Q2 2021 Zeta Global Holdings Corp Earnings Call
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Pardon me. This is the operator, please standby the call will begin in the few minutes.
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Thank you for standing by this is the conference operator welcome to the data Q2, 2021earnings conference call.
How's The reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Italian Rodriguez and partner with Harbor Advisory Group. Please go ahead.
Thank you joining me on the call today are David Steinberg, Zeta co founder Chairman and CEO, and Chris Greiner Chief Financial Officer.
Before we begin I'd like to remind everyone that statements made on this call contain forward looking statements. The same point of the statement noticed that's found on the 8-K and earnings release filed with the SEC apply to this call as well and can be fun and they are of a portion of the debt is website and app.
Addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to and not as a substitute for GAAP results.
Tiliaceous to the most comparable GAAP measures are available in todays 8-K, and exited the materials, which are available and are on our investor Relations website at investors day, and say the global Dot Com now I'd like to turn the call over to David Sandberg David.
Thank you so much good afternoon, and thank you for joining the Data's first earnings call of the public company and we appreciate your interest.
Before we dive into the details of our very strong second quarter I'd like to take a few moments and talk about.
Who we are what we do how our technology platform is unique and valuable and the marketplace.
And why we're excited about the accelerating momentum of our business.
And what do we do.
14 years ago, My partner, John Sculley, and I set out to build a next generation marketing platform to help brands acquire grow and retain customers more efficiently and effectively.
The mission is more critical today.
Ever before modern marketers are struggling to keep up with the rapid pace of digital innovation and are seeking solutions that.
Help them to get to the market quickly identify and engage their target customers with precision the liver personalized experiences across all channels and improve our O with sophisticated deterministic measures the comprehends the impact of every program.
That is what our tech stack the data marketing platform or Z M. P was purpose built to develop and deliver.
In fact, a recent study by Forrester has proven something that we have known for quite some time.
Enterprise marketers, taking advantage of the Z M P's identity based omni channel activation capabilities achieved 50% better result than without it.
The Z M. P is rooted in our proprietary data we've made the number of high impact the acquisition to build over time, 1 of the largest opted in identity based datasets and the world on top of this identity bedrock, we built the patented artificial and.
Diligence engine that analyze the billions of structured and unstructured data signals to discern consumer intent and a way never before possible, which allows us to create higher value audiences that unlock new possibilities for personal wise.
And the channel engagement.
In the second quarter, our dataset expanded from 500 million to over 515 million individuals globally and from $220 million to over $225 million in the United States alone, we combine our proprietary data with boost.
And the data provided by our customers to understand unique insights and.
Cover new use cases and accelerate growth for many of the worlds largest brands.
However day.
It is not our product David the electricity that powers our software business.
Our customers use the Z M P to orchestrate and execute targeted marketing programs across all addressable channels.
The patented the AI at the core of the Z M P get smarter over time, and enabling customers to achieve both greater scale and higher R. O y a.
Rare and powerful combination.
We believe this drive strong retention as well as expand and extend sales motion.
Our annual net retention rate for our largest customers was 122% in 2020 up from 104% in 2019.
Today, we serve a diverse customer base, including 1 in 3 fortune 100 of enterprise customers across a variety of vertical markets with no 1 customer accounting for more than 7% of revenue and no 1 industry accounting for more than 14 per.
<unk> of revenue in the second quarter.
Our customers consists of many of the worlds, most well known blue chip brands across every major industry vertical.
Enterprise customers choose <unk> for our ability to help them deepen connections with their customers.
The GNP creates a true 360 degree view of the consumer enriched with our proprietary data signals, while keeping the datas and each customer's data technically separate it.
A key differentiator in the market.
This provides enterprises with a single source of truth that improves the understanding of consumer needs attitudes and behaviors far beyond what they can derive on their own.
Yeah.
Yeah.
Each month in the United States alone our platform analyzes over 50 billion web pages and online discussion forums interactions.
3 billion visits to real world locations over 1 billion purchased signals and up to 2500 demographic and behavioral attributes to determine behavioral intent and and <unk>.
Individual deterministic level, so that our customers can deliver the right message to the right consumer at the right time.
Because of the market is consistently evolving the GNP is flexible. So we can respond quickly to the technological advances and seamlessly connects with the emerging digital platforms and new services for example.
<unk> is our fastest growing channel growing by almost 500% year over year in the second quarter.
From a demand standpoint, we're seeing an acceleration and the pace of digital transformation and marketing and the adoption of data driven marketing, we're seeing of Digitization of marketing channel.
The growing importance of identity based deterministic targeting data.
And an increased and demand for measurable marketing spend and return on investment.
We believe we're seeing the market come to us and.
And I'm confident that the investments we've made over the last 2 years and continue to make position us to capitalize from these tailwind.
Last year, we successfully launched opportunity explore a campaign planning tool that provides brands with proprietary insights on segments and Pusan those in conjunction with a comprehensive view of and available addressable channel for each consumer target.
And we are able to stand up.
Instances of the opportunity to explore and a matter of days and now it serves as an effective go to market wedge product for new net customer acquisition as well as the gateway for broader platform adoption.
Chris and our President and Chief operating Officer, Steve Gerber have done an exceptional job this past year, and expanding and reorganizing our sales organization to support and accelerate growth across multiple dimensions.
And readying to scale, our growth even more aggressively on per.
The how to announce that we have hired Zeta is first chief marketing officer Crystal Eastman has joined US in June from the trade desk, where she was the head of global marketing.
