Q3 2022 ZoomInfo Technologies Inc Earnings Call

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Yeah.

Good day, and thank you for standing by and welcome to the Zoom Info third quarter financial results Conference call.

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I would like to hand, the conference over to your speaker today <unk> <unk>. Please go ahead.

Thanks, Sean welcome to <unk> financial results conference call highlighting our results for the third quarter of 2022 with me on the call today are Henry shock founder and CEO zoom until and Cameron Heizer, our Chief Financial Officer. After their remarks, we will open the call to Q&A.

During this call any forward looking statements are made pursuant to the safe Harbor provisions of U S securities laws 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 and expressions, which reflect something other than his.

Political facts are intended to identify forward looking statements.

Forward looking statements involve a number of risks and uncertainties, including those discussed in the risk factors section of our filings with the SEC actual results may differ materially from any forward looking statements. The company undertakes no obligation to revise or update any forward looking statements in order to reflect events that may arise. After this conference call, except as required by law for more information.

Please refer the cautionary statement included in the slides that we've posted to our Investor Relations website at IR Dot zoom info dot com.

All metrics discussed on this call are non-GAAP unless otherwise noted a reconciliation can be found in our financial results press release or in the slides that we've posted to our IR website.

With that I'll turn the call over to our CEO Henry Schein.

Thank you Jeremy and welcome everyone.

Today more than ever our go to market teams are looking to do more with less and the <unk> platform is the only solution that can deliver exactly that for companies of all sizes.

We're at the beginning of a generational shift of digital transformation for BW sellers and our business model has proven powerful even in a challenging macroeconomic environment.

Our all in one platform drives efficiency at a time. When every dollar spent is being scrutinized and it does that by connecting businesses with the people who are most likely to purchase their solution and giving them the technology, they need and get data at scale.

Zoom in first Q3 results once again beat expectations on the top and bottom line and we're again raising our full year guidance, our full year revenue and profitability guidance.

In the third quarter, we delivered GAAP revenue of $288 million and adjusted operating income of $118 million. This represents a year over year growth of 46% and an adjusted operating income margin of 41% up approximately 120 basis points sequentially and up <unk>.

Proximately 180 basis points from last year, we generated $100 million in Unlevered free cash flow in the quarter or nearly $1 per share on an annualized basis underpinning, our leading combination of growth and profitability at scale in.

In Q3, we sold the largest expansion deal in the company's history. Another eight figure <unk> clients. We also sold the largest new business deal in company history, our first land to exceed $1 million with sales <unk> operations, our engaged and enrich being leveraged the platform strategy is <unk>.

Increasingly resonating resonating and we continued to consolidate point solutions across sales engagement conversation intelligence data and account based marketing like we did this quarter with Ryder system tailored Corporation and use Si.

While these deals demonstrate that we're continuing to execute well as we made our way through Q3, we began to see increased macro pressure on deals, causing the level of deal review to increase and sales cycles sell long gate further.

Since this started very late in the quarter. It only modestly impacted Q3 results. This elongation trend has continued into Q4 and we do expect it <unk> impact growth in the short term.

While we can't control the macro and we know that we could deliver even more growth in a more stable economic environment. We can control how we manage the business and you will see the resiliency of our model play out in the performance strong and consistent margin gains driving earnings we are confident in raising guidance for 2022, and we expect to continue.

Driving a sustainable combination of best in class growth profitability and free cash flow generation at scale.

With that let me highlight some of the many customer successes in the quarter.

First we ended the quarter with 848 customers, who spend more than $100000 a year with us that's up 40 plus percent year over year, we again drove record ACB per customer and as I mentioned earlier, we saw the largest expansion and new business deal in the company's history.

We continue to close transactions with customers across all industries seeing the strongest growth in the transportation and logistics finance insurance real estate and manufacturing verticals.

Advanced functionality now represents 30% of ACB and we continue to go deeper and increase our strategic value to our customers.

More than ever organizations want to work with fewer more strategic partners and and as a result, the full stack of our integrated best in class platform is even more relevant.

As an example, a top news and Entertainment Broadcasting Company went from a demo with a single rep to a multimillion dollar transaction that went wall to wall across their entire sales team.

This deal accelerated the digitization of their sales motion, giving their sales and sales ops professionals, the best opportunity to win with highly accurate data and insights that are cleansed and routed to the right sales reps plus the automation workflows and engagement tools needed to efficiently close a deal their teams set up.

First they are going to be two types of sales teams going forward successful and efficient teams that have human belt and mediocre teams that do not.

Next a fortune 50 consulting infrastructure and software company expanded their licenses to further streamline our go to market strategy with best in class global data insights and automation.

As an enterprise organization they needed to select a vendor that they could trust and our investments in privacy and data stewardship gave them the confidence in our platform and our company.

Their investment expanded their sales or less users by more than 300% to over 3500 professionals across 63 countries zoom menthol allows them to reach the right stakeholders at the right time when they are end market.

A large public telecommunications company with more than 3 million customers wanted to improve efficiency by consolidating several of vendor relationships. They already use zoom info for data orchestration, but decided to unify their go to market strategy by expanding with sales.

Marketing and operations. Our this full stack deal represented more than 10 X expansion with new menthol.

