Good morning. Thank you for joining us. My name is Brent Bracelin, co-head of the tech research here at Piper. We have the next Fireside chat here with ZoomInfo. Graham O’Brien is the interim CFO. Given this, might be the first time you've met with the investor audience here, maybe if you could just start out with a background. How long you've been with ZoomInfo, and we'll start from there. Yeah. Thanks, Brent. So I've been at ZoomInfo for over seven years at this point. Came over via an acquisition, actually, from RainKing to DiscoverOrg. And at that point, I switched from, called corporate accounting over to the FP&A side, and I've been leading our FP&A team here for the past six or seven years. Prior to that, I was at Kaseya doing corporate accounting, and I'm a CPA. Great. So maybe we'll start the discussion around the business. Obviously, you've built a pretty impressive business, over $1 billion in revenue, generating over 30% operating margins and free cash flow margins. I think the challenge here that people are trying to grasp with is the business is now contracting, and so maybe level set, what are the top three factors that have kind of created this headwind for the business as you think about a business that we're expecting to decline this year? Yeah, you know, first and foremost, it's been contraction and downsell pressure in our tech and software-heavy mid-market segment. So that has been a trend now for two-plus years. Mm-hmm. And that, that cohort of customers was our biggest driver of growth in twenty nineteen, twenty twenty, twenty twenty-one. Once we had, you know, inflation and other kind of headwinds there, that went from largest driver of growth to effectively what has been the, the biggest challenge from a, a growth perspective. So that segment, in Q2, actually stabilized from a retention perspective for the first time since Q4 of twenty twenty-one. And if you look at. I think we'll, you know, potentially talk about this later, but, from a vertical perspective, software and tech was 40% of our total ACV, you know, at its peak, and then ending last year, it was down to 33%. So we've had significant, downsell pressure there. What we did, you know, right around 2022, is instead of going out, trying to upsell to some of these customers who are good customers, but instead of having 200 sales reps, 250 sales reps, they now had 100 or they had 50, and they were focused on, you know, getting to profitability. We went out, we kept the logo, we showed up as good partners, but we also right-sized some of those contracts. And if you look at Q2 retention, we're starting to see the early signs that we may have reached a stabilization point there. So two years of some headwinds within one of the biggest verticals for you. How do you know that there that it stabilizes here, right? You have one quarter, one quarter doesn't quite make a trend yet, but is the composition of that 33% of the business changing when you look at, like, the size of the software tech companies you're serving today versus, say, two years ago? Not significantly. It is more similar composition- Okay ... different point in a cycle. For sure, we are not gonna look at one quarter of stabilization and take credit for that going forward. We wanna make sure that we are seeing continued stabilization, and then at some point, an inflection back to reacceleration. Beyond that, you know, we asked about kind of the three drivers, right? So I'll -- That is the big one. Yeah. Then if we look further down, we're looking at SMB, and I'd break that into two pieces to get to the three. The first is the write-off issue with SMBs that we experienced starting in 2023, and certainly in Q2 of this year. And that is, you know, mostly a change in how we contract and get payment upfront. And we've addressed that in Q2. The other side of that is the mechanism where we address that to make sure that we are getting cash upfront before provisioning, means that we're running all of our new business through a new essentially, a risk model that effectively disqualifies some portion of new sales where we cannot get cash upfront. What that means longer term is better quality of revenue, better health of customers, but that creates a near-term headwind for several quarters of effectively disqualifying sales that would have likely written off, and that's a headwind to growth in 2024. As we double-click into that bad debt expense, it was $5 million a year. We're looking at $32 million in just the first half. What's the delta there? Are those customers that weren't paying their bills? Walk us through, like, that- Yeah ... that lift from $5 million to $32 million in the first half, and what were the type of customers? Yeah, it's, you know, certainly a big jump up. If you look back at our whole history, the way we have sold from, you know, late twenty-teens through earlier this year, last year, didn't change. 99% of our revenue was on a sign a DocuSign, agree to terms, and we will send you an invoice. We'll collect on that invoice. The rate of non-payment or the risk, or I guess, the risk of non-payment or the rate of write-offs, was fairly consistent over a large period of time. Yep. In that we would write off, you know, 1%, 2%, 3% of that amount. What happened is the profile of the customer, specifically in SMB, didn't really change. Yeah. But the fact that we weren't getting cash upfront, we started to see that the risk of non-payment or write-off rate started to step up in late, basically, second half of 2023. At that time, we went out, we actually doubled our reserve rates to say, "Okay, we're seeing a higher risk of write-offs." Started accruing more and more reserves, stabilized, and then, you know, the cohort that effectively entered a certain point of the aging schedule in the end of Q2, had a higher