Q3 2021 Zeta Earnings Call
Ladies and gentlemen, please stand by your conference will begin momentarily. Thank you for your patience and ask that you. Please remain connected.
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Good afternoon, and welcome to date is third quarter 2021 earnings conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time that you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero either.
A reminder, today's conference is being recorded I would like to turn the conflict over to Scott Smith ICP of Investor Relations. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us for the date of the third quarter of 2021 conference call before we begin I would like to mention that today's presentation and press release are available on data website at investors that data global Dot Com, where you will also find links to a SEC filings along with.
Other information about data joy.
Joining me on the call today are David Steinberg data cofounder, Chairman and Chief Executive Officer, and Chris Greiner data Chief Financial Officer.
Before we begin I'd.
Like to remind everyone that statements made on this call as well as in the presentation and press release contains forward looking statements regarding our financial outlook.
<unk> plans and objected and other future events and developments, including statements about the market potential of our product potential competition and revenues of our products and our goals and strategies.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
These risks and uncertainties include those described under the heading risk factors in our most recent quarterly report on Form 10-Q, and the company's financial prospectus dated June 9th 2021, each filed with the Securities and Exchange Commission as well as other documents that we make file from time to time with the SEC.
Any forward looking statements seek only as of today's date and we assume no obligation to update any forward looking statements made on today's call or that are in the presentation of a press release.
In 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 our GAAP results we.
We use non-GAAP measures to describe the way in which we manage and operate our business we'd reconcile each of these measures to the most directly comparable gap measure.
And you are encouraged to examine those reconciliation, which are found in the appendix to the presentation and at the end of the press release.
Now I will turn the call over to David.
Thank you Scott good afternoon, and thank you for joining sadist second earnings call as a public company.
Sincerely appreciate your interest.
Data had a very strong quarter, we executed against our strategic initiatives and drove results ahead of our guidance for the quarter.
We generated record revenue of $115 million up 21% year over year and up 25% when adjusting for the 2020 presidential cycle.
We also drove strong operating leverage in the quarter with adjusted EBITDA of $16 million up 30% year over year with.
With good visibility and confidence in our growing pipeline, we're raising the midpoint of a full year 2021 revenue guidance range of $446.5 million up from $434 million and our adjusted EBITDA outlook.
$61.3 million from $56.5 million, Chris will dive into more of those details shortly.
Stepping back there are three key themes supported by our results one we have a strong strategic position in the marketplace.
We are executing and winning in the marketplace and three we are just getting started.
Let me dive in each of these teams in more detail starting with our strategic position.
In this increasingly digital world.
Data and artificial intelligence are at the center of how companies make decisions companies are rethinking, how they ingest synthesize and prepare data.
Activate their marketing campaigns.
This is where data fits in perfectly our customers use <unk> software.
<unk>, which is the Zeta marketing platform for Z M P to orchestrate and execute targeted marketing campaigns across all addressable channels.
The patented artificial intelligence.
Made it to the Z M. P. Synthesizing data is first party proprietary data.
Along with our customers first party data and get smarter overtime inane.
Enabling our customers to achieve both greater scale and higher return on investment this partnership with our customers in turn results in very strong customer loyalty.
Our vision is to help enterprises accelerate their digital transformation of customer acquisition retention and growth to our technology, our data our expertise and our execution.
Zeta.
Customers can eliminate <unk>.
Solutions that add complexity by investing in our modern software and artificial intelligence platform that drive better outcomes versus products from legacy competitors web underinvested in their platforms.
As a reminder, our goal is to be the largest marketing cloud in the next five years.
Power in our marketing cloud is a meeting customer data platform for Pvp, which serves as the backbone of our data driven ecosystem. While many companies claim to have Cvp's few offer the full suite of data Assembly analysis segmentation and act.
The basin as our platform does.
Central to our vision is unifying data as the critical steps for enterprises to adopt data driven marketing across all addressable Touchpoints R. C. V. P is the manifestation of this vision.
As a standalone product.
D D PS connect disparate data elements into an identity and and just behavioral and transactional signals to create a true 360 degree view of the consumer for both perspective and existing customers. We believe cvp's are the found.
Nation of more personalised experiences and more precise measurement.
With marketers elevating the importance of C. D. Peens Veda is becoming more central every marketing technology conversation in.
Importantly, tvp's can be bundled with the Z M P for activation or they can sit adjacent to an incumbent marketing clout, providing data with incremental sales opportunities to partner with large enterprises and expand overtime.
And this is all translating into results in the market, which brings me to my second point, we are beating the competition.
Our customers are excited about how our assets and capabilities unlock their ability to acquire retain and grow customers at an attractive return on investment.
We are executing both with new customers and existing customers. In fact, we saw her when rates improve during the quarter highlighted by the fact that we booked an incremental $16 million in total contract value with over 90% of that be recurring revenue.