And a $15 billion market cap financial data services company was looking to rationalize spend across their tech stack without losing the efficiency of their sales team in the face of an uncertain macro environment.

We help them consolidate vendors by adding our intent and chat products, providing them one end to end go to market suite, while growing their sales OFC by 50%.

We continue to focus our development efforts to create integrated experiences across the entire platform and to deliver data driven engagement workflows to help our customers drive efficient growth.

In sales, we continue to invest behind unifying the sales professionals experience for prospecting engagement and closing deals onto a single platform by integrating our core sales intelligence engaging and Kors conversation intelligence product.

<unk> are now able to streamline prospecting and engagement in sales our using one click engagement advanced sales automation.

And the integration of conversation intelligence.

We also continue to invest in our footprint across the go to market organization, adding products for account executives account management and customer success team.

We've integrated zoom info intelligence into the post call and pipeline review process via Corus, So contact company and engagement functionality is available without leaving the platform.

This includes our new meeting briefs that help our customers run effective meetings by pushing company participants and competitive intelligence, along with deal risks and engagement highlights right to our customers in box.

In marketing, we focus on automating key activities to help marketers achieve better targeting and alignment between sales and marketing.

As part of our multiyear product vision, we're building out an integrated platform that Optimizes end to end go to market motions by unlocking Omnichannel Cross departmental use cases.

This strategy is resonating with customers over 75% of marketing OS customers are already <unk> customers, who want to get their teams onto the same tool leveraging the same data.

In the quarter, we added lead expansion capability, which allows users to expand their advertising audiences to similar target personas within the same account to influence a larger portion of the buying committee and better multi threat the deal.

Additionally, we know that responding to interested prospects within less than 90 seconds increases conversion rates by close to 400%. That's why we integrated slack into our workflow engine, putting the right market and buyer intelligence in front of the right people in seconds. For example, if a prospect from one of your assigned accounts visits are high.

<unk> page on your website.

Can automatically alert you and attach the relevant accounting deal context for immediate outreach.

We also expanded our campaign reporting capabilities to include insights into account creative and domain placement for DSP campaign, which supports quick AB testing and help streamline workflows and.

In operations, we're helping customers move beyond static data quality enrichment.

And into a world of continuously updated ready to action data inside their CRM customers can now automatically capture all relevant companies inside their pre defined total addressable market and operationalize them through sophisticated routing.

They can upon new information such as buying committees or sales signals to all accounts within the CRM and they can track data changes through dynamic triggered to allow teams to take action on any detective changes. It's at scale. For example, we will capture relevant sales signals such as a key contact moving to a new come.

And then automatically capture a replacement contact at the account and alert the sales reps. So they can take action on this change while automatically generating related records in the CRM.

And from a data access standpoint, we delivered massive performance improvements to our API, reducing our API call time by 55% the.

The enterprise demand for our API has grown rapidly with the number of API customers more than doubling this year alone.

<unk> API not only provide organizations with a means of connecting systems and application, but often play a critical role in company wide digital transformation initiatives.

Our second focus area in Q3 with the introduced new market signals to help provide our customers with the most actionable and complete dataset and.

Intent data is an extremely important signal that sales and marketing teams increasingly rely on for prioritizing the right accounts to engage with.

This quarter, we introduced we introduced the ability to bring outside intense sources into the zoom info platform, starting with <unk> intent data.

Gary G tube intense signals on top of our powerful company and contact intelligence allows customers to take better advantage of their <unk> intent signal by enabling direct action action against those signals in our platform and.

In addition, we've improved our website offerings, so that customers can indicate high medium and low buying intent driven by visits to individual web pages, such as our pricing page visit being higher a higher buying signal than a visit to our careers page. These signals can then be leveraged to create high intent audiences to power advertising.

<unk> our sales outreach.

The third area of focus was to reduce friction and setup and user management processes for avnet at.

<unk> platform has become a solution for entire go to market team. We are focused on delivering deeper account control with frictionless set up we have made multiple updates to automate the provisioning and the provisioning of users the ability for admins to manage and connect E mail accounts across their user base driving better adoption within quarters.

As well as the self service path for purchasing additional seats data credits and advertising media stuff.

And lastly, we've made continued investments to our data foundation further deepening our competitive advantage from a data coverage standpoint, we've invested in machine learning data acquisition and enhanced location based matching technology, increasing our data coverage, we nearly doubled our non headquarter company location.

To more than $35 million location, we know lift revenue head count and industry classification for 100% of companies, including their name and S. ICD code.

And we also explained expanded our techno graphic dataset and now attract more than 300 million pairing between companies and the distinct technologies platforms programming languages and hardware they use zoom.

Zoom info can identify technologies across more than 200 technology categories, including our company's CRM corporate performance management system or even their travel and expense management system.

We can leverage our techno graphics data to identify their competitors' customers, allowing sales teams to make their case for displacement and win back business or to gauge the relative sophistication of customer and determined their ideal customer profile.

Nearly 90% of our active tech the company pairing have been updated within the past three months.

Before I wrap up I wanted to welcome the newest members of the zoom info team, including the recently added leaders in HR sales and marketing and security and the more than 150 employees across the company that we hired in Q3, there remains a huge opportunity ahead of us and we continue to upgrade our team to support our long term.

