Q2 2020 ZoomInfo Technologies Inc Earnings Call
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After the speaker presentation that they will be a question and answer session.
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I'd now like turn the conference guest Speaker today, Jay Savitsky VP of Investor Relations. Please go ahead Sir.
Thanks, UL and welcome everyone to zoom inflows first ever financial results Conference call.
Our results for the second quarter 2000, 22000 2020.
We're excited to have so many new shareholders joining us today after our successful initial public offering.
With me on the call today, our Henry shock CEO and founder of Zoom Info and Cameron highs are 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 FCC 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 <unk> IR dots, you've been <unk> dot com.
All metrics discussed on this call where non gap 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 shock.
Great. Thank you Jerry and welcome everyone to zoom and so second quarter financial results Conference call. Our first as a publicly traded company.
First let me acknowledge all of our employees on delivering a great quarter I'm incredibly proud of our team and its thanks to their hard work that zoom and so that sumant, both leading go to market intelligence platform helps more than 16000 companies worldwide. So one market more effectively and efficiently.
In the middle of a pandemic our team rallied to watch the first the virtual software IPO in history, and we capitalized on that excitement in 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 validate what we've always believed that going to market digitally as more efficient and more effective than the analog motions. Most companies are still using the find their next customer.
Well every company during this pandemic grapples with how to prioritize investments.
Additionally, finding their next customer is at or near the top of the west for every executive.
In the quarter, our team delivered 40% organic growth was 49% adjusted operating margins and $111 million of revenue year to date, we have delivered more than $100 million, an unlevered free cash flow.
That growth is driven on top of our customers leveraging our actionable insights and intelligence to drive account based marketing initiatives cell development plays territory mapping lead in demand generation campaigns sales pipeline reviews anonymous visitor tracking odd retargeting campaigns audience segmentation.
And much much more zoom info truly sets at the heart of all go to market motions.
June or conviction that the zoom in full platform is truly best in class across a wide spectrum of go to market strategies was validated by Gtwo crowd, a well known reviewer of enterprise software solutions and GE to summer 2020 grid zooming felt weren't 10 number one rankings and market intelligence marketing account intelligence.
And enterprise and small business sales intelligence. The G. Two awards also highlighted the breadth of our solutions and our ability to impact nearly every aspect of a sales and marketing professionals go to market activities. As we appeared on 14 different GE to grid reports and were named in five different sections, including Byron.
Tools and lead capture.
Just a week after that you do the Gtwo crowd honors trucks radius across a customer voice in insights platform awarded us the number one spot for marketing intelligent software after awarding us the number one spot for seldom intelligent software in March. Although we are proud of these awards and the industry recognition we are receiving.
We recognized that innovation in our space happens fast and we're 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 fourx improvement and data throughput.
We continue to enhance our enterprise offerings by adding our intelligence suite of scoops alerts company hierarchy in locations intent and company news through our <unk> and our data engineers deliver the ability to match companies by specific site locations and street addresses and then surface contracts associated to those locations.
Through the front end up our platform and through our <unk>.
And our customers and more customers than ever our taking advantage of the new products and functionality that we have built into levered. As an example between Q1 in Q2 customers using our intent product grew close to 50% what customers of our inbox AI product more than doubled.
On top of that our overall engagement rates are up over 20% across all of our platforms.
Without being innovation, driven by do menthol sellers and marketers are blind to their target markets and ideal buyers and are completely reliant on disparate psi load and menu, we updated digital rolodexes to drive the targeting a potential customers and engagement of decision makers within those targets marketers would be.
Fourth to drive demand by sponsoring conferences and live events pointed out a broad set of prospects with no insights into their buying intentions or decision, making power. This is not the way company than 2020 should be going to market.
For the past two decades zoom and so it's been working to change. These legacy go to market motions and the pandemic has helped accelerate this change and its forced the hand of many slow to evolve organizations into making a choice digitally transform or disappear.
Human fill provides sellers in market and marketers the data insights and technologies that enable everything from a simple go to market motion out a pecan exporter in Alabama to the most sophisticated go to market planning and execution, a multinational corporations likes the ducks, though and I say P.
Our platform enables a new way to sell one where every sales and marketing professional it's just a few clicks away from orchestrating the most targeted and effective outreach possible to clients and prospects for example, I imagine being a few clicks away from segmenting and targeting every manufacturing company in the Pacific Northwest.
