Zoominfo Technologies Inc (ZI) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the ZoomInfo Second Quarter 2020 Financial Results Conference Call.

(Operator Instructions) I would now like to hand the conference to your speaker today, Jerry Sisitsky, VP of Investor Relations.

Please go ahead, sir.

Thanks, Joelle, and welcome everyone to ZoomInfo's first ever financial results conference call highlighting our results for the second quarter of 2020.

We are excited to have so many new shareholders joining us today after our successful initial public offering.

With me on the call today are Henry Schuck, CEO and Founder of ZoomInfo; and Cameron Hyzer, our Chief Financial Officer.

After their remarks, we will open the call to a question-and-answer session.

I'd like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Expressions of future goals, including business outlook, expectations for future financial performance and similar items including, without limitation, expressions using the terminology may, will and believe and expressions which reflect something other than historical facts are intended to identify forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties including those discussed in the Risk Factors section of our filings with the SEC.

Actual results may differ materially from any forward-looking statements.

The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law.

For more information, please refer to the cautionary statement included in the slides that we have posted to our Investor Relations website at ir.zoominfo.com.

All metrics discussed on this call are non-GAAP unless otherwise noted.

A reconciliation can be found in the financial results press release or in the slides that we have posted to our Investor Relations website.

With that, I'll turn the call over to our CEO, Henry Schuck.

Great.

Thank you, Jerry, and welcome everyone to ZoomInfo's Second Quarter Financial Results Conference Call, our first as a publicly traded company.

First, let me acknowledge all of our employees on delivering a great quarter.

I'm incredibly proud of our team, and it's thanks to their hard work that ZoomInfo's leading go-to-market intelligence platform helps more than 16,000 companies worldwide sell and market more effectively and efficiently.

In the middle of a pandemic, our team rallied to launch the first virtual software IPO in history, and we capitalized on that excitement and momentum while delivering a great quarter for our shareholders.

The outside validation provided by the IPO has increased morale across our team and has helped validate what we've always believed: That going to market digitally is more efficient and more effective than the analog motions most companies are still using to find their next customer.

While every company during this pandemic grapples with how to prioritize investments, efficiently finding their next customer is at or near the top of the list for every executive.

In the quarter, our team delivered 40% organic growth with 49% adjusted operating margins and $111 million of revenue.

Year-to-date, we have delivered more than $100 million in unlevered free cash flow.

That growth is driven on top of our customers leveraging our actionable insights and intelligence to drive account-based marketing initiatives, sales development plays, territory mapping, lead and demand generation campaigns, sales pipeline reviews, anonymous visitor tracking, ad retargeting campaigns, audience segmentation and much, much more.

ZoomInfo truly sits at the heart of all go-to-market motions.

In June, our conviction that the ZoomInfo platform is truly best-in-class across a wide spectrum of go-to-market strategies was validated by G2 Crowd, a well-known reviewer of enterprise software solutions.

In G2's Summer 2020 Grid, ZoomInfo earned 10 #1 rankings in market intelligence, marketing account intelligence and enterprise and small business sales intelligence.

The G2 awards also highlighted the breadth of our solutions and our ability to impact nearly every aspect of the sales and marketing professionals' go-to-market activities as we appeared on 14 different G2 Grid Reports and were named in 5 different sections, including buyer intent tools and lead capture.

Just a week after the G2 Crowd honors, TrustRadius, a customer voice and insights platform, awarded us the #1 spot for marketing intelligence software after awarding us the #1 spot for sales intelligence software in March.

Although we are proud of these awards and the industry recognition we are receiving, we recognize that innovation in our space happens fast and we are committed to continuing to innovate to maintain our clear market leadership.

To that point, we've continued to invest, innovate and enhance our machine learning and natural language processing algorithms around data collection to improve the accuracy and coverage of the data we provide our customers.

These investments in the quarter meaningfully improved our collection effort, delivering up to a 4x improvement in data throughput.

We've continued to enhance our enterprise offerings by adding our intelligent suite of Scoops, alerts, company hierarchy and location, intent and company news through our APIs.

And our data engineers deliver the ability to match companies by specific site locations and street addresses and then surface contacts associated to those locations through the front end of our platform and through our APIs.

And our customers -- and more customers than ever are taking advantage of the new products and functionalities that we have built and delivered.

As an example, between Q1 and Q2, customers using our Intent product grew close to 50%, while customers of our InboxAI product more than doubled.

On top of that, our overall engagement rates are up over 20% across all of our platforms.

Without the innovation driven by ZoomInfo, sellers and marketers are blind to their target markets and ideal buyers and are completely reliant on disparate, siloed and manually updated digital rolodexes to drive the targeting of potential customers and the engagement of decision-makers within those targets.

Marketers would be forced to drive demand by sponsoring conferences and live events pointed at a broad set of prospects with no insights into their buying intentions or decision-making power.

This is not the way companies in 2020 should be going to market.

For the past 2 decades, ZoomInfo has been working to change these legacy go-to-market motions, and the pandemic has helped accelerate this change and has forced the hand of many slow-to-evolve organizations into making a choice: digitally transform or disappear.

