Q1 2023 ZoomInfo Technologies Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to Zoom Info first quarter 2023 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jerry Sosinski Investor Relations. Please go ahead.
Thank you Jamie welcome to zoom into those financial results conference call for the first quarter of 2023 with me on the call today are Henry shock founder and CEO of Zoom info and Cameron Hiser our CFO .
After their remarks, we will open the call to Q&A during.
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 believe and expressions, which reflect something.
Other than historical facts are intended to identify forward looking statements forward looking statements involve a number of risks.
And uncertainties, including those discussed in the risk factors sections of our SEC filings.
Actual results may differ materially from any forward looking statements. The company undertakes no obligation to revise or update any forward looking statements in order to reflect events that may arise. After this conference call, except as required by law for more information. Please refer to the cautionary statement in the slides posted to our Investor Relations website at IR Zoom info Dot com.
All metrics on this call are non-GAAP unless otherwise noted a reconciliation can be found in our financial results press release or in the slides posted to our IR website with that I'll turn the call over to Henry.
Thank you Jeremy and welcome everyone. In Q1, we delivered 24% revenue growth better than expected profitability with an adjusted operating income margin of 40% and more than $121 million in unlevered free cash flow.
While we can't control the macroeconomic environment, we can control, how we manage the business and we are executing efficiently.
Even when facing continued scrutiny on deals against the macro backdrop that we have not seen improve our financial results demonstrate the value that our platform delivers to customers everywhere.
With that backdrop, we continue to drive our leading combination of growth and profitability, while approximately 40% of our revenue comes from software companies.
When you incorporate financial services venture backed companies in the broader technology space. The majority of our customers are being impacted by the current economic environment.
We are confident that when there is a more stable and certain economic outlook, we will see even higher levels of growth accompanied by even stronger profitability.
Until we get there we are executing against our plans for the year with confidence and reaffirming our full year guidance, which calls for 17% revenue growth and more than half a billion dollars in unlevered free cash flow for the year.
While we grew our million dollar cohort of customers materially quarter over quarter, our 100, K cohort last logos in Q1 as software companies down sold.
We ended the first quarter with 1900, five customers that have more than 100 K in ACB.
Up approximately 17% year over year.
Gross churn remains consistent and the total ACB for that cohort continues to grow.
We also continue to see bright spots and less effective and markets like manufacturing and transportation and logistics, where we are seeing accelerating demand on the new business side and strong seat growth on the customer side.
Given the incredibly large and growing addressable market quick time to value and a strong ROI. We deliver we continue to invest in the business to drive future growth widen our competitive moat and be even better positioned when the economy improves.
We are capitalizing on opportunities to evolve our go to market approach and improve our own internal seller efficiency by.
By further specializing the roles of our sales and support teams building persona based centers of excellence across all functions and developing a more product led motion for our down market customer segments were able to optimize our entire organization for greater effectiveness and efficiency.
We're continuing to we're continuing to invest behind our P. L. G motion to drive additional ways for customers to transact with us from first touch through renewal.
<unk> customers can buy additional seats in credit to yourselves.
With hundreds of transactions per quarter, leveraging our self service stores since its launch in Q3 of 2022.
This easier pathway to purchase is driving more and more customers to leverage self service, including enterprise customers looking to provision user trials and add seats.
We expect to expand our product led motion to be able to fully support acquisition growth and retention motion, allowing our go to market teams to focus on more complex higher value use cases.
These levers are enabling us to invest behind our enterprise business, while still maintaining our high velocity high efficiency engine down market.
Examples of these investments, which we are already seeing gains from include a more dynamic and rigorous pricing infrastructure, leveraging our platform and first party data to synthesize critical signals and prescribed upsell cross sell and pricing motions to the field.
The rollout of the new sophisticated sales methodology to drive transparency and accountability upmarket.
Up leveling, our sales talent and an overall more strategic and high touch approach to our enterprise customers.
So that we can so that we can unlock their potential customers.
And then taking them locked their potential at world class go to market leaders themselves.
In product, we're investing our resources to create the lifeboat customer experiences extend our data leadership and expand up market. Those investments are paying off with nearly every engagement metrics increasing across our core sales or watch product at our chrome extension reach out we view increased.
<unk> is a positive leading indicator for attention.
We are also laser focused on driving seller productivity for our customers something that chief revenue officers are especially attuned to today.
Within sales, though as we added native sales engagement capabilities, enabling sellers to reach out to prospects in seconds without ever leaving the platform users.
Users can simultaneously log their activities and launch multi touch campaigns in real time.
Over the quarter users of this new experience have demonstrated a 22% higher likelihood to become daily active users as we expand our use case more centrally into their day to day workflows.
With Corus, we continue to push the frontier of conversation intelligence and AI to increased seller productivity across account executive account management and post sales teams, our new generative AI powered meeting summaries automatically produce meeting notes and create action items to help sellers move deals.
