ZoomInfo Technologies (ZI) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - GAAP revenue for Q3 2024 was $304 million, and adjusted operating income was$ 112 million, both exceeding the high end of previous guidance [8][18] - Unlevered free cash flow for the quarter was $111 million, up 17% year-over-year, with a margin of 36% [8][24] - Net revenue retention (NRR) stabilized at 85% for the third consecutive quarter [7][19] Business Line Data and Key Metrics Changes - The$ 100,000 customer cohort grew by 12, marking the second consecutive quarter of sequential growth, now representing 44% of annual contract value (ACV) [9] - The enterprise ACV, which constitutes approximately 41% of the business, grew 1% sequentially [20] - Copilot surpassed $60 million in ACV during the quarter, exceeding expectations [22] Market Data and Key Metrics Changes - The operations business increased by 22% year-over-year, indicating strong momentum in helping companies leverage AI [22] - The advanced functionality of products increased to 38% of the overall business in Q3, up from 35% in Q2 [22] Company Strategy and Development Direction - The company is focused on enterprise growth and driving customer outcomes with Copilot, aiming for long-term value creation through growing levered free cash flow per share [16] - A conservative approach to guidance is expected as the company navigates the transition in the SMB segment [17][26] - The company plans to disqualify more high-risk small business transactions to improve revenue quality and reduce write-offs over time [18][37] Management's Comments on Operating Environment and Future Outlook - Management noted stabilization in various business areas and early signs of growth, particularly in the enterprise segment [19] - The company is optimistic about the trajectory of NRR, especially in mid-market and enterprise segments, while being cautious about SMB [69][71] - Management emphasized the importance of high-quality data for building effective AI solutions, positioning the company favorably in the market [76][81] Other Important Information - The company retired 24 million shares, approximately 7% of total shares outstanding, as part of a share repurchase program [8][23] - Operating cash flow was$ 18 million in Q3, with a significant restructuring of real estate agreements expected to save over $100 million going forward [24] Q&A Session Summary Question: Demand environment and retention trends - Management indicated strong demand in the upmarket, particularly for Copilot, while the SMB segment remains challenged [29][30] Question: Free cash flow growth and revenue recovery - Management stated that top-line growth is prioritized for free cash flow growth, with margin expansion as a secondary lever [32] Question: SMB dynamics and charge-offs - Management clarified that charge-offs from Q2 did not persist into Q3, and disqualification of high-risk SMB transactions is expected to create a growth headwind [36][37] Question: Operational margin improvements - Management noted that operational margin is expected to improve, with a focus on levered free cash flow per share growth [40] Question: Copilot adoption and deal sizes - Management reported double-digit growth in average deal sizes for customers migrating to Copilot [41] Question: Data as a service momentum - Management confirmed strong momentum in the data as a service business, growing 22% year-over-year [47] Question: Exit growth rate and positive drivers for 2025 - Management highlighted growth in the enterprise business and improving retention in mid-market as key positive drivers [50][51] Question: Copilot's competitive advantage - Management expressed confidence in Copilot's foundation built on high-quality data, which is essential for effective go-to-market AI solutions [76][81]