ZoomInfo Technologies Inc. Q2 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the ZoomInfo Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Operator instructions were provided. I would now like to hand the conference to your speaker today, Jerry Sisitsky, VP of Investor Relations. Please go ahead, sir.

Thanks, Joelle, and welcome everyone to ZoomInfo’s first-ever financial results conference call highlighting our results for the second quarter of 2020. We are excited to have so many new shareholders joining us today after our successful initial public offering. With me on the call today are Henry Schuck, CEO and Founder of ZoomInfo; and Cameron Hyzer, our Chief Financial Officer. After their remarks, we will open the call to a question-and-answer session. I'd like to remind all participants that during this conference call any forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including business outlook, expectations for future financial performance and similar items, including without limitation expressions using the terminology may, will 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 section of our filings with the SEC. 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 included in the slides that we have posted to our Investor Relations website at ir.zoominfo.com. All metrics discussed on this call are non-GAAP unless otherwise noted. A reconciliation can be found in the financial results press release or in the slides that we have posted to our Investor Relations website. With that, I'll turn the call over to our CEO, Henry Schuck.

Great. Thank you, Jerry, and welcome everyone to ZoomInfo’s second quarter financial results conference call, our first as a publicly traded company. First, let me acknowledge all of our employees for delivering a great quarter. I'm incredibly proud of our team and it's thanks to their hard work that ZoomInfo’s leading go-to-market intelligence platform helps more than 16,000 companies worldwide sell in-market more effectively and efficiently. In the middle of a pandemic, our team rallied to launch the first virtual software IPO in history and we capitalized on that excitement and momentum while delivering a great quarter for our shareholders. The outside validation provided by the IPO has increased morale across our team, and it's helped to validate what we've always believed: that going to market digitally is more efficient and more effective than the analog motions most companies are still using to find their next customer. While every company during this pandemic grappled with how to prioritize investments, efficiently finding their next customer is at or near the top of the list for many executives. In the quarter, our team delivered 40% organic growth with 49% adjusted operating margins and $111 million of revenue. Year-to-date, we have delivered more than $100 million in unlevered free cash flow. That growth is driven by our customers leveraging our actionable insights and intelligence to drive account-based marketing initiatives, sales development plays, territory mapping, lead and demand generation campaigns, sales pipeline reviews, anonymous visitor tracking, ad retargeting campaigns, audience segmentation, and much, much more. ZoomInfo truly sits at the heart of all go-to-market motions. In June, our conviction that the ZoomInfo platform is truly best-in-class across a wide spectrum of go-to-market strategies was validated by G2 Crowd, a well-known reviewer of enterprise software solutions. In G2’s Summer 2020 Grid, ZoomInfo earned 10 number one rankings in market intelligence, marketing account intelligence and enterprise and small business sales intelligence. The G2 awards also highlighted the breadth of our solutions and our ability to impact nearly every aspect of a sales and marketing professional's go-to-market activities as we appeared on 14 different G2 grid reports and were named in five different sections, including buyer intent tools and lead capture. Just a week after the G2 honors, TrustRadius, a customer voice and insights platform, awarded us the number one spot for marketing intelligence software after awarding us the number one spot for sales intelligence software in March. Although we are proud of these awards and the industry recognition we are receiving, we recognize that innovation in our space happens fast, and we are committed to continuing to innovate to maintain our clear market leadership. To that point, we've continued to invest, innovate and enhance our machine learning and natural language processing algorithms around data collection to improve the accuracy and coverage of the data we provide our customers. These investments in the quarter meaningfully improved our collection efforts, delivering up to a fourfold improvement in data throughput. We've continued to enhance our enterprise offerings by adding our intelligence suite of scoops, alerts, company hierarchy and locations, intent and company news through our APIs. Our data engineers deliver the ability to match companies by specific site locations and street addresses, and then surface contacts associated to those locations through the front end of our platform and through our APIs. More customers than ever are taking advantage of the new products and functionalities that we have built and delivered. As an example, between Q1 and Q2 customers using our intent product grew close to 50% while customers of our InboxAI product more than doubled. On top of that, our overall engagement rates are up over 20% across all of our platforms. Without the innovation driven by ZoomInfo, sellers and marketers are blind to their target markets and ideal buyers and are completely reliant on disparate, siloed, and manually updated digital rolodexes to drive the targeting of potential customers and the engagement of decision makers within those targets. Marketers would be forced to drive demand by sponsoring conferences and live events pointed at a broad set of prospects with no insights into their buying intentions or decision making power. This is not the way companies in 2020 should be going to market. For the past two decades, ZoomInfo has been working to change these legacy go-to-market motions, and the pandemic has helped to accelerate this change and has forced the hand of many slow-to-evolve organizations into making a choice: digitally transform or disappear. ZoomInfo provides sellers and marketers the data, insights and technologies that enable everything from a simple go-to-market motion at a pecan exporter in Alabama to the most sophisticated go-to-market planning and execution at multinational corporations like Sodexo and SAP. Our