ZoomInfo provides sellers and marketers the data, insights and technologies that enable everything from a simple go-to-market motion at a [pecan] exporter in Alabama to the most sophisticated go-to-market planning and execution at multinational corporations like Sodexo and SAP.

Our platform enables a new way to sell, one where every sales and marketing professional is just a few clicks away from orchestrating the most targeted and effective outreach possible to clients and prospects.

For example, imagine being a few clicks away from segmenting and targeting every manufacturing company in the Pacific Northwest with more than 100 employees, a 401(k) plan that renews in October, who uses Microsoft Dynamics and Oracle NetSuite and who is currently in market for human capital management software and being able to take that incredibly granular audience and instantly orchestrate a sales development campaign, a marketing automation campaign or an advertising campaign to the key decision-makers in that audience.

That level of targeting and go-to-market sophistication would take a team of data scientists, engineers and data collectors years to establish and would only be available to the super enterprise with very deep pockets.

Today, through the combination of a robust contributory network, a constantly evolving machine learning and AI engine and human researchers, ZoomInfo democratizes that capability to every sales and marketing professional, who needs to hit their number every month, quarter and year.

The old way of going to market without this real-time on-demand data is finished.

It's finished in the enterprise.

It's finished in SMB.

If your idea of going to market was having expensive sales reps wander the hallways of major corporations looking for the next opportunity, or spending millions of dollars on a large event presence with the hopes that someone with budget and attention would stumble across you, then this pandemic has compelled you to realize that those methods were not only incredibly suboptimized, but also now wholly unavailable.

Pandemic or not, we've seen companies continue to raise their hands to this change.

On the new business side, during the quarter, we onboarded more new customers and more new customer ACV than ever in our history.

We released our new [Platform 10] months ago, and today it accounts for over 50% of our total ARR.

Even in the hardest hit industries, we are seeing demand for our data, insights and technology, successfully signing dozens of new customers in the hospitality sector in the quarter, including the largest owner-operator of company branded hotels in North America who opted for ZoomInfo's elite package with intent data across their corporate sales team.

We also brought on Kaeser Compressors, the U.S. arm of a 7,000-employee German-based manufacturer of compressed air products and services.

With in-person meetings and events not possible for the foreseeable future, Kaeser moved to digitize their go-to-market effort and continued to develop their funnel.

They brought on ZoomInfo's advanced package for their frontline sellers, while their marketing department added our marketing functionality to their stack as well.

We also continued our momentum on the expansion side with close to 2,000 of our existing clients increasing their spend with us in the quarter.

One of those clients, CommScope, a global provider of network infrastructure, expanded with ZoomInfo by adding more users and bringing top of funnel activities back in-house.

In addition to expanding the number of users, they also saw value in the features and functionality of our new combined platform and chose to migrate to it.

In the enterprise, we continued our successful land and expand motion with more than 650 clients spending over $100,000 a year with us, representing a 60% growth in ACV for those customers.

One of those customers, Worldwide Express, a 1,000-plus employee shipping and logistics company, expanded their user licenses from their inside sales team to their full field sales team.

An application performance and monitoring company expanded their users and added more functionality to their use of the ZoomInfo platform, gaining access to our industry-leading B2B intent product along the way, while one of the largest technology companies in the world expanded into their machine learning and AI teams with our enterprise API capability.

With July 1 marking the start of the enforcement of the CCPA, our privacy posture becomes increasingly important to our competitive differentiation.

We are and always have been a privacy first business, providing data collection notices to all of our EU and California contacts and permitting anyone in our database to opt out through our automated privacy center.

Although not required by any regulation today, the expansion of our notice and choice program across the rest of our database has also been successfully progressing as we have now given direct notice to over 55% of our emailable database and expect to have provided direct notice to that entire audience by the end of 2020.

As I look into the future, when we think about our market opportunity, what's really exciting is that we are at the very beginning.

We are in the very early stages of targeting a large and growing addressable market, which represents more than a $25 billion market opportunity.

And with low single-digit penetration rates, there are meaningful growth opportunities by continuing to leverage our efficient go-to-market engine to add more customers to our platform, expand within the enterprise, build new solutions that add value to our existing customers, go into international markets and adjacencies like recruiting and by flexing our M&A muscle as we look for tuck-ins.

We are a go-to-market intelligence platform at scale today, and we have a vision to expand our capabilities to further drive strategic automation, orchestration and workflow through the tactical go-to-market motion that starts with our data, flows through our platform and analytics layers and enables automated go-to-market motions that produce measurable results.

Given the opportunity here and the demand for more comprehensive sales and marketing solutions, we believe we can drive durable long-term growth.

Finally, I am more confident today than ever about our competitive position, our technology and the positive traction we're seeing within our market.

But mostly, I gained a tremendous amount of optimism about where we are headed because of the team we have put together.

In Q2 alone, we added more than 150 new employees, recruiting and onboarding each one of them virtually.

Every one of our over 1,300 employees appreciates the immense opportunity in front of our company and is motivated and committed to achieving our full potential.

And while we are proud of our accomplishments to date, we are hungry to be more.

With that, I'll hand it over to our Chief Financial Officer, Cameron Hyzer.

