Q2 2024 ZoomInfo Technologies Inc Earnings Call

Speaker Change: Good day and thank you for standing by. Welcome to the ZoomInfo Second Quarter 2024 Financial Results Conference Call.

Operator: Conference Call. At this time, all participants are in a listen-only mode.

Speaker Change: At this time, all participants are in a listen-only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advise your hand is raised.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jerry Sisitsky, Investor Relations. Please go ahead.

Speaker Change: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jerry Sisitsky, Investor Relations. Please go ahead.

Jerry Sisitsky: Thanks, Amy. Welcome to ZoomInfo's financial results conference call for the second quarter of 2024. With me on the call today are Henry Schuck, founder and CEO of ZoomInfo, Cameron Hyzer, our CFO, and Graham O'Brien, who will become our interim CFO. After Henry and Cameron's remarks, we'll 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 law. 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 historical facts are intended to identify forward-looking statements.

Graham O'Brien: Thanks, Amy. Welcome to ZoomInfo's financial results conference call for the second quarter 2024. With me on the call today are Henry Schuck, founder and CEO of ZoomInfo, Cameron Hyzer, our CFO , and Graham O'Brien, who will become our interim CFO .

Jerry Sisitsky: Forward-looking statements involve a number of risks and uncertainties, including those discussed in the risk factor sections of our SEC filing. The actual results may differ materially from any forward-looking statement. 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 forward-looking statements in the slides posted on our Investor Relations website at ir.zoominfo.com.

Speaker Change: After Henry and Cameron's remarks, we'll open the call to Q&A.

Speaker Change: During this call any forward-looking statements are made pursuant to the safe harbor provisions of U.S. securities laws.

Speaker Change: 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

Speaker Change: and expressions which reflect something other than historical facts are intended to identify forward-looking statements.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: For more information, please refer to the forward-looking statements in the slides posted to our investor relations website at ir.zoominfo.com

Jerry Sisitsky: All metrics on this call are non-GAAP unless otherwise noted. A reconciliation can be found in the financial results press release or in the slides posted to our IR website. With that, I'll turn the call over to Henry.

Speaker Change: All metrics on this call are non-GAAP unless otherwise noted. A reconciliation can be found in the financial results press release or in the slides posted to our IR website. With that, I'll turn the call over to Henry.

Henry Schuck: Thank you, Jerry, and welcome everyone. Let me start by discussing our financial results this quarter. In Q2, we saw a level of write-offs related to prior period sales that was higher than we had previously seen or had estimated for the quarter, particularly with SMVs. As a result, we conducted a comprehensive review culminating in a charge in Q2.

Henry: Thank you, Jerry, and welcome everyone. Let me start by discussing our financial results this quarter.

Speaker Change: In Q2, we saw a level of write-offs related to prior period sales that was higher than we had previously seen or had estimated for the quarter, particularly with SMBs.

Henry Schuck: And we accelerated operational changes around selling to small businesses, all of which we expect to reduce the volatility around future write-offs. We have revised our estimates for the collectability of a portion of previously recognized revenue, which led us to take a $33 million charge in the quarter. And as a result, we are revising our full-year guidance. Excluding this charge, our results would have been more in line with our guidance for the second quarter.

Henry: As a result, we conducted a comprehensive review culminating in a charge in Q2, and we accelerated operational changes around selling to small businesses, all of which we expect to reduce the volatility around future write-offs.

Henry: We have revised our estimates for the collectability of a portion of previously recognized revenue, which has led us to take a $33 million charge in the quarter, and as a result, we are revising our full-year guidance.

Henry: Excluding this charge, our results would have been more in line with our guidance for the second quarter.

Henry Schuck: Inclusive of this charge, gap revenue for the second quarter was $292 million, and adjusted operating income was $82 million, a margin of 28%. Our free cash flow was not impacted by this non-cash charge. The underlying driver for the high write-off rate is that, in 2022 and 2023, we extended credit to a higher mix of SMB customers, and the rate of non-payment by these customers increased throughout the past 24 months. Accordingly, we have made changes to the way we sell, renew, and service these clients. In April, we deployed a new business risk model to flag and require prepayment from prospects at the greatest risk of nonpayment.

Henry: Inclusive of this charge, gap revenue for the second quarter was $292 million and adjusted operating income was $82 million, a margin of 28%. Our free cash flow was not impacted by this non-cash charge.

Henry: The underlying driver for the high write-off rate is that in 2022 and 2023, we extended credit to a higher mix of SMB customers, and the rate of non-payment by these customers increased throughout the past 24 months.

Henry: Accordingly, we have made changes to the way we sell, renew, and service these clients. In April , we deployed a new business risk model to flag and require prepayment from prospects at the greatest risk of non-payment.

Henry Schuck: This move mitigates the risk of future write-offs and represents an investment in the long-term health of our business. By creating some new business ACV for higher quality bookings and focusing our efforts on customers more likely to pay, renew, and grow with us over time. We transacted $11 million of ACV and Q2 through upfront prepayments, and with our new model in place, we turned away a meaningful amount of new business from smaller, riskier organizations. I am disappointed that this charge has impacted our financial results.

Henry: This move mitigates the risk of future write-offs and represents an investment in the long-term health of our business, trading some new business ACV for higher quality bookings and focusing our efforts on customers more likely to pay, renew, and grow with us over time.

Henry: We transacted $11 million of ACV and Q2 through upfront prepayments, and with our new model in place, we turned away a meaningful amount of new business from smaller, riskier organizations.

Henry Schuck: We believe this charge puts the long tail of these challenges behind us and lets us focus on the operational improvements we have been seeing in the business, which, as I will describe, have positioned the company for future success. There were a number of fundamental improvements we saw this quarter. As you know, our focus over the past year has been to move upmarket, stabilize and improve net revenue retention, and launch and monetize ZoomInfo Copilot.

Speaker Change: I am disappointed that this charge has impacted our financial results.

Speaker Change: We believe this charge puts the long tail of these challenges behind us and lets us focus on the operational improvements we have been seeing in the business, which, as I will describe, has positioned the company for future success.

Speaker Change: There were a number of fundamental improvements we saw this quarter. As you know, our focus over the past year has been to move up market, stabilize and improve net revenue retention, and launch and monetize ZoomInfo Copilot.

Henry Schuck: With our investment upmarket, Q2 was the best new business quarter in both the mid-market and enterprise ever. We meaningfully grew our $100,000 ACV customer cohort in both size and total ACV. This is the first time we've seen sequential growth in 100K customers since Q4 of 2022. This customer cohort now makes up 43% of our ACV. And we again grew our million dollar plus customer cohort on a sequential basis with the most new million dollar plus customers since Q4 of 2022.

Speaker Change: With our investment upmarket, Q2 was the best new business quarter in both the mid-market and enterprise ever.

Speaker Change: We meaningfully grew our $100,000 ACV customer cohort in both size and total ACV, the first time we've seen sequential growth in 100K customers since Q4 of 2022.

Speaker Change: This customer cohort now makes up 43% of our ACV.

Speaker Change: And we again grew our million dollar plus customer cohort on a sequential basis with the most new million dollar plus customers since Q4 of 2022.

Henry Schuck: ACV growth for million-dollar customers accelerated this quarter and is up 17% year-over-year. Reflecting these trends in aggregate, Enterprise ACV was up 9% year over year, and overall Net New ARR was the best it has been in four quarters.

Speaker Change: ACV growth for million-dollar customers accelerated this quarter and is up 17% year-over-year.

Speaker Change: Reflecting these trends in aggregate, Enterprise ACV was up 9% year-over-year and overall Net New ARR was the best it has been in four quarters.

Henry Schuck: This quarter was the first one since Q4 2021 where we saw net retention rates stabilize, which is an important milestone driven by stabilization of renewal rates and improvement on upsells. Over time, we expect to return to structurally higher levels of NRR through improving fundamentals and mixed shift as we grow our upmarket business. During the quarter, we closed transactions with leading organizations such as PwC.

Speaker Change: This quarter was the first one since Q4 2021 where we saw net retention rates stabilize, which is an important milestone driven by stabilization of renewal rates and improvement on upsells.

Speaker Change: Over time, we expect to return to structurally higher levels of NRR through improving fundamentals and mix shift as we grow our upmarket business.

Speaker Change: During the quarter, we closed transactions with leading organizations such as PWC, Deutsche Bank, Morningstar, and Manulife, and we also signed our largest ever new business transaction.

Henry Schuck: Deutsche Bank, Morningstar, and Manulife, and we also signed our largest ever new business transaction. This customer is one of the largest employers in the United States. And they saw our solution, rich in data, data compliance, and data integration capabilities, as mission critical to their B2B movement. With a solution that matched their exacting needs, we had what one of their employees described as the fastest moving contract in their history. This new business deal represents $1.4 million in ACV with a three-year commitment.

Speaker Change: This customer is one of the largest employers in the United States and they saw our solution rich in data, data compliance, and data integration capabilities as mission critical to their B2B motion.

Speaker Change: With a solution that matched their exacting needs, we had what one of their employees described as the fastest moving contract in their history.

Speaker Change: This new business deal represents $1.4 million of ACV with a three-year commitment.

Henry Schuck: Our operations and data as a service offerings, which are often used to help underpin a company's investment in AI, are also delivering results up 23% year over year and demonstrating strong 117% net retention rates, now representing 13% of our ACV. As companies look to invest in AI initiatives, they need a solid foundation of highly accurate data, and we are steadily becoming the source for that. Representative of that, we closed our first data as a service opportunity in EMEA to support a global network that allows financial institutions to send and receive secure messages and information about financial transactions. Leveraging ZoomInfo's data, the organization's operational and engineering teams are building an internal AI solution to identify fraudulent transactions.

Speaker Change: Our operations and data-as-a-service offerings, which are often used to help underpin a company's investment in AI, are also delivering results.

Speaker Change: Up 23% year-over-year and demonstrating strong 117% net retention rates, now representing 13% of our ACV.

Speaker Change: As companies look to invest in AI initiatives, they need a solid foundation of highly accurate data and we are steadily becoming the source for that.

Speaker Change: Representative of that, we closed our first data as a service opportunity in EMEA to support a global network that allows financial institutions to send and receive secure messages and information about financial transactions.

Speaker Change: Leveraging ZoomInfo's data, the organization's operational and engineering teams are building an internal AI solution to identify fraudulent transactions.

Henry Schuck: This is just one of the many ways that customers are able to use our data to continue to innovate their world-class business solutions. In June, Google announced ZoomInfo as a key partner in its strategy to make generative AI more reliable and accurate for enterprise use. Google selected us because of our specific, trusted, and authoritative data set. The end goal is to help enterprises integrate more accurate data into their AI models and give users more relevant responses and a better experience.

Speaker Change: This is just one of the many ways that customers are able to use our data to continue to innovate their world-class business solutions.

Speaker Change: In June , Google announced ZoomInfo as a key partner in its strategy to make generative AI more reliable and accurate for enterprise use.

