Q2 2022 Zeta Global Holdings Corp Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Sito second quarter 2022 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To join the question queue you May Press Star then one on your telephone keypad.
Should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Scott Schmitz Investor Relations. Please.
Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us for Zynga second quarter 2022 conference call before we begin I would like to mention that today's presentation and earnings release are available on <unk> Investor Relations website at investors <unk> data global Dot Com, where you will also find links to our.
SEC filings along with other information about data.
Joining me on the call today are David Steinberg, <unk> co founder Chairman and Chief Executive Officer, and Chris Greiner.
The Chief Financial Officer.
Before we begin I'd like to remind everyone that statements made on this call as well as in our presentation and earnings release contain forward looking statements regarding our financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our product potential competition and revenues of our <unk>.
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 in the company's earnings release, and other filings with the SEC and speak only as of today's date.
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 GAAP results.
We use these non-GAAP measures managing the business and believe they provide useful information for investors reconciliation of the non-GAAP measures to corresponding GAAP measures where appropriate can be found in the earnings presentation available on our website as well as the earnings release, and our SEC filings with the SEC with that I will now.
I'll turn the call over to David.
Scott Good afternoon, everyone and thank you for joining us today I wanted to start with a quick look back 15 years ago, when John Scully and I quote the data.
Our founding vision of using data and software to deliver a better and substantially more efficient marketing platform ratings true more than ever in the current environment and I'm incredibly proud of the business. We have built approximately 600000 companies were founded in two.
Seven when we start and data less than 10% of those businesses have survived.
And less than 110th of 1% of those businesses have gone public.
And of the public companies fewer than 100 are generating more than $100 million a year in revenue.
The opportunity in front of us is immense.
Could not be more excited about our position in the marketplace, which is manifesting itself in our results simply put our second quarter was incredibly strong.
Across the board as the efficiency of our platform continues to deliver a greater return on investment for marketers.
In the second quarter, we generated revenue of $137 million with an adjusted EBITDA of $18 6 million.
Oh, well ahead of our guidance despite a broader macro concerns in the market our revenue growth accelerated to 28% year over year with significant margin expansion and strong cash flow generation.
In the quarter, we generated.
$14 $7 million of cash from operations up 93% year over year.
The strength of our business was driven by record new customer wins progress against our go to market investments and our proven ability to deliver a higher return on investment for marketers.
Time when efficiency is at a premium.
During periods of economic uncertainty each marketing dollar becomes EBIT more pressures as retailed magnet John water Medicare set in the late 18, hundreds I know half my advertising spend is wasted.
Trouble is I do not know, which half resonates with a modern CMO.
With uncertainty around macro forces such as inflation at a 40 year high marketing spend that is not addressable nor accountable is simply no longer sustainable and frankly with the tools that we have available today. There is no excuse that to continue.
In short marketing efficiency and efficacy has never been more important than it is today and are proving efficiency is one of the easiest and fastest ways for enterprises to capture savings marketers can drive efficiency by accelerating digital transformation.
Focusing on hyper targeting and allocating more investment to addressable channels. These are the reasons more marketers are choosing data.
This adas industry, leading marketing platform powered by first party data and artificial intelligence delivers actionable intelligence Omnichannel technology, and deterministic measurement to enable more efficient and accountable marketing across the ecosystem.
The best ways to prove this is through our recent customer wins.
<unk> recently signed a multi year eight figure deal with a premier U S financial services firm to help accelerate their digital transformation by unifying their disparate data assets standardizing business intelligence and adding more activation channels.
Bringing personalization and scale their marketing efforts, we continue to be large legacy incumbents, including Oracle and Salesforce in this case.
By demonstrating a better value proposition.
Depth and breadth of our capabilities in this data marketing platform <unk>.
As another example.
We recently increased our share of wallet at a leading direct to consumer retailer where efficiency of marketing investments was reevaluated across vendors with return on investment the most important parameter.
Others lost budget Zeta is was increased.
As other vendors have lost the ability to measure with precision due to changes by large technology providers marketers are looking for alternatives and because we are not dependent on apples idea for a tracking mechanism for third party cookies to.
<unk> individuals.
Measure business outcomes, we are able to leverage our data and software advantage to deliver a better return on investment for marketers today and in the future.
As enterprises look to capture the value of their first party data they are seeking new ways of the majestic.
Sizing storing and activating data. This has made the consumer data platform or CDP, a transformational technology for marketers importantly, CDP not only represent the next generation of technology. They are also substantially less expensive to us.
Operator that legacy solutions.
At data, we are investing to extend our CDP leadership position with the expansion of data you typically tools, such as agile intelligence, which elevates an enterprise's ability to not only marketing decisions.
But also answer mission critical questions, such as where to open a new location by moving from insights to intelligence.
The CDP underpins all of our channels, bringing a dress ability and accountability to areas that have not enabled precision targeting and measurement.
<unk> TV is the perfect example.