platform enables a new way to sell, one where every sales and marketing professional is just a few clicks away from orchestrating the most targeted and effective outreach possible to clients and prospects. For example, imagine being a few clicks away from segmenting and targeting every manufacturing company in the Pacific Northwest with more than 100 employees, a 401(k) plan that renews in October, who uses Microsoft Dynamics and Oracle NetSuite and who is currently in-market for human capital management software. Being able to take that incredibly granular audience and instantly orchestrate a sales development campaign, a marketing automation campaign, or an advertising campaign to the key decision makers in that audience— that level of targeting and go-to-market sophistication would take a team of data scientists, engineers and data collectors years to establish and would only be available to super-enterprises with very deep pockets. Today, through the combination of a robust contributory network, a constantly evolving machine learning and AI engine, and human researchers, ZoomInfo democratizes that capability to every sales and marketing professional who needs to hit their number every month, quarter and year. The old way of going to market without this real-time on-demand data is finished. It's finished in the enterprise. It's finished in SMB. If your idea of going to market was having expensive sales reps wander the hallways of major corporations looking for the next opportunity or spending millions of dollars on a large event presence with the hope that someone with budget and attention would stumble across you, then this pandemic has compelled you to realize that those methods were not only incredibly sub-optimized, but also now wholly unavailable. Pandemic or not, we've seen companies continue to raise their hands to this change. On the new business side, during the quarter, we onboarded more new customers and more new customer ACV than ever in our history. We released our new platform 10 months ago, and today it accounts for over 50% of our total ARR. Even in the hardest-hit industries, we are seeing demand for our data, insights and technology—successfully signing dozens of new customers in the hospitality sector in the quarter, including the largest owner-operator of company-branded hotels in North America, who opted for ZoomInfo’s Elite package with intent data across their corporate sales team. We also brought on Kaeser Compressors, the U.S. arm of a 7,000-employee German-based manufacturer of compressed air products and services. With in-person meetings and events not possible for the foreseeable future, Kaeser moved to digitize their go-to-market efforts and continue to develop their funnel. They brought on ZoomInfo’s Advanced package for their frontline sellers while their marketing department added our marketing functionality to their stack as well. We also continued our momentum on the expansion side with close to 2,000 of our existing clients increasing their spend with us in the quarter. One of those clients, CommScope, a global provider of network infrastructure, expanded with ZoomInfo by adding more users and bringing top-of-funnel activities back in-house. In addition to expanding the number of users, they also saw value in the features and functionality of our new combined platform and chose to migrate to it. In the enterprise, we continued our successful land-and-expand motion with more than 650 clients spending over $100,000 a year with us, representing a 60% growth in ACV for those customers. One of those customers— a worldwide express shipping and logistics company with 1,000-plus employees—expanded their user licenses from their inside sales team to their full field sales team. An application performance and monitoring company expanded their users and added more functionality to their use of the ZoomInfo platform, gaining access to our industry-leading B2B intent product along the way, while one of the largest technology companies in the world expanded into their machine learning and AI teams with our enterprise API capability. With July 1st marking the start of the enforcement of the CCPA, our privacy posture becomes increasingly important to our competitive differentiation. We are and always have been a privacy-first business, providing data collection notices to all of our EU and California contacts and permitting anyone in our database to opt out through our automated privacy center. Although not required by any regulation today, the expansion of our notice and choice program across the rest of our database has also been successfully progressing as we have now given direct notice to over 55% of our emailable database and expect to have provided direct notice to that entire audience by the end of 2020. As I look into the future, when we think about our market opportunity, what's really exciting is that we are at the very beginning. We are in the very early stages of targeting a large and growing addressable market, which represents more than a $25 billion market opportunity. With low single-digit penetration rates, there are meaningful growth opportunities by continuing to leverage our efficient go-to-market engine, to add more customers to our platform, expand within the enterprise, build new solutions that add value to our existing customers, go into international markets and adjacencies like recruiting and by flexing our M&A muscle as we look for tuck-ins. We're a go-to-market intelligence platform of scale today, and we have a vision to expand our capabilities to further drive strategic automation, orchestration, and workflow through the tactical go-to-market motion that starts with our data, flows through our platform and analytics layers, and enables automated go-to-market motions that produce measurable results. Given the opportunity here and the demand for more comprehensive sales and marketing solutions, we believe we can drive durable long-term growth. Finally, I am more confident today than ever about our competitive position, our technology and the positive traction we're seeing within our market. But mostly I gain a tremendous amount of optimism about where we are headed because of the team we have put together. In Q2 alone, we added more than 150 new employees, recruiting and onboarding each one of them virtually. Every one of our over 1,300 employees appreciates the immense opportunity in front of our company and is motivated and committed to achieving our full potential. While we are proud of our accomplishments to date, we are hungry to be more. With that, I'll hand it over to our Chief Financial Officer, Cameron Hyzer.