Speaker Change: Google selected us because of our specific, trusted, and authoritative datasets.

Speaker Change: The end goal is to help enterprises integrate more accurate data into their AI models and give users more relevant responses and better experiences.

Henry Schuck: The past 12 months have marked one of the most innovative periods in our company's history, as we successfully launched ZoomInfo Copilot, our AI-powered offering that combines our best-in-class proprietary data set with first-party data from our customers' sales and marketing systems, and digital buying signals to offer sales teams the best insight about their buying. June was our first full month selling Copilot, and it performed solidly above our expectations. We now have more than $18 million in co-pilot ACV across more than 1000 logos, up from nothing just a few months ago. And we already see material improvements in engagement and utilization rates across co-pilot users. Improvements in these rates have historically been closely correlated with renewal and retention rates.

Speaker Change: The past 12 months have marked one of the most innovative periods in our company's history. As we successfully launched ZoomInfo CoPilot, our AI-powered offering that combines our best-in-class proprietary dataset with first-party data from our customers' sales and marketing systems,

Speaker Change: and Digital Buying Signals to offer sales teams the best insight about their buyers.

Speaker Change: June was our first full month selling co-pilot, and it performed solidly above our expectations.

Speaker Change: We now have more than $18 million of co-pilot ACV across more than 1,000 logos, up from nothing just a few months ago.

Speaker Change: And we already see material improvements in engagement and utilization rates across co-pilot users.

Speaker Change: Improvements in these rates have historically been closely correlated to renewal and retention rates.

Henry Schuck: Early signs show that Copilot is expanding our value beyond the top of the funnel to support go-to-market teams along the entirety of the funnel. And by doing so, it expands our value proposition from sales and sales development to account executives, account managers, customer success managers, and revenue leadership. Our commitment to unmatched proprietary third-party data and signals, a growing ecosystem, and continuous investments in AI continues to feed an aggressive co-pilot roadmap. That roadmap is driving excitement across our customer base and new customer conversations. Over 75% of our co-pilot upsells were with mid-market or enterprise accounts.

Speaker Change: Early signs show that Copilot is expanding our value beyond top of funnel to support go-to-market teams along the entirety of the funnel.

Speaker Change: and by doing so it expands our value proposition from sales and sales development to account executives, account managers, customer success managers, and revenue leadership.

Speaker Change: Our commitment to unmatched, proprietary, third-party data and signals, a growing ecosystem, and continuous investments in AI continues to feed an aggressive co-pilot roadmap.

Speaker Change: That roadmap is driving excitement across our customer base and in new customer conversations.

Speaker Change: Over 75% of our co-pilot upsells were with mid-market or enterprise accounts.

Henry Schuck: With the traction we're seeing on co-pilot and our operations and data as a service products, we believe we'll be able to continue to win new customers and increase upsells to our existing base, a key driver of net retention. Today, we also announced several changes at the board level. We thank Todd Crockett for his many years of service representing TA Associates on our board of directors, and we appreciate the positive impact he has had on the trajectory of the company.

Speaker Change: With the traction we're seeing on CoPilot and our operations and data as a service products, we believe we'll be able to continue to win new customers and increase upsells to our existing base, a key driver of net retention.

Speaker Change: Today we also announced several changes at the board level. We thank Todd Crockett for his many years of service representing TA Associates on our board of directors and we appreciate the positive impact he has had on the trajectory of the company.

Henry Schuck: We welcome our newest board members, who we believe will be immediately additive in helping us execute our growth strategy. Dominic Maida is a seasoned operating executive with experience leading scale businesses and a very strong background in data and platform. Dom spent 25 years at Bloomberg, where, at different times, he ran the terminal business, all of engineering, and was chief data officer.

Speaker Change: We welcome our newest board members who we believe will be immediately additive in helping us execute our growth strategy.

Speaker Change: Dominic Maida is a seasoned operating executive with experience leading scaled businesses and a very strong background in data and platforms.

Speaker Change: Dom spent 25 plus years at Bloomberg, where at different times he ran the terminal business, all of engineering, and was Chief Data Officer.

Henry Schuck: And we also welcome Owen Wurtzbacher, the Chief Investment Officer of High Stage Ventures, who brings a strong public equity investor perspective and capital markets background to our board. Over the last several years, we have rebuilt our executive team, expanded our bench, built great products, leaned into AI, and diversified the leadership skills underpinning our board. We are focused on bringing in healthier new business relationships and double down on our enterprise relationships, where we know we have upside opportunities in the future.

Speaker Change: And we also welcome Owen Wurzbacher, the Chief Investment Officer of High Stage Ventures, who brings a strong public equity investor perspective and capital markets background to our board.

Speaker Change: Over the last several years, we have rebuilt our executive team, expanded our bench, built great products, leaned into AI, and diversified the leadership skills underpinning our board.

Speaker Change: We have focused on bringing in healthier new business, relationships, and doubled down on our enterprise relationships, where we know we have upside opportunities in the future.

Henry Schuck: And over the past four quarters, we have retired more than 39 million shares of ZoomInfo, approximately 10% of total shares outstanding. We will continue to run this business efficiently while repurchasing shares. We had 400 We have $400 million in an existing share repurchase authorization remaining as of June 30.

Speaker Change: And over the past four quarters, we have retired more than 39 million shares of ZoomInfo, approximately 10% of total shares outstanding.

Henry Schuck: And we anticipate aggressively deploying that. When you combine our strong, continued strong cash generation with ongoing share count reductions, we believe the company will generate at least $1 of levered free cash flow per share this year and that we will grow that number meaningfully in 2025. I recognize that our positive operating momentum is overshadowed by the change in estimates we announced today and the increased conservatism around our guidance. Our intention is to fully put these challenges behind us and share the details that you need to understand our financial profile while also highlighting our commitment to growing free cash flow per share. To that end, I intend to be a meaningful personal buyer of ZoomInfo stock as well.

Speaker Change: We will continue to run this business efficiently while repurchasing shares.

Speaker Change: We have $400 million in an existing share repurchase authorization remaining as of June 30th, and we anticipate aggressively deploying that.

Speaker Change: When you combine our strong, our continued strong cash generation with ongoing share count reduction, we believe the company will do at least $1 of levered free cash flow per share this year, and that we will grow that number meaningfully in 2025.

Speaker Change: I recognize that our positive operating momentum is overshadowed by the change in estimates we announced today and the increased conservatism around our guidance.

Speaker Change: Our intention is to fully put these challenges behind us and share the details that you need to understand our financial profile, while also highlighting our commitment to growing free cash flow per share.

Henry Schuck: Before I hand it over to Cameron to discuss the results in greater detail, I want to touch on the leadership news we announced this afternoon. As you saw from our announcement, Cameron will be transitioning from his role as Chief Financial Officer. He will stay with us over the next few months to help ensure a smooth transition. Cameron, you've been a great partner to me personally and the business over the last nearly six years.

Speaker Change: To that end, I intend to be a meaningful personal buyer of ZoomInfo stock as well.

Speaker Change: Before I hand it over to Cameron to discuss the results in greater detail, I want to touch on the leadership news we announced this afternoon.

Speaker Change: As you saw from our announcement, Cameron will be transitioning from his role as Chief Financial Officer.

Speaker Change: He will stay with us over the next few months to help ensure a smooth transition.

Speaker Change: Cameron, you've been a great partner to me personally and the business over the last nearly six years. And on behalf of myself and the entire company, I want to thank you for your many contributions and to wish you all the best.

Henry Schuck: And on behalf of myself and the entire company, I want to thank you for your many contributions and to wish you all the best. We've initiated a search for a permanent successor and are fortunate to have a deep bench of talent throughout our finance organization during this transition period. Graham O'Brien, our VP of FP&A, will take on the interim CFO role. Graham is intimately familiar with our strategic and financial growth plans, and we are confident this will be a seamless handoff. With the charges booked, we now start with a clean slate. With that, I'll turn the call over to Cameron.

Speaker Change: We've initiated a search for a permanent successor and are fortunate to have a deep bench of talent throughout our finance organization during this transition period.

Speaker Change: Graham O'Brien, our VP of FP&A, will take on the interim CFO role.

Speaker Change: Graham is intimately familiar with our strategic and financial growth plans, and we are confident this will be a seamless handoff.

Speaker Change: With the charge booked, we now start with the clean slate. With that, I'll turn the call over to Cameron.

Cameron Hyzer: Before turning to our results, I do want to say a few words about leaving. First, I want to thank the entire ZoomInfo team and the board for their partnership throughout. Over the years, we've achieved impressive growth with strong margins and free cash flow generation. We've navigated numerous challenges together, and I'm proud of what we have. I have full confidence in the future of ZoomInfo, and I'm excited to see the company continue to innovate and lead in the market. Our financial health and strategic direction remain strong thanks to the collaborative efforts of our talented team and leaders. Thank you for the support and trust you've placed in me.

Cameron: Thank you, Henry.

Cameron: Before turning to our results, I do want to say a few words about leaving ZoomInfo.

Cameron: First, I want to thank the entire ZoomInfo team and the board for their partnership throughout my tenure.

Cameron: Over the years, we've achieved impressive growth with strong margins and free cash flow generation. We've navigated numerous challenges together, and I'm proud of what we've accomplished.

Cameron: I have full confidence in the future of ZoomInfo and I'm excited to see the company continue to innovate and lead in the market. Our financial health and strategic direction remain strong thanks to the collaborative efforts of our talented team and leadership.

Cameron Hyzer: I look forward to tracking ZoomInfo's continued growth. Now, turning to our results. We have implemented a number of operational improvements to reduce the impact of riders. In Q2, we continued this progress by requiring riskier and smaller customers to pay by credit card or ACH prior to gaining access to the platform, and segmenting our new sales team to drive more enterprise and mid-market. As part of these improvements, we have increased our visibility and re-evaluated our accounting. We were disappointed and surprised to determine that our prior estimates for non-payment from customers needed to be increased.

Cameron: Thank you for the support and trust you've placed in me. I look forward to tracking ZoomInfo's continued success.

Speaker Change: Now, turning to our results, we have implemented a number of operational improvements to reduce the impact of RIDOS.

Speaker Change: In Q2, we continued this progress by requiring riskier and smaller customers to pay by credit card or ACH prior to gaining access to the platform.

Speaker Change: and segmenting our new sales team to drive more enterprise and mid-market business.

Speaker Change: As part of these improvements, we have increased our visibility and re-evaluated our accounting estimates.

Speaker Change: We were disappointed and surprised to determine that our prior estimates for non-payment from customers needed to be increased in order to account for escalating write-offs that we incurred in June , as well as additional write-offs that we now expect.

