Zeta Global Holdings Corp (ZETA) 2022 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Zeta First Quarter 2022 Earnings Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Scott Schmitz, Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's First Quarter 2022 Conference Call. Before we begin, I would like to mention that today's presentation and press release are available on Zeta's Investor Relations website at investors.zetaglobal.com where you will also find links to our SEC filings, along with other information about Zeta.

Joining me on the call today are David Steinberg, Zeta's Co-Founder, Chairman and Chief Executive Officer; and Chris Greiner, Zeta's Chief Financial Officer.

Before we begin, I'd like to remind everyone that statements made on this call as well as in the presentation and press release 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 products, potential competition and revenues for our products and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described 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 a substitute for our GAAP results. We use these non-GAAP measures in 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 filings with the SEC.

With that, I will now turn the call over to David.

Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. Zeta is off to a very strong start in 2022 as the efficiency of our platform continues to deliver a greater return on investment for marketers. For the quarter, we delivered revenue of $126 million, up over 24% year-over-year. The proportion of revenue generated directly on the Zeta Marketing Platform was at an all-time high, which led to significant margin expansion and strong cash flow generation which Chris will elaborate on shortly. The market continues to move in our direction with enterprises investing to accelerate digital transformation and capture the full value of their first-party data. As large technology companies continue to battle it out by eliminating their tracking tools, Zeta is a direct beneficiary as we are not dependent on Apple's IDFA or third-party cookies to identify individuals and measure business outcomes.

The way in which marketers interact and connect with consumers to deliver individualized experiences is changing at an accelerated pace. Advances in artificial intelligence, augmented reality, 5G and blockchain, just to name a few, are changing business models, and marketers that do not embrace these secular shifts will be left behind. In the current inflationary environment, it is imperative for marketers to find more accountable ways of acquiring new customers and generating more value from existing customers, even more so than in the pandemic. The last time inflation was equivalent to the current level was 1981 when there were very few tools or alternatives for marketers to become more efficient. Today, Zeta's all-in-one solution lowers the total cost of ownership, and our first-party data enables greater addressability and accountability, delivering a higher return on investment for marketers. To bring the effectiveness of our platform to life, let me walk you through a recent customer win.

In the first quarter, we signed a multiyear contract with a large apparel retailer that had several key objectives that no single competitor could meet. These objectives included: one, to integrate in-store and online activity into a single centralized source of truth; two, deliver real-time insights for strategic targeting; and three, find one partner to create a system to acquire new customers and better engage their existing customers more efficiently and effectively. Zeta was the only company that checked every box. Because of our integrated all-in-one approach, we enable an easier purchase decision, implementation and faster time to value with a 10x expected return on investment. Not only did Zeta replace the Salesforce Marketing Cloud as their cloud, but we also replaced an inadequate first-generation CDP that did not simplify their ecosystem or improved their business outcomes.

As another example, a large enterprise fintech company, which started out as a $50,000 pilot, grew to a multimillion-dollar, super-scaled customer after realizing a 60% to 80% incremental value through increased usage of the Zeta Marketing Platform. These are just 2 examples of our momentum in the market.

We are also being recognized by industry analysts. As an encore to the CDP recognition we received in February, we separated ourselves as the leader in the latest Forrester Wave for e-mail service providers, which was essentially their study for omnichannel marketing automation. While most major competitors fell backwards, we extended our lead and were noted as the company that would "simplify complex marketing." We received the highest possible score in the strategic category and the highest possible scores in 8 criteria, including our innovation road map, market approach and first-party data resources, highlighting both the depth and breadth of our platform.

And we are investing to widen our competitive lead through further innovation and a laser focus on delivering the best possible outcomes for our customers. We have worked to enhance the Zeta Marketing Platform, or ZMP, into a single pane of glass to make data visualization, exploration and activation easier, faster and better. We recently added a new product called agile intelligence, which lays at the intersection between business intelligence and marketing intelligence to our CDP. It answers the most pressing questions for an enterprise, such as which markets and customer segments represent the most valuable opportunities for investment.

We're also enhancing our data cloud with the recent acquisitions of Apptness and ArcaMax, which added millions of new permission-based consumer data and behavioral signals for marketers to engage with high-value audiences. And we are bolstering our position in high-growth channels, such as connected TV, with advancements in audience exploration, scoring, cross-channel activation and deterministic measurement. In the first quarter, our CTV business grew by over 200%. Developing and delivering cutting-edge solutions is also making us an employer of choice, a key pillar in our Zeta 2025 plan. I continue to be humbled by the caliber of people we continue to attract, especially in constrained areas such as sales and engineering. People are truly our most valuable resource, and we will continue to make major investments in our team.