Thanks, Henry.

I'm going to start with an overview of our business and financial model, then review our financial results for the quarter and wrap up with guidance for Q3 and full year 2020.

We are driving a high-growth subscription business at scale, and we operate profitably, which allows us to reinvest operating leverage to drive durable, long-term growth.

In Q2, our organic growth plus adjusted operating margin was 89%.

Moreover, as many of our software company peers aim to achieve profitability or some target margin in the future through operating leverage, we plan to harvest our operating leverage and reinvest it back into the business, continuing to build out new products such as recruiting or expand upon our differentiation in AI and machine learning.

We will also invest in adding sales capacity to fuel continued growth.

We are able to achieve strong, sustainable growth at scale because our platform provides tangible and identifiable value and is significantly differentiated versus the competition based on the quality of our data and insights we are able to provide.

We also operate in a very large and underpenetrated addressable market, helping companies of all shapes and sizes achieve top line success.

To take advantage of this significant opportunity in front of us, we have built a best-in-class go-to-market engine driven by consistent internal use of our own platform.

Our go-to-market motion drives sub-30-day sales cycles, which we combine with an almost immediate implementation to provide quick time to value for our customers.

This has become even more important during times of economic uncertainty.

To round out why we are excited about our business and financial model, our revenue comes almost entirely from subscriptions, typically 1 to 3 years in length and generally build annually in advance.

Subscription prices are based on features and functionality available, the number of users that can access the system and the amount of data that a customer integrates.

This model aligns our revenue with the value derived by our customers and also enables our land and expand strategy.

For our results, please note that metrics will be discussed on a non-GAAP or adjusted basis, unless otherwise noted.

Impacting our GAAP results in Q2, we did incur a significant stock-based compensation expense triggered by the IPO and related to grants awarded primarily prior to 2018.

There will be ongoing expenses related to these grants through 2022 but at lower levels.

As a result, we expect our stock-based compensation expense to come down materially in the coming quarters.

Other differences between GAAP and adjusted metrics include noncash items like amortization of acquired intangibles and nonrecurring expenses related to the IPO or other historical transactions.

GAAP revenue in Q2 was $111 million, up 62% year-over-year.

Our organic growth based on allocated combined receipts was 40% in the quarter compared to Q2 '19 driven by continued new customer additions and expansions at existing customers.

Customers with more than $100,000 in ACV increased to over 650 with ACV from those customers growing 60% relative to June 2019.

The difference between GAAP and organic growth is due to the fair value adjustments of acquired unearned revenue that principally impacted the comparative revenue figure in 2019.

While we are experiencing some headwinds related to the economic uncertainty resulting from the global pandemic, new sales and net dollar retention performed well in the second quarter.

We added a record level of ACV from new customers in Q2, and retention activity improved relative to Q1 and Q2 last year.

Adjusted gross profit in the quarter was $98 million, yielding an 89% margin, up from 88% in Q2 '19 and up from 87% last quarter.

As we shift to operating costs, adjusted sales and marketing expense was $27 million or 24% of revenue, up from 22% a year ago.

We continue to see compelling returns from our sales and marketing investments with an LTV to CAC above 10x.

We plan to continue to expand our sales and marketing capacity to drive sustainable growth.

Adjusted R&D expense was $7 million or 7% of revenue in Q2, flat with a year ago.

R&D is one component of our investment in innovation which continues to yield a strong competitive advantage and drives a continued pipeline for new revenue sources.

When factoring in all of our investments in innovation across the organization, including those investments in data quality that are reflected in cost of sales, we are spending in the mid-teens as a percentage of revenue.

Finally, adjusted G&A expense was $9 million or 9% of revenue as compared to 7% a year ago as we have continued to add capacity to better operate as a public company.

We ended the quarter with approximately 1,300 employees worldwide, up 36% year-over-year, and we continue to add headcount in the quarter.

Our focus is on continuing to build a culture of performance and on creating an environment where diversity is not only welcome, but encouraged.

Based on the revenue growth and investments in the business, adjusted operating income in Q2 was $55 million, yielding a 49% margin, which compares to $41 million and a 52% margin in Q2 '19.

Our philosophy is to maintain annual adjusted operating margins in the mid- to high 40s.

We delivered at the high end of that range in Q2 as COVID-related cost savings, including reduced spending on travel, facilities and marketing events, positively impacted margins in Q2.

We anticipate that we will be more in line with our operating margin targets for the second half of the year, particularly given that our cost structure will be fully burdened by public company costs going forward.

Adjusted net income for the quarter was $27 million or $0.07 per share based on 403 million weighted average diluted shares outstanding.

As I think about the impact of COVID-19 on us, we have experienced headwinds and tailwinds.

In Q1, we experienced headwinds as some sales cycles stalled when many business leaders were shocked by the magnitude of change they were experiencing in mid- to late March.

In Q2, our sales teams adjusted to the new environment and drove improved sales and retention activity relative to Q2 last year and Q1.

We do have clients that have been materially impacted by the pandemic.

As stated in the S-1, customers in heavily impacted industries represented less than 4% of ACV, and we are seeing heightened cancellations and reductions in spend from this subset of customers relative to pre-COVID time frames.