Through the senior role and other senior roles. She has held throughout her career at American Express and Blackrock Crystal deeply understand the increasingly sophisticated needs of enterprise markers and.
Thrilled to welcome Crystal to our team.
For our Q2 business commentary.
Before I turn it over to Chris the fully walk you through the numbers, let me touch on some highlights Q2 capped a very strong first half per zeta.
During the quarter, we delivered.
The record revenue for our second quarter of $106.9 million and increase of 39% year over year compared to revenue growth of 25% year over year in the first quarter of this year.
Solid profitability on the non-GAAP basis, with adjusted EBITDA of $11.4 million adjusted EBITDA year over year growth was 106% and adjusted EBITDA margin of 11%.
Since the beginning of the year, our revenue growth expectations for the second half of this year have improved driven by a more favorable outlook and our high level of revenue visibility do.
During Q2, we won business with over 30, new customers, while simultaneously achieving record net revenue retention rates for total data.
And the data's scale customers the.
The sum of the parts of zero and our marketing cloud our data cloud and our activation capabilities are resonating with customers and differentiating us from competitors.
We're also significantly accelerating momentum in product innovation and customer wins, which establish a strong foundation for future growth.
Let me expand on each and share some highlights.
First our recent product advances.
We've made our CTV offering even more sophisticated with CTV genre and content targeting which allows marketers to reach their targeted audiences in specific context with any specific shows this solves for a key barrier to entry.
And as the linear buyers contemplate the shift to CTV.
As TV buyers have been accustomed to control at the content level.
We've also developed of CTV content consumption household index to provide clients with deep insights into what content.
And there target households are watching to inform their go forward media plan and creative strategy.
Our CTV enhancements this quarter provide a unique and differentiated combination of actionable insights and activation controls that will accelerate advertiser shift from linear the CTV and improve ROI per day to customers in this increasingly in.
And marketing channel.
We continued to scale of identity graph, adding over 5 million customers, bringing our precision reach to over 225 million and the United States.
We also continue to fortify our determining the graph, which as a reminder is not reliant on third party cookies, and we launched the new identity resolution surface the acts as a backbone for ensuring.
Addressable city and accuracy and how we apply data is data and artificial intelligence to individuals' intent in our predictive campaign recommendation.
We will continue to invest in the resilience of our identity solution, which is core of the Zeta marketing platform to ensure we are future proved to the evolution of the digital landscape.
Lastly, we've created a new way for brands to rapidly onboard their first party data at a faster more automated path to campaign automation and this new functionality, which we call low code Onboarding eliminates the implementation dependency on enterprise.
And it resources and reduces our time to get started with new customers from weeks or months to year dates.
With more and more brands looking to maximize their use of 1 <unk> to power more productive acquisition and engagement programs, we are well positioned to be the partner of choice as they embark on their digital transformations.
Now I'd like to share a few of our notable customer wins in Q2.
First with respect to our omni channel capabilities, our long standing insurance customer that has worked with us and messaging for over 5 plus years expanded across paid channels in Q2, leveraging the same targeted audiences and campaign infrastructure the customer work seamlessly.
The fleet to the GMP to expand reach and improve impact we forecast this relationship expansion to increase the customers offering by up to 20 additional percent.
We believe this model could be repeated and scale across more than 50% of our customer base and the next 18 to 24 months.
Second with respect to how we win with opt to be explored.
Using the first party data of a major retailer, we were able to isolate browsers from buyers, we target them across multiple channels and.
AI powered trigger based program this solution displaced and major competitor and put this retailer on a path to becoming 1 of our largest customers in 2022.
Third with respect to the CDP, a longstanding travel client who had primarily focused on omni channel activation, but the wide on a third party legacy database services model.
We're aligned with our vision of moving into an omni channel model driven by a single view of the consumer.
But they challenged us to onboard and migrate them within 8 weeks.
Due to the data conductor the low code solution I mentioned earlier, we launched this quarter, we were able to ingest all data feeds and stand up a world class CDP and a week so that they can capitalize on post COVID-19 bookings.
Finally, we announced a new partnership the Dun and bradstreet to bring our core solution to the BW market.
And as a part of the agreement <unk> will become a multi year important scale customer.
We look at every competitor in the marketplace and ultimately chose data because of the capabilities of our software.
Our data our ability to combine in flow seamlessly, our omni channel marketing capabilities and our ability to deliver measurable results in summary, it's been and exciting last few months per Zeta, our recent IPO marks a new and exciting chapter providing.
US with additional capital to further strengthen our platform for our blue chip clients as well as attract and retain more talent.
Proud of the results we've delivered to date, we're even more excited about the future as we continue to execute strongly upon our strategic growth plan.
I would like to really think the Zeta team for everybody's hard work.
Dedication and perseverance I'd also like to thank our customers partners and investors for the support they've given us throughout this journey.
And with that let me hand, it off the Chris to discuss our results in greater detail Chris.
Thank you and good afternoon, everyone.
Let me start off by echoing David.
2 and incredibly excited for <unk> next chapter as a public company and Couldnt think of a better way to begin our journey and with the announcing our very strong second quarter 2021 results.
Across the board, we saw strong broad based execution building upon our momentum from the first quarter and leading to an improved outlook for the year and both revenue and adjusted EBITDA.
We're seeing a positive shift in revenue mix further improvement and RP and increasing win rates all of which are the result of continued investment and our platform datasets and sales team the.
