Good afternoon. Thank you everyone for joining us on the final afternoon of the Morgan Stanley TMT Conference. My name's Elizabeth Porter. I'm an analyst on the US Software Equity Research team, and I am very pleased to have with us today ZoomInfo CEO, Henry Schuck, and CFO, Graham O'Brien. We are gonna take audience Q&A, so there'll be a couple mics that go around at the end. Before we begin, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. With that, Henry, Graham, thank you so much for joining us. Yeah, thanks for having us. Yeah, thanks a lot. Great. I think just to start off, it'd be really great if you could just do a quick overview of ZoomInfo, the portfolio, and why the product is so mission-critical, even in kind of a post-COVID world. Yeah. What ZoomInfo does is it provides sellers and marketers a go-to-market platform that allows them to find and engage with their next best customers. At its core is incredibly high quality data on companies, and then the individuals who work at those companies, and surrounded with insights about those companies when they're in market for certain products and services, when they visit your website, when they're researching your competitors. We combine these signals and insights with this really valuable company and contact data asset, and then build workflow and orchestration around it, so you can take a signal, marry it to a buyer, and then launch a campaign, either a social media campaign, a display ad campaign, an email marketing campaign, or a sales campaign. Great. It'd be great to get your views on the demand environment, especially given that 40% of your sales are more exposed to the software vertical, and we know that those companies are pulling back on spend or just being a little more cost-conscious than the broader economy. First, just starting off on the new demand side of the equation, the full year guidance suggests new demand from new customers is flat to down year-over-year. First, why is that not an aggressive assumption in the current macro environment, and what are you seeing year to date so far from new customer demand? Yeah. Certainly the environment is tough. I think particularly for software companies, many of them are looking to reduce costs or, you know, have gone through, you know, layoff round or whatever else. On the new side, we continue to see strength. It's actually much less impacted. Part of that is that, you know, new is less focused on software vertical than other things. For the last, you know, two or three years, we've actually seen far more growth from more traditional industries than we have from software. The fact that it's, you know, not as software-centric has meant that even in Q4 versus last Q4, we were able to grow revenue from new. When we think about looking forward, what that means is we're continuing to add capacity with respect to our sales team to drive new sales. In a world where we're adding, you know, 15% + more capacity, and we're seeing the outcome of that be flat to down, the efficiency around that team, i.e., you know, the pressure that they're feeling from the environment is lower, and, you know, more materially lower. Our real philosophy around this is that we've gone out and we've talked to a lot of customers. We believe that there's a ton of, you know, opportunity out there. We wanna continue to build capacity because at some point, and I don't know necessarily when that is, but at some point the environment will stabilize, buyer psychology will stabilize, and we wanna make sure that we have the capacity to continue to attack and drive growth when that happens. On the other side of the equation is demand from existing customers. On the net revenue retention side, that has been a little bit more pressured, especially as your customers just aren't adding more new heads in the pace that they had previously. What are your expectations on how NRR could evolve through 2023? What does a more normalized NRR look like, kind of beyond the macro headlines? Yeah. When we look at NRR, it did come down in 2022. That was largely, you know, driven by the end of the year. Really in September, we started to see buyer psychologies change really materially. You know, at this point, our account managers, when they walk into an account, particularly, and, you know, historically, software buyers have been more forward-leaning and the early adopters of solutions like ours. At the beginning of the year, 44% of our revenue came from software companies. You know, those companies are looking to cut costs. They're looking to, you know, reduce their spend on a lot of things. Historically, they probably grew their sales teams, you know, relatively aggressively. Most of them are flat or flat to down, you know, at this point. That reduction in net retention that we've seen is roughly a 12-point drop from where we were in 2021. 