During the quarter, our average contract duration was relatively unchanged at a little over a year, but we have seen a shift in customers opting to pay quarterly instead of annually as customers look to optimize their cash flow in light of the economic uncertainty.

Going forward, we expect that economic uncertainty will continue for the foreseeable future.

And while we continue to see some headwinds, we are well positioned to drive growth as our platform is highly differentiated.

We deliver high ROI.

Our customers can achieve quick time to value, and we help our customers find their next customer, which many executives deem to be their most strategic imperative.

Turning to the balance sheet and cash flow.

We ended the quarter with $260 million in cash and restricted cash.

This includes approximately to $170 million of cash added to the balance sheet from net IPO proceeds, less repayments of debt and preferred equity.

Cash flow from operations was $25 million for the quarter, which included $24 million in interest payments.

Unlevered free cash flow was $52 million for the quarter and $107 million year-to-date.

Our capital expenditures consist primarily of investments for growth and the capitalization of internal development costs.

Our capital expenditures were $4 million in Q2 and $8 million year-to-date.

With proceeds from the IPO, we repaid the revolver, second lien and Series A preferred instrument as well as an additional $100 million of our first lien term loan.

As a result, our Q2 LTM net leverage ratio was 2.4x.

Based on the cash flow profile of the business and the deleveraging that we implemented through the IPO, we were upgraded by both of the rating agencies that cover our debt, to B+ at S&P and B2 at Moody's.

Before I turn on to guidance, let me provide some context on our corporate structure.

Our structure can create complexity for investors.

And while some are quite familiar with an Up-C structure and the multiple classes of stock and tax receivable agreements that come with it, others are likely to be less familiar.

The increased complexity does come with a meaningful benefit to shareholders in that the tax advantages of the pre-IPO partnership continue to accrue as we transition to a publicly traded company.

These advantages are shared with the public investors through the tax receivable agreements.

As a result, our cash tax payments will be lower and therefore drive increased cash flow.

With that, I'll provide our outlook for the third quarter and full year 2020.

Given the GAAP revenue and allocated combined receipts converged in Q3 of this year, we are issuing guidance on GAAP revenue to simplify comparisons and avoid confusion.

We expect GAAP revenue in Q3 to be $116 million to $118 million and adjusted operating income between $53 million and $55 million.

This implies 34% organic revenue growth and 46% margin at the midpoint of the range.

The non-GAAP net income is expected to be $0.08 to $0.09 per share.

For the full year 2020, GAAP revenue is expected to be between $451 million and $455 million and adjusted operating income between $213 million and $217 million.

This guidance implies 35% organic growth and a 47% margin at the midpoint of the range.

For those that are modeling allocated combined receipts, the year-to-date difference between GAAP revenue and allocated combined receipts was $1.7 million due to the impact of fair value adjustments to acquired unearned revenue.

In total for the year, we expect approximately $2 million difference.

So naturally, we expect full year allocated combined receipts to be higher by that amount.

Non-GAAP net income for the year is expected to be $0.29 to $0.30 per share, and we anticipate unlevered free cash flow to be between $206 million and $210 million.

The guidance range provided are based on our current operating results to date and assumptions, including anticipated headwinds from the impact of COVID-19 through at least the end of the year.

To summarize, we are very pleased with the business performance in the second quarter.

We continue to deliver value to our customers and are focused on generating sustainable growth and profitability over the long term.

We have a large and growing addressable market, and we'll continue to invest for future growth.

We believe that we are in the early stages of this opportunity and are confident we will continue to build a very large and successful company over time.

Now let me turn it over to the operator for questions.

(Operator Instructions) Our first question comes from Siti Panigrahi with Mizuho.

Congratulations as a public company.

Just wanted to dig a little bit into your different segment.

You talked about enterprise.

Also, could you talk about mid-market and small business as well, what sort of trends did you see in Q2?

So we continue to see strength really across all of the segments.

From a small business perspective, I do think that in industries that are more impacted by COVID, we are seeing some headwinds related to that.

I think as we mentioned before, for some of our bigger ticket deals, no matter which segment that's in, we have seen an elongation of sales cycles from time to time.

Although as we wrapped up the second quarter, we did see many of those finally close.

Our next question comes from Brad Zelnick from Crédit Suisse.

Henry, you talked about the validation and excitement of becoming a public company.

Can you maybe just share with us, as we think about the impact in driving additional demand, is there anything that you might be able to put numbers to in terms of the sales funnel, sales cycle times or any other observations that are impacting the business?

Yes, Brad, thanks for the question.

I think that what we see most -- or I think first is there was an uptick in leads that corresponded with the time of the IPO.

But the trick there is it's hard to disaggregate that between the COVID-related tailwinds we were seeing and also just enhancements that we were already making in our go-to-market engine.

The real impact we're seeing is that the validation that we got from the IPO has really opened the doors for us to have more strategic conversations with our customers.

And we put our go-to-market engine on display as part of the IPO, and that's really opened the door for our account management teams and customer success teams to be invited in to share best practices with key executives at our customers in a way that we hadn't otherwise been provided the opportunity to do.

