ZoomInfo Technologies Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the ZoomInfo Third Quarter 2020 Financial Results Conference Call. At this time all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Operator Instructions: Please be advised that today’s conference is being recorded. Operator Instructions: I would now like to hand the conference over to your speaker today, Jerry Sisitsky. Thank you. Please go ahead, sir.

Thanks, Gigi. Welcome to ZoomInfo's financial results conference call highlighting our results for the third quarter of 2020. 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 Factors 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. This quarter more customers than ever stepped up to modernize their go-to-market motions by adopting ZoomInfo's data and insights platform. In Q3, our team delivered 41% organic growth over the last year, up 40% from last quarter. Out of 47% adjusted operating margin, we achieved the most adjusted operating income ever in a quarter and year-to-date we have delivered $167 million in unlevered free cash flow. Because of the strength that we're seeing across all areas of the business, including record quarterly new sales, record engagement levels and a new high watermark for our customers spending over $100,000 a year with us, we are raising our financial guidance for the full year. As we've continued to enhance our offerings and capabilities, we saw customers of all types engage with our data and insights platform at record levels. In the quarter, we experienced record high engagement rates, including a 33% increase in adoption of our FormComplete product, a 67% increase in adoption of our intent product and a 40% increase in adoption of our InboxAI product. The move from analog single-channel to digital multi-channel motion that started in the last few years continues to transform business-to-business selling. Our teams are focused on consistently executing on our vision where ZoomInfo powers a closed-loop go-to-market cycle from data to decision and action — one that's less reliant on heroic unpredictable outlier performances and more dependent on a scalable, predictable platform approach with data-driven orchestration. The ZoomInfo platform seamlessly delivers data and insights to drive the day-to-day go-to-market activities of thousands of leading organizations. By using our platform, sellers and marketers are able to identify prospects, rank their best target companies, monitor end-market buying signals in real time, get direct contact information for their prospects and directly engage with them. We are in the very early innings of what we now see as more than a $30 billion total market opportunity with meaningful corporate initiatives in flight that increase that total addressable market. And we continue to see a long-term opportunity to drive a rare combination of both durable growth and profitability. During the quarter, we signed deals with companies from a diverse set of industries — from The Horton Group, an insurance, employee benefits and risk advisory firm, to Total Plastics, a plastics distributor, to RoadRunner Recycling, a waste and recycling service, to Echo Global Logistics, a publicly traded provider of transportation management services, ServiceMaster Restore, which does commercial and residential restoration services, and Be Green Packaging, the leader in molded fiber packaging solutions. In the quarter, 40% of our new ACV was generated from industries outside of software and business services. B2B companies of any size and in any industry can and do use the ZoomInfo platform to grow their business. Q3 was also our best quarter on the land-and-expand side. Our team has added more customers to our greater-than-$100,000 ACV cohort than ever in our history with more than 720 customers now spending $100,000 or more in ACV with us. To attract new customers and expand within our existing customers, we continue to reinforce our competitive moat by investing in our platform, our robust core data assets and by executing on M&A that fortifies our strength and increases our reach within sales and marketing organizations. I'll touch on all of those areas now. To capitalize on our momentum within the enterprise, we released a host of new features designed to provide greater speed, scalability, transparency, security, and administrative control to our enterprise customers. As part of those initiatives, we greatly enhanced our analytics layer by embedding business intelligence dashboards directly into our platform. These allow users to track real-time changes. Our APIs and enrichment solutions are making records in a customer's CRM or marketing automation platforms and provide detailed usage analytics that give administrators clear views of platform engagement. This new analytics capability helps to clearly communicate the ongoing value and ROI provided by ZoomInfo. On the data side, last quarter we talked about how we continue to invest in and differentiate our data products by using machine learning and AI to ensure our customers enjoy the industry's most accurate and comprehensive data. Those investments have grown our professional dataset over 30% since the beginning of the year, from 100 million profiles at the end of 2019 to more than 132 million at the end of Q3. Over that period, we have also increased fill rates on direct phones by 29% and validated email addresses by 24%, all while simultaneously increasing data quality. From a platform perspective, we have been extremely busy. In Q3, we launched Engage, a sales engagement offering designed to help sales teams maximize productivity through access to an automated sales dialer, built-in email automation and technologies to manage sales workflows. Engage users have a clear next step for activating their data and engaging with prospects and customers. Although we don't expect it to be a material portion of our revenue in 2020, the TAM associated with this market is estimated at around $9 billion by 2025 and we do believe it will help drive incremental growth in 2021 and beyond, leading to an increase in our total addressable market. In addition to launching Engage, we also released hundreds of new features and improvements in Q3 designed to make our platform easier to use, more scalable and able to process more data to meet the needs of the largest enterprises. This started with, but is not limited to, a significant redesign of our mobile experience, improvements to our Quick Search, redesigns of our company and contact profile, alerts and the homepage. We also added a real-time intelligence feed to give our users a place to consume proprietary and