Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Alex Zukin - Wolfe Research, LLC - Analyst : Hey guys, thanks for taking the time. Maybe just the first one. Henry, can you comment on just the demand environment, what you're seeing kind of exiting the quarter into Q4, how it's changed? I noticed a couple of new customers were kind of in (technical difficulty) I would say, sectors very adjacent to your core, so that was kind of interesting. And then maybe as a follow-up on retention, you talked about gross retention getting better. Is that gross? Is that expansion? Is it both? And kind of how you see those trending over the course of the next three quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 9:30PM, ZI.OQ - Q3 2024 Zoominfo Technologies Inc Earnings Call

Question: David E. E. Hynes - Canaccord Genuity Corp. - Analyst : Hey, thanks. So Henry, you have this $1 per share in levered free cash flow target out there for '24. You also said that you expect to meaningfully grow that in '25. How much of that free cash flow per share growth in '25 is predicated on a recovery in revenue growth? I mean can you get there without a bounce back in the top line?

Question: David E. E. Hynes - Canaccord Genuity Corp. - Analyst : Okay. And then, Graham, while I have you. So sequential growth normalized is minus 2% in Q3. You're guiding to minus 2% in Q4. Is that a good way to think about the early part of next year given the new conservative guidance posture? And do you expect to return to positive sequential growth at any point next year?

Question: David E. E. Hynes - Canaccord Genuity Corp. - Analyst : Yeah, I think that makes sense. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 9:30PM, ZI.OQ - Q3 2024 Zoominfo Technologies Inc Earnings Call

Question: Brad Zelnick - Deutsche Bank AG - Analyst : Great. Thank you so much and thanks for all the disclosure. But I'm hoping, guys, you can just help clarify the SMB dynamics. Because Graham, you say that the SMB changes are largely behind you. But Henry, you're also talking about a more conservative approach into your guidance methodology in next year. So I guess two questions. I had thought in Q2, you cleared the deck, so to speak, as it related to charge-offs for your smallest customer segment. And that hit revenue in Q3, and it was a bit of a cleanup. Are we still seeing perhaps upon renewal customers that are in that segment that are not paying as expected? And are there additional charge-offs that are hitting Q3 and expected forward? And then related to that, as we think about the impact of the stricter credit that you're applying and credit practices in that segment, is that having a more pronounced effect than you would have thought when you came out of Q2? Or is what you thought consistent as you saw it perform in Q3? Thank you.

Question: Brad Zelnick - Deutsche Bank AG - Analyst : Okay. Thank you.

Question: Elizabeth Porter - Morgan Stanley - Analyst : Great. Thank you so much for the question. I wanted to first in on some of the cost reductions that you guys have talked about, including some of the real estate changes that you've made. Any way we should think about some of the early guide rails on operational margin improvements as we look into 2025? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 9:30PM, ZI.OQ - Q3 2024 Zoominfo Technologies Inc Earnings Call

Question: Elizabeth Porter - Morgan Stanley - Analyst : Got it. And then just as a follow-up. On the Copilot side, so it's good to see that adoption there. I just want to understand just given some of the headwinds that kind of we're seeing still across the macro, is Copilot adoption driving up average deal sizes across most of those customers that are taking it? Or is it viewed right now as an opportunity to keep renewals flat despite some of just the broader headwinds?

Question: Elizabeth Porter - Morgan Stanley - Analyst : Thank you.

Question: Parker Lane - Stifel, Nicolaus & Company, Incorporated - Analyst : Hey guys, thanks for taking the question this afternoon. Henry, you look at the NRR stabilization, you see growth in the enterprise segment, maybe less of an emphasis on SMB long term. Wondering if you could talk about any further sales changes or just the absolute number of sales resources you have as you approach year-end and start thinking about how 2025 can be best set up for the business?

Question: Parker Lane - Stifel, Nicolaus & Company, Incorporated - Analyst : Understood. Thank you.

Question: Hannah Rudoff - Piper Sandler & Co. - Analyst : This is Hannah Rudoff on for Brent today. Just one for me. I want to ask about the data-as-a-service business. It sounds like you're seeing really solid momentum with your Copilot product. Just wondering if you're seeing equally strong momentum with the data-as-a-service product?

Question: Koji Ikeda - BofA Securities - Analyst : Yeah, thanks guys for taking my question. I wanted to follow up on a previous question about the exit growth rate for 4Q and thinking about 2025. And so when we do look at the exit growth rate in 4Q, it's a little bit lower than it was during the prior guide. And I get the really conservative part of that. But maybe help us understand a little bit more what we could underwrite in the business momentum, maybe one, two or three positive drivers here that's giving us -- that could give us confidence that 2025 revenue growth would not be flat to even negative next year? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 9:30PM, ZI.OQ - Q3 2024 Zoominfo Technologies Inc Earnings Call

Question: Koji Ikeda - BofA Securities - Analyst : Thank you.