Cameron Hyzer: In order to account for escalating write-offs that we incurred in June, as well as additional write-offs that we now incur. This change in estimates, combined with other discrete charges, resulted in a total $33 million dollar charge in Q2, of which $15 million dollars reduced revenue, $14 million dollars increased our bad debt expense, and $4 million dollars increased other, The change in estimates relates to previously recognized revenue primarily from 2023 and includes sufficient reserves to cover potential non-payment on our current receivables and related revenue recognized, With these one-time charges, we delivered gap revenue of $292 million and adjusted operating income of $82 million, which represents a margin of 28%.

Speaker Change: This change in estimates, combined with other discrete charges, resulted in a total $33 million dollar charge in Q2, of which $15 million dollars reduced revenue, $14 million dollars increased our bad debt expense, and $4 million dollars increased other expenses.

Speaker Change: The change in estimates relates to previously recognized revenue, primarily from 2023, and includes sufficient reserves to cover potential non-payment on our current receivables and related revenue recognized to date.

Speaker Change: With these one-time charges, we delivered GAAP revenue of $292 million and adjusted operating income of $82 million, which represents a margin of 28%.

Cameron Hyzer: The underlying performance of the business excluding these charges would have indicated revenue of $307 million and adjusted operating income of $114 million. This GAAP accounting charge impacts revenue and profitability but does not impact cash flow. Unleveraged free cash flow for the quarter was $120 million. All of this chart reflects challenges associated with transactions we signed primarily in 2023.

Speaker Change: The underlying performance of the business excluding these charges would have indicated revenue of $307 million and adjusted operating income of $114 million.

Speaker Change: This gap accounting charge impacts revenue and profitability, but does not impact cash flow.

Speaker Change: Unlevered free cash flow for the quarter was 120 million dollars.

Speaker Change: While this chart reflects challenges associated with transactions we signed, primarily in 2023, changes in estimates are reflected under GAAP in the period when new information becomes available, which in this case is Q2 2024.

Cameron Hyzer: Changes in estimates are reflected under GAAP in the period when new information becomes available, which in this case is Q2 2021. We remain committed to driving high levels of profitability and growing free cash flow per share. We are taking steps to adjust our level of expense commitments to reflect current levels of growth. As a result, we took impairment charges in the quarter related to a number of existing facilities.

Speaker Change: We remain committed to driving high levels of profitability and growing free cash flow per share.

Speaker Change: And we are taking steps to adjust our level of expense commitments to reflect current levels of growth.

Speaker Change: As a result, we took impairment charges in the corridor related to a number of existing facilities.

Cameron Hyzer: Accounting for current market rates as we exit certain leases and consolidate our real estate footprint. In addition to the charges we were taking this quarter, in July, we restructured our Wealth and Lease Agreement, where we paid a $59 million termination fee, and we expect to recognize that $59 million in accelerated rent, reflected as restructuring costs over the next six months as we transition to a smaller footprint. In aggregate, we are eliminating 126,000 square feet of space and expect to sublease an additional 250,000 plus square feet, reducing our total overall facility footprint by approximately 40%.

Speaker Change: Accounting for current market rates as we exit certain leases and consolidate our real estate footprint.

Speaker Change: In addition to the charges we are taking this quarter, in July we restructured our Waltham lease agreement where we paid a $59 million termination fee and we expect to recognize that $59 million in accelerated rent expense

Speaker Change: reflected as restructuring costs over the next six months as we transition to a smaller footprint.

Speaker Change: In aggregate, we are eliminating 126,000 square feet of space and expect to sublease an additional 250,000 plus square feet, reducing our total overall facility footprint by approximately 40 percent.

Cameron Hyzer: Additionally, in July, we funded the $30 million settlement amount related to the right of publicity lawsuit. The final approval hearing is set for November, and we are looking forward to putting these lawsuits completely behind us.

Speaker Change: Additionally, in July , we funded the $30 million settlement amount related to the right of publicity lawsuits.

Speaker Change: following preliminary approval in June .

Speaker Change: The final approval hearing is set for November , and we are looking forward to putting these lawsuits completely behind us.

Cameron Hyzer: While we spent time in Q2 addressing historical deals and right-sizing our facilities, we're also seeing improvements in the underlying operations of the business. In Q2, we stabilized net revenue retention at 85%. And as Henry indicated, this is the best performance with respect to change in NRR since Q4 2021. Retention in our software vertical, where we've seen the most material decline over the last two years, stabilized in Q1 and improved in Q2 for the first time since 2000. From a reporting perspective, we are including CoPilot in advanced functionality.

Speaker Change: While we spent time in Q2 to address historical deals and right-size our facilities, we are also seeing improvements in the underlying operations of the business.

Speaker Change: In Q2, we stabilized net revenue retention at 85%, and as Henry indicated, this is the best performance with respect to change in NRR since Q4 2021.

Henry: Retention in our software vertical, where we've seen the most material decline over the last two years, stabilized in Q1 and improved in Q2 for the first time since 2021.

Cameron Hyzer: Advanced functionality has grown to a third of our overall ACV in 2023. And in Q2, it increased to 35% of overall ACV as we experienced early traction from CoPilot and drove growth in our operations and marketing solutions. Operating cash flow in Q2 was $126 million, up from $116 million in Q1, and included approximately $3 million of interest. We completed a repricing of our first lien credit agreement to SOFR plus 175, which resulted in a 50 basis point reduction in interest and is expected to reduce our annual interest expense by approximately $3 million per year.

Henry: From a reporting perspective, we are including Copilot in Advanced Functionality.

Speaker Change: Advanced Functionality had grown to a third of our overall ACV in 2023, and in Q2 it increased to 35% of overall ACV as we experienced early traction from CoPilot and drove growth in our operations and marketing solutions.

Speaker Change: Operating cash flow in Q2 was $126 million, up from $116 million in Q1, and included approximately $3 million of interest payments.

Speaker Change: We completed a repricing of our first lien credit agreement to SOFR plus 175, which resulted in a 50 basis point reduction in interest, and is expected to reduce our annual interest expense by approximately $3 million per year.

Cameron Hyzer: Unlevered free cash flow for the quarter was $120 million. We ended the quarter with $399 million in cash, cash equivalents, and short-term investments. We carried $1.24 billion in gross debt, the vast majority of which has fixed or hedged interest rates through 2020. During the quarter, we repurchased $10.8 million shares of ZoomInfo stock for $147 million.

Speaker Change: Unlevered free cash flow for the quarter was $120 million.

Speaker Change: We ended the quarter with $399 million in cash, cash equivalents, and short-term investments, and we carried $1.24 billion in gross debt, the vast majority of which has fixed or hedged interest rates through 2025.

Cameron Hyzer: And, as Henry indicated, we had $400 million of existing capacity remaining as of June 30, which we anticipate aggressively deploying. Our net leverage ratio is 1.8 times trailing 12 months adjusted EBITDA and 1.8 times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit facility. With respect to liabilities and future performance obligations, unearned revenue at the end of Q2 was $440 million, and remaining performance obligations, or RPO, were $1.13 billion, of which $830 million are expected to be delivered in the next 12 months.

Speaker Change: During the quarter, we repurchased

Speaker Change: 10.8 million shares of ZoomInfo stock for $147 million, and as Henry indicated, we had $400 million of existing capacity remaining as of June 30th that we anticipate aggressively deploying.

Henry: Our net leverage ratio is 1.8 times trailing 12 months adjusted EBITDA and 1.8 times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements.

Speaker Change: With respect to liabilities and future performance obligations, unearned revenue at the end of Q2 was $440 million, and remaining performance obligations, or RPO, were $1.13 billion, of which $830 million are expected to be delivered in the next 12 months.

Cameron Hyzer: There are obviously a number of moving pieces with respect to accounting this quarter. We took this action to create a fresh slate for the business and position the company for long-term growth and profitability, with a focus on consistently growing free cash flow per share. Looking out to Q3 and the remainder of 2024, our guidance incorporates the impact of today's charge and increased conservatism related to our operating performance. With that, let me turn to guidance for Q3.

Speaker Change: There are obviously a number of moving pieces with respect to accounting this quarter. We took this action to create a fresh slate for the business and position the company for long-term growth and profitability with a focus on consistently growing free cash flow per share.

Speaker Change: Looking out to Q3 and the remainder of 2024, our guidance incorporates the impact from today's charge and increased conservatism related to our operating performance.

Cameron Hyzer: We expect GAAP revenue in the range of $298 to $301 million, Adjusted Operating Income in the range of $107 to $109 million, and non-GAAP net income in the range of 21 to 22 cents per share. For the full year 2024, we now expect revenue in the range of $1.19 to $1.205 billion and adjusted operating income in the range of $412 to $418 million. We expect non-GAAP net income in the range of 86 to 88 cents per share based on 375 million weighted average diluted shares.

Speaker Change: With that, let me turn to guidance for Q3.

Speaker Change: We expect GAAP revenue in the range of $298 to $301 million.

Speaker Change: Adjusted Operating Income in the range of $107 to $109 million Non-Gap Net Income in the range of $0.21 to $0.22 per share

Speaker Change: For the full year 2024, we now expect gap revenue in the range of $1.19 to $1.205 billion, and adjusted operating income in the range of $412 to $418 million.

Speaker Change: We expect non-GAAP net income in the range of $0.86 to $0.88 per share based on 375 million weighted average diluted shares outstanding.

Cameron Hyzer: We expect undeliverable free cash flow in the range of $420 to $430 million, which, consistent with historical reporting, excludes the impact of restructuring and settlement payments. Our full year guidance implies negative 3% revenue growth and 35% adjusted operating margin at the midpoint of our guidance range, inclusive of the second quarter charges. We are as committed as ever to driving efficient operations and, excluding the discrete items impacting this quarter, our guidance indicates an adjusted operating margin of 37% for the year.

Speaker Change: We expect unlivered free cash flow in the range of $420 to $430 million, which, consistent with historical reporting, excludes the impact of restructuring and settlement payments.

Speaker Change: Our full year guidance implies negative 3% revenue growth and 35% adjusted operating margin at the midpoint of our guidance range, inclusive of the second quarter charges.

Speaker Change: We are as committed to ever to driving efficient operations and excluding the discrete items impacting this quarter. Our guidance indicates adjusted operating margin for 37% for the year.

Cameron Hyzer: We expect to grow annual margins from here. And as Henry noted, we view $1 per share of levered free cash flow as a floor on which we can build and compound growth into the future. We're also mindful of the share count, and we have continued the shift to performance-based equity grants triggered on free cash flow per share growth, as we believe it is important to align the shares issued to executives with business performance and shareholder value creation.

Speaker Change: We expect to grow annual margins from here, and as Henry noted, we view $1 per share of levered free cash flow as a floor on which we can build and compound growth into the future.

Henry: We are also mindful of share count, and we have continued the shift to performance-based equity grants triggered on free cash flow per share growth, as we believe it is important to align the shares issued to executives with business performance and shareholder value creation.

Cameron Hyzer: Finally, please note that in the top half of our guidance range, the sequential revenue growth implied in the fourth quarter is roughly flat to down 1%. We believe that this is the most indicative view of our trajectory as we exit 2020. With that, I turn it over to the operator to open the call.