Ensuring consistent follow through and increased rep productivity.
Use the words of one of our customers.
Horses AI post meeting summary is a feature that has completely changed my workflow. There's absolutely no reason to ever take notes during our call again. It captures every single relevant detail from a meeting along with key action items, we expect to continue investments in AI and workflow automation as we become an era.
<unk> tool and every go to market Tech stack.
And marketing O S. We introduced account deal stories, enabling sales and marketing teams to rally around the same deal in account insights by bringing all activities engagements intense signals web forms and email correspondence that influenced the deal into a single place now.
Now sales and marketing teams have access to complete information across the entire funnel delivering a better customer experience and shortening time to close.
Our newly released spend reports complement this experience, allowing customers to monitor and optimize the impact of their multichannel campaign.
On the partnership side, we're excited to announce a new partnership with data bricks, a leading data Lake house provider to deliver zoom into those comprehensive BW datasets directly to customers in the data bricks platform, creating a new channel for accessing and purchasing agreement, though through the data breaks marketplace, our customers will be.
To seamlessly leverage our powerful go to market data to unlock the full potential of their data workflows analytics modeling machine learning and AI initiatives.
During the quarter, we closed transactions with many of the world's strongest brands and leading enterprises, including Chevron choice hotels, Dow Jones J P. Morgan Juniper networks narrow, Brad Shaw Communications U K G U S Bank and Wyndham hotels.
Globally recognized brands turn to us not only because of our market, leading data and software, but also because of our industry, leading data privacy and noticed practices.
This advantage is especially powerful with our multinational clients, who are looking to expand with a trusted partner in Europe and beyond.
This drives our success internationally, where despite stronger economic headwinds, we continue to grow faster than our domestic business.
In the quarter, we saw this come to fruition as we expanded our global dataset to two of the world's largest cloud software company, who switched to zoom into away from legacy providers, because they couldnt trust their privacy and data compliance practices.
Our industry, leading rigorous standards for privacy and compliance we're aligned with their values of customer trust and integrity.
In addition to those we also grew our customer footprint in EMEA with one of our largest global expansion with a UK based multinational pest control enterprise.
And with Gmg events, an international provider of exhibitions and media that brought on sales of <unk> to drive seller efficiency worldwide.
We also continue to see strong enterprise demand for our talent OS platform and are hiring market that remains very competitive for top talent.
We brought on two fortune 50 companies one of the largest retail pharmacies and a major life insurance provider for property casualty and life insurance, we're now leveraging our platform to quickly recruit candidates.
A number of businesses replace their existing ABM providers and switch to marketing O S, including a global technology company that wanted to target their entire addressable market more accurately and a Texas based higher education software provider that wanted to save money and go to market more efficiently.
We also sold our largest ever marketing our west transaction to a food services company looking to target businesses more effectively as companies return to office.
In closing I've never been more confident in the ROI that our platform delivers and the innovation that we're delivering for our customers.
The highly accurate data and insights powered by the triggers automation and workflows to activate that data.
Drive tremendous value and engagement.
We remain early in the digital transformation of BW sales as more and more businesses continue to discover the power that our data and insights provide.
The current economic environment and the business challenges our customers are facing buyers continue to invest in modernizing their go to market and as a result, we are confident that as the economic outlook stabilizes our growth will accelerate with that I'll hand, it over to Cameron.
Thanks, Henry and Q1, we delivered revenue of $301 million up 24% year over year and up one 9% sequentially on an annualized basis when factoring in the two fewer days of revenue recognition in the first quarter.
Excluding the impact of products acquired within the last 12 months, our organic revenue growth for the quarter was 23%.
Given that we completed our most recent acquisitions at the beginning of Q2 2022, we do not anticipate inorganic revenue contribution next quarter.
Adjusted operating income in Q1 was $120 million a margin of 40%.
GAAP net income was $45 million and GAAP EPS was <unk> 11 per share non-GAAP EPS was <unk> 24 per share.
Overall, the environment degraded in the first quarter similar to the assumptions upon which we built the guidance.
The majority of our customers operate in industries meaningfully impacted by the current economic environment, including software other technology and financial services and all customers are scrutinizing spending across vendors.
This backdrop makes the starting point for renewals and up sells more challenging impacting overall sales efficiency and putting downward pressure on NR.
As contemplated in our guidance that retention activity was incrementally worse than what we experienced in Q4, while new sales was roughly flat relative to Q1 2022 slightly better than what we contemplated in the guidance.
This better sales performance was partially offset by increased revenue reserves related to write offs among our SMB customers.
With this performance and more visibility into the remainder of the year. We are reaffirming our previously provided full year guidance, which calls for 17% revenue growth at the midpoint and an implied adjusted operating margin of 41%.
