Zeta Global Holdings Corp. (ZETA) Q3 2021 Earnings Call Transcript

Zeta Global Holdings Corp. (ZETA 2.19%)
Q3 2021 Earnings Call
Nov 09, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Zeta's third quarter 2021 earnings conference call. [Operator instructions] Afterwards, we will conduct a question-and-answer session. [Operator instructions] As a reminder, today's conference is being recorded. I would like to turn the conference over to Scott Schmitz, SVP of investor relations.

Please go ahead.

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's third quarter 2021 conference call. Before we begin, I would like to mention that today's presentation and press release are available on Zeta's 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 of our products and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described under the heading risk factors in our most recent quarterly report on Form 10-Q and the company's financial prospectus dated June 9, 2021, each filed with the Securities and Exchange Commission, as well as other documents that we may file from time to time with the SEC. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the presentation and press release.

In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to, and not as a substitute, for our GAAP results. We use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure, and you are encouraged to examine those reconciliations, which are found in the appendix to the presentation and at the end of the press release. Now, I will turn the call over to David.

David Steinberg -- Co-Founder and Chief Executive Officer

Thank you, Scott. Good afternoon, and thank you for joining Zeta's second earnings call as a public company. We sincerely appreciate your interest. Zeta had a very strong quarter.

We executed against our strategic initiatives and drove results ahead of our guidance for the quarter. We generated record revenue of $115 million, up 21% year over year and up 25% when adjusting for the 2020 presidential cycle. We also drove strong operating leverage in the quarter, with adjusted EBITDA of $16 million, up 30% year over year. With good visibility and confidence in our growing pipeline, we are raising the midpoint of our full year 2021 revenue guidance range to $446.5 million, up from $434 million; and our adjusted EBITDA outlook to $61.3 million from $56.5 million.

Chris will dive into more of those details shortly. Stepping back, there are three key themes supported by our results. One, we have a strong strategic position in the marketplace. Two, we are executing and winning in the marketplace.

And three, we are just getting started. Let me dive into each of these themes in more detail, starting with our strategic position. In this increasingly digital world, data and artificial intelligence are at the center of how companies make decisions. Companies are rethinking how they ingest, synthesize, and prepare data to activate their marketing campaigns.

This is where Zeta fits in perfectly. Our customers use Zeta's software, the core of which is the Zeta Marketing Platform, or ZMP, to orchestrate and execute targeted marketing campaigns across all addressable channels. The patented artificial intelligence native to the ZMP synthesizes Zeta's first-party proprietary data, along with our customer's first-party data, and gets smarter over time, enabling our customers to achieve both greater scale and higher return on investment. This partnership with our customers, in turn, results in very strong customer loyalty.

Our vision is to help enterprises accelerate their digital transformation of customer acquisition, retention, and growth through our technology, our data, our expertise, and our execution. With Zeta, customers can eliminate point solutions that add complexity by investing in our modern software and artificial intelligence platform that drives better outcomes versus products from legacy competitors who have under-invested in their platforms. As a reminder, our goal is to be the largest marketing cloud in the next five years. Powering our marketing cloud is a leading customer data platform, or CDP, which serves as the backbone of our data-driven ecosystem.

While many companies claim to have CDPs, few offer the full suite of data assembly, analysis, segmentation, and activation as our platform does. Central to our vision is unifying data as the critical step for enterprises to adopt data-driven marketing across all addressable touchpoints. Our CDP is the manifestation of this vision. As a stand-alone product, CDPs connect disparate data elements into an identity and ingest behavioral and transactional signals to create a true 360-degree view of the consumer for both prospective and existing customers.

We believe CDPs are the foundation of more personalized experiences and more precise measurement. With marketers elevating the importance of CDPs, Zeta is becoming more central to every marketing technology conversation. Importantly, CDPs can be bundled with the ZMP for activation, or they can sit adjacent to an incumbent marketing cloud, providing Zeta with incremental sales opportunities to partner with large enterprises and expand over time. And this is all translating into results in the market, which brings me to my second point.