Speaker Change: Finally, please note that in the top half of our guidance range, the sequential revenue growth implied in the fourth quarter is roughly flat to down 1%. We believe that this is the most indicative view of our trajectory as we exit 2024.

Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: With that, let me turn it over to the operator to open the call for questions.

Speaker Change: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please be sure to limit to one question and one question only. Please stand by while we compile the Q&A roster.

Operator: Please be sure to limit your question to one and one question only. Please stand by while we compile the Q&A roster. And our first question comes from the line of Elizabeth Porter of Morgan & Stanley. Your line is open.

Speaker Change: And our first question comes from the line of Elizabeth Porter of Morgan & Stanley. Your line is open.

Speaker Change: Great, thank you so much for the question.

Elizabeth Porter: After Q2, the view was that we should largely be through the renewal risk, which has pressured the business for a while now. So I'm just hoping to get a better understanding of the decline for the back half of the year.

Speaker Change: You know, are you assuming a second round of down sells or has new business outlook changed materially? So if we could just get some color on kind of where the incremental pressure is coming from and the assumption on NRR in the back half of the earth, that'd be great. Thank you.

Cameron Hyzer: Sure. Thanks, Elizabeth.

Henry Schuck: I think, you know, there are a variety of factors that go into the guidance as we think about it, and certainly, you know, we've elevated our assumptions with respect to continued write-off potential in the thought that the operational improvements that we've implemented probably won't really take hold until the end of this year, you know, more so the beginning of next year. Additionally, you know, The operating environment under which we're operating continues to be pretty fluid.

Elizabeth Porter: Sure. Thanks, Elizabeth.

Speaker Change: I think, you know, there are a variety of factors that go into the guidance as we think about it, and certainly, you know, we've elevated our assumptions with respect to continued write-off potential in the thought that the operational improvements that we've

Speaker Change: Implemented probably won't really take hold until the end of this year, you know, more so the beginning of next year. Additionally, you know, the

Henry Schuck: So we've inserted incremental conservatism with respect to the guidance. And I think that, you know, if you look out in the world, as we see it, there's a lot of uncertainty, both for companies, but also for the people making decisions in terms of growth. And I would just add here that when we

Speaker Change: Operating environment under which we're operating continues to be pretty fluid so we've inserted incremental conservatism with respect to the guidance and I think that

Speaker Change: You know, if you look out in the world as we see it, there's a lot of uncertainty, both for companies, but also for the people making decisions in terms of the growth of those companies.

Henry Schuck: And I would just add here that when we set the guidance here, what we wanted to make sure we did was to remove the volatility going forward in the business. And while we see a lot of operational improvements, I talked about growth in the 100k cohort, and stabilization of net retention for the first time in a number of years. We've seen improvement in our enterprise and upmarket business, but we're not assuming any of that trend continues in the back half of the year.

Speaker Change: And I would just add here, when we set the guidance here, our...

Speaker Change: What we wanted to make sure we did was to remove the volatility going forward in the business. And while we see a lot of operational improvements, I talked about growth in the 100k cohort, stabilization of net retention for the first time since in a number of years.

Henry Schuck: And we're assuming that even with the operational improvements that we've done around taking upfront prepayment from our customers and the move up market and new business, that those trends also don't have an impact on the write-off rates in the back half of the year as well.

Speaker Change: Improvement in our enterprise and upmarket business.

Speaker Change: We're not assuming any of that trend continues.

Speaker Change: in the back half of the year, and we're assuming that...

Speaker Change: Even with the operational improvements that we've done around taking upfront prepayment from our customers and the move-up market in new business, that those trends also don't, that those don't make an impact to the write-off rates in the back half of the year as well.

Operator: Our next question comes from the line of Mark Murphy of J.P. Morgan. Your line is open.

Speaker Change: Got it. Thank you.

Speaker Change: Our next question comes from the line of Mark Murphy of J.P. Morgan. Your line is open.

Henry Schuck: I'm curious if the volume of newly announced layoffs in the technology industry since June and July might have surprised you at all because, Henry, I think you just said that you weren't assuming that any of these improvements that you did see in Q2 are going to continue in the second half. So since then, we have had these announcements from UiPath and Intuit and Open Tech and Salesforce and Intel and others.

Mark Murphy: Thank you. I'm curious if the volume of newly announced layoffs of the technology industry since June and July might have surprised you at all because Henry, I think you just said that

Speaker Change: You're not assuming that any of these improvements that you did see in Q2 are going to continue in the second half. So we had these announcements from UiPath and Intuit and Open Tech and Salesforce and Intel.

Henry Schuck: And so I'm just curious if something is, you know, causing you to sense a second wave of layoffs that might be affecting go-to-market headcounts in the last, say, you know, five to five to eight weeks, a little more than you might have expected. And I have a quick follow-up.

Speaker Change: and others since then. And so I'm just curious if something is, you know, causing you to sense a second wave of layoffs that might be affecting go-to-market headcounts in the last

Speaker Change: You know say you know five to five to eight weeks a little more than you might have expected and I have a quick follow-up

Henry Schuck: I think the thing to remember about our business is, you know, two things. One, there is a meaningful portion of our business that's not seat-based, that is usage-based. We talked about the data as a service and operations OS business, which now makes up 13% of our ACV. That's not a seat or usage-based business, and it's also growing 23% year over year.

Speaker Change: The thing to remember about our business is, you know, two things. One, there is a meaningful portion of our business that's not seat-based.

Speaker Change: that is usage-based. We talked about the...

Speaker Change: Data-as-a-Service, and Operations OS Business.

Speaker Change: Which now makes up 13% of our ACV. That's not a seat or usage based business. It's also growing 23%.

Henry Schuck: And then on the seat-based part of our business, we are not fully penetrated across any of our, you know, really any of our enterprise or mid-market customers. And so we don't need the incremental seat from a hiring perspective to add to, for us to grow within our customer base. The other thing that I would add is one of the places where we're bullish about co-pilot is that it's expanding our use case beyond just top of the funnel prospecting to the full funnel.

Speaker Change: year over year. And then on the seat based part of our business, we are not fully penetrated across any of our, you know, really any of our enterprise or mid market customers.

Speaker Change: And so we don't need the incremental seat from a hiring perspective to add to, for us to grow within our customer base.

Speaker Change: The other thing that I would add there is one of the places where we're bullish about Copilot is that it's expanding our use case beyond just top-of-the-funnel prospecting.

Henry Schuck: And so we're now seeing open opportunities where we're bringing in sets of users that would otherwise or in the past pre-co-pilot were not customers of ours or were not users of ours. And so we have a lot of opportunity both from a usage-based perspective and from a seat-based perspective to grow despite layoffs in tech or shrinking go-to-market.

Speaker Change: to the full funnel. And so we're now seeing open opportunities.

Speaker Change: where we're bringing in...

Speaker Change: sets of users that would otherwise or in the past pre copilot were not customers of ours or were not users of ours. And so we have a lot of opportunity both from a usage based perspective, and from a seat based perspective to grow despite the

Speaker Change: despite layoffs in tech or shrinking go-to-market team.

Cameron Hyzer: Okay, and then Cameron, is it is it possible? Can you remind us of the non-collectability of receivables? How often is it stemming from business failures versus something like a contract dispute or, you know, a customer claiming that services were not provided? And then you did allude to some incremental write-off potential. I think going forward, is it possible to put any bounds on that and just help us understand? Have you factored something in there as an ongoing type of revenue offset in the second half, as you just saw in Q2?

Speaker Change: OK.

Speaker Change: And then, Cameron, is it possible, can you remind us on the non-collectibility of receivables?

Speaker Change: Well, how often is this stemming from business failures versus something like a contract dispute or, you know, a customer claiming that services were not provided? And then you did allude to some incremental write-off potential. I think going forward, is it possible to put any bounds on that and just help us understand?

Speaker Change: Have you factored something in there as an ongoing type of revenue offset in the second half as you just saw in Q2?

Cameron Hyzer: Yeah, so certainly, we have factored in continued escalation in terms of write-off rates. And, you know, the write-offs that we do see do stem from a number of different factors. Certainly, one of the larger ones is companies shutting down. And I think in a more challenging environment, an environment where access to capital is harder to get to, that is driving some of that increase.

Speaker Change: Yeah, so certainly we have factored in continued escalation in terms of write-off rates.

Speaker Change: You know, the write-offs that we do see do stem from a number of, you know, different factors.

Speaker Change: Certainly one of the larger ones is companies shutting down.

Speaker Change: I think in a more challenging environment and an environment where access to capital is harder to get to.

Cameron Hyzer: There are, you know, also instances where, particularly in small businesses, when customers don't feel that they've achieved the value that they thought they were going to, we end up in a level of dispute with them. And so, you know, I think in a world where it's harder to make sales, kind of getting that tangible value is also sometimes harder for them, and that escalation.

Speaker Change: that is driving some of that increase.

Speaker Change: There are, you know, also instances where

Speaker Change: You know, particularly in the small business, that when customers don't feel that they've, you know, achieved the value that they thought they were going to, that we end up in a

Speaker Change: in a level of dispute with them. And so, yeah, I think in a world where it's harder to make sales, getting that tangible value is also sometimes harder for them and that escalation.

Cameron Hyzer: So our view is that while we are making operational changes to, you know, impact this, largely requiring prepayment upfront from many of those smaller and riskier customers, as well as just generally shifting the business up market, we feel the prudent view is to assume that the write-off situation gets worse, particularly as there are questions about the strength of the economy over the next few years.

Speaker Change: So our view is is that

Speaker Change: While we are making operational changes to, you know, impact this, largely requiring prepayment up front from many of those smaller and riskier customers, as well as just generally shifting the business upmarket, we feel the, you know, prudent view is to

Speaker Change: Assume that the write-off situation gets worse, particularly as there are questions about the strength of the economy over the next few quarters.

Henry Schuck: So, Mark, I'll add here, too, that we did assume that the write-off rates, the escalated write-off rates, continued through the back half of the year. I think the biggest thing to remember here is that we extended credit to SMBs that were not creditworthy, and we've changed our practices now to require upfront prepayments against our riskier customers. And in the quarter, we had $11 million of our ACV transacted through upfront prepayments. That was up from $1 million in any of our previous quarters. And so we've made a commitment, both operationally and in the way that we estimate for these collectibles, to get rid of this type of volatility in our business.

Speaker Change: So, Mark, I'll add here, too, we did assume that the write-off rates, the escalated write-off rates continued through the back half of the year. I think the biggest, the big thing to remember here is

Speaker Change: You know, we extended credit to SMBs that were not credit worthy, and we've changed our practices now to require upfront prepayments against our riskier customers.

Speaker Change: And in the quarter, we had $11 million of our ACB transacted through upfront prepayments.

Speaker Change: That was up from a million dollars in any of our previous quarters. And so we've made a commitment both operationally and in the way that we estimate for these collectibles to get rid of this type of volatility in our business.

