Zeta Global Holdings Corp. Q1 2023 Earnings Call
Greetings and welcome to the <unk> first quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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Now my pleasure to introduce your host Scott Schmitz Senior Vice President of Investor Relations. Thank you you may begin.
Thank you operator, Hello, everyone and thank you for joining us for <unk> first quarter 2023 conference call today's presentation and earnings release are available on <unk> Investor Relations website at investors that 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 Data's co founder Chairman and Chief Executive Officer, and Chris Greiner Davis, 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 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 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.
These risks and uncertainties include those described in the Companys 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 our GAAP results.
We use these non-GAAP measures and managing the business and believe they provide useful information for our investors reconciliations 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 our earnings release and our filings with the SEC with that I will now turn the call over to David.
Thank you Scott good afternoon, everyone and considering the date may the fourth be with you.
2023 is off to a strong start we continued execute through a volatile macro backdrop, producing our seventh consecutive quarter ahead of consensus and raising our outlook in the first quarter of 2023.
We delivered revenue of $158 million up 25% year over year with adjusted EBITDA of $24 million.
Up 28% year over year, our adjusted EBITA margin of 15, 3% expanded 40 basis points year over year.
Q1 was another proof point in our belief that the market is moving in <unk> direction.
Proliferation of artificial intelligence and data driven insights combined with the need to do more with less fits squarely within our sweet spot our execution against this enormous opportunity continues to drive strong new customer growth in this volatile market.
We continue to see organizations more willing to take risk with new partners and adopt new solutions in order to drive better outcomes. This is result in our new scaled customer count growing twice as fast as ours at Ada 2025 model.
Along these lines I would like to start out by focusing on three topics that outlines how we have achieved and what we believe is a long term sustainable advantage in the marketplace first since our founding we have held steadfast to our vision to reduce marketing complexity.
By eliminating point solutions, making data actionable and.
And realizing the promise of more accountability and <unk> driven marketing.
These guiding principles arent bodied and our Zeta marketing platform or GMP, which brings together identity intelligence and activation into a single differentiated platform that delivers better experiences for consumers and better results for <unk>.
Lance.
Third the market to embrace of our strategy during a time of technological change is evident through multiple fortune 100 wins in the first quarter, we signed one of our largest contracts ever as a company, which I will outline in detail.
But first let me expand on our vision and our platform differentiation.
Over the last 15 years, we have invested and innovated to assemble one of the largest proprietary.
Opt in databases filed more than 100 patents tied to machine learning AI and other cutting edge technologies and developed a next generation marketing cloud to help the world's most sophisticated marketers acquire grow and retain customers at a lower cost than they.
Can without our data and our software.
These early investments and innovations have strengthened our competitive position as the marketing technology sector continues to evolve.
Our flexible and scalable data layer enhances and extends the investments that enterprises have made in modern data warehouses, such as snowflake and has a robust identity resolution capability built in.
This makes it easier for marketers to target the right customers at the right time.
Our modern intelligence layer Leverages, our proprietary AI and then just real wins with behavioral signals to turn insights into action.
And our activation layer deliver superior omnichannel reach and deterministic measurement by unifying around a single view of the customer and delivering more individualized experiences.
By consolidating these elements into one single platform. The GNP increases accountability reduces complexity eliminate waste and ultimately produces better outcomes at lower costs for enterprises versus competing solutions.
Let me give you a detailed example.
This past quarter, we signed a multi year eight figure deal with one of the largest worldwide retailers to become their marketing cloud the requirements for very complex first they required a modern architecture that could scale globally across channels.
They needed localized expertise because decision making was decentralized through regional representatives.
Third they required I T buy it with the ability to leverage cloud partners, such as snowflake with optimized integration and data sharing capabilities and.
Fourth they needed a solution that aligned with their mission to efficiently acquire new customers and grow their existing relationships, while remaining laser focused on measurable ROI.
The RFP process started with over 10 vendors.
All of the legacy marketing clouds, we typically see were dismissed in the early rounds as their platform did not meet the modern architecture and functionality requirements.
And many of the smaller upstart lack the scale and enterprise sophistication.
<unk> stood out as a combined next generation technology with enterprise grade assets and know how to win during the transition to a new era of marketing technology.
Ultimately we won because we brought a many to one solution to this retailer there were many problems. They were trying to solve and many decision makers involved and we were the only one who came to them with an all in one solution.
In a world of uncertainty, we provided accountability and delivered a compelling platform that both lowered the cost of ownership and lay the foundation for predictable profitable and scalable growth.
World accelerating towards digital transformation and artificial intelligence, we provided a platform with these foundational elements embedded in the core of our platform in a world of doing more with less we were able to demonstrate our ability to provide better outcomes.
Homes.