With more than 100 employees, a four one k. planned or when news in October who uses Microsoft dynamics and Oracle next week and who is currently in market for human capital management software and being able to take that incredibly granular audience and instantly orchestrate a cell development campaign, a marketing automation campaign.
Or an advertising campaign to the key decision makers are not audience.
That level of targeting and go to market sophistication would take a team of data scientists engineers and data collectors in years to establish and would only be available to the super enterprise with very deep pockets today through the combination of a robust contributory network, a constantly evolving machine learning and AI engine.
And and human researchers Zhu Minto 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 a 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 with stumble across you. Then this can't Democrats compelled you to realize that those methods, we're not only incredibly suboptimized, 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 ACB than ever in our history, We released our new platform 10 months ago and today it accounts for over 50% of our total a are you.
Even in the hardest hit industries, we are seeing demand for our data insights and technology successfully sunny 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 zoom into the lead package with intent data across their corporate sales.
Okay.
We also brought on Kaiser compressors, the U.S. arm of the 7000 employee German based manufacturer of compressed air products and services.
Within person meetings and events not possible for the foreseeable future Kaiser moved to digitize their go to market effort and continue to develop their funnel. They brought on zoom in thought advanced package for their frontline sellers, while their marketing department out at our marketing functionality their stock as well.
We also continued on momentum on the expansion side with close to 2000 of our existing clients increasing their spend with us in the quarter one of those clients Commscopes a global provider of network infrastructure expanded with zoom and fell 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 $100000 a year with us representing a 60% growth in ACB for those customers.
One of those customers worldwide Express a 1000 plus employees shipping and logistics company expanded their user licenses from the inside sales team to their full field sales team.
And application performance and monitoring company expanded their users and added more functionality of their usage of the zoo menthol platform, gaining access to our industry, leading b to b intent product along the way.
Well one of the largest technology companies in the world expanded into their machine learning and AI teams with our enterprise <unk> capability.
With July 1st marketing the start of the enforcement of the TCPA, 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 E U 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've now given direct notice to over 55% of our email about 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're in a very early stages of targeting a large and growing addressable market, which represents more than a 25 billion dollar market opportunity.
And with low single digit penetration rates, there are meaningful growth opportunities by continuing to leverage our fishing go to market engine to add more customers to our platform expand within the enterprise build new solution that add value to our existing customers go into international markets and adjacent seems like recruiting and by flexing.
Our M&A muscle as we look for tuck ins.
We are 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 work flow through the tactical go to market motion that starts with our data flows through our platform in analytics layers and enables automated go to me.
Like emotions 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'm more confident today than ever about our competitive position, our technology and a positive traction we're seeing within our market, but mostly I gained a tremendous amount of optimism about where we're headed because of the team. We have put together in Q2 alone we added more than 100 and fit.
The new employees recruiting and onboarding each one of them virtually every one of our over 1300 employees appreciates the immense opportunity in front of our company and as motivated and committed to achieving our full potential and 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 Heizer.
Thanks Henry.
Let's 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 organic growth plus adjusted operating margin was 89%.
Moreover, as many as as many of our software company peers aimed to achieve profitability or some target margin in the future through operating leverage we plan to harvest, our operating leverage and reinvested 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 has significantly differentiated versus the competition based on the quality of our data and insights we are able to provide.
We also operate in a very large and under Underpenetrated addressable market, helping companies of all shapes and sizes achieves topline success.
To take advantage of this significant opportunity in front of US we've built a best in class go to market engine driven by consistent internal use over on platform.
Our go to market motion drive sub 30 day sales cycles, which we combined 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 so.
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 lines, 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 gap 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 the 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 nonrecurring 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 19, driven by continued new customer additions and expansions of existing customers.
Customers with more than $100000 and ACB increased to over 650 with HCV from those customers growing 60% relative to June 2019.
The difference drink gap inorganic growth is due to the fair value adjustments of acquired unearned revenue the principally impacted the comparative revenue figure in 2019.
While we are experiencing some headwinds related to the economic uncertainty, resulting from a global pandemic, new sales and net dollar retention performed well in the second quarter. We added a record level of HCV 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, 19 and up from 87% last quarter.
As we shift to operating costs 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 were reflected in cost of sales we're spending in the mid teens as a percentage of revenue.