actionable content on their target prospects and customers. We believe these types of investments in our core offerings pay dividends by providing a better customer experience that delivers greater value, making the product stickier and leading to higher retention rates and upsells from our customers. We also tackle the big, common challenge for all go-to-market teams: the need to unify first- and third-party data sources. To help solve that, we released a new bi-directional Salesforce integration capability, allowing users to unify data from their Salesforce CRM systems with ZoomInfo's platform search. Today, more than 65% of our customers have activated some form of ZoomInfo integration with their go-to-market systems. All of that platform work has knocked on the market. In Q3, G2 Crowd released its fall grids where ZoomInfo was listed for the first time in the account data management, AI sales assistance, email verification, lead mining and visitor identification grids. In the last three years, we have gone from appearing on five G2 grids to appearing on 32 grids and placing number one on 19 of them. This is a testament to our ability to innovate, release products to the market that are rapidly consumed and are best-in-class, and expand the platform to drive more value for our customers. These platform enhancements have helped support our legacy platform migration efforts, where today we have over 60% of our ACV on our new platform. We have consistently seen a modest uplift when migrating customers to the new platform on a like-for-like functionality basis. But once on the new platform, our customers embrace the new depth of coverage and improved features and functionality with more than half of migrating customers adding additional users. And while very early in the renewal cycles, initial indications are that expansion activity from the first cohort of customers on the new platform are even better than what we've seen historically. Within our accounts, we still see a tremendous white space. Our data indicates that our existing enterprise customers represent an opportunity to grow by more than $1 billion in incremental annual spend, even taking into account that we have almost doubled our upsell into that cohort so far this year. In terms of data privacy, we continue to make progress on notifying every mailable professional on our database by the end of the year, and recently eclipsed the 88% mark. We also recently announced that we have received the TRUSTe Enterprise Privacy Certification Seal demonstrating our commitment to data privacy and to the security needs and growing expectations of our customers. Finally, from a product perspective, in Q3 we continued to execute on our acquisition strategy, enabling us to close the acquisitions of Clickagy and EverString in early Q4. Given our successful M&A track record and our plan to continue to pursue acquisition, I'll briefly discuss our philosophy and approach to M&A before speaking to each of these acquisitions. First, we target high-value adjacencies where we can leverage our leading go-to-market organization to drive significant growth. With an LTV-to-CAC well above 10x across a scaled go-to-market team touching tens of thousands of customers and prospects, we have a proven, highly efficient go-to-market engine with a track record of bringing solutions to market. Second, the sales and marketing ecosystem has a flurry of solutions that drive go-to-market effectiveness. Nearly all of these solutions, much like their CRM and marketing automation predecessors, are empty boxes without the data and insights that ZoomInfo fills them with. So we look for products that integrate with our data and insights to create a differentiated value proposition to customers that competition cannot match with narrow automation alone. Third, we look for technologies that are near to what we do and adjacent to our current offering. We stay close to home, but look for assets that provide immediate and long-term value to our customers, while expanding our total addressable market. We believe that there's a real opportunity to become the de facto operating system for all go-to-market teams. And finally, from a financial perspective, we look for transactions that are accretive to our adjusted operating income within the near term. With the Clickagy acquisition, we improve our intent offerings by providing the first streaming intent offering for B2B sellers. The core of what ZoomInfo does is help companies know which companies they should be engaging with and the professionals within those companies who make buying decisions for their products and services. What streaming intent data unlocks is the when around target buyers being in market, doing research and poised to make a purchasing decision. This allows sales and marketing teams to tailor messages, offers, and resources to increase win rates. We are confident that over the next three to five years, B2B intent data will become a central ingredient to how companies target and segment potential customers and drive their go-to-market motion. In just the last year we have seen the number of forward-leaning customers that subscribed to our intent offerings more than triple. And as announced last week, EverString provides account and firmographic data of service for the enterprise market. EverString's proprietary AI and machine learning has mastered sourcing and tracking of information on the long tail of SMB companies that are notoriously hard to detect and maintain. They do it at scale with an incredibly high degree of accuracy, allowing them to take share from much larger legacy data providers. EverString's 100 million company records and 70 million professional profiles will be integrated into ZoomInfo's data engine, a 15 million company records and 132 million professional profiles. I continue to be impressed and thankful for the great team that we've put together to go after the opportunity in our market. We continue to virtually onboard hundreds of new employees each quarter, and we're doing it in a way that truly connects them to our culture. Our commitment to providing a great place to work was recently recognized with Comparably naming us one of the top 25 workplaces in the country for happiest employees. We have also made a company commitment to diversity and inclusion, sharing our progress across the company and regularly discussing it at the Board level. We're proud that we have meaningfully increased the percentage of diverse employees at ZoomInfo over the last 12 months and expect to continue our progress here. With that, I'll hand it over to our Chief Financial Officer, Cameron Hyzer.