We believe no other company has the ability to combine our marketing cloud with real time intense signals like data and activate to them in real time, we brought a unique ability to identify unknown customers and unlock hidden opportunities that they otherwise.
<unk> would not have known about.
Our data and our artificial intelligence create a moat around our business and that moat is only widening with the new generative AI capabilities embedded in the GMP announced earlier this week from GE to labs.
As with everything we do we are approaching generative AI as part of our vision to make sophisticated marketing simple with the goal to solve our clients' biggest business challenges and deliver better results on their marketing investments.
Natus generative AI agents powered by Zoe or Zeta opportunity engine, which has evolved from chatbot Jada technology will behave.
Experience and learn like humans with in the GMP.
Putting the power of AI directly into marketers' hands with the simple question Zoe will answer critical marketing questions, such as who should I target, which channels are most profitable for me.
What are the most common journeys my customers take.
We believe our Gen II will not only improve but marketers currently do but also generate new ideas and strategies with speed and scale. So they can deliver higher ROI and accelerate results.
There was a lot more to come as we are incredibly focused on AI as we have been for many years.
In summary, we are off to a strong start in 2023 as we continue to capitalize on the need for more efficient and effective marketing technology.
As always I would like to sincerely. Thank our customers our partners teams data and all of our shareholders for the ongoing support of our vision now let me turn it over to our young Jedi, Chris to discuss our results in greater detail Chris.
Thank you David and good afternoon, everyone in the words of the great Yoda do or do not there is no try I'll spare you my voice impersonation.
But in all seriousness in the first quarter data did a lot I'll cover them in three broad categories first I'll share what led to our seventh consecutive quarter of beat and raise execution and how we're navigating a challenging macro backdrop.
Second I'll detail, what's driving to continued growth in our sales pipeline and Rfps I'll also cover our strong sales productivity metrics.
Third I'll walk through our Kpis and how they continue to power our revenue and adjusted EBITDA growth rates above what is required to deliver <unk> 2025 long term model of at least $1 billion in revenue $200 million and adjusted EBITDA and $110 million in free cash flow.
And I'll wrap up with the details of our $10 million increase to full year revenue guidance and the operating leverage contributing to more than a $2 million increase in adjusted EBITDA guidance to $120 million.
Okay with that let's dive in.
Our results illustrate the importance of having a diverse customer set and a multichannel use case revenue model.
Characteristics, certainly contributed to our execution in a more challenging macro environment.
To illustrate this nine out of our 10 largest industry verticals grew double digits year to year, resulting in first quarter revenue of $158 million up 25% year to year.
Results like this had been consistent from data with eight out of the last nine quarters delivering revenue growth in excess of 20%, while simultaneously expanding adjusted EBITDA margins year over year for nine straight quarters.
The track record very hard to replicate especially in today's environment.
This dual focus on near and long term execution is enabling data to stay ahead of our 2025 long term plan for revenue profit and cash and.
And staying ahead is underpinned by continuing to execute on our Kpis, which in the first quarter once again powered our growth.
Total scaled customer count to 411 was up eight from last quarter and up 52 versus last year, representing 14% year to year growth two times the rate of growth required to achieve our data 2025 model of at least 500 scaled customers.
The drivers behind the scaled customer increases we are encouraging, especially considering seasonality where the first quarter is often times. The most challenging for the martech ecosystem for context. The eight scaled customers. We added this quarter were more than twice the Q4 to Q1 average sequential change over the last two.
Two years.
Of the eight scaled customer increased quarter to quarter six were new to data and two were existing customers that became scaled.
And we continue to see industries under the most economic pressure choose data.
In the Super scaled cohort alone, which increased seven quarter to quarter, we gained customers in consumer retail advertising and marketing travel and hospitality and technology industries.
We're growing customer count and customer spend on our platform. The first quarter was the 11th consecutive quarter in which scaled customer ARPA grew double digits up 10% year to year from first quarter 2022.
Our super scaled cohort once again led the way growing 18% year to year with Super scaled revenue up 31% year to year at.
At the same time the pipeline for future Super scaled customers those into 100000 to 1 million cohort saw strong year on year customer count growth of 16%.
This was the second quarter in a row, where customer count grew 16%.
Increases from this cohort driven by pilots can grow to more than 700000 in the first 12 months as seen on slide 11 of our supplemental earnings presentation, making these customers fertile ground for our farmers.
We're also benefiting from an increasing number of connection points added to the E&P by our product team as shown through the lens of multichannel scaled customer adoption.
This is defined by scaled customers using three or more channels, which in the first quarter grew year over year by 41% now representing more than 25% of data scaled customers.
This is further exemplified in the 100000 to $1 million and greater than 1 million cohort, where both groups saw year to year increases in average channels per customer.