And so we think that really over time, we'll be able to continue to leverage that -- those open doors, and that will continue to drive our growth.

That's helpful.

And maybe just for you, Cameron.

Appreciate your comments in the prepared remarks on COVID.

Can you maybe just put a finer point to how we should think about the headwinds and tailwinds?

Any sense if these new logos will stick around for a while or churn off when social distancing eases?

I'm -- first, all of our contracts are 1- to 3-year contracts.

So I think that they'll certainly stick around for at least the contract period, and then most of our customers do renew.

I think that from a social distancing perspective, really, COVID has just emphasized many of the trends that we saw pre the pandemic in that businesses of all shapes and sizes were looking for ways to improve and digitize their go-to-market motions.

So I think in any kind of transformation that you see, you always get an acceleration at this time, but then most of that continues kind of as the world returns to normal.

And one thing I would add there, Cameron, too, is look, we believe this is a multiyear tailwind.

That's just accelerating a trend towards digitizing sales and marketing motions that, like Cameron mentioned, were already happening.

And we're sitting in the middle of a larger than $25 billion total addressable market where we're less than 2% penetrated.

And what you really see is companies today are taking trade show and events and travel budget and reallocating them to content syndication or online event and to ZoomInfo.

And over time, as they see the tremendous ROI our platform provides, they're going to shift more and more dollars behind ZoomInfo.

And as they -- and when they shift those dollars, they'll be expanding from marketing use cases to sales use cases, to data cleansing, to intent data, to lead capture and more and more.

Our next question comes from Mark Murphy with JPMorgan.

I will add my congrats on the healthy results.

Henry, when you project forward several years in the future, how aggressive are your ambitions in the recruiting market?

And I think we're wondering if there's a bit less urgency today than there was pre-COVID just given the employment climate.

Or would you still be planning to move full steam ahead just as rapidly as you already have been?

Yes.

We believe we're in the midst of building our platform to be -- to build a recruiting focused product.

And so we continue to believe that's going to be a large growth area for us.

Obviously, the pandemic has slowed hiring in some places, but there are also many companies that continue to hire in the midst of the pandemic.

And our platform gives recruiters and talent acquisition professionals a very robust database of professionals with the contact information and experience information and education experience -- information that they need to be able to recruit effectively.

What we really believe is that recruiting and talent acquisition is going to become much more like a go-to-market motion than it is today where you build a pipeline and you nurture and you close.

And we're going to be able to deliver the data and insights that allow that motion to happen in a more sophisticated way than it's happening today.

Okay.

Great.

As a follow-up, Cameron, you had previously filed the monthly net new ARR numbers, and we know that was a onetime disclosure.

We learned that April was your best first month of a quarter ever on the new business side.

And I think you mentioned in the script that for Q2, it's the most new customer ACV in your history.

So I guess I'm curious, did that trend continue -- did it continue such that June was the best third month of a quarter ever?

Or if you can't answer that -- can't answer it that way, could you maybe just help us understand the shape of linearity at a high level for Q2?

I think the trends that we saw in Q2 continued throughout the quarter.

And I'd say that June was in line or maybe in a modest acceleration relative to what we saw in April compared to other quarters.

Realistically, I think we saw solid demand from our customers throughout.

Our next question comes from Alex Zukin with RBC Capital Markets.

Congrats on both the quarter and the IPO.

I guess maybe, Henry, first for you, if you think about what you've learned so far kind of selling through the pandemic.

You mentioned earlier about having more time to make the case of the enterprise customers being invited in to make that strategic value proposition.

Walk us through kind of how that's both trended even into the month of July and where you see that kind of peaking.

Does that set up for a different kind of linearity or trajectory in Q4?

And then any puts and takes that you've seen or changes that you made as a result of COVID on your go-to-market motions?

And I have a quick follow-up.

Yes.

I mean if you look back, I think first, we were surprised that the downward activity that we saw in March rebounded in the quarter, and we felt really good about that.

And in March, our customers -- we felt like a lot of our customers were deer in headlights.

They didn't know how the pandemic was going to affect them, so they paused in spending.

And in the quarter, we saw much more of that rebound.

We saw slow-to-evolve companies that were coming to us with a new imperative to change.

We saw companies that used to have hundreds of salespeople out in the field saying that they needed to find a way to make them productive and find ways to make their field sales teams able to continue to grow pipeline and close business while they're working from home.

And what that really, to us, indicates is a real shift from analog to digital sales motion and an acceleration of that shift.

And the speed at which those organizations pivoted during the early days of COVID, changing their business models, going to market in new ways, we're -- it never ceases to amaze me the fortitude and the resilience of small businesses.

And it was great to see dozens of businesses and affected industries also sign on in the quarter.

And I think what we'll continue to see is customers and companies who were slow to evolve raise their hands and look for opportunities to make their sales and go-to-market motions more effective and more efficient.

And I think what we're excited about is that today, we are much more the organization to call to help with that transformation than we've ever been.

Got it.

That makes sense.

And then Cameron, maybe just 1 or 2 metrics questions for you.

You mentioned in the script seeing an improvement in net retention both sequentially and year-over-year.

