Q2 2021 ZoomInfo Technologies Inc Earnings Call
Good day and thank you for standing by welcome to the zone in the second year 2021 say natural results conference call. At this time, all participants are in a listen only mode.
We will conduct a question and answer session and instructions will follow at that time. The final 1 should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
I'd now like to turn the conference over to your host Mr. Jerry Since Jetski. Please go ahead.
Thank you Chris welcome to the Zumiez those financial results conference call highlighting our results for the second quarter of 2020 'twenty 1 with me on the call today are Henry Sha founder and CEO of human cell on Cameron Hiser, Our Chief Financial Officer. After their remarks, we'll open the call to Q&A during.
During this 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 expect anticipate and believe.
<unk> 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 on the risk factors sections 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 the cautionary statement included on slides, we have posted to our Investor Relations website at IR Docs unit from Dot com.
All metrics discussed on this call are non-GAAP unless otherwise noted a reconciliation can be found in the financial results press release from the slides that we have posted to our Investor relations website with that I'll turn the call over to our CEO Henry shock.
Thank you Jeremy and welcome everyone Q2 was another record quarter with accelerating revenue growth and improved operating margin performance. We continue to see positive trends across the entire business driven by our continued investments in our sales marketing product data and engineering organization and a strong demand environment.
For accelerating digital transformation across go to market teams.
This was our best ever second quarter for new customer additions and we recorded the highest level levels ever for both retention activity and customer engagement, we saw accelerating growth with our largest customers growing the number of customers who spend more than $100000 a year with us by 70% year over year and.
In the quarter with more than 1100, showing meaningful traction behind the investments we've made in our enterprise motion.
We're also seeing our investment in international pay off with more reps focused on the opportunity we drove year over year international revenue revenue growth greater than 75% with international now representing 11% of our overall business.
In the second quarter, we delivered GAAP revenue of $174 million, representing 57% year over year growth up 50% up from 50% in Q1, and 12% sequentially when adjusted from the number of days on the quarter.
Our culture of continuous improvement defined as possible and setting a high bar is resonating with our current and future employees. We recently announced that we won comparably awards for best companies for career growth and book leadership teams as well as a fortune best workplaces for Millennials Award on.
Strong culture combined with a growing investment in recruiting and talent acquisition drove the hiring of more than 575 employees. This year as we near 2100 employees worldwide.
As we continue to see an opportunity to drive best in class growth rate, we expect to invest in building out the worldwide team to capitalize on a total addressable market that we estimate has grown from $24 billion a year ago to over $70 billion today.
And on conversations with customers. We find companies are still on the early stages of modernizing how they go to market, they're just beginning to use data and insights instead of intuition and automated workflows instead of inconsistent 1 off sales motion.
This is a secular shift that we believe will on salary we estimate that today. The market is only penetrated in the single digits and Gartner has indicated that by 2025, 60% LBW sales organizations will transition from experience and intuition based selling to data driven selling meru.
<unk> their sales processes sales applications sales data on handheld analytics into a single operational practice.
To meet this trajectory we've invested deeply in growing on product and engineering teams, adding senior level talent across the board, we've implemented new planning prioritization and alignment processes between product engineering and product marketing that have strengthened the rigor discipline and predictability of new software development and go to market.
Launches on product and engineering teams over delivered and we brought to market more meaningful products and features than any other quarter in our company's history.
In addition to the rapid pace of organic development last month, we announced the acquisition of course that AI a leader in conversational intelligence I want to reiterate why this is a transformational acquisition for us and share some of the early feedback from our customers.
First of course significantly expands our addressable market with a high value high net retention solution that is consistently rated 1 of the top solutions from go to market teams zoom info on course bolt target the same buyer or sellers know that power of conversation intelligence and can quickly and easily bring this.
Solution to our more than 20000 existing customers and new prospects.
The tight integration with our data assets creates more valuable workflows, bringing us closer to our vision on how modern and fully automated go to market platform.
Universally every single sales team is doing 2 things they might be doing more but at a minimum they are 1 prospecting to find new business and to on boarding and coaching sales reps to improve their performance zoom info has already helped hundreds of thousands of sales and marketing professional.
Find new business at the top of the funnel with the addition of course, we can now on board coach and up level their sales teams chorus.
Of course, it simplifies the process of Onboarding and training new reps by highlighting best sales place automatically recommending top scoring calls curating a library of called on similar topics benchmark benchmarking metrics, such as talk to listen ratios.
Or similar words and surfacing new objection. This allows sales leadership to onboard new reps faster.
Increased productivity and drive continuous improvement.
<unk> also accelerates our move into the engagement application layer, where Sheldon marketing teams are leveraging our world class intelligent to connect with buyers via phone email chat and video meetings in a more automated and efficient way.
We know that when we integrate into a modern total market platform our customers find increased value on our company contact and intent data for example, when customers using gauge we see meaningful improvements in their overall retention rates usage and engagement of our intelligence products, we anticipate a similar trajectory as we.
We integrate cores into this room and from platform.
We received great feedback on the course acquisition from customers and the value proposition is really resonating in less than 3 weeks since the closing of the acquisition. We have closed the number of transaction transactions 1 customer <unk> software lead generation firm was evaluating competitive conversation intelligence solution.