In summary, we are well aligned with our Zeta 2025 targets of achieving at least $1 billion in revenue and greater than 20% adjusted EBITDA margin. We are off to a fantastic start in 2022, and as we continue to capitalize on the disruption in the market and provide more value than ever to our customers. I would like to sincerely thank our Zeta team, our customers, our partners and all of our stockholders for the ongoing support of our vision.

Let me hand it off to Chris to discuss our results in greater detail. Chris?

Thank you, David, and good afternoon, everyone. I would be hard-pressed to think of a better way to start 2022 and Zeta 2025 than the results we delivered in Q1. Our sales pipelines are expanding, our win rates are robust and most notably, we're driving the right balance of revenue growth, margin expansion and investment in the business. This ambidexterity comes from following Zeta's 2025 long-term financial blueprint. And in Q1, we executed to that plan exceptionally well, delivering profitable growth at scale.

On today's call, I want to dive into 3 areas: one, a brief review of our results; two, the progress we're making in our sales factories which fuel our KPIs; and three, the details of our upwardly revised guidance. Starting with the P&L, we delivered revenue of $126 million, up 24% year-to-year, once again exceeding our guidance and internal expectations. Our top line strength was driven by strong new customer additions, direct platform usage, continued ARPU expansion and progress against our go-to-market investments. 95% of our revenue was derived in the U.S. with broad-based industry contribution, and we do not have firsthand revenue or resource exposure in Russia or Ukraine.

As David mentioned, the proportion of revenue generated on our direct platform was at an all-time high of 81% versus 74% in the first quarter of 2021, and 77% last quarter. Our higher direct platform revenue mix, combined with our productivity improvements, lowered our cost of revenue by 540 basis points year-to-year to 33% or 32.1% excluding stock-based compensation. This positions us ahead of our target to reduce our cost of revenue by 100 basis points annually.

When we take into consideration the platform mix of our sales pipeline opportunities and what we expect from midterm political contribution in the second half of the year, which, as a reminder, has a lower margin profile than the platform average, we're improving our guidance to lower our cost of revenue by 200 basis points for the full year of 2022, a testament to the trajectory we already see our business headed to start the year.

On a GAAP basis, our net loss was $72 million, which includes $73.7 million of stock-based compensation. We generated adjusted EBITDA of $18.8 million, up 44% year-to-year. This translates to an adjusted EBITDA margin of 14.9%, which is up 210 basis points year-to-year. This, too, was well ahead of guidance. Our adjusted EBITDA upside also converted to cash at a high rate, which is an important element of our Zeta 2025 plan. Cash from operating activities was $21.2 million in the quarter with free cash flow generation of $9.7 million. We ended the quarter with $103.9 million of cash in our balance sheet.

The strength of our top line plus improved revenue mix cemented our conviction to pull forward go-to-market investments ahead of known sales pipeline demand for the platform. This investment was most evident in expanding our marketing capabilities and executing on our sales development plans, so let me switch gears and provide more detail on each.

As you've heard me discuss in prior calls, Zeta has been investing in expanding our go-to-market capabilities and capacity. Internally, we refer to these as our sales factories and span sales and marketing. We approach this from a 3-piece framework: one, sales pipeline creation; two, sales pipeline progression; and three, sales productivity. We're seeing good progress in all 3 areas, which continues to power our growth and is the fuel for Zeta's 2025 KPIs of scaled customer count, ARPU expansion, mix shift and net revenue retention.

As I mentioned upfront, our sales pipelines are growing nicely, accentuated by increased investment in brand awareness and demand generation. For example, the number of new platform sales opportunities in our pipeline is up 40% year-to-year with the value of our pipeline up nearly 50%. This follows observations discussed in the second half of last year, whereby newly-hired quota carriers were quickly ramping their sales pipelines and, in many cases, are at levels equivalent to our most experienced sellers.

In terms of pipeline progression, our newly established sales development rep function, or SDRs, are creating new opportunities and on the first line of qualification for faster progression through the funnel. In fact, during Q1, our SDRs created more pipeline than in all of 2021. And they were responsible for sourcing and progressing one of our newly-added Q1 scaled customers, resulting in a 7-figure multiyear win. It's worth noting we only began to build this function late in 2021. By continuing to expand our SDR team, going from 7 at the end of 2021 to 12 at the end of the first quarter, we're better able to utilize our quota carriers' time to progress opportunities and build a career path for future quota carrier succession.

This brings me to the third element of our sales factories, sales productivity, where the rubber meets the road. We measure sales productivity through the lens of cohorts based upon sales rep tenure with Zeta. This allows us to better tailor recruiting strategies and customize training much more prescriptively. We pace hiring investment based upon detailed productivity metrics and internal KPIs. And like last year, many of our newly hired sellers continued to surpass our ramping models by beginning to close opportunities as soon as months 4 through 6. We're also seeing the average contract value of wins roughly double as you go from sellers with less than 12 months experience to 12 to 24 months to greater than 24 months of experience. This really highlights the continued progress our training and enablement programs are making to grow seller capabilities. The L&D team behind this effort is truly exceptional.