Finally, adjusted Gina expense was $9 million or 9% of revenue as compared to 70% of year ago. As we've continued to add capacity to better operated as a public company.
We ended the quarter with approximately 1300 employees worldwide up 36% year over year, and we continue 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 19.
Our philosophy is to maintain annual adjusted operating margins in the mid to high Fortys. We delivered at the high end of that range in Q2, as kobin 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 seven cents per share based on 403 million weighted average diluted shares outstanding.
Okay.
As I think about the impact of Kogan 19 on us we have experienced headwinds and tailwinds in Q1, we experienced headwinds as some sales cycle stalled when many business leaders were shocked by the magnitude of changed they were experiencing in mid to late March in Q2, our sales teams adjusted to the new environment.
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 US one customers and heavily impacted industries represented less than 4% of HCV and we're seeing heighten cancellations and reductions in sun from the subset of customers relative to pre cope with time frames.
During the quarter, our average contract duration was relatively unchanged at a little over a year, but we have seen a shifting 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 and while we continue to see some headwinds we're 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 there most strategic imperative.
Turning to the balance sheet and cash flow, we ended the quarter with $260 million and cash unrestricted cash. This includes approximately $170 million of cash added to the balance sheet for net IPO proceeds less repayments of debt and preferred equity.
Cash flow from operations was $25 million for the quarter, which included $24 million an 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 de leveraging that we implemented through the IPO. We were upgraded by both of the rating agencies that cover our debt to be two addison to be plus it S&P MB two at Moody's.
Before I turn just from the guidance, let me provide some context on our corporate structure.
Our structure can complete create complexity for investors and while some are quite familiar with an up see structure and the multiple classes of stock in 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 tradition 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 2020.
Given the GAAP revenue and allocated combined receipts converge in Q3 of this year, we're issuing guidance on GAAP revenue to simplify comparisons and avoid confusion.
We expect to GAAP revenue in Q3 to be $116 million to $118 million and adjusted operating income between 53 and $55 million.
This implies 34% organic revenue growth and 46% margin at the midpoint of the rich.
The non-GAAP net income is expected to be eight to nine cents per share.
For the full year 2020, GAAP revenue is expected to be between 451 and $455 million and adjusted operating income between 213 and $217 million.
This guidance implies 35% organic growth and a 47% margin at the midpoint of the rich.
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 $2 million difference. So naturally we expect full year allocated combined receipts to be higher by that amount.
Non-GAAP net income for the year is expected to be 29 to 30 cents per share and we anticipate unlevered free cash flow to be between 206 in $210 million.
The guidance range provided are based on our current operating results to date and assumptions, including anticipated headwinds from the impact of Coca 19 through at least the end of the year.
To summarize we're 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're in the early stages of this opportunity.
And are confident we will continue to build a very large and successful company overtime.
Now, let me turn it over to the operator for questions.
Thank you.
To ask a question you need to press star one on your telephone.
Good question Pest Conkey.
Please standby will be composite can give us there.
Our first question comes from Citi is kind of Guy. He lives Mizuho. Your line is now open.
Thanks for taking my question congratulations its.
Public company.
Just wanted to dig a little bit into.
Different segment, you talked about enterprise. So could you talk could meet market and small business as well what sort of trends did you see.
Q2.
So we continue to see strength, you know really across all of the segments from a small business perspective, I do think that in industries that are more impacted by coven. We are seeing some headwinds related to that I think as we've mentioned before.
For some of our bigger ticket deals no matter, which segment that then we have seen and you long duration 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.
[music].
Thank you.
Next question comes from Bad Credit Suisse. Your line is now open.
Cameron Henry you talked 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 too in terms of the sales funnel sale cycle times or or any other observations that are impacting the business.
Yes, Hi, Brad Thanks for the question I think though what we see.
What we see most are I think first is there was an uptick in leads that corresponded with the time of the IPO.
But the trick dare as it's hard to disaggregate that between the co bid related Tailwinds, we were seeing and also just enhancements that we were already making and our go to market engine.
The real impact we're seeing is that the validation that we got from the IPO has really opened the doors for us to have more strategic conversations with our customers.
And we put our go to market engine on display as part of the IPO and that's really opened the door for our account management teams and our customer success team to be to be invited in to share best practices with key executives that our customers in a way that we had an otherwise.