I guess I was wondering if there's any way to quantify on a dollar-based net expansion metric kind of how Q2 compared to Q1 or last year.

And then on billings, you mentioned a duration headwind from more customers signing up for quarterly billings terms rather than annual.

Is there any way to quantify the size of that headwind on billings in the quarter?

Yes.

So to start with, on the annual net retention, we do view that as an annual metric and obviously calculate it on an annual basis.

In the quarter, the activity around retention certainly saw an improvement.

So we had more customers increasing their spend with us.

In fact, we had close to 2,000 customers increase spend with us during the course of the quarter.

So overall, we expect that we'll continue to see kind of solid net retention through the year.

In terms of the billing shift, when I look at unearned revenue as an example, the shift into quarterly payments had an impact of more than $10 million if we were at a similar mix to what we saw at the end of Q1.

Our next question comes from Stan Zlotsky with Morgan Stanley.

A couple from my end.

First one, the international selling motion.

With the success that you're having in the U.S. and at the same time considering the COVID situation globally, how are you thinking about expanding your selling presence outside of the U.S.?

And then I have a quick follow-up for Cameron.

Yes.

So in -- one of the things that we did in the quarter -- also, hi, Stan, sorry.

One of the things we did in the quarter was we just focused some go-to-market efforts on international.

So if a lead came into our funnel, there were a set -- from an international country, there were a set group of sales development reps and account executives who owned those leads.

And what we saw was that we can absolutely affect our conversion and win rates in the international market by focusing on that.

And so we've embarked on an initiative to rescan and reorganize the platform to be focused on the international market, and you'll see us in that market much more heavily in the back half of this year.

And so in short, our plans around the international market haven't changed, and we're excited to enter them.

Okay.

Perfect.

And then a quick follow-up for Cameron, just expanding on Alex' question right before.

If we make the adjustment, the $10 million impact to billings from payment shifting to more quarterlies, you get about 15% billings growth in the quarter.

Help us to kind of close the gap between the 15% billings growth and the 40% revenue growth that we're seeing on your top line.

That's it for me.

So the -- if you make that adjustment relative to Q2, I think your 15% number is probably a little light.

Realistically, in Q2, on a calculated billings basis, last year, it was [more like] $94 million.

But I think one of the things that you just need to kind of be careful of is there's always going to be shifts and some noise around the calculated billings number, which is why given our kind of completely subscription business, you end up getting a better sense of the real growth and kind of forward-looking capabilities of the business based on what's actually being recognized as revenue.

I'd have to go and kind of do a pro forma view of what the full billings growth would look like, but I could get back to you, but I do think it's much closer to the organic growth that we stated than 15%.

Our next question comes from Michael Turrin with Wells Fargo Securities.

I'll echo my congrats on the big milestones as you continue to tick them off.

Maybe to start off with, just is there any update or added commentary you can provide around how usage is trending both on the platform overall with those fanatic users?

Are you seeing more traction here with those power type users that you've called out in the past just within the current environment?

Yes.

Michael, this is Henry.

I think first, across our customers, we saw low to mid-20% increases in our DAU over MAU metric since the start of the pandemic, which is the number of monthly active users who engage with our product in a single day window.

And we continue to see growth in our fanatic users across the platforms as well.

Okay.

Great.

And maybe given this is your first earnings call, Cameron, can you walk us through just the overall approach to guidance here?

What kind of assumptions go into the second half forecast?

And maybe how much visibility do you have into the rest of the year at this point in time?

Yes.

So given the fact that we're a completely subscription business, we do feel very comfortable with the visibility that we have into the coming quarters.

Obviously, with the pandemic, we do believe that there's a broader range of potential outcomes.

And obviously, we've contemplated that in the guidance that we've provided.

Our next question comes from Jennifer Lowe with UBS.

I wanted to double back on the 2,000 customers that expanded in the quarter.

And I'm curious if there's any notable trend there on how that expansion look relative to prior periods in terms of the drivers of expansion, whether it's more seats or more customers upgrading to higher tiers of usage or buying additional products.

Did it look any different in terms of what is driving that expansion and how people are using the product?

I do think that historically, the additions in terms of customers has been more seat driven.

As we've rolled out more and more functionality, I think that that's becoming a bigger portion of the revenue that we're able to generate.

Okay.

Great.

And just one more for me and a quick one, going back to some of the questions around guidance and for free cash flow.

So you talked about the impact from customers moving from quarterly to annual -- or annual to quarterly in period.

But if we look at the free cash flow guidance for the year, what's sort of assumed there in terms of payment frequency?

So obviously, the assumptions do contemplate payment frequency going forward.

We do expect that we're going to -- and we are seeing a shift back towards annual payments now that we've gotten out of kind of the shock of the immediate COVID crisis.

Our next question comes from David Hynes with Canaccord.

I'll echo everyone else's congrats.

Henry, I want to ask about intent data.

You called out some nice growth in terms of adoption in the quarter, and I think it's part of the secret sauce of the platform.

Can you just remind investors, a, how you get that data; b, where you are in terms of adoption; and c, what happens to customer spend when they take on that intent data?

Hey, DJ, thank you for the question.