Area, where we continue to invest in the second quarter, our CTV business once again grew greater than 200%.
Switching gears, we also want to acknowledge the feedback we have received from investors regarding potential stock sales to cover required tax withholdings due upon vesting of restricted stock awards.
Response to that feedback.
Board of directors has authorized the withholding of shares from the executive officers as an alternative to <unk>.
<unk> to cover for taxes.
These vesting events with this program the company paid the withholding taxes in exchange for the cancellation of such executive shares.
On a side note, Chris Greiner, Steve Gerber and I have no intentions for the foreseeable future of selling any shares into the open market.
Separately, our board of directors has authorized a stock repurchase program for up to $50 million of betas class a common shares through December 31, 2024, we plan to fund both programs out of the company's free cash flow the $50 million will be a total beta.
The RSA retirement and the share repurchase program.
Highly confident in the strength of our business and outside of our people and our products. We believe the best use of our free cash flow is to buy back shares at these levels more details can be found on slide 29 of our earnings supplemental.
Lastly, I want to invite you to hear directly from our customers partners and industry experts in person or through the webcast of our slate of live conference on September 28, and 29.
As our world changes at lightning speed with disruption across every industry from the post pandemic economy.
The advancements in technology, including the expansion of web through the evolution of customer identity. The maturation of artificial intelligence. We have designed our annual conference to bring together the industry's most forward thinking leaders to discuss the most critical topics impacting business.
And marketing today.
Hope you will be able to join us.
In conclusion, we believe data is incredibly well positioned in the current uncertain macro environment as the efficiency of our marketing platform continues to deliver.
A greater return on investment for marketers.
Our revenue growth accelerated in Q2, and we have strong momentum heading into Q3 on the back of our growing mix of multi year recurring revenue deals.
And while we are very cognizant of the macro environment, we are not seeing an impact to our pipeline sales cycle, where deal size. However to be prudent we are taking an appropriately cautious view with our projections, which Chris will expand upon shortly.
We believe our share price represents an extremely attractive opportunity and we intend to use the strong cash generation capabilities of the business to repurchase shares at these levels we.
We feel incredibly confident in our 2025 plan and we are pacing ahead of our targets to get to at least $1 billion in revenue and greater than 20% adjusted EBIT margin could be.
Need for data driven identity based marketing has never been stronger and we are just beginning to scratch the surface of the huge opportunity in front of us.
I'd like to thank our 1400 Jade employees for the great work that you everyday to deliver better experiences for consumers and better outcome for our customers the world's leading marketers I would also like to thank our customers partners and all our shareholders for their ongoing support of our vision.
Now, let me hand, it off to Chris to discuss our results in greater detail Chris.
Thank you David and good afternoon, everyone.
I want to cover four main points on today's call.
First our results on every dimension our performance and Kpis. Once again are demonstrating how the value proposition of the <unk> marketing platform is resonating with our customers.
This rings true even more in the current macro environment.
Second our guidance.
We're raising the midpoint of full year 2022 revenue guidance by $5 million to the high end of the previous range of $563 million.
We are guiding third quarter revenue and profit that is higher than consensus, which is a clear sign of our confidence and a strong visibility into our business at.
At the same time, we're purposefully embedding conservatism into our full year guidance.
This should be received as data recognizing current investor sentiment around an uncertain macro backdrop, even though we are not seeing negative impact in our results or a slowing of pipeline demand or change in our sales cycles or metrics. At this time, we want this to be very clearly understood.
With these top line details. We're also increasing full year 2022, adjusted EBITDA by more than we'd be in the second quarter.
Third the bigger picture any way you slice it be it revenue scaled customer count margin expansion adjusted EBITDA or even cash generation. We're pacing ahead of our <unk> 2025 long term plan of greater than $1 billion in revenue and at least 20% adjusted EBITDA margins.
And finally with these factors in mind, we're announcing a $50 million share repurchase program, leaving that in addition to investing for profitable growth repurchasing <unk> shares at current price levels is the next best investment of the Companys capital.
We plan to fund this from our quarterly free cash flow generation.
Now, let's dive into each of these more deeply to understand what is driving our results confidence long term trajectory and capital allocation decisions.
In terms of second quarter results, we generated $137 million of revenue up 28% year to year up 9% quarter to quarter, and 6% better than the midpoint of our guidance.
Very strong wrap around on last year's second quarter growth rate of 39%.
We set a record by adding 14, new scaled customers quarter to quarter, reaching 373 scaled customers and 100 Super scaled customers.
The addition of new scaled customers was diverse coming from advertising and marketing health care consumer retail and financial services industry.
<unk> customers now represent 97% of total data revenue.
The <unk> of our scaled customers grew by 19%. Once again ahead of our long term model of mid teens growth.
Driven by new customers getting bigger and our longest tenured customers also growing their spend with data. This is now a multi quarter trend.