Been provided the opportunity to do and so we think that really over time, we'll be able to continue to.
Leverage dot.
Those open doors and that'll continue to drive our growth.
Thanks, very much it's helpful and maybe just for you Cameron I. Appreciate your comments in the prepared remarks on co bid can you maybe just put a finer point too you know 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.
Since he is distancing eases.
And first you know all of our contracts are one to three year contracts.
So I think that though certainly stick around for at least the contract period and then most of our customers to renew I think that from a social distancing perspective really covance just emphasize many of the trends that we saw a pre the pandemic and that businesses of all shapes and sizes.
We're looking for ways to improve and digitize their go to market motions.
So I think in any kind of transformation that you see you always get a an acceleration at this time, but then most of that continues kind of as the world returns to normal.
And one thing I would add their cameron too as well. We believe this is a multi year tailwind that's just accelerating a trend towards digitizing sales and marketing motions that like Cameron mentioned, we're already happening and we're sitting in the middle of larger than 25 billion dollar total addressable market where were less than 2% penetrated.
And what you really see as companies today are taking trade show in advance and travel budgets and reallocating them to content syndication or online events and assume instyle and over time as they see the tremendous ROI. Our platform provides they're going to shift more and more dollars behind zoom info and as they.
And when they ship those dollars Dolby expanding from marketing used cases to sales use cases to data cleansing two intent data to lead capture and more and more.
Awesome. Thanks, so much guys and congrats on strong first quarter out of the gate.
Thank you Brad Thanks.
Thank you. Our next question comes from Mark Murphy with JP Morgan. 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 future how aggressive are your ambition in the recruiting market and I think we're wondering if there was a bit less urgency. Today. Then there was Cree cobot, just given the employment climate or or would you still be planning to move full steam ahead, just as rapidly as you already have been.
Yes, we believe we're in the midst of.
Building on our platform to be.
To to build a recruiting focused product and so we continue to believe that's going to be a large growth area for us.
Obviously, the pandemic has slowed hiring in some places but there are also many companies that continue to higher in the midst of the pandemic and our platform gives recruiters and talent acquisition professionals.
I'm very robust database of professionals.
The contact information and experience information and education experience information that they need to be able to recruit effectively what we really believe is about recruiting and talent acquisition is going to become much more like a go to market motion that as today, where are you build a pipeline and you nurture and you close.
Those.
And we're going to be able to deliver the data and insights that allow that motion to happen in a more sophisticated way than its happening today.
Okay, great as a follow up Cameron you had previously filed the monthly net new a are.
Numbers and we knew there was a onetime disclosure we learned that April was your best first month of a quarter ever on the new business side and I think you mentioned in the script that for Q2, it's the most new customer is TV in your history. So I guess I'm curious did that trend.
Continue did it content continues such that June was the best third month of the quarter ever or if you can't answer that it can't answer it that way could you maybe just help us understand the shape of linear already at a high level for Q2.
And I think the trends that we saw in Q2 continued throughout the quarter.
And.
Say that.
June was.
In line or maybe even a modest acceleration relative to what we saw in April compared to other quarters.
You know realistically I think we saw.
Solid demand for our customers throughout.
Very good thank you.
Thank you Sir our next question comes from Alex Zukin with RBC capital markets.
Line is now open.
Hey, guys. Thanks for taking my questions and congrats on on both a quarter and the IPO.
Henry first for you if you think about what you've learned so far kind of selling through the pandemic you mentioned earlier about having more time to make the case at the enterprise customers being invited into to make that strategic value proposition walk us through kind of how that's.
Both trended.
Even into the month of of July and where you see that kind of peaking does that set up for.
A different kind of.
Linear to your trajectory in Q4, and then any puts and takes that you've seen or or changes that you've made as a result code on your go to market, mostly have a quick follow.
Yeah, I mean, if you if you look back I think you know first we were we were surprised.
That the downward activity that we saw in March rebounded in the quarter, we felt really good about that and in March our customers. We felt like a lot of our customers were gear and headlights. They didn't know how the pandemic, what's going to affect them. So they pop than spending and a quarter. We saw a much more of that rebound we saw slowdown evolves company that that.
We're coming to us with a new imperative to change we've got companies that used to have one hundreds of salespeople out in the field, saying that they needed to find a way to make them productive and find ways.
To make their field sales teams.