Thanks, Henry. I'm going to start with an overview of our business and financial model, then review our financial results for the quarter and wrap up with guidance for Q3 and full year 2020. We are driving a high-growth subscription business at scale, and we operate profitably, which allows us to reinvest operating leverage to drive durable long-term growth. In Q2, our organic growth plus adjusted operating margin was 89%. Moreover, as many of our software company peers aim to achieve profitability or some target margin in the future for operating leverage, we plan to harvest our operating leverage and reinvest it back into the business, continuing to build out new products, such as recruiting, or expand upon our differentiation in AI and machine learning. We will also invest in adding sales capacity to fuel continued growth. We are able to achieve strong, sustainable growth at scale because our platform provides tangible and identifiable value and is significantly differentiated versus the competition based on the quality of our data and the insights we are able to provide. We also operate in a very large and underpenetrated addressable market, helping companies of all shapes and sizes achieve top-line success. To take advantage of this significant opportunity in front of us, we have built a best-in-class go-to-market engine driven by consistent internal use of our own platform. Our go-to-market motion drives sub-30-day sales cycles, which we combine with an almost immediate implementation to provide quick time to value for our customers. This has become even more important during times of economic uncertainty. To round out why we are excited about our business and financial model, our revenue comes almost entirely from subscriptions, typically one to three years in length, and generally billed annually in advance. Subscription prices are based on features and functionality available, the number of users that can access the system and the amount of data that a customer integrates. This model aligns our revenue with the value derived by our customers, and also enables our land-and-expand strategy. For our results, please note that metrics will be discussed on a non-GAAP or adjusted basis unless otherwise noted. Impacting our GAAP results in Q2, we did incur a significant stock-based compensation expense triggered by the IPO and related to grants awarded primarily prior to 2018. There will be ongoing expenses related to these grants through 2022 but at lower levels. As a result, we expect our stock-based compensation expense to come down materially in the coming quarters. Other differences between GAAP and adjusted metrics include non-cash items like amortization of acquired intangibles and non-recurring expenses related to the IPO or other historical transactions. GAAP revenue in Q2 was $111 million, up 62% year-over-year. Organic growth based on allocated combined receipts was 40% in the quarter compared to Q2 2019, driven by continued new customer additions and expansions of existing customers. Customers with more than $100,000 in ACV increased to over 650 with ACV from those customers growing 60% relative to June 2019. The difference between GAAP and organic growth is due to the fair value adjustments of acquired unearned revenue that principally impacted the comparative revenue figure in 2019. While we were experiencing some headwinds related to the economic uncertainty resulting from the global pandemic, new sales and net dollar retention performed well in the second quarter. We added a record level of ACV from new customers in Q2 and retention activity improved relative to Q1 and Q2 last year. Adjusted gross profit in the quarter was $98 million, yielding an 89% margin, up from 88% in Q2 2019 and up from 87% last quarter. Adjusted sales and marketing expense was $27 million or 24% of revenue, up from 22% a year ago. We continue to see compelling returns from our sales and marketing investments with an LTV to CAC above 10 times. We plan to continue to expand our sales and marketing capacity to drive sustainable growth. Adjusted R&D expense was $7 million or 7% of revenue in Q2, flat with a year ago. R&D is one component of our investment in innovation, which continues to yield a strong competitive advantage and drives a continued pipeline for new revenue sources. When factoring in all of our investments in innovation across the organization, including those investments in data quality that are reflected in cost of sales, we're spending in the mid-teens as a percentage of revenue. Finally, adjusted G&A expense was $9 million or 9% of revenue as compared to 7% a year ago, as we've continued to add capacity to better operate as a public company. We ended the quarter with approximately 1,300 employees worldwide, up 36% year-over-year, and we continued to add headcount in the quarter. Our focus is on continuing to build a culture of performance and on creating an environment where diversity is not only welcome, but encouraged. Based on the revenue growth and investments in the business, adjusted operating income in Q2 was $55 million yielding a 49% margin, which compares to $41 million and a 52% margin in Q2 2019. Our philosophy is to maintain annual adjusted operating margins in the mid to high 40s. We delivered at the high end of that range in Q2, as COVID-related cost savings, including reduced spending on travel, facilities and marketing events positively impacted margins in Q2. We anticipate that we will be more