Good day and thank you for standing by. Welcome to the ZoomInfo third quarter 2026 conference call. At this time, all participants are in a listen-only mode. 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 first speaker today, Jerry Sisitsky, please go ahead.

Thank you. Welcome to Zoom Info's Q3 2026 financial results conference call. With me on the call today are Henry Schuck, founder and CEO, and Graham O'Brien, chief financial officer. During this call, any forward-looking statements are made pursuant to safe harbor provisions of U.S. securities laws. 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. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the risk factor sections of our SEC filings. 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 forward-looking statements in the slides posted to our investor relations website at ir.zoominfo.com. 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.

Thank you, Jerry, and welcome everyone. We continue to operate the business efficiently and are encouraged by early feedback on our GTM1 platform and the consumption of our data and context across new surface areas. Third quarter revenue and profitability both exceeded the high end of our guidance. Gap revenue was $309 million and adjusted operating income was $119 million, a margin of 39%, up one and a half points year over year. While we exceeded our guidance, we did not see improvement in the operating environment, particularly in software. Upmarket ACV was flat year over year and net revenue retention was 88%. We continue to see pressure in the software vertical, which is about 30% of our business, down from 45% since 2021. As companies in that vertical manage through their own challenges, buying groups have gotten larger, vendor scrutiny has made sales cycles longer, and we see that in new business and upsell. With our largest customers, particularly those in finance, insurance, real estate, and manufacturing, we continue to perform well. ending the quarter with a record number of million-dollar customers and record ACV from that cohort. The divergence between the software vertical and our largest customers is reflected in our results. We have been working intentionally on initiatives to change that. First is GTM1, which launches this quarter and introduces the market to real multiplayer go-to-market AI. one platform where sales, marketing, and operations run on the same data and context with agents that work across all of it. With GTM One, our customers transition from buying seats or data files from us and instead buy a trusted, always-on, entity-resolved view of their market that they can put to work wherever their go-to-market work happens, whether that is in our application, in an AI agent, or in something they've built themselves. As more of that work moves to agents, the need for more accurate and governed data increases and is why our largest customers continue to expand with ZoomInfo. The second is consumption. More than 10,000 customers have accessed our data and contacts through surfaces that did not exist at the beginning of the year. Our MCP server, our command line interface and an updated API. Consumption across those surfaces doubled sequentially and is well on the way to becoming a meaningful contributor to financial results. Right now, most of that usage is customers drawing down capacity they have already bought from us. So today it shows up as utilization of credit they already hold rather than as new ACV. As customers use up what they've purchased and expand with us, and as we move more customers on to consumption pricing, The next increment of usage comes with incremental revenue. We made progress across three areas of focus during the quarter. First, we kept moving the business upmarket. More than three-quarters of our ACV is now upmarket, a 14-point shift over the last three years. We have been intentional about this shift. We've moved sales resources to our more valuable customer relationships. and we lead down market with a digital motion that cost us less than it did a year ago. Second, in Q3, we introduced new hybrid pricing and packaging models geared to expand our non-seat mix. Since then, we have selectively introduced this to existing customers. While early, we've seen good results and received very positive feedback from the customer base. We will continue to roll this out more broadly. Third, we delivered the second half product releases that we talked about in August, and each of them puts our data and context into more of the places where go-to-market work gets done. We launched native integrations with ClickUp, N8N, and were named a flagship data partner for Hunter, Salesforce's new outbound sales agent. Our acquisition of 00.ai introduced our agent team's functionality that coordinates teams of agents to run complete go-to-market plays within the controls customers set. Our acquisition of WorkBounce strengthened our go-to-market context graph, which now has a semantic knowledge layer, so structured and unstructured data from CRMs, emails, call transcripts, and other systems integrates with ZoomInfo data. We're unifying our platform together into GTM1, where the entire go-to-market organization, sales, marketing, operations, and agents runs on one ZoomInfo instance. Two deals from the quarter highlight this. A Fortune 500 global industrial automation and aerospace conglomerate closed the Master Data Foundation project with us as part of its go-to-market AI program. Their AI initiatives stalled at the data layer with incomplete data stranded across legacy systems. Their sellers were already using ZoomInfo to prioritize accounts and act on buying signals, and we are now consolidating contact data from multiple CRM and marketing systems into a single trusted source for them. And a social media management platform signed a multi-year deal as a new customer with a combination of seats and data after comparing our data, functionality, and pricing across a broad competitive set. This transaction also reflects the success of our enterprise sales motion, closing larger, more comprehensive initial customer lands. We also closed upmarket opportunities with Tishman Spire, one of the world's largest private real estate investment and development firms, Odyssey, the U.S. audio network, Garner Health, a data-driven health tech firm, and SurveyMonkey, the leading provider of survey and market research tools. On capital allocation, during the quarter, we retired $35 million of senior notes for $31 million and repurchased $7.5 million of stock with net leverage improving for the third consecutive quarter. The market is challenged, but the expansion and growth we see across our largest customers and the consumption growth we see across new surface areas gives us increased confidence in the durability of our data assets. What we are seeing from the early users of GTM1, and especially our field's excitement to bring it to market, gives us increased confidence in the opportunity in front of us. We fully expect to continue to deliver attractive free cash flow per share outcomes over time. I would lastly emphasize that we're running this company with a disciplined focus on long-term outcomes as we navigate near-term headwinds. That said, I believe we are approaching the trough of our growth headwinds and I'm encouraged by the upside potential across several business drivers. With that, I'll turn the call over to Graham.