The sales productivity is evident also across our Zeta 2025 KPIs. In the quarter, we added 4 new scaled customers over the last 90 days and 2 new superscaled customers who are customers generating over $1 million in revenue over a trailing 12-month period. We ended the first quarter with 359 scaled customers and 99 superscaled customers, with the latter up more than 40% year-to-year.

We saw continued success driving multiyear, multichannel recurring revenue deals with no change in average sales cycles. Some exciting characteristics of these wins included: a continued increase in the number of 7-figure deals closed year-to-year; a lengthening of new contract durations from a year ago, now approaching 2 years on average; growing demand for Zeta's CDP+ product, which comprised half of new multiyear wins in the quarter. In addition, 80% of new TCV was attributable to Opportunity Explorer this quarter, which remains a key door opener as well as an important cross-selling tool. And finally, we continue to beat legacy cloud vendors like Salesforce, Oracle, Adobe, amongst others.

While this list is just a sample of what we closed in the quarter, each of these represent alignment with our stated goals of Zeta 2025. And most exciting for Team Zeta is how effectively the organization is collaborating with total alignment across marketing, sales, engineering, product and shared services, which, of course, was the bigger organizational intention of Zeta 2025. Company-wide, we continue to sign larger initial contracts and expand our existing customers on our direct platform. For the first time, more than half of our scaled customers use Zeta for more than one channel. This led to strong scaled customer ARPU growth, increasing 18% year-to-year to $341,000. In terms of sales capacity, we're off to a solid start against our hiring goals for the year as our ability to attract and retain Zeta talent remain strong. We added 7 new quota carriers in the quarter and remain well on track to grow our sales headcount in the mid-20s this year.

In summary, we thought it was important to connect ramping of our go-to-market investments with the KPIs we're generating. We'll continue to deploy capital in areas of greatest opportunity and highest ROI that are consistent with the Zeta 2025 model.

Wrapping up now with guidance. As outlined on Slide 9 of our supplemental presentation, for 2Q '22, we expect to generate revenue of $128 million to $132 million, up 20% to 23% year-to-year. We expect to generate adjusted EBITDA in the range of $16.9 million to $17.4 million, representing year-to-year expansion of 48% to 52%. For the full year of 2022, we're increasing our revenue guidance from a range of $540 million to $550 million to a new range of $553 million to $563 million. This includes approximately $3.5 million from our recent acquisition of ArcaMax.

We're also increasing adjusted EBITDA guidance from a range of $80 million to $83 million to a new range of $83.4 million to $86.4 million. This revised range represents a year-to-year increase of 32% to 37% and an adjusted EBITDA margin range of 14.8% to 15.6%. As I've stated before, we're building a culture of high performance and a track record of consistent and predictable execution, and Q1 was continued evidence of that. We're excited about our strong start to 2022, and we're well aligned with our Zeta 2025 targets.

With that, let me hand the call back to the operator for David and me to take your questions. Operator?

(Operator Instructions) Our first question is from Richard Baldry from ROTH Capital.

Sort of curious about the superscaled customer base. If you could talk a little bit there about where you're winning? Are there any commonalities across that base? Any specific momentum verticals? How large do you think that group can be intermediate term, long term? Because it seems like it could be material to meeting or exceeding your 2025 goals given the impact each one of those can have.

We saw broad-based contribution not just for total scaled customer ARPU expansion but also the addition of new scaled customers, and this is obviously the customers that we move from $100,000 to $1 million to $1 million-plus. Two things, I think, that are exciting about that. As you pointed out, we've got 250-plus scaled customers that are in that $100,000 to $1 million cohort, all of which could be $1 million or greater superscaled customers. It's the same type of customers. These are Fortune 100, Fortune 1000 customers spending hundreds of millions to billions of dollars in marketing. It's just a matter of time until we move them over. But I think even more impressively to us is the opportunity. There's a 10x ARPU differential in the average revenue for that $100,000 to $1 million customer of about $98,000 versus almost $1 million, $981,000 for the superscaled customers. And I think as you heard, for the first time, more than half of the customer base is now using more than one channel for Zeta.

The other thing I would point out, Rich, is what we're seeing in the marketplace is some of the macro issues are driving our clients to move from proof-of-concept to superscaled clients much more rapidly than we've seen in the past. So as our clients are seeing inflation, as they're seeing a potential downturn, what we're seeing is everybody is far more focused on efficiency of marketing. And as they look at efficiency and they look at efficacy, they're seeing the return on investment on our platform. We're literally returning, for most of our clients, 10 to 1. For every $1 they spend with us, they're returning $10 in business to themselves, if you take what they're paying us in subscription fees back into their returns. And we're seeing budgets that have been traditionally going to linear moving to the Zeta Marketing Platform at an accelerated pace, and I think that's a trend that we can expect to continue.