in line with our operating margin targets for the second half of the year, particularly given that our cost structure will be fully burdened by public company costs going forward. Adjusted net income for the quarter was $27 million or $0.07 per share based on 403 million weighted average diluted shares outstanding. As I think about the impact of COVID-19 on us, we have experienced headwinds and tailwinds. In Q1, we experienced headwinds as some sales cycles stalled when many business leaders were shocked by the magnitude of change they were experiencing in mid to late March. In Q2, our sales teams adjusted to the new environment and drove improved sales and retention activity relative to Q2 last year and Q1. We do have clients that have been materially impacted by the pandemic. As stated in the S-1, customers in heavily impacted industries represented less than 4% of ACV. And we are seeing heightened cancellations and reductions in spend from this subset of customers relative to pre-COVID timeframes. During the quarter, our average contract duration was relatively unchanged at a little over a year, but we have seen a shift in customers opting to pay quarterly instead of annually, as customers look to optimize their cash flow in light of the economic uncertainty. Going forward, we expect that economic uncertainty will continue for the foreseeable future. While we continue to see some headwinds, we are well positioned to drive growth as our platform is highly differentiated, we deliver high ROI, our customers can achieve quick time to value and we help our customers find their next customer, which many executives deemed to be their most strategic imperative. Turning to the balance sheet and cash flow, we ended the quarter with $260 million in cash and restricted cash. This includes approximately $170 million of cash added to the balance sheet from net IPO proceeds, less repayments of debt and preferred equity. Cash flow from operations was $25 million for the quarter, which included $24 million in interest payments. Unlevered free cash flow was $52 million for the quarter and $107 million year-to-date. Our capital expenditures consist primarily of investments for growth and the capitalization of internal development costs. Our capital expenditures were $4 million in Q2 and $8 million year-to-date. With proceeds from the IPO, we repaid the revolver, second lien and Series A preferred instrument, as well as an additional $100 million of our first lien term loan. As a result, our Q2 LTM net leverage ratio was 2.4 times. Based on the cash flow profile of the business and the deleveraging that we implemented through the IPO, we were upgraded by both of the rating agencies that cover our debt: S&P upgraded us to B+ from B and Moody's to B2. Before I transition to guidance, let me provide some context on our corporate structure. Our structure can create complexity for investors, and while some are quite familiar with a UP-C structure and the multiple classes of stock and tax receivable agreements that come with it, others are likely to be less familiar. The increased complexity does come with a meaningful benefit to shareholders in that the tax advantages of the pre-IPO partnership continue to accrue as we transition to a publicly traded company. These advantages are shared with the public investors through the tax receivable agreements. As a result, our cash tax payments will be lower and therefore drive increased cash flow. With that, I'll provide our outlook for the third quarter and full year of 2020. Given that GAAP revenue and allocated combined receipts converge in Q3 of this year, we are issuing guidance on GAAP revenue to simplify comparisons and avoid confusion. We expect GAAP revenue in Q3 to be $116 million to $118 million and adjusted operating income between $53 million and $55 million. This implies 34% organic revenue growth and a 46% margin at the midpoint of the range. The non-GAAP net income is expected to be $0.08 to $0.09 per share. For the full year 2020, GAAP revenue is expected to be between $451 million and $455 million, and adjusted operating income between $213 million and $217 million. This guidance implies 35% organic growth and a 47% margin at the midpoint of the range. For those that are modeling allocated combined receipts, the year-to-date difference between GAAP revenue and allocated combined receipts was $1.7 million due to the impact of fair value adjustments to acquired unearned revenue. In total for the year we expect approximately a $2 million difference, so full year allocated combined receipts will be higher by that amount. Non-GAAP net income for the year is expected to be $0.29 to $0.30 per share. We anticipate unlevered free cash flow to be between $206 million and $210 million. The guidance ranges provided are based on our current operating results to date and assumptions, including anticipated headwinds from the impact of COVID-19 through at least the end of the year. To summarize, we are very pleased with the business performance in the second quarter. We continue to deliver value to our customers and are focused on generating sustainable growth and profitability over the long term. We have a large and growing addressable market and we'll continue to invest for future growth. We believe that we are in the early stages of this opportunity and are confident we will continue to build a very large and successful company over time. Now, let me turn it over to the operator for questions.

