Should we jump right in?
Yeah, let's do it.
Awesome. Well, for those in the room, my name is Billy Fitzsimmons. I cover application software here at Piper Sandler. For those of you I haven't met, I started at the start of this year, right in the midst of the SaaS apocalypse, but cover everything from the hyperscalers, application software, vertical software, everything from mega cap to mid cap. I want to welcome Graham O'Brien, CFO of ZoomInfo. We're happy to have you here. Maybe to start, can you give a quick intro on ZoomInfo and the problem it solves for customers?
Yeah, sure. Thanks. And thanks, Billy. We're really happy to be here. ZoomInfo, we equip our customers with the critical data and technology to help them effectively go to market. What that means is solving the context gap for them. That means marrying our customer's first-party data with our proprietary data, and then using technology to do that foundational architectural work. Unifying internal systems, anchoring those systems to verified external intelligence to give go-to-market professionals and agents the coherent view of the world they need to go execute against.
Makes sense. There has been a lot of product innovation over the last 12 months. Can you walk through some of the product enhancements, new features, and initial customer reception to those?
Yeah, it has been a really exciting few quarters for us on the product innovation front. I describe it as a period of rapid innovation that is continuing through Q3, and we are really excited about what is to come on that front. The focus has really been on designing, building, and delivering products that serve our customers across an expanding go-to-market surface area. So whether it is Go-to-Market Studio, the unified application experience that we are going to be rolling out later this year, our operations business, ZoomInfo Copilot. We have really been focused on designing those products in a way that customers can use them either in our ecosystem, in our platform, or outside of our ecosystem in a headless manner.
Expanding on this point, and I want to go through some of the products you guys have brought online, because there is GTM.AI, which is kind of your headless context layer. There is also GTM Studio and GTM Workspace. Can you just talk about the opportunities across those products, the early customer feedback, and how do you just think about pricing and pricing power of those products?
Sure. Yeah. I will start with GTM Studio. Go-to-Market Studio you can think of as our almost like control tower for a RevOps leader or a go-to-market strategy professional, where they can go and orchestrate campaigns and push those out to the front lines using GTM Studio. We had a really promising quarter in Q2 with GTM Studio. I call it a quarter of significant traction, where we really started to see the month-over-month growth that we want to see with that product. Then if you think about ZoomInfo Copilot or GTM Workspace, that is the execution layer. That is where the tip of the spear, your AEs, your SDRs, your account managers go out and execute some of that intelligence that can be pushed down or out of Go-to-Market Studio.
When I think about the pricing, this has become a feature topic for us, as with historically, a lot of our applications have been priced on a per-seat basis. We are shifting now towards a hybrid consumption model, where customers can effectively pre-buy a set of credits, and then they can use those credits across, again, whether it is in our ecosystem, across ZoomInfo Copilot or GTM Studio or our operations business, but also use those credits outside of our ecosystem. That is what we are testing with customers right now to really understand the diverse appetites of the variable side of credits versus the more fixed nature of a seat-based model.
I have a lot more questions on the shift to credits, but I want to start first on your own go-to-market efforts. If we think about the second quarter, I believe you closed your largest ACV deal ever. That was a multiyear renewal, large software customer. There are also a bunch of other enterprise customer wins cited on that call. Can we talk about the upmarket motion and the success you are seeing there? Can you talk about the changes you have made to your own sales force to drive that success?
Yeah. I think Q2 is just more evidence of our progress moving the business upmarket. We have shifted the ACV mix of our business more than 10 points upmarket over the last several years, and I am excited about our ability to continue to do that as we get into 2027. When I think about some of the, not only just shifting resources to focus more upmarket, we changed the talents that we wanted to hire for those upmarket positions. We changed comp plans to make sure that we were incentivizing specifically our AEs to invest in longer-term sales cycles and not really default to a quick land. That was evident in Q2 specifically. Q2 was our best $100,000 logo acquisition quarter on record from an ACV perspective. I expect that we will continue to invest behind those larger customer relationships.
On the lower end of the market, there has been a broader shift to reduce sales resources, and you are shifting to a PLG motion there. Just how do we think about that transition? Where are we, and potentially how do we think about that downmarket motion potentially bottoming?
Yeah. I think our goal continues to be to make the downmarket business a smaller and healthier version of itself. It's about 24% mix of the total business as of Q2. I'd expect that mix to continue to go down. We're going to deliberately make it smaller over the next several quarters. We've taken more resources out of that segment earlier in this year. We've also started to deprioritize revenue growth down there. That's still an important and valuable segment to us from a data acquisition and a logo acquisition perspective. If we can get that mix overall closer to 80/20 up market, down market, then I think we'll be a healthier overall business.
Makes sense. As we think about the different drivers of the business, let's talk about Operations for a second. That's been a healthy grower. It's a non-seat-based motion and has been for some time. How do we think about the resiliency of that business? What percent of it is it today of the overall business? Where are you seeing growth coming from in terms of your base?