International revenue grew 32% relative to Q1, 2022 and international customers contributed 13% of the revenue in the quarter.
Turning to cash flow operating cash flow was in Q1 was $109 million, which included approximately $19 million of interest payments.
Unlevered free cash flow through the quarter was $121 million or 101% of adjusted operating income.
Cash flow conversion in Q1 exhibited lower than normal seasonality due to.
Lower prior quarter billings relative to AOI, coupled with the banking crisis at the end of Q1 that delayed some payments to us and forced us to make certain benefits payments ahead of schedule.
We expect these timing impacts to reverse in the coming quarters.
As reflected in our guidance, we continue to expect Unlevered free cash flow conversion in the range of 95% to 100% for the full year.
With respect to the balance sheet, we ended the first quarter with $616 million in cash cash equivalents and short term investments.
At the end of Q1, we continued to carry 125 billion in gross debt all of which is fixed or hedged in terms of interest rates.
During the quarter, we completed a repricing of our first lien credit agreement at par, which resulted in a four year maturity extension to 2030.
And the 25 basis point reduction in the interest rate.
We again drove an improvement in our leverage ratios with a net leverage ratio of one three times trailing 12 months adjusted EBITDA and one two times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements.
During the quarter, we repurchased approximately 1 million shares of zoom info common stock at an average price of $23 per share in.
In aggregate, we deployed a total of $24 million of the $100 million share repurchase authorization that we announced on March 14th 2023.
We remain in the market repurchasing shares and we expect to continue to be opportunistic with respect to repurchases.
With respect to liabilities and future performance obligations unearned revenue at the end of the quarter was $451 million and remaining performance obligations. Our RP O were $1 1 billion.
Of which 839 million are expected to be delivered in the next 12 months.
We believe that calculated billings bookings in RP are imprecise metrics to assess in period activity and forward momentum.
Because of the inherent noise in sometimes conflicting signals across these metrics, we focus on sequential annualized revenue growth, which was one 9% in the first quarter.
Furthermore, given that we are seeing sales efficiency begin to stabilize and revenue in the April performance begin the quarter better than January did we expect.
Sequential annualized revenue growth to accelerate in the second quarter as is reflected in our guidance.
For Q2, we are providing guidance as follows we expect revenue in the range of $310 million to $312 million adjusted operating income in the range of $125 million to $127 million.
non-GAAP net income in the range of $22 23 per share.
Our Q2 guidance implies year over year growth revenue growth of 16% and an adjusted operating margin of 41% at the midpoint of guidance.
It's another quarter of visibility, we have further confidence in our ability to achieve or exceed our full year guidance. As a result, we are reaffirming our full year 2023 guidance, which calls for revenue in the range of 1.2 dollars 75 to one point to 85 billion and adjusted operating income in the range of.
523% to $533 million.
We expect non-GAAP net income in the range of 99 cents to one dollar and a penny per share up from the prior range of 98 to one dollar per share with non-GAAP net income per share based on 417 million weighted average diluted shares outstanding.
We expect Unlevered free cash flow in the range of 507 to 517 million shares.
Our full year guidance implies 17% revenue growth at the midpoint and both adjusted operating margin and Unlevered free cash flow margin at or above 40%.
With that let me turn it over to the operator to open the call for questions.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Be sure to limit to one question only please standby will be compile the Q&A roster.
And our first question is from Alex Zukin with Wolfe Research. Your line is open.
Great.
Hey, guys. Thanks for taking the question and I appreciate a lot of the detail on the underlying business I guess.
Maybe maybe start for Henry it looks like kind of a tale of two businesses right you have the business that.
The the underlying customers are impacted and youre doing really well with the new business, obviously, some headwinds on retention and up sell just maybe if you split those two out and you look at them separately.
What would the non impacted business look like versus the impacted business and as you as you talk to customers as you talk to other Ceos kind of where are we on that timeline, where we kind of start to rebase to a new normal sales cycle on the impact of that.
Look I think the way to think about this Alex is it's a little bit less like Theres a group of companies that are doing really well and then a group of companies that are our more challenged even within the tech and software vertical you know a number of the companies that moved into a $1 million cohort.
This quarter were from software or tech companies.
What we've said in the past, which is still true is that there is a lot of demand for our products and services and so we continue to add head count quota carrying head count into our account management and account executive organization, because we're out there trying to upselling, our customer base trying to cross sell in our App and our customer base.
We're also affected on the other side by renewals taking longer general sales cycles are long getting for those same deals and so we're not able to get to as much of it that's out there. So we're continuing to hire there.
Continue to hire those quota carrying reps because even in the industries that are impacted we are seeing opportunity and demand.
And as far as the as far as the sales cycle coming back to a more normal state what what.
Say its all reactor iterate, what Cameron said, which is April as compared to January is off to a much better start than January was.
