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spk12: Good day, and thank you for standing by. Welcome to Zoom Info Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jerry Sositsky, Investor Relations. Please go ahead.
spk11: Thank you, Amy. Welcome, everyone, to Zoom Info's Financial Results Conference Call for the third quarter 2023. With me on the call today are Henry Shuck, founder and CEO of Zoom Info, Cameron Heiser, our CFO, and James Roth, our Chief Revenue Officer. After their remarks, we open the call to Q&A. During this call, any forward-looking statements are made pursuant to the safe harbor provisions of U.S. securities laws. Expressions of future goals, including business outlook, expectations for future financial performance, and similar items, including without limitation, expressions using the terminology may, will, expect, anticipate, and believe, and expressions which reflect something other than historical facts are intended to identify forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the risk factor sections of our SEC filings. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the cautionary statement in the slides posted to our investor relations website at ir.zoominfo.com. All metrics on this call are non-GAAP unless otherwise noted. A reconciliation can be found in the financial results press release or in the slides posted to our IR website. With that, I'll turn the call over to Henry.
spk00: Great. Thank you, Jerry, and welcome, everyone. While the operating environment remains challenging, we delivered results that exceeded our Q3 guidance. Revenue for the quarter was $314 million, and adjusted operating income was $126 million, a margin of 40%. During the quarter, we repurchased approximately 9 million shares of ZoomInfo stock for $160 million, representing an average purchase price of $18 per share. We are uniquely positioned to capitalize on a tremendous long-term market opportunity, which gives us confidence that buying ZoomInfo stock at these levels will drive a meaningful economic return for our shareholders. Since early last year, we have highlighted the challenges of this operating environment, which include fewer upsells, more seat downsells, and elevated churn levels. As a platform that helps customers grow and one that serves some early cycle industries, we have seen net revenue retention and our overall growth rates come down, as customers have had to rebalance growth and profitability. This is a market phenomenon impacting companies across the spectrum of front office applications and not unique to ZoomInfo. When the cycle ends and we are in a more normalized operating environment, companies will be looking to drive growth and we will continue to be uniquely positioned to help them do just that. In this operating environment, we're committed to controlling the controllable and delivering industry-leading levels of profitability while we invest in our customer success and improve the company for the long term. To that end, we are doubling down on product excellence and customer success, investing in improved ease of use and driving quicker time to value for our customers. These investments have driven a 20% increase in product engagement since the beginning of the year. Customers are using more of the platform more often. We're doing this while prioritizing investments in AI data as a service and marketing OS and building our industry leading data coverage and accuracy across the globe. We've rolled out new pricing and packaging at the low end of the market, enabling us to capture more of the market efficiently while simultaneously growing our contributors. And we announced the number of leadership changes that have flattened the organization and given me the opportunity to get closer to our customers. and how we win them, serve them, and grow them. As part of the leadership changes, James Roth, our Senior Vice President of Sales leading our enterprise customer base, has been promoted to Chief Revenue Officer. Chris Hayes, our Chief Operating Officer, transitioned into the new role of EVP of International Expansion. And Dave Justice transitioned into the new role of Chief Growth Officer. I'm excited that James is here with us on the call today and wanted to give him the opportunity to share a few words. James?
spk21: Thanks Henry. I'm glad to be here today. I joined the team in early 2022 because I'm passionate about the product, the vision and the culture that Henry has built. We have the power to drive massive improvements in how businesses go to market with our best in class data, AI powered customer insights and automated workflows. I was a ZoomInfo customer for 10 years prior to joining the leadership team and I have a deep understanding of what our customers want and need from the platform. Since joining, I've gotten to see the value that we are delivering to many of the largest and most sophisticated enterprises in the world. I've been in the room at Workday, Google, Amazon, Verizon, and so many others as we partnered with the revenue teams to build a foundation of data and insights that drive the future of go-to-market. I've been proud to offer that same foundation of go-to-market technology that drives revenue growth at the world's best companies to companies down market across the globe. Over the past two years, I've helped recruit a large portion of our sales leadership, and I'm excited about the team we've put together and the traction that we're seeing in the enterprise. I intend to build off that success, in particular with our million and $5 million plus accounts, while we look for efficiencies in our go-to-market motion through e-commerce and product-led growth.