We are beating the competition. Our customers are excited about how our assets and capabilities unlock their ability to acquire, retain, and grow customers at an attractive return on investment. We are executing, both with new customers and existing customers. In fact, we saw our win rate improve during the quarter, highlighted by the fact that we booked an incremental $16 million in total contract value, with over 90% of that being recurring revenue.

Let me give you a few examples to illustrate how and why we're succeeding across the different environments. First, we are engaging new customers as the central hub of the data-driven ecosystems. This quarter, a leading children's retailer chose our CDP to be the backbone of all of their data-driven marketing activity across all touchpoints, including in-store. We competed against both legacy providers, as well as small upstarts.

In the end, we ultimately won by providing a single platform to serve as the center of their digital transformation, unifying disparate data elements and connecting the dots across their business. Second, we are creating opportunities adjacent to an incumbent marketing cloud as part of our land-and-expand strategy. A Top 100 global marketer chose us to develop an innovative, trigger-based messaging program, leveraging Zeta's unique insights that are taken to a new level when combined with the dataset of this marketer. Importantly, our strategy does not require us to rip and replace legacy competitors up front, but instead, we can sit adjacent to them, building bigger internal client relationships that allow us to take additional market share over time.

Third, we are expanding use cases within current customer environments. At a top luxury retailer, which is a major user of our CDP, we are expanding our solution into activation. Again, we are taking share from the major marketing cloud, which should set the stage for future expand and extend opportunities. Going back to the third major theme this quarter, we are just getting started.

Industry tailwinds are accelerating. Our platform and data have never been stronger, and we're just beginning to see the benefits from our go-to-market investments. While we view these as long-term trends, we are benefiting today with Q4 off to a great start. With a higher mix of recurring revenue, our visibility is improving.

With broader awareness and more sales capacity, our pipelines are expanding. And with competitive differentiation, our win rates are increasing. In summary, the migration to digital is accelerating. As the world comes out of the pandemic, companies see the current environment as one of the biggest opportunities to affect change.

They are looking at digital, artificial intelligence, and new technologies to identify, engage, and build customer loyalty. Disruption in the digital ecosystem creates a critical need for marketing technology as enterprises look to help navigate changes like the elimination of Apple's IDFA or the elimination of the third-party cookies, neither of which Zeta relies on to identify individuals today. Let me reiterate, we do not use Apple's IDFA or third-party cookies in our identity graph. This disruption creates a unique opportunity for Zeta as we benefit from these changes.

We help companies rethink their data strategy and gain more control over their own first-party data. Our software helps companies respond to changes from gatekeepers so they can measure customer behavior and market with greater precision. Our true 360-degree view of the customer across all media using the Zeta ID creates a single deterministic identity of prospects and existing customers. As some of the walled garden providers continue to tighten their grip, we expect customers to find it will be more difficult to work with them and that marketers will increasingly look for alternatives.

We believe Zeta is well-positioned to benefit from a combination of our data, artificial intelligence, and deployment capabilities. We're seeing this manifest itself in our results and our visibility into our business, which is leading us to increase guidance for the full year 2021. To further understand the massive opportunity in front of us and why we're winning in the market, we invite you to hear directly from our customers, partners, and industry luminaries at our inaugural Zeta Live conference on November 16 and 17. Zeta Live will convene some of the industry's most forward-thinking business leaders for insightful discussions on the future of marketing and technology, along with opportunities to hear from Zeta's customers on how they are leveraging our software and data, as well as hearing from Zeta technologists about future product innovation and where it's headed.

You can register now on our website at zetaglobal.com. I would like to thank our customers and our partners for the confidence and trust they place in us. I would also like to thank our Zeta people for the hard work and dedication that has gotten us to this point. And I would like to thank all of you, our investors, for supporting us on this journey.

And with that, let me hand it off to Chris Greiner to discuss our results in greater detail. Chris.

Chris Greiner -- Chief Financial Officer

Thank you, David. And, Scott, welcome to Zeta. We're thrilled to have you. Good afternoon, everyone.