Thank you. Operator instructions were provided. Our first question comes from Siti Panigrahi with Mizuho. Your line is now open.

Thanks for taking my question. Congratulations on becoming a public company. I just wanted to dig a little bit into your different segments. You talked about enterprise—could you talk about mid-market and small business as well? What sort of trends do you see in Q2?

We continue to see strength really across all segments. From a small business perspective, I do think that in industries that are more impacted by COVID, we are seeing some headwinds related to that. I think, as we mentioned before, for some of our bigger-ticket deals, no matter which segment that's in, we have seen an elongation of sales cycles from time to time. Although, as we wrapped up the second quarter, we didn't see many of those finally close.

Thank you.

Thank you. Our next question comes from Brad Zelnick with Credit Suisse. Your line is now open.

Cameron and Henry, you talk about the validation and excitement of becoming a public company. Can you maybe just share with us as we think about the impact in driving additional demand? Is there anything that you might be able to put numbers to in terms of the sales funnel, sales cycle times or any other observations that are impacting the business?

Yes. Hi Brad. Thanks for the question. I think what we saw first was an uptick in leads that corresponded with the time of the IPO. But the trick there is it's hard to disaggregate that between the COVID-related tailwinds we were seeing, and also just the enhancements that we were already making in our go-to-market engine. The real impact we're seeing is that the validation from the IPO has opened the doors for us to have more strategic conversations with customers. We've put our go-to-market engine on display as part of the IPO, and that's opened the door for management teams and our customer success teams to be invited in to share best practices with key executives in a way we hadn't otherwise been provided the opportunity to do. We think that over time we'll be able to continue to leverage those open doors and that'll continue to drive our growth.

Thanks very much. It's helpful. Cameron, I appreciate your comments in the prepared remarks on COVID. Can you maybe just put a finer point to how we should think about the headwinds and tailwinds—any sense if these new logos will stick around for a while or turn off when social distancing eases?

First, all of our contracts are one to three year contracts, so I think that they'll certainly stick around for at least the contract period, and most of our customers do renew. From a social distancing perspective, COVID just emphasized many of the trends we saw pre-pandemic where businesses were already looking for ways to improve and digitize their go-to-market motions. So I think in any kind of transformation you see an acceleration at times like this, but most of that continues as the world returns to normal.

And one thing I would add there, Cameron too, is we believe this is a multi-year tailwind that's accelerating a trend towards digitizing sales and marketing motions that were already happening. We're sitting in a larger-than-$25 billion total addressable market where we're less than 2% penetrated. Companies today are taking trade show and events and travel budgets and reallocating them to content syndication, online events and to ZoomInfo. Over time, as they see the ROI our platform provides, they're going to shift more and more dollars behind ZoomInfo, expanding from marketing use cases to sales use cases, to data cleansing, to intent data, to lead capture, and more.

Awesome. Thanks so much, guys, and congrats on a strong first quarter out of the gate.

Thank you, Brad.

Thanks Brad.

Thank you. Our next question comes from Mark Murphy with JPMorgan. Your line is now open.

Yes, thank you. And I will add my congrats on the healthy results. Henry, when you project forward several years in the future, how aggressive are your ambitions in the recruiting market? I'm wondering if there's a bit less urgency today than there was pre-COVID given the employment climate, or would you still be planning to move full steam ahead as rapidly as you already have been?

Yes, we believe we're building our platform to support recruiting-focused products and we continue to believe that's going to be a large growth area for us. The pandemic has slowed hiring in some places, but there are also many companies continuing to hire. Our platform gives recruiters and talent acquisition professionals a robust database of professionals with contact and experience information they need to recruit effectively. We believe recruiting and talent acquisition are becoming more like a go-to-market motion where you build a pipeline, nurture and close. We'll be able to deliver the data and insights that allow that motion to happen in a more sophisticated way than today.