This is best illustrated through how our core growth drivers contributed to this quarter's results of 39% revenue growth and 106% adjusted EBITDA growth.
I'll first cover key elements of our second quarter results before diving into our core growth drivers and the performance metrics that powered our progress toward our long term growth and profitability targets.
We delivered the $106.9 million and revenue during the second quarter up 39% year to year and up 5% compared to the first quarter scale and customer growth of 2 expansion and record net revenue retention and ramping sales productivity from our hunters and farmers all contributed to this quarter's results.
Each of which I'll discuss in more detail shortly.
From a revenue mix perspective, we continued to drive a higher percentage of our revenue direct on the data marketing platform was the E&P.
Increasing revenue mix to 77% of.
And from 74% and Q1 and 68% ending 2020.
Also in the second quarter, our percentage cost of revenue, excluding depreciation and amortization was 39, 2% as compared to 38% last year, and 38, 4% and the previous quarter over the full year of 2021, we are on track with our goal of achieving at least.
75% of revenue direct from owned and operated GMP channels.
We expect meeting the skull to produce at least of 100 basis point reduction to our percentage cost of revenue and the full year of 2021 versus 2020.
Our revenue results drove strong operating leverage through our expense structure, even with our incremental investment and sales and innovation.
Our operating expenses for the quarter include stock compensation expense and 1 time IPO related expenses, which are considered add backs for a non-GAAP measure of adjusted EBITDA.
Excluding stock based compensation and onetime IPO related expenses, we realized scalable efficiencies year to year, and G&A sales and marketing and R&D.
G&A as a percentage of revenue was 24% and the second quarter compared to 22, 4% and the prior year and improvement of 200 basis points.
And marketing as a percentage of revenue was 21% and the quarter compared to 21, 8% last year and improvement of 80 basis points.
And R&D as a percentage of revenue was 8.6% as compared to 10, 6% last year lower by 200 basis points.
Before discussing our core growth drivers and performance metrics, let me quickly touch upon other GAAP and non-GAAP measures of our financials.
Net loss increased from $15.1 million to $94.9 million compared to the prior year period.
This increase was primarily driven by $119.3 million of stock compensation expense recognized during the quarter.
Modification to the vesting terms of pre IPO restricted stock grants caused higher stock compensation expense future expense related to Unvested restricted stock announced the $662.1 million as of June 32021.
Our growth translated to operating leverage with the adjusted EBITDA, increasing to $11.4 million from $5.5 million and the prior year period and increase of 106% and.
Adjusted EBITDA margin increased to 10, 7% from 7.2% of 350 basis point increase year over year.
Operating cash flows during the quarter also increased to $7.6 million from $6.3 million and the prior year and increase of 21% cash.
Cash on the balance sheet stands at $113.6 million from $50.7 million as of December 31, 2020, primarily due to the proceeds from our IPO and.
And finally net working capital defined as current assets less current liabilities was $97.4 million as of June 32021, increasing from $37.4 million as of December 31, 2020.
Now, let me transition to our core growth drivers and some of the performance metrics that contributed to our strong results.
As a reminder, we of 5 core growth drivers first growing our flu and scaled customers, who we define as customers generating at least 100, K and revenue over the trailing 12 month period share.
And investing in sales capacity marketing and building out our partnership ecosystem third scaling our newest product opportunities for.
And for launching new products to new markets, and new buyers and fifth expanding internationally.
Our execution on each of these fronts is contributing to our improved outlook and progress toward our long term model of greater than 25% revenue growth and at least 20% adjusted EBITDA margins are.
And I will discuss the kpis for each growth driver during the second quarter.
Beginning with increasing <unk> and growing scale of customers last year's transition to a dedicated hunter farmer sales team is working very well.
Our belief that better customer experience translates to increased platform adoption is best evidenced through the lens of our ARPA growth.
Increased scale customer count and record net revenue retention.
Starting with the <unk> during the second quarter, the average revenue per scaled customer climbed to over 299000 up 44% year to year.
We grow our fleet by increasing platform usage of cross selling new use cases, and upselling more channels on our platform.
We are very interesting dynamics driving market, which can be found on slides 13, and 14 and our supplemental earnings presentation on the IR website.
And these are as follows first the increase between the scaled customers <unk> and year 1 versus year 3 is greater than 5 ex <unk>.
This demonstrates the stickiness of our platform and leverage and our revenue model.
The increase and scaled customer RFP for 100, K to 1 million customers and greater than 1 million customers is 10 times.
This reflects the significant opportunity to cross sell new use cases and up sell new channels within the installed base.
This opportunity alone is expected to be of $1 billion growth lever.
And lastly through the first half of 2021, we continued the trend of increasing the average number of channels utilized per scale customers to 1.5 through June 32021, which compares to 1.4 for all of 2020 and 1.2 for all of 2019.
And the setting of having over a dozen channels available on the platform. So a great progress with substantial incremental growth opportunity ahead of us.
In addition to our 2 expanding we're also increasing scaled customer count scaled.
Scaled customers increased from 333, and the first quarter to 343, and the second quarter with both our 100, K, the 1 million customers and greater than 1 million customers increasing quarter to quarter and.
And lastly, as you heard from David during the second quarter Zeta realized a record net revenue retention rate in total as well as for scale and customers.
Our second core growth driver relates to increasing investment and sales marketing and partnerships.
During the quarter, we made solid progress and building repeatable scalable sales engine and expanding our sales ecosystem to supplement the direct sales force.
