ZoomInfo Technologies Inc. Q3 FY2024 earnings call

• Net retention rates stabilized at 85% for the third consecutive quarter.
• Deployed a new business risk model reducing write-off volatility, with over 55% of new business opportunities transacted through upfront prepayments in Q3.
• ZoomInfo Copilot performed better than expected, with measurable ROI including 25% of pipeline attributed to Copilot-identified opportunities.
• GAAP revenue and adjusted operating income for Q3 were above the high end of previously provided guidance.
• Retired 24 million shares in Q3, with 68 million shares retired since March of the previous year.
• Product innovation focused on expanding the signal ecosystem and strengthening product-market fit for Copilot.

In the third quarter, ZoomInfo reported GAAP revenue of $304 million. The $100,000 customer cohort grew sequentially and now makes up 44% of the ACV. Enterprise ACV represents approximately 41% of the business. The operations business increased 22% year-over-year. Copilot surpassed $60 million in ACV in the quarter, and advanced functionality increased to 38% of the overall business in Q3, up from 35% in Q2.

• Q4 guidance: GAAP revenue in the range of $296 million to $299 million, adjusted operating income in the range of $103 million to $105 million, and non-GAAP net income in the range of $0.22 to $0.23 per share.
• Full-year 2024 guidance: GAAP revenue in the range of $1.201 billion to $1.204 billion, adjusted operating income in the range of $416 million to $418 million, and unlevered free cash flow in the range of $420 million to $430 million.

• Challenges with the SMB segment, where the lowest end continues to be a headwind to growth optics.
• Write-offs still at elevated levels in Q3 but showing signs of abating, with disqualifying risky small businesses being a near-term headwind to growth.

Q: Comment on the demand environment and net retention.

A: Henry Schuck said demand in the up market, especially mid-market and enterprise, is strong, while SMB lowest end is challenged. Graham O'Brien added net revenue retention was 85% for the third quarter in a row, with less down sell pressure in mid-market and more expansion/upsell opportunity from Copilot and operations.

Q: How much of free cash flow per share growth in 2025 is predicated on revenue growth?

A: Graham O'Brien said the priority is growing the top line, with margin expansion and share repurchases as other levers if revenue growth isn't achieved.

Q: SMB dynamics and impact on guidance.

A: Graham O'Brien said the Q2 charge cleared the deck, disqualification of high-risk SMB new sales is a headwind until lapped in Q2 next year, with SMB expected to decrease as a percentage of the business.

Q: Operational margin improvements and Copilot adoption impact on average deal sizes.

A: Graham O'Brien said Q3 operating margin was 37% and Q4 guide is 35%, with Copilot migration driving up ASP.

Q: Copilot feedback and contribution to net retention.

A: Henry Schuck said customers have positive sentiment, with 25% of pipeline attributed to Copilot-identified opportunities and higher engagement rates, contributing to net retention.

Q: Sales resource allocation and SMB vs mid-market.

A: Henry Schuck said resources are being moved upmarket to mid-market and enterprise segments, with a digital self-serve approach in lower SMB segments.

Q: Data as a service business momentum.

A: Henry Schuck said the data as a service business is growing 22% YOY, with strong momentum in enterprise and strategic segments.

Q: Positive drivers for 2025 revenue growth.

A: Graham O'Brien said up market growth, improvement in mid-market retention, and selective SMB growth are positive drivers.

Q: SMB disqualification and guide impact.

A: Graham O'Brien said disqualification is for new business, a near-term headwind but a mid-term tailwind, with higher quality revenue in 2025.

Q: Benefits of agentic solutions for large customers.

A: Henry Schuck said large customers are leveraging DaaS solutions for internal AI use, not for broader market sales.

Q: Difference between SMB and mid-market.

A: Graham O'Brien said a portion of SMB sees value, with lower end SMB being high-risk, and focus on growing healthier SMB customers.

Q: Data moat comparison.

A: Henry Schuck said the data moat is expanding with more contributors, community members, and signal data.

Q: Incremental conservatism in guidance and Copilot ACV.

A: Graham O'Brien said guidance is conservative to meet/exceed ranges, and Copilot ACV of $60 million includes previous growth.

Q: Copilot right to win and agentic capabilities.

A: Henry Schuck said Copilot's foundation is best data asset for go-to-market AI, with agentic capabilities automating tasks for go-to-market teams.

Q: Space consolidation and reactivating dormant seats.

A: Henry Schuck said space will be changed by AI, with Copilot reactivating dormant seats by delivering key signals to users.

Q: Closing remarks.

A: Henry Schuck thanked everyone, noted operating momentum and green shoots, and emphasized delighting customers to create long-term shareholder value.