Growth outlook, while prudently investing in the business in the short term.

In closing we are the clear platform leader companies in all industries are looking to drive efficiencies across our go to market motion and we are well positioned to capitalize on the generational shift as more and more sales teams use data and insights to drive their go to market motion.

We have an amazing group of customers from enterprise to small businesses that we're helping grow efficiently and we continue to invest in our platform and the team to drive customer success, a key part of the sustainable long term growth plan.

While the economic outlook remains uncertain, we remain committed to driving improved margin performance, our financial model puts us in the elite category of high growth software companies that are delivering expanded profitability and free cash flow at scale with that I'll hand, it over to our Chief Financial Officer Cameron Heizer.

Thanks, Henry Q3 was another quarter of consistent execution, and we again delivered results that exceeded our expectations and guidance.

We prudently adjusted our expense profile driving better than expected profitability in the quarter and showing the inherent leverage in our model. We are pleased to be in a position to again raise our top and bottom line guidance for the year.

While we are more insulated from macro challenges relative to many companies and we benefit from long term secular trends towards digitization.

We are not immune to the macroeconomic environment in the short term.

Towards the end of Q3 and as we entered Q4, we saw a greater level of financial scrutiny from buyers, which further along in the sales cycle.

All deals, including straight renewals are requiring more effort to reach an outcome, which stretches our sales team and capacity.

As reps are spending more time on renewals, we see that their capacity to drive incremental up sells is becoming a limiting factor to growth of existing customers.

As a result of a more challenging environment. We now expect dollar based net retention in 2022 to retrace the game, but we were able to achieve in 2021.

In short we are taking a prudent view of the near term growth expectations for Q4, and 2023 until we see more definitive signs that the economic environment is improving.

That said, we're still raising our guidance for the year and are confident in the value proposition that we deliver to our customers.

For 2022, we now expect revenue to be in the range of one point <unk> four to 1.1 $96 billion and we expect adjusted operating income to be in the range of 442% to $444 million.

At the midpoint. This represents revenue growth of 47% relative to 2021, and adjusted operating income margin of 40%.

And we expect to deliver more than a dollar per share and unlevered free cash flow in 2022.

In Q3, we delivered GAAP revenue of $288 million up 46% year over year, which implies a 7% sequential growth compared to Q2 2022 as adjusted produced in the quarter.

Putting the impact of acquisitions in their first 12 months, we maintained organic revenue growth for the quarter of 42%.

With Q2.

Adjusted operating income in Q3 was $118 million a margin of 41%.

Highest level of margin performance in the last 12 months.

We continue to place an emphasis on efficiency and profitability and we expect to increase adjusted operating margins over time.

Turning to the balance sheet and cash flow, we ended the third quarter with $445 million in cash cash equivalents and short term investments.

Operating cash flow in Q3 was $86 million.

Which included approximately $18 million in interest payments.

Unlevered free cash flow was $100 million for the quarter were 84% of adjusted operating income.

This was consistent with seasonal patterns, we are adjusting our cash flow expectations in the short term to reflect the potential for more flexibility in payment terms related to a worsening macro environment.

With respect to liabilities and future performance obligations unearned revenue at the end of the quarter was $381 million and remaining performance obligations or <unk> were $979 million of which $757 million are expected to be delivered over the next 12 months.

We believe the calculated billings bookings in <unk> and precise metrics to assess in period activity and forward momentum.

If you are analyzing similar metrics. It is important to remember that the comparative period of Q3 2021 should be adjusted for acquisitions.

Because of the inherent noise in those metrics, we focus on days adjusted sequential revenue growth, we delivered 7% days adjusted sequential revenue growth in the third quarter.

With respect to debt at the end of Q3, we carried one 5 billion in gross debt.

All of which have fixed or hedged interest rates.

Half of that coming due in 2026, and the remainder coming due in 2029.

With continued growth and profitability, we again drove an improvement in our leverage ratios.

With a net leverage ratio of one nine times trailing 12 months adjusted EBITDA and one six times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreement.

With that I will provide our outlook for the fourth quarter and our increased outlook for the full year 2022 for.

For Q4, we expect GAAP revenue in the range of $298 million to $300 million and adjusted operating income in the range of 121% to $123 million.

non-GAAP net income is expected to be in the range of $21 22 per share.

Our guidance implies year over year, GAAP revenue growth of 35% at the midpoint and adjusted operating income margin of 41%.

We are providing updated full year 2022 guidance as follows we expect GAAP revenue in the range of one nine to one point I'm, sorry, one four to $1 96 billion.

$10 million from our prior guidance at the midpoint and.

And adjusted operating income in the range of $442 million to $444 million.

Up from $435 million at the midpoint of our prior guidance.

We expect non-GAAP net income in the range of 83 to 84 per share based on $411 million weighted average diluted shares outstanding.

From 79 at the midpoint of previous.

For Unlevered free cash flow, we expect to generate between 430 and $435 million as compared to $442 million at the midpoint of our prior guidance.

Our full year guidance implies 47% GAAP revenue growth at the midpoint and both adjusted operating income margin and Unlevered free cash flow margin of approximately 40%.

With that let me turn it over to the operator to open the call for questions.

Yeah.

Thank you.

At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.