spk00: Great. Thanks, James. This quarter, we closed transactions with a number of best-in-class enterprises, including Verizon, Walmart, Paramount CBS, Sage Hospitality, Steam Logistics, CDW, Tenant Health, The Washington Post, FranklinCovey, Land's End, and Magellan Health. In Q3, we signed more than 200 deals with more than $100,000 in ACV, including multiple seven-figure deals and a $15 million TCV deal. Some of the largest and most sophisticated companies in the world are going all in on our data, insights, and automation. integrating us directly into the way they go to market. While the software vertical and roughly half of the business services vertical has been impacted, we have seen strong growth in other verticals. In financial services, Wells Fargo further expanded their relationship with us with a seven-figure subscription to our intent and company data cubes. Today, the organization leverages our firmographic data for enhanced segmentation and prioritization, and they use our intent data to identify and pursue additional relationship opportunities as well as to predict potential churn. By plugging ZoomInfo data directly into their go-to-market motion, they're able to deliver more targeted services to their customers and support the retention of high-priority accounts. In telecommunications, a large global provider of mobility, network services, and 5G signed a five-year, nearly eight-figure engagement with ZoomInfo which is now the key data and insight source for their go-to-market teams, ensuring for years to come that they will have the highest quality data as they go to market. Another mid-market telecommunications firm who had left for a competitor 10 months earlier boomeranged back and expanded with a multi-year, multi-seven-figure engagement that encompasses the full array of our platform offerings, including SalesOS, MarketingOS, OperationsOS, and DAST. consolidating out multiple providers in the process. From a product perspective, we continue to focus on delivering customer success with easy-to-use features that drive quick time to value. These investments are paying dividends in the form of improved customer satisfaction and higher engagement. NPS rose seven points year-over-year with growth every quarter. Our recent AI enhancements to Chorus have increased NPS for that product by 22 points year-over-year, and overall product engagement has increased by more than 20% this year. We also continue to receive market recognition. Snowflake named ZoomInfo an enrichment data category leader in their 2023 Modern Marketing Data Stack Report. ZoomInfo obtained an AWS competency relative to our expertise in digital customer experience, and we also stand in the top 0.01% of companies with the most number one rankings being awarded 101 number one rankings in G2's fall report. We're leveraging new AI technologies and partners to create customer-facing insights and drive data collection and validation at scale. On the customer-facing side, we're now extracting strengths, weaknesses, opportunities, threats, and other insights from earnings calls and public filing, which, when paired with our highly accurate data, scoops, intent, and other insights, provide sellers with the key insights they need to engage an account and close a deal. LLMs are also integrated into our existing profilers and data validation pipelines, helping us understand the validity of a human name, title, and educational data listed on a profile, and driving further improvements in our industry-leading accuracy, which sits at an all-time high coming out of Q3. We've also been incredibly focused on our international data offering, and following recent significant investments there, our customers now have access to over 200 million business contacts in markets outside of North America. In the last two years, we have grown the number of global companies in our data platform by more than 6x, while tripling the number of global contacts and the number of global mobile phone numbers available to our customers. In continental Europe specifically, we've expanded our mobile numbers by 13x while growing mobiles in the UK by 6x. With this expanded coverage, global sales teams can count on ZoomInfo when targeting international markets while knowing that our commitment to ethical data collection and compliance remains front and center. As we continue to move up market, the pace of innovation accelerates and we've been closely partnering with our customers to push the envelope on what modern go-to-market looks like. Cutting-edge go-to-market teams are no longer working in traditional sales systems such as the CRM. They deploy data analysts and data science teams to take a holistic look at their customers and market, and then they use AI to drive sales planning, account prioritization models, next best actions, and more. AI is only as good as the data powering it, So in the third quarter, we launched our integration with the Google Analytics Hub to help these data science teams unlock the value of ZoomInfo insights and models directly within Google's cloud data warehouse BigQuery. This reduces the time and resources needed to execute AI initiatives and more quickly make business decisions. In addition to accessing data in modern cloud systems, Enterprises must understand a single 360-degree view of their customers to effectively go to market. Our new integration with Relteo, a data management solution, provides ZoomInfo's B2B reference data directly within the master data management capabilities of Relteo, making ZoomInfo more integrated and actionable in the enterprise. Together, we are also launching a joint go-to-market solution for master data management. Our new partnership with the Trade Desk expands our customers' ability to reach more premium publishers, enhance campaign fulfillment, and opens display advertising opportunities around the world. This partnership supports the next generation of features for Marketing OS with international audiences and the ability to support new ad set types within our DSP. As a result, September was our highest monthly ad spend on record for Marketing OS. Downmarket, we've been investing in self-service e-commerce capabilities to ensure that companies of any size have the ability to access ZoomInfo data no matter their budget. We've built more robust trials, the ability to purchase a single sales OS seat, improved pathways and paywalls for in-app upgrades, and a streamlined technology-driven onboarding motion for our self-service users. Overall, we remain focused on improving our platform and delivering results for our customers. By investing to drive a simplified user experience, easier ways to transact with us, and building upon our data quality advantage, we are controlling the controllable. We're confident that when the economic environment improves, these investments that we're making today will position us for long-term growth and success. Before I turn the call over to Cameron, I want to acknowledge our team members in Israel. We have more than 400 employees in Israel with offices in Renana and Tel Aviv. many of whom have been called up to active duty or a member of their family has been called up to serve. We stand with them during this incredibly difficult time, and our number one priority is to make sure that they and their families are safe. With that, I'll turn the call over to Cameron.
spk04: Thank you, Henry.