Let me give you a few examples to illustrate how and why we're succeeding or cost of different environments.
First we are engaging new customers as the central hub of the data driven ecosystem.
This quarter, a leading children's retailer chose our CVP to be the backbone of all of their data driven marketing activity across all touch points, including in store. We competed against both legacy providers as well as small upstart, Indiana Oh.
We won by providing a single platform to serve as the center of their digital transformation unify disparate data elements and connecting the dots across their business.
Second we are creating opportunities adjacent to an incumbent marketing cloud as part of our land and expand strategy.
Top 100 global marketer chose us to develop an innovative.
<unk> based messaging progress leveraging data is unique insights that are taken to a new level when combined with the dataset of this marketer.
Importantly, our strategy does not require us to rip and replace legacy competitors upfront, but instead, we can sit adjacent to them building bigger internal client relationships that allow us to take additional market share overtime.
Third we are expanding use cases with in current customer environments at a top luxury retailer, which is a major user a bar CVP. We are expanding our solution into activation again, we are taking sure from a major marketing cloud, which should set the stage for.
Future expand and extend opportunities.
Going back to the third major theme. This quarter, we are just getting started.
Industry, Tailwinds or accelerated our platform and data have never been stronger and we're just beginning to see the benefits from our go to market investments.
While we view these as long term trends, we are benefiting today with choose for off to a great start with.
With the higher mix of recurring revenue our visibility is improving.
It brought her awareness and more sales capacity or pipelines are expanding and with competitive differentiation or when rates are increasing.
In summary, the migration to digital is accelerating as the world comes out of the pandemic companies see the current environment as one of the biggest opportunities to effect change. They are looking at digital artificial intelligence and new technologies to identify engage in.
Build customer loyalty.
Disruption in the digital ecosystem creates a critical need for marketing technology as enterprises looked to help navigate changes like the elimination of apples IBSA for the elimination of the third party cooking, neither of which zeta relies on to identify individuals.
<unk> today, let me reiterate we do not use Apple's IBSA or third party cookies and all identity graph.
This disruption creates a unique opportunity for zeta as we benefit from these changes we help companies rethink their data strategy and gain more control over their own first party data.
Our software helps companies respond to changes from gatekeepers, so they can measure customer behavior and market with greater precision.
Our true 360 degree view of the customer across all media using the Zeta I D creates a single deterministic identity of prospects and existing customers.
As some of the walled garden providers continue the tightened their grip, we expect customers define it will be more difficult to work with them and that marketers will increasingly look for alternatives. We believed zeta is well positioned to benefit from a combination of our data.
You'll intelligence and deployment capabilities.
We're seeing this manifest itself in our results and our visibility into our business, which is leading us to increase guidance for the full year 2021.
[noise] to further understand the massive opportunity in front of us and why we're winning in the market. We invite you to hear directly from our customers partners and industry luminaries at our inaugural Zeta Life Conference on November 16th and 17 <unk>.
<unk> alive will convene some of the industry's most forward thinking business leaders for insightful discussions on the future of marketing and technology, along with opportunities to hear from <unk> customers on how they are leveraging our software and data as well as hearing from Zeta technologists about.
What's your product innovation and where it's headed.
You can register now on our website at Zeta Global Dot Com I would like to thank our customers and our partners for the confidence and trust. They placed on US I would also like to thank our data people for the hard work and dedication that has gotten us to this point and I would like to thank all of you are <unk>.
Investors for supporting US on this journey and with that let me hand, it off to Chris Greiner to discuss our results in greater detail Chris.
Thank you, David and Scott welcome to Zeta, we're thrilled to have.
Good afternoon, everyone Q3, with another outstanding quarter for Zeta continuing to trends from the first half of the year.
There are three highlights to the quarter, we want investors to step away I understand.
First our record third quarter results see the high end of our guidance to all elements of the P&L and generated powerful operating leverage major contributors included our sales transformation is running ahead of plan, we had a breakthrough quarter of recurring revenue bookings and we continued our positive.
Next shift towards higher margin solution.
On the back of this momentum we're increasing the midpoint a full year 2021 revenue guidance, I 12, and a half million dollars to 446.5 million and increasing adjusted EBIT guidance by 4.8 million to 61.3 million.
Checking with beating the largest marketing clouds head to head in a resounding way.
In the third quarter, we once again saw robust new customer wins and existing customer expansion.
Our focus is on driving more multiyear wins with higher levels of software subscription and minimum usage contracts.
And in the third quarter alone.
Six multiyear deals for over 16 million in total contract value with over 90% recurring revenue.
And third we had another strong quarter of execution on our five core growth drivers are core growth drivers in the building blocks toward longterm target of sustained twenty-five percent plus your your revenue growth and at least 20% adjusted EBITDA margins.