Thanks, Henry. Q3 gap revenue was $309 million, down 3% year over year and above the high end of our guidance. Adjusted operating income was $119 million, also above the high end of our guidance and up 1% year over year with a margin of 39%. In a seasonally slower cash conversion quarter, Unlevered free cash flow was $87 million, with $21 million in interest paid in cash during the quarter. In addition to exceeding our guidance in Q3, we are also raising guidance for the full year. Up-market ACV mix is now 77%, and up-market ACV was flat year over year, down from 3% growth in the second quarter. Down-market ACV declined 14% year over year in Q3. Operations ACV continued to grow double digits. Our sales resources are focused on the highest customer lifetime value upmarket relationships, and our shift upmarket over the last few years has resulted in a more resilient and healthier customer base. In the downmarket, leading with a product-led growth motion is helping us execute with fewer sales and marketing resources compared to a year ago. The current environment has been consistent with prior quarters. The software vertical, which represents approximately 30% of our business, remains challenged. We are seeing longer sales cycles with larger buying groups requiring more buy-in for projects of all sizes, which is primarily impacting new business and upsells. While we are seeing encouraging consumption trends across our new surface areas, that consumption is often drawing down on pre-existing commitments, which may lead to a timing difference between credit consumption and financial results. ACV from customers with at least $100,000 in ACV increased 4% year over year, The quality of that cohort is improving as our largest customers increase their spend with us. In Q3, we reached a record level of million-dollar customers and record ACV from that cohort. Net revenue retention was 88% in Q3, down from 89%. Gross retention improved sequentially in both the software and non-software verticals. The step-down in net retention is largely driven by fewer and smaller upsells, primarily in software. Year-to-date total restructuring charges for the program announced in May were $29 million, and we estimate total charges of approximately $33 million. In October, we entered into a memorandum of understanding to settle our 2024 securities litigation. Pending approval by the court, we expect a payment of $44 million and we are entitled to recover $25 million related to legal and litigation defense costs, as well as the settlement liability under applicable insurance policies. Turning to cash, GAAP operating cash flow was $47 million in Q3. Unlevered free cash flow for the quarter was $87 million, 73% conversion from adjusted operating income and a margin of 28%. GAP stock-based compensation expense was $31 million, or 10% of revenue. We continue to be mindful of the mix of cash compensation and equity, and we are leaning into more performance-based equity, ensuring at-risk compensation is tied to achieving financial objectives. In the quarter, we repurchased 2.5 million shares of stock at an average price of $2.94 per share, or a total of $7.5 million. We retired $35 million in aggregate principal of our senior notes for $31 million, which reduces future cash interest payments by more than $1 million per year. We expect to be investing across the capital structure when opportunities present themselves. Weighted average diluted shares outstanding for the quarter used in calculating non-GAAP diluted earnings per share was 317 million, and the non-GAAP share count exiting Q3 2026 was 319 million. We ended the quarter with $142 million in cash, cash equivalents and investments, and we carried $1.2 billion in gross debt. Our total net leverage ratio is 2.2 times trailing 12 months adjusted EBITDA and 2.2 times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements, compared with 2.3 times as of Q2, the third consecutive quarter of improved leverage. The aggregate remaining balance of $557 million in senior notes mature in 2029, and the $578 million first lien term loan matures in 2030. The $100 million balance under the first lien revolver is due in 2028. We believe we have sufficient liquidity and cash generation, and we are comfortable with our current maturity profile. With respect to liabilities and future performance obligations, Unearned revenue at the end of the quarter was $421 million, and remaining performance obligations for RPO were $1.1 billion, of which $793 million are expected to be recognized in the next 12 months. Shifting to guidance, for the fourth quarter, we expect GAAP revenue in the range of $294 to $297 million, adjusted operating income in the range of $113 to $116 million, and non-GAAP net income in the range of 28.5 to 29.5 cents per share. Our fourth quarter guidance assumes the environment remains consistent, that sales cycles do not shorten, and the pricing transition and GTM-1 rollout contribute no net benefit. Any improvement in those factors will be upside to the range. For the full year 2026, we are raising our guidance and we now expect GAAP revenue in the range of $1.2235 to $1.2265 billion, representing a 2% year-over-year decline at the midpoint of guidance. Adjusted operating income in the range of $452 to $455 million, representing a 37% margin at the midpoint of guidance. We expect non-GAAP net income in the range of $1.125 to $1.135 per share. based on 318 million weighted average diluted shares outstanding. And we expect unlevered free cashflow in the range of 405 to $425 million. Similar to last quarter, we have rolled the third quarter over performance into the full year range and otherwise held our approach to guidance unchanged. Now I will turn it over to the operator to open the call for questions.