spk08: In Q3, we delivered revenue of $314 million, up 9% year over year and up 0.6% sequentially. as adjusted for days of revenue recognition. We continue to believe that current momentum in the business is best measured by the sequential growth of annualized revenue, and we do not anticipate material improvements in the macroeconomic environment that could provide a tailwind to activity in the near term. Adjusted operating income was $126 million, a margin of 40%. Gap net income was $30 million, and gap EPS was $0.08 per share. Non-gap EPS was $0.26 per share. We continue to experience pressure with respect to renewals, see customers renewing at lower rates despite improving utilization and engagement. Customers are upselling less and downselling more than we saw in the first part of the year. Additionally, our smallest customers continue to be challenged in their ability to pay, which drove another quarter of elevated write-offs. We continue to expect that this cycle of renewals will be challenging for at least the first quarter of 2024, impacting revenue growth, through the first half of next year. Our greater than $100,000 ACV customer cohort declined modestly in the quarter as we saw continued pressure from mid-market technology companies reducing spend to levels below $100,000. While non-software customers over $100,000 continued to grow. We now have 1,869 customers with more than $100,000 in ACV. Our million dollar plus customer cohort continued to grow year over year And as Henry indicated, we signed multiple seven-figure deals and a $15 million TCV deal in the quarter. Our largest customers continue to expand with functionality, seats, and data as we are increasingly integrating directly into their go-to-market motions. Advanced functionality contributed approximately a third of our overall ECV and continues to grow and provide incremental value to our customers. Within advanced functionality, we are seeing the highest levels of growth from marketing OS, enrichment and DAS offerings, and automation capabilities. Our efficient and high-margin operating model with low capital requirements and upfront billing continues to drive substantial cash flow generation. Operating cash flow in Q3 was $81 million, which included approximately $18 million of interest payments. Unlevered free cash flow for the quarter was $95 million, representing 75% of adjusted operating income. As Q3 is typically a lower conversion quarter, we continue to expect annual unlevered free cash flow conversion in the 90s as a percentage of adjusted operating income. We ended the third quarter with $568 million in cash, cash equivalents, and short-term investments. At the end of Q3, we carried approximately $1.25 billion in gross debt, all of which has fixed or hedged interest rates. We believe that the current environment provides us an opportunity to reduce our share count in a meaningful way, thereby giving remaining shareholders more ownership of the substantial compounding free cash flow growth that we are aiming for in the future. We have also adjusted our stock-based compensation strategy to include performance-based units that are only issued if growth targets for free cash flow per share are achieved. During the third quarter, we repurchased 8.8 million shares of ZoomInfo stock at an average purchase price of $18.19 per share. Through September 30th, we have deployed a total of $247 million of the $600 million share repurchase authorizations and have retired 12.7 million shares representing over 3% of the total diluted shares outstanding. Given our strong free cash flow generation and healthy balance sheet, we expect to continue to opportunistically repurchase shares. Our net leverage ratio is 1.3 times trailing 12 months adjusted EBITDA and 1.2 times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements, down from 1.9 times and 1.6 times respectively as of September 30th, 2022. With respect to liabilities and future performance obligations, Unearned revenue at the end of Q3 was $403 million, and remaining performance obligations, or RPO, were $1.1 billion, of which $795 million are expected to be delivered in the next 12 months. With that, let me turn to guidance. For Q4, we expect revenue in the range of $309 to $312 million, adjusted operating income in the range of $122 to $124 million, and non-GAAP net income in the range of $0.24 to $0.25 per share. For the full year 2023, we now expect revenue in the range of $1.232 to $1.235 billion and adjusted operating income in the range of $494 to $496 million. We expect non-GAAP net income in the range of $0.99 to $1 per share based on 412 million weighted average diluted shares outstanding. We expect unlevered free cash flow in the range of $445 to $455 million. Our adjusted full-year guidance implies 12% revenue growth at the midpoint and an adjusted operating margin of 40%. With that, let me turn it over to the operator to open the call for questions.
spk12: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please be sure to limit to one question and one question only.
spk03: Please stand by while we compile the Q&A roster. Our first question comes from Mark Murphy with J.P.
spk12: Morgan. Your line is open.
spk19: Thank you very much, Henry. I believe you mentioned a $15 million TCV deal that closed in Q3 and It's such a rarity in this environment. I'm wondering if you could possibly shed a little light, first of all, on the contract duration so we can try to annualize it. And also, just what vertical is it that's moving forward with that scale of a commitment in this environment? And then I have a quick follow-up.
spk00: Thanks, Mark. I'm happy to take that. But since James is here with me, I'm going to have him talk to that.
spk21: Yes. So it was a three-year agreement. with a large software company. So the annualized revenue is about 5.3 million. It was actually 15.9 million total contract value. And what's interesting about the deal itself is that it confirms this centralization of data strategy. They've consumed multiple contact cubes, company cubes, firmographic information, and really just going all in with ZoomInfo as the foundational data provider. And that's where we landed it. We ended up growing it and locking it in for a three-year, $5.3 million deal.
spk19: Okay, wonderful. Thank you for that detail. And as a follow-up, Cameron, I don't believe ZoomInfo's revenue has ever declined sequentially in a Q4. I'm wondering if maybe we should sense some conservatism in that forecast, or should we figure that you experienced kind of sufficient downsells toward the end of Q3 such that it would reduce the kind of top-line trend there and that, you know, potentially you do end up kind of just with a modest downturn.
spk08: Thanks, Mark. So, you know, the environment does continue to be challenging, and we are expecting net retention for the year to be below 90%. You know, as a result, in Q4, which is our highest period for renewals, You know, that net retention below 100% creates a headwind that's amplified by the higher concentration of renewals. So, as we've discussed, we believe that this renewal cycle, at least through the first quarter of 2024, will be challenging. I think, you know, if we look beyond that and you look at our renewal cycles, 90% of our ACV will have transacted between September 2022 and March 2024. So we're really focused on getting through this cycle. And while there is some tale of longer-term agreements after that, we'll have worked through most of the space by the end of the first quarter. Thank you very much.
spk12: One moment for our next question. Our next question comes from Tyler Radke with Citi. Your line is open.