Well to continue to grow pipeline and close business, while they're working from home and what that really to us.
Indicates is a real shift from analog to digital sales motion and an acceleration of that shift and the speed at which those organizations pivoted. During the early days of Cove. It changing their business model is going to market in new in new ways. We're done.
Never ceases to Amaze me, the fortitude and the resilience of small businesses and it was great to see dozens of business has been affected industries also signed on in the quarter.
And I think.
Well, we'll continue to see as customers and companies who were slow to evolve raised their hands and look for opportunities to make their sales and go to market motions more effective and more efficient and I think we'll we're excited about is that today we.
We are much more the organization to call to help with that transformation than we've ever been.
Got it that makes sense and then.
And maybe just one or two metrics questions for you.
You mentioned in his script seeing an improvement in net retention.
Both sequentially and year over year, Yes, I was wondering if there's any way to quantify on a dollar base that expansion metric I kind of how Q2 compared to Q1 or or last year and then on billings you mentioned.
Duration headwind from more customer signing up for quarterly.
Billings terms, rather an annual is there anyway to quantify that the size of that headwind on billings in the quarter.
Yes, so let's start with on on the annual net retention, we do view that as an annual metric and obviously calculated.
On an annual basis.
In the quarter the activity around retention certainly saw an improvement. So you know we had more more customers increasing their spend with us in fact, we had close to 2000 customers increased spend with us during the course of the quarter. So overall, we expect that.
We will continue to see kind of solid net retention through the year.
In terms of the billing shift.
You know when I look at unearned revenue as an example.
The shift in quarterly payments.
How did impact of more than.
$10 million, if we were at a similar mix to what we saw at the end of Q1.
Got it that's super helpful. Thank you guys and congratulations again.
Thanks.
Thank you.
Our next question comes Stan Stan Zlotsky with Morgan Stanley. Your line is now open.
Perfect. Thanks, so much gentlemen for taking my question.
Yes.
So from my end first one.
International selling motion.
With with the success the having in the U.S.
And at the same time, considering coated situation globally. How are you thinking about you expanding your selling presence outside of the U.S. and then have a quick follow up for a camera.
So in the one of the things that we did in the quarter also high stand sorry, [laughter] what are they did in.
One of the things we did in a quarter was we just focused some go to market efforts on international Sofa lead came into our funnel there were a set from from an international country Doris sat group.
Cell development wraps and account executives, who owned those leads and what we saw was that we can absolutely affect our conversion and win rates in the international market by focusing on that and so we've we've embarked on an initiative to.
Re scan and reorganized the platform to be focused on the international market and you'll see us in that market a much more heavily in the back half of this year.
And so in short our plans around the international market haven't changed.
And we're excited to to enter them.
Okay, Perfect and then a quick follow for Cameron just expanding on Alex's question, but before.
If we make the adjustment the 10 million impact to billings from payment shifting to more quarterly.
You get to about 15% clinical billings growth in the quarter.
To help us to kind of close the gap between the 15% billings growth and 40% revenue growth that we're seeing on on your topline that's it for me. Thank you.
So a b.
If you make that adjustment relative to Q2.
I think your 15% numbers, probably a little light.
Yeah realistically in Q2 on a calculated billings basis last year was $94 million, but I think one of the things that you just need to kind of be careful of as there is always going to be shifts and.
In some noise around the calculated billings number.
Which is why.
Given our kind of completely subscription business you end up.
Getting a better sense of the real growth than kind of forward looking capabilities as a business based on what's actually being recognized as revenue.
I'd have to go and kind of do a pro forma view of what the.
The full billings growth would look like but I could get back to you, but I do think it's much closer to the organic growth that we stated that 15%.
Okay perfect. Thank you.
Yeah.
Thank you Sir our next question comes from Michael Tan with Wells Fargo Securities. Your line is now open.
Hey, there. Thanks, good afternoon and knock on my my congrats on the on the Big milestones as we continue to tick them off maybe maybe to start off with just is there any update or added commentary you can provide around how usage is trending both on the platform overall with those fanatic users or are you seeing more traction here with those what those power type users that you've called out and the.
Past just within the current environment.
Yes, Hey, Michael this is Henry.
First across our customers, we saw low to mid 20% increases in our Dow over MAU metric since the start of the pandemic, which is the number of monthly active users who engage with our product in a single day window and we've considered continue to see growth in our fanatic users across the platforms as well.