Thanks Henry. 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 Q3, we posted organic growth of 41%, an acceleration relative to what we achieved in Q2. And we did so with an adjusted operating margin of 47%. GAAP revenue in Q3 was $123 million, up 56% year-over-year. Organic growth based on allocated combined receipts was 41% compared to Q3 2019, driven by strength in new customer additions and expansions of existing customers. While GAAP revenue and allocated combined receipts have converged in 2020, the difference in growth rates is due to the fair value adjustments of acquired unearned revenue; the impact of the comparative figure in 2019. Both new sales activity and existing client net expansion improved relative to Q2 and last year. We continued to build momentum and increased win rates throughout the quarter, and this combination of strength in new sales and expansion activity helped drive sequential revenue growth of 10% adjusted for the relative days in each quarter. Our land-and-expand motion continues to underpin our success, particularly in the enterprise. Customers spending $100,000 or greater in ACV increased by about 70 to more than 720, which is our strongest quarterly increase ever. As we move to expenses, adjusted gross profit in the quarter was $109 million yielding an adjusted gross margin of 88% in line with the margin we delivered in Q3 2019. Adjusted sales and marketing expense was $30 million or 24% of revenue, up from 22% a year ago. We continue to drive an LTV-to-CAC that is well above 10x, reflecting our go-to-market efficiency and success this quarter. And we will continue to invest in expanding capacity to drive sustainable growth. Adjusted R&D expense was $8 million or 7% of revenue in Q3, up from 6% a year ago. We continue to invest in R&D as well as innovation and data accuracy and coverage to further deliver value to our customers and extend our competitive advantage as well as expand our addressable market and create a pipeline for new revenue sources in the future. Adjusted G&A expense was $13 million or 10% of revenue as compared to 7% a year ago, as we have added capacity to operate as a public company and incurred public company costs, including increased corporate insurance and professional services. Adjusted operating income in Q3 was $59 million yielding a 47% margin, which compares to $47 million in a 54% margin in Q3 2019. Operating margins were consistent with our guidance, which called for higher public company costs as Q3 was our first full quarter of being a publicly traded company. Adjusted net income for the quarter was $43 million or $0.11 per share based on 403 million weighted average diluted shares outstanding. Turning to the balance sheet and cash flow; we ended the quarter with $306 million in cash and restricted cash and used approximately $70 million of that to fund the acquisitions of Clickagy and EverString after the close of the quarter. In the third quarter, we generated operating cash flows of $49 million, which included $10 million of interest payments. Unlevered free cash flow was $60 million for the quarter and $167 million year-to-date. With respect to liabilities and future performance obligations, unearned revenue at the end of the quarter was $176 million, and remaining performance obligations were $458 million of which $349 million are expected to be delivered in the next 12 months. In Q3, we did experience an improvement in the mix of annually paid contracts relative to Q2, but we were still below what we experienced in 2019. I know that some analysts look at calculated billing to approximate in-quarter activity, but I would caution you from placing too much weight on this calculation. Our dynamic mix of billing terms and lack of consistent seasonality of contract expirations caused a significant level of variability with respect to unearned revenue, calculated billings and RPO as evidenced by comparing the last two quarters. As such, given the fully subscription nature of our business, we focus on sequential growth and revenue adjusted for the days in the quarter to more accurately assess the signal through the noise. As of September 30th, we continued to carry $756 million in gross debt, and our Q3 net leverage ratio on an LTM basis is down to 2.1 times. I also want to speak to the disclosure we made this afternoon with regard to our plan to restate our Q2 financial statements. This is a restatement of tax benefits that we recorded in Q2 related to Up-C structure and the IPO transactions. Our internal team identified it as part of our preparation and review of Q3 financials and determined that it should not have been recorded. This difference is driven by certain calculations and estimates regarding the impact of the IPO on long-dated deferred tax assets derived from the difference between the GAAP basis and tax basis of partnership interest held by corporations within our structure, which were impacted by the restructuring of sponsor-owned entities, stock compensation expense, and carryover tax basis from prior transactions. We'll be filing an amended 10-Q for our previously reported Q2 results. Year-to-date figures in our Q3 financial results press release and presentation materials properly reflect this change, which is detailed in our press release, increases GAAP net loss in Q2 by $22 million, and principally impacts the balance sheet by reducing non-current deferred tax assets by $62 million. The adjustment did not impact any of our key performance metrics including revenue, adjusted operating income, cash flow or adjusted net income. The Up-C structure delivers significant value to our shareholders, but requires extremely technical and specialized accounting knowledge. We have expanded our team over the last three months and are confident in our ability to effectively manage these complexities moving forward. Before we turn to guidance, we have noted that GAAP revenue and allocated combined receipts have converged in 2020, and to simplify comparisons and avoid confusion we have consistently guided GAAP revenue. As such, this will be the last quarter where we provide allocated combined receipts as a supplemental metric. As a helpful addition, please note that we have included historical RPO balances for Q2 2019 forward in the financial slides to provide incremental transparency for investors as it pertains to trends in remaining performance obligations. As we move to guidance, please note that reflected in our guidance is the expectation that Clickagy and EverString will contribute a couple million dollars in revenue and will be mildly, modestly dilutive to adjusted operating income in Q4. We expect them to be accretive to adjusted operating income in the first half of 2021. With that, I will provide our outlook for the fourth quarter and our revised guidance for the full year of 2020. We expect to generate GAAP revenue in Q4 between $129 million and $131 million and adjusted operating income between $58 million and $60 million. This guidance implies 43% annual revenue growth or 35% growth relative to the previously reported allocated combined receipts figure for Q4 2019; and a 45% adjusted operating margin at the midpoint of the range. Non-GAAP net income is expected to be $0.09 to $0.10 per share based on 404 million diluted shares outstanding. For the full year, we now expect GAAP revenue to be between $465 million and $467 million, up $13 million at the midpoint relative to our prior guidance, and adjusted operating income of $220 million to $222 million, up $6 million at the midpoint. Our upwardly revised guidance for the full year implies 39% organic revenue growth and a 47% margin at the midpoint of the range. Non-GAAP net income for the year is expected to be $0.31 to $0.32 per share, up $0.02 per share at the midpoint. And we now anticipate unlevered free cash flow to be $213 million to $215 million, up $6 million at the midpoint. To summarize, Q3 was another quarter where we delivered strong revenue growth, profitability, and free cash flow. We continue building our teams, developing and acquiring technology, increasing the value we provide to customers, further differentiating ourselves from competitors and expanding our sales and marketing capacity to drive future growth. All of this enables us to confidently execute against our plan. Now let me turn it over to the operator for questions.