Direct revenue mix, which represents our customers' reliance on <unk> marketing platform and digital channels. Once again exceeded 80%, resulting in a 290 basis points year over year improvement in our cost of revenue percentage to 36, 6% or 390 basis points improvement excluding.
Stock based compensation to 35, 3%.
We're tracking ahead of our target to reduce cost of revenue by 200 basis points for the year.
On a GAAP basis, our net loss was $86 million, which includes 82 million of stock based compensation and $5 7 million of other expenses, mostly related to the equity component of prior M&A deals.
From an industry perspective, we remained balanced across verticals.
This quarter no industry represented more than 14% of revenue and on a trailing 12 month measure six out of our 10 largest industries grew over 25%.
Our U S business, which accounts for 96% of revenue grew 32% year over year.
We continue to execute our plan to increase quota carriers, reaching 115 at the end of <unk> on pace with our estimate to have between 120 to 130 quota carriers by year end at.
At the same time from an expense to revenue perspective, we're getting operating leverage from R&D and G&A, both decreasing by 100 basis points and 240 basis points year over year, respectively, excluding stock based compensation.
Revenue growth continues to be increasingly profitable, we generated $18 6 million of adjusted EBITDA up 63% year over year with 13, 5% adjusted EBITDA margin up 290 basis points year over year.
And finally cash from operations was $14 7 million with free cash flow of $6 2 million. We ended the quarter with $110 8 million of cash on our balance sheet.
Now I'll transition to our increased guidance.
Our visibility continues to improve with the addition of more recurring revenue and multiyear customers a trend that has continued over the past several quarters.
For the third quarter of 2022, we're projecting the midpoint of third quarter revenue to be $141 million up 22% year over year with a range of $139 million to $143 million. This is an increase of $2 million from where consensus estimates are today.
We expect to generate third quarter, adjusted EBITDA of $20 $1 million at the midpoint of guidance, which would be up 26% year over year and represents 14, 2% margin.
Our range of adjusted EBITDA is $19 $8 million to $23 million.
At the same time, we recognize there is uncertainty in the current macro backdrop.
This reason, we wanted to be purposely conservative setting full year and implied <unk> guidance.
For the full year 2022, we're raising the midpoint of revenue guidance to $563 million from $558 million.
Representing growth of 23%.
Our new range is $560 million to $566 million or growth of 22% to 24%.
This implies the midpoint of <unk> guidance is $158 million or 17, 5% growth.
I want to be clear.
Our business is performing extremely well our pipelines are growing much faster than revenue, we're seeing record RFP volume win rates remain robust and sales cycles are not changing we.
We do not currently see anything that suggests the business is slowing down.
We want to be appropriately cautious in our outlook. Nevertheless.
On an adjusted EBITDA basis, we're increasing the midpoint of full year 2022 guidance from $83 four to $86 four with a new range of $85 eight to $87 $3 million.
This updated range represents a year over year increase of 36% to 38%.
At the midpoint of our increased full year guidance adjusted EBITDA margins would expand by 160 basis points year over year.
Which brings me to my third point our.
Our pacing to the date of 2025 long term plan.
With very strong first half results, including 26% revenue growth and 250 basis points of adjusted EBIT margin expansion. We're pacing ahead of our <unk> 2025 targets of at least $1 billion in revenue and at least 20% adjusted EBIT margin.
All the Kpis included in our data at 2025 plan, which include sales head count scaled customer count scaled customer <unk> net revenue retention and direct platform mix are tracking at or ahead of plan.
These are the result of the investment we've made in our products people and go to marketing initiatives over the last two years and a byproduct of our execution culture and adding to the track record we are establishing as a public company.
As our business continues to perform and we generate even more free cash flow. We believe the next best use of our cash is to repurchase shares at current price levels.
As David mentioned the board of Directors has authorized a $50 million share repurchase program and a share withholding program to remove shares that would otherwise have come to market for tax purposes.
To be clear, we do not intend to draw down our cash balance, but instead, we plan to fund the buyback using our positive free cash flow generation.
Now I'll close out with key takeaways from today's call.
First demand for our platform is resilient.
Our sales pipeline and deal metrics reflect this we have record RFP volume.
And pipelines are growing faster than revenue and value and opportunity count we.
We do not see an elongation of sales cycles and like last quarter deal sizes continue to get bigger while contract durations continue to get longer.
Second we've purposely set third quarter and fourth quarter guidance conservatively in recognition of investor sentiment and broader macro uncertainty despite not seeing signs of softness in our results or demand pipeline.
And finally, adjusted EBITDA and cash generation is growing significantly faster than revenue and we're taking a disciplined approach to deploying capital.
As I've stated before we are building a culture of high performance and a track record of consistent and predictable execution.
With that let me hand, the call back to the operator for David and me to take your questions.
Operator.
Thank you we will now begin the question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
If youre using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
The first question comes from Arjun Bhatia with William Blair.
Please go ahead.
Thanks, Operator this is Chris on for origin first question for me.