With respect to our direct sales organization or 39% year over year growth was contributed evenly by hunters and farmers new customers generated 23 points of year over year growth, while existing customers made up the balance of $18.3 points.
From a sales productivity perspective, when rates through the first half of the year have remained over 50% for total data as well as for each of the 3 use cases, we sell to our customers.
Third party validation by Forrester, showing Zeta delivers 50% better results is certainly helping the sales efforts.
We're also realizing the benefit of assigning our sales team by industry expertise.
As we gain footholds and specific industry, we're leveraging those wind plans deeper within the vertical. This has contributed to our strong industry growth rates with 12 out of 15 industries growing double digits year to year and the second quarter.
And as David highlighted and addition to hiring our first CMO. We also made major strides growing our partnership ecosystem through our announcement with Dun and bradstreet not only the dnb become an important multiyear scaled customer, but our combined capabilities strengthened data the ability to bring of 360 degree view of the consumer to our customers.
And further differentiate the data from the competition and opens up new opportunities and be the B and F&B.
Our sellers continue to have success, using our newest product and third core growth driver opportunity to explore as bolt of wedge product to land new customers and.
And as and expand extend tool with existing customers and facts, we've seen the number of opportunities for product sales increased sequentially every quarter since Q1 of 2020.
Importantly revenue from these customers grow overtime as opportunities for serves as the door opener to the broader capabilities of the Z M P.
And we've begun to attach new features of the opportunity explore to further accelerate its land expand extend contribution to our growth.
Launching new products is our 4 core growth driver and as you heard from David the pace of innovation and new product introduction by our product data and engineering teams has never been faster.
Second quarter continued the trend of more revenue being driven direct from the date of marketing platform. The major focus of the company.
This is important since revenue generated by the DNP has a higher mix of recurring revenue and a better operating leverage characteristic.
We also saw all major channel categories grow greater than 25% year to year with CTV growing 499% and continuing to hold its position as our fastest growing channel and the Z M P.
Wrapping up the discussion around our last of our 5 core growth drivers the data as international revenue grew at a robust 33% year to year and the second quarter.
Of the core growth drivers international expansion is the longest time horizon, but has significant upside since it represents just 6% of total <unk> revenue today.
Our ability to replicate our proven blueprint and the U S with our existing footprint overseas is an exciting area of future growth and and expected major expansion of our $36 billion U S. Tam.
Transitioning to guidance and with our core growth driver momentum as the backdrop our outlook for the year is improving.
We're guiding third quarter revenue to $108 million to $111 million up 13% to 16% year to year as reported and up 17% to 20% after adjusting for $3 million of prior year presidential cycle revenue that does not repeat and the third quarter of 2021.
For the full year were taking revenue guidance to 432 million to 436 million up 17% to 19% year to year as reported and up 22% to 24% after adjusting for $15 million of prior year presidential cycle revenue.
We believe adjusting out the $15 million impact of last year's presidential cycle $3 million, and Q3 and $12 million and Q4 of 2020 best produces an apples to apples comparison to measure our core growth performance.
From a profit perspective, and the third quarter, we are guiding adjusted EBITDA to $13 million to $13.5 million with and adjusted EBITDA margin of 11, 7% to 12, 5%.
For the full year, our guidance for adjusted EBITDA is the range of $55.5 million to $57.5 million up 43% at the midpoint and representing an adjusted EBITDA margin range of 12, 7% to 13, 3% up 225 basis points year over year at the midpoint.
Overall, our guidance for the full year is the reflection of continuing to aggressively invest and sales and innovation, while simultaneously expanding adjusted EBITDA margin and making steady progress toward our long term targets of greater than 25% revenue growth and at least 20% adjusted EBITDA margins.
You can refer to our supplemental earnings materials on slides 18, and 19 for further details on our guidance along the other reconciliations in the appendix.
Now, let me turn the call back over to the operator for David and me to take your questions operator.
Thank you well now begin the question and answer session.
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Our first question is from the Primal and shelf with Barclays. Please go ahead.
Hey, this is Frank on for Raimo, Congrats on a really strong quarter here.
Just 1 from me on your recent conversations with the customers plus of IPO has there been any noticeable changes here to highlight have you seen any further validation of the market opportunity and lately just post the IPO or.
And even the D&B partnership.
Yes, I mean first of all I think it's important to note that not only is dun <unk> bradstreet is going to be a partner they are a major customer and buyer of our software.
So it's it's a multi year fairly sizeable deal that's on the platform with very high gross margin. So it's emblematic of where we're going with customers signing multiyear software deals.
And really expanding the relationship.
I think what we're also seeing and and you saw and the rebound.
Of sort of growth hitting 39% as customers are starting to spend more and we really saw of lag.
Coming into this year of specific the travel hospitality and entertainment and financial services and we're starting to see those categories begin to come back.
It was also nice to see a nice jump and our scale customers. That's a trend that we expect to continue as customers that we're bringing on now are substantially larger and much bigger financial opportunities and customers. We were talking to 2 or 3 years ago, Chris would you like the <unk>.
Add to that non small cell.
Thank you any follow up.
Great. Thank you guys.
Thank you Frank Thanks, Brian.
The next question is from Richard Baldry with Roth Capital. Please go ahead.
Thanks and.
Could you talk about any of the challenges of trying to grow the sales capacity and this weird quarantine and work from home World We have.
You know, it's a fairly specific.