Operator Instructions: Our first question comes from the line of Brad Zelnick from Credit Suisse. Your line is now open.

Excellent. Thank you so much and congrats on a great quarter. Henry, I listened very carefully to some of what you said today. You talked about becoming the de facto operating system for go-to-market teams, and as I contemplate what you said around ZoomInfo Engage I totally appreciate that this expands your market opportunity. I'm just trying to understand — was this something that customers were asking for versus your vision of where this market is heading? And how should we think about the lines blurring between ZoomInfo and core CRM platforms?

Yes. Hi, Brad. Thanks for the question. I think first with Engage, we saw an opportunity to have a closed-loop system where customers can live inside of ZoomInfo. They have an opportunity to find the data on their customers and prospects, and then actually have a method to engage with those prospects. So we've heard from a lot of customers that having the data and insights was incredibly powerful, but activating it was a struggle for them. Building Engage into the core part of our platform allows our customers not only to have access to our best-in-class data and insights, but also to be able to engage and activate that data and insight against their customers and prospects. And I actually think that theme — the idea of having access to data and actually activating it, and having access to insights and actually activating them — is the same theme we see with the Clickagy acquisition, where TOPO, who is the sales and marketing arm of Gartner, talks about how companies are continuing to invest in intent data but they don't have a way to activate it. Bringing that underneath the umbrella of ZoomInfo and then creating automated ways for customers to activate against that data is a core focus of ours going forward.