Okay, great. As a follow-up, you had previously filed the monthly net new ARR numbers and we know that was a one-time disclosure. We learned April was your best first month of a quarter ever on the new business side, and you mentioned Q2 was the most new customer ACV in your history. Did that trend continue—did June end up being the best third month of a quarter ever? If you can't answer that way, could you help us understand the shape of linearity at a high level for Q2?

The trends we saw in Q2 continued throughout the quarter. I'd say June was in line with or maybe a modest acceleration relative to April compared to other quarters. Realistically, we saw solid demand from our customers throughout.

Very good. Thank you.

Thank you. Our next question comes from Alex Zukin with RBC Capital Markets. Your line is now open.

Hey guys. Thanks for taking my questions and congrats on both the quarter and the IPO. Henry, if you think about what you've learned selling through the pandemic, you mentioned earlier about having more time to make the case to enterprise customers and being invited to make that strategic value proposition. Walk us through how that's trended into July and where you see that peaking—does that set up for a different kind of linearity or trajectory in Q4? And any changes you've made as a result of COVID on your go-to-market motions? I have a quick follow-up.

If you look back, we were surprised that the downward activity we saw in March rebounded in the quarter, and that rebound was strong. In March many customers were caught off guard and paused spending. In the quarter we saw much more rebound. Slow-to-evolve companies came to us with a new imperative to change. We had companies with hundreds of field salespeople needing a way to make them productive and continue to grow pipeline and close business while working from home. That indicates a real shift from analog to digital sales motion and an acceleration of that shift. The speed at which organizations pivoted was remarkable. We saw dozens of businesses in affected industries sign on in the quarter. We'll continue to see companies that were slow to evolve raise their hands and look for opportunities to make their sales and go-to-market motions more effective and efficient. Today, we are the organization to call to help with that transformation.

Got it. That makes sense. Cameron, maybe just one or two metrics questions. You mentioned improvement in retention sequentially and year-over-year—any way to quantify on a dollar-based net expansion metric how Q2 compared to Q1 or last year? And on billings, you mentioned a duration headwind from customers opting for quarterly payments instead of annual. Any way to quantify the size of that headwind on billings in the quarter?

On annual net retention, we view that as an annual metric. In the quarter, retention activity certainly improved—more customers increased their spend with us. Close to 2,000 customers increased spend during the quarter. We expect to continue to see solid net retention through the year. In terms of the billing shift, when I look at unearned revenue as an example, the shift into quarterly payments impacted more than $10 million relative to a similar mix as of the end of Q1.

Got it. That's super helpful. Thank you guys and congratulations again.

Thanks.

Thank you. Our next question comes from Stan Zlotsky with Morgan Stanley. Your line is now open.

Perfect. Thank you so much, gentlemen, for taking my question. A couple from my end. First on the international selling motion—with the success you're having in the U.S. and considering the COVID situation globally, how are you thinking about expanding your selling presence outside of the U.S.? Then I have a quick follow-up for Cameron.

Hi Stan. One of the things we did in the quarter was focus some go-to-market efforts on international. If a lead came into our funnel from an international country, there was a set group of sales development reps and account executives who owned those leads. We saw that we can affect our conversion and win rates in international markets by focusing on that. We've embarked on an initiative to rescan and reorganize the platform to focus on the international market, and you'll see us in that market much more heavily in the back half of this year. Our plans around the international market haven't changed and we're excited to enter them.

Okay, perfect. And then a quick follow-up for Cameron: expanding on Alex’s question, if we make the adjustment for the more than $10 million impact to billings from payment shifting to more quarterlies, you get to about 15% billings growth in the quarter. Help us close the gap between that 15% billings growth and the 40% revenue growth on your top line.

If you make that adjustment relative to Q2, I think a 15% number is probably a little light. Realistically, in Q2 on calculated billings compared to last year, it was a higher amount. One of the things you need to be careful of is there will always be shifts and some noise around the calculated billings number, which is why for our completely subscription business you get a better sense of real growth and forward-looking capabilities based on what's actually being recognized as revenue. I'd suggest doing a pro forma view of what full billings growth would look like, and I can follow up with additional detail. But I do think it's much closer to the organic growth we stated than 15%.

Okay, perfect. Thank you.

Thank you. Our next question comes from Michael Turrin with Wells Fargo Securities. Your line is open.

Hey there. Thanks and good afternoon. Congrats on the milestones. Maybe to start off—any update or commentary around how usage is trending both on the platform overall and with those power users? Are you seeing more traction with those power-type users within the current environment?