You guys were very clear that the business performing well and youre not seeing any impacts the pipeline or anything else on the business right now, but can you help us unpack the scenario thats built into guidance what are the underlying assumptions and how did you arrive at that thanks.
While we are looking first and foremost Chris at our guaranteed contracts, which at this point are pretty high and we are very very good visibility into any quarter that we come into quite frankly, we really feel like we have 85% visibility into any year. We're entering so we feel.
Pretty solid about where we are it's funny because theres been a lot of talk about the downturn marketing really if you look at it.
Most of the companies that about challenges are mobile only companies that are very focused on.
What's going on in the U S and the elimination of apples idea Fei and the rise of Tic Toc and others, we have seen our pipelines grow.
Over the last few months quite frankly, I think part of it was faster.
Putting us at the far right hand corner not supposed to say we are the leader but.
It's pretty evident if you look at the report.
For marketing automation and that really increased RFP flow, but what we've also seen is we've seen even in the parts of our business that are focused on marketing, we're seeing them grow at a faster pace than even other parts of our business because.
As marketers are looking for that marketing efficiency Theyre, just not finding it in other vendors, so theyre moving additional budgets to us and we're winning more.
Hey, Chris.
Just to add to that.
We really want clearly understood I think you acknowledged in your question is we're really just de risking in terms of how the outlook and guidance is built it's built the same way that we've done over the last now four quarters as a public company, where we've built a track record of beating and raising on the top and the bottom line bottoms up by scaled customer.
With as David mentioned very little.
Yield required from incremental new business at current level. So.
A very conservative de risked outlook, but the business is performing exceptionally well.
Quite frankly, it's performing as well as it has ever performed in the 15 years since we founded it.
Great. Thank you that's all very helpful color.
And then changing gears a bit so looking at the date of 2025 plan kind of thinking about the catalyst there. So the go to market expansion it seems to be going exceptionally well, obviously, great to see the 14, new scale customers in the quarter.
But where do you see the most opportunity in terms of product innovation over the next couple of quarters.
It starts to drive customer ARPA up to that long term target. Thank you.
But we're getting pretty close to those long term targets quite frankly, we grew our <unk> by 18% this quarter.
And as I'm sure you recognize Chris it was a record quarter for us on adding scale customers interestingly enough, we're seeing customers who are coming on board starting at much higher levels than they ever have in the past. We've traditionally had a sales motion, where we started with a pretty small proof of.
And then scale from there what we're seeing is we're seeing them come in and literally becomes scaled customers right off the bat. The other sort of three products that I think are going to really change the game for us first and foremost as CTV, we were pretty clear that that that division grew in.
Another 200% last quarter I'll remind you.
It grew 399%.
A few quarters ago, that's not slowing down it's just the numbers are getting much much bigger so.
Frankly at 200% year over year growth this quarter was greater dollar growth and 399% a few quarters ago.
The other is CDP.
V.
Player in the CDP ecosystem, and if you look at our ability to put in multiple types of Cdp's and I think this is really something most people do not understand we can put in the most comprehensive and deep CDP possible and we can put our CVP light in that allows us to.
Next to some of our large competitors, but yet still allow the client to access our data in that CDP ecosystem and deploy inactivate seamlessly through the zena marketing platform. So we don't need.
To always quote rip out our large competitors upfront we can start with the CDP light, we can give them a taste of the data. We can help them segment. We can use the algorithms to help them target lower their acquisition cost and then deploy and what we find is we win the vast majority.
<unk> of the Rfps for ripping out the competitor when they start there and then grow and then third our agile intelligence product is one that I'm incredibly excited about which is giving enterprises for the first time from data.
The ability to perform mission critical business functions and make mission critical business decisions that don't necessarily revolve around marketing one of the largest hotel companies in the world is using our agile intelligence product to figure out what they are.
Wallet share is in different geographies and has completely changed their strategy and intends on opening 600, new hotels over the next two years based on where they are competitors or where there are existing customers are spending the most money where they are not.
And they're now using our agile intelligence product to be the primary determinator as to where theyre going to place those 600 locations. So CDP.
CTV and agile intelligence in my opinion and by the way. We're just getting started we're innovating every day and we want to rollout new products every day.
Thank you Chris Operator next question please.
Okay.
The next question comes from Ryan Macwilliams with Barclays.
Please go ahead.
Thanks for taking the question.
Really good to see the record new scale customer adds in the quarter, especially when many of your peers are calling out longer sales cycle themselves or some difficulties in the enterprise is there anything about <unk> go to market or ROI, that's allowing deals that get done and what does it look like for your pipeline for the next few quarters for these scale customers. Thanks.
Hey, Ryan.
Ill take that one and David can certainly jump in we have our customers are gracious enough to speak with us after we closed deals.
And help us understand why we won and to your 0.1 of the first reasons. They listed was the importance of having an ROI value proposition, that's not just verifiable, but can be measured in months and quarters not years.