Excellent, thanks. And if I could just ask one follow-up, clearly there is tremendous opportunity for you here in the U.S., but any update on international investments that you're making? Thanks.

Yes, absolutely, Brad. So international — this quarter we spent a lot of time on international. Q3 was very strong internationally. We grew revenue 60% year-over-year in that segment. The pandemic did make us rework our strategy to open local offices in the short term, and we adjusted by aligning a segment of our East Coast sales, account management and customer support team to European hours. That shift in alignment is working very well for us. We focused on increasing our coverage on companies and contacts in the UK and Ireland where we're beginning our international focus. In the quarter, we increased contact coverage over 50% in those countries. We increased contact coverage across Europe 168% year-to-date, and direct-dial numbers across Europe 35% in the quarter. Our acquisition of EverString also significantly expands our company coverage internationally; that data asset includes over 5 million companies in the UK and Ireland and 13 million companies across Europe. So we feel like we're in a stronger position than ever to be the single source of truth for company and contact information for any multinational enterprise.

That's awesome. Thanks, Henry, and congrats to the entire team.

Thanks, Brad.

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

Hi, congrats from me as well. Henry, on EverString, just because you're not public that long, how difficult is it to bring these two datasets together and get one coherent AI on it, to combine how you clean it and how they clean it and have one integrated set? And then what does it mean from a customer perspective — you've touched on it already, but it seems like it's changing your B2B quite a lot in theory.

Yes. Hi, Raimo. Thanks for the question. The good news is we have a lot of experience with this, starting with our acquisition of iProfile in 2015, where we went through that same motion; the acquisition of RainKing, where we combined datasets, and then our prior acquisitions where we combined datasets and processes and systems together. So we've seen the movie a few times and we have learnings from those experiences that we're bringing to bear. In the run-up to and during diligence, our teams go through a pretty rigorous planning and integration process where we're identifying exactly where the merging of those datasets is going to happen, how it's going to happen in the short term, and how that evolves to the medium and long term. We're already integrating that data today and are in a place where we can deliver to customers a superset of that data that we'll continue to refine over time.

Okay, perfect. Thank you. Congrats.

Thanks very much.

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

Great. Thank you. Maybe just following up on Brad's question a bit. You've mentioned some of the challenges that your customers have had figuring out how to take action on things like intent data. Maybe at a higher level, how many of your customers are at the level where they understand intent data and AI insights and are taking advantage of those versus customers who are earlier in the adoption curve and more focused on contact data at this point?

Thanks, Jen. This is a super interesting question. Our customers come from a variety of different places when it comes to sophistication and using our data. There are some customers, large and small, who just use our platform as a prospecting tool. As you move up the sophistication curve, we find clients who use our data and insights to drive complicated propensity-to-buy models and territory mapping for thousands of sellers. Regardless of where our customer is on that maturity curve, our solutions can drive quick value in their customer acquisition efforts. An interesting thing we've seen in every customer call this quarter is companies asking us how they turn their CRM system from a system of record to a system of insights. Literally every single customer is having this conversation with us today. They're getting value from CRM as a hub but aren't seeing users adopt it or get real value because on its own it provides no insights. They're looking to us to help them make that transformation. So again, customers range from early in their go-to-market maturity to those that are highly sophisticated.

Okay, great. Thank you.

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

Hi, thanks very much guys. Henry, you made an interesting comment in your prepared remarks that expansion dynamics are even better on the new platform. I realize it's early cohort data, but could you talk about why you think that's the case and if there's any way to quantify it?

Yes, I think it's a couple of things, DJ. First, the coverage is broader. Our customers who are migrating from legacy DiscoverOrg to ZoomInfo find somewhere in the neighborhood of 10x the amount of data in our new platform than what they were accustomed to. They're coming into our platform and seeing significantly more coverage, so they're adding additional seats with their sellers who couldn't get the value out of our legacy platform because they didn't have enough coverage. Over the last year and a half we've focused all R&D efforts on the new platform and built new functionality and features like FormComplete, InboxAI and advanced intent products. You see customers stepping up and adding new features and functionality that they didn't have before inside the new platform.

And DJ, it's worth noting it is still early days on those core cohorts. But based on our analysis, we are really excited about the fact that not only new customers that signed up with the new platform are expanding at a higher rate than new customers historically, but also customers that migrated over to the new platform are expanding at a higher rate than when they migrated.

Okay, perfect. And then one very quick follow-up for you, Cameron. So current RPO is up 60%, thanks for the year-over-year disclosure in the slides. Is there anything in there that muddies that year-over-year comp, or is that a pretty good leading indicator of growth?