Okay, great and maybe given the so your first earnings call Cameron can you walk us through just the overall approach to guidance here.
What kind of assumptions go into the second half forecast and maybe how much visibility do you have into the rest of the year at this point in time. Thank you.
Yes, so given the fact that we're a completely subscription business, we do feel very comfortable with the visibility that we have into the coming quarters, obviously with the pandemic do you believe that Theres a.
Broader range of potential outcomes, and obviously, we've contemplated that in the in the guidance that we've provided.
Thanks, guys.
Thank you.
Thank you Yeah. Our next question comes from Jennifer Lowe with your.
Let's now open.
Great. Thank you.
I think it to double back on the 2000 customers that expanded in the quarter and I'm curious if there's any notable trend there on how that expansion look relative to prior periods in terms of the drivers of expansion, whether it's more seats or more customers upgrading to higher tiers of usage or buying additional products did look any good.
Front in terms of what is driving that expansion and how people are using the product.
And I do think that.
Historically, the the additions in terms of customers has been more see driven as we've rolled out more and more functionality to think that that's becoming a bigger portion of the of the.
Revenue that we're able to that to generate.
Great just one more for me in a quick one.
Going back to the questions around guidance and for free cash flow. So you talked about the impact from customers moving from quarterly to annual annual to quarterly period, but if we look at the free cash flow guidance for the year, what's sort of assume there in terms of payment frequency.
So obviously the assumptions do do contemplate payment frequency going forward.
We do expect that we're going to and we are seeing.
A shift back towards annual payments now that we've gotten out of of the shock of the immediate covert Ur cobot crisis.
Okay. Thank you.
Yes.
Thank you.
Next question comes from David Hynes with Canaccord. Your line is now okay.
Hey, Thanks, guys I'll echo everyone else's congrats.
Henry I want to ask about intent data you called out some nice growth in terms of adoption in the quarter and I think it's part of the the secret sauce of the platform.
Can you just remind investors you know a how you get that data.
The way you are in terms of adoption and see what what happens to customer spend when they take on that intent data.
[noise] DJ Thank you for the question.
So our intent data is available in our elite package or it could be bought out hawk until one of our bar lower packages. So one we're driving we're driving a motion to.
The highest and packaging that we provide through the entire offering.
That data.
Comes from unique proprietary sources that we own and integrate and and then we also a license data from from multiple different vendors that comes into a data science team.
Data science and innovation team here at Zoom info, who take all that data normalize that using our IP to company.
Dataset to be able to associate.
Associate traffic to specific websites back to a company's IP address.
And were able to take that and then create a baseline for consumption of certain topics are actually thousands of different topics and then the data science team has built the algorithms that looked for spikes and in consumption of those specific topic.
Got it okay. That's super helpful. Thanks, guys.
Thank you Sir our next question comes into play Tillman maturing Securities. Your line is now open.
Yes, Thanks for taking my question inaugural the congrats on the IPO and the results Henry maybe just a question about non traditional industries. I think you mentioned a farmer earlier that signed up what I'm curious about is as you look through the data into Q for these non traditional customers or industries, what is their buying patterns like in terms of the sales cycle as well but.
Side, and just do you see longevity in these non traditional industries going forward. Thank you.
Yes, Thanks, Terry I think first work our business is growing across all different all of our different industry segments.
And so we're seeing growth in these sort of non traditional segments one of the other.
Types of companies that we've seen as financial services companies, who who have traditionally been a much more face to face or even in some situations door to door go to market motion and so we've seen them come to us and say look you know this face to face door to door motion doesn't really work for us anymore.
And then we often see if just our overall growth emotion its design companies up with a modest ASP and then in the enterprise really grow them through our Atlanta and expand strategy and so were the motion that you'll see as we'll sign in enterprise company.
I had a relatively lower ASP that might be our product that gets rolled out to you know 20, or 50 or 100 out of a thousand different sales and go to market professionals, we prove ROI in that segment and then we grow beyond that and not that motion as consistent as.
In both our traditional and non traditional industries and yes, we do see real success happening within those accounts.
I gave an example during our IPO of a company called 10 craft that sells that tense, that's a manufacturing business.
Who is completely changed their go to mark emotions, using zoom and fell I gave an example of Kaiser compressors, which was an air products and services company.