Perfect and then maybe just not to keep any comments on the competitive environment. We keep hearing anecdotes of theirs kind of fierce price competition, a lot of overlapping offerings increasingly coming out of the space.
As you look over the next 12 months and beyond and you think about the incremental.
Incremental.
Competitive differentiation of the operating like where where are you seeing it show through right now.
Yes, so what I would tell you first is the competitive landscape has not changed our win rates have not changed they relate to our competitors if anything we feel ourselves moving further and further away from the competitors in our space in HCV per customer was roughly flat.
And discounting was consistent to what we saw in Q4 and so we haven't been pressured in that way I think when you think about differentiation in this space I think there's two things one we can we're continuing continuing to invest in our data and our data assets. So we're very obviously the leader when it comes to data.
Average breadth and accuracy and want to pull further and further ahead of anybody in the market. There and then second as we bring everything together in an integrated experience as you saw us really start doing this quarter by bringing in sales engagement into the core sells out west platform, we think that interconnectivity between.
Platforms and systems creates a long term differentiation when a.
When put together with our <unk>.
Best in class data assets.
Perfect. Thank you guys.
One moment for our next question.
And our next question is from Elizabeth quarter with Morgan Stanley . Your line is open.
Great. Thank you so much I just wanted to ask a bit.
Our first.
Directionally it sounds like <unk> got a little bit worse in Q1 versus Q4, which is what you had expected in your guidance.
Whats the risk that we could see incremental weakness through the year and at RR from that Q1 rate.
Macro gets a little bit more difficult.
On the offset well.
It's still early and there's a lot of uncertainty is there an opportunity to improve upsell as we just lapped some of the tough comps in the coming quarters. Thank you.
Yes. Thanks, Elizabeth So we are starting to see upsell opportunities among many of our clients.
Even in Q1, but more so as we move into Q2.
Yes, I think there is a really significant opportunity for up sell.
Gross retention continues to hang in pretty well.
That being said, yes.
There is the potential for.
For down sell and I think we're seeing a little bit more down sell as well, particularly in the software sector, where we are.
Where there are a number of layoffs, but as we start to lap many of the harder renewals that when we really started to see pressure even in Q2 of last year as we start to lap those renewals we feel that.
Many of those renewals in the software space May actually start to go better as we get further and further into the year.
Great and then just as a follow up.
Given the recent leadership announcements did you guys see any disruption from the changes in Q1.
So with it any better or worse than what you had expected and how should we think about the impact for the remainder of the year.
Yeah look we've seen a real positive impact from David Ollie's.
Entering the company and so we didn't see any disruption in Q1 from them coming in I think if anything we feel their impact was increasingly positive on the organization.
Their belts focused on improving productivity and org design and for.
Dave upmarket execution, and so we feel really good about their contribution so far.
Thank you.
One moment for our next question.
And our next question comes from Koji Ikea with Bank of America. Your line is open.
Yeah, Hey, guys. Thanks, Thanks for taking my questions.
Wanted to ask a couple here first one being about just kind of going back to the sales linearity April being a better better months than maybe the March and February or EBIT better than January like you stated.
Could you talk about that a little bit more into what exactly does that mean does that mean that the pipeline generation is better I know theres more sales capacity in the <unk>.
Sales department today versus the beginning of the year, so that kind of makes sense.
If that's the case or is it sales productivity I mean, I guess, maybe a little bit more color on on how April is being better than kind of the previous months.
Yeah, so in terms of linearity.
Specifically April was better than January typically we do have some level of linearity within.
The months so.
The first month is oftentimes a little less than the second month, which has been less than the third month.
But we do feel that momentum and adjust.
Adjusted basis, comparing it to January gives us.
Good.
Confidence in where Q2 is going and certainly from a.
And Thats actual sales closed sales from a pipeline perspective, I think we're seeing a similar.
Dynamic of improvement in Q2.
Got it got it no. Thanks for that Cameron and I wanted to ask a follow up question here on <unk>.
Current.
<unk> the growth slowed in the first quarter to the high teens.
From the mid to high twenties last quarter.
And even it was.
A bit down sequentially in the first quarter. So could you walk us through maybe some of the underlying mechanics, there anything to call out specifically, maybe on direct duration or <unk> or anything to call out on the market and help us understand that metric a little bit better. Thanks, guys.
Sure well I mean, certainly we are seeing fewer long term contracts and that you can kind of see the difference in RP O versus current RPI when youre looking at that the other.
Yes, the thing that does impact RP O us.
We mentioned that we had.
Greater number of write offs in the quarter related to small business clients and that flows through <unk>.
More dramatically than some because those are often contracts that haven't been build yet.
Got it thanks for taking my questions.
One moment for our next question.
And our next question is from Mark Murphy with Jpmorgan. Your line is open.