Date as core growth drivers fan growing our existing customers, adding new customers leveraging opportunity explore launching new products and expanding internationally. We continue to build upon the momentum from last quarter and last year. Let me briefly talk about each of these three highlight in more detail.
Starting with our record results the third quarter was demonstrative of her execution in the market, we delivered $115 million in revenue going 21% to your ear and up 8% quarter to quarter normalized for $3 million a prior year presidential cycle revenue, but did not repeat in the third quarter of 2021.
Growth came in at 25% year to year.
Similar last quarter growth was generated across a diverse set of end markets and faq checks out of our 10 largest industry vertical screw more than 30% year to year and the positive shipped to direct platform revenue continued.
Third quarter direct platform revenue mixed with 74% compared to 66% last year and we're on track to end the year at our goal of mid seventies.
A year to date basis, 75% of revenues being delivered directly on the Zeta marketing platform compared to 71% through the first nine months of 2020.
Over the same nine month period, we're seeing a lowering of our cost of revenue percentage from 40% year to date 20, 20% to 38% year to date 2021, driven primarily by revenue generated direct from data is owned and operated channels.
Third quarter cost of it and the percentage was 37.6% representing an improvement of 510 basis points year to year, and 160 basis points quarter to quarter, excluding stock based compensation.
With the strength of our third quarter in mind.
Now expect to reduce our cost of revenue percentage by at least 150 basis points for the full year of 2021 versus 2020 and improvement of 50% from our prior guidance.
We feel but competitive strength of our platform is becoming more appreciate it and therefore, we are seeing larger deal sizes and to use them more channels.
This is creating greater pricing power and the opportunity for more revenue generated directly on the Zeta marketing platform.
This is the driving force behind are improving cost of revenue percentage.
Our third quarter GAAP net loss was $69.1 million and includes $69.3 million of stock based compensation expense.
The increase in our top line revenues slowed down through our operating expense structure, even as we continued to invest in sales and marketing.
On the $8 $2 million increased revenue quarter to quarter 4.6 million flow direct to adjusted EBITDA better than 50% leverage for the quarter, we generated a record $16 million, an adjusted EBITDA up 30% year to year and up 40% quarter to quarter.
From an adjusted EBITDA margin perspective, the third quarters, 13.9%, representing an increase of 100 basis points year year, and 320 basis points quarter to quarter.
The cash generation perspective, operating cash was $10.2 million with free cash flow generation of 3.79 ultra significantly year to year by 3.2 million and 3.4 million respectively. At the end of the third quarter, our cash balance stands at 116.2 million.
Onto my second highlight of the quarter.
The reason why we're beating the competition if simple.
Xena marketing platform outperforms, the competition and return on investment and significantly lowers the total cost of ownership for marketers.
We accomplish this because our marketing cloud can offer software and artificial intelligence proprietary identity data and Omnichannel activation and a single platform backed by sophisticated Roy attribution models.
Completed in early Twenty-twenty rebuilt from the bottoms up the Zeta marketing platform is a new platform as compared to other marketing clouds, when we compete against their legacy assets acquired years ago.
R wind rate accelerated across the board and then the six multiyear recurring revenue contracts. The highlighted earlier, we competed against and beat numerous times ills forces exact target adobe's kneeling locals responses along with many others.
These continue to be the primary named showing up to the Rfps and engagements we are winning.
But it's not just who were beating it's also how we're winning.
Four out of the six new multiyear Windsor highlighted earlier came from customers who were introduced through opportunities for our newest product, which continues to be a sales accelerators.
The six multiyear contracts and all the other opportunities as one half the potential become much larger and open a number of new doors for cross self.
Wrapping up with the third highlighted the quarter our execution on our five core growth drivers, let me take a moment to highlight two in particular.
Focusing first on existing customers, we increase scaled customer accounts from 343 in the second quarter to 347 in the third quarter.
In addition to increasing count we also increased our pooper scaled customers by adding more channels them or use cases.
In the third quarter, we saw or two for scaled customers increased to $320000 up from 260000, a year ago or 23% year to year and up from 299000 last quarter were up 7% quarter to quarter.
We continue to benefit from making our largest customers even more successful which is motivating them to scale, even further on our platform driving incremental platform usage and revenue to data.
And as I mentioned upfront.
Tired of a year to year revenue growth and three Q was driven directly on the Zeta marketing platform.
Shifting to adding new customers. It was our best quarter of the year on a number of different fronts and we're seeing sales productivity track ahead of pace.
More than two thirds of our growth in the third quarter came from new customers are noted acceleration from the first half of 2021 and a byproduct of the focus we placed on hunters and sales development Rep investments.
Our success in the market is also attracting great sales and marketing talent and.
In a tough hiring environment for enterprise sellers, we added seven new hunters and farmers and three marketers in the corner.