Thats based in Germany, that's come onto us for for our digital platform to drive their go to market efforts and so and we're already seeing early success from those companies in those non traditional industries.
The last example, as I mentioned, a large hotel chain that came on and that examples really interesting because before they signed up or zoom and felt they did a small pilot they booked $80000 a revenue in the short pilot or $80000. The bookings in the short pilot and then.
And with hundreds of thousands of dollars the pipeline built as well and so then they expanded and came on with us and so we're seeing real ROI across both traditional and nontraditional industry than we think that's going to drive the retention rate in the future.
Great Operator may we can take the other next question. Please. Thank you and our next question comes back Brent Bracelin those type of San <unk>. Your line is now open.
Thank you and good afternoon, I guess, one for Henry and a follow up for Cameron Henry.
Wanted to talk a little bit about the broader ambitions relative to this digital go to market motion shift in the industry.
The reason I ask is they intent solutions I think up you're talking about that being over 60% growth and inbox AI and now there was through there can be cool acquisition, not so long ago, but does it sound like that doubled.
No year over year as well so walk us through has your ambitions are appetite changed post co good relative to the scope of opportunity you're going after and again, one quick follow up for Cameron.
No I don't think our ambition has changed I think ultimately what we believe that today.
Sellers and marketers are trapped inside of legacy CRM and marketing automation systems that provide them no inside outside of the four corners of their website or what a sales rep put into their CRM system and that and the whole world outside of the four corners of your website is what's driving significant amounts of insight.
It's whether that's intent data or accompanies growing or shrinking or making acquisitions or or moving locations are hiring new executives. The world of insights that how that happens outside of your CRM and marketing automation systems is much more robust than what's inside and we think sellers and marketers need to be able to grasp.
Those inside that happened outside of the four corners of their websites and then drive go to market motions based on those and so we're building is the ability to automate the go to market motions and orchestrate. The go to market motion of every company by leveraging both their first party insights that exist and their CRM and.
Marketing automation systems, but a couple in not with a broad rolled the insights that happened outside of those four corners, an outside of those legacy systems and combining those to build the most efficient and effective automated go to market motion and that continues to be our bijan.
Got it helpful color there and then yes, Cameron you talked about the new platform 10 accounted for I think over 50% of VR AR.
Do you have any kind of comparable stat with either last quarter, what the platform 10 mix was in there or perhaps last year.
So in certainly the new platform rolled out in a in October of last year. So it's gone from zero to 50% in the last few months.
You know if we look at a at the end of Q1 and.
Would it be ended Q1, it was less than a third of the revenue.
Got it so strong uptake there great. Thank you guys.
Thank you bye.
Our next question comes from Brian Patterson with Raymond James Your line is now open.
Hi, gentlemen, thanks for taking the question and congrats on a strong results. So maybe a follow up to Terry's question, but I know you guys had a lot of exposure to a to software and business services I'm curious.
He added this quarter, what did that mix look like versus your existing business in anything in the pipeline that suggests that there are certain end markets that are really ramping up I'm just curious on that thank you.
And as has been the case historically the markets that were less penetrated in continued to see higher refers so while we continue to grow very well within the the software and business services World.
Other of the industries like professional services and manufacturing and so forth continue to grow faster. That's a continuation of a trend that we saw a pre covered but saw through this this quarter I'd say that the one big changes that certainly.
You know industries that were more heavily impacted by covert whether that's hospitality or retail or travel.
You know those did not grows quickly within that.
Great. Thank you.
Thank you.
Next question comes from my mind share with Barclays. Your line is now open.
Hey, Thank you. Thanks for squeezing me in then congrats from me as well.
Question on.
The competition like what are you seeing.
In terms of customers understanding like your brought a value proposition against something like linked in and anything go out of the legacy guys like Dun <unk> bradstreet since the public how again, they kind of changes anything thank you.
Hey, Raimo. Thank you for the question.
One of the things that we do as we use a call recording software internally and we flagged competitor mesh mentions across all new sales and customer calls.
And most competitors are mentioned less than 1% at the time and the most reference competitor as mentioned in the in the single digits and I I actually this morning took a look at the most recent reports you see you asked about Dnbi.
The most recent report which covered July on the mentions of Dnbi have actually declined since February so ultimately no changes and the competitive landscape.
Okay perfect. Thank you okay. That's it.