Q3 was another outstanding quarter for Zeta, continuing the trend from the first half of the year. There are three highlights to the quarter we want investors to step away understanding. First, our record third quarter results beat the high end of our guidance through all elements of the P&L and generated powerful operating leverage. Major contributors included: our sales transformation is running ahead of plan, we had a breakthrough quarter of recurring revenue bookings, and we continued our positive mix shift toward higher-margin solutions.

On the back of this momentum, we're increasing the midpoint of full year 2021 revenue guidance by 12.5 million to 446.5 million and increasing adjusted EBITDA guidance by 4.8 million to 61.3 million. Second, we're beating the largest marketing clouds head-to-head in a resounding way. In the third quarter, we once again saw robust new customer wins and existing customer expansion. Our focus is on driving more multiyear wins, with higher levels of software subscription and minimum usage contracts.

And in the third quarter alone, we booked six multiyear deals for over 16 million in total contract value, with over 90% recurring revenue. And third, we had another strong quarter of execution on our five core growth drivers. Our core growth drivers are the building blocks to our long-term target of sustained 25%-plus year-to-year revenue growth and at least 20% adjusted EBITDA margins. Zeta's core growth drivers span growing our existing customers, adding new customers, leveraging Opportunity Explorer, launching new products, and expanding internationally.

We continue to build upon the momentum from last quarter and last year. Let me briefly talk about each of these three highlights in more detail. Starting with our record results, the third quarter was demonstrative of our execution in the market. We delivered 115 million in revenue, growing 21% year to year and up 8% quarter to quarter.

Normalize for 3 million of prior year presidential cycle revenue that did not repeat in the third quarter of 2021, growth came in at 25% year to year. Similar to last quarter, growth was generated across a diverse set of end markets. In fact, six out of our 10 largest industry verticals grew more than 30% year to year. And the positive shift to direct platform revenue continues.

Third quarter direct platform revenue mix was 74%, compared to 66% last year, and we're on track to end the year at our goal of mid-70s. On a year-to-date basis, 75% of revenue is being delivered directly on the Zeta Marketing Platform, compared to 71% through the first nine months of 2020. Over the same nine-month period, we're seeing a lowering of our cost of revenue percentage from 40% year-to-date 2020 to 38% year-to-date 2021, driven primarily by revenue generated direct from Zeta's owned and operated channels. Third quarter cost of revenue percentage was 37.6%, representing an improvement of 510 basis points year to year and 160 basis points quarter to quarter, excluding stock-based compensation.

With the strength of our third quarter in mind, we now expect to reduce our cost of revenue percentage by at least 150 basis points for the full year of 2021 versus 2020, an improvement of 50% from our prior guidance. We feel the competitive strength of our platform is becoming more appreciated, and therefore, we are seeing larger deal sizes and the use of more channels. This is creating greater pricing power and the opportunity for more revenue generated directly on the Zeta Marketing Platform. This is the driving force behind our improving cost of revenue percentage.

Our third quarter GAAP net loss was $69.1 million and includes 69.3 million of stock-based compensation expense. The increase in our top-line revenue flowed down through our operating expense structure, even as we continued to invest in sales and marketing. On the 8.2 million of increased revenue quarter to quarter, 4.6 million flowed direct to adjusted EBITDA, better than 50% leverage. For the quarter, we generated a record 16 million in adjusted EBITDA, up 30% year to year and up 40% quarter to quarter.

From an adjusted EBITDA margin perspective, the third quarter is 13.9%, representing an increase of 100 basis points year to year and 320 basis points quarter to quarter. From a cash generation perspective, operating cash was 10.2 million, with free cash flow generation of 3.7 million. Both up significantly year to year by 3.2 million and 3.4 million respectively. At the end of the third quarter, our cash balance stands at 116.2 million.

On to my second highlight of the quarter, the reason why we're beating the competition is simple. The Zeta Marketing Platform outperforms the competition in return on investment and significantly lowers the total cost of ownership for marketers. We accomplish this because our marketing cloud can offer software and artificial intelligence, proprietary identity data, and omnichannel activation in a single platform, backed by sophisticated ROI attribution models. Completed in early 2020, rebuilt from the bottoms up, the Zeta Marketing Platform is a new platform as compared to other marketing clouds, where we compete against their legacy assets acquired years ago.