We're now quickly approaching 90 quota carriers up from 72, ending last year and.
And finally, nearly two thirds of new quota carriers hired within the last 12 months have already closed their first deal up from 50% last quarter better than our internal expectations and.
We measure this to understand the efficacy of are hiring and enablement programs.
Wrapping up with guidance and with three strong quarters of momentum behind us, we're raising revenue and adjusted EBITDA guidance in the fourth quarter and full year.
We're increasing full year revenue guidance from $432 million to $436 million to 445 to 448 million an increase of 12 and a half million at the midpoint. As a reminder, data had 12 million a presidential cycle revenue in the fourth quarter of 2020, which created a 13 point your year growth heads.
And.
Normalizing for more accurate comparison growth at the midpoint of fourth quarter 2021 guidance is 20 per cent.
Included in our fourth quarter outlook is 2 million of revenue from Agnes.
Full year 2021 year to year growth at the midpoint of guidance is 21% and 26% after adjusting for 15 million a presidential cycle revenue in the third and fourth quarter of last year.
We're also increasing adjusted EBIT guidance from 55.5 million to 57.5 million to now 61 million to 61.5.
Up $4.8 million at the midpoint.
We're seeing strong conversion of incremental growth to adjusted EBITDA, even while continuing to fund a ramp of sales marketing and R&D investments for the full year of 2021 data is guiding to 13.7% adjusted EBITDA margin at the midpoint, representing 290 basis points of expansion year to year.
You can refer to slides eight and nine and the three Q21, earning supplemental presentation for details on our fourth quarter and full year guidance.
Before handing the call over to the operator, all rap where David starts.
We have a strong strategic position in the marketplace.
We're winning in the marketplace and we're just getting started.
With that let me hand, the call back to the operator for David and me to take your questions operator.
Thank you to register a question you can pass the one followed by the four on your telephone keypad, you will hear a three tone prompt to acknowledge her request and if your question has been answered and you would like to withdraw your registration at anytime you compress the one followed by the screen.
Our first question is from the line of a rune Bhatia with William Blair. Please go ahead.
[noise] awesome. Thank you very much and congrats on another good quarter guys I wanted to touch on maybe some of the commentary they've made in my prepared remarks about having your CVP sit alongside some of the legacy clouds I'm curious if this was a purpose full kind of go to market strategy.
That you're pursuing.
Given you know maybe reduce the friction in the buying process or mostly just depend on customer preference.
They're not ready to rip and replace them, but like I situations for putting data. So just help us understand hardly thinking that that the American workplace dynamic versus integrating it sitting alongside some of these legacy calls from the perspective. Thank you.
First of all let me say, thank you for for your kind words [laughter].
The key to what we think is our success today and future success is flexibility so the ability to sit alongside of a large cloud.
When they're not in an RFP process because remember these are longer term contracts.
Gives us the ability to start working with clients immediately not have to wait until they're in an RFP cycle now when they go into an RFP cycle, we can rip and replace that is certainly what we're attempting to do but as it relates to go to market strategy and flexibility our goal is to be able to do.
Both and we saw a lot of both this quarter a number of our wins, we're ripping replace and then a number of our wins, we're sitting alongside of the very large marketing clouds.
We believe that our ability to be flexible.
Others are not others have to rip and replace we've done in a position where they can only work with certain enterprises every two three or four years, whereas we can work with almost any enterprise in real time and then after we begun to build that relationship. We can spawn out so we can build internal sponsor.
Ship, we can show them how good we are we can show them, how the data plus the technology incorporated into the CVP with seamless activation are such a differentiator that ultimately we win incredibly high percentage of the Rfps, where we have come in alongside of the competitor.
During the period in which they were not in an RFP process.
Wonderful that's that's very helpful and I want her at Christmas that I can assist you mentioned I think in terms of customer expansion.
That new channels and use cases, where a primary driver when do you think about the <unk>.
Aw dynamics of bad can you help us understand which channels you are seeing most traction name is customers look to expand recently.
Channels that you already and maybe like email just totally understand where where that expansion is coming from.
[laughter], you're right origin.
We were successful in growing once again the number of channels current use cases perk evidenced by the average revenue per scaled customer growing 23% is reported and 30%. If you screw the presidential cycle like last quarter, though it was really nicely distributed across our major digital channels.
From email to site optimization to display and video CTV, all growing double digits in fact, CTV revenue doubled quarter over quarter. So it's it's broad based and.
Purposeful in terms of how we are going to market. Our sellers are able to sell all channels on the platform.
Perfect. Thank you very much and congrats again.
Thanks. Thank you all over the next question places.
Our next question is from the line of David Hines with Canaccord. Please go ahead with your question.
[noise] Hey, guys. This is look on for for D. J. Thanks for taking my question. So maybe just the dovetail off of that last one.