rate, and we had to reserve against that in the quarter. So the profile didn't change. The, you know, ability to pay is what did change, and, you know, we think or we see some of that as a cyclical outcome of where we are in this economic cycle. What portion of the business, you talked about a third of the business now being, tech-related? How much of the business is SMB-related? Yep. So enterprise is 40%. Forty. SMB is about a third, and mid-market is, you know, just below 30%. Helpful. So maybe we'll go by vertical. Obviously, you talked about the business on the tech software side, contracting. What are the customer mix verticals where you're seeing actually increases or stabilization? Yeah, so you know, we talked about the contraction of the software verticals. What that means is that while we were doing that, while we were proactively going out and being a good partner and taking some downsell, we wanted to make sure that we were also focusing on other verticals, so whether that's financial services, real estate, transportation, logistics, manufacturing, we saw, you know, solid double-digit growth year-over-year in those other verticals, you know, in 2023, and we continue to see solid growth across the non-software verticals, so we've done the work to invest and specialize, and those customers do get a lot of value out of our offering, so that when software does come back and we do get to an inflection point, that we have, you know, a lot of growth vectors. I think about a traditional software company, particularly a startup, they're tied directly to sales rep growth, and oftentimes a direct calling effort. You're obviously powering those efforts. How different is the financial services world or the insurance world or the manufacturing world? Is it a longer sales cycle to convince them, "Hey, there's a better way to leverage the database, leverage a CRM, leverage the contact information, how to sell? Yeah, you know, it depends. I'd say, like, on the. These are generally more mature verticals, right? And one of the biggest unlocks is just having reps that can speak the language of that vertical. Like, there's a bit more evangelizing that needs to go on, like, the importance of data quality and efficiency in sales reps for, I guess, some of these more traditional sales outreach industries. What's great about that, there is a massive TAM still out there across these industries, where it is a bit more traditional. And with Copilot, specifically, we're starting to go from what, you know, people consider as somewhat of a maybe SDR, AE solution to expanding the funnel of opportunity to, like, this is a great tool for AEs, for account managers. And we really start to, you know, go build that opportunity to go wall-to-wall with our current customers, but also for these, you know, customers and verticals that we haven't penetrated as much yet. Maybe before we dive into the next discussion here on competition, go-to-market, I know historically it wasn't organized around verticals. It feels like maybe you're moving towards maybe a little more domain expertise. How, where are we at in that process? So, yeah, historically, specifically on our new sales side, it was a bit one size fits all. You know, the best reps got the best leads. There was not much specialization. The big step we took in 2024 was segmentation first. Okay. So, you know, that means that we have dedicated sales teams that are selling to enterprise prospects, to mid-market prospects, to the higher end of SMB, and you know, that motion, while effectively a created some disruption and friction earlier this year, later last year, what that leads to is, you know, effectively bigger deals down the road. We know those are going to be longer sales cycles for some of those up-market customers, but we've changed the assignment and the incentives for our reps to make sure that we are investing in those sales cycles and getting higher quality customers at higher price points. The verticalization, you know, that's something where I think we're testing it some, and we found good places where we have, you know, what I mentioned earlier, kind of the reps who, like, can learn to speak the language, and then that would probably be the next step down that path. Okay. So segmentation has been a big focus this year. So let's talk about competition. I mean, we get the question a lot, obviously, when businesses start to get challenged, it's not just the macro, like, people are trying to find other reasons. And, you know, Apollo's come up quite a bit as a competitor that's getting very aggressive on price. So walk us through who do you see in that competitive landscape? Does it vary by segment? And then, address the question we get all the time on Apollo. Yeah, I'd love to. We'll start at the top, enterprise. Yeah. You know, we don't see really any direct competition up there. We do see some opportunities, specifically with our DaaS and operations offerings, to go displace kind of incumbents like D&B. But that's the landscape in enterprise. In mid-market, again, really, we don't. The only competition we really see is more of on, like, the ABM side, so a 6sense, a Demandbase, but no one doing what we're doing with Copilot right now. Okay. Then in SMB, there's a long history of low-end competitors in, you know, the lower end of SMB, and that's, you know, that's something that has been there forever. Our focus is efficiently capturing that lower end of SMB. We segment within those segments, right? We want to make sure that for those bigger SMB customers, that there's a large swath of, like, really high-quality SMB customers that we can grow with, that we are still using a sales-led motion, they're landing those customers and putting resources behind those. Then the further down we get, where we really do start to see