Thanks for including me on the questions. I appreciate that. I do think those metrics require caution. I would advise investors to be careful with them. They depend on a number of factors and we do have less consistency in the seasonality of when contracts expire. A big part of that is as part of our land-and-expand motion, a lot of our upsells are done off cycle, which creates noise with respect to that RPO metric. So I focus on sequential revenue growth, which you could annualize out and does show we continue to do very well. Be somewhat careful with bookings and billings.

Yes, okay, very good. Thanks guys.

Thank you. Our next question comes from the line of Mark Murphy from J.P. Morgan. Your line is now open.

Yes, thank you. Congrats on a very strong performance. Cameron, as we think through the roughly 40% trajectory for ZoomInfo right now, and if we overlay the effects of the pandemic and the recession for Q3, would you say that was a net headwind, neutral, or a net tailwind? Given you’re reporting on the day of the Pfizer vaccine news, how do you see the imprint of the pandemic going forward in terms of ZoomInfo's ability to benefit from reopenings next year and the year after?

Yes. I think we've always said the pandemic and the resulting economic uncertainty present both headwinds and tailwinds for us. From a headwind perspective, we continue to have customers that are at least partially impacted by the pandemic and buying patterns obviously change. Over the course of the year, as customers — particularly larger customers — became more acclimated to the environment, we have seen benefits as people look to improve their sales and marketing activities. Overall, the trend of people looking to improve their go-to-market activities and achieve better efficiency and effectiveness started well before the pandemic and has become more important. Post-pandemic we expect that trend will continue for a long period and that secular trend will help us as economic uncertainty continues.

I would add, Mark, there was a study by McKinsey this quarter finding only 20% of B2B buyers say they hope to return to in-person sales, even in sectors where field sales models have traditionally dominated like pharma and medical products. Once you make a shift from analog to digital, it's hard to go back.

That's a very good point we can all relate to. Henry, one other question: if you think through your typical customer that's been with you for a couple of years, and look at their own headcount trends for sales and marketing teams, that's a lever that can drive dollar retention for you through seat expansion. Do you have a feel for how that's trending in recent weeks? Any indication your customer base is beginning to re-engage and expand sales teams more rapidly?

Mark, I'll jump in and then Henry can add color. We certainly see within our enterprise cohort improved net expansion and upsell capabilities. While there has been some volatility in overall headcount, we are still materially underpenetrated so there's a lot of opportunity to continue to grow. The vast majority of our customers are underpenetrated and within the enterprise cohort we believe we have at least $1 billion of incremental revenue just from the customers we have today.

Excellent. Thank you very much.

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

Hi there. Thanks and good afternoon. Cameron, maybe following up on those macro points — can you spend some time on the assumptions that went into Q4 guidance? Anything else given this is just your second quarter as a public company for us to be aware of from a seasonal perspective as we head towards the end of the year?

Sure, great question. We look at our business and remain very positive on the secular trends impacting us and continue to see great execution. That being said, this has been a year where a lot has happened — economic uncertainty and potential election fallout. We don't know all the variables, so we've taken a prudent approach to set guidance that's achievable and realistic. From a seasonal perspective, as a completely subscription-based company, the primary seasonality you get is based on days in the quarter and revenue recognition. Q4 has a similar number of days as Q3. Q1 has fewer days which could have an impact and we adjust for that in our sequential growth thought process, and it can have a small impact on margins as well. Those are the seasonal aspects we tend to focus on when looking at reported results.

Got it. Thanks for taking the question. Nice job on the results.

Thanks.

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

Hi, guys. Thanks for taking the question. Henry, when you look at your early-stage pipeline, late-stage pipeline, sales cycles and close rates, how do they look compared to earlier this year during the pandemic? Where are we today and how does that look going forward? Quick follow-up for Cameron.

I think if you look at this month by month coming out of March, metrics like conversion rates, demos, opportunities, close rates and sales cycles have all improved month over month. Everything has improved coming out of March and we are getting very close to our pre-COVID period.

Got it. And Cameron, if I look at metrics across the board — revenue growth, billings growth, current RPO, current RPO bookings — you're seeing acceleration year-over-year and sequentially. Are there any adjustments that stick out we should keep in mind to temper that acceleration narrative?

I think those bookings and billings numbers have a lot of variability. Billings in Q2 was 17% growth; billings in Q3 was 55% growth. It's going to go back and forth. I wouldn't expect it to continue to grow unabated because there is variability. When you look back at Q3 of last year, there are always adjustments you could consider. Overall, there are many adjustments like payment terms or seasonality of when we've sold that pause variability, which is why we'd be careful with those metrics.