Maybe you could just talk about you know more broadly how many channels is your average scaled customer using today and where do you think that could go over time and then.
I'm also curious to hear.
It's probably hard to tell about how much of your are poo expansion today is being driven by.
Use case and channel driven.
Increases versus.
Sorry, just to reword that.
Is and number.
A number of channels the customer is using versus increases in usage and existing channels. Thanks.
Taylor Yep Nope I followed the question.
So, let's let's kind of reverse back to 2019, where the average channel per scaled customer was just a hair over one.
Where we ended last year and again I credit the sales team to the focus we created between hunters and farmers. We grew that from a little over one to about one and a half last quarter, we talked about how that expanded to one.
Where are the kind of one seven approaching to know where it can go from here a lot higher. It's it's something that is the focus of how we are going to market with our customers, how we're making them more successful.
In terms of what's driving the expansion it's still to this point the expansion of channels I think we're further ahead in that journey.
Then we are an increasing number of use cases. So for example, 95% of our scaled customers are still using their first use cases data and there's nothing that precludes them on our platform from doing all three so I think we're a bit further long we could take this to 12 channels per theoretically frankly, probably even more but that's going to be a journey, but it's something we're very focused on I think we're.
Pleased with where we are but certainly not satisfied.
Great to hear thanks.
Thanks.
The next question please.
And our next question is from the line of Brian Schwark with Oppenheimer. Please go ahead.
Yeah, Hi, Thanks for taking my question and congratulations on a really nice corridor just wanted to ask a question about the opportunity to explore seems like are you highlighted that in the press release as part of the Big deals. The question I wanted to ask you about with that is is the opportunity to explore is it is are you able to show up.
Better attribution model.
When you're in these pilots and you're in these bigger deals and in some ways you know the better attribution model, it's gonna deliver lower marginal cost for for these large companies is that potentially driving some of the when ray. They got again some of these more legacy platforms that.
It could be I D I pay impacted.
Well first of all Brian. Thank you for your kind words second yeah. I mean, there's no question that a number of changes at the very large tech companies, including the already elimination of the IBSA and sort of the coming in phasing out of the third party cookie are creating meaningful opportunities for Zeta.
Because as we said in the prepared remarks, we don't use either in our data cloud. So it puts us in a very unique position and I would tell you that a large part of our new engagements around how the company's deal with the new ecosystem and how our data showcases that and nothing does that.
Better than opportunity explorer so opportunity explorer.
Two major things one I. Thank you in to a group intuitively figure it out which is it gives us substantially better.
Attribution modeling down to the deterministic data so you're not building a model that this person might have purchased you're building a model that this person did purchase and this person started their journey here, here's where they went through the journey and here's where they completed the journey.
The other thing that it does is it allows the enterprise to understand very quickly not just what they're doing and what their customers are doing but what their competitors are doing so would give us real meaningful data from an analytical perspective across the entire ecosystem.
Which begins in the discovery process, where they can figure out what their customers are doing and what their potential customers are doing. It then leads all the way through the journey to full and complete deterministic attributions. So as you know and we've talked about this in the past together.
This move to marketing efficiency, and lowering cost of creating a customer and keeping a customer has never been more important than it is today and it has never been more capable of happening in digital transformation. So as companies look at their digital transformation, which we see accelerating.
We're starting to see that moved through the opportunity to explore and it allows us to move more quickly in fact, Brian of the six multiyear deals with the 90% recurring revenue that we're booked this quarter four of them were closed through opportunity explorer being the front door and quite <unk>.
<unk>.
A very large percentage of the other opportunities we close this quarter, we closed a lot of opportunities this quarter that probably won't flow into scaled customers until next quarter, which is sort of how that works. When we start with the pilot and then scale up a large percentage of those greater than half was also began.
The internal process with data in the opportunity explorer.
Well that sounds really good Chris I just have one housekeeping question for you with the four Q guidance, what should we think about in terms of revenue contribution. If there is any from from the aptness acquisition that that you're close thanks.
Great Brian Uhm Aptness, we've included as a line item on slides eight nine and our earnings supplemental showing that we expect $2 million a contribution from aptness in the fourth quarter.
Thank you for taking my questions.
Thank you Brian Thank you.
And places.
Absolutely and as a reminder to everyone on the phone lines to register a question you can press. The one followed by the floor and our next question is from Ryan at Mcdonalds with need them. Please go ahead.
Hi, Thanks for taking my questions and congrats on the next one corner.
Maybe the first one for you you know you talked about obviously I USA not impacting Zeta in particular, but I'd be curious if that's starting to drive channel expansion or an acceleration of the omnichannel adoption with your customers a revolving that conversation as customers, perhaps realize that maybe they need to sort of take more of a.
Portfolio approach and move into other channels versus E mail or or mobile which might be impacted in the near term with some of these changes.