And shows course due to the more accurate signals through better transcription, they're using cores to up level the skills of their account executives and to drive process and sales methodology insuring roofs are adhering to the best performing contracts on asking Brian question.
Another customer that powers, an on demand cloud based workforce chose Cora is after determining that it was the most robust most robust solution. Following a competitive proof of concept, they're using course from their account executives in SDR team from call coaching and driving consistent messaging on half of their calls and at <unk>.
Very large professional services organization with with nearly 20000 employees selected course to reduce new hire ramp time, identifying replicate winning behaviors on their sales team and to drive sales methodology adherence. They chose coarse due to their superior artificial intelligence, providing more accurate signals.
And strong platform integrations.
This was rolled out to a segment of their account executives in 1 division and as we drive success, there, we unlock a substantial opportunity for additional expansion.
We also continue to drive platform improvements in user enhancements to deliver more out of the box functionality and workflows within our platform. While also continuing to drive increasing data coverage and data quality.
In Q1, I spoke about how we launched an all new workflows product that enables go to market teams to use natural language to easily set up and trigger insight driven plays that hanmi sales and marketing engagement and enablement and Q2, we added more new work flow trigger option for streaming on cat website skips and <unk>.
These investments behind our workflow suite have doubled the percentage of customers in our elite package, who are leveraging this advanced functionality. We will continue to add even more new traders and share our proven go to market playbook to help customers as they adopt test and iterate new workflows.
Further we expect that adding course keywords and mentioned as triggers and workflows will be a key innovation, enabling plays that have never been available to revenue teams before.
We also continue to bridge first party and third party data through our integrations zoom info sink gives our users the ability to unify their first party sales force data with zoom info data in Q2, we added the sales force opportunity object to zoom in force zinc, which enables users to include or exclude search result based on on.
Opportunity owner stage type lead source and created and close date ranges.
Additionally, our intent products, which track consumption patterns to help go to market teams identify engage prospects, while they're conducting research on as part of their purchasing journey.
<unk> continued to experience significant growth with active users growing more than 5 vacs from June 2020 to June 2021 streaming and patent consummate can't bookings, which became available available. After we acquired click Agee have nearly doubled sequentially in each of the last 2 quarters.
Engage our sales engagement and automation platform, which I spoke about extensively on our last financial results conference call had the most ever ACB, adding in a corner.
And zoom and fault recruiter and while still small saw the number of recruiters seeds grow more than 10 X sequentially in the second quarter. Key features released in Q2 included our Google Chrome extension reach out for recruiter diversity and inclusion smart filters that enable recruiters to achieve diversity and hiring goals new.
Integrations with leading ATF systems, like greenhouse and job D var and engage for recruiters, which allows recruiters to set on talent flow communication to nurture candidates for a particular job opening on zoom info recruiter roadmap includes features that we are confident will drive digital transformation for talent acquisition and Ricky.
Moving professionals everywhere.
For operations and data orchestration professionals, we released a landmark integration with snowflakes cloud based data warehouse, enabling the seamless delivery of zoom info data to snowflake from mutual customers.
This opens the door to more potential users across the organization, including the including analytics business intelligence and strategic planning.
A fortune 100 financial services firm defined their total addressable market using zoom intelligent platform and we established a real time feed directly into their Snowflake instance to highlight changes happening on boss that total addressable market, new executives coming and going new office location opening new funding rounds new companies.
Entering and leaving their total addressable market. This lie view on an average changing Tam is just 1 of the many use cases, we can deliver on door snowflake integration and highlights our ability to provide real time data enrichment wherever our customers are building their go to market plans.
We also announced a new integration with Microsoft dynamics 365, providing access to the Bulls and infill platform available directly within the dynamics application and we also introduced a new connector integration from zoom menthol to zone CRM.
With the continuing acceleration of our international business, we've made meaningful investments behind both data quality and Dan coverage built internationally and especially in Europe in the last 12 months with increased company coverage business professionals and contact data in Europe, all by more than 60% this meaningful.
The expansion was driven by expanded entitled translation improvements in our email prediction and validation algorithms and a specialized team focused on international data.
In order to ingest and process, the 250 million plus changes that we make to contact on our platform every month, we need robust scalable systems and a talented team of people driving the high levels of accuracy and coverage across our data assets. We've continued to build out this team and we now have 400 global engineer.
Theres analyst data scientists and researchers dedicated to delivering expanding debt coverage with a focus on maintaining our high standards and data accuracy. This team monitors more than a 180 dashboards and is regularly testing data quality manually testing tens of thousands of data points each month to further train and <unk>.
Fine on evidence based algorithms, resulting in our growth in on employment accuracy rates being an all time high.
All of these features and platform enhancements and the continuous investment in data quality are driving improved logo retention and increased seat utilization driving the highest levels ever for both retention activity and customer engagement in the quarter, which we expect will yield meaningful improvements to net dollar retention rates.
We again expanded and brought on a diverse group of customers this quarter, including venture capital firm Andreessen Horowitz HVAC provider comfort systems, Sonesta hotels, Bill Dot Com Staples office depot and Monster, we transacted with companies like boost had insurance a high growth provider of independent personal ensure.