spk06: Yeah, thanks for taking the question. So I'm just curious. what you've seen so far in the month of October and, you know, specifically within the software and business services vertical. It sounded like that largely performed in line with your expectation, but just any updated thoughts if you're seeing any green shoots emerging or if things are getting better or worse. Thank you.
spk00: Thanks, Tyler. You know, October looks a lot like September and Q3 looks, so we haven't seen any improvement in the environment. I think overall in the business, we continue to have more success outside of the software and business services verticals. And so we're seeing that in October as well, but nothing different than what we saw in Q3. Thank you.
spk12: One moment for our next question. Our next question comes from Brad Zelnick with Deutsche Bank. Your line is open.
spk13: Great. Thank you very much for taking my questions. Henry, it's clear you're leaning in on AI and hearing the enhancements in Chorus driving your NPS score 22 points higher is really impressive. But in a world where Microsoft has sales co-pilot, Salesforce has sales GPT, how do you ensure Zoom info is front and center as the interface sales professionals continue to use for the greatest insights and productivity in helping them hit their number?
spk00: Thanks, Brad. I think this all comes down to the data and insights that we provide. And it's one thing to be able to provide insights on data that exists in your CRM or data or insights that exist on the public web, but the vast amount of proprietary, non-publicly available data and insights that we collect and are able to use AI and LLMs against, that's what is making our product even more relevant for sales users. And without that proprietary data, without the information that sellers need to actually engage with their customers and know when to engage with their customers, Any AI you put on top of just generic data doesn't spit out relevant insights for a sales rep. And so we're really confident that the underlying foundation of data and insights that we have at ZoomInfo, which is proprietary and not available publicly, is what will drive that pane of glass for sales reps.
spk13: Thank you for that, Culler. And maybe just for you, Cameron, with RPO and CRPO down sequentially amidst everything that's going on, how much of that might be duration or anything else maybe to call out and what needs to happen to see booking stabilize? Thank you guys.
spk08: Yeah. So, you know, as we mentioned, we do focus on sequential growth and annualized revenue as, you know, the primary metric to assessing period activity and momentum.
spk09: Yeah.
spk08: That was, you know, down at a 0.6% in Q3. So it is reflective of the challenges that we're seeing from the environment. You know, Other metrics can be influenced by other factors, including changes in the mix of contract lengths and billing terms and write-off assumptions. Probably the biggest one of those that showed some volatility was write-off assumptions, which have increased during the course of this year and specifically impact RPO in a negative way.
spk04: Understood. Thank you.
spk12: One moment for our next question. Our next question comes from Michael Turin with Wells Fargo. Your line is open.
spk06: Hey, great. Thanks. I appreciate you taking the question. And Cameron, I appreciate some of the color you're making on retention rates and the impacts that you're seeing. Is that comment you made around the challenges you're seeing potentially lingering until the first half of next year, is that mostly a function of getting through this heavier renewal period? And is it similar to what you're assuming as to what you'd expect for the first half from a retention or sequential growth perspective, if that holds. And maybe just for Henry, as a compliment to that question, are there certain processes you're able to put in place to help with those renewal conversations as you're having more of those and have had more time to build response? Or maybe anything new you're doing on the good market side just as you work through the renewal period at the end of the year? Thanks.
spk04: So I think I'll kick off there.
spk08: And thanks for your question. You know, again, I think we've talked about with a number of people in the past that, you know, our view is that peak negativity, particularly with respect to layoffs and, you know, many other factors kind of occurred in the Q1 2003 period. And therefore, you know, we do think we need to get through the renewals with our customers. And, you know, as I mentioned before, you know, between September 22 and March 2024, we'll have transacted with approximately 90% of our ACV. And I think we really need to get through that period of having renewed or sold ACV with those customers ahead of time. The assumptions really are very focused on renewals. New business continues to you know, be relatively strong. Obviously, you know, the environment impacts that as well. But the sales efficiency of our new business team and the demand that we see continue to be, you know, good out there. And we continue to bring on new customers to support that. So we're really focused, you know, much more on mitigating and, you know, getting through this renewal cycle that we're in right now.
spk00: Thanks, Cameron. I think the big things we're doing from a process perspective, Michael, on renewals is number one, we're getting at them sooner. And so we've built a robust set of health scores for our customers that take into consideration product engagement, product usage, provisioning of user licenses, integrations, and usage of specific products and functionality. And so we have a much clearer view the health of an account and we're engaging with them. Our account managers and our CSMs are engaging with them based on those health scores. And so we've been proactively reaching out to those clients who come up for renewal in Q4 and Q1 throughout the back half of this year. And then I talked about this a bit on the last call, but we have a really broad product portfolio. And so we have opportunities within the customer base. If you have one product, got downsold or a customer had a big layoff and so they have less licenses that they need for Sales OS, we're able to bring them into Chorus or Operations OS or other parts of the product portfolio. And so we've been leveraging that in renewal conversations as well.
spk04: Thank you.
spk03: One moment for our next question.
spk12: Our next question comes from Brent Braceland with Piper Sandler. Your line is open.
spk23: Thank you. Good afternoon. Maybe we'll start with Cameron. One quick follow-up for Henry. Cameron, you're obviously talking about challenges here in Q4, guiding to a sequential decline in Q4, talking about continuation of challenges into the first half. Should we also think about small sequential declines into Q1, Q2 before you see a reacceleration? And then one quick follow-up for Henry. Thanks.