Thank you very much. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, You will need to press star 11 on your telephone and wait for the name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first call comes from the line of Jayden Patel at JP Morgan. Jayden, your line is open.

Hey, thanks for taking the question. Retention slipped a point to 88% and upmarket ACV growth went from positive 3% to flat. Though you mentioned that the 1 million plus cohort is the strongest it's ever been. Can you talk a little bit about what's happening maybe in the middle of the upmarket base, maybe outside of the software vertical? And then I have a quick follow-up.

Yeah, the lower end of our upmarket business is we're seeing kind of the greatest headwinds and that's showing up in incremental purchasing, so new business and upsell. That upsell deficit is what is really driving the sequential decline in that overall retention number. The growth retention in the upmarket business is holding in very well in actually improving in software and continuing to hold in well across our non-software verticals.

Got it. Okay, thank you. And then, you know, SurveyMonkey was an interesting upmarket deal. Can you maybe talk a little bit about what drives customers like them to Zoom Infoverse potentially cheaper AI native competitors?

I think it's largely high quality data, a broad set of data, and then more today than ever, context around that data that agents can manage on top of. I think, you know, one of the things that we've been seeing in the competitive market is There are a bunch of low-end, vibe-coded applications that do a pretty poor job of putting data together, and then they come and go. In the last couple of weeks, I've seen numerous of these companies actually just completely close their businesses. And so trust is very important in the upmarket. Our ability to deliver high-quality data with the privacy, security, and compliance that comes along with that is really important to our upmarket customers. And where a downmarket customer might be wooed by a vibe coded alternative, the upmarket is smarter about their buying decisions and the buying cycles there. And they value high quality data that comes with privacy guarantees and compliance and security that is unmatched.

Great.

Thank you.

One moment for our next question. Our next question comes from the line of Brad Zelnick of Deutsche Bank. Brad, your line is open.

Awesome. Thank you guys so much for taking the question. You talked about the new hybrid pricing and packaging strategy. Can you walk us through the details, what it hopes to capture, what the upside and downside is for different types of customers, and just all the thinking and mechanics behind it? And related to that, maybe for Graham, as we think about backlog of RPO, CRPO look to have deteriorated. And I'm curious, but I see your guide for cash flow in the full year still looks pretty healthy. Am I correlating the wrong things? Is there maybe any relationship to the new pricing? We'd love to hear any additional clarity that you can provide there as well. Thank you, guys.

