Q3 2024 Earnings Summary
- Strong Growth in Enterprise and Mid-Market Segments: ZoomInfo is shifting resources towards the higher-growth enterprise and mid-market segments, where they are seeing meaningful growth opportunities. The enterprise ACV now represents approximately 41% of the business, and the company expects to reaccelerate growth in the mid-market, particularly in the software vertical.
- Copilot Driving Increased Engagement and Upsell Opportunities: The Copilot product is performing better than expected, particularly in mid-market and enterprise segments. It is reactivating dormant seats, increasing customer engagement, and leading to higher utilization rates. This could result in increased net retention and expansion opportunities.
- Expanding Data Moat and Competitive Advantage: ZoomInfo continues to expand its data moat by adding more contributors, community members, and integrating more signal data into its AI-driven Copilot product, strengthening its competitive position in the market.
- ZoomInfo is experiencing negative sequential revenue growth, with a normalization of -2% in Q3 and guidance of -2% in Q4, indicating potential challenges in returning to positive growth in the near future.
- The SMB segment, particularly the lowest end, continues to be challenged with net retention, leading the company to shift resources away from SMB towards mid-market and enterprise segments, which may affect overall growth.
- The company is guiding for a decrease in adjusted operating margin from 37% in Q3 to 35% in Q4, and there is uncertainty about revenue growth in 2025, which may rely on margin expansion and share repurchases rather than organic growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -3% | Slower new business additions and seat reductions from existing customers, driven by broader economic uncertainties, led to a dip in revenue growth. However, advanced functionality offerings provided a partial offset to the decline. |
Other Segment | -57% | Reduced gains from prior investments and lower remeasurement benefits on certain liabilities caused a significant drop compared to last year. Foreign currency fluctuations and smaller investment income also contributed to this decrease. |
Cost of Goods Sold (COGS) | +34% | Increased hosting costs, higher amortization on internally developed software, and growth in data acquisition expenses raised COGS. These factors outweighed the benefits of cost optimization measures implemented after prior periods. |
Operating Income | -31% | Lower revenue growth versus prior periods and increased operating expenses, including lease-related charges and investments in product capabilities, drove operating income down. This reflects tighter customer budgets and strategic spending decisions. |
Net Income | -21% | Incremental bad debt expenses and real estate impairments from consolidating facilities, coupled with lower Other Segment contributions, led to a net income decline. Although certain cost controls were implemented, they did not fully offset these impacts. |
Diluted EPS | -14% | Reduced net income directly decreased EPS amid one-time charges and slower revenue, despite some benefit from share repurchases. Looking ahead, continued cost discipline and focus on higher-value offerings may help stabilize EPS. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
GAAP Revenue | Q4 2024 | no prior guidance | $296M to $299M | no prior guidance |
Adjusted Operating Income | Q4 2024 | no prior guidance | $103M to $105M | no prior guidance |
Non-GAAP Net Income/Share | Q4 2024 | no prior guidance | $0.22 to $0.23 | no prior guidance |
GAAP Revenue | FY 2024 | $1.19B to $1.205B | $1.201B to $1.204B | raised |
Adjusted Operating Income | FY 2024 | $412M to $418M | $416M to $418M | raised |
Non-GAAP Net Income/Share | FY 2024 | $0.86 to $0.88 | $0.92 to $0.93 | raised |
Unlevered Free Cash Flow | FY 2024 | $420M to $430M | $420M to $430M | no change |
Revenue Growth | FY 2024 | negative 3% | negative 3% | no change |
Adjusted Operating Margin | FY 2024 | 35% | 35% | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
GAAP Revenue | Q3 2024 | $298 million to $301 million | $303.6 million | Beat |
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Demand Environment & Retention
Q: How is demand and retention changing?
A: The demand environment remains unchanged from Q2, with strong demand in the upmarket, particularly in mid-market and enterprise segments. We're seeing strong demand for Copilot. However, the SMB segment, especially the lowest end, continues to be challenged, particularly from a net retention perspective. Net revenue retention was 85% for the third quarter in a row, reflecting stabilization and less downsell pressure, especially in mid-market. We're seeing more expansion and upsell opportunities from Copilot and OperationsOS in the enterprise. -
2025 Free Cash Flow Growth
Q: Can you grow 2025 free cash flow without revenue growth?