We ask that you please limit yourself to one question and one follow up.

Question.

Okay.

Our first question comes from DJ Hynes from Canaccord. Your line is open.

Hey, good afternoon guys.

So Kevin I'll start with you. So you alluded to this in your comments, but we're getting sub 20% calculated billings growth of 20% or CRP O based bookings calix.

You mentioned this but sometimes we can kind of glean false signals from these data points I'm curious in this case, just given kind of a slowdown you're talking about is that a decent barometer for kind of organic bookings growth or is there something we should be aware of that's impacting these metrics in the quarter.

And certainly we focus on sequential revenue growth.

Better indicator of in period activity, I think, particularly if youre looking at.

Bookings growth.

<unk> billings growth.

You need to adjust for the acquired.

Our Poe and acquired unearned revenue in Q3 of last year.

As an example is close to $24 million of.

The acquired.

Those acquired in Q3 of 2021, it needs to be adjusted for.

And billing similarly.

I get a number that's closer to 30% when I adjust for those things.

Overall, okay. Okay. That's helpful commentary and then Henry maybe as a more strategic follow up for you just how do you think about kind of the investment strategy in a slower growth environment.

You already have best in class margins do you use that to your advantage and do you continue to invest or do you think about getting more measured with your spend maybe investing perhaps a little bit more of a kind of behind the demand curve.

Yes, I think first we're going to continue to manage the business from a margin perspective prudently and as we've said before it.

As growth slows, we expect margins to increase and that will continue to be a guiding philosophy in our business.

That being said I think.

Where you will see us invest is to continue to build sales capacity and account management capacity in our customer base, we see that as a lever.

Leverage point to continue to grow the business and so that would be the area, where we continue to earn back okay.

Okay. Thank you guys.

Yeah.

Thanks Peter.

Okay.

One moment for our next question.

Our next question comes from Brent <unk> with Piper Sandler Your line is open.

Thank you good afternoon, Cameron, we will start with you here you talked about additional layers of scrutiny on new deals and renewals certainly not surprising to hear that given the current environment, but I'm wondering if you could provide just another layer of detail around the renewal discussions is it just taking longer.

To close the renewals are customers looking to downsize the size of a renewal or are they looking for more flexible payment terms from a timing perspective. Thanks.

Yes, so from a renewals perspective, we're actually seeing continued levels of really high gross retention. So we're continuing to see those renewals happen.

And we are I think as you might expect customers are looking for flexibility in other places including payment terms.

I think one of the things about our business. That's important to remember is that we're really driving value for an individual salesperson in sometimes.

The decision maker might be a little further away from that that pain or the value that we're providing so I think in a time when people are layering on additional scrutiny on all of their vendors.

Takes a little bit more effort for us to make sure that those decision makers are hearing from the users themselves on how important this is in terms of driving.

Their success and efficiency within the sales and marketing motions, so that incremental effort is obviously.

Weighing on our team a team that's already really efficient and doesn't have slack in the system to go out and.

<unk> necessarily just put in that incremental effort, which that impacts some of the upsell efforts that we are able to go after.

Helpful color, there and then Henry certainly encouraged to see several wins and expand outside of the software Tech vertical that you are so strong and I think you've talked about Ryder empty Bank fact said Unilever.

What can you do to to further accelerate the adoption of zoom info outside of that core software tech vertical.

One of the things that we're seeing in this macroeconomic environment is that there are industries and companies that are much more immune to the macro changes.

See that insurance and financial services, and banking and transportation and logistics and so we've identified those industries and the companies within those industries and we're making sure that our sales teams are focusing around those companies.

During during this period of time.

And it's mainly a sales capacity.

That opportunity for us to really increase capacity across those additional industry.

Helpful color. Thank you.

One moment for our next question.

Okay.

Our next question comes from Alex Zukin from Wolfe Research.

Hey, guys. Thanks.

Thanks for taking the question I guess, maybe just a few from me I guess first Cameron can you talk about just some more color on a couple of things maybe days sales outstanding growth exiting September .

What was the renewal commentary was this a couple of deals in this one very large deals.

These renewals that seemingly were pushed are they.

On track to close this quarter and then can you be a little bit more specific on the retracing of the dollar net expansion rates of that to 116.

From the end of last year or 108 bigger before.

Let me take the first part we've already had a number of deals that slipped from Q3 into Q4 that have already closed.

Some are sort of larger deals that slipped out of the quarter and those have already come in we saw a similar trend in Q2 to Q3, and so that elongation of the cycle.

We're seeing these deals again come to fruition on our gross retention rates have stayed largely the same and so thats a closing theyre just taking longer to close and we've already seen a number of them come through.

Yes, the way that we think about.

Payment terms.

We do see.

Little bit less kind of upfront.

The annual payments.

So about 5% from where we saw last year in terms of annual upfront payments as a percentage of the total.

Deals that we have.

We think of days sales outstanding nationally in terms of days billings outstanding and those are a little bit behind where we were we were previously but I think most of our expectation is that.

A number of customers are focusing.

More on cash conservation.

Prudently expecting that.

That could deteriorate.

Actually.

When we think about that retention.

<unk> has improved in 2021 up to 116% from previously we'd been in the mid to high single digits over 100% I think that the complexion of retention.