Net of skills, you need how do you onboard those and get people matched up to your culture and productive.
When you can't kind of be in person for that early stages of growth.
Hey, rich and Chris I'll take that and David can jump in and after we are really really happy with the pipeline of candidates that we have and the people that we've hired this year, we have seen better sales productivity and what we had modeled and.
I'll kind of bring that to life through a different set of the examples first we look at sales productivity through a number of different measures.
What is the.
The average pipeline size of each of our sellers are carrying and we look at them through the 3 different cohorts of who's been with us less than 12 months 12 months of 'twenty, 4 and greater than 24 months. When we began to bifurcate the sales force between hunters and farmers and create and industry focus.
When we kind of drew a new line and the sand on the sales team for both of our newest class of hires and those that are and the 12 to 24 months cohort the number of opportunities there and their pipeline today versus even 6 months ago is up 60% and 40% respectively and.
And the newest class those hired since the beginning of the year. They have some incredible sales per activity staff almost half of already signed their first deal their pipelines are as high as their colleagues had been more tenured, but then bolt and dollar value and and count and I think most impressively, while the company's win rates and.
The sustained and over 50% are new hires when rates are also over 50%, which you would naturally expect to be lower as they ramp so and cross sales productivity has been of real highlight and we're really happy with the progress, we're making and absolute hiring David Yes, I think it's important to note to that yes.
And.
And on boarding of team remotely is always more of a cultural challenge than Onboarding people. When you can have lunch with them every day.
I think what we're seeing is not only.
As our HR team doing an exceptional job of.
Creating events, we have started getting together and so because we have so many people and New York and San Francisco, Nashville, Boston, London, and Paris, and Hydro, Bob we're able to really get people together, even if it's outside even if it's.
And of more spread out of area. The other thing that I think has been maybe.
Maybe not.
And we've learned this over the last few months and it's something that I didn't think of when we first did it when Steve and Chris sort.
Sort of re architect of the sales force into this hunters and farmers and 1 of the really interesting results was.
And.
And we could get a higher quality hunter and.
And we were able to put farmers, who were more comfortable working with existing clients into a place where they were happier. They didn't have to go out and make sales calls they were able to just grow the existing clients and.
And it actually created incremental budget.
To go get higher quality people. So the answer is I think we are as happy as we can be with the.
The ramping of the sales force.
Obviously, we grew 39% 23% of that was new logos right. So.
That's really I think of solid staff.
20, plus percent growth rate on new logos, not including the 18, 6% growth on existing logos. So yes the.
Farmers are doing their job.
And the hunters are really doing their job and we're very pleased with that hopefully that answers your question.
Yeah. It does thanks, I'll take the rest offline.
Thanks Rich.
Thanks Rich.
The next question is from Arjun Bhatia with William Blair. Please go ahead.
Perfect. Thank you for taking my questions and congrats on a great first quarter as the public company guys.
My My first 1 the.
The new customer contribution, obviously seemed very healthy and Q2.
Can you, maybe just give a little bit more color on where those customers are coming from where those prior zeta customers.
That where may be under that 100, K threshold that you look at that of now graduated or the net new to data and.
I would love to hear how you're thinking about that.
Customer count for scale customers progressing for the rest of the year.
And often hey, Arjun I'll take the first and David will give some color on some of the wins and how.
You're right we had really good success this quarter signing over 30, new logos to the company and as you remember a lot of how we go to market as we land with pilot and then we farm and extend and expand with them on the farmer sales motion and the way to think about the connection from our 30, plus new logos to the scaled customer count increase of 333.
3 of 343 is about half of that increase of 10 scale of customers came from new logos and the balance came from customers that were signed earlier as pilots and went from non scale to scale.
Opportunities for as David mentioned in his prepared remarks, it's been a terrific door opener for US and was the big source of the 30, plus new logos that we signed within the quarter and yes. The other really exciting thing is I would say of the 30, new logos, we signed 30 of them can grow into scale customers.
<unk>.
It's not like a few years ago, where we would sign a deal with the company knowing that they would really not get the scale. Every 1 of these companies has the potential to start with the pilot and scale to a scaled customer and that's really where we're targeting and it's 1 of the reasons that youre seeing the growth rate of.
The company accelerate and I think origin, which sit out also to us and the period. When you look at the scale of customers and 1 of your questions of where we see of going there was really good balanced both on the <unk> expansion.
You'll note and you'll remember that during our pre IPO launch we have of 100, K, 2.1 million customers and that category and greater than 1 million customers and are.
<unk> for each grew sequentially and year to year and the count of scale of customers improve for each cohort and year to year, So really the balance and production and we're.
We're not going to guide to where we see our scaled customers going but.
And then he can hear the optimism from us on how we're landing and how we are expanding with the day.
Yes.
We obviously are feeling good about what's going on with Internet explorer and other pilot and proof of concepts and we're seeing that scale and we expect that to continue.
Does that answer your question.
Yes, that's very helpful and another 1 if I can David you mentioned and you hired Chris all of your first.
CMO.
Can you maybe just flesh out the significance of that what that means for building. The latest brand what are the priorities there will be.
And maybe how you just get your name out there a little bit from a marketing perspective.
Yeah, I mean listen I think as the.
The team you have to accept what you have done well and sort of begin to look at what you have not done and well right. I think we have built some of the world's best software backed up with some of the world's best data backed up with 1 of the greatest management teams I've ever worked with and I've been doing this for 32 years, what we.