Yeah. Our Operations business, basically our DaaS business or our Data as a Service business, it's not seat-based like you mentioned. Customers basically sign up and pay a data access fee for access to portions or significant portions of our data assets. It's about 20% of the total business today, and it's growing about 20% as well. When we look at the Operations business, we've taken that business and it has informed how we think about the rest of the business as we shift away from seats, whether we're shifting to more variable consumption for some of those customers or shifting more to just data access subscription. Our ability to get off of a seat-based driver and into that more hybrid consumption and data access model, is the goal.
If we go to the financials of ZoomInfo, arguably in the first quarter, there was a little bit of a reset relative to that initial 2026 guide. There's a couple moving pieces here, and I want to talk about each of those. There's the more pronounced shift to consumption from seats. We talked about that briefly, but I want to dig in here.
There's the down market dynamics we just talked about, and then there's also the tech vertical comments that you called out. Can we talk about each of those things? Arguably, three months later, you reported 2Q, and you delivered upside relative to the downward guide on 1Q. Let's talk about each of those kind of dynamics in the business and kind of visibility into them and what you've seen over the last, between 1Q and 2Q relative to your expectations.
Yeah, sure. We were pleased to deliver some upside in Q2 and kind of just carry that Q2 performance or upside into the back half of the year as it relates to the guidance. I'll start with the software vertical. We started seeing weakness there at the end of Q1 in the form of longer sales cycles, AI confusion, build versus buy conversations. That continued through Q2. In addition, we just started seeing more broad pressure on software, both public companies and private companies, in our customer base. We expect that that doesn't get better. And we're doing proactive things as kind of from a product and packaging perspective to make sure that we're able to meet customers where they are as it kind of relates to their AI journeys. But generally, we're not expecting our software end-user segment to improve.
Next, we have the kind of pricing evolution that we've been talking about, shifting more towards consumption. We're still kind of the early innings there. I think we should be out in market, to some extent at the end of Q3, but into Q4, and we'll be really learning in that phase. I want to continue to give us room to learn about what the upside and downside in that pricing model is across a pretty diverse customer base.
And then maybe it's still too early, but just digging on that shift to consumption, anything you're kind of seeing in that initial cohort that you've migrated, because you do have some products that are already on a consumption basis in terms of that customer behavior. And then how do you think long term about how the spend from consumption customers will compare to those from seat-based customers, acknowledging that it's kind of evolving in real time?
Yeah. If you split our business today, it is about two-thirds, a little less than two-thirds seats, and about a little more than one-third non-seats. I think our goal is to shift that over time, closer to 50/50. If you think about our 35,000 customers, there is a diverse set of pricing preferences in that customer base, and there is a diverse set of appetites in the funnel and across our prospect base. I imagine that that will be diverse for hopefully forever. That means we need to be able to have products and a commercial strategy that provides the flexibility to go deliver a consumption model to customers that prefer consumption and to deliver a hybrid consumption model or something that has more of a fixed nature to customers that prefer more of a fixed budget for their purchases.
I think that the first year of rolling this out, my goal is to learn as much as possible. That kind of informs two principles when it comes to the pricing conversation here. One is simplicity for customers. They are dealing with a lot of vendors that are going through similar evolutions. That means understanding currencies of credits and how much credits, essentially a grid of what costs what. So I want to default to simplicity where we can so the customers understand the variable side of it and the fixed side of it. Then to also reduce barriers to consumption, where we can get customers in and get that time to value down so that we get a good look at what consumption trends look like when there is not differing artificial ceilings for those customers.
As we think about the different verticals that ZoomInfo sells into, we talked a little bit about tech and what you are seeing there. Are there any material differences vertical by vertical in terms of usage, consumption, deal momentum worth calling out?
We talked about software. Software is distressed right now for us. We, again, don't expect that to improve. Outside of software, our non-software verticals are actually performing well. Growth retention has improved in our non-software verticals year to date, year over year. We continue to grow, especially in our up-market business, if you slice out software. The non-software part of our up-market business is growing at a healthy clip. When you look at the trends there, I think it is too early to really look at the usage trends. We look at that more product by product than segment by segment. But the usage trends I do look at are the consumption of credits across both our new products, so the GTM Studio, the unified application that we are going to be rolling out later this year, and then in headless spaces, so via MCP or API.
Those credit consumption trends I look at every day. They are very promising sequentially. It is still off of a very low number, but that is where I am focused. I am hoping that as that number becomes bigger and bigger, we can start to share those consumption trends in these next-gen spaces as we get into 2027.
You kind of answered my next question, which was going to be we are mid, call it, turnaround in some ways here, where there is a couple different moving pieces in the business. There are some high growth parts of the business. There are some parts of the business that we have acknowledged probably won't get better for a while, or you are assuming they won't, like the tech vertical. What metrics are you looking at or should investors look at as signs that we are on the upward swing of the turnaround beyond what you just talked about?
Yeah. So again, the credit consumption trends sequentially. Then, I think shift regardless of the product and pricing models that we will roll out, I want up-market mix to continue to increase. So 76% today of ACV, I believe that will continue to progress over time. Yeah.