Our win rates accelerated across the board. And in the six multiyear recurring revenue contracts I highlighted earlier, we competed against and beat numerous times Salesforce's ExactTarget, Adobe's Neolane, Oracle's Responsys, along with many others. These continue to be the primary names showing up to the RFPs and engagements we are winning. But it's not just who we're beating, it's also how we're winning.

Four out of the six new multiyear wins I highlighted earlier came from customers who were introduced through Opportunity Explorer, our newest product, which continues to be a sales accelerator. These six multiyear contracts and all of the other opportunities we've won have the potential to become much larger and open a number of new doors for cross-selling. Wrapping up with the third highlight of the quarter, our execution on our five core growth drivers. Let me take a moment to highlight two in particular.

Focusing first on existing customers, we increased scaled customer accounts from 343 in the second quarter to 347 in the third quarter. In addition to increasing count, we also increased ARPU for scaled customers by adding more channels and more use cases. In the third quarter, we saw ARPU for scaled customers increased to $320,000, up from 260,000 a year ago, or 23% year to year; and up from 299,000 last quarter, or up 7% quarter to quarter. We continue to benefit from making our largest customers even more successful, which is motivating them to scale even further on our platform, driving incremental platform usage and revenue to Zeta.

And as I mentioned up front, the entirety of our year-to-year revenue growth in 3Q was driven directly on the Zeta Marketing Platform. Shifting to adding new customers, it was our best quarter of the year on a number of different fronts, and we're seeing sales productivity track ahead of pace. More than two-thirds of our growth in the third quarter came from new customers, a noted acceleration from the first half of 2021 and a byproduct of the focus we placed on hunters and sales development rep investments. Our success in the market is also attracting great sales and marketing talent.

In a tough hiring environment for enterprise sellers, we added seven new hunters and farmers and three marketers in the quarter. We're now quickly approaching 90 quota carriers, up from 72 ending last year. And finally, nearly two-thirds of new quota carriers hired within the last 12 months have already closed their first deal, up from 50% last quarter, better than our internal expectations. We measure this to understand the efficacy of our hiring and enablement programs.

Wrapping up with guidance, and with three strong quarters of momentum behind us, we're raising revenue and adjusted EBITDA guidance in the fourth quarter and full year. We're increasing full year revenue guidance from 432 million to 436 million to 445 million to 448 million, an increase of 12.5 million at the midpoint. As a reminder, Zeta had 12 million of presidential cycle revenue in the fourth quarter of 2020, which created a 13-point year-to-year growth headwind. Normalizing for a more accurate comparison, growth at the midpoint of fourth quarter 2021 guidance is 20%.

Included in our fourth quarter outlook is 2 million of revenue from Apptness. Full year 2021 year-to-year growth at the midpoint of guidance is 21% and 26% after adjusting for 15 million of presidential cycle revenue in the third and fourth quarter of last year. We're also increasing adjusted EBITDA guidance from 55.5 million to 57.5 million to now 61 million to 61.5 million, up 4.8 million at the midpoint. We're seeing strong conversion of incremental growth to adjusted EBITDA, even while continuing to fund our ramp of sales, marketing, and R&D investment.

For the full year of 2021, Zeta is guiding to 13.7% adjusted EBITDA margin at the midpoint, representing 290 basis points of expansion year to year. You can refer to Slides 8 and 9 in the 3Q '21 earnings supplemental presentation for details on our fourth quarter and full year guidance. Before handing the call over to the operator, I'll wrap where David started. We have a strong strategic position in the marketplace.

We're winning in the marketplace. And we're just getting started. With that, let me hand the call back to the operator for David and me to take your questions. Operator.

Questions & Answers:

Operator

Thank you. [Operator instructions] And our first question is from the line of Arjun Bhatia with William Blair. Please go ahead.