So our intent data is available in our elite package or it could be bought ad hoc into one of our lower packages.

So one, we're driving a motion to the highest end packaging that we provide through the intent offering.

That data comes from unique proprietary sources that we own and integrate in.

And then we also license data from multiple different vendors.

That comes into a data science team -- data science and innovation team here at ZoomInfo, who take all that data, normalize it using our IP to company data set to be able to associate traffic to specific websites back to a company's IP address.

And we're able to take that and then create a baseline for consumption of certain topics or actually thousands of different topics.

And then the data science team has built algorithms that look for spikes in consumption of those specific topics.

Our next question comes from Terry Tillman with Truist Securities.

I'll echo the congrats on the IPO and the results.

Henry, maybe just a question about nontraditional industries.

I think you mentioned a farmer earlier that signed up.

What I'm curious about is as you all look through the data in 2Q, for these nontraditional customers or industries, what is their buying patterns like in terms of the sales cycle as well as the deal size?

And just do you see longevity in these nontraditional industries going forward?

Yes.

Thanks, Terry.

I think first, we -- our business is growing across all different -- all of our different industry segments, and so we're seeing growth in the sort of nontraditional segments.

One of the other types of companies that we've seen is financial services companies who have traditionally been a much more face-to-face or even in some situations, door-to-door go-to-market motion.

And so we've seen them come to us and say, "Look, this face-to-face, door-to-door motion doesn't really work for us anymore." And then we often see just our overall growth motion is to sign companies up with modest ASP, and then in the enterprise, really grow them through our land and expand strategy.

And so we're -- the motion that you'll see is we'll sign an enterprise company at a relatively lower ASP, that might be our product that gets rolled out to 20 or 50 or 100 out of 1,000 different sales and go-to-market professionals.

We prove ROI in that segment, and then we grow beyond that.

And that motion is consistent in both our traditional and nontraditional industries.

And yes, we do see real success happening within those accounts.

I gave an example during our IPO of a company called TentCraft that sells event tents.

That's a manufacturing business who's completely changed their go-to-market motions using ZoomInfo.

I gave the example of Kaeser Compressors, which is an air products and services company that's based in Germany, that's come on to us for our digital platform to drive their go-to-market effort.

And so -- and we're already seeing early success from those companies in those nontraditional industries.

The last example was I mentioned a large hotel chain that came on.

And that example is really interesting because before they signed up for ZoomInfo, they did a small pilot.

They booked $80,000 of revenue in a short pilot -- or $80,000 of bookings in a short pilot, and then -- and with hundreds of thousands of dollars of pipeline built as well.

And so then they expanded and came on with us.

And so we're seeing real ROI across both traditional and nontraditional industries, and we think that's going to drive the retention rate in the future.

And our next question comes from Brent Bracelin with Piper Sandler.

I guess one for Henry and a follow-up for Cameron.

Henry, I wanted to talk a little bit about the broader ambitions relative to this digital go-to-market motion shift in the industry.

The reason I ask is the intent solution.

I think you talked about that being over 60% growth in InboxAI.

I know that was through the Komiko acquisition not so long ago, but it sound like that doubled year-over-year as well.

So walk us through, has your ambitions or appetite changed post COVID relative to the scope of opportunity you're going after?

And again, one quick follow-up for Cameron.

No, I don't think our ambition has changed.

I think ultimately, what we believe is that today, sellers and marketers are trapped inside of legacy CRM and marketing automation systems that provide them no insight outside of the 4 corners of their website or what a sales rep put into their CRM system.

And that -- and the whole world outside of the 4 corners of your website is what's driving significant amounts of insights, whether that's intent data or a company is growing or shrinking or making acquisitions or moving locations or hiring new executives.

The world of insights that happens outside of your CRM and marketing automation system is much more robust than what's inside.

And we think sellers and marketers need to be able to grasp at those insights that happen outside of the 4 corners of their website and then drive go-to-market motions based on those.

And so what we're building is the ability to automate the go-to-market motions and orchestrate the go-to-market motion of every company by leveraging both their first-party insights that exist in their CRM and marketing automation systems, but coupling that with the broad world of insights that happens outside of those 4 corners and outside of those legacy systems and combining those to build the most efficient and effective automated motion, and that continues to be our vision.

Got it.

Helpful color there.

And then I guess, Cameron, you talked about the new [Platform 10] accounting for, I think, over 50% of ARR.

Do you have any kind of comparable stat with either last quarter what the Platform 10 mix was of ARR or perhaps last year?

Certainly, the new platform rolled out in October of last year.

So it's gone from 0% to 50% in the last 8 months.

If we look at the end of Q1, it was less than a third of the revenue.

Our next question comes from Brian Peterson with Raymond James.

Congrats on the strong results.

So maybe a follow-up to Terry's question, but I know you guys had a lot of exposure to software and business services.

I'm curious, of the ACV added this quarter, what did that mix look like versus your existing business?

And anything in the pipeline that suggests that there are certainly end markets that are really ramping up?

Just curious on that.

As has been the case historically, the markets that we're less penetrated in continue to see higher growth rates.

So while we continue to grow very well within the software and business services world, other of the industries like professional services and manufacturing and so forth continue to grow faster.