Yes first of all once again, thank you I appreciate it we're obviously, particularly proud of the quarter and the ability to raise guidance.
Interestingly enough I would sort of turn your question around just a little bit and I would say the IBSA elimination is really affecting zeta, it's just affecting us for the positive.
Because what's happening is a lot of the ecosystem has been disrupted by that as we've seen through some of the results of other companies and what's happening is because we've never used the idea Bay, we're able to synthesize deterministic data down to the Zeta I D. Using our platform, we're able to delete.
Liver attribution and marketing in ways that a number of other companies that.
We are dependent on the IBSA are no longer able to do so to answer your question, yes, it's absolutely expanding the market opportunity for us and I will tell you some of the Rfps, we're seeing come over the transom, which are quite large.
Are very very focused on how do you identify consumers and a post IBSA world in mobile and in a post third party Cookie World.
In the web ecosystem and I think we are particularly.
Whether you for those types of Rfps and we saw a number of wins in the third quarter that really helped us with that so we think it's an opportunity obviously anytime there's a disruption there are winners and they're losers.
We think we're a major net winter from both those changes.
And presses a follow up I wanted to ask you a bit more about hap ness, and and just a strategic rationale around that acquisition looks like there. There's some interesting components of where I can help enhance your date of cloud, but can you can you talk to the dose enhancements. It can provide and and then I guess, that's a part of that for Chris you talked about 2 million of revenue.
Contribution, but I think when you announced the acquisition you talk about a potential to lower cost of revenues as well just thinking about how how that sort of layers into fourth quarter guidance or or how quickly you can benefit from that as we think about <unk> physical twenty-two. Thanks.
Great Great great questions why don't I start strategically and then I'll, let Chris gives you the sort of punch line, but.
This company Optimist is an incredible company, they've been very focused and the jobs market and creating data there and helping very large employers to more efficiently find employees and helping employees to find opportunities for work. The data that is generated there isn't.
Incredibly valuable new dataset to our data cloud and we're already seeing adoption from a number of our customers coming out of that platform.
The other good news, which I'll, let Chris get into is the gross margins in that business are commensurate with our on platform or higher gross margins. So we're already seeing that plus a subscription revenue. So we feel good about where that business is and where it's going to fit in as a part of data. We also.
Think we can grow that business pretty dramatically pretty quickly Chris and he.
At all the points just to maybe even emphasize more Ryan yes.
Gross margin profile of Aptness is accretive David said, it's equal to even higher than the on platform, but I think more meaningfully what will continue to drive the gross margin expansion of the reduction in cost of revenue.
Is going to be continuing to move more and more work direct on the Zeta marketing platform and as I mentioned in the prepared remarks, all of the growth in three Q was generated direct on <unk>, which not surprisingly led to really nice gross margin expansion, both year to year of about 510 basis points and quarter to quarter one.
160 basis points so.
This will help us, but certainly the farmers moving more and more of our customers to owned and operated data and channels is also a tailwind for us to continue that expansion.
Excellent. Thank you Ryan packing too.
Thanks, right. Thank you so much right.
[noise] next question operator.
Our next question comes from the line of Stan Slutsky with Morgan Stanley. Please go ahead.
Perfect. Thank you so much and good afternoon, guys. A couple of questions from my end very impressive.
The six deals with 60 million of T C V and 90% of it that's recurring revenue.
What are you doing in terms of the the contracting and how you're selling the product to drive all of this recurring revenue versus reoccurring revenue.
From a contractual standpoint.
Will stay on first of all thank you for joining us and we're trying to evidence that we listen.
And when we've said we had the ability to change our sales motion and focus on longer term subscription contracts.
We are pivoted from a sales perspective, and we've been able to work with customers now.
The really good news is a lot of the destruction in the marketplace around the IBSA and the elimination of the third party cookie is giving us the ability to go to clients and say, yes. We can help you fix this problem, but if we're going to do it we need meaningful long term relationships together and.
Clients are saying, yes.
This is a trend that we're really focused on we've heard a number of people, including you loud and clear that this is an important metric as we think of the evolution of our business and quite frankly, I think you're going to see that trend continue as we continue to shift our sales motion to focus on.
Long term subscription contracts with clients that are on platform and this is a trend that I think we'll see continue and I think will will accelerate.
Got it got it and then just wanted to dig into these the six big deals that you mentioned, so if we kind of do the math on six deal $16 million incremental T. C V. Let's assume like knowing how about a three year average contract life.
Let's call it about a million dollars of a C V being added can you help us just walk walk us through the dynamics of the six logos being added in for net new logos of scaled customers that you reported in the quarter kind of what's the flow through between signed deal and.
Why would this look at the six logos, maybe some of them were existing customers right and this was just expansion just you know kind of help us bridge that the these numbers.