Operator: Understood. Thank you. Our next question comes from the line of Brad Zelnick of Deutsche Bank. Your line is open. Great, thanks so much for taking the question. Henry, it's no doubt a tough question.

Operator: Our next question comes from the line of Brad Zelnick of Deutsche Bank. Your line is open.

Speaker Change: Understood, thank you.

Speaker Change: Our next question comes from the line of Brad Zelnick of Deutsche Bank. Your line is open.

Brad Zelnick: Great, thanks so much for taking the question.

Brad Zelnick: Henry, it's no doubt a tough environment, and ZoomInfo has outsized exposure to some of the tougher segments of the market. But as we think about environment versus execution versus product market fit, how much of what we're seeing in the numbers do you feel is within your control? And maybe just a quick one for Cameron, Cam, can you comment on the pricing trends that you saw in the quarter? Thanks so much, guys.

Henry Schuck: I mean, I think that's actually the frustrating part about this quarter is that there is an incredible amount of operational improvement that we're seeing in the business. The 100k cohort growth, the first time we've seen that since Q4 of 2020. 22, Stabilization and Net Retention Rates. The first time we've seen that since Q4 of 21.

Speaker Change: I think that's actually the frustrating part about this quarter, is that there's an incredible amount of operational improvement that we're seeing in the business. The 100k cohort growth, the first time we've seen that since Q4 of 2020.

Speaker Change: 22. Stabilization and net retention rates, the first time we've seen that since Q4 of 21.

Henry Schuck: Stabilization in our software vertical net retention rates. Our enterprise business grew 9% year over year. Operations OS and our DAS business grew 23% year over year with 117% net retention. Copilot sold solidly above our expectations in the customer base. And we're monetizing AI now throughout our customers. When we're monetizing that, we're also seeing that happen 75% of the time in mid-market and enterprise customers.

Speaker Change: Stabilization in our software vertical, net retention rates, our enterprise business grew 9% year over year, operations OS,

Speaker Change: and our DAS business grew 23% year over year with 117% net retention. Copilot sold solidly above our expectations in the customer base.

Speaker Change: and we're monetizing AI now throughout our customers.

Speaker Change: When we're monetizing that, we're also seeing that happen 75% of the time in mid-market and enterprise.

Henry Schuck: And we continue to innovate there as well. And so there's this tremendous amount of operational momentum and operational execution happening in the business where I actually believe our product market fit is getting stronger. Our sales motion is getting better in the up market. We're monetizing Copilot in the base, and you're seeing that operational performance come through in the business. Now, at the same time, the write-offs have escalated. We have to increase that estimate.

Speaker Change: customers and we continue to innovate there as well. And so there's this tremendous amount of operational momentum and operational execution happening in the business where I actually believe our product market fit is getting stronger.

Speaker Change: Our sales motion is getting better in the up market.

Speaker Change: We're monetizing Copilot in the base and you're seeing that operational Operational performance come through in the business now at the same time

Henry Schuck: We have to take this accounting charge this quarter to put that all behind us, to move forward with a clean slate, and to take away this volatility from our business. And Brad, I think with respect to

Speaker Change: The write-offs escalated, we have to increase that estimate, and we have to take this accounting charge this quarter to put that all behind us, to move forward with a clean slate, and to take away this volatility from our business.

Cameron Hyzer: And Brad, with respect to the pricing changes in Q2, we didn't proactively make any changes to pricing, and we do continue to see some downsell pressure, particularly at the lower ends of the market. But we are starting to see some really good green shoots of pricing opportunity when people are taking copilot. So Henry mentioned the monetization of copilot, and there are a number of opportunities where we're beginning to see pricing uplift from that. And if that's something that we're focused on focused on being able to continue as we move into Q3.

Speaker Change: And Brad, I think with respect to the pricing changes in Q2.

Brad Zelnick: We didn't proactively...

Brad Zelnick: You know, make any changes to pricing and we do continue to see some downsell pressure, particularly at lower ends of the market.

Brad Zelnick: But we are starting to see some really good green shoots of...

Speaker Change: Pricing Opportunity when people are taking CoPilot, so Henry mentioned the monetization of CoPilot. There are a number of opportunities where we're beginning to see pricing uplift from that, and that's something that we're

Henry: focused on focused on being able to continue as we move into Q3 and Q4.

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

Speaker Change: Great helpful caller. Thanks so much, guys.

Speaker Change: Our next question comes from the line of Raimo Lenschow of Barclays. Your line is open.

Henry Schuck: Thank you. Cameron, if you think about the ability to collect from clients, like, how does this current environment kind of compare to what you've seen before? Because like, you know, we had the end of COVID 2020, where it was tough in 2022. This seems to be either you changed how you kind of sold in 2023, or it's getting worse. Can you just compare and contrast, like how this kind of feels compared to the time before? Because it is somewhat surprising, given that you've been in tough markets before. Thank you.

Ramo Linschow: Thank you. Camera and, like...

Speaker Change: If you think about the...

Ramo Linschow: you know, ability to collect from clients like how does this current environment

Ramo Linschow: kind of compared to what you've seen before, because like, you know, we had like the

Speaker Change: and the COVID-2020, whereas TAF-2022.

Speaker Change: This seems to be either you changed how you kind of sold in 2023 or it's getting worse. Can you just compare and contrast like how this kind of feels compared to the time before because it is somewhat surprising given that you've been in top markets before. Thank you.

Henry Schuck: Hey Mo, it's Henry. Look, I think there are two things that happened, or one big thing. We did see these rates elevate against the 2020 and 2021 rates. We saw this trend escalate and increase in the 2022 and 2023 cohorts. They're riding off more, obviously more than what our historical rates were. That's why we've made, we've increased the estimates this year, and we've taken this accounting charge. We've accounted for those collectability issues.

Speaker Change: Raimo, it's Henry. Look, I think there are two things that happened, or one big thing. We did see these rates elevate against from the 2020 and 2021 rates. We saw this trend escalate and elevate in the 2022 and 2023 cohorts. They're riding off.

Speaker Change: More, obviously more than what our historical rates were. That's why we've made, we've increased the estimates this year and we've taken this accounting charge. We've accounted for those collectability issues.

Henry Schuck: The other thing that I would tell you is the way that you solve this moving forward is what we did with these upfront prepayments. When a risky or small SMB customer comes through, they can achieve a lot of value from ZoomInfo, but we require upfront prepayment from them now and going forward. That's a fundamental change in the way that we operate, and so we're going to significantly reduce the collectability of our future contracts by doing that.

Speaker Change: The other thing that I would tell you is, the way that you...

Speaker Change: Solve this moving forward is what we did with these upfront prepayments when a risky or small SMB customer comes through they can achieve a lot of value from ZoomInfo, but we require upfront prepayments.

Speaker Change: from them now and going forward. That's a fundamental change in the way that we operate. And so we're going to significantly make a dent in the collectability of our future contracts by doing that.

Operator: Okay, perfect. Thank you. Our next question comes from the line of Parker Lane with.

Operator: Our next question comes from the line of Parker Lane with Stiefel. Your line is open. Hey guys, thanks for taking the ques-

Speaker Change: Okay, perfect, thank you.

Speaker Change: Our next question comes from the line of Parker Lane with Stiefel. Your line is open.

Parker Lane: Hey guys, thanks for taking the question. Just to stick on the idea of the new business risk model, Henry, are the parameters there simply about the size of the customer that you're talking about or is it also based on a number of seats or products they're adopting from you guys at the onset?

Henry Schuck: Yeah, it takes into account a number of firmographic related data points and then a model that looks back at the collectability of other accounts that look like those accounts. But you can think about it as size, industry, number of salespeople, and then compare it against lookalikes who paid or didn't pay us in the past. We're using a number of key data points to assess the risk of the clients who come through. Size is obviously one.

Henry: Yeah, the new business risk model takes into account a number of firmographic related data points and then a model that looks back at the collectability of other accounts that look like those accounts.

Speaker Change: But you can think about it as size, industry, number of salespeople, and then a compare against lookalikes who.

Speaker Change: paid or didn't pay us in the past. We're using a number of key data points to assess the risk of the clients who come through. Size is obviously one of them.

Operator: Our next question comes from the line of Aleks Zukin of Wolf Research. Your line is open.

Speaker Change: Understood. Thank you.

Speaker Change: Our next question comes from the line of Aleks Zukin of Wolf Research. Your line is open.

Henry Schuck: Hey guys, I apologize for the background noise. I'm trying to swear, Henry, maybe just comment on improving retention rates in the quarter, particularly in the southwest part, but then also increasing card drop rates, and maybe just comment on the linearity that you saw of these increases, because I would think that kind of non-retaining customers or customers are going to go out and do something different. So just help us understand, like...

Alex Zukin: Hey guys, I apologize for the background noise, some things have popped up.

Unknown Speaker: I'm trying to swear, Henry, maybe just comment around improving retention rates in the quarter, particularly in the Southwestern part, but then also increasing card drop rates. And maybe just comment on the linearity that you saw of these increases, because I would think that kind of non-retaining customers.

Speaker Change: or customers are going to go out and do something different. So just help us understand like

Operator: This leads me to my second question, mechanistically, if you look at your bookings, which I think on a reported basis, you know, your bookings down to like, how much of this bad debt did we kind of take out of that bookings to inform or something that can square up to that comment that Cameron made about the latter. Hello. Good, and she was kind of once we started getting past her. Hey, Aleks, we had a lot of, we had a hard time hearing you. So if you could, if we could just take a second and see how much of that we can collect in the room.

Speaker Change: This leads me to my second question, mechanistically, if you look at your bookings...

Speaker Change: which I think, on a reported basis, you know, if your book goes down to 11th or 12th, like, how much of this bad debt did we kind of take out of bad bookings to inform or something that can square us to that comment that Cameron made about flat bill?

Speaker Change: [inaudible]

Speaker Change: think to choose kind of once you start getting ads from this.

Operator: Hey, Aleks, we had a lot of we had a hard time hearing you. So if you could, if we could just take a second and see how much of that we could collect in the room.

Speaker Change: Hey Aleks, we had a lot of, we had a hard time hearing you, so if you could, if we could just take a second and see how much of that we could collect in the room.

Speaker Change: , , , , , , , .

Cameron Hyzer: All right. Thanks, Aleks.

Henry Schuck: I think that hopefully, I'll be able to answer most of your questions, and I will get through this. I think first off, in terms of the linearity, you know, certainly, as it relates to retention, we had been seeing a stabilization of retention. And that, you know, continued throughout the quarter, and I think that's something that we were, you know, happy with. And I think that's particularly true in the mid market and enterprise, where we saw improvements in retention.

Alex Zukin: Thanks, Aleks.

Speaker Change: I think that hopefully I'll be able to answer most of your question and we'll get through this.