Thank you thanks very much.
My next question comes Tom Roderick with Stifel. Your line itself.
Yeah, Hi, gentlemen, thanks for taking my question so.
Wanted to just build I think its brents question, just asking about platform 10, and making great progress and getting customers converted their Henry do you have any more anecdotal data as to what customers feedback has been on the platform. It seems like you're combining breast of data with intelligence and data across the discover Oregon zoom info platforms by putting them together.
Rather and then Henry that sort of that or a camera inside of a question for you is.
What's sort of tailwind are you seeing with respect to the air our lift that you're seeing from customers that are converting whether it's in pricing or attitude data being purchased thanks.
Thanks for the question I think what we see is it depends on which legacy platform. Our customers are migrating from that they're migrating bomb the discover or legacy platform to the new platform, what they're telling us is that the coverage is immensely.
As much much more than they had access to and discomfort wechat platform and so they're seeing on 20 acts the coverage of companies and contacts in the and the new platform than what they had access to and discover war and we've already integrated the breadth of the discovery work solution inside of the new combined plot.
Form so they have all of that at their fingertips as well if they're migrating from the legacy is no menthol platform. Then there then they comment about the organizational charts. The intent data the scoops and initiatives. The funding data that we've made available the workflow that we built.
The the anonymous website tracking.
That we've built into the platform and so they're seeing the breadth and robustness of the solution while the while the discover Oregon migrations are seeing a much broader coverage than they've ever seen.
And again tremendous that's really good.
Yes go ahead, Tom Thank you wont.
In terms of the kind of.
Pricing uplift you know the.
Transition or migration to the new platform hasn't really been a significant driver of growth and obviously, that's evidenced by the fact of the most of our growth actually comes from new customers and not from existing customers, but you know in terms of pricing if a customers migrating for like for like functionality and seats.
That tends to be a.
Kind of my that tends to be like a renewal price change.
Change so call it kind of mid to low single digits.
Obviously, one of the things that the the platform does do is it allows us to more easily provide increased functionality to folks. So you know in those cases, we do see.
Kind of somewhat more substantial uplift, but again, it's not.
Super material to our growth so far.
Wonderful really again.
Quick follow on but just thinking about the bigger picture of your margin structure tremendous it'd be hard to imagine a software company being much higher than where you're at when you look at the 25, 26%.
Revenues being spent on sales and marketing and also evaluate other markets you want to go into the opportunity to move upstream to do more enterprise deals move international.
What happens with that line sales and marketing as a percentage revenue over the next on the years.
Can you can you maintain the leveraging it and all that kind of flattish or does that sort of naturally go higher as you embrace figure deal opportunities in international properties.
And I think that we can maintain the leverage in that part of part of what we focus on as you know really finally tuning and leveraging our own system to drive an efficient go to market motion.
As we as we continue to grow and yeah, I think based on guidance and so forth. It would imply that we're going to need to grow our sales and marketing capacity as well as other parts of the organization nor to north of 30%. So we think that that that level of continuing to grow the.
The sales and marketing capacity.
Is it good level, where we can continue to take advantage of the opportunity in front of us and drive efficiency going forward.
That's great. Thank you guys.
<unk>.
Thanks, Andrew I'll, maybe we'll take one last question, we'll do time for just one more please.
Thank you and that question comes from tenant Maginnis with Deutsche Bank. Your line is now open.
Hi, Thanks for squeezing me in and congrats on the first quarter public company. So I know that you talked about retention rates, having improved and QQ relative to past quarters, but I'm curious that churn in particular charlottes trended relative to store agreed.
Theres anything you can provide on the kinds of levels of churn or retention that you're embedding in your guidance, we look forward.
Yeah. So churn was was pretty consistent relative to where it was historically, obviously I think the mix is shifting a little where we are seeing companies and more heavily impacted industries that are more likely to churn.
But overall I think theres, a broad recognition for the value that we're fighting among our customers and continues to be it can vary Iceland.
Absolute turned numbers aren't something that we're we're overall, providing but certainly the levels that we're seeing and you know and continued headwinds from co good or things that we have.
Considered in our guidance.
Great. Thank you.
Thanks again, everybody in closing I would just like to reinforce how excited we are we have a massive opportunity ahead of us a track record of driving growth and profitability 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 Goodnight.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Good bye.
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Yes.
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