I'll be a little bit different than what we saw historically in that kind of mid to high single digits over 100%.

What we are seeing is the gross retention continues to be really strong over 90%, we still have customers that are renewing.

And we have seen an acceleration in terms of functionality upsells.

Where we're seeing more pressure is with respect to the.

<unk>.

Seat expansions and data expansions that we've seen historically, that's the area, where we feel our team is unable to go after.

As much of the upsell opportunity given the incremental time that they're spending on.

On renewals and deals in general.

The kind of data point, we found that overall, our conversations are our effort required to get to.

An outcome with respect to any.

With respect to any deal is 20% higher than it used to be.

Understood and I guess, maybe just a broader macro question for Henri.

If we think about where is there any concentration.

Of these issues in a particular vertical like tech or software or is it broad based is it one geography that may have been weaker than others like what was the kind of incremental surprise.

Some of this from what you were previously thinking.

Okay.

The second quarter, we saw more of this materialize or more of the environment pressures that materialized in Europe and in larger deals I think in Q3, you saw you saw sort of.

These cycles elongate really across the across the board and so there isn't an area.

Specific.

Concentration, but then you saw industries that were largely immune to that and so you saw transportation and logistics and media and.

Insurance and financial services stay largely unaffected here and so there are areas of opportunity that we are focusing on focusing our sales teams on to sort of shift away from the areas that are less immune right now.

Perfect. Thank you guys.

Thanks.

One moment for our next question.

Our next question comes from Phil Winslow of Credit Suisse.

Hey, guys. Thanks for taking my question I just wanted to follow up on the on the push deals.

Appreciate your comments about about geography and industry vertical, but there is there anything else that sort of consistent amongst them are they really for the multi product deals. So the multiple components of <unk> are these pushed deals sort of.

Across the board any extra color there kind of from a product level would be helpful. Thank you.

For sure when we're selling consolidated platform there is a slightly longer sales cycle as we're displacing numerous point solutions. So if you take a look at sort of the three companies I talked about Ryder use Si Taylor Corporation, we consolidated.

Throughout those accounts sales engagement conversation intelligence account based marketing platforms and data providers and so it takes a bit more time to do those consolidations.

Irrespective of the macro environment I think what we're seeing is part of the macro environment. The macro changes here is just sort of broader based additional levels of scrutiny and review and so instead of a deal getting done at a director level or a VP level you see that deal go.

Two.

Our U S based CFO than our global CFO that not only drags the deal out but it also dragged the time and effort that our account managers are spending per deal and limits their capacity in that way.

More calls more E mails more executive business reviews.

And Thats really what were seeing affect our ability to continue to upsell within the customer base.

Got it and then just a follow up on that obviously, we saw a deceleration of sales and marketing.

Spend in Q3 are obviously helpful sort of elevated organic and inorganic levels. Cameron wondering if you put some color on sort of your expectations Q4 and to your point about sort of managing both margin and growth sort of in the context of the sales and marketing efficiency and capacity.

So we're continuing to invest into sales and marketing capacity, obviously, we'd love to continue to see improvements in terms of the efficiency that we're getting out of those.

Out of those investments certainly there is.

A natural.

The level of operating leverage that we get from sales and marketing.

So.

In this quarter.

Sales and marketing as a percentage of revenue was down but we want to continue to see that drive.

More and more net new revenues, we're continuing to move forward.

Got it thanks.

Okay.

One moment for our next question.

Our next question comes from Mark Murphy with JP Morgan.

Thank you very much.

I'm curious Henry when when you're out there speaking with customers I know this just came up recently.

What do you think would come they're nervous or instilled more business confidence for instance.

Do you think that they are waiting to see a fed pivot or waiting to see lower inflation numbers or.

Is there some other kind of macro.

Kind of indicators that you think that they are waiting on.

I don't know if theyre. Thanks, Mark I don't know if theyre waiting on a macro indicator more than their day.

They are experiencing similar levels of additional scrutiny and executive reviews in their own businesses and I think what theyre looking for the change in that environment.

What I will tell you is.

Hi.

The largest new business beyond the largest expansion deal in our history, those customers are coming to us and saying listen.

I'm going to forego the next three or four head count from a sales perspective, and I'm going to use those dollars to investors in menthol and make the entire additional team more productive more efficient and more effective we hear that over and over again and so I think that.

Thinking around how do I make the rest of my team more efficient how do I make everybody more efficient is starting to materialize throughout our customer base and throughout our new business prospects.

Where the historical view of how do I grow has been I just need to add another head count another five head count another 10 head count I think teams across the world are saying, how do I grow without adding head count how do I make all of my team more efficient and more productive and that's the message that we're trying to land.

With our customer base as well.

Got it.

And as a quick follow up.

I guess I'm curious what is your gut feel on an it budget flush.

Spending activity at year end here.

Here in Q4, presumably you'd think that that'll be a bit.

Compressed but.

Do you see that do you see that may be dragging down the 7% days adjusted.

Is that something that would lower that would kind of compressed lower in Q4.

<unk>.

Despite the potential for some of that budget plus activity.

Yeah.

And I would say that historically.

<unk>.

We don't play is directly in the it budget is.

Software is helping US I think were purchased largely by a sales leader that's looking at his team and say how can I make this.

