ZoomInfo Technologies Inc. (GTM) Q1 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the ZoomInfo First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jerry Sisitsky, Vice President of Investor Relations.

Thanks, Josh. Welcome to ZoomInfo's Financial Results Conference Call for the First Quarter 2026. With me on the call today are Henry Schuck, Founder and CEO of ZoomInfo; and Graham O'Brien, our Chief Financial Officer. During this call, any forward-looking statements are made pursuant to the 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 Factors sections of our SEC filings. 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 forward-looking statements in the slides posted to the 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 started 2026 by delivering revenue and adjusted operating income above the high end of our Q1 guidance. Revenue for the first quarter was $310 million, up 1.5% year-over-year, and adjusted operating income margin was 35%, up more than 2 points year-over-year. Our non-seat-based operations and Data-as-a-Service offerings, one of the most profitable parts of the business and almost exclusively upmarket, again grew more than 20% year-over-year in the quarter and now makes up just under 20% of our business. While we exceeded our guidance in Q1, as macro conditions worsened at the end of the quarter, we experienced a regression in our downmarket and upmarket growth trajectories. In the closing days of March and into April, we saw a trend of AI and agentic confusion in our customer conversations. What can be built versus bought, what vendor or internal team delivers what and where the differentiation really lives. This led to a pause in purchasing decisions and our software customers were particularly affected as many are facing a confusing purchasing landscape compounded by the threat of their own growth disruption, creating a circular headwind in our space. As a result, we are revising our full year guidance down in conjunction with significant cost reductions that we believe will position us with structurally higher operating margins and create a faster path back to durable growth. This was hard because of the impact on a large number of our teammates, many with long tenures here who did good work to get us to this point. Change is necessary and a positive decision for the future of ZoomInfo. We made these changes with an eye on the opportunity for us to expand consumption of our data with the proliferation of AI, an opportunity we believe to be potentially larger than anything we've seen in the first 20 years of operating the business. AI has structurally changed how software is built, bought and used. LLMs have given go-to-market teams a simpler interface to work with data and build custom revenue workflows without heavy technical support. These interfaces will increase across all of software. And as they do, our traditional seats tied to application model will come under pressure, while at the same time, our opportunity to tie into the growth slip stream of go-to-market work that LLMs and coding agents enable expands through our data offerings. Our strategy is to make ZoomInfo's go-to-market data ubiquitous, available wherever go-to-market work gets done, including ChatGPT, Claude, Perplexity, Microsoft Copilot, Google Gemini and internally built applications. With an increasingly headless approach to software, these workflows become materially more valuable when powered by our data and insights. Confusion around what AI can do and cannot do and where our data critically plugs in is temporary and combined with pockets of overhang in our seat-based pricing may create a near-term net headwind in our business. The long-term tailwind as AI agents and interfaces continue to grow exponentially is to ensure our high-quality go-to-market data plugs in across those growing surface areas. The promise of that future upside is evident in our operations business and in the value our largest customers continue to assign to their investments with ZoomInfo. ZoomInfo understands complex Global 2000 account hierarchies. Curates proprietary contact data operates a privacy-first identity graph, enriches 5.5 billion data attributes and processes 1.05 trillion intent signals each month. Each raw data point needs to be cleansed, normalized and transformed into go-to-market ready output every day. AI-driven or not, go-to-market organizations need this data infrastructure from ZoomInfo. Capturing this shift requires us to sell and operate differently. Our actions this morning across our employee base restructured ZoomInfo to operate more efficiently, generate stronger cash flow and reposition our data assets, APIs and MCPs as a larger, more durable part of the business. Our operations business shows the model we believe the market is moving toward, non-seat-based data-led, upmarket, high retention and highly defensible. Our goal is to make more of ZoomInfo transact and grow that way. As part of that evolution, we're leading with data. Beginning in Q3, customers will have the flexibility to convert historical per seat spend into consumption across ZoomInfo data, insights, applications and agents. Many customers use the platform in this way today, so this will be a more formal effort in matching the pricing and value delivery to the best customer behaviors and outcomes. We're expanding where customers can access and pay for ZoomInfo data, including ChatGPT, Claude, Gemini, Copilot and internally built applications. And we are shifting investment from front-end application development toward data, AI-enabled engineering, product-led growth, LLM interfaces and higher-margin