Shifting to mix and margin we saw a good cost of revenue percentage dynamics in <unk>, even with direct mix up against prior year compares that we're very strong.
A couple of drivers worth noting here.
First is can be the case with newly added scale customers and new buyers like agencies. For example platform usage can start with integrated channels.
When this occurs our track record with these customers chose an evolution to hire direct mix over time.
One such example, with an existing agency, who is now our super scaled customer shifted its direct mix over a two year period from 7% of revenue to 76% of revenue effectively on par with our corporate average.
In the first quarter because of very strong cost of revenue and leverage dynamics within our direct channels. We absorbed the higher cost of revenue profile of these integrated platform campaigns.
And first quarter 2023, our direct revenue mix was 71% and we realized 34, 5% to cost of revenue up 140 basis points year to year, and better by 320 basis points quarter to quarter.
Just like we communicated in our February conference call, we are not counting on year to year reductions in cost of revenue percentage to achieve our 2023 adjusted EBITDA margin expansion guidance of 140 basis points.
We developed our guidance in this manner. So that if we do better than it is incremental upside to our outlook.
From a modeling perspective, we want to continue to be conservative and assuming a similar cost of revenue profile for the remainder of 2023 as we saw in second half of 2022, which anticipates continued strong new customer additions and more inroads with new buyers like large agencies.
We're comfortable with this strategy because we are generating strong operating expense unit economics contributing to another quarter of year over year, adjusted EBIT margin expansion, our ninth straight <unk>.
Excluding stock based compensation each of our expense to revenue ratios sales and marketing G&A and R&D were better year to year sales and marketing was down 40 basis points G&A down 60 basis points and R&D down 120 basis points.
This led to an adjusted EBITDA in the first quarter of $24 million up 28% year year with adjusted EBITDA margin of 15, 3% up 40 basis points year to year on.
On a GAAP basis, our first quarter net loss was $57 million, which includes 64 million of stock based compensation.
Excluding the accelerated expensing related to our IPO stock based compensation would have been $22 million.
We continued to drive strong cash generation cash flow from operating activities was $20 million with free cash flow of $10 million equating to 42% of adjusted EBITDA.
Our success in adding new scaled customers two times faster than our data 2025 model and doing so in a more efficient sales and marketing expense to revenue ratio speaks to the strong sales productivity we're seeing.
This is a good segue to my second topic pipeline growth and sales productivity.
We ended the quarter with 130 quota carriers up from 123 at the end of 2022 and as I have always emphasized this is about quality not simply quantity to that and new sales hires are averaging over 10 years of experience, bringing with them new customer relationships to data.
Our optimism and where we're taking our sales organization is rooted in three primary areas. One the continued growth in the sales pipeline and RFP volumes to the progression of the pipeline and the performance of our more than 12 months tenured sellers now accounting for almost two thirds of our sales team.
Three our win rates highlighted by the increasing size and duration of deals and the caliber of enterprises selecting data over the competition.
Can you add some color on each.
On the heels of a record pipeline in <unk>, we increased pipeline again in the first quarter growing at a rate two times, our quota carrier headcount a metric we measure closely from.
From an RFP perspective, the first quarter can be seasonally slow however that was certainly not the case in 2023 Q.
Q1 was our second highest RFP quarter ever and the eight figure when David mentioned was not a one off.
The deals in our pipeline today are bigger and more complex is anytime in our history as data becomes not only in essential strategic partner for their marketing, but also for our customers enterprise intelligence initiatives.
Having a great sales pipeline is only meaningful that's comprised of deals that can progress to closure.
Then back to my point about quality over quantity.
<unk> that we move opportunities from the early to late stage is something we measure rigorously.
As evidenced by the value of late stage pipeline deals being up over 50% year to year.
This not only bodes well for sales visibility, but also momentum going into the second half of 2023 and 2024.
But of course this is the only relevant if youre, winning and yielding the right unit economics, along the way we.
We're experiencing bolt.
First quarter RFP win rates exceeded even our overall win rates.
And our experienced sellers those with data for more than 12 months are responsible for 86% of deals won.
These are the class of sellers, who completed an initial wave of training and have made their way through certification programs.
Our history with this cohort showed the flywheel effect with great employee retention rates and the confidence gained with each deal closed leading to more success as their time with data extends.
Which brings me to my third and final topic.
123 guidance and data 2025.
With the context of what is driving our execution out of the gate.
Expansion and the visibility we have into our sales pipeline and strong productivity of our sellers, we're raising second quarter and full year 2023 revenue and adjusted EBITDA guidance.
For the second quarter of 2023, we are increasing the midpoint of revenue guidance by $2 million to $162 million up 18% year to year, a similar starting point as Q1.
