we feel we can really add value for both customers as well as our investors going forward. Realistically, you know, we also have a fair amount of capacity from a cash flow perspective, as well as, you know, incremental debt that we can offer, that I don't think that's necessarily the kind of primary constraint on not being able to do more buybacks in the future.
Cameron, I wanted to go back to kind of the growth drivers out there. You mentioned, you know, outside of software. I wanted to dig into that a little bit. You know, when you think about verticals or geographies or maybe company size, is there a way to think about a category of end market that you're most excited about to drive growth?
Yeah, I think certainly if I think about the places where we're most excited, you know, continuing to drive growth in the enterprise is something that we see a ton of value in. Partially because we have a number of existing customers where we're, you know, under-penetrated from our point of view, and feel that there's a ton of opportunity to continue to grow, both from the kind of parts of the organization that we service, as well as additional functionality that we're able to deliver to those customers. That's, you know, an important part of what we're really focusing on and continuing to drive more and more into the enterprise.
Certainly in terms of industries, you know, we've had a lot of success and continue to see, you know, faster growth in transportation, logistics, in manufacturing, in financial services, in healthcare, in retail, even in business services that are kind of outside of the tech-enabled business services part of the world. All of those industries, you know, continue to see, you know, stronger growth and a lot of new sales opportunities that we continue to lean into. I think that's just a reflection of the fact that there's a lot of the economy out there that hasn't digitally transformed their go-to-market motions, and there's that opportunity to do so over time. Certainly internationally, that's something that we've talked about for a while. You know, Europe is probably the kind of most obvious short-term international opportunity for us.
Continues to grow, you know, faster than the overall business, but has had a number of challenges over the last year, just based on the macroeconomic environment there. Some place that we're continuing to build capacity and sell into, but may not be the kind of short-term burst that it was if you look back, you know, more than a year ago.
Got it. Last question for you, Cameron.
Mm-hmm.
Data Privacy topic.
Yeah.
You know, in the last earnings call, you called out a software company that moved over to you because of data privacy. You know, what specifically was it about the data privacy that ZoomInfo offered that, you know, nudged that customer to join, and how do you guys think about data privacy in the future?
Yeah. If you think about a large enterprise, yeah, they're basically using our data to power go-to-market motions, which, you know, effectively means that they need to get comfortable with how we've collected the data and how we've notified people as, you know, as compliant and, you know, frankly, goes above the, you know, regulations that are out there. It actually ends up being a real competitive advantage in the enterprise that, you know, we are very focused on privacy, that we have a very transparent notice and choice program. We explain to people exactly how we do things and where it comes from, all of those pieces.
You know, we have a privacy team of, I think, 18 or 20 people that's led by our Chief Compliance Officer, who was the, you know, Deputy Chairman or whatever his title was at the ICO. You know, he was basically responsible for enforcing GDPR in the U.K. and Ireland. Like, that's a, you know, heavyweight person that can talk to customers about what are the things that they should be doing around privacy, what should they be worried about, how does that, you know, work with respect to what they're doing? When we're talking to large customers, you know, people like SAP, who's, like, a big German software company, very focused on making sure that they're adherent to all the regulations wherever they are.
When you talk to like FedEx or AT&T or, you know, frankly, Bank of America, like, they have in-depth privacy teams that are focused on making sure that they're getting things from the right vendors that are transparent and following the rules, and make sure that they do what they say they do. You know, it's hard to imagine companies like those, like, going with a, you know, kind of smaller, I don't know, Silicon Valley, you know, 50-person company to get their data and make sure that it's compliant. In the enterprise, it's a huge competitive advantage. In the mid-market, it ends up being a, "We're gonna follow what, you know, SAP does or what Microsoft does," or whatever else. In the small businesses, like, they don't care as much.
You know, in a lot of customers, it matters, and it matters a lot.
Got it. Cameron, we're out of time. Thank you so much.
All right.
Appreciate it.
Well, sorry we didn't go longer. Thank you.