<unk>.

More effective and efficient.

Secondly, creating budget as opposed to differ into a pool that's set.

Set at the beginning of the year.

So.

I don't think we focused on budget flushes.

Driver historically.

Not necessarily expect.

That to happen as much this year honestly I feel like.

In this environment where people are.

Scrutinizing everything or more seriously than they had before.

Alright.

Okay.

As you were in the.

For other folks that knew that budget flush doesn't exist to the same step of it has to pass.

Yeah, Okay, and then maybe just in a simpler and simpler form do you think that that 7% days adjusted.

Figure is I mean, do you think at some point that'll be compressing a little bit lower given all the macro headwinds out there.

And.

We're obviously guiding to a lower level than that and certainly our guidance contemplates that.

There's a wide variety or a spectrum of potential outcomes include.

Degradation in the overall environment.

Would drive that.

Thank you.

Yeah.

One moment for our next question.

Our next question comes from Elizabeth quarter of Morgan Stanley .

Great. Thank you so much I wanted to just follow up on that payment flexibility that you noted.

Is that something that's impacting Q3 or is that something incremental that could happen in Q4, and any sort of way for us it potentially size that the impact could be from payment flexibility.

Yes, so certainly it has impacted the year, thus far including in Q3, we've seen the our annual payments as a percentage of the total is down.

Roughly 5% versus where it had been historically, we've always seen.

Annual payments being more than half of the.

The kind of total but.

We are seeing customers that.

Requiring or looking for additional flexibility.

Certainly that's.

Part of our expectation and guidance that were.

That it could impact Q4 of them.

Even more than it has so far this year.

Okay.

Got it and then as it relates to the go to market strategy, you mentioned, you're focused obligated to focus on some verticals like transportation is that.

That werent as impacted but anything else that you guys are going to see adapt to go to market to the current environment, whether it's focusing more on the existing or new or moderating Europe .

Color there would be helpful.

One of the things we've done we've made a number of personnel moves across the account management organization to make sure that we're building in more capacity for our account management teams.

So that they're able to drive more upsell and cross sell into our base, we're leveraging our enablement function to drive the ability of our full account management team to sell additional products like core us and engage and set up those being owned solely by our overlay team and so we will get a bigger impact by half.

Our full set of account managers selling these additional products.

Those are two big areas.

Thank you.

Okay.

One moment for our next question.

Our next question comes from Brad Zelnick of Deutsche Bank.

Thanks, very much for taking my questions.

Henry and the end of September you announced the hiring of a senior Vice President of business development and in the press release, you talked about him quote redefining zoom into those go to market process, Playbooks and training, which was a little surprising to me given your go to market has always seemed very unique and special to many of us and I can understand the need to continuously evolve but why.

They need to redefine.

I mean, I think we are shifting.

Being.

Playing in a $24 billion total addressable market, that's focused on global and domestic data to a $100 billion total addressable market that drives a full go to market end to end revenue operation suite.

That includes solutions like conversation intelligence and sales automation and BW chat in an account based marketing platform on top of our best in class data.

Data asset and so I think as we shift to having more platform related conversation, we're going to enable our sellers and a more robust way now upfront. We may land, most often with sales intelligence, our core sort of data and sales intelligence.

But as we expand those accounts our expansion motion is much more focused on telling our holistic platform story, and we see that landing, 75% more than 75% of our marketing and our customers are also sales our customers. They are buying marketing OS and sale goes together so that they can.

Can unlock that sales and marketing alignment.

So, yes, so searched for within companies, but it does require us to tell a broader story.

And so thats, what we were getting out with that comment in the press release.

It makes a lot of sense and I appreciate that maybe just a follow up for you Cameron there was no mention of win rates changing so I'll assume in so it would be great. If you can confirm that they are more or less in line with what they've been historically, but as well when we think about retracing on on an IRR and you talked about expansion being more limited is there.

Also any change in gross churn across the different market segments, that's worth noting thanks.

Sure.

Yeah. So.

Yes, I think deals are taking longer so we do see the highest levels of demand that we've seen we're continuing to.

To win those but it is taking more effort and more <unk>.

Longer time so.

Kind of have to expand the timeframe that youre defining the win rates over an order I mean competitive win rates in terms of win loss analysis.

Yeah from a competitive perspective, we actually see a number of our competitors.

Pulling back on the resources that they're pushing into the market. So I.

I think that we continue to see really strong competitive win rates overall.

And then the second part of your question was gross churn.

Gross churn so groceries actually.

Hung in very well despite the macroeconomic environment. So when people are using zoom and so they're continuing to renew the gross churn rate.

Grocery retention.

We use to be well over 90%. So I think we feel really good about that.

The change in the.

And the <unk> aspect is much more to do with those seat based expansion opportunities.

Our team is spending more time getting those renewals just based on greater scrutiny.

Slide by our customers and therefore is getting.

Getting less opportunities to go out.

Really push those upsells.

So.

Historically.

That's very helpful. Thanks, guys.

Okay.

One moment for our next question.

Yes.

One moment please.

Okay.

Okay.

Our next question comes from Koji Ikeda with Bank of America.

Hey, guys. Thanks for taking my questions.