customer segments. I want to briefly explain the durability of our data asset. ZoomInfo's moat is not a single data set. It is a layered system, proprietary B2B data, contributory network inputs, public and partner-sourced intelligence, real-time business signals, entity resolution, a privacy-first identity graph, governance infrastructure and activation workflows. At the foundation is ZoomInfo's intelligence layer, billions of data points with more than 140 million company entity records, 580 million-plus IP to organization pairing, more than 500 million professional profiles and data, including intent, hierarchy, location, financial information, personnel moves, technology usage, funding details, organizational charts, news and other commercial signals. The value is not just collecting this data, it is resolving it. Company names change, M&A happens, people change roles, titles vary, subsidiaries roll into parents and the same person can appear differently across dozens of sources. ZoomInfo resolves that noise into a living, governed, commercially useful graph that customers can activate in their workflows. The next layer is our signal and context data, identifying who's in market and why. Foundation models are incredible at reasoning, writing, summarizing and automating, but they do not inherently know which companies are real targets, which contacts are current, which buying signals are fresh, which account hierarchies matter, which technologies are installed, which prospects are in market or which internal CRM patterns predict conversion. GTM AI becomes useful only when the model is grounded in accurate, permissioned, current entity-resolved business context. Our signal and context layer is built around our contributory network and proprietary identity graph, both unique nonpublicly available data assets that create real value for go-to-market. The final layer is trust, governance, accuracy, privacy and compliance. We collect, verify and publish high-quality ethically sourced business information with a privacy program built around global privacy laws like the CCPA, PIPEDA and GDPR. Our notice and choice program provides notification when professional profiles first appear in the platform, offers multiple opt-out methods, honors removal requests and takes steps to prevent removed profiles from being re-added. Our governance framework aligns with major regulatory regimes, and we maintain the industry's most robust set of privacy, security and compliance certifications. As GTM work becomes increasingly agentic, every AI seller, marketer, RevOps workflow and customer growth motion will need a trusted intelligence layer that tells it who to target, why now, what changed and what to do next. Our customers, industry analysts and partners are validating this. Customers ranked us #1 in 142 G2 Spring 2026 reports across sales intelligence, buyer intent data and lead capture. Forrester's recent wave for marketing and sales data providers called ZoomInfo "entrenched" as the default data provider for B2B sales, setting a technology standard for data collection and identity resolution. In Q1, Salesforce released its prospecting agent with ZoomInfo as the first and primary external data provider. Our contact company intent and Scoops data powers recommendations across Salesforce's 150,000-plus customer base. HubSpot also shipped its prospecting agent with a native ZoomInfo integration. When the 2 largest CRM platforms choose ZoomInfo to power AI prospecting agents, it reinforces the durability and relevance of our data asset. We also launched connectors for ChatGPT, Claude, Microsoft Copilot and Perplexity and are advancing our Google Gemini integration. Data integrations have doubled year-over-year and MCP connections are growing organically without dedicated sales or marketing. We expanded go-to-market studio trials to more than 1/4 of existing customers, helping customers build automated workflows triggered by ZoomInfo signals. Going forward, our application layers will serve as engines for data engagement and consumption rather than stand-alone application fee products. As customers renew in the back half of the year, we're introducing more flexible pricing and packaging built around data access and usage. This reduces reliance on platform fees and per seat charges, lowers the overhang from seat compression and better aligns monetization with customer value. We expect most customers to transition at similar price points with some moving lower and some higher. While this may create a near-term revenue headwind, it gives us a cleaner model and a better opportunity to grow as customers expand their use of ZoomInfo data. Turning to customer wins. In Q1, we signed deals with Sierra, Lyft and Wyndham Hotels & Resorts. We also closed a strategic win with the Unicorn Cloud Software company serving MSPs, displacing the incumbent and beating more than half a dozen alternatives, including an internally developed AI tool to become its core data and enrichment platform across go-to-market studio and workspace. An AI native security and compliance platform also expanded across Studio, Copilot and DaaS in a multiyear 7-figure TCV transaction to power its go-to-market motion. We continue to be opportunistic with the $1 billion incremental share repurchase authorization announced last quarter. We are confident in our ability to generate strong cash flow and operate the business efficiently while we execute this strategic shift. We remain committed to returning capital to shareholders in the most value-accretive way possible while ensuring we maintain long-term flexibility. With that, I'll turn the call over to Graham.