We fit into that really well they've also highlighted the fact that we can come in and replace multiple point solutions.
And our data continues to be a massive advantage for them. The pipelines are great as I said in the prepared remarks overall value of the pipe is up 44%.
We're seeing deals as David mentioned that have now multiple channels built into them, which is driving a higher initial <unk> while at the same time, our longest most tenured customers are also getting bigger on the backend. So it's a really nice combination the pipelines are healthy the win rates continued to be north of 50%.
So we're feeling very very good about the execution and the productivity ramping of the sales force.
I think thats very well said.
It's funny I have been obviously doing this for 15 years I used to joke that this industry was primarily driven by wine and stake.
Today, it's driven by data and results and the.
The efficiency of our platform coupled with the efficacy of our platform. So as you've seen some of the large sort of technology companies battling it out and you see the idea I know everybody is saying Oh, Google is pushed out.
The elimination of the third party cookie, but what Youre seeing is more and more people are opting out of it so even though they're pushing it out there, making it easier to opt out of it which both of those things really play to us because we've never used apples idea.
Or a third party cookie to identify individuals or build our attribution models. So we're able to continue to prove the efficiency and effectiveness of our model, whereas a lot of our competitors are not able to do that as well as us and.
I think it was very purposeful that we said our sales cycles are not extending we're actually closing deals faster than ever and it's machivelli. Once said never waste a crisis, we see the current downturn as an incredible opportunity for <unk> to win.
Lynn and take bigger market share in the marketplace and the good news is we've effectively doubled our sales force in the last couple of years.
And we're very well positioned right now to do that and we feel like we're going to continue to see that.
Perfect really appreciate the color there and just have you seen any outside macro impact to the re occurring or like the usage revenue side of the business at this point.
Our reoccurring business grew faster than our recurring business last quarter.
Thanks, guys.
Okay.
The next question comes from D J Hynes with Canaccord.
Please go ahead.
Hey, this is Luke on for Vijay Thanks for taking the question.
So maybe just to go back to that.
Reoccurring revenue topic can you help us think about the durability of that revenue stream how are those contracts structured.
How is that revenue.
The revenue stream trended in prior market downturn.
And what gives you the confidence that customers will replenish those budgets.
A tougher macro setup.
Yes, we don't we don't disclose or report publicly on the breakdown of those revenue streams.
Certainly understand the intent of the question.
So let me kind of try to answer.
Without going into what we don't disclose and segregated publicly I think the best way to look at that type of revenue with our customers, which as David mentioned had.
Really strong growth in the quarter.
As we look at them over their tenure with data and in our publicly filed materials in our supplemental earnings package, we breakout those scaled customers based upon how long they've been with data and what you'll see is continued to be a trend is the stickiness of those scaled customers, which you can you can you can infer certainly that about half have recurring coupon.
And about half have a reoccurring component the net revenue retention rate for those customers that have been scale to last two years has been over 120%.
And as you would expect the more they stay the longer they stay with us the bigger they are becoming.
The way that we're able to predict their usage based spend is through the ROI that we generate and through the very good relationships that our farmers have with those accounts. So we're able to add channels as we're more effective and more efficient and we've been increasing now be able to add use cases.
Out of those contracts by the way.
Our multi month multi quarter in nature. So we have very good visibility, which is why we've been able to predict and beat and raise as consistently as we have yeah, I think thats something that Chris touched on that's really important.
Even the reoccurring business has contracts associated with it that go out anywhere from a quarter to a year theyre just not three year subscription contracts. So.
As I said earlier, we enter any given year with 85% visibility into the revenue.
Right now what we're telling you is we don't really need any additional new customers to hit the numbers that we're putting out there for the Q3 Q4, we're just trying to de risk the quarter in an environment, where there is a lot of uncertainty out there, but as Chris also said we've been public for.
Four quarters.
Beat all four quarters, and we have raised all four quarters and that is something that we think is important so when we project. Our goal is to attempt to continue to do that and we feel that we have the visibility I want to say again.
I do think there is a over estimation of the downturn of marketing.
I think youre going to see digital marketing grow over the next year, you might not see that in linear, but I, certainly think youre going to see that and I for one have never seen a time, where our pipelines were healthier with.
Companies looking to do digital transformation, and really focus on efficiency and efficacy of marketing and that is the <unk>.
The purpose of the <unk> marketing platform.
Yeah.
Really great to hear and really helpful. Thank you and then maybe just another quick one.
Talked a decent amount about IRI.
But with.
With ROI and time to value sort of top of mind for a lot of customers can you can you talk about sort of.
How how long implementation cycle.
Various use cases, and how quickly can customers and prospects really see that return.
So up in our numbers.
It depends on the type of company and the type of industry right. So.
But we can because we're 100% cloud based and we can plug into any open API. We can literally have a customer up within seven days of executing a contract depending on the products some products take longer some products quite frankly can be a faster.