We're also increasing the midpoint of our second quarter adjusted EBIT guidance by 900000 to $24 5 million up 32% year to year, which represents 15, 1% margin at the midpoint of guidance or 160 basis points of year to year expansion. This is an acceleration from the 40 basis points of expansion.
Generated in the first quarter.
The combination of our first quarter upside in higher second quarter outlook raises the midpoint of our full year 2023 revenue guidance by $10 million to $701 million, representing 19% growth year over year.
On an adjusted EBITDA basis, we're increasing the midpoint of our full year 2023 guidance to $119 7 million up 30% year to year.
At the midpoint of our increased full year guidance adjusted EBIT margins would expand 140 basis points year to year to 17%.
Lastly, we're providing the quarterly cadence of third and fourth quarter revenue and adjusted EBITDA on slide 14 in the earnings supplemental deck.
As I wrap up my prepared remarks, I want to leave with three final thoughts.
And zooming in we continue to be a team delivering on our commitments and more zooming.
Assuming out or.
Our top and bottom line growth rates continued to track ahead of the compound annual growth rates required to deliver our data 2025 long term plan.
There simply are not a lot of businesses with sustained 20% plus growth.
And expanding adjusted EBITDA and free cash flow margins in the technology universe today, we're really proud of that and it's a big motivator for the team.
And third while we spend a lot of time on near and long term goals data doesn't end in 2025 far from it.
As shown in our wins and the opportunities. We're pursuing we believe data is being recognized as a platform that the largest and most complex enterprises can rely on to grow their businesses profitably.
Now, let me hand, the call back to the operator for me and David to take your questions operator.
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Our first question comes from the line of D. J Hynes with Canaccord. Please proceed with your question.
Hey, guys congratulations on a nice quarter.
Chris maybe one for you I wanted to ask about the field customer or a pool I mean, it seemed like a slightly larger Q4 to Q1 seasonal dip than we've seen in the past.
Just curious on how that may inform your views on marketing budget. This year any implications with respect to thinking about net revenue retention or our other metrics.
Thanks T J.
I wouldn't read that into it I think in this case it was more driven by the high number of growth that we saw in that 100, K to 1 million category grew 16% year over year in count and it was kind of the second straight quarter that it did that so it's more being influenced by those pilots starting to kind of scale. If you look even.
Within the bands of that 100, K 1 million most of that growth came in at 110 at 300, K cohort, but the Super scaled group in cohort as you saw increased seven quarter over quarter that was obviously a great rebound from last quarter.
Up 18% and ARPA basis, the revenue up 31, so we're really happy with the scale of customer count.
From a net revenue retention, obviously last year was 112 year for that was 113.
You can kind of back into even though it's an annual metric for Zane, but you can back into that the first quarter was even ahead of those rates and let me just say D. J.
We're not seeing right now any slowdown in the marketing ecosystem on our end.
In fact, what we're seeing is as there is more volatility.
There is less friction in new companies moving to us and we're seeing many of our existing customers moving more budget now you might not have seen all of that evidence in the first quarter, but we're definitely seeing that coming online in our pipeline and as we're growing.
That makes sense and good to hear.
Maybe as a follow up one of the questions I occasionally get from investors looking at data for the first time is why do you guys need a 130 sales reps to add roughly 50, net new scaled customers per year, and I don't mean that as a slight I mean, you guys are obviously growing nicely and efficiently, but maybe you could just talk about kind of whats unique in that.
Go to market model that requires this.
I think first of all it's important to note that a lot of those people have been added over the last 12 months right. So we have been ramping up our salespeople and one of the metrics. We look at is sales productivity per person on how long they've been with US Chris you should probably touch on how much more <unk>.
<unk> people, who have been with us for a while versus.
The percentage of people, who have just joined us.
I'll get to that David I'll definitely highlight that I think DJ just important to understand that it's a fair question.
About half of the sales teams are hunters right and we still see a massive new customer Tam in front of US right. We have call. It a little over 400 total scale customers. There's 10000 large U S enterprises, so about half the sales teams devoted towards hunting the other half towards farming and same time, we have 400 scaled.
<unk> average revenue per <unk>.
Annualized is a little over $4 million.
I'll be brief.
Many times bigger than that right. So so we've focused the team is very much on kind of two different.
Areas of the market in terms of productivity as David mentioned.
One of the areas that was really stood out to us. This quarter is just how well those 12 months and beyond tenured reps are performing these are the reps that went through the FERC sets of training that when we divided the sales force into hunters and farmers there that class I kind of went through that initial wave.
I think there is an interesting metric, obviously, our sales and marketing ratio was better year over year.
There is an interesting metric that I think Barclays puts out around the magic number which is the change in revenue growth year over year divided by your sales and marketing expense and if you were to plot that for call.
The 'twenty, our odd core software companies that are public.