So I think you probably often see with a superior product, one of the things competitors uses are fear and distortion as their way to try to defend their positioning. Same happens in the investment world. So I wouldn't normally ask this, but I'm sort of curious if you had any commentary around recent short thesis that emerged, which in our view didn't carry a lot of teeth. But now that you've got a clear table to talk, sort of curious if you have any feedback.

Well, Rich, listen, it's -- I think as Mark Twain said, the truth is stranger than fiction. Of course, he said it before bloggers emerged that could effectively make things up as they go along. We're really focused on writing our own story here. We really believe that if we continue to acquire -- I'm sorry, to retain and hire the world's best people, build great products and build a great company, everything will ultimately take care of itself, and that's really what we're focused on.

The next question is from Brian Schwartz with Oppenheimer.

One for David, then a follow-up after for Chris. David, you mentioned, or Chris mentioned, that the CDP+ product was in half of the big deals that you won in the quarter. I was wondering if you can -- that seems to be a really positive trend and something that we hadn't been seeing recently. I was wondering if we looked under the covers and you looked at maybe the RFPs or pilots that you're doing or you look at the pipeline opportunities that Chris provided color to, are you seeing the same sort of trend in terms of people looking towards the business for -- to run their CDPs?

Yes, great question. I think we're seeing the CDP business grow at an exponential pace, quite frankly. It's really gone from something that people were talking about as a nice-to-have to today, marketers are starting to say it's a have-to-have. As they move from sort of older school data repositories, data lakes, data warehouses to focus on deterministic data and really leveraging their own first-party data and extrapolating that into how they go to market, there is no better way to do that than a CDP. What I would tell you is that the RFPs that we're receiving on CDPs continue to be greater than half of the RFPs we're receiving, and we are winning them at an even greater rate than our normal above 50% win rate. And I think what we're seeing is when we sell a CDP, it comes with the data cloud bundled into it, which is why we call it a CDP+. And if you look at all of the analysts over the last few weeks that have come out with new stories, including -- well, there's one coming next week that I almost just messed up. But there's a bunch of stuff that's come out around our CDP being the top in the industry.

A lot of it is not just the architecture of the CDP software, which is, we believe, superior to anybody else's, but the ability to do it with the data cloud changes the narrative when we're talking to customers and they're seeing the type of data elements that are coming in. The really exciting thing about that is once they start using the blended data and we're matching it greater than 80% of our data cloud to the average customer's first-party data as we scale, what we're seeing is they're coming up with incredible audiences that they want to target inside of the data cloud. Well, guess what? They cannot target to those audiences because they all synthesize to a Zeta ID number unless they use us to activate. So not only are we winning CDPs in an accelerated pace, it is truly the Trojan horse into the enterprise because as they use these incredible attributes that we bring to life, there is no way to activate to the consumer unless you're using the ZMP.

And then the one follow-up I had for Chris, really just wanted to make sure I understand the -- just if there is any changes at all with the guidance on your philosophy. The reason that I ask is we see the results here in Q1 certainly looks really good. The business is accelerating. You guided for that acceleration to continue again in Q2 on the growth and on the margin improvement. So we all see the headlines and what's out there. I think you gave us a lot of color into what you're seeing and the confidence in that guidance. But what I wanted to ask you is in your guidance, are you incorporating at all any sort of either conservatism or consideration for any potential slowdown in enterprise marketing spend? That's it.

Thank you, Brian. The short answer is we feel like we have the current macro environment and really good visibility into our pipeline all factored into our guidance as well as what we're working hard to build, which is a track record of beating and raising. I think what stood out to us in the quarter, in particular, was if you look at the quality of the revenue and the margins that were delivered structurally, we're growing in the most durable, high-margin areas of our business. Good evidence of that, as David mentioned, is deal sizes are getting bigger. Contract durations, I think, was an important point we made in the script, which also goes into the visibility we have into our revenues. Contract durations are getting longer, now almost approaching 2 years. That's a significant change from even 6 months ago. All-time high direct platform mix of 81% and not surprisingly, the gross margins followed. So we feel like we have it all factored in as well as wanting to make sure that we continue to build upon our track record we've established now over the last 4 quarters.

The next question is from Ryan MacDonald with Needham.

Congrats on an excellent quarter. David, maybe first for you. It's great to hear about all the direct sales productivity improvements that are driving strong wins in activity. But you've done a lot of work in terms of sort of external sources and partnerships to try to drive lead flow and sort of more at-bats. Notably, you had the Snowflake partnership in fourth quarter. You're seeing some inclusion on the Forrester reports in first quarter. Just curious what sort of returns you're starting to see, if at all, from some of those external sources not just, obviously, the direct sales productivity, which looks great today.