Thanks, Henry. Q1 GAAP revenue was $310 million, up 1.5% year-over-year and adjusted operating income was $110 million, a margin of 35%, with both revenue and AOI coming in above the high end of the guidance ranges we provided. Unlevered free cash flow was $120 million with $21 million in interest paid in cash during the quarter. In the seasonally slower quarter, upmarket ACV grew 5% year-over-year, a step down from 6% year-over-year growth in the fourth quarter, but an improvement from 3% upmarket ACV growth in the year ago period. Downmarket ACV declined 11% year-over-year in Q1 as compared to a decline of 10% in the fourth quarter and in the year ago period. Upmarket is now 75% of our business. Customers with greater than $100,000 in ACV increased by 32 year-over-year, while decreasing 21 sequentially and ACV from that cohort increased 10% year-over-year. As Henry highlighted, operations had another strong quarter with ACV growth greater than 20% year-over-year. Net revenue retention was 90% in Q1, the third quarter in a row of 90% net revenue retention. Overall, it was a solid quarter, but we saw a shift in buyer behavior exiting the quarter and into Q2. Gross retention held in well overall, but customers in our software vertical experienced elevated rates of downsell and churn relative to the improving trends we had seen in 2025. As we moved through March, we saw more customer confusion in the marketplace around what AI can and cannot do and increased macroeconomic uncertainty. With the improving trends we have seen in 2025 starting to moderate, it became clear that our growth progression was no longer on schedule and that now is the right moment to be proactive and accelerate the time line of our strategic initiatives. We believe we can further rightsize the downmarket business, shift to a better suited pricing model for our customers while reducing the potential overhang from further seat compression as we consolidate global operations while largely protecting profitability in the process, despite the near-term revenue impact, we can return to healthier growth levels sooner than a status quo approach would deliver. As a result, we are now guiding to FY 2026 revenue in the range of $1.185 billion to $1.205 billion. This is a proactive improvement measure in a period of significant transition. While our initial guidance for the year did not embed upside from new product initiatives, it also did not anticipate the environment getting worse. Our updated guidance adds some incremental top line conservatism to account for a fluctuating macroeconomic environment as well as the potential for near-term headwinds as we execute against our strategic initiatives. We made this adjustment to our full year guidance, which we believe will help set up a new foundation over the next 12 to 18 months that we can ultimately begin to grow from, while at the same time committing to improved profitability outcomes. We are now guiding to full year AOI of $437 million to $447 million and an AOI margin of 37% at the midpoint of guidance, up 130 basis points year-over-year and an improvement of 30 basis points as compared to our prior full year guidance. As we look to operate more efficiently with a long-term focus on data and consumption, the changes announced today impact 20% of our employees or 600 team members, including closing our facilities in Israel. Israel has been an important part of our organization. While these were all difficult decisions, they reflect our commitment to operating the business in the most efficient and strategically focused way possible. Some of the roles impacted will be hired in other regions, and some of these roles will not be replaced as we operate with a leaner, more focused organization. Across every team at ZoomInfo, we're doing more with less. With over 85% of employees actively using our internal AI operating system, AI bolstered work is now the rule, not the exception, whether it's shipping more code per engineer, multiples more with fewer bugs in R&D, building custom apps and finance that replace manual processes and external spend or building intelligent campaigns on demand and sales and marketing. AI is unlocking productivity at an unprecedented pace. As I noted last quarter, seat-based pricing contribution mix peaked in 2022, and we have progressively decreased that contribution every year since then. We expect to accelerate this transition further. Approximately 1/3 of our ACV is not tied to seats, and our goal is to shift that closer to 50-50 in the next 18 to 24 months. We plan to roll out a hybrid pricing model later in Q3 that pairs a low annual platform fee with prepurchase credits rather than our traditional seat-based packages. The consumption portion will be similar to how we account for operations in DaaS, selling packages of data credits to customers that will be consumed over time across any platform and counted as ACV. This is the next step in the evolution away from seat-based pricing as we build on the positive momentum from the expansion of enterprise license agreements across our largest customers. There are 2 long-term benefits here related to net revenue retention, less downsell pressure coming from seat compression, while at the same time, data consumption trends increase over time, generating upsell opportunity leading to improved NRR outcomes. This shift to consumption introduces some variability in revenue recognition driven by the timing of credit consumption relative to credit allowances. This dynamic is reflected in our revised revenue guidance. As part of this evolution, we are eliminating more downmarket sales resources, shifting down market almost exclusively to product-led growth, enabling us to further accelerate the shift upmarket while we expand our focus on data. As a result of these actions, we expect restructuring costs of $45 million to $60 million, the majority of which are cash costs and expected to be incurred in Q2 and Q3 2026. We expect to reduce annual run rate operating expenses by approximately $60 million with the actions, including restructuring the entirety of our Israeli operations, largely complete by Q1 of 2027. Additionally, the majority of transitionary compensation costs from notification date through the completion of the discontinuation of operations in Israel will be added back for purposes of calculating our non-GAAP metrics. Even as we absorb these restructuring costs, our cash position and our underlying cash generation remains strong. Turning to cash in the period. GAAP operating cash flow was $115 million in Q1. Unlevered free cash flow for the quarter was $120 million, 109% conversion from adjusted operating income and representing a margin of 39%. GAAP stock-based compensation expense was $25.5 million, down 14% year-over-year and representing 8% of revenue. As a percentage of revenue, adjusted expenses combined with stock-based compensation improved 5 points year-over-year, reflecting a significant improvement to the quality of our earnings. We continue to prioritize performance-based compensation, cash and equity compensation with achieving rigorous free cash flow objectives. In Q1, we repurchased 13.1 million shares of common stock at an average price of $6.91 for an aggregate $90 million. Inclusive of the repurchase authorization announced in February, we had more than $1 billion in remaining repurchase capacity at the end of the quarter. Weighted average diluted shares outstanding for the quarter used in calculating non-GAAP diluted earnings per share was 318 million, and the non-GAAP share count exiting the quarter was 310 million. We ended the quarter with $175 million in cash, cash equivalents and investments, and we carried $1.3 billion in gross debt. As a result, our net leverage ratio is both 2.4x trailing 12 months adjusted EBITDA and 2.4x trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements as compared to 2.5x and 2.3x in the year ago period. The $650 million in senior notes mature in 2029 and $581 million first lien term loan matures in 2030. We are comfortable with our current maturity profile, and we have sufficient liquidity and cash generation to manage our obligations as they come due. During the quarter, we entered into interest rate swaps to fix a portion of our variable rate debt. We executed $425 million of notional interest rate swaps at a blended fixed rate of 3.28%, reducing our exposure to SOFR volatility while providing greater visibility into interest expense and free cash flow. Following the close of the quarter, we amended our revolving credit facility to increase total commitments from $250 million to $276 million, with U.S. Bank joining the lender group through an incremental commitment of $26 million. No additional borrowings were made in connection with the amendment. The upsizing expands and diversifies the lending group while providing additional liquidity capacity. With respect to liabilities and future performance obligations, unearned revenue at the end of the quarter was $479 million and remaining performance obligations, or RPO, were $1.18 billion, of which $861 million are expected to be recognized in the next 12 months. Shifting to guidance. For Q2, we expect GAAP revenue in the range of $300 million to $303 million, adjusted operating income in the range of $103 million to $106 million and non-GAAP net income in the range of $0.26 to $0.28 per share. And for the full year 2026, we now expect GAAP revenue in the range of $1.185 billion to $1.205 billion, representing a 4% year-over-year decline at the midpoint of guidance and adjusted operating income in the range of $437 million to $447 million, representing a 37% margin at the midpoint of guidance, up 130 basis points year-over-year. We expect non-GAAP net income in the range of $1.10 to $1.12 per share, consistent with our prior guidance based on 315 million weighted average diluted shares outstanding, and we expect unlevered free cash flow in the range of $400 million to $420 million. I would expect a non-GAAP tax rate of closer to 10% in 2026 and cash interest expense in the range of $60 million to $62 million. We believe the actions and initiatives announced today will set us up to run rate at least $1.25 of adjusted levered free cash flow per share as we enter 2027 across a range of revenue growth and share repurchase scenarios. Now I will turn it over to the operator to open the call for questions.