Or is it about 134 going off of last year's results isn't like the top five right. So really happy with the efficiency.
But we don't feel like we need to kind of wildly add reps I mean in fact, if anything we feel like we don't need to add as many because of the productivity that we're seeing right now.
Yes, very helpful very detailed answers. Thank you guys.
Thank you J J.
Our next question comes from the line of Ryan Macdonald with Needham. Please proceed with your question.
Hi, Thanks for taking my questions and congrats on a great quarter.
I think theres been a lot of focus from the team about sort of continuing to solve for the Zeta who problem and really trying to sort of continue to drive the brand awareness out there it sounds like the top of the funnel pipeline metrics are looking pretty attractive. So can you just talk about the progress you're making there and how thats sort of starting to impact.
Things on the win rate side, especially in Rfps.
Well, thank you Ryan and it's funny, because I just wrapped up four days at the Milken Global Conference, where I was personally asked to host to moderate the generative AI panel for the entire Milken Global conference and host the Chief Marketing Officer panel with the <unk>.
<unk> visa Pepsi logic Tech and other very very large organizations. We also hosted the Zeta VIP dinner and I was invited to so many events I couldnt attend.
On my Monday mornings call say that the team no I'm, sorry, My Wednesday management call, we might have actually finally solve the Zeta who problem. It was really amazing to see how known we were and how many organizations and people were starting to recognize that I think what we're also.
So seeing.
If last quarter, we said we were at record Rfps and record pipelines and quite frankly, we are now well above even that we are seeing pipelines that we have never seen we are closing deals with multinational global enterprise.
Is that years ago would have probably not displaced as we said the legacy marketing clouds, just because of the brand.
Most of the legacy marketing clouds in fact, all of them in the case of the transaction, we announced today were dismissed in the first round, which we're not just seeing us move up the food chain, we're seeing many of our biggest competitors as they focus on their core businesses. So one of the things I like to talk.
About right. So if you look at.
The core marketing clouds, or the sort of the legacy marketing clouds years ago. They bought the assets to build those inside of Tech conglomerates. Every one of those conglomerates has now bought something that dwarfs the size of those clouds, the marketing cloud so it's not even their side hustle anymore.
It's now the side hustle to their side hustle and as they think about investment dollars in a world where they are all cutting jobs. They are all cutting costs I promise you. They are cutting them the fastest from the side hustle to their side hustle. So we are winning and that we see.
Data getting through the quote Zeta who problem while simultaneously what has traditionally been our biggest competitors theyre starting to fall to the wayside in their marketing cloud. So I'm not going to suggest their core businesses are not doing incredibly well arent in our game changing but we're definitely seeing a big step.
Duration between us and them in what we do.
That's really great to hear.
Maybe a follow up for Chris I wanted to touch on sort of a mix of direct platform revenue and I apologize if I missed it in your commentary, but can you talk about what's driving that.
That mix down in <unk>.
Obviously still sort of outperforming on the top line. So I guess the question really is how important is sort of reaching that 80% direct platform mix to date in 2025 still today.
It's still important.
What we saw this quarter was really a great set of new customer additions and even obviously within that super scaled.
Group as well it is interesting when you look at how that mix can be influenced within a quarter within a year.
Kind of within.
Within a month.
In our case, we added a combination of several new enterprises, but also began to onboard data's platform agencies.
As you know has been big opportunity of ours in our pipeline. That's now starting to come through it's not uncommon for those agencies in particular, just start off channel or off our dress mix more likely with social but what's interesting and we put in the script with our existing super scaled customer. The agency that we've had now for a couple of years.
We've seen their mix evolved from 7% direct revenue as a percentage of the total to 76% direct revenue as a percentage of their total just over two year period. So we feel like we've got a really good playbook as we build great omnichannel strategies with them, it's going to continue to mean, they do some social they do some other channel work, but over time.
We feel confident we can get them to use <unk> owned and operated channels, which then drives obviously, a higher direct mix and a better gross margin profile and by the way. We also saw our cost of goods sold come down nicely in our direct which we were able to more than offset anything that would have been on the other side Brian So.
We're really feeling good about this business right now but.
Any business Youre going to have some metrics that vacillate up and down if the biggest problem. We have is we on boarded to many new very large clients, which artificially brought the off platform up slightly for one quarter.
That's a trade we're definitely willing to make.
And while the top line metrics keep moving up so it's great to see you congrats again.
Thanks, so much.
Our next question comes from the line of Jason <unk> with Craig Hallum. Please proceed with your question.
Hey, this is Kyle on here for Jason.
A couple from me just first to start can you kind of talk about the pipeline of opportunities and how that's being influenced by your channel relationships just trying to understand if some of those relationships are starting to bear fruit in terms of the revenue generation or if most of the leads from the channel are still in the pilot phase.