And Korn ferry on global consulting firm, we even worked with an HR and payroll software provider debt increased year over year spend with us by 80%. We are now the largest tech stack spend per their entire sales team reinforcing to our platform is becoming the strategic imperative for large organizations looking to transform their go to.
Market.
We're also driving accelerated growth in the enterprise opportunity on the June 30, we had more than a 100 customers with $100000 or more on Adv up for more than 950 last quarter and compared to $850 quarter before that.
Our strength in the enterprise is driven by a number of reasons first we have meaningfully expanded the breadth of company data, providing better reach and coverage, helping them take share against legacy vendors.
Our investment in technology, including a robust integrations and partnerships with firms like Microsoft and Snowflake and our enterprise grade API enabled large organizations to enrich their customer data wherever it exists.
Third our investment in people and processes with expanded enterprise sales leadership larger and more specialized enterprise data solutions consulting and delivery and data services teams that are focused exclusively on the enterprise allow us to provide an elevated level of service for these customers.
And finally, we are a great value proposition for enterprises as they can find them everything they need in 1 place without worrying about stitching key go to market infrastructure together to multiple vendors.
In closing, we continue to execute across all of our growth initiatives, we had our best ever Q2 for new customer adds we drove the highest ever levels of retention activity and our data accuracy and coverage levels are at the highest in our history.
Our investment in customer on boarding user experience enhancements and integrations are improving customer satisfaction and driving the highest levels of engagement ever international is taking off we saw great growth across the enterprise opportunity and we continued to develop acquire and integrate new functionality delivering on our vision of the.
Modern go to market platform with that I'll hand, it over to our Chief Financial Officer Cameron either.
Thanks Henry.
Q2 was a great quarter on strong financial results that exceeded our expectations and as a result, we are again raising our financial guidance for the year with broad based strength. We are seeing we now expect to deliver revenue growth of 48% in 2021 of our prior guidance of 41% at the midpoint of the range provided.
As we invest in additional growth vectors, our focus remains on delivering durable revenue growth, while still delivering at while still delivering industry leading levels of profitability. As a result, we are increasing our adjusted operating income guidance to $291 million to $295 million.
Guidance includes the additional investment of course, which is more than doubling revenue year over year, resulting in a $8 million to $9 million negative impact to adjusted operating income for the year that was not included in our prior assumptions for guidance. The net result is accelerating organic growth was slightly lower adjusted operating income.
Margins and increased absolute levels of profitability and cash flow.
In Q2, we delivered GAAP revenue of $174 million. This exceeded our 161 to 163 million dollar revenue guidance range and represents 57% year over year growth up.
Up from 50% growth from the prior quarter.
Acceleration on revenue growth this quarter was underpinned by organic revenue growth from 54 per se.
The success from both our enterprise on international motions, which are both growing faster than the overall business helped propel the organic growth from Q2.
In the second quarter adjusted operating income was $76 million. This also exceeded our guidance range from $68 million to $70 million and represents an adjusted operating income margin of 43% up from the first quarter.
As we move onto expenses, we increased our headcount investments across the board and in the quarter with nearly 2100 employees up from 1300 employees in June 2020 at the time of our IPO.
We expect to continue to invest across the entire organization with particular focus on product and engineering investments in the expansion of sales capacity to drive sustained growth.
Turning to the balance sheet and cash flow, we ended the quarter with $400 million in cash cash equivalents and short term investments in the second quarter, we generated operating cash flows of $89 million, which included approximately $5 million of interest payments in the quarter.
Unlevered free cash flow was $92 million for the quarter, 120% of adjusted operating income.
As a result of our ability to drive consistently high levels of top line growth. We now anticipate unlevered free cash flow conversion rates on the 100 to 110 per cent range as a percentage of adjusted operating income on an annual basis.
With respect to liabilities on future performance obligations unearned revenue at the end of the quarter was $276 million and remaining performance obligations or RPE, Oh were $648 million of which $505 million are expected to be delivered in the next 12 loans.
As I've outlined in the past calculated billings in RVO can be imprecise metrics to assess in period activity and forward momentum as a result, we focus on days adjusted sequential revenue growth, we delivered 12% days adjusted sequential revenue growth from the second quarter, continuing the strong momentum we achieved in the first quarter.
The strong sequential revenue growth gives us confidence to raise our expectations for the year.
As of June 30th we carried $750 million on gross debt and our net leverage ratio of 1.3 times trailing 12 months adjusted EBITDA and 0.9 times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements.
Following the close of the quarter, we acquired the assets and specified liabilities of course dot AI for approximately $575 million on an all cash transaction that closed on July.
This includes a more than $100 million tax benefit associated with the asset purchase that we expect to realize over time in the form of reduced cash tax payments.
Concurrent with the acquisition, we issued $300 million in add on security notes due February 2029.
And $200 million of add on term loan b with a maturity of February 2026 at.
At the time of the Enel zone, S&P upgraded our corporate debt rating to double B minus along with upgrading our first lien securities to double B and upgrading our bonds at a single day mood.
Moody's also upgraded the issue level rating on our first lien should be.
True.
With that I'll provide our outlook for the third quarter and updated outlook for the full year 2021.