Well, first, thank you. We appreciate it. Second, great question. Third, it's been incredibly additive, right? I mean I think that there are very few really big conversations that we're having nowadays that don't involve somebody like Snowflake or other partners that we have as a sort of third party to the agreement. And it's been really game-changing for us to be able to bring their products to bear fully integrated into the ZMP. Now the Forrester stuff was really -- is an accelerator to RFPs. We're seeing more RFP flow than I think we have ever seen by a lot. So not only did we make the decision to pull forward some of our hiring because we saw we had so much incremental margin, being 81% on platform versus the 75% that I think a lot of people expected, it allowed us to bring in the people that we needed to handle all of the RFP velocity that we're seeing.

Filling out some of these RFPs can be arduous, so we were super pleased to be in a position to be able to pull forward some of that hiring. What I would tell you is that the ZMP stands alone and is winning on its own. We're seeing the market come to us in a lot of ways. First and foremost, great partners in companies like Snowflake. Second, being named the leader in the Forrester report was a very big deal. It happened in an environment where most of our competitors fell backwards and we propelled ourselves forward. And the thing we love is Forrester is really basing a lot of that on our clients' opinions of us. It's something that's very important. And it's something that we think of. And once again, our goal is to deliver the world's greatest products and services to our clients. And when you get the type of validation that comes out of Forrester, that is really the entry point to most RFPs for most large enterprises.

And companies that might have been saying who's Zeta a year or 2 ago are now knowing who we are: the IPO, Zeta Live, doing deals with companies like Snowflake, being named the leader in Forrester's report. When a company like Forrester says that we are exceptional at simplifying complex marketing, that is exactly what CMOs want to hear in today's world. And quite frankly, our entire pitch around efficiency and efficacy of marketing resonates even higher in a market where people are nervous about where the economy is going, about what's happening with inflation. A number of our clients are thinking about where is the consumers' disposable income going as it relates to a focus on higher energy cost, higher food cost, higher housing costs. And they're trying to figure out how to help consumers to understand that their products are have-to-have, not a want-to-have in this current environment.

The ability to use the Zeta Marketing Platform and focus on people who are actively in market for their products and become top of mind for them has never been more important than it is today. And I think that's back to what Chris said. I think it's why we so handedly beat the first quarter. It's why we feel so highly confident in the second quarter. And it's why we want to continue to focus on being a company that can beat our estimates and raise from there, that we've always said that's our goal and that's our goal to continue.

I appreciate the great color there. Chris, maybe just a quick follow-up for you. On the direct platform revenue, obviously, 81% in the quarter, very strong. Can you just provide an update in terms of your expectations how we should think about that trajectory through the remainder of the year? I think sort of heading into Q1 here, you were thinking mid-70s for the year. How does 81% in the first quarter impact that? And then how does this translate, I guess, into your ability to expand gross margins for the remainder of the year?

I think we definitely, with the fast start that we had, knew it was at the higher end of what even we were expecting internally. I would now expect the direct platform mix to be north of the mid-70s now. And it's kind of not going on a limb to say that. But why that's given us kind of more confidence is included in the script. You also heard us increase our cost of revenue percentage -- or I should say decrease our cost of revenue percentage for the full year from 100 basis points of guidance to 200 basis points.

So as you see the direct platform mix go north of 75%, you should expect to see the gross margins follow. But certainly, our direct platform mix ending north of 75% has increased. The one item to note there, Ryan, and for your peers on the phone call, part of what would not keep it at 81%, at least as we're thinking about it based upon history being a predictor of the future, is political spend in September, October and, to some smaller extent, November could and has traditionally been off-platform. So there's also some conservatism built into that when I talk about being just north of 75%.

Although we do feel we'll be higher for the year than mid-70s. We feel like we're in a very good place. I think we're just nervous stamping an 8 handle on the front today. I think we feel good about where we are as a company. And I think when Chris talked about the scale of the new deals we're signing, the duration of the new deals we're signing, we've always said our goal was to continue to grow gross margin. We're saying we're going to grow it faster than we originally expected. We've also said that our goal was always to get to 80-20 platform-wise. I think in the out-years, we'll be able to even do much better than that. But I think right now, we're feeling very good about the metric.

The next question is from Koji Ikeda with Bank of America.

Just a couple for me. So it sure sounds like -- in looking at all the metrics and all the commentary, I mean, it sure sounds like the sales execution is good and definitely heading in the right direction. And I think it was Chris, you kind of mentioned on the sales capacity you added 7 in the quarter. You're trying to grow mid-20s as a target for this year. So how should we be thinking about the ability for the business to potentially increase or maybe accelerate the number of net new scaled customers? I think you added 4 in the first quarter. So what does it take from a sales capacity or go-to-market standpoint for this number, this 4, to maybe become 6 or 8 or even 10-plus in any given quarter?