10 points of that came from reduced upsell. The remainder came from, you know, a little bit more churn and down sell than we'd seen otherwise. If you can imagine the conversation, historically, we'd walk into a customer and they'd be growing, things would be relatively good. You know, they'd be getting value from the platform, so the renewal was, you know, super easy. We're gonna renew, and then we talk about, "Look, you can get additional value by taking on Chorus or taking on OperationsOS, moving this out to other parts of the organization." Today, we're walking into that conversation, they're saying, "My CFO said that I need to cut costs by 30%. I wanna see this go down." In some cases, the kind of leadership in the company may not know what ZoomInfo is. We've sold kind of to users with a lot of value. We haven't been as good at that top-down motion. Where the senior leadership at a company is disconnected from the problem that we're solving, we're spending all of that time that we used to be upselling folks with just getting to the similar outcome that we used to in terms of renewing at a flat level or slightly down level or slightly up level. That's something that we're working through. We're really building out the sales team to be able to facilitate more of that top-down sales motion, but that's not something that is gonna happen overnight. you know, I think that's a core focus of ours going forward. Great. Moving over to the portfolio, ZoomInfo has invested beyond the core data asset really into this advanced functionality workflows, which can provide a pretty meaningful uplift to your ACV and improve the stickiness of customers. I wanna understand, why does ZoomInfo kind of have the right to win in workflows when kind of historically, you're coming from an advantage in data? Second, kind of where can adoption of advanced workflows go over time? Yeah. Let me give an example of what workflows is, and I think it becomes, like, pretty apparent why data gives us the right to win. In our current workflows product, we're marrying a number of different data assets to orchestrate an outbound go-to-market motion. Take, for example, our intent data. Intent data tells you when a company that you should be selling to is increasing research on your competitors, on products or services like yours. We look at when companies are significantly increasing their research on those subjects to decipher when companies are in market. That's a unique data asset that we have. You marry that data asset to company data, which is a unique data asset that we have, and we can say, "Hey, show me every company that's in my total addressable market of companies with over 500 employees in healthcare that use Salesforce as a technology." Within those companies, I wanna target chief marketing officers and VPs of marketing, and I wanna orchestrate that campaign through display ads, through social media ads, through connected TV, and then through an outbound sales motion where a seller calls into the company and calls my key buyers. That workflow, we believe that every company should be running a number of these go-to-market workflows in their motion. They shouldn't be ad hoc because today, go to any company and find their best account executive and say, "Hey, tell me how you know a company. Mm-hmm ... has a high propensity to buy your products or services." They'll say some variation of, "I saw an intent spike. They just hired a new CIO. They just got funding. They had a good quarter. In their earnings call, they said this or that." They're already kind of marrying signals to the companies they're profiling, to the buyers at those companies to, in an ad hoc way, run a campaign, which is usually just a sales outreach. We think you can take those insights. Actually, our customers are taking those insights, and then they're driving an automated motion at the right companies, at the right people at those companies at exactly the right time. You just can't do that without the signal data. Yep. You can't do it without the company data. You can't do it without the contact data. In some spots, we're also gonna own the actual the endpoint too. Engage, our email marketing and sales automation solution, can actually orchestrate end-to-end that solution. RingLead, our lead routing solution, can then take that universe of companies and contacts and make sure it's being routed to the right person in the right territory through Slack or through email. Those solutions come together in a really organic way that allows companies to really automate their go-to-market motion. When you see this advanced functionality workflows get deployed, how often is it greenfield versus replacing some other existing competitor? How strong can a tailwind of vendor consolidation be for adoption of advanced functionality workflows? In most of our solutions in advanced functionality, it is largely white space. If you're looking at our MarketingOS ABM platform, it's still largely white space. We are gonna bump up against some small private company vendors in that space, but by and large, that is still an incredibly wide open space. Conversation intelligence, I think is something similar. There are vendors out there that are point solutions around conversation intelligence, but by and large, the space is wide open. We are largely evangelizing these solutions still versus taking somebody else out. Where there are opportunities to consolidate, we think we have best-in-class assets that we can bring together under one platform, save dollars for our clients, and consolidate. Great. One of the, you know, headwinds for the expansion side had been just sales efficiency hurdles as your sales reps are spending more time kind of getting these renewals done. What are the steps that the company has taken to help alleviate this bottleneck? Will there be any broader reorganization of the go-to-market motion or new areas of focus for reps, especially under kind of the new CRO leadership? Yeah. I wouldn't think about any changes in our go-to-market organization being like fundamental reshift. Mm-hmm. We run a really efficient go-to-market. Yeah motion. I think if you look across the software universe, we run the most efficient go-to-market motion. Maybe Atlassian runs a more efficient one. One of the most efficient go-to-market motion, so it doesn't need, like, fundamental rework. Mm-hmm. Where we think we have a really big opportunity is in the enterprise. Yep