For Q3, we expect GAAP revenue in the range of $180 million to $184 million, which includes an approximate contribution of $3 million from course, and adjusted operating income in the range of $72 million to $74 million, which includes an approximate contribution of negative $5 million per course.
Non-GAAP net income is expected to be in the range of 11 to 12 cents per share.
Our Q3 guidance implies year over year GAAP revenue growth of 48 per cent of the midpoint and adjusted operating income margin of 40 per cent.
When excluding the contribution from of course, the implied adjusted operating income margin from the core business is expected to be 43 per cent.
We are updating our full year 2021 guidance as follows we now expect GAAP revenue in the range of $703 million to $707 million, an increase from our prior guidance of $670 million to $676 million and includes $8 million to $9 million from contribution from forest not included in our prior guidance.
And adjusted operating income of 291% to $295 million, an increase from our prior guidance of 290 to 294 and includes a negative 8 to 9 million dollar contribution from chorus not included in our prior guidance.
Non-GAAP income.
Income for the year is expected to be 50 to 51 cents per share up from our prior guidance of 49 to <unk> 50 per share both amounts based on 405 million diluted weighted shares out below the weighted average shares outstanding.
And we anticipate on a levered free cash flow to be in the range of $300 million to $305 million, an increase from our prior guidance of $290 million to $295 million.
Our full year guidance implies 48% GAAP revenue growth was approximately 4 percentage points of growth contributed by acquisitions. This compares to our prior guidance of 41 per cent.
With that let me turn it over to the operator to open up the call for questions.
Yes.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the number 1 key on your Touchtone telephone. We also ask that you limit your question to 1 question.
A question I think answered or you wish true Lukas daul from the queue. Please.
Your first question comes from the line of Stanislawski from Morgan Stanley. Your line is open.
Hey, guys. Thank you so much for taking my question on congratulations on a on a very strong quarter.
At a very high level when you look across all the results certainly all the growth metrics are accelerating up into the right.
Is it fair to say that debt. There's just there's a fundamental shift that you'd that's happening right now and that shift is actually accelerating its pace and you guys are really seeing the benefit flow through your 3 growth numbers.
Thanks, Dan.
You're seeing is a continued shift and on.
And a trend to digitize the way companies go to market and I think we have a larger sales force on product that touches on.
More companies than it ever has and a more complete offering for the market, but this secular trend towards digitization of how companies go to market that's existed on.
And I think it's going to be around for a long time, because most of the customers. We're talking to are still on the very very early stages of the digitization efforts.
Got it and then on the on.
On course.
Henry you mentioned sorry.
Cameron you mentioned 8 to 9 million of revenue.
For the full year how.
How much was the impact from deferred revenue write downs ballpark.
So that's that's not.
I think a metric that we're disclosing at this point.
Got it okay, alright, thanks, guys congratulations on a strong quarter.
Thank you next we have Alex Zukin from Wolfe Research. Your line is open Sir.
Hey, guys. Thanks day the question so.
Henry for you and maybe the first 1 if you think about the incremental value that youre starting to deliver to your customers by transitioning from a data to a software vendor.
What how do we quantify that in terms of the income because it feels like you can get more as you stay with your customers longer as you continue to.
<unk> and increase the value of the overall platform. So would just love to get a sense for how you're thinking about that.
Yeah, Let me take the first part and see if Cameron had anything to add I think first 1 of the things that we're we're excited about is we can we can land with data and insights and every customer needs data and insights to go to market. There's just no question about it their sales reps are prospecting for new business. There account managers are.
Looking for more opportunity within that on accounts and they just don't happen day in fact at their fingertips in order to do that effectively or efficiently. Once we've landed with that customers are looking to continue to sophisticate. Their go to market motion 800, odd data and insights and saying Hey, we know we're good for a digitization effort they want add chat to their website they want.
Sales automation to the weight, our sellers reach outbound they Wanna add conversation intelligence to optimize the middle of the funnel.
And so we're right there on every 1 of those conversations with those customers.
Launch those sophistication motion and we're able to offer.
We're able to offer solutions that are not only best in class in and of themselves, but they're also competitive competitively differentiated because they have our data assets embedded inside of them and so we see a big opportunity to continue to add those solutions into our customer base.
I think the way that I would quantify that Alex.
You look back at the.
Materials, we put together with respect to the Tam in the.
In the Investor day, you'll see that our core intelligence Tam. When we went public was 24 million grew at 26, there's additional data.
When they're in the Das version, but then as you add those other segments, whether it's the engage part of the business or whether it's Rick.
Our recruiters.
Adjacent workflow or now as we're adding conversational intelligence, yeah almost doubles the debt.
Tim that we're focused on and I think that that is a good indication for how much incrementally. We think that we can earn from customers as we continue to add more and more value for them.
Understood and then in camera, maybe just another 1 for you when you think about the percentage of the migration by the end of the year to the new platform remind us what the average uplift is when you're migrating customers to the new platform and how.
Is the introduction or.
Porous and incentives that actually accelerate that process.
So certainly when we migrate customers on a like for like basis, they're taking the same number of seats at the same level of functionality and data that they are integrating.
That's a yes.