Hey Michael. Across our customers, we saw low-to-mid-20% increases in our DAU/MAU metric since the start of the pandemic—that's the number of monthly active users who engage with our product in a single-day window. We continue to see growth in our fanatic or power users across the platforms as well.

Okay, great. And given this is your first earnings call, Cameron, can you walk us through your overall approach to guidance? What assumptions go into the second half forecast and how much visibility do you have into the rest of the year at this point in time?

Given that we're a subscription business, we feel comfortable with the visibility we have into the coming quarters. Obviously with the pandemic, there's a broader range of potential outcomes and we've contemplated that in the guidance provided.

Thanks, guys.

Thank you.

Thank you. Our next question comes from Jennifer Lowe with UBS. Your line is now open.

Great, thank you. I wanted to double back on the 2,000 customers that expanded in the quarter. Is there any notable trend in terms of what drove that expansion—was it more seats, customers upgrading to higher tiers, or buying additional products? Did it look different in what was driving expansion and how people are using the product?

Historically, expansions were more seat-driven. As we've rolled out more functionality, that has become a bigger portion of the revenue we generate. So, increasing seats remains important, but we're also seeing more expansion from additional functionality and product adoption.

Okay, great. One more quick question on free cash flow guidance: You talked about the impact from customers moving from annual to quarterly payments in the period. For the free cash flow guidance for the year, what assumptions are embedded regarding payment frequency?

The guidance does contemplate payment frequency going forward. We are seeing a shift back toward annual payments now that we've gotten out of the immediate shock of the COVID crisis, and our guidance reflects that expectation.

Okay, great. Thank you.

Thank you. Our next question comes from David Hynes with Canaccord. Your line is now open.

Hi, thanks guys. I'll echo everyone else's congrats. Henry, I want to ask about intent data. You called out adoption growth in the quarter—remind investors: a) how you get that data, b) where you are in terms of adoption, and c) what happens to customer spend when they take on that intent data?

Thanks, DJ. Our intent data is available in our Elite package, or it can be bought ad hoc for other packages. The data comes from proprietary sources we own and integrate, and we also license data from multiple vendors. Our data science and innovation team normalizes all that data using our IP-to-company dataset to associate traffic to specific websites back to a company's IP address. We create baselines for consumption across thousands of topics. Our algorithms look for spikes in consumption of specific topics to surface intent signals. In terms of adoption, as mentioned earlier, customers using our intent product grew close to 50% quarter-over-quarter. Customers that add intent typically increase their spend because it's a higher-value product and often included in higher tiers like Elite, leading to greater ACV per customer when adopted.

Thank you. Our next question comes from Terry Tillman with Truist Securities. Your line is now open.

Yes. Thanks for taking my question and congrats on the IPO and results. Henry, maybe just a question about non-traditional industries. You mentioned a farmer earlier that signed up. For these nontraditional customers or industries, what are their buying patterns like in terms of sales cycle and deal size? Do you see longevity in these industries going forward?

Thanks, Terry. Our business is growing across different industry segments. We see growth in nontraditional segments as well. Financial services, for example, has been more face-to-face historically and is now coming to us. Our motion tends to be signing companies up with a modest ASP and then growing them through our land-and-expand strategy. Often we sign an enterprise company at a relatively lower ASP rolled out to a subset of users, prove ROI in that segment, and then expand beyond that. That motion is consistent across traditional and nontraditional industries. Yes, we see real success and retention across those accounts. I gave examples earlier—TentCraft, Kaeser Compressors, and a large hotel chain—that validated ROI in pilots and then expanded. That pattern indicates longevity.

Great. Operator, Joelle, maybe we can take the next question, please.

Thank you. Our next question comes from Brent Bracelin with Piper Sandler. Your line is now open.

Thank you and good afternoon. Henry, I wanted to talk a little bit about the broader ambitions relative to the digital go-to-market motion shift. InboxAI adoption more than doubled—was that driven by your Komiko acquisition? Has your appetite changed post-COVID relative to the scope of the opportunity you're going after? And I have a quick follow-up for Cameron.

No, our ambition hasn't changed. We believe sellers and marketers are trapped inside legacy CRM and marketing automation systems that provide no insight outside of the four corners of their systems. The whole world outside of those systems drives significant insights—intent, company growth or shrinkage, hiring activity, or location moves. Sellers and marketers need to grasp those external insights and drive go-to-market motions based on them. We're building the ability to automate and orchestrate go-to-market motions by combining a customer's first-party insights with the broad set of external insights to create the most efficient and effective automated go-to-market motion. That remains our vision.