where, you know, today, we have, you know, just under half of the Fortune 1000 as clients, but they tend to be smaller lands. We land in, you know, some small portion of Meta, and then our opportunity there is to continue to grow to many, many more segments across the business. Where historically, like Graham mentioned, we're really good at selling to a practitioner in the business, you know, a director or even maybe a VP-level person. We have over the last couple of years built the team and the motion to have more of a top-down relationship so that the chief revenue officer, the senior VP of sales, really understands who we are and how we're adding value to their company. Ultimately, what we hired a new CRO with a focus on the enterprise business, really because we believe that what we need to do with that motion that's been successful is really to operationalize it, to bring uniform processes and methodologies to that motion, to make that motion more predictable, more repeatable, so that we can continue to rely on it going forward. It is very obviously the biggest opportunity and the biggest unlock in our business. Mm-hmm. In addition to a new CRO, you also have a new CTO who comes from Atlassian. Yep. What are some of the changes that you think that can come about or what are the focus priorities under the new CTO leadership? Yeah, I mean, I think the first thing to think about with our business is this is a $300 million company in 2019. Today it's over $1 billion in revenue. With 1,100 people in 2019, today it's, you know, over 3,000 employees. There's a lot has happened in those years. Our need for people who've seen the movie from $1 billion-$5 billion, who know to know what you have to put in place to continue to scale, to build really high-quality software, but increase velocity at the same time, to build the processes and frameworks for that scale are really important. Bringing those two leaders in has kind of re-energized the business to feel that, not only can we continue to build software in a high-velocity way, we could do it in a high-quality, stable enterprise-grade way. Not only will I sit here and talk to you about how great the enterprise opportunity is, but we're gonna build processes and methodologies and motions to go attack that opportunity and really deliver against it. Great. Moving over a little bit to the M&A side, you have had a history of acquisitions, particularly to build out the advanced functionality piece of the portfolio. Do you guys feel that you have the assets in place to address the near term or the medium-term opportunity? How should we think about the M&A cadence in the near term? Yes, we have the assets to to attack the near and medium-term opportunities in front of us. You know, we did a number of M&A transactions over the last 18 months. We feel really good about the assets that we put together. We spent most of last year really integrating those assets into our core platforms, and that's been really successful. We just released a fully integrated version of ZoomInfo that has Chorus and Engage natively embedded inside of the platform. Right now, I think we're focused on really driving those solutions to our customer base, to new customers, and continuing to, you know, sharpen the knife as it relates to our go-to-market motion. There isn't a acquisition that's burning a hole in my pocket. Okay. Graham, I wanted to ask a little bit about margins. The margin guidance imply for 2023 implies some modest expansion from 2022. You know, where are you finding some incremental efficiencies, just as the revenue growth is slowing down to a bigger degree in 2023? You know, if the environment gets worse, do you have additional levers that you can pull? I mean, certainly, we've always been focused on driving, you know, the best margins we can. I think from a high-growth SaaS company perspective, it's hard to find companies that generate the same sort of margins that we do. We're always focused on how we can continue to, you know, harvest operating leverage in the business and then redeploy that back into investments into growth. Realistically, for the current outlook, we're very much focused on continuing to build capacity from a sales and marketing perspective so that we can take advantage of the opportunities that will ultimately present themselves when the environment stabilizes. We'll continue to grow sales and marketing expense, you know, in line or maybe even a little faster than revenue as we continue to grow. There's natural operating leverage in, you know, many software companies, ours is no exception, with respect to cost of service as well as G&A and maybe to a lesser extent R&D. We're really focused on, you know, making sure that we realize that operating leverage in terms of margin improvement and reinvesting, you know, some of that back into, you know, sales and marketing, where we're feeling pressure from external sources on the efficiency of that team. As the kind of buyer psychology normalizes, we fully expect that that'll help us to accelerate out the other side and actually provide, you know, margin improvement from a sales and marketing perspective as the efficiency in that team. Mm-hmm ... you know, gets better. It doesn't need to get all the way back to where it was in 2021, but it could certainly room for us to improve that and retrace some of that pressure that we felt. When we think about the different operating margins between kind of the core data asset, that is a really just efficient business. As you're going into advanced functionality and those workflows, does that require a higher intensity of costs, and is there a risk that