[Operator Instructions] And our first question comes from Mark Murphy with JPMorgan.

Henry, I'm wondering how big of a spread do you see in the demand patterns out there if you compare the software vertical up against traditional industries that might not have as much of a terminal value discussion occurring at the moment? And I have a quick follow-up.

Yes, I can take that one, Mark. We're seeing -- we saw about almost 2 years of sequential improvements to retention in software, and that was flat in Q1. And that's a big data point as we consider that in the outlook in the guidance revision. When I look at other verticals that are potentially not having the terminal question, I look at finance, insurance, real estate, manufacturing, telecom, we had really solid quarters there where we continue to see really promising growth possibility.

Okay. So it's a very software-centric kind of situation, it sounds like. I'm curious as well just how much of the AI confusion you're seeing would you relate to the takeoff of Claude Code during the month of March, I think that's when you saw a bit of a shift. And that seemed to be the period of lift off for Claude Code. And just as a corollary, any thought on how long that period of AI confusion might last?

Yes. I think the big shift here is even in our most sophisticated software clients, what we're seeing them shift away from is a seat license in ZoomInfo and shift to significantly more consumption of our data inside of Claude with our MCPs through our APIs. We have a number of examples of AI native companies who have shifted from seats but are spending meaningfully more with us through consumption of our data in their internal applications that they've built through our MCPs, through our APIs, through bulk credit consumption. And so we have a lot of confidence that there's this moment where companies are confused about what they actually need to be able to build their own internal applications to build their own revenue workflows, where the most sophisticated AI native companies are leveraging our data throughout that entire workflow and then companies that are doing sort of quick AI projects have not made that realization yet. And so we are positioning the company from a pricing and packaging perspective to take advantage of that situation. So that when we talk to a customer who tells us, I don't need seats anymore because I've built my own application that we can be really flexible and say, look, your own application is going to need contact information. It's going to need company information. It's going to need hierarchy information. It's going to need signal information, and we can be really flexible on your transition over to that as you build your own internal application.

Our next question comes from Taylor McGinnis with UBS.

First one would just be on -- when we look at the customers with greater than $100,000 deal sizes that fell quarter-over-quarter, I know you mentioned earlier that you're seeing customers pause in light of this. But could you comment on some of these larger customer dynamics with that KPI and then also too with CRPO declining quarter-over-quarter. Maybe you could just comment on what exactly you're seeing amongst like this larger cohort of customers.

Sure. On the $100,000, the activity in the $100,000 logo was a good microcosm of the quarter for the full business. There are 4 ways logos can enter or exit that cohort. You can buy in new from zero, you can enter via upsell. You can downsell out, you can churn all together. And when we look at Q1 this year versus Q1 last year, our performance improved or held flat across 3 of these entry and exit points. We sold in more new logos. We had significantly fewer downsell out, and we had about the same that churned altogether, which is a pretty low number. The upsell in is where we saw the significant decrease year-over-year, and that's representative of the challenges we saw around incremental purchases near the end of the quarter. On CRPO, up 3% year-over-year in a slower Q1. I don't think that, that outcome was really outside of our range of expectations.

Great. And then maybe going back to the pricing model change that you guys commented earlier, I think the comment was that you expect customers to renew under the new model at a similar deal size as compared to the old model. So can you just give us some proof points if you've had customers that have made that transition already under operations as and what you've seen there that's giving you guys that comfort in this kind of net neutral positioning as we move to the new model?

Yes. We've tested this with a number of our customers. And what we're seeing is 2 things. Some customers, it's pretty similar price points as they shift away from seats. You're going to see some customers shift up. You'll see some customers shift down, and it's largely based on how much they're consuming our data. For downmarket users, we're going to eliminate the access friction by moving away from term platform fees and seed floors, tying price much closer to value. And then larger customers should expect simpler pricing and a less siloed product experience where their credits are purchased and then consumed really anywhere inside of ZoomInfo applications or outside of ZoomInfo applications. And so we're seeing some up, some down, and we think it ends sort of net positively.

Our next question comes from Lucas Cerisola with Morgan Stanley.

I'm on [indiscernible]. So with softer demand exiting March and April, especially in software, should we think about Q2 as the growth trough? And then what needs to improve for you guys to get comfortable with the back half of the year?

Yes. I look at it through some of the -- maybe some of the leading indicators. Certainly, we've guided Q2 revenue to be down year-over-year. But I think what we're really focused on is setting an expectation level that's going to allow us to accelerate these strategic initiatives in the back half of the year. So as we do shift more towards consumption, as we do rightsize our downmarket business to be more PLG or essentially almost exclusively PLG focused that we do go through a few quarters there where we do flip negative before getting back to more opportunity for positive year-over-year growth in the back half of 2027.