That's a non event in terms of what they pay assets.
A flat renewal to a large extend or we would target on an inflation like renewal, which is what we would get normally what we what we do see as the customers do tend to take on additional functionality they tend to roll it out.
It's a more of their users and they tend to take on additional data as well and that's really just a testament to the value proposition of the new platform. So certainly as we're including additional things like chat or conversation of intelligence in that discussion that is another opportunity for us to can.
To expand with our customers and to continue to deliver them more value.
Got it thank you guys.
Thank you moving on we also have Mark Murphy from JP Morgan Your line is open.
Yeah.
Yes. Thank you very much I'll add my congrats on a very solid quarter. Henry you had commented that Q2 reached the highest level of customer engagement and I'm curious how are you defining and measuring it for instance are you looking at the minutes per day logged in or the number of transactions or API calls or daily active users et cetera.
And just what is the underlying driver of seeing that strong engagement.
Yeah, when we look at usage and a number of different ways.
We look at log ins versus over at usage, we look at down now, but we also look at usage across specific client modules. This was a pretty exciting quarter, because we saw really meaningful increases in usage on our sales force zinc products are intact products on exports.
Through our water flow of product our reach out product our websites products all of those jumped in the quarter and overall, we saw from higher levels of engagement overall by users using the platform and using it throughout the month throughout the quarter.
Okay and.
As a follow up I'm.
I'm wondering how penetrated do you think you are today just in terms of the seat count within the sales organization of a typical customer.
I.
I recall, I think that might've been sitting somewhere around 3% about a year ago.
Among large enterprises, there was some kind of a slice that was sort of low single digits.
And I'm just interested in where you see that today, and maybe where that can go over time.
Yeah. So I think look we're still very we're still single digit penetrated across that customer base I think.
On the key thing that we're excited about it it's just within our existing enterprise customers, we see a billion dollar opportunity expand seat count with just expanded seat count across our enterprise customers.
And if you think about the broader total addressable market. There are 13 on a half million salespeople in the United States and we think every person who's selling a product or service to win other business should be a customer of human cells and so still a large market in front of us on all of the different on all of the different <unk>.
Solutions that we sell on course expands the total addressable market for us as well.
Thank you very much.
Thank you next up we have nicolai value.
From Goldman Sachs. Your line is open.
Hi, Thanks for taking my question, it's evident but the by the sequential increase the enterprise traction you're seeing across the 1 billion captive opportunity Cameron.
You. Please breakdown for us the drivers for the revenue of the acceleration is the increasing enterprise traction number 1 followed by intent or whatever the case by day and secondly, if you don't mind double clicking on on the enterprise traction and there is where you are winning there Walt win rate that you're seeing what gave you done too.
Reduced friction for adoption on for your platform and again the price. Thank you.
So I'll give you the kind of high level growth drivers on I'll, let Henry drive into.
You know kind of the execution around that but it's a.
Great question that go on it I think the various different growth vectors that we focus on I think we're continuing to execute against them largely in the order that we.
Identified on the past the largest opportunity is enterprise.
And we've seen.
Really good traction both in terms of those number of customers that are now over 100000 in Canada. The ECB. That's now over 1100, that's helped drive upsell.
Sales and retention as well as Henry mentioned, we had our best quarter for retention activity that we've ever had and we continue to see new customers coming in from a variety of different industries.
On the geographies. So the second driver has been the international Moshe motion and we've seen that accelerate as we focused on it and made more investments and having specific teams focus on international regions as well as improving our international data and and.
And platform to address that and then thirdly, we're continuing to see real traction with the alternative use cases or adjacent use cases and other features and functionality they tend to be laid out.
Engage continues to go really well.
On the recruiting platform has gained a lot of momentum in the second quarter and we're excited about that and you know as we bring on other.
The features and functionality like course, we're excited about what the integration can do with them.
Within the platform.
And I think just on the enterprise side, a couple of things that I would touch on that are driving our our execution there.
Number 1 we've hired an experienced team of enterprise salaries at zoom info. We're now focused on the enterprise opportunity we segment meant to their customer base. So that they can be focused on those opportunities and be supported by customer success managers, who are responsible for keeping up the hull from those accounts on the product side, we've invested behind me on it.
Gration with platforms like snowflake behind the enterprise the enterprise grade API.
And then also behind integrations with Microsoft and Microsoft dynamics, our integration of ever strength has given us.
A really solid data asset from a data out of a service perspective and allows us to deliver enrichment across the enterprise against companies in contact from all sizes and then the intent data and the intent package that we've put together after the clicker G acquisition is also driving our motion inside the enterprise as well.
Thank you.
Thank you. Our next question comes from the line of C. D E.
<unk> from Mizuho Your line is open.
Thanks for taking my question, it's definitely impressive to see this enterprise track then I was wondering if you could give us some kind of trance youre seeing on the small and mid market I know you guys don't disclose it.
10, some of it but any kind of trend you're seeing this year versus last year that would be helpful. I know like it was a tough.
Tough few quarters right. After IPO last here, but any sort of trends or any kind of sales funnel at all or how should we think about the linearity this year.