A: We aim to drive meaningful growth in levered free cash flow per share by prioritizing top-line growth. We're resourced for that. If we aren't achieving it, we'll focus on margin expansion and continue to retire shares. -
SMB Dynamics & Impact
Q: Clarify SMB challenges and credit impacts?
A: The charge in Q2 cleared previous SMB issues, and there's no continued P&L impact from that. As we disqualify high-risk SMB new sales transactions, disqualification increased to over $2 million per month in Q3 from $1 million in Q2, creating a growth headwind until we lap this in Q2 next year. SMB may decrease as a percentage of business and potentially decline in ACV until we lap the new risk model. We still have elevated write-offs but saw levels abate as we exited Q3. We expect benefits from higher quality SMB sales and lower write-offs in 6–9 months. -
Copilot Adoption & Deal Sizes
Q: Is Copilot increasing average deal sizes?
A: Yes, we're seeing double-digit growth when migrating customers to Copilot, which is growing average selling price (ASP) in these migrations. -
Customer Feedback on Copilot
Q: What is customer feedback on Copilot?
A: Customers have positive sentiment on Copilot. They're reporting that 25% of their pipeline is attributed to opportunities flagged through Copilot, and they're seeing 58% more meetings and engagement from emails generated by our AI emailer. There's higher engagement and utilization compared to our legacy solution. We continue to add functionality, integrations, and signals to drive additional engagement and reduce go-to-market friction. -
Data-as-a-Service Momentum
Q: How is data-as-a-service performing?
A: We continue to see strong momentum, with the business growing 22% year-over-year. Adoption is strong in our enterprise and strategic segments, where customers leverage our data to build AI solutions and cleanse data in their systems. We expect this momentum to continue into 2025. -
2025 Revenue Growth Drivers
Q: What will drive revenue growth in 2025?
A: Positive drivers include growing our enterprise business and an opportunity to reaccelerate mid-market growth, particularly in the software vertical. We've seen retention improve sequentially for the second quarter in a row after multiple quarters of decline, especially where we had downsell pressure over the past two years. We're balancing this with being selective in SMB to find the right growth balance across segments. -
Net Revenue Retention Outlook
Q: When will net revenue retention improve?
A: Improving retention over time will be driven by getting enterprise retention above 100% and mid-market closer to 100%. Net revenue retention is a trailing 12-month metric, so improvements in-period take time to reflect. We're optimistic about the trajectory. We expect to continue disqualifying high-risk customers at $2 million plus per month, improving the quality of our revenue. -
Competitive Position with Copilot
Q: How do you feel about your right to win with Copilot?
A: We believe building go-to-market AI on just internal or CRM data is insufficient. Our foundation is the best B2B data asset in the world, which is necessary to build effective AI solutions. Other approaches face roadblocks without this foundation. With our data and additional signals, we have the right to win in go-to-market AI and be the platform of the future. We use this foundation to automate tasks across sales roles, building AI on the only data foundation capable of supporting it. -
Market Consolidation Outlook
Q: How will the space consolidate in coming years?
A: When generative AI emerged, we leaned in, investing heavily in Copilot and rearchitecting our platform to be AI first. We believe all current segments will be fundamentally changed over the next 2–3 years. Every solution will need the highest quality data as its foundation. We're advantaged by starting with the necessary foundational asset and scale, and we'll continue to build AI around the only data foundation capable of supporting go-to-market AI. -
Reactivating Dormant Seats
Q: How is Copilot reactivating dormant seats?
A: Copilot has reactivated users who were not frequently using the platform. By sending daily key signals on their target accounts—using intent data, earnings calls, job postings—we deliver important moments directly to them via email, Slack, Teams, or mobile notifications. This enables users to engage with the right buyers with one click, increasing utilization. -
Cost Reductions & Margins
Q: How should we think about margin improvements in 2025?
A: We were at 37% operational margin in Q3, with guidance for 35% in Q4 due to timing differences. We focus on growing levered free cash flow per share next year, and expanding margin is a key way to achieve that.