So great question, Colin we are seeing record velocity into our pipeline directly and through our biggest channel partner.
Thank you.
Obviously, it's snowflake, we do a ton with them.
<unk> been an incredible partner they are bringing us.
Major customer opportunities and we're lighting up major customer opportunities on their platform coming out of our people. So.
It's you hate to say youre, winning across the board, but but quite frankly, we're really seeing the channel partnerships, primarily with sale of.
Primarily with Snowflake.
Working very very well, but simultaneously we are across the board winning.
Okay.
Perfect Thanks and.
And then just last one for me you guys have really been highlighting more lately and I'm. Just curious if you can kind of give your vision for utilizing AI within the CMP and how that can either help you optimize performance lower cost of operation just kind of where you see that going.
So we've been talking about artificial intelligence since it wasn't even artificial intelligence, we started talking about deep learning machine learning.
For these large language models really started coming into play one of the things I think has not been talked about and as I think I said when I hosted and moderated degenerative AI panel at the Milken Conference. This week one of the things that really gets lost is AI is.
It's only as good as the data that's put into it and our ability to incorporate large language models today is quite frankly unparalleled, but in addition to that we're able to put small language models into place in the form of a CDP.
That exists between us and our very large enterprise customers so that CDP.
Were you merge their data and our first party data into an unparalleled data ecosystem. Then can learn not just from the large language models that exist outside of data, but the small language private models that exist inside of it.
The ability to then map that to the greater than 240 million Americans, who have opted in to be in our data cloud is really unparalleled how does that translate into our business performance. We can generally lower our customers cost to create a customer by greater than 50.
Percent.
Quickly, we're able to lower that by up to 90 plus percent in the years to come per customer creation as the models get smarter and smarter that is all the incorporation of artificial intelligence as it relates to ingesting trillions of.
<unk> opened signals mapping that into hundreds of millions of private signals using that to build intent based scores on what do individuals' intend to do next and we can consistently removed the customers who are not in market for our enterprise clients.
<unk> or won't be approved for them all of that comes out before they spend money on marketing so quite.
Quite frankly, I think one of the reasons, we continue to win and one of the reasons you saw our scaled customer count go up by greater than 100% more than we needed to hit our <unk> 2025 model is how effective our artificial intelligence and our data are at creating with <unk>.
People intend to do next.
Perfect. Thank you guys so much.
Okay.
Our next question comes from the line of Elizabeth quarter with Morgan Stanley . Please proceed with your question.
Great Yeah that another kind of follow up along the way.
AI side, but more particularly for the agents and the data opportunity again, it doesn't really interesting technology. So could you just give us a bit more detail on the capability is kind of what are the augmenting versus replacing and then how do you see the evolution of these capabilities playing into the topline for the financial model is this something that.
Do you think can be monetized via a separate SKU or is it monetize it either taking more share. Thank you.
First of all thank you Elizabeth I wasn't sure anybody even bother to read that press release, but.
I think that first of all Zoe, which is sort of the modernization of customer help customer support and the ability to allow a CMO or a marketer to ask real world questions and get incredibly accurate and.
<unk> is going to be a major driver to our business in multiple ways first of all to describe the product. It is all new and it is game changing it is effectively a new.
New AI layer that sits on top of the data marketing platform. That's ingesting everything that that enterprise customer is doing inside of their CDP and outside in the global world because it's ingesting as I said large language models can be imported and small language model.
As can be imported it then allows the marketer to say something to Zoe we like what are the most valuable cohorts in my database.
Who can I be targeting from an audience perspective for this new product that I'm rolling out.
As they look at the integration and what we're starting to see is chief marketing officers are taking a bigger and bigger ownership of product development inside their enterprises than I've ever seen in my life why is that because cmo's hate being told here's a new product go sell it.
They're now being asked to participate in the building of new products. So we can help them with that if I build this new product what percentage of my existing customers would like to buy it and it spits out real world simplistic answers how does this drive the model.
It moves more and more of their marketing onto our platform, which drives a greater and greater business relationship for US and then it also allows us to grow our head count slower.
Because we won't need as many people to be helping with analytics and other services to the enterprise. It can now be handled with effectively humans or bots or intelligence living inside the CMP that can answer the questions that they would otherwise need to be asking.
<unk>.
Alright, thank you so much.
Okay.
Our next question comes from the line of Richard Baldry with Roth. Please proceed with your question.
Thanks I'm.
I'm sort of curious if you think that the general by AI.
Target is most likely or super scaled customers first and then sort of a side note to that how much do you think that it could actually help you with cross sale. So when it's giving recommendations are auto piloting.
Be able to demonstrate that there are other channels that may not have been adopted rois could be equal or higher sort.