Yeah, I can start on the pricing approach and the modeling on that. The idea here was that flexibility became paramount as we started building this and testing it internally and certainly with customers. Our stated goal from a few quarters ago was to move away from a seat space model. That doesn't necessarily mean that we're moving to a full consumption model. And what we found is we've been able to design not just the product of go-to-market one but the actual pricing, packaging, provisioning of it in a way that can be flexible and meets the appetite of a customer that wants more of a fixed investment while also being able to be packaged in a way that meets a customer that prefers a more variable arrangement. So what that means is that we're able to offer kind of fixed arrangers on the data credit consumption side and then really make sure that we are doing a thoughtful job of sizing up the AI credit consumption purchase in a way that gives the customer a level of comfort in that first year on the new product. Throughout this process, it really came down to simplicity for the customer and then reducing barriers to consumption once they get into the product. And then on the RPO, billings, bookings front, I'd say that the billings growth is pretty consistent with the revenue results and was in line with our expectations. The current bookings is impacted by a few things. If you recall last year in this quarter, we had an upside result the other way. In current bookings, I think that was like plus 18. It's really a story this year of fewer superseding deals, which can accelerate some of that RPO and bookings into a given period. fewer larger early renewals, which can do the same thing. And then a little bit of nuance around how current bookings roll off in the final year of a long-term contract combined with the organic decline. I think that the current RPO decrease of 4% is probably more telling than the current bookings growth in the quarter.

Thank you so much for taking my questions.

One moment for our next question. Our next question comes from the line of Alan Verhovsky of U.S. Bancorp. Alan, your line is open.

Awesome. Hey, guys. Thanks for taking the question here. It's encouraging to hear that growth retention improved sequentially. Henry, can you unpack what gives you confidence that you're approaching the trough of growth headwinds you mentioned at the end of your prepared remarks?

I think it was a couple of things. One, we have not gotten benefit from or are building in any benefit from our new GTM1 platform, which is by all measures the best technology and product we've ever built at ZoomInfo. We expect to launch that later this quarter. Our entire sales team is on it, and we have a couple dozen customers who are on it today that are Big fans of the product and recognize its ability to bring data and context together in a unique way for agents and humans to operate across. So we have a lot of confidence about that new product. And then the next thing is on consumption. We've been focused on driving consumption across our customer base. We now have over 10,000 users who are using our 10,000 customers using Our new surface areas and consuming data on surface areas that didn't exist a year ago and consuming our data and our contacts at significantly higher rates than they had been in the past on our legacy platforms. We think that's a trend that's going to continue. And then we're seeing a lot of customers come back to us from From even just a year ago, in the first three quarters of the year, the number of customers who left and came back is up more than 10% year over year. And I think what's happening is they're getting burned by promises from other providers in the space and they're coming to us at higher rates than we've seen in the past.

That's all great to hear. And I guess just a quick follow up for you, Graham. Do you mind just sharing what your expectations are for upmarket ACV in Q4 and maybe some of the assumptions behind that?

Yeah, you know, Q4 is our largest sales activity quarter. So naturally, there's a little bit more variability there. We continue to assume a range of outcomes across upmarket and downmarket. where the growth rate of each could stay the same or get worse in the guidance. But overall, it's a consistent approach to guidance.

Got it. Thank you, guys. Appreciate it. One moment for our next question. Our next question comes from the line of Billy Fitzsimmons of Piper Sandler. Billy, your line is open.

Hey, guys. Thanks for taking the question here. I guess I imagine it is still very early with this new hybrid pricing model, but maybe for you, Henry, any initial takes or customer anecdotes you can share on how kind of the first wave of customers are utilizing the product and the new pricing and packaging? And kind of similar to maybe the last two questions, I think the core question maybe for you, Graham, on kind of monetization is how do How do we start to think about those customers when they move from seats to a hybrid model, ultimately paying the same on a per dollar basis after they make that transition? Any early reads from the initial customers you can share would be helpful. Thank you, guys.

Sure. I think that the product strategy and the pricing and packaging strategy really follow what we anticipated would happen to software generally, but our business specifically, which is A lot of customers want to build their own front end application layers. They have large engineering teams and they want to build custom workflow for their internal teams. And that workflow requires data and context and data from us and context that we're able to deliver by marrying an entity matching their data. And so we're seeing customers who show up and say, Listen, I'm going to build all of the front end application layer in Replit or Vercel or in Claude, but I need your data and I need way more of it than I've ever needed before, but I don't need the seats. And so we made the data and the context super modular. They can take it anywhere they want. We've built native integrations into a number of these systems so they can get it in the systems that they're already operating in. and so what you'll see with those customers is kind of two things. One, we can shift the seats into a larger bulk credit consumption package and so they get significantly more data and they're able to use that data in any of their own internal applications. We see some customers renew flat there. We see some customers who renew down a bit but put us in a position to drive consumption and grow with them again over time. I think that's the big thing that we're seeing and the reason why we've evolved the product strategy and the pricing and packaging strategy around that. Our data is still incredibly valuable into go-to-market workflows, but a number of our customers want to build their own front-end application layers, and we're happy to be the key component into that.