Haven't done a really good job of is spreading the word.
And the fact that we won over 53% of the engagements, we got invited to participate and in the second quarter alone. When remember, we're either competing with and we're displacing Salesforce Oracle Adobe Adobe the trade desk and others in every.
Single deals and go so.
Our big issue you say issue.
You do the math right so 150.
53%, we said we added 30, new logos that would insinuate, we had 60 really good shots at the back how do we make that 120 really good shots at that right and.
Crystal who did this really successfully at the trade desk and prior to that was and American Express and.
Blackrock she is she's really good of focusing on <unk>.
Building, a brand and the enterprise software space, which quite frankly, we need to do better at so.
Youre going to see us heavily invested as a company into growth over the next few quarters and.
Our goal is to continue to accelerate growth and.
And we feel like we're very very well positioned to do that Chris perfect.
Anything else.
No that was it thank you guys and congrats again.
Thanks Art and I appreciate it.
Our next question is from Koji Ikeda with Bank of America. Please go ahead.
Hey, David Hey, Chris Hey, Thanks for taking my questions just a couple from me.
The I guess, the again real high level here of the Google tracking the cookie ban and delayed out till 2023, I think that kick that back down the road for another year of a year or so.
And I guess, what does that mean for data and the value proposition and maybe how your customers and prospects are talking about that.
Yeah, I mean first of all great great to hear your voice.
And we as you well know don't use third party cookies right. So what we're doing is we built of Zeta.
And that can identify people over the internet without the use of that third party cookie.
And so what I would tell you is I do.
Don't think it matters to us that the.
And pushed it out or given the push it out right, we never really factored in because quite frankly as I said repeatedly I didn't think of it was going to happen.
Yes.
The most of our customers.
Are already thinking about of post cookie world, we're already seeing that and quite frankly.
And there's a lot of great companies out there that are trying to adapt to a post cookie world.
We've already adapted to it so I think debt when we go in and it's part of the narrative, but it's not the main sales point I think if you look at the Forrester report the published on US the very clearly stated that if you use our software you will get a.
50% better return on investment than if you use our competitors software and to remind you our competitors are salesforce Oracle Adobe the trade desk.
And that's forest or as of third party independent companies, saying that so.
And every when we have we are generally displacing 1 of them and we are battling it out with others of them and.
I think debt our ability to have best of breed software.
When people asked and you sort of why do you win it's the sum of the parts.
The ability to take the software plus the data plus the activation of orchestration and put it into 1 place and.
Yes people are talking about cookies and more people are talking about return on investment.
Now I think that most of our clients are already focused on moving away from being in a third party cookie identification world and that's going to continue to evolve and it's even it.
It's even youre seeing it and some of the results of companies that are focused on and app with the elimination of the IV of <unk>.
And I think youre going to continue to see EBIT without the sunsetting of third party cookies, I think youre going to continue to see sites focus more and more on that sort of the opted in.
Which is just bringing it more to people's attention.
Got it got it thank you David for that and maybe 1 follow up for Chris.
I noticed and the commentary you said about 2020 per cent of the growth coming from new 18% from existing is that 18% the right way to think about <unk> for the quarter.
And if not could you maybe provide what was the IRR for the for the quarter and the second quarter for for scaled and for total.
You know the coaching and our NRI is as we work with the centers will be and annual metrics. However, certainly of great proxy for that and the <unk>.
Period for total data right would be 118% and that scenario.
Right.
From what was the 100% and what we can tell you is our scale customer net retention rate hit an all time record.
Got it got it thanks, guys. Thanks for taking my questions.
Yes. Thank you.
The next question is from Ryan Macdonald with me Dan. Please go ahead.
Hi, Thanks for taking my question and congrats on a great quarter.
Wanted to dive deeper on on the Dun and Bradstreet announcement and the partnership there, obviously, a really great opportunity and the near term with them being a major customer, but just curious sort of what your what youre seeing so far in terms of resources allocated to try to go after the <unk> and F&B opportunity and and where do you think you need to make our <unk>.
And incrementally to really build out that motion is as that relationship matures.
That's a great question, what we've done is we've dedicated certain resources to be what I would call technical salespeople and so the way it sort of functions is the Dun <unk> Bradstreet sales team, which quite frankly is among the best and the world Youre talking over the 900 full time sales.
And people, which have some of the deepest and most meaningful relationships with their large scale enterprise clients are acting as the relationship manager for us.
And I've seen and these types of partnerships is if you try and get the partner to sell your products. It becomes very convoluted and so what they're doing as we built the joint pipeline with them.
There are people are bringing our people in and quite frankly.
The top 20.
Of their prospects, Steve Gerber and I paid those sales calls ourselves. So we really wanted to understand how the architecture of the.
And the sales motion would work there and we got together and we sort of helped to write the sales motion there. So.
And we're seeing and incredibly strong pipeline there.
We do expect to add.
The meaningful logos this year through that partnership and.
Quite frankly, we're very excited at the prospect of working together with them.
It's just it's just such a great team and we love partnering with them.
Excellent and then just a follow up maybe for Chris the.
Great to see the continued progress and the mix of direct versus indirect.
Channel can you can you talk to and extent of whats continuing to drive maybe that faster than expected shift to the direct platform and then is there a bit of a lagging effect as we think about sort of the gross margin expansion opportunity, obviously seeing a point this year.
Year over year, now, but love to understand how that evolves as we look into 2022 as well thanks.