spk08: Yeah, so we're not guiding to 2024 at this time. And frankly, I think for all software companies, it's probably less visibility further out than there has been historically. We do continue to expect that this more challenging renewal environment will persist through at least Q1 of 2022 and will impact sequential revenue growth through the first half. Once we're through this cohort of renewals, there is the opportunity to drive higher growth rates. But it remains a challenging operating environment, and we certainly don't want to get ahead of ourselves as to when exactly that reacceleration might occur.
spk23: Makes sense. And then, Henry, for you, obviously, clearly a challenging environment. You're still finding ways to close large deals. My question is on the boomerang deal. Surprised to hear a customer switched 10 months later. They're coming back. Can you just give color around that? what drove kind of the boomerang deal back to ZoomInfo, and how should we think about that going forward? Thanks.
spk08: Brent, really quickly, I just wanted to clarify, I'm at Q1 of 24 there in that response.
spk04: I think I misspoke. Thanks, Henry. Yeah, thanks, Cameron.
spk00: Brent, I think When I started this business 17 years ago, I started it with the premise that high quality data made a major difference in the way companies go to market. And there have been cheap alternatives to what we offer for the last 17 years. And if you're not doing your diligence and you're not an incredibly sophisticated buyer, you can make a switch and then you realize almost instantly that high quality data does in fact make a difference in your go-to-market motions. And that's what we saw here. We saw a customer who switched to a low-priced offering and then immediately came back and meaningfully increased their spend with Zoom Info and did it across the platforms. And we've always competed in a way that said, when you have high-quality data, whether you're an account executive, an account manager, a sales development rep, a marketing operations professional, CMO or CRO, that information makes a meaningful difference in the way that you acquire find and grow your customers and customers see that and so there are a lot of boomerang customers that we find who go try something new and then immediately come back and in this case not only did they come back but they meaningfully increase their spend with us helpful color there thanks one moment for our next question
spk12: Our next question comes from Koji Ikeda with Bank of America. Your line is open.
spk02: Hey, guys. Thanks for taking the question. Maybe a question for Cameron here. You mentioned from September to March of 2024, you'd gone through about 90% of your ACV, leaving 10% that still needs to be renewed. But the way I understand the comment was that of that 10%, some of them have already down downsold in the second quarter of this year. So maybe could you help us describe the composition of that remaining 10% of ACV post-March of next year?
spk08: Yeah, so to be super clear, those are about 90% are customers that we've transacted with from September of 22, and we began to see real significant headwinds from the macroeconomic environment through what through March of 2024. So those are longer term contracts that transacted sometime before September 22, and therefore were likely in a more constructive environment when they initially entered into that contract. So that remaining 10%, those do tend to be larger customers, but there is some risk for those customers that they would you know, perceive a worse environment than when they transacted either in 2021 or the beginning of 2022 as they come up for renewal, you know, later in 24 or, you know, potentially even later than that.
spk02: Got it. No, that makes a lot of sense. And I wanted to ask a question, a follow-up here on the 100K plus ACB customers. You know, as we look at that metric, this is the third straight quarter of sequential decline here. And if we continue to kind of pull forward a similar pace, it would actually imply a year-over-year decline in the fourth quarter. So maybe you could help us decompose this metric a little bit. And X technology, did this metric grow? I mean, that would be super helpful to understand.
spk08: Yeah, I think in every quarter this year, X technology, and honestly, if you just strip out mid-market software, so these are kind of – you know, largely venture-backed, you know, software companies. If you strip out that, this metric has grown every quarter this year, you know, quarter on quarter, and obviously would continue to, you know, show growth as a result.
spk04: Got it. Thanks for taking the question. Thank you.
spk12: One moment for our next question. Our next question comes from Alex Zukin with Wolf Research. Your line is open.
spk06: Hey, guys. Thanks for taking the question. I guess on the same vein, I wanted to ask about NRR. Kim, you mentioned it was sub-90%. Does this feel like a bottom, and now we're kind of taking that rate over a larger cohort here into Q4, or is this something that gets to the mid-80s or the low 80s in Q4 and Q1? And then just on the margins, just can you remind us, given I think that there was a slight tick down on the guide on operating margins, like what's the It sounds like the first half will be continually challenged from a revenue growth perspective. Are you going to grow OPEX by more than or less than revenue growth during this period?
spk08: So with respect to net retention, it continues to be a tough world out there. I think when we set up the guidance, we do assume that it continues to have an impact and a negative impact on net retention. And then with respect to margins, our goal right now is to maintain margins in that 40% level on an annual basis. I think historically, if you look at seasonality of margins, we do tend to have somewhat lower margins in Q1 and Q2, just based on the way that revenue recognition sets up and typical merit cycles and so forth. realistically, I think we're aiming to keep the annual margin at that 40% level, but I think we should continue to think about seasonality and how the historical seasonality of margins has played out.
spk06: Got it. And then just a clarifying follow-up. I know we're not guiding to next year at this point, given the lack of visibility, but again, if you just take the second half of days adjusted sales revenue growth or sales upstanding. Is that the right way that we should at least start to conceptualize the first half for next year, just so we can kind of all get our models in the zone?