And the great thing about our platform is that it's really is applicable to sales teams regardless of size and we can take companies from low levels of maturity all the way up to very high levels of sophistication. So it is applicable kind of across the board.
Continue to see real strength in small business and mid market as well.
Yeah, I think we've focused a lot of effort on the enterprise because there is.
Much larger expansion opportunity or selling it.
Small enterprise deal on we can grow that to be millions of dollars over time, but we still have.
A large team we're continuing to grow our efforts in terms of sales capacity to bring on small and medium sized customers because those customers are good customers and have them have a smaller potential but on a potential to grow over time, and we've actually seen debt as we've invested in our customer success motion and.
Moving to invest on the platform that we've seen our retention metrics across the board go up so we've seen more of our small and medium sized businesses stay with that part of that is the improving economic environment that we're in but also that we continue to deliver value and help them drive their growth motions.
Thanks Cameron.
Thank you. Your next question comes from the line of D. J Hynes from Canaccord. Your line is open.
Hey, guys congrats on the great quarter.
Henry you gave us an update on some of the international data improvements, but do you feel like the coverage and the quality of the data is now where it needs to be internationally to put some some real sales muscle behind it and then I guess part 2 of that question would just be can you remind us like how different the data collection practices are.
In international markets like how different are the rules in terms of what you can and cannot do.
Yeah. So look first I think across the board across our industry, we have the best international data platform that exists.
I also think that we're going to constantly improve all of the data assets that we have whether they're international or domestic and we havent team on 400 data analysts and engineers, who are constantly focused on improving that data asset and with a number of changes as people move jobs and companies grow we have to have an inch.
And that keeps it keeps keeps.
Keeps up on all on does changes across a $100 million company, the 130 million business professionals and you can't do that with.
Just humans, allowing you can't do that with just the machine. The loan you have to combine the 2 to get the best of the best the accuracy and the best coverage on those accounts I do believe we have a solution that that's worth investing behind we're getting method behind our go to market organization internationally, we continue to invest behind that.
Data organization internationally from our data collection method organic collection perspective.
Number 1.
We're doing with our notice and choice program more from a GDP are in compliance perspective than any company in our industry and we're really proud of our privacy first dance with the way that we collect data on the way that we're transparent about how customers can access and update that data within our platform in an automated way. We're way ahead of the end.
Free from that perspective, I'll give you a sense of some of the work that we've done in the in the last quarter that increasingly our coverage I talked about how European coverage is up 60% across the board 1 of the things that our team was able to do with actually go into go into our data assets and translate to 650.
And titles and Danish French German.
And calling in on many other languages knocked on titles back to English. So that we can go into the data assets that we've already collected and find find records that can be published within our platform and so that work where you combine a human in the loop with all of the data collection methods that we already have is really driving that.
Growth within our European and international datasets, but we'll continue to make investments there.
Great color. Thank you.
Moving on we also have Koji Ikeda from Bank of America. Your line is open.
Oh, Hey, Henry camera and I congrats on a nice quarter. Thanks. Thank you for taking my questions just 1 from me.
Thank you for the commentary on the prepared remarks on the recent customer wins of course, it's really great to hear you're getting customer traction associated post acquisition.
I was wondering if we could dig a little bit more on course, and I was really curious.
What are you hearing out there from partners and maybe your larger customers on the acquisition and maybe how the chorus technology fits with their overall go to market strategies.
Yes, that's really positive feedback from our customers since the acquisition.
I have a number of course recordings, where our customers are saying.
Wow I didn't know you guys have debt I just saw the acquisition. We're excited to start talking to you about bringing conversation intelligence into our companies and non spread across our largest customers to SMB customers I know on that.
The last day of the month on the zoom NFL aside we have reps, who are able to sell both our package of zoom menthol and chorus and to the new customer base and so we're seeing great traction.
Receptivity from our customers about the combined solutions and excitement about what we're going to be able to do when we integrate carved into zone menthol I think the other thing is that our customers have seen the work we've done with ever straying. The work, we've done with click and G. The product roadmap on incentive and they have a lot of trust in our ability to take our technology assets.
Integrated with our data assets and then innovate on top of it to bring to market a much more robust and full solution and so they're excited about what we're going to be able to do on the conversation intelligence space.
Okay got it Henry and just just 1 quick follow up you mentioned once of course is fully integrated into zone mantle any sort of color on on the timeline on when we could expect that to happen.
Yeah, we expect to have of course fully integrated into human fell before the before the end of the first half of 2000.22022 got it.
Got it got it thanks, Henry Thanks, Cameron appreciate it congrats on a great quarter.
Yeah.
Thank you moving on we also have Michael <unk> from Wells Fargo. Your line is open Sir.
Hey, there thanks.
Thanks, Good afternoon Cameron the rule of 100 puts you in some rare company here can we just go back to how you're managing some of the tradeoffs I know you previously referenced out sales capacity is really the biggest constraint to growth maybe we can revisit the margin framework you laid out and given the accelerating top line Youre seeing just any added comments are useful.
Yes sure.
We're continuing to focus on making investments to drive durable growth over time.
Yeah, I think the.
We have such a.
Big opportunity in front of us on a really well positioned to take advantage of that but you know we're going to continue to invest in the business invest in.