We have seen an independent study that showed for every dollar invested in the Zeta marketing platform. We are able to return $10 in revenue to our clients and that's been a very very powerful study it depends on the industry if you're in the automotive insurance industry. It might take a number of months.
Our e-commerce retailers can take hours.
But we are able to prove the efficiency efficacy and the return on investment.
Okay.
Thank you Luc operator next question please.
The next question comes from Richard Baldry with Roth capital.
Please go ahead.
Thanks, and your supplementary.
Supplementary deck. It calls out that you have a 6% customer which at this scale now would be north of $30 million a year for a single player could you maybe talk a little bit about that use case, maybe not by name, but vertical how many channels are they using how long have they been with us for how replicable that could arguably be.
Across its own vertical maybe other verticals because it's obviously.
The best case that you have thanks.
Hey, rich.
That's actually data from 2021, but we would be in that realm for 2022, but that is vintage 2021 data, but I think to the spirit of your question what allows them to get as large as they do.
You're right. It's the addition of channels and the addition of use cases as we think about channel usage right now in our business and last quarter. This was true and it's continued to be true now more than half are using more than one.
It was an important threshold that we crossed last quarter and then interestingly. If you look at the number of scaled customers that are using four or more it's now past double digits as a percentage of the total scale customer count so.
Adding more channels has been an effective path for us I think the really big Greenfield opportunity is adding more use cases, and I think what's interesting to us is interesting and a good way is now call it 89% of our scaled customers on these data for one of the three use cases, we can do all three for them.
That's Ah and.
Massive opportunity that is not built into any of our longer term models are certainly our guidance and rich. The other thing I think that's important to think about is the.
Better than enterprise understands their metrics the better we can partner with them.
<unk>.
The company in question, we're talking about is one of the most metrics oriented companies in the world and <unk>.
That's really where we can excel and we can really.
Show that return on investment at scale and some of these companies are willing to move.
Substantial percentages of their marketing budget in this case.
That 6% represents call it 5% of their marketing budget, but we think we can get that one customer at a much higher than that as well.
Thanks.
The next question comes from Jason <unk> with Craig Hallum.
Please go ahead. Thank you.
Thank you, David you've talked about customers, reaching scale levels more quickly than they have in the past can you just talk about what's driving that like you spent some time just a second ago talking about channels and use cases are people adopting more channels and use cases earlier or just making larger commitments upfront.
I think its the latter I think I mean.
We are seeing is as marketers are under more pressure to not just be able to create return on investment for their enterprises, but be able to prove it to their bosses theyre looking at the <unk> data cloud combined with the <unk> marketing platform with the CVP at the core and saying they almost.
Can't believe how good it is sometimes we have to prove that we can actually do what we say we can do and then as soon as we prove it we see them scale very very quickly it used to be we would do a $50000 proof of concept and we try to get them to a 100000 you tried to grow from there we're seeing clients come in and say Hey can we do.
We're doing $250000 proof of concepts and then executing contracts for a year or two years.
Within a week of that so it's been it's been very exciting.
Okay, and then just wanted to get some further color from you on Google's decision to push push out cookie deprecation. So it seems like the later adopters are not going to get kicked out another year and I'm. Just wondering if that creates any sort of avoid and those people potentially being zeta custom.
Or maybe you think you can continue to fill that and despite the fact that this deadline has been kicked out a little bit further.
Yeah listen I mean, I think that everybody, who understands the industry understands that Google is not really doing this for consumer privacy right, they're doing it because they would argue that if you are on chrome. If you have a gmail account if you own an Android phone Euro <unk>.
Party customer and.
That's a very aggressive.
Sort of.
Physician to take I joke, it's sort of like Verizon, saying, because they're your telco provider. They can listen in on your calls obviously, it's not totally synonymous.
We don't use the third party cookie and we never have so.
As we look at our business our efficacy has quite frankly stayed the same I think Google is under pressure from a regulatory perspective, especially in Europe , they're starting to get it in the U S and what what I think a lot of regulators are seeing is that they're not necessarily doing that for privacy is.
Much as Theyre doing it to take a deeper and more meaningful hold onto internet marketing.
As it relates to pushing it out.
Don't think it matters and I think Google has figured this out very I mean, they are the smartest some of the smartest people in the world.
So not shocking they figured it out.
People are opting out at a much greater rate.
So if they just make it easier for you to opt out of it they never have to make it go away. It just goes away now.
I want to reiterate again for Zeta, we don't use it today, we're not planning on implementing it for sure.
But as other organizations have been based on that I think it's going to help them the longer it pushes out without getting rid of it but necessary. It does not necessarily hurt us because what we're seeing is first of all our ability to operate in places like Safari today, which have not had.
Third party cookies for for many years is already a major competitive advantage for US. That's just an example of one place that doesn't allow us today.
Thank you Jason Operator next question please.
The next question comes from Koji Ikeda with Bank of America.