I think the other thing that is worth hinting here is the bulk of the cut is deliberate and it's down market oriented. And we're doing that and accelerating the transition here because we're clearly seeing the opportunity for consumption across a number of surface areas in our business, more clearly, our customers who are on go-to-market studio are consuming significantly more than their counterparts not on studio. Our customers in our MCP application that were really released over the last 8 weeks are meaningful consumers of our data through the LLM platforms that our MCPs are plugged into. So I think the big milestones are we need to put more of our customers into these high consumption interfaces, and that's our strategic focus right now.

Got it. And then just one more, if I may. Thinking about profitability as inference costs keep going up, how should we think about as you guys scale the business and customers continue to consume, how the profitability picture will look in the coming years?

Yes. Look, when I look at the kind of the pro forma view of the business exiting this year, I think that when we return to growth on a more consistent basis, we're going to have an opportunity to do so as a 40% margin company instead of a 35% margin company. And when I break that down, I expect cost of service is still probably 13% to 14% of revenue. The sales and marketing is closer to 27% with a path down to 25%. R&D steady around 10% with a path lower and G&A at 10% with a path lower. The business will be primed to deliver 40% margins with that return to growth and the initiatives we announced today were a big part of that.

Our next question comes from Brad Zelnick with Deutsche Bank.

I guess my question, how much does the updated guidance, Graham, reflect the hesitation and downsell that you saw in Q1 continuing throughout the remainder of the year versus the impact of moving 2 consumption-style deals? And can you remind us the rev rec on those consumption deals?

Yes. As we proactively change how the business is structured and how we price and deliver, we're accounting for all of that. We're accounting for the down market restructuring, the shift towards or away from seats in the pricing model. And my guidance philosophy is shifting as part of that, too, and that we need to rely more on future assumptions around the evolving pricing model and less on past performance to inform our models. We've embedded conservative assumptions around the macro, the software vertical and the shift in pricing model away from seats. And it's safe to say that our guidance for Q2 and the rest of the year takes a more cautious approach than it did in Q1. Our updated guidance fully accounts for the existing conditions and the planned timing of our strategic initiatives. And you should think about this as a full measure revision. This is very much a proactive plan that we have had a lot -- that we have a lot of confidence will deliver us to a place of more durable, efficient growth sooner than the status quo. And then on the revenue accounting implications of this shift, first, customers are pulling us in this direction. We're already a big part of the way there, but there will be new revenue accounting dynamics that come along with it. I don't expect ACV scope to change, but customers on more variable consumption-focused plans will still roll up into that ACV number. From a technical perspective, with pre-committed consumption, we'll need to make an assumption around breakage and then predict and monitor customer usage patterns to match the satisfaction of performance obligation. What that means is that could introduce some quarter-to-quarter noise in revenue recognition, which, again, we've accounted for in the updated guidance.

That's a very comprehensive answer. Maybe just one follow-up for you, Henry. I feel like from the very beginnings of covering ZoomInfo since the IPO, the one thing that hasn't changed is the quality of your data asset, and that really stands out above all else that's out there on the market. Can you just once again for us, I know you said a lot about it, but it wouldn't hurt to hear to what do they say, repetition doesn't ruin the prayer. Would love to hear more about why, given how unique and comprehensive your data asset is that you're not able to perhaps better whether this moment. And whatever you can tell us to just really bring that point home would really be helpful.

I think the biggest thing for us today is that our data asset has historically been trapped underneath a SaaS application, which obviously, for the first 18, 19 years of our operating history was exactly where our customers wanted to consume it. And really, over the last 12 months, customers have been more inclined to want our data asset to be flexible and available throughout a number of other interfaces. We've always had an API, but it was usually -- it was mainly deployed at really high sophisticated, highest end of our strategic customers. And that could have been done with a lot of handholding. In today's world, the agent Claude needs to just understand our API documentation and plug it in seamlessly without ever having to talk to a human. And so we've spent really the last 18 months rebuilding the data infrastructure that delivers that data anywhere that a customer wants it. If you wanted intent data, a year ago, you would have had to get that intent data through the SaaS interface inside of Copilot or SalesOS. Today, you can get it in an API, you could get it through the MCPs. And so it's really just the flexibility of making that data much more available to our customers wherever they want to work, which has changed where they want to work, has changed, obviously, much more significantly than the necessity for our data and the accuracy of our data.

Our next question comes from Alex Zukin with Wolfe Research.

I guess maybe in the spirit of channeling my inner Brad, I'm going to ask a couple of similar questions. But it feels like on the call, you're walking through maybe a couple of different issues simultaneously, longer sales cycles, particularly in software, an acceleration in your push to transform and get out of the lower end of the market as well as accelerate the shift to consumption from seat. So if you're guiding to exit the year at kind of a negative 8% growth and saying you're going to return to growth in fiscal '27, like how much of the headwind from which of those parts is embedded in that guide? And like where do you feel like there's maybe a little less risk because it's you guys pushing versus pulling?

Yes. I think you've got it right in that we're looking at the software vertical and some of the softness there coming out of the quarter. The down market rightsizing, like that's probably the largest part of the guidance revision this year is that we can pretty scientifically say we take out X resources down market and that creates Y of an ACV headwind this year. I think the biggest question that we're modeling is the pricing transformation. And as we kind of accelerate that this year, that will become the larger part of the story next year. As we model that, there might be instances where there are lower entry points. And the question that we're modeling is when do we get the upside, whether it's intra-contract from upsell opportunity or at renewal from mitigated downsell pressure.