that's dilutive to margin? You know, I don't know that it'll be super dilutive to margin, particularly as you think about the fact that as we started developing, you know, that advanced functionality, it was more dilutive. I think if you look back in history, the area that. Kind of has the most pressure is really R&D. Think about cost of service. Maybe there's a little bit more cost of service related to a software business versus data, but you're doing many of the same things. Obviously, we're selling all of these things in a combined way, so I wouldn't really kind of take those out differently. From a G&A perspective, like, we're just supporting a company. It doesn't matter what it is. R&D is the place where you'll probably see the biggest difference. You look at, if you go wind the clock all the way back to 2018, kind of before we started building out, you know, advanced functionality or even 2019, R&D as a percentage of revenue was, you know, mid-single digits, mid- to high-single digits, around 6.5%. You know, I think that's relatively typical for a reasonably efficient kind of data-focused company. Yeah, at this point, it's climbed up to be, you know, in the low teens. You know, we've continued to invest into the data portion of the business, but it's still probably 6.5% or, you know, in that range of what you would consider to be that data business. If you parse out the advanced functionality, you said, for the, whatever, 69% of the business that's not advanced functionality, you multiply that times 6.5%. On the flip side, the investment that we're making effectively into the advanced functionality part is closer to 20. It might even be a little bit above 20. Not that strange for a software company that's generating, you know, if you just said that was software and that's a company, that's a $350+ million, you know, business. Kinda what you'd expect. I think as we continue to grow that software side of the business and it becomes a bigger portion of the overall revenue, there are probably efficiencies to be gained in operating leverage against that. Mm-hmm. That 20% might come down, but the overall contribution from advanced functionality will go up. I feel like staying in that kinda low teens range on a weighted average basis is a, you know, good target as we move forward. Great. I'm gonna open it up to audience Q&A in just a minute. Before I do, I wanted to touch on privacy. you know, we do often still get, you know, questions in that area, and I wanna better understand kind of what gives you confidence in where ZoomInfo is situated from a privacy perspective. Yep. I think the way to think about data privacy as it relates to ZoomInfo is first that we only collect information that's connected to a person in their business context or employment context. You'll find that same information on a resume or a business card. If you go around that, we've done a number of studies here where we ask consumers, "Do you believe that information to be sensitive? Compared to all of this other information that companies collect on you, where does this information fall from a sensitivity perspective?" They don't believe this information to be sensitive. In fact, that's also backed by, if you look at any of the privacy legislation that's been passed, every single one from the CCPA to the PIPEDA in Canada to the GDPR carves out business contact information as non-sensitive information or not applicable to the statute. Canada, specifically, there's one type of information that it calls non-sensitive information, and it's business contact information used for business sales and marketing. Every state that's passed legislation in the United States says information collected in the context of an employment or commercial context is not applicable to this statute. The GDPR, and we hired last year the Deputy ICO Commissioner, who is responsible for enforcing the GDPR in the UK and Ireland as our chief compliance officer. The GDPR Legitimate Interest 6 specifically says that if you're using this information from a, for a direct marketing perspective, that it complies with the GDPR. One thing that we weren't sure of, because the GDPR has not been, like, fully litigated in Europe, was whether our interpretation of the GDPR was the actual when the rubber met the road, was that gonna be the interpretation of the tribunals or the ICO? What we saw most recently is, there's a case in the ICO in the UK where, well, with Experian. Mm. Experian collected a lot of credit ratings data. Then they built a marketing product on top of that credit rating data. Our interpretation of the GDPR and what we've done globally is that you need to give consumers transparent notice of the information that you've collected on them and then the ability to opt out of the collection of that information. We've gone out in every jurisdiction, regardless of whether there's a privacy statute, whether the privacy statute exempts business data or not. We've gone out, given notice to every consumer we've collected information on. We've given them an automated way to see that information, to update that information, or to re-remove that information. That Experian decision that recently came out makes it really clear that that is the construct of the GDPR, that transparent notice is required, consent is not the only door into the collection of information. So I feel more confident today about our stance from a privacy perspective than I've ever felt. Feel really good about the privacy team that we've put into place and the global notice and opt-out structure that we've put into place. I feel especially good that these regulations, they are designed