Sort of.
Showing them opportunities that they may not be able to access yet thanks.
Well rich as usual I think you nailed both right. So yes. There is no question that the larger the enterprise the more the efficiency matters to their bottom line the more they're going to be willing to adopt generative AI faster.
We're hearing from most companies is they love the concept of the closed generative AI solution in what we call. The small model versus the open model now I think we all saw that open AI got hacked for the first time.
Im under the impression a another auger rhythm, which just annoyed by how much attention chat GPT was getting so they have to get a little attention for themselves, but the truth of the matter is.
We still don't understand how the importation of data into chat GPT is going to be benefiting the collective including large enterprises competitors.
Inside of the gender debate that.
<unk> Zeta has Zoe were able to keep that as a closed model. It is exclusive to them. It can import the large language information, but it can also keep the small language model tied to them. So we're definitely seeing that faster biggest benefit to us bar none.
Is adding additional channels and adding additional products to these enterprises, because what we're seeing.
As they are using.
Hi.
AI is able to move them into the most efficient channels as Chris said one of the best Examples is we have one client who a number of years ago started out 7% of their revenue was on platform.
Last quarter I believe correct me, if I'm wrong, Chris greater than 90% of their revenue was on platform close enough bottom line that comes from the AI.
It keeps showing them what a better job they can do with on platform fully integrated using our AI and our data as native to the GMP Youre able to then move them into new products that are more profitable to us and more efficient to them.
Last for me would be you are seeing layoffs from your a lot of them would be competitors will call. It presumably they let go of their worst people first but it does leave yes, good people unsettled and unsettled internally so.
And an upside growing beaten raise scenario why not pull back a little bit on the profitability side really go after some of the better talent I would think is more easy to go after these days. Thanks.
Would you sound like me and my last HR meeting.
And this is not I've got to be very very careful here right, because but you would assume an organization would not lay off its top 10% of people.
In that scenario right, which is not to say that people laid off or not incredible individuals could do a great job organizationally. We are absolutely positively focused on bringing the worlds best human capital into data generally today it is coming from.
The people who are still at these large organizations, who are unsettled and nervous but even more than that rich. We are recruiting more people. When we go into an RFP again 17 different companies and we win the salespeople the project managers the high end operating people from those.
Other companies call us because people want to work for the people who are winning in today's environment and we are seeing.
An incredible opportunity to onboard amazing people I don't think we're going to pull back on profitability for a whole host of reasons, but.
As I think we pointed out we are raising guidance for Q2, we are raising guidance for the year.
We have been thoughtful in those numbers and making sure we have the dry powder to add incredible people, where we see the opportunity to do it.
And we feel very confident that in today's world, We can do both.
Thanks, Congrats on a great start to the year.
Thanks Rich.
Our next question comes from the line of Zach Cummins with B Riley. Please proceed with your question.
Yes, hi, good afternoon. Thanks for taking my questions. David could you give us an update on the CTV channel I know that's the one that's been getting a lot of traction in the past couple of quarters, So any sort of incremental update there would be appreciated.
Yes. So we continue to see CTV is one of our fastest growing channels, especially inside of our scaled customers. What we're really seeing is we're seeing the by way of example, the highest percentage of our customers ever in the first quarter used the CTV <unk>.
<unk>, we continue to see what we call connected CTV, where we're using our data cloud and our AI to best target.
Where to run the marketing as a massive differentiator inside of what we're doing there.
Got it.
Final question for me is just really around incremental details on the pipeline I mean, it's great to hear that RFP levels and the overall pipeline are still at record levels. I mean can you give us a sense of where these are being sourced from is it typically companies that are using.
Using point solutions or they're not renewing their deals with some of the legacy marketing clouds any sort of incremental detail there would be great.
Yes, I mean listen companies.
Companies are tired of using point solutions. They are expensive they don't talk and the expense that most people don't talk about is you have to bring in one of the major professional services companies on multi million dollar integrations to get them, even do is speak to each other whereas if you use the <unk>.
<unk> everything exists in one marketplace right. The other thing we're seeing.
Is it appears as if we've entered into a major replacement cycle in the marketing cloud ecosystem, where a lot of companies started 345 years ago with the legacy marketing clouds, and its just not giving them what they need anymore. So theyre going out to RFP at a <unk>.
Later, right and quite frankly, our full solution tends to be what they're looking for Chris do you want to add to that I think Dave the only thing I'd add Zack is if you look from an industry perspective, where they are coming from it's the ones that are probably all of us a write down on a sheet of paper and agree or are under the most financial.
And economic turmoil.
Choosing data right because it goes back to David's point earlier on the call just really needing to be more efficient, but to not have to do that at the sacrifice of growth and I think that's where it comes in is it really helpful partner.