Thank you very much.
In the last week and a half we've noticed some incremental layoff announcements and Cameron I think you alluded to it but we've seen it from Dropbox and <unk> and Red hat.
<unk> five.
If you look at that trend would you expect the over 100 K.
Customer cohort to continue contracting in the near term or is it based on the <unk>.
Pipeline comments on how April has started is it possible that that was more of a onetime event.
Yes.
So I think our expectation is that we're going to continue to focus on driving more value for our largest clients and as a result.
Our focus on driving the 100 K customer cohort higher.
That being said most of the degradation or all of the degradation came from software companies.
Which still comprise a good portion of the 100 K customers. So to the extent that those layoffs are largely concentrated in <unk>.
Software companies.
Particularly kind of the degradation for US is those companies that are close to that 100 K number. So a small down sell ends up pushing them under so it's the kind of small and midsize.
Software companies that we actually have the most risk of your purely focused on that $100 million $100000 level.
Okay that makes sense and then as a follow up Henri you mentioned a couple of Fortune 50 companies selected talent to us.
For recruiting I think you said.
And that surprised me a little bit can you dimensionalize those transactions just in terms of.
Either how many seats are just are the needle movers if you can.
Compare it to some of the core marketing and sales products.
Yes, I mean these are.
You should think of them as.
Sure.
Sort of high five bigger transactions are mid five figure transactions, but theyre not million dollar transactions or they wouldn't enter the 100 K cohort.
Because when you go into the talent acquisition team often smaller.
Much smaller than our sales team and an organization but.
They're also good starting points for us to continue to grow inside of those organizations. So you get that.
Those are contracts, where you get the.
Yeah.
Talent acquisition folks who are acquiring talent for.
Our for pharmacists and then we have an opportunity to spread out from there.
Understood. Thank you very much.
And one moment for our next question.
Yeah.
Our next question comes from Kash Rangan with Goldman Sachs. Your line is open.
Hey, Thank you guys for the color.
Cameron I think you talked about net new business.
Flat in Q1.
Can you compare to that net new business was in Q4 of last year I'm trying to understand the trajectory.
Was it negative going to flop, a flat staying flat and also when I look at the numbers on a go forward basis, the sequential amount of new dollars to be added.
We need to see some sequential acceleration in Q2, Q3 and Q4.
To hit your guidance, so what are the things that drive.
The numbers in such a way that we can get to that.
<unk>.
Accelerating revenue growth in the second half versus the annualized growth rate that you put up based on the sequential subscription revenue growth in Q1. Thank you so much.
Sure so.
Q4, new sales were modestly up.
In Q4 of 'twenty, two relative to 'twenty one.
So.
Kind of a modest deceleration being flat we are continuing to add sales capacity.
In both the new and the.
And the <unk>.
Existing customer side in order to continue to drive that as we look forward and we develop our.
Guidance and assumptions, we are focusing on what does the shape of explorations and renewals look like as well as what our sales capacity.
It looks like in terms of the.
In terms of new sales and upsell possibilities and so with added sales capacity and the shape of explorations that.
Sequential revenue growth in order to hit the guidance and certainly were.
We have.
Obviously.
Very good visibility into Q2, we're already seeing that.
In April compared to January as well.
Would you say are easier.
Business comps in the second half of this year relative to last year.
Oh, Yeah, absolutely we started to see obviously pressure when we talked about.
Yes.
Pension and so forth in Q2, but that got that pressure more materially impacted Q3, and Q4 of last year, which obviously creates.
Easier comparable to to achieve that.
Thank you so much.
Yes.
One moment for our next question.
Our next.
<unk> is from Taylor Mckinnis with UBS. Your line is open.
Yes, hi, thanks, so much for taking my question, maybe just to piggyback off the last question with the guide implies sequential growth to accelerate throughout the year Cameron can you break that down maybe a little bit further into new <unk>.
As existing and what gives you comfort on those two different variables and I guess more specifically if NR came down a little bit further in this last quarter, how does that compare to maybe what is embedded in the full year guidance. If there's any risk there if the macro deteriorates further.
Yeah. So we do expect that as we continue to grow the sales team throughout the course of the year that will support growth in terms of the new sales as well as <unk>.
Potential upsells, we do have we do actually also have.
Some seasonality historically, which is based on that shape of renewals and expirations that are coming in that actually support.
Higher net retention activity as you move through the year and so that'll that'll help helped out as well.
Great. Thank you so much.
Yes.
One moment for our next question.
And our next question is from Raimo <unk> with Barclays. Your line is open.
Thank you thanks for squeezing me in.
Can you talk a little bit about what you're seeing in terms of pipeline pipeline quality, what im referring to is at the beginning of the crisis as people kind of down so theyre seats et cetera, but you have obviously like quite a few of extra offerings out there like what are you seeing in terms of people's appetite to kind of kind of go into comp.