Thank you very much.

One moment for our next question. Our next question comes from the line of Matthew Bullock of Bank of America. Matt, your line's open.

Hi, this is Jacob Gideon. I'm on for Matt. Could you just maybe talk about what customers you are targeting for the selective rollout of the new model? Is it all or only new customers or are you targeting existing customers for the new model? And then I guess related to that, What verticals, specifically maybe across the 10,000 that are hitting the new service areas, are really the strongest with this ramping consumption approach to using the data? Thanks.

On the first question, it's both. We spent the first month of the quarter with a small Tiger team, both on existing business and for new business, taking the new platform and the new pricing and packaging approach. out to our customer base. So it is both. When we think about the rest of the quarter, we anticipate being more aggressive with the customers we put our new platform and new pricing and packaging in front of. I think the goal there is customers know Zoom Info in one way and they think of us as data and particularly company and contact data. And we've spent the last Two years really rebuilding our platform to be agent first. And we built everything from the ground up, which allows us to iterate and innovate much faster than before. And so the thing that we hear most often when we show up to the customers is like, okay, wow, I didn't think of ZoomInfo this way. I didn't know you did all of these things. I was looking at this other provider, but now I know that you guys can do this already. And I want to try that out with you. and so we're getting a lot of positive feedback in that direction and we want to really press the gas on having this new platform in front of as many of our customers as possible and so we'll be pretty aggressive around the rollout. Around the customers who are consuming across our new surface areas, actually the industries are pretty diverse so there isn't like one specific industry or type of company that's using it the most. What I would tell you is The highest consumption comes from go-to-market builders, those who are in sales ops, rev ops, marketing ops, go-to-market engineers. People on the business intelligence or engineering side of their companies are the largest consumers of our data through those new surface areas.

Got it. Thank you. Appreciate it.

Thank you. Our next question. comes from the line of Jackson Adder of KeyBank Capital Markets. Jackson, your line is open.

Great. Hey, guys. This is Nate Ruiz, owner for Jackson Adder. Thanks for taking our questions.

So I know it's a new product, but how should we think about the commercialization of agent teams since it doesn't require a separate SKU and it's embedded inside a studio? And then what are the adoption proof points we should be looking at going forward?

Agent teams will monetize through both AI credits and data credits. And so the same sort of pricing and packaging where a customer buys consumption credits, both AI and data credits will run through agent teams. And so those end up being the metrics consumption across both of those vectors.

Okay, yeah, super helpful.

And then I'm curious about AI agents accessing Zoom info data. Are you guys seeing a ramp of this activity? And could this possibly create an inflection for the consumption element as part of the hybrid model?

I mean, I think that is what we're seeing in the doubling of consumption quarter over quarter on those new surface areas. and particularly across the customers who are using the most credits. What they're building are agents that go out and find that new buyers and build into a key go-to-market workflow on a repeatable basis. And so like if today you built a Grok bot, you could plug ZoomInfo into the Grok bot and it'll search across ZoomInfo data and bring your context and your data together within or the same thing applies to a Vercel application you build, a Replit application you build, a workflow that you build in N8N or Zapier where we've built native integrations. And so in all of those places where Zoom Info data now exists natively through our MCP and our APIs, when you build an ongoing workflow that an agent runs for you, it pulls Zoom Info data on a regular basis or in a dynamic way.

Thank you very much. Our next call comes from the line of Patrick Walvrens of Citizens. Patrick, your line is open.

Oh, great. This is Kincaid on for Pat. Thanks for taking the question. Graham, could you just walk us again through the components of the debt when it matures, if the part that matures in 2028 must be addressed in 2027, and what the overall plan is to reduce debt load?

Sure. We've got our senior notes that mature in February 2029. We've got our first lien term loan that matures in February 2030. And then we have a revolver where we've drawn $100 million and that matures in February 2028. On the senior notes, there's about $557 million outstanding and on the first lien, $578 million outstanding. We continue to generate significant cash flow and are really comfortable with the ability to continue to do that and to deploy that capital in attractive ways ahead of those maturities.

Thank you so much. Thank you.

This concludes our question and answer session. Thank you for participating in today's conference. This does conclude the program and you may now disconnect.