Arjun Bhatia -- William Blair and Company -- Analyst

Awesome. Thank you very much, and congrats on another good quarter, guys. I wanted to touch on maybe some of the commentary that you made in the prepared remarks about having your CDP sit alongside some of the legacy clouds. I'm curious if this is a purposeful kind of go-to-market strategy that you're pursuing given, you know, maybe it reduces some of the friction in the buying process or did it mostly just depend on customer preference if they're not ready to rip and replace some of the legacies initially installed to put in data.

And so, just help us understand how you're thinking of that rip-and-replace dynamic versus integrating and sitting alongside some of these legacy crowds from the go-to-market perspective. Thank you.

David Steinberg -- Co-Founder and Chief Executive Officer

First of all, Arjun, let me say thank you for the -- your not -- your kind words. The key to what we think is our success today and future success is flexibility. So, the ability to sit alongside of a large cloud when they're not in an RFP process because remember, these are longer-term contracts, gives us the ability to start working with clients immediately, not have to wait until they're in an RFP cycle. Now, when they go into an RFP cycle, we can rip and replace, and that is certainly what we're attempting to do.

But as it relates to go-to-market strategy and flexibility, our goal is to be able to do both, and we saw a lot of both this quarter. A number of our wins were rip and replace, and a number of our wins were sitting alongside of the very large marketing clouds. We believe that our ability to be flexible where others are not, others have to rip and replace, leaves in a position where they can only work with certain enterprises every two, three, or four years, whereas we can work with almost any enterprise in real-time. And then after we've begun to build that relationship, we can spawn out.

So, we can build internal sponsorship. We can show them how good we are. We can show them how the data plus the technology incorporated into the CDP with seamless activation are such a differentiator that, ultimately, we win an incredibly high percentage of the RFPs where we have come in alongside of the competitor during the period in which they were not in an RFP process.

Arjun Bhatia -- William Blair and Company -- Analyst

Wonderful. That's very helpful. And I wonder, Chris, if I can. Chris, you mentioned I think in terms of customer expansions, you mentioned that new channels and use cases were a primary driver.

When you think about the channel dynamic of that, can you help us understand which channels you're seeing most traction in as customers look to expand the, you know, channels that you already own, maybe like email? Just help us understand where that expansion is coming from?

Chris Greiner -- Chief Financial Officer

You're right, Arjun. We were successful in growing once again the number of channels per and use cases per, evidenced by the average revenue per scaled customer growing 23% as reported and the 30% if you exclude the presidential cycle. Like last quarter, though, it was really nicely distributed across our major digital channels, from email to site optimization, to display and video, to CTV, all growing double digits. In fact, CTV revenue doubled quarter over quarter.

So, it's broad-based, and that's purposeful in terms of how we're going to market. Our sellers were able to sell all channels on the platform.

Arjun Bhatia -- William Blair and Company -- Analyst

Perfect. Thank you very much, and congrats again.

Chris Greiner -- Chief Financial Officer

Thanks, Arjun. 

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you, Arjun. Next question, please.

Operator

Our next question is from the line of David Hynes with Canaccord. Please go ahead with your question.

Luke Hannan -- Canaccord Genuity -- Analyst

Hey, guys. This is Luke on for DJ. Thanks for taking the question. So, maybe just to dovetail off of that last one.

Maybe you could just talk about, you know, more broadly how many channels is your average scaled customer using today and where you think that could go over time? And then I'm also curious to hear, you know, it's probably hard to tell about how much of your ARPU expansion today is being driven by use case and channel-driven increases versus -- sorry, just to reword that, is in the number of channels the customer is using versus increases in usage in existing channels. Thanks.

Chris Greiner -- Chief Financial Officer

Hey, Luke. Yeah, I followed the question. So, let's kind of reverse back to 2019 where the average channel per scaled customer was just a hair over one. Where we ended last year, and again, I, you know, credit the sales team to the focus we created between hunters and farmers, we grew that from a little over one to about one and a half.

Last quarter, we talked about how that expanded to one -- well, you know, we're in the kind of 1.7, approaching two now. Where it can go from here? A lot higher. It's something that is the focus of how we are going to market with our customers, how we're making them more successful. In terms of what's driving the ARPU expansion, it's still, to this point, the expansion of channels.