Yeah totally we're thrilled with the as you know it's a major focus of the company and so going from 68% ending last year to 74% and the 1st% to 77% year now and the second quarter.
And what's driving is very very strong channel adoption on owned and operated DNP channel. So you heard in the prepared remarks, all of our major channel grew greater than 25% think about messaging and display video of site optimization Cte.
CTV growing 500% effect of a 499% year to year, we're seeing great adoption of our owned and operated channels. We saw some mix that was more noise than anything within the channel direct on the G&P from a percentage cost of revenue, but wouldn't draw trend line off of it and we still feel very confident for the year.
We'll be at least 75% next on the BNP and at least 100 basis points of percentage cost of revenue reduction year over year. David. There is also of lag when youre, putting new customers into that platform as you onboard them theyre slightly higher cost of goods sold so once again I think we feel very comfortable with a 1 <unk>.
Hundreds of percent Im sorry of 100 basis point plus growth rate let.
Let me say this again of 100% low of 100 basis point lowering of our cost of goods sold per year, Adam the minimum where we'd give david the words and I, sorry, I screwed that up.
I'm, just kind of say 100 of interest rates, but I remembered I can't say incremental margin and I have to say lowering of cost of goods you are totally right sorry any follow up.
100 basis points of understood. Thanks, again for the questions and congrats.
Thank you Brian.
Our next question is from the Stanislawski with Morgan Stanley. Please go ahead.
And that's just lots of your line is open.
Okay.
Sorry about that.
Good afternoon, guys and thank you so much for taking my question.
From my and just a very quick question, Chris could you help us with.
The performance of the quarter, obviously very strong results how much of that came from.
From the recurring part of the business the 45% of this recurring versus the 55% that's reoccurring right. How much was there obviously and we saw a strong print from the Twitters and the snapshots of the world.
And how much did this snapback and the reoccurring transactional component helped the quarter and how did that drive the big increase in Europe.
The full year outlook for revenue.
Yes, thanks, and good to hear from me as well, we saw a very nice improvement and the amount of contribution from recurring versus what you would have seen maybe 6 months ago. When we're doing the pre IPO ramp versus reoccurring. So David mentioned about 85% visibility, but more of that being driven from our recurring streams again.
And more multiyear contracts being signed and the periods and prior it was it was among the biggest step ups and we've ever seen and our recurring business and a quarter and quite frankly.
And really where we're pushing and we think that we can continue to grow that and.
And then in terms of the second half of the year.
We did the analysis to look at the blended 31% growth in the first half of the year, how much of that was driven by more favorable COVID-19 industry comparison, when we did that normalization Atlanta for the first half growth right around mid 'twenty.
And when we look at our second half and the normalized for the presidential cycle call that mid teens, the high teens growth and that's just us wanting to be very prudent with our outlook given the macroeconomic environment and wanting to continue to stay conservative, but keep our eye and focused.
Based on strong execution.
Got it perfect. Thank you so much.
Thanks, Dan Thanks, Tim.
The next question is from DJ Hynes with Canaccord. Please go ahead.
Hey, guys and they start here.
David I wanted to ask about data conductor and sounds really interesting and it was a great example, you shared and the prepared remarks can you just talk about how this compares to the way you used to standup customer and says instances and is it is it something that you are incrementally monetizing or is it about kind of competitive differentiation in terms of how fast you can do.
And a new customer into the market.
That's a great question I think that the second part actually does drive the first part.
So when do you can more rapidly onboard a customer at a more accurate rate with using a low code solution you can actually move to revenue generation and faster.
So what we've seen and I think the Best example was 1 of our largest clients needed a CVP to bring into 1 place multiple data sources and that might of been point of sale data CRM data.
Back office data finance data and data from their call Center.
Our CDP using the low code methodology, we would not have won the deal. If we couldn't have committed to move them over within the 8 week period that they decided that if they didn't get it done and that period. It was too late this year to do it in their cycle. So we were able to do that in 1 week.
Which I think really blew them away.
And that client is scaling very very rapidly and I believe that clients will be 1 of our largest clients going into next year.
When we put that type of the solution in place our ability to monetize comes from our ability to have superior software and move faster than our competitors can move.
Yeah, perfect and that makes a ton of sense and.
And then Chris maybe a follow up for you I mean, 1 of the stats that you share that surprised me a bit was the the.
The number of channels used per scaled customer I think you said it was 1 and a half out of 12.
Obviously that means there's still a tremendous expansion opportunity and the base, but I'm going to take the other side of that for a minute and ask why of scale customers to date kind of been so slow to increase channels.
I think of lot of it D. J is that our division of the sales force to create focus.
I think you see the best effect of that now recognizing that and have an enormous amount of runway ahead of us and fiber. So excited about ARPA of being such a significant growth driver, but if you think about it 2.
2019, and $1.2 channels per it really wasn't until first third or so of 2020, when we really bifurcated the sales force and hard wired and being focused by industry vertical.
Our largest customers first and then going down the stack that that improved to 1.4 for all of 2020 already through the first half of the year up to 1.5.
We have a lot of opportunities.
It's an easier sale for us to sell more channel you are typically working with the same buyer that's kind of the heavy focus of the company, but again, just as big of an opportunities and use cases that we have 3 use cases, we sell to our customers every 1 of the these cases, just like the total company with over 50% win rate and the win rate and the quarter.
So it's the Sydney.