I wanted to follow up on Mr. <unk> question here.

And thinking about kind of a sales organization it sounds like Youre shifting some resources already account management, but also shifting some resources to higher level of sales processes. So it does sounds like it's a pretty big kind of sales reorganization I mean is that the right way to think about it and if so are all the sales re org.

Ships completed for the growth strategy for the next 18 to 24 months.

No. It's not a major sales team reorganization is really just inserting some additional resources into the account management and our client base and our customer base to give some capacity back to the account managers.

Who are spending more time on renewals.

And more time on Upsells and cross sells than they have historically.

Nowhere near the magnitude of our major sales reorganization.

Got it thanks, Henry for that and then I just wanted to follow up real quick here on the account management focus you were talking about more time on renewals and one question I get from investors a lot is any sort of kind of unused licenses in sales marketing and recruiting departments as it is.

Is this an area of focus maybe heading into renewal periods and if so could you maybe talk about how sales teams are focusing on on retaining that that kind of customer spend thanks guys.

Yes look I don't think Thats a.

Our huge part of what we see I think the big thing that we see and.

We are seeing is really over the last two quarter there've been some.

Meaningful macro related changes dose first materialized with deal cycle elongation, but ultimately what those longer sale sales cycles actually ended up causing a drag on the capacity of our frontline sales and account management team deals taking longer just means more meetings more reeves.

Use with leadership more calls and E mails to drive the same outcome that we were getting historically and so while our gross retention has stayed largely the same or up sell motion has seen of those more macro headwind now at the same time in the quarter, we closed the largest new business deal of our company's history.

It was the largest expansion deal in our company's history, we're seeing new business ACB on our marketing our west platform be close to three <unk> of our sales OS platform. We see the majority of our marketing our customer also by sales in the last so they can unlock that platform story.

We're seeing meaningful consolidation uplift with customers like Ryder and use XI and Taylor Corporation, who all consolidated multiple point solutions on the zoom <unk> platform, but ultimately the macro economic situation creates sales elongation in sales elongation creates more times.

Spent by our sellers and ultimately that's a capacity drag and so we're trying to make sure that we're making the right decisions from an organization perspective to make sure that we're.

We're leaving as much of that that drag as possible.

Thanks, Henry Thanks, so much.

Yeah.

One moment for our next question.

Okay.

Yeah.

Our next question comes from <unk> <unk> from Mizuho.

Thanks for taking my question.

Henry you would talk about the macro pressure and self elongation, just wondering what sort of trend you are seeing on the pipeline and mainly top of the funnel.

And also you talk about in our press it on say the expense and then data expense and but what.

What do you expect if macro worsen demand for your newer product play.

Also as marketing with do you expect that to offset any kind of slowdown.

I think first we're continuing to see really strong demand.

In the quarter, we had the highest delivered marketing qualified leads.

The sales and account management organization.

I think again, what we're seeing is even though we're seeing a really strong demand environment. Those deals are just taking longer to get to close marketing OS.

It's the fastest growing product in our fastest growing platform. We believe we're really excited about that today, it's still a small part.

<unk> of our business. So while we anticipate that will continue to sell more marketing or more.

Data orchestration on bring lead more cores and conversational intelligence.

Those are still small portions of our overall revenue base.

Okay, and then a follow up on the international expansion opportunity. That's one of your growth driver.

What sort of progress you're doing at this point given all of this geopolitical uncertainty in the euro.

And so from an international perspective, we still are seeing growth.

Again stronger than the.

Accelerated growth relative to the rest of our business certainly.

Particularly in Europe , we've seen headwinds from the geopolitical.

Situation.

So we're not growing as quickly as we did in 2021, we're continuing to invest in Europe and our other international.

Venues and customers in order to take advantage of the long term opportunity itself.

Okay, great. Thank you.

One moment for our next question.

Yeah.

Our next question comes from Michael <unk> of Wells Fargo Securities.

Okay. Great I. Appreciate you taking the question just on margin can we go back to just some of the comments around resilience and the margin offsets Cameron or are you still confident that the offsets you have there if growth starts to moderate more meaningfully than what we're seeing currently and then between op margin and free cash flow conversion I think fee imply.

For Q4, and what we're seeing in Q3 is below the target levels. There have been some comments just around some of the adjustments you're making in payments in terms of other areas but.

You can add there and around just confidence in the ability to return to the targeted levels if that remains the case.

Sure.

From a margin perspective, I think we're continuing along the path that we had.

Originally laid out for this growth moderates, we expect the natural operating leverage in the business to continue to push margins up over time I think that that.

Yes.

That's the expectation that we continue to have we're certainly not going to see a step function and margins go up but I do think we expect a steady increase in the margins as we realize the operating leverage and part of that is just natural operating leverage in the.

Sales and marketing side as growth moderates, but.

We should see sales and marketing as a percentage of revenue go down.

When that happens in terms of Unlevered free cash flow, we are seeing some.

Flexibility that customers are requiring are asking for in terms of.

Payment schedules in that.

Certainly in the short term has an impact on the <unk>.

Conversion of free cash flow from adjusted operating income.

So I think we've.

We're prudently setting expectations that we could see.

That conversion rate the overall lower than what we would expect in a.

More normal operating environment.