Yeah, Great Great question stand and Glurge assets I think let's start first with David talked about his prepared remarks three themes like.
Like David said, we put this under the category of just getting started.
And I think first off when you think about the the total model working as we wanted to so the scaled customer account increasing was more reflection this quarter of making our larger customers are scaled customers, even larger and in fact, only one added the six multiyear recurring revenue contra.
Maxie just mentioned were scaled in the quarter so creates a nice.
Head start going into the fourth quarter, when those will become scaled and as you would expect in our plan as David mentioned is to continue layering those customers and then therefore layering that revenue, but I think the Matthew did on the average term is about right. The Matthew did on the average value is about right.
What was great to us in this kind of speaks to the sales productivity transformation, we're driving as the new deals. We're adding with these are new customers by the way are coming in at a higher average revenue per than the existing customer expansion that we're doing yeah. Instead of all six of these customers were new just to be clear about that and they all scales in the quarter.
For the quarter, what what you're not seeing in these results are all of the clients. We signed that will scale in the fourth quarter. So I think that's what Christmas yeah. So yeah. So just be clear. So one out of the six is scaled in the third quarter. The rest will become scale, which means greater than 100, K and a TTM basis in the fourth got but they're all new customers, yes, yes.
Very helpful. So thank you guys.
Thanks.
Make that next question please.
Alright next question comes from the line of Richard Baldry with Roth Capital. Please go ahead.
[noise], thanks, and congrats on a quarter.
I was very curious without you know asking for specifics on 2022, but with your wouldn't rate's accelerating how do you think about your strategy in terms of balancing top and bottom line, you're you're adjusted EBITDA numbers are obviously strong enough to fund their operations and then maybe deep do you feel there is any more.
Need to disproportionately invest because that when rates climbing so much to kind of broaden that pipeline as fast as possible and capture market share, but do you feel like you can stay on sort of the same tact, you've been which is strong top line at Bottomline grow at the same time.
Well first of all thank you so much I appreciate the comments, it's great great to talk to you.
There's no investment that we won't make if we think it can help us accelerate growth rich, we're really focused on that and I think you saw the evidence as we went from 70 to 90 plus quota carriers. We are in this market trying to hire every quota carrier, we can possibly get right and the other really interest.
Sting thing that Chris pointed out that I think is really amazing and Chris keeps me honest here I think the exact number was 66% of our sales reps in their first year have now created a sale right up from 50% up from five so I mean, that's a 50% increase almost call it a 40% in.
Greece of when rates for new sales reps and a lot of that is because the the opportunity explore is just a simple or sale.
Easier for people to come in and we're stealing people out of the very large marketing clouds to leave them and come work for us. It's amazing what I see is when we compete head to head and then we when we end up getting calls from the sales reps of the other side, who are like Wow, what you've got is really cool we want to come over.
So as it relates to the balance I think we have said publicly that we think the rule of 40 at a minimum is the right place to get to and there'll be some quarters, where there are some quarters were not there, but we think that from a long term growth strategy, we'd like to figure out how to get closer to the rule of 50 and an order.
To do that we're going to make the investments that are necessary. If you look at Zaid alive. It is probably the biggest investment we've ever made as a company into marketing.
We're going to have some of the world's most interesting speakers sore, Sir Martin Sorel was coming.
John Sculley is coming Michael Rubin is coming the chairman and CEO fanatics, which he doesn't doesn't do a lot of these things Enron calm the former chief strategy officer of snap, Adam single or the head of tabbouleh, and so on and so forth where really investing into building this data brand because the more.
Rfps, we get the more we're going to win so as it relates to that balancing act I feel like we're going to continue to invest to continue to accelerate growth and that's something that we're very very focused on but we're not going to invest stupidly. If we don't see something we really think can drive growth, we're going to save the money.
And create incremental profit I mean, Christy one Ah, yes, rich it's really tempting.
Throw quantity rather than quality at the problem, but I think what we've done well credit to Steve Gerber in his sales team is we're so data driven on the productivity of our teams and I think that the best example of that is David mentioned is the last 12 months hires two thirds of already closed their first deal up from 50% there when.
Rates are on par with our most experienced sellers. The average number of deals that each of them are carrying are on par with our most experienced sellers as as their average deal size. So there I think it's a function of hiring really experienced industry experienced professionals, we're giving them great training and we're trying to make their lives easier as we easiest we tend to do contracts.
With customer so really happy we will get into 2022 soon enough.
But the model is accelerate growth and continue to expand margins, just throttling investment and very data driven way and let me be clear we're simplifying the message. We're simplifying the message is accompanying and we're simplifying the message from a sales motion perspective, and the opportunity to explore is the single Best example of how we.
Evidence our capabilities and a real time proof of concept, which makes it easier for salespeople to close deals faster.