Our our product and engineering capabilities as well as our sales capacity to drive growth I think the natural state of the business since we laid out at our analyst day is that at the 40 ish levels of growth, we expect to deliver.
Mid forties.
Operating margins and obviously, we've been able to accelerate a little above that in terms of growth levels than we've seen.
Our margins be it a good solid level at 43 per cent here and we expect to deliver 40% next quarter as well. So I think as we continue to look forward, we're going to continue to keep our foot on the gas in terms of adding.
Sales and marketing capacity as well as engineering and product capabilities in order to continue that growth for for as long as we can and I think naturally as you get to.
Our rule of large numbers are growing off of a larger and larger base, we'll see the debt growth level.
Come down a little but with that will bring our margins up.
Above.
The mid Forty's levels as our growth comes down a little with off a bigger base.
Great just a quick follow on I want to make sure I clarify you mentioned increasing expectations for just free cash flow conversion. So that's elevated again here. This quarter could you just add any detail on what's driving that improvement was that the expectation is that ongoing or was there a timeframe attached to that thank you.
Yes, no I view that as an ongoing expectation that we'll be able to deliver on.
Levered free cash flow as a percentage of adjusted operating income in the 100 to 110 per cent range for for quite some time to come particularly as were.
Growing.
Accelerated levels.
Thank you.
Yep.
Next up we have.
Parker Lane from Steve.
Hi, guys. Thanks for taking my question of Henry another 1 on cores and those initial conversations you've had since the deal closed do you get the sense that most of the budget here is going to be.
Greenfield or there are a lot of customers out there, they're using a day.
Like learning management system to address the sales.
<unk> opportunity today.
Yes, our sense is that this is a new category of technology, a law that that most of the opportunity is white space.
Like what we see with zoom info once a sales leader sees the opportunity on what they get when they implement a tool like zoom info when they implement our solution like course, they find budget for these types of solutions.
On and quick time to value on the ROI you get on human following what you get on conversation intelligence with Corus.
So compelling that the sales cycles on both solutions are similar on the zoom and flow side, It's sub 30 days.
So we're pretty excited about being able to continue to demonstrate that to the market.
Got it great to hear thanks.
Thanks again.
Thank you next we have tailored mcdaniels from UBS. Your line is open.
Yeah, congrats on the quarter and thanks, so much for taking my question. So I know last year I think was around 108% share.
Curious if you're able to provide any color on how that's been trending recently just given the better retention number is in increasing deal sizes and I know that on the mix between enterprise and SMB and impacts that as well and then maybe like a part 2 of that curious to the extent engage recruiting and other offerings might starting to become more meaningful contributors to that.
So we do.
Reported our net retention on an annual basis, given that it's an annual calculation because starting at the end of the year go into the end of the next year. What we do look at is the retention activity that we see so that is those customers that are renewing within a quarter and the upsells that were generating within a quarter and we have seen that.
Q2 was the best quarter, we've ever had from a from a retention activity perspective, and I think that gives us confidence that we will see higher net retention in 2021 than we saw on 2020 and certainly part of that is all of the investments that we've made in terms of our operational.
Abilities investing in the customer support and customer success teams investing in.
On an improving the product in.
Providing additional functionality and certainly as we see more and more of our customers take on advanced functionality or add on features like engage or other things that certainly helps.
Helps the retention as well and certainly while a factor I think it's a less impactful factor, but the mix shift of the business should help over time as.
As well I think.
On the engage part of the business and you know of course are still relatively small but.
As those grow and they are certainly growing faster than the overall business. We do anticipate that that will will become more meaningful but I'd expect us more meaningful in 2022, and 2023 that are necessarily might be in 2020.
Awesome. Thanks.
Okay.
Moving on we also have a question from Terry Tillman from true with your line is open.
Hey, guys. This is Joe Meares on for Terry Thanks for taking my question.
So I'm just wondering how should we think about the evolution of Kpis going forward now that you have a very large base of 100000 dollar customers.
Any other metrics you should watch like potentially million dollar customers could you share that or maybe average number of products per customer.
So I think.
I'll start with the average number of products per customer you know certainly we developed a platform where our customers take different levels of functionality and in some cases the functionality is bundled into those levels on another cases, it's an add on so I think that the average number of products per customer.
There is not going to be the cleanest metric that we could look at it particularly as we change bundling.
Going forward, which is certainly a possibility.
In terms of million dollar customers will continue to assess that we do have quite a few customers that are spending over $1 billion with us, but we found that the 100 K level is a pretty big differentiator in terms of the amount of value that we're providing to our customer.
I think that those customers tend to really have an enterprise point of view on or.
Continuing to invest in their internal capabilities too.
To take advantage of the tools that we provide much more so than smaller customers. So I think that's the most.
The most relevant metric to focus on at this time.
Got it thanks.
Thank you your next up we have Brian Peterson from Raymond James Your line is open.
Oh, Thanks for taking my question and congrats on a really strong results. So just wanted to hit on international real quickly I'm curious is there any commonality in where you're landing there either in terms of country or in market or use case, just just curious what's driving that success. Thanks guys.
Yeah, I think first what we see internationally is that the international go to market motion is meaningfully behind the U S. Go to market motion you can think of them as kind of 5 to 7 years behind the U S and so.