Question: Taylor McGinnis - UBS Investment Bank - Analyst : Thanks so much for taking my question. Maybe on the SMB side. So I know you mentioned disqualifying more than $2 million of higher risk new sales per month versus $1 million prior. But to clarify, is that on existing customer renewals? Or is that new logos? Because I'm just curious how we should think about the growth algorithm, I guess, in the near term being maybe more weighted towards existing expansions versus new logo sales? And then just quickly as a follow-up, in terms of the guide, was there any changes that were embedded in the 4Q guide in terms of how you're thinking about the headwind from SMB and what that might have been?

Question: Taylor McGinnis - UBS Investment Bank - Analyst : Great. Thank you so much.

Question: Arti Vula - JPMorgan Chase & Co. - Analyst : Hey, thanks for taking the question. This is Arti on for Mark Murphy. My question was, I know there's kind of a lot of moving pieces in terms of hiring in the installed base. But for some of these companies that are really investing in kind of agentic solutions and hiring behind that, are you seeing any of that benefit across your installed base, maybe across the larger customers? Thanks.

Question: Arti Vula - JPMorgan Chase & Co. - Analyst : Yeah, that's correct. Building it for the broader market and kind of hiring sales reps to go out there and sell that.

Question: Jackson Ader - KeyBanc Capital Markets Inc. - Analyst : Great. Thanks for taking our questions guys. I just had a question about the kind of the difference between SMBs and the mid-market. So I'm just curious like what is it that SMBs are -- why aren't the SMBs seeing the value that a mid-market customer would that's kind of keeping them from staying on the platform and expanding with ZoomInfo at the moment?

Question: Jackson Ader - KeyBanc Capital Markets Inc. - Analyst : Okay. And then I guess for a quick follow-up. I mean, if we think about -- take all the noise from the last few years, right, the pandemic noise kind of out of our -- if we think to a pre-pandemic life versus today, how should we be thinking about your -- the data moat, right, today relative to your competition? Is it wider? Is it narrow? Or is it about the same? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 12, 2024 / 9:30PM, ZI.OQ - Q3 2024 Zoominfo Technologies Inc Earnings Call

Question: Jackson Ader - KeyBanc Capital Markets Inc. - Analyst : Got it. Okay. Thank you one moment for our next question.

Question: Michael Berg - Wells Fargo Securities - Analyst : You got Michael Berg on for Michael Turrin here. Congrats on the quarter. I wanted to get a better sense of maybe a better characterization of what the incremental conservatism is including here? You talked a lot about the write-downs and the ongoing macro, but maybe some incremental color there. And then I got a quick follow-up.

Question: Michael Berg - Wells Fargo Securities - Analyst : Got it. Helpful. And then in terms of the Copilot, you mentioned $60 million in ACV. Is that incremental to the $18 million in Q2 you saw? Or is it $60 million total since launch?

Question: Michael Berg - Wells Fargo Securities - Analyst : Got it helpful.

Question: Johnathan McCary - Raymond James & Associates, Inc. - Analyst : Hey, thank you. This is Johnathan McCary on for Brian. Just one from us here. Is there any update you can share on the call about ARR split by vertical and how that's performing? Graham, you answered this in part in the software ARR stabilizing or -- software NRR stabilizing. But curious to hear about how the traction is building outside of the software and tech exposure more broadly, if you can give anything there? Thanks.

Question: Tyler Radke - Citigroup Inc. - Analyst : Yeah, thanks for taking the question. If you look out at NRR, can you just walk us through the puts and takes there? It sounds like you are seeing some positive momentum on the enterprise business and presumably the focus on higher-quality customers should provide a benefit to that. So when do you think that starts to improve? And then secondly, as you think about the initiative to reduce the lower quality customers, I believe you talked about kind of extending the restrictions for prepayment to 55% of the customer base. Is that kind of as high as you think you'll go? Or do you think that there's further enforcements and room to take that higher? Thank you.

Question: Tyler Radke - Citigroup Inc. - Analyst : Thank you.

Question: Rishi Jaluria - RBC Capital Markets - Analyst : Thanks so much for taking my questions. Just really quickly, I want to hit again on Copilot. Maybe help us understand how do you feel about your right to win in Copilot especially versus maybe more neutral platforms that can integrate their data? And if you think about maybe the whole kind of argument of Copilot versus agentic AI, can you talk about some of the potential agentic capabilities that you are or intend to build out some of that? Thank you so much.

Question: Rishi Jaluria - RBC Capital Markets - Analyst : All right. Wonderful. Thank you.

Question: Patrick Walravens - JMP Securities - Analyst : Great. Thank you. Henry, how do you see the space consolidating over the next few years? If I step back and look at it, I feel like there's five segments. There's data, there's revenue enablement like Seismic, there's engagement like SalesLoft and Outreach, there's conversational intelligence like Gong, there's revenue forecasting like Clari. You guys have a lot of -- a little bit of these categories already. Where does this all go?

Question: Patrick Walravens - JMP Securities - Analyst : Awesome. If I could ask a follow-up. You made an interesting comment in your remarks about reactivating dormant seats with Copilot. Can you explain that a little more?

Question: Patrick Walravens - JMP Securities - Analyst : Great. Thank you.