Please go ahead.
Hi, This is Tony got on for <unk>. Thanks for taking my question a nice evening.
Especially with that than advertising demand was.
My question is around your partnerships.
Ron Smith.
A deeper integration with Amazon Web services I, just wanted to understand what exactly that.
Deeper integration in that and is that going to help you guys or.
OIBDA with existing <unk> customers.
Anything on that partnership thank you.
No.
Yeah.
First of all thank you for the compliment we're certainly very excited about the quarter and I. Appreciate it. So when you look at the big partnerships, we've announced sort of the three big ones, thus far Dun <unk> Bradstreet, Snowflake and AWS and if you focus on AWS.
We're the first marketing cloud to ever be in the AWS store and we see that as a big competitive advantage and snowflake has already been an incredible partner. We've won multiple deals in partnership with Snowflake with a joint go to market strategy.
<unk>.
Quite frankly, if you look at a lot of the other marketing cloud they've done a very good job of working with system integrators.
One of our challenges is always been we don't need a system integrator or platform is plug and play it's all cloud based youre able to plug into the open API and we're able to do whatever necessary.
Customization has to be done.
We do that as a part of our contribution to help the client get up we don't charge for it we generally just do it and quite frankly, there is very little of it.
Most of the other large marketing clouds are partnered with everybody from Accenture to Merkel to others, because theres a tremendous amount of customization and work that they want to get on top of implementing that platform.
Our partnerships have largely been focused around go to market strategy and large tech partnerships.
To answer your question, specifically, we believe AWS and Snowflake help us win in both ways.
They help us get new clients because it brings massive credibility to data to be fully integrated into AWS and fully integrated into the snowflake ecosystem.
And what we're finding is as existing clients want to grow the relationship those platforms have been very instrumental in helping us to do that so quite frankly, it's a win win.
I do spend a sizable percentage of my personal time on partnerships.
Something where I believe sort of one partnership can can equal what.
15, or 20 of our salespeople can do and.
And we try to spend our time efficiently there.
Thank you so much.
The next question comes from Brian Macdonald with Needham. Please go ahead.
Hi, good afternoon, and congrats on a great quarter. David My first question for you you talked multiple times on the prepared remarks about share opportunities for wallet share gains within existing customers.
Curious given.
The broader macro environment, even though they are just not seeing any impact when you talk to your customers are you starting to see sort of consolidation of spend at all and if so how are you positioning or sort of strategizing from a go to market perspective with your farmers to try to take advantage some of those additional wallet share opportunities.
Thank you, Brian let me not to sound contrite, but we actually are seeing an impact from the market downturn, it's helping us what we're seeing is that market downturn is creating greater pressure on marketers to create better efficiency of marketing and be able to prove it.
So one of the two case studies, we gave in my prepared remarks was around winning market share of wallet share that particular client.
Lowered their marketing budget materially, but simultaneously raised what they were spending with data significantly those are two very important things. So I do think we're seeing consolidation I think we're seeing that consolidation around partners that can drive efficiency and prove it.
E efficacy and I think we're going to see that trend continue.
<unk>.
To me, that's sort of the exciting part of what we're seeing right now in the downturn and obviously I think a lot of people have looked at us and said Oh My goodness Facebook is having challenges or snap is having challenges or other adding therefore zeta must be having challenges I really don't want to sound can try it again, but.
Quite frankly, the challenges theyre, having have an inverse effect on us where they create a tailwind for us because marketers are moving to where we are.
Very helpful. Thanks, David and then Chris maybe a follow up for you you talked about the size of the pipeline and the growth of pipeline in terms of value size being really strong up 44% Im curious what youre seeing in terms of the mix of that pipeline between early stage and late stage really just curious given the strong net customer add.
In the quarter of 2014, where you are seeing any pull forward of demand so to speak in the quarter.
Yes, we saw no pull forward the results were good old fashion sales execution and that team deserves an enormous Pat on the back in terms of the health of the pipeline, It's where you would want at the right balance between what sits at the top and what is well progressed and ready to close.
Exciting for US also as we've talked on past calls about sales productivity.
When you look at our cohorts of sellers and as you know we measure our sellers and those that have been with US 12 months 12 to 24 and greater than 24, it's the progression you want to see both in terms of the size of their pipe as well as the types and the size of deals that Theyre closing. So for example, as you would expect our newer sellers.
Our carrying less than pipeline value than our most experienced sellers while at the same time, but.
But theyre closing right, they're closing exactly on schedule. So.
Really happy with sales productivity and how things are progressing and the health of the pipeline is very good in terms of what sits at the top and the bottom of the funnel.
Thanks for the color and congrats again.
The next question. Thank you Thomas from Elizabeth <unk> with Morgan Stanley .
Please go ahead great.
Great. Thank you so much I just wanted to ask about the cadence of investments so with EBITDA coming in nicely ahead, what's the propensity to accelerate investments just given the good return you are getting in and just how do you think about that balance, especially in an environment, where many tech companies seem to be pulling back. Thank you.