Got it. Okay, perfect. Thank you guys.

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

Hi, guys. This is Nick on for Terry. Thanks for taking my question. I wanted to talk about intent data. It seems like your intent data solutions are seeing a nice uptick in adoption — 67% increase in adoption of the intent product. Can you talk about the importance of intent data when selling the overall platform and whether it has led to an increasing number of enterprise customer wins or larger deals? As a follow-up, how has the recently introduced streaming intent solution resonated with customers so far? Thanks.

I didn't catch the last part, Nick. What did you say at the end?

Just as a follow-up, how has the streaming intent solution resonated with customers so far?

Got it. We think customers want to engage with potential buyers at the time they are interested in products and services. The B2C world has done an incredible job of being in front of buyers when they think about products; the B2B world has been behind in that sophistication. The biggest reason is B2B companies haven't had a way to take offline intent data and activate it through their go-to-market systems. There are two important things for intent: one, we want the best intent solution on the market to predict when customers and prospects are in market for different products; two, we want to deliver that in real time to customers so they can act immediately when customers cross thresholds of engagement on certain topics. And we want to make it seamless for them to activate that data across their go-to-market systems. Bringing that together gives B2B companies the opportunity to be as sophisticated as B2C companies in their go-to-market efforts.

Got it. That's helpful. Thanks guys.

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

Thank you, and good afternoon. I had one for Cameron and a quick follow-up for Henry. Cameron, drilling down on growth metrics — sequential growth was the highest in three years and year-over-year growth accelerated. As you think about the quarter, what drove the momentum? Was it broad-based across segments or concentrated in enterprise? Any one-time benefits?

Thanks, Brent. It was broad-based across the board. We saw really strong new business sales across enterprise, mid-market and SMB customers. All of our customers sell to other businesses, so they were likely less impacted by some COVID headwinds than certain consumer-facing industries. Many of them pivoted and found ways to succeed, and our system helped them continue to perform. We continued to see expansion among our customers accelerate month-over-month throughout the year, so it was broad-based across new sales and retention in all customer segments.

Great, good to hear. Henry, a quick follow-up on EverString: I know it adds SMB company data. Does this strengthen your capability in the mid-market and SMB, or is it more of a product play? How should we think about EverString — a way to gain share in SMB/mid-market or a product extension?

EverString expands the firmographic information we provide on small businesses, which is a key need for our enterprise customers, sophisticated mid-market clients and SMB clients who sell to other SMBs. This data is used for everything from simple prospecting to complex predictive scoring. One of the places we're especially excited is it helps accelerate success in the enterprise by providing data and insights to solve go-to-market challenges across organizations. That benefits enterprise customers like FedEx, iHeartMedia and Snowflake and also has value for sophisticated mid-market and SMB clients.

Helpful color, thanks.

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

Perfect. Thank you so much, guys. Congratulations on a good quarter and thank you for taking my questions. Henry, maybe one for you. Obviously very strong new customer acquisition. Qualitatively, who are these customers coming on board now and adopting ZoomInfo to help their go-to-market activities? How did they survive through the first seven months of the pandemic? Quick follow-up for Cameron on the current RPO — was CRPO simply a function of very strong customer acquisition in Q3?

Thanks, Stan. We're seeing strength across industries and customer cohorts — everything from a plastics distributor to a commercial and residential restoration services company came on in the quarter. Companies are looking for digital ways to go-to-market, some because they are transitioning and some because the pandemic forced them to change. Field-sales organizations, for example, are asking how to make their sales teams productive from home and how to provide insights sellers would otherwise get by being in-person. They're accelerating digital transformation and coming to us for those insights. We also see companies deploying Salesforce and asking us to help them turn it into a system of insights to drive adoption and value.

In terms of the current RPO question, Q3 was one of our best quarters ever for sequential revenue growth. That was driven by both new sales and net expansion with existing customers. That does play into an inflection point around billings and calculated bookings, but I would caution people from putting too much weight on bookings and calculated billings because of variability around billing terms and seasonality of contract periods.

Got it. Thank you.

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

Hi everybody. Thanks for taking my questions. Henry, you noted a potential $1 billion upside within existing customers. I look at the 720 customers spending over $100,000 — still a low percentage of your install base. How are you getting customers to make that jump? Of the 720, was the Q3 increase predominantly from the installed base or new customers? And what are you doing with your go-to-market motion — hiring new sales reps or changing your approach to attract more enterprise customers?