spk04: Yeah, so I think we've consistently said that, you know, we continue to see –
spk08: We continue to see challenges with respect to the environment and we'll see challenges through at least Q1 of 2024. So in my mind, the range of sequential growth that we've seen in 2023 is a good starting point for that time period. Certainly we think that there's the opportunity to accelerate after that, but I don't want us to get ahead of ourselves as to when that acceleration will occur, just based on the uncertainty in the market.
spk04: Perfect. Thank you, guys.
spk12: One moment for our next question. Our next question comes from Elizabeth Porter with Morgan Stanley. Your line is open.
spk07: Hi, thank you. You have Ryan Bresner on for Elizabeth Porter. Thanks for taking the question. On sales efficiency, you mentioned in Q2 that trends ticked down slightly in June after showing signs of stabilization in Q1. Any update maybe on how this particular metric performed in the quarter and what steps you can take to kind of help this into a better demand environment going forward?
spk08: Yeah, sure. So, you know, the environment does continue to get more challenging, and that particularly impacts sales efficiency, more so existing customer sales efficiency than anything else. So, That efficiency with our existing customers does continue to be challenged and is more challenging in Q3 relative to Q2. New sales efficiency continues to hold in there reasonably well. I think as we've talked about before, we do see a much higher concentration of our new sales with companies outside of the technology space. which has helped us basically go after customers where there's more demand right now.
spk07: Helpful. Thank you. Maybe it's a quick follow-up. You made a few recent changes at the leadership level. Can you just – any quick comments on any changes or impacts we should expect from these going forward?
spk00: Yeah, look, I think the – I talked about it in the call. I think the big – Opportunity for me and for the business is a flattening of the organization that gets me closer to our customer base, closer to revenue and customer success and customer support. I, over the last 60 days, have met with over 200 of our account executives and account managers and roundtables across the company. I'm constantly meeting with our customers, and I don't anticipate any meaningful changes changes that come from these leadership changes. Thank you.
spk12: One moment for our next question. Our next question comes from Cash Rangan with Goldman Sachs. Your line is open.
spk18: Thank you very much for the color here, guys. How seriously is the company taking the attrition rates, which seem to have spiked especially among, as you characterized, the mid-market businesses. Some of it is not controllable if somebody's going out of business or just adding fewer salespeople or letting go of salespeople, completely understand. But when you isolate those instances out, what are you learning from the engagement with the product itself that you can make it a stickier proposition that is really part of a complete loop that it's impossible to get unhinged from the data source that you guys have built up. Because it seems to me that the attrition should be contained better than what you're experiencing. But I'm curious to get your thoughts on how you plan to fix this. Thank you so much.
spk00: Hey, Cash, thanks for the question. And I think that's right. I think the way that we've been thinking about We think about this in a number of ways. And if I think about it departmentally, if I start with product and engineering, we've been working really hard to simplify the user experience in our platform and make sure that our customers are not just using Zoom Info as a lookup tool, but actually plugging it in through our workflow solution to an ongoing workflow. What we've seen this year is NPS scores are up every quarter. In course, our NPS score was up 20 plus points on our core sales OS platform. It's up seven points year over year and product engagement is also up meaningfully. And so we're focused on making the product easier to use and then also plugging that product into an ongoing sales or marketing person's workflow. We think obviously those two things drive a meaningful amount of stickiness in the customer base. On the customer success and onboarding and implementation side, We made a number of changes in June in the way that we onboard and implement and deploy our customers to ensure that our customers are seeing quicker time to value. And those are netting out really positively for us. The numbers of customers who are using the product and using the product quicker post-implementation have significantly increased. And so we feel really good about that as well. And we've materially grown our customer success teams. to make sure that we're giving our customers, sharing with our customers best practices, solving support issues for them in a timely manner, and we'll continue to invest across all three of those areas.
spk18: Got it. Thanks, Henry. And also given the divergence between the retention of large customers versus the middle of the curve, how are you planning to win those customers back? Granted that you had that one big boomerang, the other customers in the middle of the bell curve, that have defected. What's the company's plan, if any, to bring them back? Thank you so much with that.
spk08: Yeah, Cash, I think it's worth noting here that the churn rate has actually not significantly improved. It's a little worse than it was, say, in 2022 or 2021. But the big driver of the net retention change is much more that we're seeing reduced upsell and more downsell. So I'd say that the biggest difference is not that we're losing these customers, it's that they're spending less with us. A bunch of that has to do with lower seats. Some of it has to do with tighter budgeting. But realistically, I think for the vast majority of cases, it's not a loss of a customer, it's a reduction in the spend with those customers. that's changing the net retention.
spk03: Thank you. One moment for our next question.
spk12: Our next question comes from DJ Hines with Canaccord Genuity. Your line is open.
spk16: Hey, guys. Thank you for taking the question. Henry, I feel like you've talked a bit more about data as a service or enrichment of late and the potentially favorable economics that accrue there. My question is how recurring those DAS agreements generally are. I mean, is it a situation where customers spend a lot on the effort up front and then less in maintenance in subsequent years? Or is there an ongoing commitment to enrichment that makes those revenue streams more linear or recurring in nature? Like, how does that typically work?