Henry Schuck: I think as the quarter went on, and, you know, we continue to see more pressure on SMBs. And certainly, you know, with respect to the write-offs themselves, those did accelerate in June. And so the impact of those was really an end-of-quarter issue more than it was, you know, throughout the quarter. And then, you know, you'd asked about the bookings. You know, certainly, the bookings get impacted by the write-offs because we are, you know, basically impairing some of that remaining performance obligations. So, you know, when we're writing off, you know, when we're writing off a contract, obviously, we're writing off the continued performance obligation of that as well as any of the existing revenue or receivable.

Speaker Change: I think, first off, in terms of the linearity, you know, certainly...

Speaker Change: As it relates to retention.

Speaker Change: We had been seeing a stabilization of retention and that, you know, continued throughout the quarter. I think something that we were

Speaker Change: you know, happy with. And I think that's particularly true in the bid market and enterprise where we saw improvements in retention. I think as the quarter went on, and

Speaker Change: You know, we continue to see more pressure on SMBs.

Speaker Change: And certainly, you know, with respect to the write-offs themselves, those did accelerate in June , and so the impact of those was really an end-of-quarter issue, more than it was, you know, throughout the quarter.

Speaker Change: and then you know you had uh you had asked about the bookings you know certainly the the bookings get impacted by the write-offs because we are

Speaker Change: you know, basically impairing some of that, you know, remaining performance obligations. So, you know, when we're writing off, you know, when we're writing off a contract, obviously, we're writing off the continued

Speaker Change: performance allegation of that, as well as any of the existing revenue or receivable that's out there.

Henry Schuck: Aleks, I'll just add, this guide does not assume any of the improvement that we saw in the quarter, the stabilization of the net retention rates, or the impact of the upfront prepayments. We don't, we haven't anticipated any improvement from either of those in this guide.

Alex Zukin: Aleks, I'll just add, this guide does not assume that any of the improvement that we saw in the quarter, the stabilization of the net retention rates, or the impact of the upfront prepayments, we haven't anticipated any improvement from either of those in this guide.

Operator: Okay. Thank you guys. And I apologize for the audio issues. I hope you can hear me better now. Our next question comes from the line of Kash Rangan of Goldman Sachs. Your line is open. Hi, this is Gilly, and that's a little bit John.

Alex Zukin: Understood. Thank you guys. And I apologize for the audio issues. I don't know if you can hear me better now.

Operator: Our next question comes from the line of Kash Rangan of Goldman Sachs. Your line is open.

Speaker Change: Our next question comes from the line of Kash Rangan of Goldman Sachs. Your line is open.

Speaker Change: Hi, this is Gilly, and that's a little bit done for cash. Thanks for taking the question and all the color provided on the call.

Speaker Change: I have two quick ones for you. How has your sales cycle duration really compared this quarter versus prior periods? And second, what lessons did you take away from the large customer win and mid-market improvement and teams also enterprise that you saw this quarter to close remaining deals in your pipeline?

Henry Schuck: Great, thanks for the question. Sales cycles have stayed largely the same. You know, we segmented the customer, and the sales force, in new business in the quarter. And so our enterprise deals obviously take longer than our SMB or mid-market deals, but they come in at, you know, two, three, four X the value of those deals. And so, nothing that we didn't expect in the new business space. And so, sales cycles have stayed largely the same across those different segments.

Speaker Change: Okay, great. Thanks for the question.

Speaker Change: Sales cycles have stayed largely the same, you know, we segmented the customer, the sales.

Speaker Change: Force in New Business in the quarter. And so our enterprise deals obviously take longer than our SMB or mid-market deals, but they come in at you know, 2, 3, 4x the value of those deals and so

Speaker Change: Nothing that we didn't expect in the new business space. And so sales cycles have stayed largely the same and across those different segments. I think the thing that we've learned.

Henry Schuck: I think the thing that we learned from the largest deal that we closed in our history and the continued improvement in mid-market and enterprise is that segmenting the new business sales reps and then allocating resources to the upmarket is turning into results for us. We have the highest number of new mid-market and enterprise business quarters on record. And that came from an increased focus and segmentation of the sales rep base against those different segments.

Speaker Change: across the the largest deal that we closed in our history and continued improvement in mid-market and enterprise is that

Speaker Change: segmenting the new business.

Speaker Change: Sales Reps, and then allocating resources to the up market is turning into results for us. We have the highest mid-market and enterprise new business quarter on record.

Henry Schuck: And we think that that's going to, we believe that it's going to continue throughout the year and set up a really strong foundation for us in the future as enterprise and mid-market customers grow more with us and retain them at higher risk.

Speaker Change: and that came from an increased focus and segmentation of the sales rep base against those different segments and we think that that's going to we believe that's going to continue throughout

Speaker Change: The year and set up a really strong foundation for us in the future as enterprise and mid-market customers grow more with us and retain at higher rates.

Operator: Our next question comes from the line of Brent Bracelin of Piper Sandler. Your line is open.

Speaker Change: Our next question comes from the line of Brent Bracelin of Piper Sandler. Your line is open.

Cameron Hyzer: Thank you. I wanted to go just back to kind of framing how much exposure you have to SMB. I think it looks like bad debt accruals were 33-34 million last year. You're at that similar mark here in the first six months of this year. What portion of that SMB business would you frame as still kind of being at risk versus how much you're kind of Pre-baking again is an additional weakness; just trying to think through at what point could we make a mark that kind of worsens behind you? I think we thought that a year ago; it's clearly not happening now.

Brent Braceland: Thank you. I wanted to go just back to kind of framing how much exposure you have to SMB.

Speaker Change: It looks like bad debt accruals were $33-34 million last year. You're at that similar mark here at the first six months of this year.

Speaker Change: What portion of that SMB business would you frame as still kind of being at risk versus how much you're kind of

Speaker Change: pre baking in as additional weakness just trying to think through at what point could we make a mark that kind of worsens behind you and we thought that a year ago clearly not happening now but maybe just frame overall that SMB exposure I think would be helpful thanks.

Cameron Hyzer: But maybe just frame overall that SMB exposure, I think it would be helpful. Thanks.

Cameron Hyzer: So SMB continues to be around a third of our business. We've seen enterprise continue to grow in terms of mix. So that's up above 40% at this point.

Henry Schuck: Our focus has really been not on just not serving SMB anymore but really taking the credit risk out of SMB and forcing those customers that are smaller or riskier to prepay upfront. And, you know, ultimately, all of our product focus and, you know, really sales investment at this point is going up market. So that is a clear focus of ours, but we're not going to necessarily turn away smaller customers that are, you know, continuing to get real value out of the system and continue to use the system to drive their sales.

Speaker Change: You know, our focus has really been...

Speaker Change: Not on

Speaker Change: Just.

Speaker Change: Not serving SMB anymore, but really taking the credit risk out of SMB.

Speaker Change: and forcing those customers that are smaller or riskier.

Speaker Change: to prepay up front.

Speaker Change: and you know ultimately do that all of our

Speaker Change: Product focus and you know really sales investment at this point is going up market so that is a clear focus of us.

Speaker Change: of ours, but we're not going to necessarily turn away smaller customers that are, you know, continue to get real value out of the system and continue to use the system to drive their sales motions as well.

Henry Schuck: But Brent, I also think you should think about the actions we took today with the charge and the increase in estimates as we fully intend on putting this volatility in our business behind us. And going forward, we don't anticipate, after this charge and after the increased estimates towards the back half of the year, that write-offs will create volatility in our guide going forward.

Brent Braceland: But Brent, I also think you should think about the actions we took today with the charge and the increase in estimates as we fully intend on putting this volatility in our business behind us.

Brent Braceland: And going forward, we don't anticipate, after this charge and after the increased estimates towards the back half of the year, that write-offs will create volatility in our guide going forward.

Cameron Hyzer: Helpful color, thank you.

Operator: Our next question comes from a line from Koji Ikeda with Bank of America. Your line is open. Yeah.

Speaker Change: Helpful color. Thank you.

Speaker Change: Our next question comes from a line of Koji Ikeda with Bank of America. Your line is open.

Operator: Yeah, hey guys, thanks for taking the questions. A couple for me here, maybe the first one for Cam.

Cameron Hyzer: Just wanted to understand a little bit more on the write-downs, the headwind to the guidance for the full year. And I know you guys aren't guiding 2025, but just thinking about the write-downs and potential impacts heading into 2025. Is it a full year of impacts? Does it affect 1Q25? And does it potentially bleed into the second quarter of 2025 too?

Koji Ikeda: Yeah, hey guys, thanks for taking the questions. A couple for me here. Maybe the first one for Cam.

Koji Ikeda: Just wanted to understand a little bit more on the write-downs, headwind to the guidance for the full year.

Speaker Change: And I know you guys aren't guiding 2025, but just thinking about the write downs and potential impacts heading into 2025, is it a full year of impacts? Does it affect 1Q25? And does it potentially bleed into the second quarter of 2025 too?

Cameron Hyzer: So certainly, the write-downs that we realize now are eliminating the risk of non payment on receivables that we have that we've already recognized revenue against. And then, you know, another big portion of the change in guidance was taking out the revenue that we would have earned from those customers that we've written down or written off, you know, as we go through the remainder of the year. Our expectations at this point, or the way we've defined guidance, is to assume that those write-offs continue to escalate and that they, you know, would continue to have an impact on our results. But ultimately, the operational improvements that we've put in place, requiring, you know, prepayment up front from smaller and more risky customers, as well as, you know, shifting the sales team to focus more on mid market and enterprise customers.

Speaker Change: So certainly the write-downs that we realize now were eliminating risk of non-payment on receivables that we have that we've already recognized revenue against.

Speaker Change: And then, you know, another big portion of the change in guidance was taking out the revenue that we would have earned from those customers that we've written down or written off, you know, as we go through the remainder of the year.

Speaker Change: Our expectations at this point, or the way we've defined guidance, is to assume that those write-offs continue to escalate and that they, you know, would continue to have an impact on our results.

Speaker Change: But ultimately, the operational improvements that we've put in place.

Speaker Change: Requiring, you know, prepayment up front from smaller and more risky customers, as well as, you know, shifting the sales team to focus more on mid-market and enterprise customers.

Cameron Hyzer: You know, should eventually, and you know, we're focused on ensuring that they eliminate a lot of the volatility related to those small businesses. And so if you think about the deals that we're selling today, that we would potentially write off in, you know, six to nine months. So at the end of the year, you know, as we move into the beginning of next year, we're aiming to significantly reduce the risk of those write offs in terms of, you know, and I would.

Speaker Change: Yo.

Speaker Change: should eventually, and you know, we're focused on ensuring that they...

Speaker Change: eliminate a lot of the volatility related to those small businesses. And so if you think about the deals that we're selling today, that we would potentially write off in, you know, six to nine months. So at the end of the year, you know, as we move into the beginning of next year, we're

Speaker Change: Aiming to significantly reduce the risk of those write-offs in terms of growth.

Henry Schuck: I would add here, when we think about the rest of this year and 2025. Well, what we'll tell you is we're going to finish this year with a dollar of free cash flow per share, and we expect to meaningfully grow that in 2025. And I'm confident that we based a lot on the fact that, in the quarter, we had our best net new ARR ad in more than a year.