We run a sophisticated land-and-expand motion, driving existing customers from low entry points to much larger subscriptions by showing value to small groups of sellers and then expanding to other divisions. Most growth in the $100,000 cohort comes from that expansion motion. We continue to invest in and refine the go-to-market approach in the enterprise. This quarter we released auto-provisioning of free trials to target specific users within enterprise customers, give them free access to ZoomInfo, gather in-product feedback, and then take that feedback up to senior executives to increase seats. We've deployed that across more than 2,300 of our accounts and expect it to drive incremental enterprise growth. We continue to hire in the enterprise, including a VP of Enterprise Sales we hired from Salesforce to run that team.

Tom, just to follow up, Henry is right that most of the customers are expansions, but Q3 was one of our best quarters in terms of landing new customers over $100,000. We are starting to see some good traction in customers coming in at slightly higher levels to begin with.

Excellent. Thanks for the follow-up. Appreciate it, Cameron. Thanks Henry.

Thank you. Our next question comes from the line of Siti Panigrahi from Mizuho. Your line is now open.

Hey, this is Michael Berg for Siti Panigrahi. Congrats on a great quarter. A quick follow-up on Clickagy and EverString — where are you in terms of integration and how much longer to go? Have you had any early customer feedback from existing customers using the new feature sets? Any commentary and color around that? Thank you.

EverString closed on the third day so we've had roughly 72 working hours of customer conversations. EverString helps in enterprise conversations where enterprises want to solve go-to-market data needs across the organization by enhancing and enriching data that already exists across their enterprise and matching, filling and enriching a broad set of that data. Thousands of our customers already use our data enrichment solution, and integrating EverString will instantly provide additional value as we'll enrich more records and monetize those records across what they're already enriching with us. On Clickagy, we are releasing our Streaming Intent product this month and have already had customers sign up and are ready to go. Lots of excited customers want access as soon as it comes out, and we're building an enterprise-grade product that will allow us to pipe intent-level data directly into data science and machine learning organizations in the enterprise.

Perfect. Thank you. And a quick follow-up: you noted about $2 million of impact to Q4 from the acquisitions — is that correct?

Yes. That's our expected revenue from the two acquisitions combined.

So roughly a $10 million run rate if you annualized it?

Yes. Certainly it's not going to be material to our financials next year either; it will be modest in scale relative to the business.

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

Okay. Thanks guys. Kevin here on for Brian. You've mentioned before seeing an uptick in leads and brand awareness surrounding the IPO. Is there anything specific indicating that is sustained and how might that impact pipeline generation or the new ACV mix across verticals with lower penetration rates?

The best metric to look at is marketing qualified leads, which primarily come from the website. Those reached an all-time record in number of MQLs and ACV per MQL. Q3 was 65% higher than Q3 of 2019 for MQLs and ACV over MQL. That's a metric we track closely and it drives overall conversion to closed opportunities. We continue to see strong momentum there.

That's good color. Thank you.

Thank you. Our next question comes from the line of Pat Walravens from JMP. Your line is now open.

Great. Thank you and congratulations. Henry, if I'm dividing this up, it seems like firmographic, technographic and intent data are big areas. Where do you see the most white space in terms of organic product development or acquisitions?

That's a great question. It's more like firmographic — you could include technographic as an element of firmographic — account data and professional or contact data, and then intent data. Firmographic data is the type every enterprise knows they need; it's often handled via a broken process in the enterprise. Professional data and contact data are still early for companies leveraging them for ideal buyer profiles and targeting. Intent data is the earliest stage — largely evangelistic — but customers understand the value because of B2C examples and are beginning to adopt in B2B. So firmographic data has broad adoption needs, professional data has growing adoption, and intent data is early but accelerating.

Okay, great. That's really helpful. Thank you.

At this time, I'm showing no further questions. I would like to turn the call back over to Henry Schuck for closing remarks.

Great. Thank you. We continue to be extremely excited about the near- and long-term growth prospects for the company. We're focused on delivering value to our customers, increasing engagement with our platform, investing in technology to further expand our competitive moat, building out a world-class team and executing on value-creating M&A opportunities. As I said last quarter, this is the starting line for us. We have a very active calendar for the fourth quarter, and I invite you to join us at one of the many conferences or events that we'll be participating in. For more information on where we'll be and when, please reach out or visit our investor relations website. I appreciate you all joining us today. Thank you. Good afternoon, or good evening.

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