spk00: Yeah, so those are recurring subscriptions to our data and our data to live alongside their CRM data, their Snowflake or Databricks data. Obviously, one of the key parts of our offering centers around the fact that this data is constantly changing. There's no company that looks the same on December 31st as it did on January 1st. And over... 30 plus percent of people are changing jobs or getting promoted or getting into new roles. We're tracking all of these changes at scale. And not to mention, there's these influx of new companies being started and incorporated that we're staying on top of. And so we're feeding those changes in a real-time way into our customers' systems of record, whether those are marketing systems, enterprise data warehouses, or CRM. And so those are ongoing contracts for us. One of the things that's worth mentioning here is when you hear about me talking about this, it is largely about us being super excited about the AI opportunity that we're seeing. And what our customers are saying to us, and they're showing up at our doorstep saying, the C-level wants us to drive generative AI in our outbound prospecting motions. They want us to be using AI and LLMs in the way that we contact and and prospect and communicate with our customers. But the data that we have in the systems are just not robust enough. They're just not accurate enough for us to actually take advantage of that. And so when we show up and we talk about data as a service, we have the opportunity to come and really drive their AI motion. And we've had these conversations all across the enterprise. We have them in the mid market. And in the SMB, we're able to drive a lot of that workflow directly from our platform. And so we think the AI opportunity and the focus on AI really gives our data as a service offering the spotlight.
spk16: Yeah, appreciate the color. Thank you.
spk12: One moment for our next question. Our next question comes from Joshua Riley with Needham. Your line is open.
spk15: Yeah, thanks for taking my questions and a nice job executing here in that tough environment. You mentioned the expanded international coverage. How are you prioritizing the expansion of the company and contact database internationally? Are you going by geography or some other way of expanding that? And then what inning are you in in terms of getting the international database where you want it to be to kind of properly monetize it?
spk00: Yeah, great question. Thank you. We are going where our customers go. And so we have a tremendous amount of telemetry built into our our platform. And so we're able to see how our customers are searching across our platform, what they're looking for and what countries, what size companies. And then we're doing a number of user surveys to understand when we do have the information, what else would they like to see? And so when you see the growth in contact information, mobile phone numbers, whatever that is, it's being driven specifically from where we see our customers searching and where we see our customers telling us they want a deeper, more robust coverage and actionability. And so we've done that country by country, region by region. I would tell you, you know, we're probably, we are obviously monetizing this solution. We think the solution that we have internationally is far and away a better solution than anything competitively, even solutions that are native in Europe or internationally. So we feel really strongly about that. We think there's still a great opportunity to enhance the data asset. So I would tell you we're somewhere like the seventh inning stretch.
spk15: Got it. And then, you know, with the stock price obviously depressed here in the near term and you bought back 8.8 million shares, how should we think about leaning further into the stock repurchase over the next several quarters, given you still have a fairly healthy amount in the current authorization? Thanks.
spk08: Our plan is to continue to opportunistically repurchase stock based on where it's trading relative to what we perceive as the long-term value. I think at these levels, we'll continue to lean in. We do have a fair amount left on the authorizations that we currently have, but we've continued to buy stock in in October, and we'll continue to do that going forward.
spk03: One moment for our next question.
spk12: Our next question comes from Taylor McGinnis with UBS. Your line is open. Yeah, hi.
spk01: Thanks for taking the question. So last quarter, I know part of the hit was customers who had renewed lower in the past still renewing lower. Now that we're in the fourth quarter and coming up on lapping some of the bigger layoff activity, just curious for those who did layoffs at this time last year, can you comment on how those conversations are progressing? So are you still seeing them take down seats further? Is that trending better than expected?
spk03: Would love just any thoughts there. Thanks.
spk04: Overall, it continues to be a tough environment.
spk08: We do continue to see you know, customers that, you know, renewed at lower levels last year continuing to, you know, have pressure with respect to their, you know, purchases this year. So, you know, I'm not convinced that, you know, most of the way through October that we've seen, you know, kind of customers that, you know, made really big layoffs last year. So it's a little hard to, you know, compare for those customers that are, you know, didn't really get through their cycle of negativity until, you know, February or March, you know, where exactly, you know, they're coming out given that those layoffs in many cases happen, you know, later in their cycle or particularly for customers within multiple rounds of layoffs.
spk04: You know, I don't know that we're kind of lapping the easiest comps yet.
spk03: Great. Thanks for answering my question. One moment for our next question.
spk12: Our next question comes from Ramo Linschao with Barclays. Your line is open.
spk20: Thank you. Thanks for squeezing me in. Two quick ones. Cameron, you talked last quarter already about those headwinds that we have till Q1 next year. Compared to your comments last quarter and this quarter, how has your sense changed? Is it about the same what you expected Q2? slightly better, slightly worse, where did you come out there? So that's the first question. And the second question for James and Henry, if you think about a downturn, usually everyone's about cost-cutting, you know, and then you suffer and you see it now. At the later stages of a downturn, people usually start thinking about, oh, I did my cost-cutting, and now I think about sales and sales growth again. Are we at those conversations, at least at the early level yet, or not there yet? Thank you.
spk08: Thanks, Raimo. In terms of where we were compared to last quarter, I think we expected the environment to get worse and it has gotten worse. I don't think we see any trends currently that the operating environment is getting better. In some instances, I think it's largely customer by customer at this point or kind of segment by segment that there are some things that Frankly, I think people are more worried than they were at the end of last quarter.