And so when we come into that market and they're and they see the solutions that we're providing.
It's largely evangelistic and I think the way the other things that we see on.
On the other area that we're focused and we're focused on English speaking Europe today, and so as we focus that we're focused on that market and so that's where we're landing mostly today and we're continuing to build out the rest of the international data assets and as we build that out we'll continue to put more investment behind go to market motion.
In those different countries.
And I think to add on to that what we.
We've seen in terms of real successes, that's where we're investing in our team to drive sales, we're seeing a real lift from that so in the first and second quarter, we've continued to invest in it.
Team.
Until we can physically get them Theyre passed all the COVID-19 restrictions, they're sitting in Boston, they're getting up early on aligning to time zones in Europe, mostly focused on the UK and Ireland, but also bringing in customers from other countries as well, that's where we're seeing the biggest lift mostly because of.
The investment that we're making so we're excited about.
Particularly as the world opens up a little on the future excited about continuing to invest locally.
Pressures.
Great color. Thank you.
Thank you your next up we have Ryan <unk> from Barclays. Your line is open.
Thanks for squeezing me in and congrats from me as well.
Yeah.
Kind of ask a number of quarters question, sorry about that day.
Henry if you if you look at at the moment, it's like you're going to do a real powerhouse in b to B, but if you look at conversational AI and what you could do that a lot of b to C potential as well and there's a lot of stuff going on in the market around debt. How do you think about that opportunity and where you want to focus on with this asset.
Hey, Raimo thank you.
Look we're focused on.
Exclusively on the <unk> opportunity, where we think it's a huge opportunity 700000 companies that sell to other companies 13, and a half million salespeople on the United States that we think can be taking advantage of these solutions. So I think there are a lot of really interesting.
Use cases for our conversation intelligence I think today, we're going to be focused on the <unk> use cases, particularly around recruiting and go to market, but we also see an opportunity with conversation intelligence from that recruiting and talent acquisition space as well.
And so you'll see us operate within those confines.
Yeah, Okay, perfect and then 1 follow up on international.
Really strong growth you talked about the sales coverage that is up quite significantly.
Total net can you talk a little bit about the build out there because it's still a small part of the overall revenue.
How do you think this will evolve like at the moment, obviously, you're starting from a low base, but like how do you think this will kind of shape up for you on the long run in terms of the mix that you're kind of trying to important thank you and from once again.
Yeah, when I think of that Raimo.
You know I look at much larger companies that have gone through a similar journey. So you look at sales.
Sales force for instance, or somewhat someone like that they generate 30 plus percent of their revenue from international markets and I think debt.
The great thing for US is there's still a lot of opportunity domestically. So we're going to see great growth domestically, but.
I think over the really long term looking at something that's over a third of our revenue coming from international markets are certainly.
Certainly.
Real possibility on something we don't force.
Okay. Thank you.
Thank you moving on we also have Brian Griffin from Piper Sandler Your line is open sales.
Hi, This is Clarke Jeffries on for Brent.
First question is looking at some of the new and expansion customers have highlighted over the past few quarters I think.
We're continuing to stand out as the traction verticals outside of software and business services.
The first part of the question is how would you characterize the contribution from those customers and driving the acceleration in 100 K deals.
And then second part is there a potential narrative here that some of the traditional industries.
We have over invested in systems that improve the BTB process, whether that was <unk>.
Workflow automation invoicing, but there maybe it wasn't an awareness and sales.
Sales intelligence, and where there could be an opportunity to lift the total overall funnel of opportunities and what we're seeing today is really that market awareness being unlocked.
So I'll take the first part on the contribution.
Certainly those.
Call. It non early adopter industries, but look for us the industries outside of software and so on the lesser extent business services are certainly growing more quickly than the <unk>.
Then.
Those core industries, but we continue to see real growth from software and business services as well, but at this point in less than 2 thirds of our.
Overall HCV revenue come from.
Come from software and business services, and certainly that translates not just too small customers.
Seeing more and more of our customers and the over 100 K cohort also come from those other industries as they're becoming aware of our solutions and continuing to look at how they can apply.
Better.
<unk> and more data driven motions to 2 there.
To their go to market overall, I'll, let Henry just dive into kind of what he's hearing from customers. Specifically, yeah look I think the thing that never ceases to Amaze me is we have these enterprise conversation is how analog and manual the sales process is that so many large enterprises.
There is a real appetite in the executive level to change that and they day know that they've made a real investment behind CRM and they want that to be they want CRM to be engaging they want it to be insightful. They want the rest to be in it and to be.
Excited about engaging with it and they use you meant though as a bridge to provide those insights and really enable.
CRM for the for the frontline sales team and so we're excited about seeing that opportunity and we think that in the non traditional industries, particularly that there is a tremendous appetite to digitize the way theyre going to market.
Alright, Thank you very much.
Thank you and I'm showing no further.
Question at this time I would like to turn the conference back right.
Mr. Henry Chuck for any closing remarks.
Great. Thanks, everyone. I appreciate you joining us today and look forward to meeting with more of our investors as we continue through the back half from 2021thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining human all disconnect.
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Yes.