to protect harm, and they're designed to protect the most harm, children, your healthcare information, vulnerable adults for by through fraud. They are not designed to protect the information that is in every single company's CRM system, marketing automation system, that'll exist on every person in this room's business card. That is not the information that's designed to be protected by these statutes. That's very clear by the fact that they specifically exempt out that information in all of the statutes. Great. To be clear, kind of the, some of the more incremental confidences you now have in? Yep ... this ruling that kind of puts in place what you guys have been saying all along. Not that, not just that, but since we went public in 2020, there have been, you know, close to 12 state, laws that have been passed around data privacy, and every single one includes this carve-out for employment or commercial contacts. Great. Do we have any audience questions? One up front here. We're large holders of your stock. Thank you. We think you have an amazing balance sheet. You generate lots of cash, and we think you're fairly attractively priced. I think if we look across other software companies, that might not always be the case. I guess, given those conditions, what's the reason not to be active purchasers of your stock in the market, given you might not have enough investment opportunities given how much cash you generate? Certainly we're always thinking about capital allocation and, you know, what we should be doing that. The conversations that we have internally to date have largely fallen into there is a premium to cash in an uncertain environment. We have been very successful with M&A in the past. While there aren't anything that's short term actionable that we're focused on, you know, this sort of environment can lend itself to opportunities where assets are, you know, underpriced and could become attractive. Certainly as we, you know, continue to move forward and grow, I think there will be opportunities, and I think our expectation is that at some point we'll move into a, you know, a mode where we're consistently, you know, returning capital to shareholders. Certainly the mechanism that we would likely start with would be, you know, buying back shares in the, in the market. We haven't gotten to that point yet. somewhat, you know, real opposite side is, you know, Henry, we have seen some more increased activity on just sales of shares, you know, by you. Any sort of color that we can help to understand, you know, why kind of now, you know, at these prices? Yeah. At the end of 2021, we collapsed the Up-C structure in the company, which was a very shareholder-friendly thing to do. In the process of that, as part of the conversion, I incurred a multi-hundred million dollar tax bill without any proceeds associated with it. All I've been doing since then is selling shares in a methodical way, to fund the payment of that tax bill. I'm almost done. Good to hear. Do we have any other audience questions? I'd love to ask one on generative AI. You know, we just heard from Sam Altman. What is that? You missed it. Oh, how'd you miss out? Packed room. Obviously on investors' minds is, you know, this is a brand-new set of capabilities. How is it gonna impact the existing kind of software solutions that we see today? What are the implications for the markets that you're involved in, and how is ZoomInfo positioned for this trend? Yeah, let me give you the big one. Go to anybody who understands generative AI and ask them what the most important part of actually deploying good generative AI in companies is gonna be. They will all tell you that the data asset is incredibly important to the results you're gonna get out of that generative AI. A couple days ago, Salesforce launched this Einstein GPT closed beta. In it, what you see them demonstrating is going into your CRM, identifying your potential prospects and customers, and generating an email to go out- Yep. on them. Which means you're gonna use your CRM data to do that. If you go across any company, just any of them, 100% of them will tell you that they don't trust the data in their CRM system. The idea that you're gonna build an LLM model on top of the data in your CRM, that for the last decade has been an open door for any sales rep to put data in, for any marketer to buy a list from, for any webinar registrant to find its way into, and that's gonna be the data that you go out and build these expensive models on and start interacting with your customers on, it's crazy. The power that we unlock for generative AI is we give you the highest quality business data asset that you can actually use to personalize emails, to identify better customer segments, to understand your customers better. That data asset becomes significantly more valuable in a world where people want to deploy generative AI technologies. On top of that, I would tell you that we spend a lot of time trying to explain to customers why information in your CRM being poor and of low quality creates all sorts of downstream issues for you, from territory planning, to segmentation, to insights that your sales reps are supposed to get out of the system. You wanna shine a big, bright light on the problems that bad data creates. Yeah. -inside of your CRM. Start running GPT against the data in your CRM system. It's gonna highlight how important of an issue that is. There's nobody in the world who can help solve that issue better than we can. Great. Great spot to end. We're up on time. Thank you so much, Henry and Graham, for joining us today. Great. Thank you, Elizabeth. Yeah. Thanks for having us.