Speaker Change: I would add here, when we think about the rest of this year and 2025,

Speaker Change: What we'll tell you is, we're going to finish this year with a dollar of free cash flow per share, and we expect to meaningfully grow that in 2025.

Speaker Change: and I'm confident in that we you know based a lot around the fact that in the quarter we had our best net new ARR ad in more than a year.

Henry Schuck: Got it. Thank you, Henry. And just one follow-up question, if I may, here, Henry, for you. In prior quarters, you have talked about customers, you know, I'll call them boomerang customers that left ZoomInfo and have come back to you. But I don't think you really talked about them much in your prepared commentary.

Speaker Change: Got it. Thank you, Henry. And just one follow-up, if I may, here, Henry, for you, in prior quarters, you have talked about customers, you know, I'll call them boomerang customers that left ZoomInfo that have come back to you. I don't think you really talked about it much in your prepared commentary. So any sort of color on maybe some bigger customers that have returned to the ZoomInfo platform? Thank you.

Henry Schuck: Yep, this quarter was our best win-back quarter on record ever. Our next question comes from D.J. Hynes of Canaccord Genuity. Your line is open.

Henry Schuck: So any sort of color on maybe some bigger customers that have returned to the ZoomInfo platform? Thank you. Yes.

Speaker Change: Yep, this quarter was our best win-back quarter on record ever.

Speaker Change: Our next question comes from a line of D.J. Hynes of Canaccord Genuity. Your line is open.

Operator: Hey guys,

D.J. Hines: Hey guys, thanks for taking the question. Henry, one for you. So a lot of your data today is being piped into CRM systems.

Speaker Change: Team. The CRM vendors are also trying to build co-pilots that help with activating intelligence, prompting next best action. What gives you confidence that the AI-driven functionality will live with ZoomInfo versus the system of record or the CRM vendors that you partner with?

Henry Schuck: Yeah, I would think about the data that gets piped into CRMs as, as sort of contact or company data. And the data that you actually need to win from a co-pilot perspective is a tremendous amount of signal data that you use to identify which customers to reach out to today, tomorrow, and the reasons why. And so you can think of that as intense signals, or new hire signals, or funding signals, or, or visiting your pricing page signals, or visiting a competitor's review page signals, or researching your competitor.

Henry: Yeah, I would think about the data that gets piped into CRMs as sort of contact or company data.

Speaker Change: and the data that you actually need to win from a co-pilot perspective.

Speaker Change: is a tremendous amount of signal data that you use to identify which customers to reach out to today, tomorrow.

Speaker Change: and the reasons why. And so you can think of that as intense signals, or new higher signals, or funding signals, or

Henry Schuck: And all of those signals, those are proprietary to ZoomInfo, and they don't live in CRM. And that signal is necessary for you to engage with the right customers at the right time. And so co-pilots just built off of data that sits inside of a CRM will always be missing the necessary signal for co-pilots to actually work and be useful. And so we've invested a lot in making sure that we have the best signal around companies and people.

Speaker Change: or visiting your pricing page signals, or visiting a competitor's review page signal, or researching your competitor.

Speaker Change: And all of those signals, those are proprietary to ZoomInfo, and they don't live in CRM. And that signal is necessary for you to engage with the right customers at the right time. And so co-pilots just built off of data that sit inside of a CRM will always be missing the necessary signal for co-pilots to actually work and be useful.

Henry Schuck: But we've also gone out and started building a robust ecosystem of signal providers that we've built into our co-pilot and into our co-pilot offering as well. And, you know, the sales of co-pilot, the monetization of co-pilot in our customer base, were solidly above our expectations. It puts us far ahead of our competitors, far ahead of any competitor in the space, and we feel really good about the innovation we've been able to deliver there over the last few years.

Speaker Change: And so we've invested a lot in making sure that we have the best signal around companies and people. But we've also gone out and started building a robust ecosystem of signal providers that we've built in to our co-pilot.

Speaker Change: to our co-pilot offering as well. And the sales of co-pilot, the monetization of co-pilot in our customer base was solidly above our expectations. It puts us far ahead of any competitor in the space. And we feel really good about the innovation we've been able to deliver there in the last year.

Operator: Our next question comes from the line of Taylor McGinnis of UBS. Your line is open.

Speaker Change: Yeah, great to hear it. Thanks for the call, Eric.

Speaker Change: Our next question comes from a line of Taylor McGinnis of UBS. Your line is open.

Cameron Hyzer: Yeah, hi, thanks so much for taking my question. So if I look at the 3Q Rev Guide, it assumes a sequential increase, which is a reversal from some of the recent trends we've seen. Now, I would imagine some of that might be due to the write-downs and softer new business changes that might be having an impact there. But, Cameron, can you help bridge that gap?

Taylor McGinnis: Yeah, hi, thanks so much for taking my question. So if I look at the 3Q Rev Guide, it assumes a sequential increase, which is a reversal from some of the recent trends we've seen. Now, I would imagine some of that might be due to the write downs and softer new business changes that might be having an impact there. But

Cameron: Cameron, can you help us bridge that gap? I think you mentioned adjusted revenue of $307 million in the quarter. So can you quantify the pieces that make up the difference between that and what was reported? And as we look into 3Q and 4Q, are you able to quantify the write-down and new business impact that's embedded? Thanks.

Cameron Hyzer: I think you mentioned adjusted revenue of $307 million in the quarter. So can you quantify the pieces that make up the difference between that and what was reported? And as we look into 3Q and 4Q, are you able to quantify the write-down and new business impact that's embedded? Thanks.

Cameron Hyzer: So in the second quarter, we took a charge related to the change in estimates that we had, and those are estimates around the collectability of receivables from customers. So with respect to revenue, that was $15 million of the charge, and that's revenue that we've effectively recognized historically, but due to the change in estimates, we needed to run that through Q2. So the revenue that we generated in Q2 from a gap perspective was $292 million, but that included $15 million of write-downs that shouldn't recur as we've really focused on identifying everything that we felt was at risk, changed our estimate around those, and put it into Q2. So, you know, based on that.

Cameron: , . . . . . . . . . . . . .

Cameron: So.

Speaker Change #100: In the second quarter, we took a charge.

Speaker Change #100: related to the change of estimates that we had and those are estimates around the collectability of receivables from customers.

Cameron: So, you know, with respect to revenue, that was $15 million of the charge.

Cameron: And that's revenue that we've effectively...

Cameron: recognized historically but due to the change in estimates needed to run that through Q2.

Cameron: So, you know, the revenue that we generated in Q2 from a GAAP perspective was $292 million, but that included $15 million of write-downs.

Cameron: that, you know, shouldn't recur as we've, you know, really focused on identifying everything that we, you know, felt was, you know, at risk, changed our estimate around those, put it into Q2. And therefore, going forward, we, we want to start with a clean slate.

Cameron Hyzer: I think in Q3, while it will be growth compared to $292 million, it would still be a decrease relative to $307 million if you were to back out that $15 million. Great, thanks so much. Our next question comes from the line of Jackson Ader with KeyBank Capital Markets. Your line is open. Great. Thanks for taking our questions, guys. Really, the one for me is...

Cameron: So, you know, based on that, I think in Q3, while it will be growth compared to the $292 million, it would still be a, you know, decrease relative to the $307 million if you were to back out that $15 million of write-down.

Operator: Our next question comes from the line of Jackson Ader with KeyBank Capital Markets. Your line is open. Great. Thanks for taking our question.

Speaker Change #102: Great. Thanks so much.

Speaker Change #102: Our next question comes from the line of Jackson Udder with KeyBank Capital Markets. Your line is open.

Jackson Udder: Thanks for taking our questions guys. Really the one for me is Henry, on the

Jackson Udder: You know, the trends or the positive trends in the business that are not expected to continue or are being kind of removed from guidance going forward. I'm just curious.

Jackson Udder: Are you already seeing some of the enterprise momentum slow here as we like as we are here in early August , or is this just true conservatism? Or is it actually happening and that's why you're taking it out of guidance? Thanks.

Henry Schuck: No, we're not seeing the momentum in the business slow down the enterprise or the up market momentum. We feel really good about the operational improvements and the operational success that we've seen, and anticipate that we're going to continue to execute on. Got it. Thank you. Our next question comes from the line of Michael Turrin of Wells Fargo.

Speaker Change #104: No, we're not seeing the momentum in the business slow down, the enterprise or up-market momentum. We feel really good about the operational improvements and the operational success that we've seen and

Speaker Change #104: Anticipate that we're going to continue to execute against that.

Operator: Our next question comes from the line of Michael Turrin of Wells Fargo. Your line is open. Hey, I got Michael Berg on for Turrin. Thanks for taking the question. When I think about the margin impact of the write-offs, how can I think about how that flows through the rest of...

Speaker Change #105: Got it. Thank you.

Speaker Change #106: Our next question comes from the line of Michael Turrin of Wells Fargo. Your line is open.

Michael Berg: Hey, I've got Michael Berg on for Michael Turrin. Thanks for taking the question. When I think about the margin impact of the write-offs, how can I think about how that flows through the rest of Fiscal 24 on a margin percentage impact, and then how can I think about that rolling through into Fiscal 25? Then I've got a quick follow-up.

Cameron Hyzer: Sure. So, you know, we did have a number of discrete events. Those are laid out in the press release as well as in the 10-Q. But you know, when you look past those specific charges, the margins would have been materially higher, almost 10 points higher. And I'd expect that we won't have, you know, additional charges like that. So I think the few pro forma those charges out, that would be the kind of underlying performance of the business that, you know, I'd start with from a model.

Speaker Change #108: Sure. So, you know, we did have a number of discrete events. Those are laid out in the press release as well as in the 10-Q.

Speaker Change #109: When you look past those specific charges, the margins would have been materially higher, almost 10 points higher. And I'd expect that we won't have additional charges like that. So I think if you proforma those charges out, that would be the

Speaker Change #108: of underlying performance of the business that, you know, I'd start with from a modeling perspective.

Speaker Change #108: helpful and a quick follow-up for Henry here you made a point on the call to mention you plan to be aggressively buying shares here

Henry: What would be your key things to point to that's driving your confidence and scooping up more chairs moving forward? Thank you.

Henry Schuck: Look, I think that the tough part about this quarter is that we had a tremendous amount of operational improvements that we saw. We saw net revenue retention stabilize for the first time since Q4 of 21. We saw our DAS business growing, DAS and operations business growing 23% year over year. We saw growth in our 100K cohort for the first time since Q4 of 22. We continue to grow our million dollar cohort.

Speaker Change #110: Look, I think that the tough part about this quarter is that we had a tremendous amount of operational improvements that we saw.

Speaker Change #111: We saw net revenue retention stabilize.