That's a continuation of a trend that we saw pre-COVID, but saw it through this quarter.

I'd say the one big change is that certainly, industries that were more heavily impacted by COVID, whether that's hospitality or retail or travel, those did not grow as quickly within the quarter.

Our next question comes from Raimo Lenschow with Barclays.

Congrats from me as well.

Quick question on competition.

Like, what are you seeing in terms of customers understanding like your broader value proposition against something like LinkedIn?

And anything out of the legacy guys like Dun & Bradstreet since the public, how, again, that kind of changes anything?

Raimo, thank you for the question.

One of the things that we do is we use a call recording software internally and we flag competitor mentions across all new sales and customer calls.

And most competitors are mentioned less than 1% of the time, and the most referenced competitor's mentioned in the single digits.

And I actually, this morning, took a look at the most recent report.

And since you asked about D&B, the most recent report, which covered July, the mentions of D&B have actually declined since February.

So ultimately, no changes in the competitive landscape.

Our next question comes Tom Roderick with Stifel.

I wanted to just build on, I think, was Brent's question just asking about [Platform 10] and making great progress in getting customers converted there.

Henry, do you sort of have any more anecdotal data as to what customers' feedback has been on the platform?

It seems like you're combining breadth of data with intelligence and data across the DiscoverOrg and ZoomInfo platforms by putting them together.

And then Henry, side of the -- or Cameron, side of the question for you is what sort of tailwind are you seeing with respect to the ARR lift that you're seeing from customers that are converting, whether it's in pricing or additive data being purchased?

Thanks for the question.

I think what we see is it depends on which legacy platform our customers are migrating from.

If they're migrating from the DiscoverOrg legacy platform to the new platform, what they're telling us is that the coverage is immensely -- is much, much more than they had access to in the DiscoverOrg platform.

And so they're seeing 20x the coverage of companies and contacts in the new platform than what they had access to in DiscoverOrg, and we've already integrated the breadth of the DiscoverOrg solution inside of the new combined platform.

So they have all of that at their fingertips as well.

If they're migrating from the legacy ZoomInfo platform, then they comment about the organizational chart, the intent data, the Scoops and initiatives, the funding data that we've made available, the workflow that we've built, the anonymous website tracking that we've built into the platform.

And so they're seeing the breadth and robustness of the solution, while the DiscoverOrg migrations are seeing a much broader coverage than they've ever seen.

Yes, [tremendously].

It's really good.

Go ahead, Cameron.

Yes, Tom, in terms of kind of pricing and uplift, the transition or migration to the new platform hasn't really been a significant driver of growth.

And obviously, that's evidenced by the fact that the -- most of our growth actually comes from new customers and not from existing customers.

But in terms of pricing, if a customer's migrating for like-for-like functionality in seats, that tends to be a kind of -- that tends to be like a renewal like price change, so call it kind of mid- to low single digits.

Obviously, one of the things that the platform does do is it allows us to more easily provide increased functionality to folks.

So in those cases, we do see kind of somewhat more substantial uplift, but again, it's not super material to our growth so far.

Wonderful.

Really good.

Quick follow-on, but just thinking about the bigger picture of your margin structure.

It's tremendous.

It'd be hard to imagine a software company being much higher than where you're at.

When you look at the 25%, 26% of revs being spent on sales and marketing and also evaluate other markets you want to go into, the opportunity to move upstream to do more enterprise deals, move international, what happens with that line sales and marketing as a percentage of revenue over the next coming years?

Can you maintain the leverage in it and hold it kind of flattish?

Or does that sort of naturally go higher as you embrace bigger deal opportunities in international properties?

I think that we can maintain the leverage in that, and part of what we focus on is really finely tuning and leveraging our own system to drive an efficient go-to-market motion.

As we continue to grow, and I think based on guidance and so forth, that would imply that we're going to need to grow our sales and marketing capacity as well as other parts of the organization north of 30%.

So we think that, that level of continuing to grow the sales and marketing capacity is a good level where we can continue to take advantage of the opportunity in front of us and drive efficiency going forward.

And that question comes from Taylor McGinnis with Deutsche Bank.

And congrats on the first quarter as a public company.

So I know that you talked about retention rates having improved in 2Q relative to past quarters.

But I'm curious how churn, in particular, trended relative to historic rates and if there's anything you can provide on the kinds of levels of churn or retention that you're embedding in your guide as we look forward.

Yes.

So churn was pretty consistent relative to where it was historically.

Obviously, I think the mix is shifting a little where we are seeing companies and more heavily impacted industries kind of more likely to churn.

But overall, I think there's a broad recognition for the value that we're providing among our customers, and it continues to be a very nice level.

Absolute churn numbers aren't something that we're overall providing.

But certainly, the levels that we're seeing and continued headwinds from COVID are things that we have considered in our guidance.

Thanks, again, everybody.

In closing, I would just like to reinforce how excited we are.

We have a massive opportunity ahead of us, a track record of driving growth and profitability, a team of employee owners who are fired up and driven to execute.

This is the starting line for us.

I appreciate you all joining us today.

Thank you, and good night.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.