some of that competition across a few of those, you know, lower quality, lower price competitors, that, you know, we're being, one, prescriptive, where we make sure that we're getting cash upfront. Two, running some of those through a PLG motion to make sure that we're efficiently capturing them. And then we also see, like, you know, as competition ebbs and flows, we've had two or three quarters of our best win-back, logo performance ever. So we are seeing, at the low end, some customers that go for the lower price alternative, but then come back three months, six months later. Have you, obviously, it's a full-featured product, from a platform standpoint. There really isn't tiered functionality. Have you ever considered tiering the functionality at the low end with, maybe a lite version, the ZoomInfo Lite? Or is the goal like, "Hey, we're winning back the business, we feel comfortable, we don't have to have multiple product SKUs to address that part of the market? Yeah, we and we do have a ZoomInfo Lite offering out there. And we're always, you know, effectively balancing what the functionality should be and what price point it should be, that we're comfortable that we're getting, you know, still being competitive there. And then with, you know, with AI, with Copilot, like, there's still ongoing development of where we want to draw the line from a effectively contact lookup offering to a more fully featured solution or offering. And, you know, we're really prescriptive to that, and we're always doing it with kind of resource efficiency margin in mind. I almost made the fifteen-minute mark without talking about AI, but we gotta talk about AI. Copilot, new product, obviously eighteen million ACV, thousand new logos. Maybe walk us through the mix as you think about that business. How much of that is new customers, like, coming onboarding via the Copilot offering, versus, let's say, existing customers that are migrating? Yeah, I'd love to. We're really excited about Copilot. We released it in late May, so, you know, as of the end of Q2, it wasn't even out in the market that long. The eighteen million was ahead of our internal plan. And what's great about that is, like, one, the version of Copilot that's out there that we released in Q2 is the worst version of Copilot that we'll ever have. Like, we've already released 100-plus more features. We have, you know, a really exciting roadmap throughout the rest of this year and into 2025. As it relates to the actual mix of the eighteen million, it's basically three vectors. One is, you know, net new customers, so customer acquisition. In June into July, about 90% of our new sales motion was moving on to Copilot at purchase. The other two motions are, you know, one is the upsell motion outside of a renewal or expiring event, so that's where we have an existing customer, maybe they don't you know, their contract doesn't expire till later this year or next year. We go in, we show them the Copilot, they want it now. We, you know, do an off-cycle upsell and migrate them onto it. And then there's actually, there's the migration at expiration or renewal. So those are for customers that are expiring, they're on a legacy sales offering, and we, we move them over at that time. So we have a mix of that in the $18 million in the, you know, the first five weeks of release. Okay, great. Sounds like we're off to a really good start here. Let's talk about pricing. There's different philosophies around how you price for AI and monetize AI. And, and, obviously Microsoft, in some cases, is embedding the functionality, in other cases, they're gonna charge for it as an add-on. I know, ZoomInfo in the past has replatformed lots of acquisitions, lifted price as you replatformed. It sounds like Copilot is gonna be more of like a replatforming, where you have an uplift on, Copilot as an embedded part of the whole entire platform. Walk us through how you're thinking about monetization. Will there be add-ons, or is it kind of more of a replatform price lift- Sure for the functionality for all? Yeah, and you alluded to it. We've run two similar migration motions in the past. One was following, I guess, both following acquisitions of RainKing and then ZoomInfo. And, you know, that's a strong muscle for us. Like, we got a lot of uplifts through those motions, and we're really confident in our ability to do it again. We view this in that lens, so this is like a three-year migration plan to get, you know, our core functionality all onto Copilot over that period. When we think about uplift, we're thinking about it on a per-seat pricing basis. And in Q2, in that $18 million, we got solid double-digit uplift per seat across those migrations. Obviously, AI is a double-edged sword. In some cases, it improves productivity, and potentially reduces the number of seats you sell. So how do you think about that equation of, like, okay, we're adding a ton of value, but also there might be fewer seats we sell? Yeah, you know, everyone, we hear that some. We don't see it yet. But, you know, I kind of alluded to it earlier, with Copilot, we see a massive expansion opportunity- To new cohorts. What? To new cohorts outside of the sales. Yeah, yeah. So just across the, you know, further across the full sales funnel, right? Yeah. So, like, we've got even within SDR and AE use cases, there's still plenty of seat opportunity, but this really unlocks that account manager, CSM, our account AI functionality in there, that, you know, the traditional tech stack of an AM or a CSM, there's no real substitute for this. And we have a huge opportunity to go out there, to specifically the customers right now, where we do sell to more of a prospecting function, introduce this to those, you know, massive account manager teams and start to show them, like, how much value this