spk00: Okay. I think the other thing I would add there, Ramo, is if you're in the boardrooms of private equity or venture capital-backed businesses today, there is not a push for the companies to grow faster. There is a push still for those companies to cut costs and get to pull profitability forward or to increase profitability. So I don't think we've turned that corner where investors and board members are pushing their private companies to get back to growth. I think they're still in a either maintain the costs you've cut or continue to cut costs mentality.
spk20: Okay. Thank you.
spk12: One moment for our next question. Our next question comes from Brian Peterson with Raymond James. Your line is open.
spk14: Hi, gentlemen. Thanks for taking the question. This is Jonathan McCary on for Brian. So I think you mentioned non-software growing at a low 20s clip last quarter. Is that still kind of the right ballpark? And then for that non-software piece of the business, how would you categorize the NRR of that category versus the broader figure? Thank you.
spk08: Sure. So I think as mentioned, the operating environment continues to be challenging. And as expected, it was worse than we saw it in Q2. that weakness is not just confined to software, you know, non-software growth did decline. It's, you know, below 20%, uh, this year, year or this quarter, year over year. Um, we do continue to see demand in those non-software industries, particularly in the new business side. And, you know, certainly the, the retention in non-software is, you know, well above what the, you know, overall average is, but we continue to see, um,
spk04: you know, kind of challenges there.
spk03: Thank you. One moment for our next question.
spk12: And our next question comes from Rishi Jaluria with RBC Capital Markets. Your line is open.
spk17: Oh, wonderful. Thanks, guys, so much for taking my question. I'll keep it to one. Henry, you talked a little bit about in your prepared remarks uh, your efforts with both, uh, PLG as well as, uh, leaning a little bit more on self-service e-commerce capabilities. Can you expand a little bit on what you're doing there? What kind of a roadmap will look like and how early traction or customer reception has been from these initiatives? Thanks.
spk00: Yeah. Thanks Rishi. I think, uh, what we've been focused on this year, um, has been really to build the infrastructure and be out in market testing self-service and e-commerce capabilities with our downmarket customer base. And we've seen really good traction that our ability to sell in a self-service e-commerce way down market has grown quarter over quarter, every quarter of this year. And so we feel really strongly about that as we go into 2024. Today, we're focused on We're focusing that offering on the lowest end of the market where we can drive efficiencies by taking a sales rep out of the motion. And then we've built and will continue to build technology onboarding. And so customers can also onboard in a self-service way. We've noticed that we've been able to meaningfully drive up usage and adoption of our platform with our technology and self-serve onboarding, and we think we can continue to make impacts there. I'll tell you, we're in early innings, but we have a lot of confidence about that product and its ability to drive efficiencies and growth in the down market.
spk04: Wonderful. Thank you.
spk03: One moment for our next question.
spk12: Our next question comes from Terry Tillman with Truist Securities. Your line is open.
spk10: Great. Thanks so much for taking the question. This is Bobby Dion for Terry. I'm curious, across the different OS solutions, sales OS, marketing OS, et cetera, are you all seeing any of the segments more resilient than others related to existing customer activity or new customer wins? Thank you.
spk08: And certainly, as we mentioned before, within the advanced functionality, which is really encompassing functionality outside of the sales OS and the add-ons to sales OS, MarketingOS has done really well and it's growing. Obviously, that was a newer product in 2022, but is a place where we continue to see growth. We also see, as Henry's mentioned, a lot of growth in our DAS and enrichment capabilities, as well as automation capabilities, which those land either primarily in the operations OS or, you know, a lot of the automation capabilities, whether that's workflows or engage, et cetera, are part of sales OS. So, yeah, I think it's parts of those OSs that, you know, we're really seeing, you know, more interest from customers. And I think, as Henry mentioned, part of that is, you know, driven by, you know, people looking at their data strategies as maybe driven through AI or preparation for AI. And part of that is them thinking about the efficiency of their teams and looking to automate where they can.
spk04: Thank you.
spk12: Thank you. One moment for our next question. Our next question comes from Jack McShane with Stifel. Your line is open.
spk22: Yeah, hi, guys. This is Jack McShane. I'm from Parker Lane's team at Steeple. Thanks for taking my question. I'd be curious to ask James, what are some of your top priorities and changes you're looking to make in the go-to market of ZoomInfo? And where do you see the biggest opportunities as you step into the new role?
spk21: Yeah, thanks, Jack. So in terms of the biggest opportunities we see, you know, this DAS-led motion that we're seeing in the seven-figure upmarket cohort, we're seeing a lot of success in. The ability to take that into the lower end of the enterprise and into mid-market as well is a big opportunity. Overall, it's just the customer centricity. Henry spoke to it, as did Cameron. Getting the value to our customers, what we see, there was an earlier question on the DAS being a one-time or recurring. When folks ingest that data, they buy more of it in every single example that we see. And so leaning into that as a motion, making sure that that customer success motion is ingesting it into their data lakes, showing them how to activate it. Those are all top priorities because when folks use the full breadth of our platform, we see continued success and continued growth with what they're doing. So those are just a handful. I think over the last 18 months, we've built out a world-class enterprise team and we're seeing the success there. And continuing to do that is what I get extremely excited about across the overall organization.
spk04: That's great. Thank you.
spk12: I'm showing no further questions at this time. I would like to turn the call over to Henry for closing remarks.
spk00: Thank you, everybody, for joining us. We really appreciate it.
spk12: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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