I think we're further ahead in that journey than we are in increasing number of use cases. So, for example, 95% of our scaled customers are still using their first use case of Zeta. There's nothing that precludes them on our platform from doing all three. So, I think we're a bit further along.

We could take this to 12 channels per theoretically. Frankly, probably even more. But that's going to be a journey, but it's something we're very focused on. I think we're pleased with where we are, but certainly not satisfied.

Luke Hannan -- Canaccord Genuity -- Analyst

Great to hear. Thanks. 

Chris Greiner -- Chief Financial Officer

Thanks, Luke. 

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you. Next question, please.

Operator

And our next question is from the line of Brian Schwartz with Oppenheimer. Please go ahead.

Brian Schwartz -- Oppenheimer and Company -- Analyst

Yeah. Hi, thanks for taking my question, and congratulations on a really nice quarter. Just want to ask a question about the Opportunity Explorer. It seems like you highlighted that in the press release as part of the big deals.

The question I wanted to ask you about with that is, is the Opportunity Explorer, is it -- are you able to show a better attribution model when you're in these pilots and you're in these bigger deals, and in some ways, you know, the better attribution model is going to deliver a lower marginal cost for these large companies. Is that potentially driving some of the win rates against some of these more legacy platforms that, you know, could be IDFA-impacted?

David Steinberg -- Co-Founder and Chief Executive Officer

Well, first of all, Brian, thank you for your kind words. Second, yeah. I mean, there's no question that a number of changes at the very large tech companies, including the already elimination of the IDFA and sort of the coming and phasing out of the third-party cookie are creating meaningful opportunities for Zeta because, as we said in the prepared remarks, we don't use either in our data cloud. So, it puts us in a very unique position.

And I would tell you that a large part of our new engagements are around how do companies deal with the new ecosystem and how our data showcases that. And nothing does that better than Opportunity Explorer. So, Opportunity Explorer does two major things. One, I think you intuitively figured out, which is it gives us substantially better attribution modeling down to the deterministic data.

So, you're not building a model that this person might have purchased, you're building a model that this person did purchase. And this person started their journey here, here's where they went through the journey, and here's where they completed the journey. The other thing that it does is it allows the enterprise to understand very quickly not just what they're doing and what their customers are doing but what their competitors are doing. So, it gives real meaningful data from an analytics perspective across the entire ecosystem, which begins in the discovery process, where they can figure out what their customers are doing and what their potential customers are doing.

It then leads all the way through the journey to full and complete deterministic attribution. So, as you know, and we've talked about this in the past together, this move to marketing efficiency and lowering cost of creating a customer and keeping a customer has never been more important than it is today, and it has never been more capable of happening than in digital transformation. So, as companies look at their digital transformation, which we see accelerating, we're starting to see that move through the Opportunity Explorer, and it allows us to move more quickly.

Chris Greiner -- Chief Financial Officer

In fact, Brian, of the six multiyear deals with the 90% recurring revenue that were booked this quarter, four of them were closed through Opportunity Explorer being the front door.

David Steinberg -- Co-Founder and Chief Executive Officer

And quite frankly, a very large percentage of the other opportunities we closed this quarter, and we closed a lot of opportunities this quarter that probably won't flow into scaled customers until next quarter, which is sort of how that works when we start with the pilot and then scale up, a large percentage of those, greater than half, was also -- began the internal process with Zeta in the Opportunity Explorer.

Brian Schwartz -- Oppenheimer and Company -- Analyst

That sounds really good. Chris, I just have one housekeeping question for you. With the 4Q guidance, what should we think about in terms of revenue contribution, if there is any, from the Apptness acquisition that you closed? Thanks.

Chris Greiner -- Chief Financial Officer

Great, Brian. Apptness, we've included as a line item on Slides 8 and 9 in our earnings supplemental, showing that we expect 2 million of contribution from Apptness in the fourth quarter.

Brian Schwartz -- Oppenheimer and Company -- Analyst

Thank you for taking my questions. 

Chris Greiner -- Chief Financial Officer

Thank you, Brian.