can provide. One, from a, you know, save you some time efficiency. But what's really cool about it is it unlocks a lot of incremental top-line opportunity in pipeline that is very unique and kind of offering world, right? AI can help as an assistant, make things more efficient. We can actually add productivity to the top line through Copilot. So you're pushing back on this notion that it's gonna reduce the number of seats because you see just a greater footprint opportunity beyond the sales footprint? Yeah. Early evidence would suggest that's the case. Yeah, like I said, I don't think we're seeing any seat reduction due to AI yet. What I'm excited about is that there's, regardless of that, a ton of white space in the seats within our current customers- Yeah ... where we go and, you know, effectively show that value with Copilot. Great. Let's pivot a little bit to DaaS, and maybe just size the DaaS business today, the opportunity, and maybe transitioning from a seat-based license model to DaaS, what does that kind of spend look like? Yeah. These are for larger customers, but- Yeah. So DaaS, which is part of our larger operations business, is greater than 10% of our total revenue. Very heavy to upmarket enterprise. And, you know, largely, this is based off of a data cube and some level of enrichment and cleanse. So it's still a subscription, but we're often selling to, you know, more of a RevO ps, admin, technical buyer, and it's, like we said, it's not seat-based. We saw this operations business grow 23% year-over-year in Q2, and it's a really great foot in the door to kind of go in, be data partners with some of these really big enterprise customers, and then start to become AI partners with them as well. For a customer that was spending $1 on ZoomInfo before they migrate to DaaS, would they spend $1.20, you think? Would they spend $1.50? Is it different? I mean, is that the right way to think about it, or it's a different budget? I would think of them as, like, no, if you're using our, you know, sales and now our Copilot offerings, like we will sell those as complementary options. Okay. So- So it's an upsell. That's even an upsell on top of it. Yeah. It's a come in, we'll actually do, you know, be your data partner with you, help you on data projects, refresh and enrich that data for your AI projects. And, you know, we've proven that we're already successful in doing this internally. We can go in and show them that they don't need to spend millions and tens of millions of dollars on their data and AI initiatives, and we can be that partner for them via our DaaS and operations, and eventually our enterprise AI offering. Two more questions here for me. I'll open up the audience if there are questions there. Let's talk about go-to-market, right? There's been a lot of changes. You've brought in some new leadership. Like, walk us through the evolution of a lot more products to sell. What's the biggest change that you've made? It sounds like segmentation, but that you also need to still do on the go-to-market side. Yeah, you're right. Segmentation was the biggest one on the new business side. You know, we've been running a best-in-class, I'd say, new business engine for years. And to kind of prescriptively slow that down in certain places to do the right thing in segments was a big change. The other part of that is, you know, using this new business risk model, getting cash upfront, which also, for a period of time, slows down or adds friction to that sales cycle. We're doing the right things on the new business side to make sure that we are, you know, optimized to land business and to move upmarket, even if we are, you know, going through that phase. And actually, we're near the end of that phase where we're starting to lap that sales cycle investment. Then on the retention side, you know, I think two or three years ago, we really started going out and kind of reshaping our account manager org to bring in and to develop people for that upmarket use case. That, you know, the general theme of our go-to-market has been move upmarket, and that will continue to be it as we talked about those mix of segments earlier. We wanna make sure that we're shifting those further into mid-market and enterprise over the next several years. Yeah. So my last question here for you, as you think about, two parts, that's what we do, we ask multi-part questions. Part one, what do you think investors... You've had a lot of conversations with investors here over the last couple of days. What do you think investors don't appreciate maybe about ZoomInfo that, based on the line of questioning and maybe my line of questioning, what, what's underappreciated? And then two, what are you most excited about for next year? Yeah, you know, I think that the growth deceleration, I think, kind of clouds a lot of the positivity we saw in Q2. And, you know, we've struggled a bit over the past few quarters with meeting expectations, and, you know, that totally warrants kind of a skeptical view. So I wanna make sure that we are rebuilding that investor credibility and trust over the next few quarters so that the, you know, what we believe the intrinsic value of the company starts to show through in the stock price. Okay. And then, for most excited is Copilot. Like, this is something where, you know, we've bought, we've developed a suite of products over the last five, six, seven years that, you know, we think is a really strong offering. But to coalesce around one thing as a team across go-to-market, R&D, finance, leadership, and really build this and release it, it's the best product we've ever built, and the roadmap that we have into 2025 is really exciting. Awesome. Graham, thank you so much for coming. Really appreciate your insights and coming and joining us in Nashville here. Thank you. Yeah.