Thanks, Elizabeth good to hear you.
So for US, we're going to stick to the plan that we've communicated.
Our hiring cadence in sales and marketing is right along the path. We're at 115, we expected to be between 120 to 130 quota carriers.
The growth in the sales and marketing investment line.
The P&L was up about 50% that will begin to moderate because of the timing of when we made a lot of our hires last year.
We'll continue to invest on the plan that we've communicated in sales and marketing mostly now in the head count realm for more sellers, while at the same time and we spoke about this in the remarks, we're getting the efficiency that we desired out of R&D and out of G&A R&D as a percentage of revenue was down 100 basis points year over year in <unk>.
<unk> was down more than double that I think like 240 basis points. So we will continue to get productivity.
In the R&D and the G&A area, while continuing to invest on our plan and sales and marketing.
Okay.
And as I'm sure you saw being ahead.
Just to finish as I'm sure you saw being ahead 290 basis points of gross margin doesn't hurt when youre doing that the other thing I wanted to point out Elizabeth I thought that was a great question is the quality of people.
Getting a look at right now is incredible because as other tech companies are pulling back and we are continuing on our existing plan. We are able to find people have a substantially higher quality than perhaps we could have earlier, which is not to say our.
<unk> people arent amazing, but if we used to have to interview 20 people to get to an amazing person. We're now getting just amazing people walking right in the door, it's been very exciting.
Okay.
Got it that makes a lot of sense and then just a really quick follow up.
Want to touch on the political campaign uplift this year I think in the past you talked about a 1 million contribution in Q3 and remain in Q4, just wanted to see if theres any changes in the thought process, there and how that contributes to the back half.
That continues to be our assumption, we're starting to now seen deal flow, we're starting to see the pipeline fill up so that's probably again. Another. Good example of the conservatism we built into the forecast.
That remains our assumption about one in the third and about four in the fourth quarter.
Great. Thanks, so much.
Thanks Elizabeth.
The next question comes from Brian Schwartz with Oppenheimer.
These go ahead.
And then <unk> sitting in for Brian Schwartz. Thank you for taking my question on your CDP product in regards to the audience enrichment that data is capable of delivering by pairing the customer data with your data cloud do you see any catalyst or risk over the near term coming from privacy legislation or data regulation that could kind of impact.
The enrichment that you are capable of delivering today. Thank you.
Great Great Great question, one of the things we do when we enrich the data is we eliminate the personally identifiable information. So what happens is we import all their first party data into the CDP. We then remove the name any other identifying information.
<unk>.
We match it and we resolve it to a <unk> number then we import what is generally an average of 1700 incremental data attributes. This.
This is really interesting for multiple reasons first and foremost it keeps us on the absolute right side of privacy, we never share anybody's information, where they can be identified with any client at any time.
What happens is the clients the enterprises begin to see the power of the data.
If they want to activate to it they must use the veda marketing platform, because we never load the Zeta I'd into any third party activation methodologies. So not only does it keep us totally on the right side of privacy and by the way that's not just privacy, where it is today, it's where we think privacy is.
We think the ability to keep people anonymised and opted in are going to be what.
Privacy continues to evolve to and by way of example win.
CPA was passed we were compliant effectively when it passed.
So we were already in a place to be doing those things and where I think way ahead of where things are going this will sound a little strange, but we'd like to see a little more regulation because.
We already think we're such a good actor that other actors.
There are getting a little aggressive wed like to see them curtailed and that we think would help us.
Thank you so much.
Great color.
Well, thank you everybody for coming today.
Just some eight I don't.
Think in the 15 years since John and I founded the company.
I've ever seen the business executing better.
Yes revenue was up 28%, yes, EBITDA was up 63%, yes operating cash flow was up 93%, yes. We raised Q3, yes, we raised the year, yes, we're being incredibly conservative around Q4, because right now in today's market. That's what we feel is prudent not because we do.
Do not think we're going to.
Have additional quarters of beating and raising but because we're trying to be prudent and we're trying to be conservative.
The real important metric is that the business is working.
Clients are coming to us theyre growing faster our existing clients are giving us additional wallet share and we're winning new clients at a record pace as you saw in our most recent results.
To just close by saying how incredibly proud I am of the 1400 people who operated data who are working every day.
And I've worked every day through a pandemic through countless upturns and downturns over the last few years through massive changes in the marketing and digital ecosystems and yet every day they show up they do their work they take care of.
For our clients and we take care of each other I'm incredibly proud of the business that we have built and the people we have built it with thank you everybody for coming.
Yeah.
This concludes today's conference call you.
You may disconnect your lines.
You for participating and have a pleasant day.
Yeah.
Yeah.
[noise].
Yeah.
[music].
Okay.
[music].
Yeah.
[music].
Hum.
Hum.
[music].
Yeah.
[music].