Significant opportunities for growth, there and 95% of our scale customers around these and 1 use case today per day that I think it's important to note that just to really explain it before we bifurcated. The sales force our salespeople were paid substantially more money to go bringing the new logos and grow the existing logos so not only we.
They really focused on that it was how they made more money.
By sort of breaking the sales force and 2 it allowed us to pay hunters more money.
And put farmers and a place where they were more comfortable and thats generally cost less right. So you were able to do that but now what we're doing is we're paying the farmers to drive adoption of additional channels and the interesting thing is if you look at our net retention rate, which is pretty high.
EBIT on 1 channel most of our clients of scale dramatically. We have 1 client and we started on the $50000 pilot and grew and 5 years to $20 million of year on 1 channel.
And now that client has added a second and now of third channel just and the last 2 quarters.
The answer is we are now focused on it we do see this as the big opportunity and it's something that I personally agree with you we should've done a better job on it and now we're focused on it and we will.
Very helpful. Thank you guys.
Thank you thanks P J.
The next question is from Brian Schwartz with Oppenheimer. Please go ahead.
Yeah, Hi, Thanks for taking my question this afternoon.
Chris I just wanted to follow up on the net retention rate and and the trend moving forward clearly was the big highlight here in the quarter can you share with US maybe what are the puts and takes that we should be thinking about the the net retention rate here over the next couple of couple of quarters, and then maybe to ask a little bit differently.
If you're willing to share it with us what the what the net retention rate was for those large scale customers. The customers are aggressive adopters adopters of your technology. So we can say what.
And what the potential net retention rate could look like over a longer period of time.
Hey, Brian good to talk to you Youre only lapses are going to talk to you first tomorrow and such.
And if he clear.
And I think the best way to think about.
And how we can sustain this level of very strong total of 8 of net revenue retention, which is obviously driven by the scale customers, but even the non scale getting better is through the lens of if you think about and it's in the supplemental deck a scaled customer for Zeta that initially gets onto the platform into the first year is generating around 200.
90, K occur and we've been successful the longer we keep the scale customer the larger they become if you go to the kind of zoom out to year 3 that same scaled customer on average growth from 290, K and their first year to over $1.6 million and the third year and beyond so for us the secret sauces as David mentioned folk.
<unk> on the farmers, making sure there is a very effective handoff from when the pilot occurs onboard than faster site speed and the easy button and the data conductor does that for us that helps and then.
Sell the channel present of measurable ROI.
We're hearing from our sales team why we're winning as we drive the substantially lower total cost of ownership because everything is in the single platform and the date of the software to the orchestration capabilities and Thats something that our competition that we are displacing and beating can't offer and to be quite Frank.
We've got 85% visibility into our revenue today with now more than half of that being recurring versus reoccurring and what we're seeing in the sort of growth of the net retention rate is just EBIT and greater visibility into revenue of our goal is to get up above 90% and.
As we look at the growth of the recurring versus reoccurring.
And that just makes our job easier to continue to drive growth rates that we've been driving and want to continue the trial and then from the not projecting or forecasting net revenue retention, Brian but wanted to be responsive to your question I think of good model for us to think about is about half of our growth continuing income from new.
And the other half from existing and kind of back into that what wed expect given our guidance excluding presidential cycle and I think it's important to note debt when we add new customers. We're now adding new customers that can really scale. If we don't think of client can really scale, we're generally not going after them.
So that new.
Customer <unk>.
And that should lead to big growth in net retention rates.
And does that answer your question.
It does if I could really quick 1 and.
It does affect Chris if I can just squeak, 1 more and here since it's the first quarter here that Youre reporting I just wanted to ask you. If you've spent if you invested and everything that you wanted to during the quarter. The reason I ask is because of the EBITDA.
Upside was so strong and the quarter and if you did spend everything that you could is this the way that maybe we should be thinking about your model when you have upside.
Outside and the quarter here that it it's pretty much going to flow to the bottom line.
I would tell you we spent everything we possibly could and of Covid environment.
So.
If we could have invested more into the T&D.
Getting in front of people and more events I think we would have done that but outside of that I think we really you're making.
And we add up we had a senior leadership meeting in person.
And I guess about a month ago, where we were able to get 40 of our senior leaders in 1 place and we add another 30 or 40 on zoom, we just couldn't enter of the country or or others.
The homework was how do we invest even more for growth and we've got some great ideas and we will look at them and we will focus on them, but the truth of the matter is that we are investing for growth and we've been able to deliver.
Sizable profit gains as a part of that but we are focused on revenue growth and where we can invest we will continue to invest and I think quite frankly thats 1 of the reasons you see revenue.
Growth growing faster than EBITDA growth in projections, because we want to make sure. We leave the room that we need to invest as much as we have to I mean don't get me wrong, we're still growing EBITDA.
We expect to grow EBITDA by 40% this year and the projections that Chris put out but at the end of the day.
We think we can grow EBITDA by about 40% and still make the investments we need to make.
Great what I'll do now.
Thank you Brian I appreciate it.
So listen just to finish I think it's important to think about the when do you think about Zeta. We've got 1 of the world's best teams. We are really thinking long term and over 85% of our revenue is either recurring of reoccurring I want to say today that our 5 year strategy.
Is to be the largest marketing cloud in the world and we absolutely positively believed we can be that we of the software the data and the activation of orchestration capabilities to do that and we appreciate all of you joining us on this journey as we sort of evolve.
And as to who we want to evolve to be as a company. Thank you very much. Thank you everyone.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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