Got it, helpful. Cameron, you mentioned the new platform released last year now accounts for over 50% of ARR. Do you have a comparable stat for the last quarter?

The new platform rolled out in October of last year, so it's gone from 0% to over 50% of ARR in the last eight months. At the end of Q1, it was less than a third of revenue.

Got it. Strong uptake—thank you.

Thank you.

Thanks.

Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is now open.

Hi, gentlemen. Thanks for taking the question and congrats on the strong results. For ACV added this quarter, what did the industry mix look like versus your existing business? Anything in the pipeline suggesting certain end markets are ramping up?

Historically, markets where we're less penetrated continue to see higher growth rates. We continue to grow well within software and business services, but industries like professional services and manufacturing continue to grow faster. That's a continuation of a pre-COVID trend. Industries heavily impacted by COVID—hospitality, retail, travel—did not grow as quickly in the quarter.

Thank you. Our next question comes from Raimo Lenschow with Barclays. Your line is now open.

Hi, thank you and congrats. Quick question on competition: what are you seeing in terms of customers understanding your broader value proposition versus LinkedIn? And anything out of legacy providers like Dun & Bradstreet since they are public again that changes anything?

We use call recording software internally and we flag competitor mentions across new sales and customer calls. Most competitors are mentioned less than 1% of the time; the most referenced competitors are mentioned in single digits. This morning I checked the most recent report covering July—mentions of Dun & Bradstreet have actually declined since February, so there have been no material changes in the competitive landscape recently.

Okay, perfect. Thank you.

Thanks, Raimo.

Thank you. Our next question comes from Tom Roderick with Stifel. Your line is now open.

Hi, gentlemen. Thanks for taking my question. Building on Brent's question about Platform 10 progress, Henry, do you have more anecdotal data on customer feedback? It seems like you're combining breadth of data with intelligence and workflow. Cameron, what tailwind are you seeing with respect to ARR lift from customers converting—pricing or additive data purchased?

It depends on which legacy platform customers migrate from. For customers migrating from DiscoverOrg to the new combined platform, they report much greater coverage—20x the coverage of companies and contacts compared to what they had. We've integrated DiscoverOrg's capabilities into the new platform. If they're migrating from the legacy ZoomInfo platform, they comment on organizational charts, intent data, scoops, funding data, and anonymous website tracking integrated into the platform. They see both breadth and robustness depending on their origin platform.

Wonderful. Cameron?

In terms of pricing uplift, the migration to the new platform hasn't been a significant driver of growth so far—most growth comes from new customers. If a customer migrates for like-for-like functionality and seats, price changes tend to be mid- to low-single-digit. When customers adopt increased functionality on the platform, we see more substantial uplift, but it's not yet material to our overall growth to date.

Great. One quick follow-up on margins: given your strong margin structure, when you think about growing international and moving upstream into larger enterprise deals, what happens to sales and marketing as a percent of revenue over the next years? Can you maintain leverage or will it go higher?

We believe we can maintain leverage. We continue to tune and leverage our own system to drive an efficient go-to-market motion. Given guidance and our growth plans, we'll need to grow sales and marketing capacity north of 30%, which is an appropriate level to take advantage of the opportunity and drive efficiency going forward.

That's great. Thanks guys, nice job.

Thank you. And Joelle, maybe we'll take one last question. We'll do time for just one more, please.

Thank you. That question comes from Taylor McGinnis with Deutsche Bank. Your line is now open.

Hi. Thanks for squeezing me in and congrats on the first quarter as a public company. You mentioned retention rates improved in Q2—how did churn trend relative to historic rates, and is there any level of churn or retention embedded in your guide that you can share as we look forward?

Churn was pretty consistent relative to historical levels. We are seeing some mix shift where companies in more heavily impacted industries are more likely to churn. Overall, there is broad recognition of the value we provide and churn remains at a healthy level. We didn't provide absolute churn numbers on this call, but we have considered potential COVID-related headwinds in our guidance.

Great, thank you.

Thanks again, everybody. In closing, I would like to reinforce how excited we are. We have a massive opportunity ahead of us, a track record of driving growth and profitability, and a team of employee-owners who are fired up and driven to execute. This is the starting line for us. I appreciate you all joining us today. Thank you and good night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.