Koji, that's the design. That's exactly the design as to why we're adding scaled headcount. It's the design as to why we spend so much time measuring and even being very transparent with our investor base as to how those quota carriers are ramping in productivity. One new function that we've added that should help us continue to not just add new scaled customers but to graduate those from the $100,000 to $1 million to superscaled is the combination of what is, we believe, we're building a world-class demand generation engine married with an SDR function that just should make those quota carriers more productive. So we don't want to get ahead of ourselves, but it's certainly designed for why we're adding sales headcount and why we believe in the Zeta 2025 should be at least a $1 billion number and not just sitting at the $1 billion. David?

Yes, and Koji, I mean, I think it's important to note that seasonally, we expected our scaled customer count to shrink into Q1. So the fact that not only did it not shrink but it grew was an incredible sign of how the business is performing. And we're very excited about the prospects to continue to grow that scaled customer number. The other number that I think is really exciting is the superscaled customer number, right? You saw that go up fairly dramatically year-over-year. And that's a number that, as I said earlier, we're seeing proof of concepts skip the scaled customer metric and go right to superscaled contract or superscaled customer in this current business environment.

Got it. Got it. And my follow-up is actually on the acquisitions that you announced. I did see a press release for one of them, ArcaMax. So I guess for that one specifically, how do we think about that acquisition and its ability to drive new or maybe enhanced 1P profiles? And then I missed the second one. Maybe I missed the press release. Could you talk a little bit more about the other one? What does that bring to the Zeta platform? And then just lastly, on the acquisitions, any sort of contribution from the acquisitions embedded in the '22 guide?

Yes, so great questions. First, let's start with ArcaMax, which is the one we closed in this quarter. We did say, although it was brief, that it will add $3.5 million to the estimate this year, which we are bringing up to $553 million to $563 million. So it's not really adding a tremendous amount. The other one, I think, you're thinking of, Koji, was in Q4, which was Apptness. Those deals are what I would consider tuck-ins. Apptness was a similar size to ArcaMax. What I would tell you is that we were able to pick up millions of double opted-in consumers in some very interesting verticals to our data cloud. And what we're really trying to do is continue to build out that data cloud around new categories and additional customers, and both of these platforms do exactly that.

We also were really excited about the management teams in both of those companies. Just really, really great people that we were very excited to bring on to the team. So I just feel like it's important to note that they're not adding a lot of revenue, but they're adding great data. They're adding great technology, and they're adding great people. And they're going to be very additive to the data cloud as we extend into new verticals and we wanted to offer additional data sets to existing customers.

The next question is from Arjun Bhatia with William Blair.

Congrats on a great Q1, guys. I wanted to touch on the new scaled customers and actually, the superscaled customers. It certainly seems like there's a lot of momentum there. When you look at these new customers, do you get the sense that more customers are making platform decisions and buying decisions for Zeta as a whole upfront as opposed to saying, "Hey, maybe I'll wait a year. Maybe I'll wait 2 years?" It certainly seems like there's a lot of momentum, but would love to get your perspective. And I'm curious if there's anything on the product side that you would attribute that strength to, whether it's the data cloud getting more advanced like you said or the headwinds from the market in terms of third-party data. Any color there would be helpful.

Yes, I think you just really nailed it, right? So as we're seeing the large tech companies really battling it out, right, you've got all of these guys removing all of their identifiers that is sort of hurting other people in the marketplace, it is causing marketers to need to make decisions faster. And as they look at the efficacy of our platform, which as we have said until we're blue in the face does not require the IDFA and does not require a third-party cookie to measure or identify people, we're seeing sales cycle timing shrink dramatically. Because they're losing efficacy on a number of platforms, they are looking for platforms that continue to deliver that.

And I think that's created a little bit of a crisis in the ecosystem. And as -- I was sort of joking the other day. As the tide has gone out, our ship stayed right where it was. All the other ships seem to have gone down, and that has played very, very well. So when we can sit down with the CMO, we're able to talk about that efficacy, compound that with the efficiency, right? Our ability to deliver 10 to 1 on our software and data sales to them on a return on investment, they're just not able to really get that anywhere else.

Then you've got that Zeta is becoming more of a known brand. And quite frankly, we've spent a tremendous amount of time and a tremendous amount of energy focusing on making Zeta part of the narrative. And when Forrester names you #1, when the company now trades on the New York Stock Exchange, when we hosted Zeta Live and had some of the world's marketing luminaries come and speak and work with us, those are things that allow enterprises to make faster decisions around their platform purchasing. And we're not just seeing more RFPs, we're still closing. Last count, over half of the RFPs and engagements we're being invited into, we're doing it faster. And I think that's one of the reasons you're seeing the growth rate where it is and why we feel so confident that we can raise guidance for the quarter and for the year.