Okay. That's helpful. Just a small follow on to a prior question. If I may you had a few stats that you laid out around annual payments and maybe that duration is changing from what you've seen in prior periods.

Do you have the duration mix our average duration.

In front of you and anything you can add just around how it compares currently versus what you've been seeing in prior periods. I think it's just helpful for that in context of some of the impacts if you have it. Thank you.

Yes, yes.

Duration mix historically, we've seen.

Well over half of the payments that we receive the annual upfront payments.

What we've seen is that that has decreased by about five percentage points, which obviously changes the.

The overall mix.

I do think that that.

Percentage of annual payments has the potential to move around over time and as an example.

Ample that decreases.

Our smaller of a decrease than we saw in say Q2, one in Q2 of 2020.

But certainly the.

The.

Attitude of customers is that they're looking for more flexibility as theyre.

Dealing with similar pressures to we are in terms of macroeconomic challenges.

Thank you.

One moment for our next question.

Okay.

Our next question comes from Rishi Galeria with RBC capital markets.

Wonderful. Thanks, so much for squeezing me in.

First I just wanted to start with you talked about this metric of 30% of ACB coming from advanced functionality.

He needs to go into right direction, but that seems to be only up slightly from Q2, when it was 29% and if my numbers are right back at the end of last year that was 24%. So the growth rate there seems to have slowed down I think pretty quickly maybe can you walk us through what the dynamics going on there might be.

And why we shouldnt be too worried about this as a leading indicator and that something that could maybe spread to a slowdown at the core that have a very quick follow up.

Sure. So I think we continue to see.

Strong uptake in the advanced functionality, but.

Most of that is of sold to our existing customers.

Well, it's less.

Less impacted than.

Then just data it is impacted by the capacity issue that we've discussed overall, so I don't see that as being a.

Long term indicator in terms of.

The growth of.

Advanced functionality, certainly as it gets off a bigger and bigger base as a percentage.

Continued growth of.

Of.

Yes.

Core intelligence business is also going to continue as well and make those just the absolute number of changes so little.

Smaller over time as well.

Okay got it that's helpful. And then just a very quick point.

Another question that I had mentioned about licenses that maybe we're sitting unused kind of flip that is there any worry heading into more uncertainty in the macro environment that we could see outright licensed sharing or other measures that you take to limit or prevent that from happening.

Yes, there are all sorts of measures and technical.

Implementations that we put into avoid license sharing.

And we've done that for.

For a long time.

Yeah.

Okay got it thank you so much.

Okay.

One moment for our next question.

Okay.

Okay.

And our next question comes from Taylor Mcginnis with UBS UBS.

Hi, Thanks, Thanks, so much for taking my question.

You comment on what Youre seeing with new logo activity and like the size of average lands and how much of the lighter outlook was attributed to softness here and I guess just as a second related question with expansion rates coming down are you assuming more growth needs to come from new business been recent.

And then does that impact at all your comfort with some of the out year.

Rod targets that you guys have been in the coming years.

Okay.

So we continue to see strength on the new business side.

As we are.

Able to attach more of the advanced functionality and as we're seeing some larger customers, we've actually seen ASP.

Go up in.

In Q3 and continue to see strong new business.

Activity, so I would say that yes.

We're continuing to obviously.

Our expectations, but new business continues to do well much better I think relative to the historical trend, whereas the capacity on the EM side.

As a short term impact that we see from the macroeconomic challenges.

I think overall we.

We do expect that that math.

Macroeconomic challenge, we don't know how long, it's going to ask but I would expect that those retention rates would go back up.

As.

Situation for buyers stabilizes overtime.

Great. Thank you.

Yep.

One moment for our next question.

Okay.

Okay.

Our next question is from Terry Tillman with true of Securities.

Yes. Thanks for fitting me in here I know you've had a lot of questions and multi part questions I guess, maybe Henry a big picture question for me is just related to the.

The theme of vendor consolidation it does seem like that's probably going to pick up steam if the macro continues to be weak if not worse and so my big picture question relates to I mean, there is a lot of $100 million plus sales engagement and Ci tool vendors.

What are you seeing right now what do you think the tipping point is for you all to potentially be able to win that vendor consolidation opportunity.

Is that something that you think kind of plays more out into 'twenty three under our park macro or just a little bit more of a tipping point on just more broad based vendor consolidation. Thank you.

And look I think.

I think that we're in the early innings of people really thinking about vendor consolidation I think the vendor consolidate the consolidation stories that we've outlined here around the platform, they're not macro driven they're just good business driven and so I think as the macro push it.

Or is the macro environment continues.

Companies will take this idea of consolidating to a strategic vendor much more seriously and we will gain a lot of mind share at that happen, but today I think the wins that youre seeing in the wins that we're really proud of.

We would have achieved whether there was a macro.

Macro uncertainty or not and so we'd expect that to accelerate especially as we continue to enable our sellers around the top tracks and the ways to position value around a full consolidation.

I would now like to turn it over to Henry for closing remarks.

Okay. Thank you everybody for your time Tonight, we have an active IR calendar coming up and we look forward to speaking with everyone and seeing you all over the course of the next several weeks.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Okay.

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The conference will begin shortly.

As Johan during Q&A, you can dial star one one.

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Yeah.

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