And I'd also add, Alex, you've heard us talk over the last 2 years about our push to go upmarket and the retention characteristics and the growth characteristics in our upmarket customer base are significantly better than our downmarket customer base, which is diluting the upmarket performance. And we think this is a moment to rip the Band-Aid and really lean into that motion. You look at our operations business, which is now just under 20% of our overall ACV that business is growing 20% year-over-year. It's the highest profitability part of our business, and it directly correlates to customers needing more and more of our data as they continue to build internal AI applications and need to get their data foundation right. This feels like the moment to lean into that in a more aggressive way than we have historically. And on the guidance, we're being super conservative with it because we recognize there are a number of moving pieces to the rest of the year.

Got it. And then maybe to the -- Henry, to the point that you made earlier about some of your motions, particularly kind of unleashing the data asset. It was particularly striking that at the same time as you're calling out kind of some headwinds in broader software and AI anxiety, 2 of your most iconic wins, I think that you cited in the quarter were with Sierra and another AI Unicorn. So maybe can you just help us understand how -- I assume those 2 companies aren't massively expanding seat count. So how are those 2 iconic wins specifically leveraging some of that kind of leading edge functionality that you're talking about? And what do those either expands or lands look like relative to previous cohorts?

Yes. I think the big difference that we're seeing is customers -- those AI native customers are building their own internal revenue workflows. In software, you have a very opinionated interface that you provide your customers. And it's opinionated because you have product managers who deeply understand the domain and they try to build a flexible enough interface or a generic interface that customers across a broad spectrum of types and revenue workflows can get value out of. The AI natives are building their own revenue workflows. They're building their own interfaces. They're bringing in their own first-party data. They're building in their own unique workflows. Every company's go-to-market workflow is a little bit different than the next companies. But every company's go-to-market workflow requires data on companies, requires data on contact, requires hierarchy and subsidiary mapping so that you could do territory segmentation and planning. And so these companies are coming in and they're saying, we have a revenue workflow, we've built it. We've built a prospecting workflow, but we need data to plug into that. And so these deals are much heavier on the data consumption side and much lighter on the seats. And we see that as a big opportunity and opportunity to embrace AI and really swing for a big massive opportunity here. And we think we're uniquely positioned to capture that. If we were a traditional SaaS business, seats are not transferable into an LLM. It's very difficult to expand the surface area of where your product gets monetized. But we are underlying a light SaaS interface is our data asset, which is the most important part of our business. And we're going to make that really available to anybody, anywhere a go-to-market workflow runs, and we're uniquely positioned to be able to do that.

Our next question comes from Raimo Lenschow with Barclays.

Quick question. What you're seeing at the moment in software, is that the software companies are reducing their sales capacity? Or is it that they are actively building the front end like the AI guys are doing? Because the question becomes like will it eventually then spill to other industries when they realize how the world is evolving. And I have one follow-up for Graham.

I think it's a little bit of both. But I think at this point, we are happy to see it spill over into other industries because we think the bigger upside opportunity here is consumption of our data where every go-to-market workflow runs. And so yes, we see it in software today, and we're leaning in to capture that opportunity with much more flexible pricing and the ability to transfer seat prices into consumption of our data. But if this goes on into insurance and financial services or other segment, our APIs and MCPs and ability for our customers to use our data as a reference data architecture for all their go-to-market workflows gets better and better and better every quarter. And it's about adapting our pricing and packaging models to meet the customers where they are, where in software and sophisticated customers, they're leaning into building their own things, and we're going to show up with consumption that they need for that. So I don't view this expanding beyond software as a negative. It is what we're preparing the company for.

Yes. Perfect. Yes, it makes total sense. I mean you always have a very strong data set from the very beginning since we first met you. And Graham, then if you think about guidance, like how much is that -- is the guidance implying that software is moving versus other guys are moving? Is that -- do you think about this in stages like this year is more software and it's part of the guidance and then next year something else? Or like are you going to -- like this year, the whole model gets flipped to consumption anyway. And so whatever other industries are doing, it doesn't matter then?

Yes. I don't think it's -- I think there's a certainly a vertical-specific assumption around software. But look, we still see good performance in our upmarket business and our operations business. And the revision to revenue and the cost out is focused on our downmarket business where our margin profile is the worst. The development of uncertainty on multiple fronts is the primary reason behind the guidance revision, and we want to minimize the risk of another negative revision.

Our next question goes from Allan Verkhovski with BTIG.

So you have a number of large upmarket customers that spend millions on an annual basis with you. And I think the reason for the shift to consumption makes sense. But what kind of feedback and signals have you gotten that these larger customers are willing to spend the same amount, if not more, through a consumption model? And then I've got a quick follow-up.

Yes. When you look at the customers that spend the most with us annually, a lot of those are operations customers. And our operations business is our fastest-growing business at scale, growing over 20% year-over-year. So we've seen not only a lack of reluctance, but increasing demand from those customers that are not on a seat-based model that are largely data access customers. And what we've seen is not only do they have better gross retention outcomes, they have significantly better net retention outcomes where they come in at an entry point and then actually buy more and more and expand their investment with ZoomInfo over time.

Got it. And then, Graham, of your upmarket ACV growth of 5% this quarter, what is the upmarket software and non-software ACV growing? And within the $100,000-plus ACV customer cohort, can you share the number of customers that declined there? What percentage of them are software companies?

Yes, upmarket within the software portion of upmarket, you could -- software overall was down a little bit sequentially in Q1, and that is what is kind of creating the drag, both down market and to some extent at the lower end of upmarket. And then within the $100,000 logo cohort, it's not -- there are not as many logos period, but even software logos that are downselling out of that. It really was a phenomenon of having less that we're upselling into the quarter. We had better net from 0 new sales into the cohort. We had significantly better downsell on the -- or I guess, lack of downsell out of the cohort and similar churn out as well. It's really a kind of pause around incremental purchases that we saw at the end of Q3, and that was largely focused on software.