Really great results is in our mid market and higher customers, So enterprise mid market our strategic customers.
They are coupling together numerous of our platforms and products and so when I think about the big deals that closed in Q1, almost all of them were multi platform deals and so they brought our data as a service offer offering and our <unk> offering together with our sale.
<unk> offering they.
<unk> sales eaux de leverage our company and contact brick data inside a snowflake.
The deals that we're seeing are combining multiple of our platforms together and we think that.
That is a strategy that we're executing against and employing throughout our account base and I think as we continue to iterate on that strategy, we will see more and more of that happen.
What is your thinking in terms of buyback and maybe remind us the situation that you're in.
And at the moment.
Sure. So in mid March we authorized $100 million buyback through the end of the quarter, we repurchased about $24 million and we did continue to repurchase.
In April as well.
Our expectation is to continue to be in market and opportunistically.
Repurchase shares here in the second quarter and.
I agreed with the border had kind of further conversations about additional.
Additional buybacks after the $100 million.
Thank you.
One moment for our next question.
Our next question is from Michael Caron will put Wells Fargo. Your line is open.
Any update around how you're thinking through tradeoffs there given it sounds like some mixed signals between macro and what youre seeing in terms of ramping productivity on the sales side. How quickly are you able to dial up or dial down the need for sales capacity based on what youre seeing and anything else, we should be mindful of and thinking through margin and free cash flow impacts for the coming year.
Thanks.
Yes, I think our ability to dial up in.
Dialed down.
Sales capacity is slightly different dialing downs relatively easy dialing up we do need to go out and hire folks and we're very focused on hiring the highest quality folks that we can or moving people up through our training programs and into high quality sales folks.
But I think we this is something that we've done for a long time and are focused on being efficient not just with the sales capacity, but also how we build those teams over time and I think we feel very comfortable that we'll be able to continue to add capacity as we move through the year.
I'll leave it at one thanks guys.
Thank you.
One moment for our next question.
Our next question is from Brad Zelnick with Deutsche Bank. Your line is open.
Great. Thank you very much for taking the question Henry you talked about generative AI capabilities related to chorus I was wondering if you could maybe speak about the broader opportunities across the portfolio and perhaps as well.
Jim inflow from generative AI and other perhaps new breed of competitors that are out there.
Great. Thanks, Brian look I think when we think about what zoom info is doing.
Hi.
We are in the business of making go to market more productive and we really do you expect the large language models to accelerate our leadership in intelligence and automation and kind of two big waves.
For our own products, we're going to be able to automate manual and mundane steps for our users. So for example, instead of finding the next best customer on your own trying to triangulate signals to figure out who you should be engaging with and then what you should be saying to those companies.
We're going to be able to use AI to parse those signals select the highest conversion opportunity pick the best channel and then actually create personalized content to engage because of all the context, we know about companies and people.
And we're already have multiple teams working on incorporating this technology into our platform.
The other thing that I would tell you heads.
For our customers, but we've always been saying is that bad CRM data creates all sorts of downstream issues and where we highlight.
Those tend to be around territory planning rep efficiency segmentation getting insights out of your CRM system.
But <unk>.
<unk> generated AI coming to the market just shines a really big light on the problems that bad data creates inside of your CRM and so the awareness of that issue is increasing exponentially as companies realize that they can't rely on their CRM data to put into these models and get the efficiency.
And the upside that you're expected to get from incorporating generative AI into your offering and as.
So I'll share a quote that I recently read an Forbes about generative AI coming that go to market and it's just it's coming it's going to elevate the importance of your CRM system because for all of this to work AI needs data and companies that are expecting to get that data out of their CRM system are going to need to have.
That data fully enriched fully impending constantly cleanse and we are by far the leading provider to help them do that and then by helping them do that helping them see the benefits of generate of AI in the future.
Really helpful color, maybe just a quick housekeeping item for for Cameron.
Okay.
Obviously focused on.
<unk> going to support all the investments that we're making in at this point, we are still below where we had ended in September of 'twenty, two but we're gonna tactically higher.
Where are we.
Where we feel that its most important mostly in the.
Capacity areas within sales and we will focus on efficiency throughout the rest of the organization hiring where we think the investments are well warranted, but also looking for areas, where we can drive efficiencies going forward.
Alright, thanks for taking the questions guys.
One moment for our next question.
Hey, Thanks for taking the question. This is Jonathan mccarry onto Brian , we'll just keep it to one.
I know you guys mentioned, the 40% exposure to software, but you've also seen some traction some other verticals recently can.
Can you talk about how you think about potential go to market investments or new partnerships necessary to further build on that expansion into newer vehicles.
Yes sure so the.
New pricing calculators that we're putting out to the field so that they understand based on usage based on.