Perfect. No, that's very helpful. And then one more, if I can, on the Dun & Bradstreet partnership. I was just wondering if there's any update you can provide on the traction that you're seeing on the B2B side and with that partnership in particular.

D&B, which is an incredible company, a great partner, we're really excited about the partnership there, we're not actually at liberty to sort of talk specifics there because of the nondisclose agreement with them. But what I can say is we're seeing a lot of deal velocity through them, and they've just been -- they've been an incredible partner. So our ability to talk to their customers has been very powerful. And back to one of the earlier questions, right? So you've got Snowflake on one side. You've got Forrester on another side, and then you have great channel partners like D&B on the other one.

The next question is from Elizabeth Porter with Morgan Stanley.

I wanted to follow up on your comments about extending the data cloud into new verticals. And how do you guys think about the opportunity to drive a vertical kind of cloud approach with solutions specific to these verticals? And is that something that you're considering? And then second, as a follow-up, nice uptick in the ARPU. Just hoping to get some color on how much is broadening use cases versus increasing usage in existing channels or just landing with larger logos now that you're having momentum in the superscaled level.

Two amazing questions, Elizabeth. Let me start with the data cloud vertical integration. I think that what we've seen -- and I think we've said publicly that no vertical makes up greater than 13% of our revenue. I'm sure somebody in the room, we've got a cast of thousands here, will keep me honest on that. But what we've really found and what we really believe is the ability to stand up vertically focused data clouds is a game-changer for the clients. And the ability to build out vertical integration, not just of signals and attributes but of consumers who are directly interested in those verticals over long periods of time, is the next step level in what we're thinking about doing. And we've got some big news coming soon around that. We're very focused on it. And it's something that we believe will allow us to continue to accelerate growth as we focus on the verticalization of the data cloud. Chris, do you want to jump in on ARPU?

Yes. So really quickly on ARPU, Elizabeth, really driven by 2 different factors. First, as we noted upfront, the difference in ARPU between the $100,000 to $1 million to the superscaled of $1 million-plus is about 10x, so $98,000 versus $981,000. So as we continue to move those customers to the right, that is naturally lifting the ARPU. Two other elements are also driving it. First, signing initial contracts at a larger value, and we've seen that now for 3 straight quarters. But also to your question around is it more use cases more utilization or more channels, this quarter, in particular, I would highlight it being more channels. And we talked about, for the first time, more than half of the customers using more than one channel. If you look at that 2-channel cohort, it's now almost 1/3 of all of our scaled customers. That's up from mid-20s last quarter. So really happy with the channel expansion, but a really big opportunity still in front of us on just growing more of what's flowing through the existing pipes and adding more use cases.

The next question is from Ryan MacWilliams with Barclays.

So with cookie deprecation from Google coming in the second half of 2023, this has been a point of contention for marketers in our conversations even beyond IDFA changes. With the longer sales cycles in Zeta's business, I'm sure you're seeing RFP activity today on this. But David, would you expect as we get closer to the deadline you could potentially see stronger RFP activity for Zeta as we get towards the end of this year?

Yes. I mean we totally agree. I mean the truth of the matter is there are some clients moving quickly on this. And I do think sort of the elimination of the IDFA and the sort of efficacy issues a number of the larger platforms are dealing with has led to some accelerated RFP opportunities. But to your point, I think the closer we get to the elimination of the third-party cookie, which is going to be a game-changer from an efficacy perspective, the higher we will see our RFP velocity go. As you know, right, there's always a big difference between knowing something is coming in a year or 2 and knowing something's coming in a few months. And we feel like our platform is really well positioned, and we continue to make major investments into innovation around making sure we stay the leader in this category because we believe it's going to be a very big one yet to come.

Perfect. Yes, and nothing drives spend like a deadline. And then, Chris, just on guidance. You had a larger raise to your full year revenue guide compared to your first quarter beat. That kind of makes sense given a lot of the tailwinds you talked about. Just as you've had more conversations with customers, any update on your commentary from last quarter on what midterm election revenues could look like for Zeta at this point?

No, we continue to hold to the 25% to 30% of what we did in 2020 and again, mostly directed in the third quarter -- latter half of the third quarter, beginning of fourth quarter. So that would imply right around $1 million or so in the third quarter and [$3-ish million and change] in the fourth.

All I was going to say is that we continue to believe that political will be a strong tailwind going into the back half of the year.

Appreciate that. If I could squeeze one more. Chris, just any seasonality we should watch out for in the second quarter?