Got it well thanks for answering my questions and best of luck with the remainder of the quarter.
Thank you very much.
Our next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.
Hey, Thanks, guys for taking the questions here.
Maybe just to continue on the AIC like I mean, obviously, we're living in kind of a.
Rapidly changing paradigm.
With the rise of generative AI I'm curious, how you think it might change the marketers job how it might change the cmo's role and what does that mean for how you sell data you deploy data.
That mean, there's any adjustments that you need to make obviously theres a lot of great product announcements that you made.
We've made already but what else do you think might need to change in your business as we kind of work through this.
Yes, I think R. J, that's a great question I mean, I want to reiterate I feel like we are where the puck is going not going to where the puck is going meaning we as you know re architected the <unk> marketing platform, starting about five years ago into what it is today, which has artificial.
<unk> and data as native to the application layer. So two.
To really put some meat on the bones of what that means if you're running a legacy marketing cloud and they claim to have artificial intelligence youre marketing cloud is to talk to their AI auguring them, which then has to do multiple data dips to pull the proper data and based on the instructions from that marketing platform to the AGA.
And think about how long that takes to make a decision. When you put everything is native to the application layer. It can make real world decisions all at once really a differentiator.
I think it's going to continue to change the marketplace is.
We're going to continue to see first and foremost.
Greater focus on return on investment for marketing than ever before.
Once again in addition to running the generative AI panel at <unk> I also moderated the chief marketing Officer panel and yes. As you can imagine I made a joke when I came on to the panel I said all right. We're going to now go to a topic that nobody is talking about completely under the radar getting zero attention.
Artificial intelligence and of course, everybody left but.
Everybody is thinking about how to use this but not just to use it I mean, Chuck GPT is great. My Kids love. It I think it's interesting, but how does it benefit your business right and what we're doing is we're using artificial intelligence to first and foremost help enterprises lower their cost.
To create maintain and monetize customers by removing customers from the marketing funnel that are not going to buy your products are not qualified for them or understanding who in your platform is going to churn really early enough in the process to save them right. That's one.
The other thing we're doing is.
Is the rolling out of Zoe from an external perspective by the way, it's always been our internal AI algorithm.
The rolling out of Zoe as a business intelligence tool to help <unk> and marketers.
Better understand their customers their intelligence and how to manage their marketing with a simple real world solution that not only learns from large language models. It learns from small language models that are.
<unk>, we owned by you because it's your data.
And it also learns what you're interested in so once you ask a question. It keeps an eye on everything to do with that question forever. So when you come back and ask that question again, it's smarter. The next time. So it is consistently getting smarter, which allows the enterprise to.
To do more with less less analysts less data scientists, which are very expensive.
Less cost to create a customer and lower cost to maintain your existing customers all driven from generative AI.
That's super helpful.
Insightful I appreciate that.
Chris maybe one for you obviously, we saw some good trends this quarter and the skilled and super scale customers and.
You have that you had that big deal.
And retail I'm curious just as we look at those metrics are.
Are those new customers coming internally through expansions are you starting to see new customer lands.
And those two buckets as well how should we think about that.
Those trends playing into the metrics.
The eight new scaled customers, though we added quarter to quarter six were new to data and then to became scaled.
And then even within that existing scaled customers and to the point of moving them from that 100, K 2 million cohort to the Super scale to 1 million plus one of the metrics we've talked about in the earnings call that internally. We got really excited about was multichannel adoption. So the number of scaled customers now using three or more channels that grew 41% year over year.
So that was good for us to see that we continue to make some really good traction in building. These omnichannel experiences, but we're very happy with the new customer additions we had as.
As well as what grew from the base perspective and origin. We just continue to see not just record rfps by number of enterprises, we're seeing deal sizes that are by far the biggest we've ever done.
Alright, very interesting all right I appreciate the color guys and great job on the quarter here.
There are no further questions in the queue I'd like to hand, the call back over to David Steinberg for closing remarks.
I continue to be incredibly proud of our Zeta people, we talk a lot about our technology, we talk a lot about our data we talk a lot about winning in the marketplace, but ultimately it is our people that drive these results and we're feeling.
As good as we possibly can about our business, we feel like even in a volatile environment. We are winning in many ways. The volatility of the current environment is helping us because we are seeing less friction from enterprises willing to take a chance on a new vendor.
And as we drive our business to our 2025 planned wells.
We're really really excited about where we're going to go for 2030 and after and we feel like we are incredibly well positioned and quite frankly I have never felt as good about where we are as a business as I do sitting here today, So I will finish as I.
Please do by thanking all of our employees thanking all of our clients all of our vendors and all of our shareholders for your belief in our vision and our goal is to continue to win in the marketplace and win together. Thank you very much for taking the time today.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.