ZoomInfo Technologies Q3 Earnings Call Highlights

Key Points

• Q3 results exceeded guidance: Revenue fell 3% year over year to $309 million, while adjusted operating income rose 1% to $119 million. ZoomInfo raised its full-year outlook, with revenue now expected to decline 2% at the midpoint.
• Customer spending remained uneven: Upmarket ACV was flat and downmarket ACV fell 14%; net revenue retention slipped to 88% as upsells weakened. However, customers spending at least $100,000 annually increased ACV 4% year over year.
• New platform and pricing initiatives are ahead: ZoomInfo plans to launch its GTM1 platform in Q4 and is introducing hybrid pricing. Usage through newer data channels doubled sequentially, though much of it is drawing on existing customer commitments rather than generating immediate additional revenue.

ZoomInfo Technologies NASDAQ: ZI reported third-quarter revenue and adjusted operating income above its guidance and raised its full-year outlook, even as executives said software customers continued to face challenges that slowed new business and upsells.

Revenue fell 3% from a year earlier to $309 million. Adjusted operating income rose 1% to $119 million, with a margin of 39%, up 1.5 percentage points year over year. The company also generated $87 million in unlevered free cash flow during the quarter.

Founder and Chief Executive Officer Henry Schuck said the operating environment had not improved, particularly in software, which now accounts for about 30% of ZoomInfo’s business, down from 45% in 2021. Larger buying groups and greater vendor scrutiny are extending sales cycles, he said.

Customer Spending Trends Diverge

Annual contract value, or ACV, from upmarket customers was flat year over year, compared with 3% growth in the second quarter. Downmarket ACV declined 14%. Upmarket customers represented 77% of total ACV, Chief Financial Officer Graham O’Brien said.

Net revenue retention fell to 88% from 89%, largely because of fewer and smaller upsells, particularly among software customers. O’Brien said gross retention improved sequentially in both software and non-software verticals.

O’Brien said the greatest headwinds within the upmarket business were at its lower end, where they affected new business and upsells. Meanwhile, ACV from customers spending at least $100,000 annually rose 4% year over year, even as the number of customers in that group declined 2%.

ZoomInfo ended the quarter with a record number of million-dollar customers and record ACV from that group, executives said. Schuck pointed to strength among large customers in finance, insurance, real estate and manufacturing.

GTM1 and Consumption Pricing

ZoomInfo plans to launch its GTM1 platform during the fourth quarter. Schuck described it as a way for sales, marketing, operations and AI agents to work with shared data and context. The platform and a new hybrid pricing model are being introduced to both existing and prospective customers.

More than 10,000 customers have accessed ZoomInfo data through newer channels, including its MCP server, command-line interface and updated application programming interface. Consumption across those channels doubled sequentially, Schuck said.

Much of that usage is drawing down capacity customers already purchased, rather than immediately adding to ACV. Executives said additional revenue could follow as customers exhaust their commitments and expand their purchases.

O’Brien said the hybrid model is intended to give customers flexibility between fixed and variable arrangements rather than moving entirely to consumption-based pricing. Schuck said some customers shifting from seats to larger data-credit packages renew at the same level, while others renew for less, potentially leaving room to grow as usage increases.

Schuck said he believes ZoomInfo is approaching the trough of its growth headwinds, citing the forthcoming platform, consumption trends and returning customers. He said the number of customers who left and came back during the first nine months of the year rose more than 10% from a year earlier.

Outlook and Capital Allocation

For the fourth quarter, ZoomInfo forecast revenue of $294 million to $297 million, adjusted operating income of $113 million to $116 million and non-GAAP net income of 28.5 cents to 29.5 cents per share. The outlook assumes no net benefit from the pricing transition or GTM1 rollout and no shortening of sales cycles, O’Brien said.

The company raised its full-year revenue forecast to $1.2235 billion to $1.2265 billion, representing a 2% decline at the midpoint. It expects adjusted operating income of $452 million to $455 million and unlevered free cash flow of $405 million to $425 million. O’Brien said ZoomInfo incorporated the third-quarter outperformance into its annual forecast while otherwise leaving its guidance approach unchanged.

During the quarter, ZoomInfo repurchased 2.5 million shares for $7.5 million and retired $35 million of senior notes for $31 million. It ended the period with $142 million in cash, cash equivalents and investments and $1.2 billion in gross debt. Net leverage improved to 2.2 times trailing 12-month adjusted EBITDA from 2.3 times in the prior quarter.

O’Brien also said ZoomInfo entered into a memorandum of understanding in October to settle its 2024 securities litigation. Subject to court approval, the company expects to pay $44 million and is entitled to recover $25 million under applicable insurance policies for legal and litigation defense costs and the settlement liability.

About ZoomInfo Technologies (NASDAQ:ZI)

ZoomInfo Technologies Inc is a business-to-business intelligence and go-to-market software company. Its platform helps organizations identify potential customers, understand companies and decision-makers, and manage sales and marketing activities. The company primarily serves sales, marketing, recruiting, operations and other revenue-focused teams.

ZoomInfo's products include a database of business and professional information, buyer-intent data, company and contact insights, sales engagement tools, marketing automation and orchestration capabilities, and workflow solutions.

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