ZoomInfo Technologies Inc. (GTM) Earnings

Management highlights

### Overall Financial Performance - Q1 2026 revenue hit $310 million (up 1.5% YoY), and adjusted operating income (AOI) reached $110 million, for an AOI margin of 35% (up more than 2 points YoY), both above the high end of prior guidance. - Unlevered free cash flow was $120 million, with a 109% conversion rate from adjusted operating income, representing a 39% free cash flow margin. - Net revenue retention held at 90% for the third consecutive quarter. - The company repurchased $90 million of common stock in Q1, with over $1 billion in remaining repurchase capacity at quarter end. ### Strategic Shift Driven by AI Market Changes - AI has altered B2B go-to-market software buying and usage: traditional per-seat application models face pressure, while demand for high-quality B2B go-to-market data to power custom internal workflows, LLM agents, and third-party AI tools is growing rapidly. - ZoomInfo's core competitive advantage is its layered, proprietary data moat: a privacy-first resolved identity graph with 140 million company entity records, 580 million IP-organization pairings, 500 million professional profiles, and 1.05 trillion monthly processed intent signals, with industry-leading privacy compliance. - The new strategy is to make ZoomInfo data ubiquitous across all go-to-market workflows, including third-party AI platforms (ChatGPT, Microsoft Copilot, Google Gemini, Perplexity) and customer-built internal applications, via a headless, consumption-based model. ### Operational and Product Updates - ZoomInfo data is the primary external data provider for Salesforce's new AI prospecting agent, and has a native integration with HubSpot's prospecting agent; new connectors for major AI platforms have been launched, with data integrations doubling year-over-year. - The company has secured notable Q1 customer wins including Sierra, Lyft, Wyndham Hotels, and a large AI unicorn cloud software company, displacing the incumbent to become its core go-to-market data platform. - A major restructuring is implemented: 20% of employees (600 total roles) are eliminated, including full closure of Israeli operations; role reductions are split ~50% R&D, ~40% downmarket sales and marketing, ~10% G&A. The restructuring will cut annual run-rate operating expenses by ~$60 million, with one-time restructuring costs of $45-$60 million (mostly incurred in Q2/Q3 2026). - Starting in Q3 2026, the company will roll out a new hybrid consumption pricing model: a low fixed annual platform fee paired with pre-purchased data credits that can be used across any interface (ZoomInfo applications or external tools), replacing traditional per-seat packages. The downmarket segment will shift almost entirely to product-led growth.

Guidance

- **Q2 2026 Guidance**: Revenue is expected between $300 million and $303 million; adjusted operating income is expected between $103 million and $106 million; non-GAAP net income is expected between $0.26 and $0.28 per diluted share. - **Full-Year 2026 Guidance (downward revision from prior outlook)**: Revenue is now expected in the range of $1.185 billion to $1.205 billion, representing a 4% year-over-year decline at the midpoint. Adjusted operating income is expected between $437 million and $447 million, for an AOI margin of 37% at the midpoint (up 130 basis points year-over-year, and 30 basis points above prior guidance). Non-GAAP net income is expected between $1.10 and $1.12 per diluted share, unchanged from prior guidance. Unlevered free cash flow is expected between $400 million and $420 million. - The company targets a 50-50 split between seat-based and non-seat-based ACV within 18-24 months, and expects to return to sustained positive annual revenue growth by the second half of 2027. Long-term, management expects the business will deliver 40% adjusted operating margins once consistent growth resumes.

Segment performance

1. Core seat-based business: Total Q1 2026 revenue was $310 million, up 1.5% year-over-year. Upmarket (customers with >$100,000 ACV) makes up 75% of total business, with upmarket ACV growing 5% year-over-year. Downmarket ACV declined 11% year-over-year. 2. Non-seat-based / Data-as-a-Service (DaaS/operations) segment: This segment grew more than 20% year-over-year in Q1 2026, and now contributes just under 20% of total business. Currently, one-third of total company ACV is non-seat-based, with the firm targeting a 50-50 split between seat-based and non-seat-based ACV in 18-24 months. This is the highest-margin, most profitable segment of the business, with better net and gross retention than seat-based offerings.

Risks & headwinds

- Customer purchasing paused at the end of Q1 and into early Q2 2026, driven by widespread market confusion around AI: customers are uncertain whether to build custom go-to-market tools internally or buy pre-built solutions, creating near-term demand headwinds that are concentrated most heavily in the software vertical. - The shift from fixed per-seat pricing to consumption-based pricing introduces quarter-to-quarter variability in revenue recognition, due to differing timing of credit consumption across customers. - Downmarket performance has been weak, with downmarket ACV declining 11% year-over-year, and this segment has lower margin profile that dilutes overall upmarket performance. - The restructuring and strategic shift carry execution risk, including uncertainty around how quickly customers will adapt to the new consumption pricing model, and potential near-term net revenue retention pressure during the transition period. - Macro economic uncertainty has worsened since the start of 2026, creating additional headwinds to demand.

Analyst Q&A

• Q: What is the difference in demand patterns between the software vertical and non-software traditional industries, and how long is the current period of AI customer confusion expected to last? /

  A: Retention improvements in the software vertical flattened in Q1, creating the majority of current near-term headwinds, while non-software verticals including finance, insurance, real estate, manufacturing and telecom delivered solid performance with ongoing promising growth. Even the most sophisticated software customers are shifting from ZoomInfo per-seat licenses to higher consumption of ZoomInfo data for their own internal AI workflows. This confusion is temporary, as the shift to flexible data access aligns with long-term customer demand trends.

• Q: What portion of the full-year 2026 guidance downward revision comes from existing weak demand versus the planned strategic shift to consumption pricing? /

  A: The largest share of the guidance reduction comes from the deliberate downmarket restructuring, where removing inefficient low-margin sales resources creates a near-term ACV headwind. Roughly a quarter of the reduction comes from more cautious demand assumptions for the software vertical, just under a quarter comes from pricing transition impacts and revenue recognition variability, and the remainder is an added layer of general conservatism. The guidance revision fully accounts for both current market conditions and the planned strategic shift to set a stable foundation for future growth.

• Q: How will profitability scale as data inference costs rise with growing consumption, and what is the long-term margin outlook? /

  A: Once the company returns to consistent revenue growth after the transition, management expects the business will deliver 40% adjusted operating margins, up from the current 35% midpoint guidance. Cost of service is expected to stay between 13% and 14% of revenue, sales and marketing will fall to ~25% of revenue from current levels, R&D will hold steady near 10% with a downward path, and G&A will fall to ~10% with a downward path, resulting in sustained higher margins long-term.

• Q: What is the engineering R&D priority change after closing the Israel R&D center, and how does the company maintain output with a smaller R&D team? /

  A: AI coding agents have dramatically increased engineering productivity: 8 weeks of development work now can be completed in less than a week, so the company can deliver more output with fewer engineers. The company is reducing the number of front-end application development roles, because less front-end work is needed for a data-focused consumption model, and shifting R&D focus to data infrastructure, back-end development, and enabling flexible data access for all customer workflows, which aligns with the new strategic priorities.