Based on usage and data consumption.
And the types of companies industries sizes growth rates, where we have opportunities to upsell and cross sell and that's going to show up.
Most of the time in these non affected industries and so we're prescribing plays based on our own data based on product data based on the Companys growth data to the field.
To run cross sell upsell and pricing activities I think the second thing is we continue to invest in our product led growth emotion to be able to unlock efficiencies in the down market to unlock efficiencies in.
Industries that we don't historically sell too and so we're building the ability for new customers to transact and become customers with us without ever having to interact with a direct seller and then and then the ability for them to onboard and an efficient in context and platform way.
So those are a couple of the initiatives, we are using to sort of drive our growth.
And the other industries.
Great. Thanks.
One moment for our next question.
Our next question is from Brent bracelet with Piper Sandler Your line is open.
Good afternoon, Cameron I wanted to go back to the discussion on renewals, particularly given.
The exposure to software if we were to double click into the seasonality of the software renewal expiry base is there.
A big chunk that expires here in Q2 that you have visibility into.
Is it still more second half of the year Q4 weighted any color there and then talk a little about the puts and takes I clearly understand the risk to renewals, but you also talked a little bit about some upside to optimism that you can actually start to see some expansion upsell opportunities in the renewals as well too so any more color there.
It would be helpful. Thanks.
Sure so with respect to the seasonality.
<unk>.
Software is a little bit more heavily weighted towards Q4 than the rest of our business and certainly most of our business from a renewal perspective is weighted to Q4 relative to the other quarters Q1 is another big quarter for software as well so.
Thats placed upon.
The business as a result of.
Software.
<unk>.
Being.
More impacted by the macroeconomic environment.
And then just to clarify the optimism on potential upsell is getting better is that more of a commentary for segments and renewals outside of software that youre, a little more optimistic on on Upsells.
I think we see it we definitely see it outside of software I think what we're starting to see is even within software for larger customers that are focusing on where they can be more efficient and do more with less we are starting to see.
More of a more of a sales opportunity there.
Relative to <unk>.
Q4, I think people were.
More running for cover and looking for ways to cut costs were down I think people are focused a little bit more on where can they start to optimize their go to market infrastructure and as Henry mentioned, particularly in places where there are.
Data opportunities.
So data as a service and operations as well as marketing OS we do see some bigger opportunities that are both in the pipeline and things that we're really starting to execute against them.
Very clear thank you.
Yes.
Our next question is from Rishi Galeria with RBC capital markets. Your line is open.
Wonderful. Thanks, so much for taking my questions I. Appreciate the time just one question for me.
Wanted to ask in terms of what are you seeing in terms of advanced functionality uptake.
Not me, saying I don't think you've disclosed on the prepared remarks, but just wondering if you can give us some color in terms of what adoption looks like and how we should be thinking about.
Future adoption from here, just given the uncertainty in the macro and kind of additional scrutiny on budgets.
Yes so.
Or the advanced functionality continues to be a bigger and bigger portion of the overall revenue stream.
So continues to grow faster than the overall business in there that's an area, where where we are seeing those up sells and up sell opportunities but were.
Executing against those and are excited about the value that we're able to provide to customers in those scenarios.
Alright, perfect. Thank you.
One moment for our next question.
Our next question comes from Parker Lane with Stifel. Your line is open.
Hi, guys. Thanks for taking the questions Henry you called out a material improvement in the $1 million cohort of customers quarter over quarter. I was wondering if you can give us a sense of the composition of those customers from a vertical perspective.
Product perspective, and then just on average how long have they been working with zoom into or are you starting to see more opportunities present themselves and that $1 million plus range from the onset or are these long standing customers.
Yes, so these are longer standing customers.
And that is strategically we want to bring customers.
We want to bring prospects into being customer then and then expand them from there and it's a pretty diverse group of companies that moved in there.
The textile rental company Tech company, a number of financial services companies a couple of Fintech companies, that's kind of how to think about that cohort and look I think one of the things that we are.
Really excited about is bringing Dave Justice and as Chief revenue officer to help us really build the methodology the process.
To go upmarket to go up market.
And a higher velocity more predictable way and so we expect that motion Tech continued.
Kris and that will continue to find companies to move into that cohort.
Got it.
And then Kevin one quick follow up for you just a housekeeping question here in the context of your Unlevered free cash flow guidance any change to the underlying assumption of $450 million plus reported free cash flow.
No.
It remains unchanged.
Got it thank you.
Okay.
One moment for our next question.
Our next question comes from city <unk> with Mizuho. Your line is open.
Thanks for taking my question I wanted to ask your confidence level and new business sales that you embedded in your 2020 guidance. So what's your.
To improve your top down selling motion.
So we continue to have.
Good confidence in the new sales assumption in fact.
Given that we outperformed in Q1, I think that gives us even greater confidence with respect to that.