Our next question comes from Billy Fitzsimmons with Piper Sandler.

Given the shift to more flexible pricing and packaging in the back half to better align with better align monetization with customer value, as we think about the guidance and as that kind of flows through the model, given the commentary around how some customers may end up paying more, some may end up paying less, can you just give us the building blocks for how we should think about this guidance in the back half? And then if I could sneak in a second one. With the closing of the Israel R&D center, can you just help us think about ZoomInfo's ability to balance investing for an AI era with kind of a lower R&D base? And does this change any of your R&D priorities for the remainder of 2026?

Yes. On kind of the composition of the guidance, when I look at the reduction and kind of breaking that down into the building blocks, about 1/4 of that, a little bit more is coming from the down market restructuring where we're taking the most -- the least efficient downmarket sales resources out and therefore, in some cases, foregoing or bringing in that inefficient downmarket ACV at lower price points through a PLG motion. And then a little bit less than 1/4 is coming from more cautious assumptions around software. A little less than quarter is coming from the pricing ins and outs and the revenue recognition variability with the shift towards consumption. And then the rest is just a layer of incremental conservatism. And then -- yes, look, I think the upside versus downside conversation as we shift the model here is really going to come down to timing and opportunity in the customer base. In Q3 and Q4, we're going to learn more about what those net new customer sales look like and what the customer base migration looks like. And in some cases, it will be a balance of lower entry points that unlocks upside at renewal or even intercontract. And it's just going to be a timing equation with respect to that. On the engineering side, there are 2 things. One, our engineers with the help of coding agents are delivering significantly multiple times more software into our platform than they ever have historically. And so we are seeing velocity boost. I mentioned all of the MCPs and integrations that we did over the last 8 weeks. Just one of those would have taken us 8 weeks best case a year ago. And so we're seeing real engineering efficiency coming from our leveraging of AI internally at ZoomInfo. I think the second thing is there are a number of roles that we won't have as much necessity for. We don't need as many front-end developers as we did before. We're able to build a front end in a really simple way and where a lot of focus historically was on the front end, more of the focus is now on the data infrastructure, the back end and the flexibility of that data to get plugged into a number of places. So it's not as necessary for us to have as many front-end application developers as we've had historically.

Thank you for the granular detail on the guide.

Our next question comes from Siti Panigrahi with Mizuho.

Just to follow up to that earlier question, the roles you -- I mean, 600 jobs roles that you reduced. What's the mix of that in different functions, go-to-market versus R&D or any other back-office functions?

Sure. It's mostly going to be R&D. If you think about it as like about half R&D. And then the rest of it is mostly going to be downmarket sales and marketing resources. So you can think about it as probably 90% R&D and downmarket sales and marketing. And then there's some G&A that makes up another 10% or so of the roles.

Okay. And then on the NRR has been flat at 90% now for the last 3 quarters. As you are looking into further this deliberate shift away from the seat-based pricing and also some kind of churn you're expecting in software. What's the floor on NRR in 2026? And does it have to bounce back as you're thinking about growth to reaccelerate?

Yes. I think the bounce back after potentially some near-term headwinds here would certainly be the most important thing to -- as part of that return to growth. But with some of the -- with the proactive shift in the pricing model, there may be some regression in overall net revenue retention, and that's certainly reflected in the guidance. And I think we feel really confident about offsetting that quickly thereafter with upside from the shift towards a consumption model.

Our next question comes from DJ Hynes with Canaccord...

Henry, we've talked a lot about more flexible pricing. I think that makes a ton of sense. Do you also have to get more aggressive in lower prices to reaccelerate demand?

I think that what we're thinking, DJ, is not creating artificial barriers to get in and leverage our data, particularly in the down market, where we have an opportunity to bring a customer on for lower prices, but align that customer to value through consumption of our data either in our platform or in an LLM. And so we want to make it really easy to transact with us. One of the core assumptions of this shift is that our PLG motion drives more opportunity down market by removing platform fees, seat minimums and aligning towards consumption, which we think is better aligned to what the customer is looking for.

Yes. Okay. And then, Graham, a follow-up for you. Just based on how you're forecasting the business today, when do you expect to see a return to positive quarterly sequential revenue growth?

I'd say we expect growth to be sustainably positive by the second half of 2027 at the latest with healthier underpinnings and nearly unconstrained upside to our consumption TAM.

Our next question comes from Parker Lane with Stifel.

I believe you said it was the third quarter that you'll introduce the platform fee with prepackaged credits. So just to be clear, for customers that have upgraded in 1Q and 2Q or will have a renewal that extends beyond the second half of the year, are you going to be negotiating under this new pricing structure and maybe trying to shift them to a new model ahead of time? Or is it only going to happen at renewal? And then second, do you anticipate less willingness to engage in similar duration? Do you think people will compress their duration at all in response to how fast things are moving out there?

Yes. Look, I think we're going to have an opportunity to work with our customers to shift them into this pricing model regardless of renewal date. It's not going to be a forced shift but in Q3, up from a new business perspective, we'll be leading with this for the first time. And then with the customer base, it's going to -- we're going to meet the customer kind of where the value is, and there's going to be opportunities to shift them to this more variable pricing and away from kind of the more fixed model. And we see a lot of upside for the customer and for us in doing so. What was the second question, Parker?