I want to circle back to AI and all the stuff you are doing. We have talked about this a little bit, but as we think about your headless context layer, optimistically, ZoomInfo becomes, your product becomes more integrated with all these different things the end customer is doing on AI, and that increases usage and stickiness. Could you talk through, again, the early consumption trends you are seeing or any changes in behavior in the end customers that have gone all in on some of these newer products like-
Yes
GTM.AI?
Look, I think the guiding principle here is tying ZoomInfo to the go-to-market work, wherever that work is being done. When I look at some of the early usage trends for some of that early cohort of customers that are in these consumption products, what I focus on are who are the super users? What customers are doing 10X or 50X what the other customers are doing, and how can we go replicate that across the customer base and the prospect base? I almost describe it as we're delivering for the customers of today and their preferences while also building for the customer of tomorrow.
As we think about, you're the CFO, how do we think about capital allocation for the business moving forward? You have high margins. How do you think about where you're making incremental investments to potentially drive growth versus areas you can save?
Yeah, I'll start with the margins. I'm pleased that we're continue to guide to margin improvement year-over-year with 37% adjusted operating income margin business. From a capital allocation perspective, we basically rolled out a more expanded capital allocation approach in Q2. That meant in addition to buying back our shares, we started buying back our bonds for the first time. I would expect that that kind of expanded approach would continue.
We're kind of asking every company this, but a lot has changed across software just in terms of how they're using AI internally to be more efficient. We could take this in a number of different directions. Companies are talking about they're building software faster, or, "Hey, we started using models from the frontier labs. Now we're pivoting to model routing to be more efficient, and then we can use that to protect gross margins." Just how have processes internally changed at ZoomInfo year to date around AI?
Yeah, look, there's basically a sophistication curve for AI. I think you need to lay a data sophistication curve parallel to it, where a lot of these, the more sophisticated or more forward AI adopters are also catching up on the data foundation side of it, and that you can't really have one without the other. I go back to there's a long spectrum here of where customers are on that curve. I'll give you an example. We had transactions with two well-known AI companies in Q2. One has basically built a lot of their internal stack for the application side, but they're a big ZoomInfo data customer. Their go-to-market runs on ZoomInfo data and context, and they basically have just built the application on top of it.
Separately, there's another well-known large AI company that bought our application set on a [fit] basis in Q2, where there's like, "We don't want to build any of this. We want to use the full suite solution from ZoomInfo." We have to basically continue to build and deliver in a way that serves both purposes.
You touched on something here that I think is important to ask. Obviously, I hear this debate across all of software and a number of names I cover, and increasingly there's a focus on what is the underlying mode of the software business, especially at the app layer. How should investors think about the underlying mode of ZoomInfo?
Yes, it's still the proprietary data asset. That hasn't changed. What we're adding on top of that is our ability to create a context graph for customers where we're marrying our proprietary data asset with their first party data in a way that becomes actionable for either go-to-market professionals or agents.
Do you think there's a little bit of a disconnect between how they think about the challenge versus what you can actually deliver? I know we've seen that across a lot of software where, and you hear examples throughout the news of companies saying, "We'll do this ourselves. We can figure it out." But ultimately, there are sometimes broad challenges there. How do you think about that as you interact with certain customers?
Yeah. It's almost like a hype curve. There's a lot of early adopters, and then there's kind of a realization phase. We're somewhere along that curve. When I think about the messaging that goes into this, it really is incumbent upon us to do that discovery, to understand where we can plug in to help those customers build out their go-to-market orgs in an AI world.
There's a lot that's changed in the business, a lot of new products. What underlying trend or trends, and we've talked about some, make you most excited in terms of the business as we look out to the next couple quarters of the next year?
Yeah. It's my internal view of the consumption month-over-month and seeing that grow at an exciting pace. I'll go back to just continuing to shift the business upmarket. We're facing software challenges across all of our segments. To the extent that we get beyond that, we're going to have a better, healthier, mixed business that's much more upmarket, that has better economics. If we have an opportunity to accelerate growth there again, I think you're going to have a much more profitable, durable growing business.
We've talked about a lot of different pieces of the business and pretty extensively. Is there anything that we didn't talk about that you think investors are confused on and you want to make sure you clarify for them? Or any kind of broad-based questions that we didn't ask already?
Look, I think what I come back to is we continue to generate a lot of cash, or a very healthy cash generation business. That gives us a lot of options moving forward as it relates to capital deployment. Separately, I'll go back to what I started with, the rapid innovation that I've seen internally from our product and engineering teams in the first half of the year, I expect will continue, if not accelerate into the back half of the year. We're going to have a pretty exciting product roadmap to share with you all.
If we skip 12 months and you and I are sitting here at the Piper Sandler conference a year from now, what do you think we'll be talking about?
Talking about a business that's more upmarket and that has hopefully upside consumption trends that are leading to better financial outcomes.
Perfect. Should we wrap it there?
Yep.
Graham, thanks for being here.
Thank you, Billy.
Appreciate having you.
Yeah. Happy to be here. Thank you.
Perfect. Thanks, everyone.