Speaker Change #111: for the first time since Q4 21. We saw we saw our DAS business growing 20 DAS and operations business growing 23%

Henry Schuck: We're addressing the write-off issue by taking a significant amount of our new business ACV through upfront prepayments. Co-pilot is solidly above our expectations from a sales perspective into the customer base. I think that we have tremendous product market fit there. And that's going to be really hard for a lot of investors to see because of this accounting charge and the way that we're thinking about guidance for the rest of the year. But, that being said, I have tremendous confidence in ZoomInfo, and I'm excited to be a buyer. Our next question comes from the line of Surinder Thind of Jeffreys. Your line is open.

Operator: Our next question comes from the line of Surinder Thind of Jeffreys. Your line is open. Thank you. Can you give me any color on breaking down the NRR between SMBs and mid-market?

Operator: And then, maybe, when you look at the new...

Henry Schuck: Yeah, you can think about on the new business side. On the new business side, we hit high watermarks for enterprise and mid market new business. And so those are significantly higher as a percentage in the quarter than we've seen historically.

Henry Schuck: That was driven by segmenting the sales rep base into SMB, mid-market, and enterprise reps and then allocating resources properly across that group. You know, Cameron said it in the customer base: you can think about the breakout as kind of 40% enterprise, around 30%, a little under 30% mid market, and the rest in SMB. And our intention is to move the business significantly up the market in the mid market and enterprise. Got it. And just one quick clarification question on co-pilot. Unknown Speaker The ARR figure you provided was $18 million. Was that as a result of a

Speaker Change #112: Got it and just one quick clarification question on co pilot.

Speaker Change #113: The <unk> figure you provided I think it was $18 million was that as of quarter end or is that as of a different period of time.

Speaker Change #114: As of quarter end.

Speaker Change #115: Thank you.

Operator: Our next question comes from the line of Brian Peterson of Raymond James. Your line is open.

Speaker Change #116: Our next question comes from the line of Brian Peterson of Raymond James Your line is open.

Brian Peterson: Hey, guys. Thanks for taking the question. So Cameron just under $33 million in charges as mentioned this quarter just to clarify how much of that is embedded in the 10-Q and our our figure or is some of that would've been impacted prior periods or future periods I just want to make sure I understand how the charges are impacting the IRR.

Brian Peterson: Okay.

Speaker Change #118: Yeah. So.

Cameron Hyzer: Most of the increase in write-offs and changes that have gone through the estimates relate more to new business that we've brought on than they do to NRR. So the NRR is really not impacted by those changes.

Speaker Change #119: Most of the increase in write offs and changes.

Speaker Change #120: <unk> gone through the estimates.

Speaker Change #121: More to new business that we've brought on and they do to NR. So the <unk> really not impacted by by those charges.

Operator: Our next question comes from the line of Siti Panigrahi with Nuvio. Your line is open. Thanks for taking my question. I just want to clarify what you talked about.

Operator: Our next question comes from the line of Siti Panigrahi with Muzeo. Your line is open.

Speaker Change #122: Our next question comes from the line of city <unk> with Mizuho. Your line is open.

Speaker Change #123: Thanks for taking my question I, just wanted to clarify you talked about.

Speaker Change #124: If you look at your guidance second half, we were taking down $50 million in revenues.

Speaker Change #125: <unk> fluid that $15 million $15 million right. So how much of.

Speaker Change #126: The 50 million that you are taking out how much of it.

Speaker Change #127: As of write off versus.

Speaker Change #128: Any kind of softer new sales are down in sales or any kind of ablation youre going to see given that Q4 out of a strong renewal quarter.

Cameron Hyzer: So the way I think about that city is that of the entire Uh, you know, changing guidance. So the full 60 million, roughly half of that has to do with the write-offs that we've incurred. So part of that is the charge. Another part is the revenue that we would have recognized from those customers that we wrote off over the second half of the year. The other half of that is really an increase in conservatism, and in terms of the market overall, part of that conservatism is an increase in the assumptions around ongoing write-offs.

Speaker Change #129: So the way I'd think about that city is that of the entire.

Speaker Change #129: The change.

Speaker Change #131: Change in guidance, so the full $60 million roughly half of that has to do with the.

Speaker Change #131: Write offs that we've incurred so part of that is the charge. Another part is the revenue that we would've recognized from those customers that we wrote off over the second half of the year.

Speaker Change #131: The other half of that is really an increase in conservatism in terms of the market overall part of that conservatism is a.

Speaker Change #131: An increase in the assumptions around ongoing write offs, so seeing those write off rates escalate going forward as well as.

So while it's just conservatism around the sales and retention environment.

Cameron Hyzer: So seeing those write-off rates escalate going forward, as well as as well as just conservatism around the sales and retention and, Thanks for the call. Our next question comes from the line of Joshua Reilly with Needham. Your line is open. Yeah, thanks for taking my question. Just one quick one for me. You mentioned at the end of the month of June.

Speaker Change #132: Thanks for that color.

Operator: Our next question comes from the line of Joshua Reilly with Needham. Your line is open.

Speaker Change #132: Our next question comes from the line of Joshua Reilly with Needham Your line is open.

Joshua Reilly: Yes. Thanks for taking my question just one quick one for me.

Speaker Change #133: Mentioned at the end.

Speaker Change #135: The end of the month of June is when you saw increased write offs for Smbs.

Maybe what do you think changed in that period of time relative to what we are seeing in the first quarter because it seemed like the renewals werent crane for Smbs in the first quarter.

Speaker Change #136: Or is there some period, where it was a little bit better for a period of time and then they got dramatically worse or what macro factor maybe came into play there. Some other factor that we should be considering thanks guys.

Cameron Hyzer: So certainly, we did see an increase in the rates and an increase in the revenue associated with those write-offs. Um, part of that is, you know, the timing and catching up on write-offs. You know, write-offs don't happen immediately. You know, we're obviously chasing payment for folks, and, you know, it does take us a period of time before we, you know, fully get to the point where we're ready to write something off.

Speaker Change #137: So certainly we did see an increase in the rates and an increase in the revenue associated with those write offs.

Speaker Change #138: Part of that is.

Speaker Change #138: The timing and catching up of write offs and write offs don't happen immediately.

Cameron Hyzer: We have also seen, you know, further stretching of small businesses in terms of their access to capital, so you see increases in companies shutting down. I think that's happened more as we've gotten into the summer. And so I'd say that those two factors certainly changed as we got into June. If we look back at the trend from Q3 to Q4 to Q1, we actually saw improvements in our write-off rates, and then we saw those, you know, reverse as we got through the end of the quarter. Got it. Thanks, guys. Our next question comes from the line of Pat Walravens.

Speaker Change #138: We're obviously chasing payment for folks and it does take us in the period of time before we.

Speaker Change #138: Before we get to the point, where we're ready to write something off so we have also seen.

Speaker Change #138: Further.

Speaker Change #138: Stretching of small businesses in terms of their access to capital. So you see increases in companies shutting down I think that's happened.

Speaker Change #138: More as we've gotten into the summer and so I'd say that those two factors certainly.

Speaker Change #138: Changed as we got into June if we look back at the trend from Q3 to Q4 to Q1, we actually saw improvements in our write off rates than we saw those.

Speaker Change #138: Reverse as we got through the end of the quarter.

Speaker Change #139: Got it thanks guys.

Operator: Our next question comes from the line of Pat Walravens of Citizens J&P. Your line is open.

Speaker Change #140: Our next question comes from the line of Pat Wall Ravens of citizens JMP. Your line is open.

Austin colon: This is Austin colon for power even day I. Appreciate you taking my question I just wanted to ask about the das business, 13% of HCV can you just talk about what youre doing to drive success, there and how big do you think it can get.

Henry Schuck: Yeah, thanks for the question. We built a team of DAS specialists who are responsible for helping our customers uh integrate uh our data within their workflows and get that behind workflows like territory planning or account scoring or new AI workflows that they're building. We anticipate this can continue to grow at the rates that it's growing and be a real meaningful part of our business going forward.

Speaker Change #142: Yes, thanks for the question.

Speaker Change #143: Last year built the team.

Speaker Change #144: Das specialists, who are responsible for helping our customers.

Speaker Change #145: Integrate our data within their workflows.

Speaker Change #145: And get that get that behind workflows like territory planning, our accounts, scoring or new AI workflows that Theyre building. We anticipate this can be can continue to grow at the rates that it's growing but it's growing and be a real meaningful part of our business going forward.

Speaker Change #145: Yeah.

Speaker Change #146: Okay. Thanks.

Henry Schuck: And I am showing no further questions at this time. I would like to turn the call over to Henry for closer remarks.

Speaker Change #146: And I am showing no further questions at this time I would like to turn the call over to Henry for closing remarks.

Henry Schuck: Thank you everyone for joining us tonight. I'd just like to take a moment to reiterate what I think are the most important key takeaways from tonight's call. First, we've taken necessary and comprehensive accounting charges this quarter to address our write-offs, and while they fully flow through Q2 results and negatively impact the quarter and our full year guidance, this action sets us up very well for the future. Additionally, we've made the necessary operational adjustments in the way that we extend credit to our customers to ensure that write-offs do not continue to be a headwind in our business.

Henry: Thank you everyone for joining us Tonight I'd, just like to take a moment to reiterate what I think are the most important key takeaways from tonight's call.

Henry: First we've taken necessary and comprehensive accounting charges this quarter to address our write offs and while they fully flowed through Q2 results are negatively impacted the quarter and our full year guidance. This action sets us up very well for the future.

Henry: Additionally, we have made the necessary operational adjustments in the way that we extend credit to our customers to ensure that write offs do not continue to be a headwind in our business.

Henry Schuck: Second, we delivered strong operational performance and are stabilized. We had the best net new ARR quarter in a year. We're growing our 100K and $1 million customers. Co-pilot sales were solidly above our expectations, and we see data as a service growth opportunities driven by AI use cases. And we are committed to driving long-term value creation through consistently growing free cash flow per share. I look forward to speaking with you and seeing you in person as we participate in a number of investor events over the coming weeks.

Henry: Second we delivered strong operational performance and our our stabilized we have the best net new IRR quarter, and a year, we're growing our 100, K and $1 million custom customers.

Henry: Pilot sales were solidly above our expectations and we see data as a service growth opportunities driven by AI use cases.

Henry: And we are committed to driving long term value creation through consistently growing free cash flow per share.

Henry: I look forward to speaking with you and seeing you in person as we participate in a number of investor events over the coming weeks. Thank you.

Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect.

Speaker Change #147: This concludes today's conference call. Thank you all for participating you may now disconnect.

Speaker Change #147: Okay.

Speaker Change #147: [music].

Speaker Change #147: Okay.

Speaker Change #147: Great.

Yes.

Speaker Change #147: [music].

Speaker Change #147: Yes.

Speaker Change #147: Thank you.

Speaker Change #147: [music].

Speaker Change #147: Okay.

Speaker Change #147: [music].

Speaker Change #147: Thanks.

Speaker Change #147: Okay.

Speaker Change #147: [music].

Speaker Change #147: Yes.