No, I think in the last earnings call, one of our supplementals, maybe like Slide 22 or something like that, we showed the distribution of 3 years of history of how much revenue appears in each quarter. That's probably a pretty safe bet to follow again.

The next question is from Jason Kreyer with Craig-Hallum.

Just one for me. So as we look out to the macro, it seems there's some increasing concern over the durability of things like programmatic advertising. We've obviously talked about that as a channel you participate in. So curious, if we see a pullback there, do you -- what would be the fundamental exposure? And then what other channels or opportunities could be created where you could offset that?

So great question, Jason. Let me say that we don't generally just run programmatic. We're using our data cloud to target it. So we've seen an acceleration to our programmatic business. We also have seen a massive acceleration to our CTV business. So think about the fact that most people running linear TV continue to run their ads alongside of a show that they think might have the demographics that they're interested in. But a very large percentage of the people watching that show, some people would estimate 90% or more, are not actively in market for those products.

We can, on a deterministic basis, target a CTV ad in the exact same TV show that somebody is watching on linear in CTV or OTT, and you're taking 70% or 80% of the expense out of the targeting. So as I think I've said a few times, we truly feel that the current environment where we're seeing greater inflation, we're seeing the very large tech companies sort of battling it out and we're seeing the worry of slowdown is driving customers to use our platform at an accelerated pace because they're looking at the efficiency and the efficacy of that platform that includes our programmatic platform, which is heavily focused on deterministic targeting. Chris, did you want to add to that?

Yes. And Jason, we also wanted to make sure, as we're preparing our guidance and being responsive to one of the earlier questions around confidence in the numbers, we look deep into sales cycles on the multiple solutions and use cases that we give. Not only do we not see a change from the last quarter to 2 quarters ago, 3 quarters ago and 4 quarters ago, but even quarter-to-quarter, over the last 90 days, no change in sales cycles' durations. And as we talked about in our commentary upfront, more and more, the revenue continues to be recurring in nature. And that's, again, an outcome of the fact that we're signing more multiyear, 7-figure deals with longer contract duration. So we feel really good about the visibility and the durability of that revenue right now.

The next question is from DJ Hynes with Canaccord Genuity.

Chris, you sit here today and you look at kind of how quickly direct revenue has scaled. Does it make you think like, hey, 20%-plus EBITDA margins in 2025 could be 25%? Or is it early to jump there? And maybe like, hey, these gross margin savings now are going to be kind of funneled into go-to-market efforts. How do you think about kind of how quickly that's transpired and how it feeds into long-term targets?

Yes, 90 days into Zeta 2025, it's tempting to be more optimistic. And for the first time, David is probably kicking me under the table.

Right, because it's 2.5 years into 2025. But keep going. 90 days since we announced it.

Look, there's a reason why we say at least. But without a doubt, we're ahead of pace.

Yes. Yes. Okay. One of the questions I get a lot from folks who are doing work on the story for the first time is around Disqus, right? And obviously, it's an important part of the data asset that you're building. Can you give us any color on like operating metrics for that business? Is it growing? How do you take it to market? What do retention dynamics look like? I get it a lot, so I figured I'd give it to you, guys.

Yes. No, it's a great question. I mean I don't have the exact operating metrics in front of me. I can tell you, it is growing nicely, which was the reason last quarter we were able to say that our opted-in data in the United States went from 225 million to 235 million. That infers that Disqus is growing. And we're seeing Disqus not just grow, we're seeing it continue on at greater than 90% of global market share for commenting in publishing platforms. I also think it's really important to note, because this is one of the things that I get an aha moment when I say to somebody looking at the story, DJ, not 1 of the 5.2 million publishers who use our platform makes up even 0.1% of the traffic that is driven to the Zeta data cloud. So it's really well distributed. And by the way, it's simply the anchor tenant of what is greater than 20 data assets that sit in the Zeta data cloud.

You look at ArcaMax, by way of example. You look at Apptness. We're driving millions of opted-in consumers through those platforms. And as we look at growing the data cloud, we'll continue to look for additional sources of data. But Disqus has no concentration. Disqus is growing nicely. It is evidenced by the growing of the opted-in consumer group from 225 million to 235 million in the U.S. and from 240 million to 255 million globally. And that is a trend that we really expect will continue.

And as you think about content on the Internet, it continues to grow at an exponential pace. We are literally embedded into almost every publishing tool for every new website that stands itself up. It's just check a button, would you like commenting with that. So literally, it drives engagement for the publisher, whether they are a top 1,000 global publisher, of which 70% use Disqus, or they are a blog operating out of somebody's basement. The reality is millions and millions of sites sign up for Disqus every single year.

Thanks, everyone, for joining the call today. Operator, we'll turn it back over to you.

Thank you. As there are no further questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.