Certainly we've always been very focused on ensuring high efficiency with respect to that team and we're continuing to invest in more capacity.
One of the things that I think is.
Really good underlying fact with respect to the new sales motion is that it is more of a.
Diversified customer set that we can go after if you think about any business that sells to another business. We can really focus on those businesses that are investing in their go to market motions and where they can draw.
Benefits for their company, which means that we're not really constrained by one industry or another being.
More impacted by the macroeconomic environment, we've seen that.
In different stages of the economic environment, that's happening with <unk>.
Seen that that's rotated around a little and we've been able to take advantage of continued new sales activity in different industries.
Thank you Tamara.
Yep.
One moment for our next question.
Our next question comes from DJ Hynes with Canaccord Genuity. Your line is open.
Hey, guys at Cameron can you talk about what Youre seeing in terms of pricing on like for like renewals I'm just curious if.
The threat of kind of lower price lower quality alternatives is creating any pressure on the renewal cycle.
We don't tend to see that in the renewal cycle, except for at the very low end of customers. So <unk>.
Small businesses that are cash strapped or having issues or whatever else.
If they are willing to downgrade the quality of product that they're getting.
Some cases, they can go out and find another provider that could give them.
Lower price, but for for many of our customers and particularly the larger customers.
Aren't willing to take that quality hit in order to.
In order to Payless, so while there is some pressure, particularly at the lower end.
Most of the call it change in renewal on the downside comes from people, either taking out seats or taking out functionality or reducing.
The value that they're getting from us.
Yes that tends to happen a little bit more today and kind of the software world, where we're seeing layoffs, but we don't we don't see.
Kind of typical down cell, where people are just coming in and asking for more price because the alternative.
Isn't there from a quality perspective.
Okay, that's good to hear.
And then Henry on for you. So you talked a little bit about <unk>.
And in answer to an earlier question I saw zoom into light in the earnings deck is that product intended to be kind of more of a foot in the door that leads to a more formal sales process or is that is that a product that can kind of stand alone at the low end of the market. How are you thinking about it strategically.
Yeah. Thanks for the question I think we're thinking about it in both ways.
There are.
Small businesses that can come in and transact and get limited version of zoom into light through the zoom into light offering and then we're also using it as an opportunity to see where.
Multiple people at companies come in sign up for zoom into light at maybe a mid market or an enterprise company that gives us an opportunity to get into a direct sales cycle with their leadership and then sell a broader agreements to the full zoom info.
Advance our elite packages.
And then in addition to that the.
Underlying technology that we're building to be able to drive zoom into light will also give us the ability to auto provision enterprise users to be able to charge enterprise customers in a seamless way directly within the platform and so we get multiple benefits from the technology that we're building and then in the actual.
<unk> motion I think we're going to capture both down market customers that we wouldn't get to international customers that we wouldn't get through to with our regular demand funnel and then also mid market and enterprise companies that we can.
Users that we can then leverage into larger agreement.
Got it helpful color. Thank you guys.
One moment for our next question.
Our next question comes from Terry Tillman with true Securities. Your line is open.
Great. This is Joe Meares on for Terry Tillman and I appreciate you taking the questions.
Can you just mentioned that.
Most of the change on our renewals and the downside is coming from.
Taking out seats or removing functionality I'm just curious if there are any.
Pieces of functionality that are more resilient or ones that are more likely to be taken out.
Well I would say look in a time, where our customers are actually.
Laying off members of their sales teams then the user seats tend to be more in flux from a downside perspective. So if I, let go up 10% of my go to market sales force than that 10% I'm not going to want to pay licenses forgoing going forward and so you've seen that happen.
During during the renewal cycles, I would say that where a customer is leveraging advanced functionality, where a customer is leveraging our workflow solution using our das solution plugged into their systems of record those or you're very very difficult to unplug and theyre not user base.
Just.
No.
Does too.
Super helpful answer.
Just as a follow up I think you recently introduced the ability to bring in outside intent sources.
Uh huh.
Onto department from GE to and then similarly, you've updated the platform's ability to engage customers intent from websites. So I'm just curious of any usage.
You may have seen here are like early early customer successes. Thanks, so much.
Yes, I think the first integration with <unk> was one of our fastest adopting integrations, but really it sets the stage for where we see the platform going which is a platform that can plug in data sort unique data or niche data sources from anywhere marry that with zubin posed to third party.
Data allow you to marry that with your first party data that we're pulling in through your CRM and marketing automation system, and then build workflow across the intersection of that data, which we think is really exciting and.
And we think that that is the future of what modernized go to market will look like.
Thanks again.
Great and I'm showing no for joining.
Alright.
Thank you everyone for joining US Tonight, we look forward to seeing you at one of our many upcoming in person or virtual investor events. Thank you.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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