It was on duration. If you see any less willingness to engage in similar durations, particularly those that have been multiyear.

We haven't seen that with the operations business where that's significantly -- has significantly longer duration than some of our other products. And I would expect that we won't see a headwind on that front.

Our next question comes from Jackson Ader with KeyBanc.

This is Nate Ruoss on for Jackson Ader. So regarding the Studio and Workspace, what's been the initial customer feedback on these tools thus far, specifically for Workspace since it's newer? And how do you expect these tools to attach to contracts going forward?

Yes. Initial -- we did a much more heavy push this quarter on GTM Studio, and we introduced it to about 1/4 of our customers who are now in trials of Studio. Their hands-on trials with their account managers and solution consultants. They're consuming data within Studio. And then we're moving a lot of those customers to paid customers of Studio. And so we feel really good about the feedback we're hearing there. There are use cases that weren't accomplishable inside of legacy ZoomInfo platform that they're -- that they now are able to do inside of Studio that they wouldn't have been able to do before. And we've layered AI inside of Studio. And all of that is really designed to drive consumption. We expect Studio to be a meaningful driver of consumption of our data through that platform. And so that's really where we're focused. That's a similar model where instead of a platform fee, you're paying for consumption to come into Studio and your upfront fees translate into consumption data and AI credits. And so it's been really positive feedback. It's really early still, but we feel really good about the feedback that we're hearing there, and then we continue to invest meaningful R&D dollars behind that platform as well.

Great. Super helpful. And then one more for me. As you guys transition to more of a consumption model going forward, how do you help customers get comfortable with the variable pricing who are originally used to seat-based fixed pricing?

Yes. Generally, we'll work with the customers to kind of establish guardrails around the sizing of the initial purchase. We still expect this to be, for the most part, pre-committed consumption spend. So they're paying for a level of credits upfront. And when they've gone through those credits, we can sell them more. But we're really sensitive to making sure that the customers feel comfortable with that initial purchase and certainly comfortable with the value that we're ascribing to it.

Our next question comes from Tyler Radke with Citi.

Just to double-click on the timing of all these changes. So I think you talked about a 12- to 18-month sort of period of transition. And can you just remind us, is that -- are you essentially expecting all customers to be kind of migrated over to this new consumption plan by the second quarter of 2028? And is that the quarter where we see ACV growth trough and then revenue kind of follows after that? Just walk us through the mechanics of that and anything we should keep in mind in terms of revenue recognition?

Yes. I think the -- if we think about kind of the order of operations here, we plan to be leading the new business motion with this hybrid non-seat-based model by the end of Q3 this year as well as kicking off kind of a more formal transition for customers who want to move to this and who we believe will benefit from this. As we get -- I think what we said is in 12 to 18 months, we'd like to be closer to 50-50 from a seats-based ACV versus non-seat-based ACV perspective. Right now, we're 2/3 seats and about 1/3 non-seats. So I think shifting 15 to 17 points there over the next 12 to 18 months is our plan. We don't think that, that is the kind of clock on when we get back to growth. I think we're really confident in getting back to revenue growth on an annual basis by the back half of 2027. And that would probably be a quarter or so after we're back to an ACV growth trajectory.

Got it. And how do you think about long-term GAAP operating margins, free cash flow margins under this new model? And obviously, in the past, you guys have stepped up share repurchases in periods where the stock is dislocated. So how do you just think about all those pieces given the announcements today?

I think the biggest thing is that we are committed to protecting and growing cash flow per share in any set of conditions.

Our next question comes from Brian Peterson with Raymond James.

So Graham, you mentioned that the operations business has longer duration. I'd love to maybe understand anything that you can share about that business in terms of end market exposure, sales cycles, how much comes in kind of net new versus cross-sell as that becomes a more important part of the business?

Sure. It's still -- a lot of the growth in the operations business does come from existing customers, whether they're ZoomInfo customers that are cross-selling into operations or existing operations customers that are expanding their operations spend. That's where the lion's share of it comes from. The net retention and the gross retention in the operations business is better than any other business within ZoomInfo. And what that means is we still have a good amount of logo white space, whether they're existing ZoomInfo logos or not acquire as operations customers.

And Graham, is there any sense for how much of that is tech or software related, a help on end market mix?

It's pretty diverse. It's less software heavy than our kind of core offerings. And it's very heavily weighted to large enterprises across a diverse set of verticals.

Our next question comes from Austin Cole with Citizens.

So I don't think there's been a lot of discussion about Copilot. So I think last quarter, it was over 20% of total ACV. I'm just wondering if there's any update you can provide with respect to that metric or just how those renewals trended in the quarter or kind of if this shift is just transforming your overall vision for Copilot?

I think the pricing model will certainly play into how we package and sell Copilot here, but Q1 was another really solid quarter for Copilot. It continues to increase as a mix of the total business. And I think that actually one of the brighter spots for us in the quarter. What will change in the future is how we price Copilot. And you should expect that it's priced more from a prepackaged credit perspective than historically where we sold it on a seat basis.

Great. And then maybe just as a quick follow-up here. The AI confusion and some of the macro that you discussed earlier in the call, is there anything you can share with respect to maybe how that's just trended so far kind of in April and early May and whether those trends have continued or how those have changed more recently?

Yes, it's pretty similar to what we saw at the end of the quarter. It's not necessarily not getting worse, but it's -- I think we're still in that pause phase.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.