Thanks, Rich maybe maybe.
Maybe the last building on that for me your direct is improving here when rates really well. So maybe talk about how you're positioning with your partners are changing maybe if there's any update on.
Dunn and Bradstreet as a specific partner, but more broadly was here wouldn't rates growing in your strength in the marketplace.
Pretty clear.
Your interest from other people other vendors to kind of work with you. So that they can help piggyback off the successes your scene.
Yeah. So I mean, great question Rich, we were sort of joking. The other day I don't know if it's that we made the right decisions five years ago to build the data cloud in marketing cloud or if it was the transition from being a private company to a public company, we have seen a massive acceleration in.
Interest in working with data from a strategic partner perspective and of course, starting with Dunn and Bradstreet.
Which is 100 year old plus blue chip brand centralized around business to business and that partnership has grown and continues to grow it's been really really exciting.
They continue to do a great job, we love, we love them as a partner.
The reality is that the number of inbound and the people who are willing to take our calls as it relates to strategic partnerships, where we stood up a <unk> cloud with them to give a 360 degree view on the enterprise buyer you're.
You're going to see I think additional cloud stood up around different vertical and industries. Each one starting with a major global partner and.
I spend a lot of my personal time on that and it's a place where I think I'm really investing.
And we're seeing we're seeing a lot of velocity there.
Great Congrats on the corner.
Thanks, so much rich.
Thank you rich.
We'll take one more question please.
And our last question is from the line of code T. I Qaeda with Bank of America. Please go ahead.
Hey, guys. Thanks for taking my questions apologies for my and I've been jumping around from a couple other calls and.
And if this question was asked I just did anybody ask anything on IBSA yet or.
I guess my question is lots of noise around that recently can you remind us how we should be thinking about IBSA.
Let's say to global is there any potential tailwinds are headwinds or is that just no effect you guys at all.
Yeah. So we had talked about it a couple of times, but just just a pointed out what I had said earlier on a synopsis basis.
We have never used the IBSA and we do not know we do not use a third party cooking to identify anybody in our data clouds, so what's happening and what we're seeing is it's creating an opportunity for us and giving us a very strong tailwind to be Frank in fact, as I said earlier and call it listen we.
<unk>, it's a busy day. So I appreciate your joining up but as I said earlier in the call.
We're seeing it as a massive inbound opportunity for us we're seeing a lot of the Rfps, we're getting companies interested in figuring out how to deal with marketing in a post IFA world and how to prepare for marketing and a post third party Cookie World and we're seeing a lot of RFP velocity.
I would tell you that a number of the wins, we had in the third quarter, where because of it and I do know that it's been tough on certain companies that are heavily dependent on it.
That is flowing to us as an opportunity because we've never used it we use the zeta I D. Two identified the deterministic individual.
Don't use the IBSA and we don't use a third party cookies. So it really has been a tailwind for US. There was there was more on it earlier I can I can expand again, if you need me to.
Now that that's good thanks, David and then just one last one for me.
Maybe for Chris I was reading in the press release, and I was reading a quote there and I noticed you said refocusing business on higher margin more recurring it does sound a little bit like a strategy chef is that right and what were those lower margin less recurring parts of the business and and does this help margin expansion in the future.
Yeah, not a margin shift koji emphasis and make sure not a strategic shift, but just I'd call. It emphasis in early days right.
When we talked about the number of multiyear contracts there were six of them $16 million in TCP, 90% recurring revenue. We wanted demonstrated a few things that that data 0.1st is going to be more of it as I said early days second four out of those six came from opportunities for which continues to be a sales accelerator for us and C D.
Peace or a major theme in these wins either taking out the hub were sitting right next to the marketing hub and giving us a nice opportunity to compete side by side and same names, we're seeing that all the engagement we beat multiple times sales forces exact target.
Oracles responses Adobe is kneeling they were and all of these bids or some combination of the bids and each time, we beat them and quite frankly.
I wouldn't call it a strategic shift Koji I'd say, it's an emphasis we hear the street, we understand we are pushing harder but back to your first question. The elimination of the idea thing has created a unique opportunity for us to say the new customers. Yes. We can help you with this yes, our CVP can be implemented.
Ended quickly, yes, our CVP resolved to the Zeta I'm, not an idea or a cookie.
We really need a longer term deeper and more meaningful relationship to make this work and quite frankly because of a lot of disruption customers are saying, yes. So I think Chris said it perfectly we are just getting started it is not a strategic shift, but it's definitely an emphasis and a focus.
We have changed our sales motion to focus more on subscription revenues and I think you're going to see that trend continues.
Got it thanks, guys. Thanks for taking my questions really appreciate it.
Thanks, <unk> have a great night. Thanks go do you have a good evening.
Thank you everybody for joining.
And that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your lines. Thank you and have a great evening.
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