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you, Brian. Next question, please.

Operator

Absolutely. [Operator instructions] And our next question is from Ryan MacDonald with Needham. Please go ahead.

Ryan MacDonald -- Needham and Company -- Analyst

Hi. Thanks for taking my questions, and congrats on an excellent quarter. David, maybe the first one for you. You know, you talked about obviously IDFA not impacting Zeta, in particular, but I'd be curious if that's help starting to drive channel expansion or an acceleration of the omnichannel adoption, with your customers revolving that conversation as customers perhaps realize that maybe they need to sort of take more of a portfolio approach and move into other channels versus, you know, email or mobile, which might be more impacted in the near term with some new changes?

David Steinberg -- Co-Founder and Chief Executive Officer

Yes. First of all, once again, thank you, Ryan. Appreciate it. We're obviously, particularly, proud of the quarter and the ability to raise guidance.

Interestingly enough, I would sort of turn your question around just a little bit and I would say the IDFA elimination is really affecting Zeta. It's just affecting us for the positive because what's happening is a lot of the ecosystem has been disrupted by that as we've seen through some of the results of other companies. And what's happening is because we've never used the IDFA, we're able to synthesize deterministic data down to the Zeta ID using our platform, we're able to deliver attribution and marketing in ways that a number of other companies that were dependent on the IDFA are no longer able to do. So, to answer your question, yes, it's absolutely expanding the market opportunity for us.

And I will tell you, some of the RFPs we're seeing come over the transom, which are quite large, are very, very focused on how do you identify consumers in a post-IDFA world in mobile and in a post-third-party cookie world in the web ecosystem. And I think we are particularly ready for those types of RFPs, and we saw a number of wins in the third quarter that really helped us with that. So, we think it's an opportunity. Obviously, anytime there's a disruption, there are winners and there are losers.

We think we're a major net winner from both those changes.

Ryan MacDonald -- Needham and Company -- Analyst

So -- and perhaps as a follow-up, I wanted to ask a bit more about Apptness and just the strategic rationale around that acquisition. Looks like there are some interesting components of where it can help enhance your data cloud, but can you talk to those enhancements it can then provide? And then I guess as a part of that for Chris, you talked about a 2 million of revenue contribution, but I think when you announced the acquisition, you talked about a potential to lower cost of revenues as well. Just thinking about how that sort of layers into fourth quarter guidance or how quickly you can benefit from that as we think about fiscal '22? Thanks.

David Steinberg -- Co-Founder and Chief Executive Officer

Great questions. Why don't I start strategically, and then I'll let Chris give you the sort of punch line. But, you know, this company, Apptness, is an incredible company. They've been very focused in the jobs market, in creating data there, and helping very large employers to more efficiently find employees and helping employees to find opportunities for work.

The data that is generated there is an incredibly valuable new dataset to our data cloud, and we're already seeing adoption from a number of our customers coming out of that platform. The other good news, which I'll let Chris get into, is the gross margins in that business are commensurate with our on-platform or higher gross margins. So, we're already seeing that, plus its subscription revenue. So, we feel good about where that business is and where it's going to fit in as a part of Zeta.

We also think we can grow that business pretty dramatically pretty quickly. Chris.

Chris Greiner -- Chief Financial Officer

David hit all the points. Just to maybe even emphasize more, Ryan, yes, the gross margin profile of Apptness is accretive. David said it's equal to -- even higher than the on-platform. But more meaningfully, what will continue to drive the gross margin expansion or the reduction in cost of revenue is going to be continuing to move more and more work direct on the Zeta Marketing Platform.

And as I mentioned in the prepared remarks, all of the growth in 3Q was generated direct on the ZMP, which not surprisingly led to really nice gross margin expansion, both year to year of about 510 basis points and quarter to quarter, 160 basis points. So, Apptness will help. But certainly, the farmers moving more and more of our customers to owned and operated Zeta and channels is also a tailwind for us to continue that expansion.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. Congrats and [Inaudible]

Chris Greiner -- Chief Financial Officer

Thanks, Ryan.

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you so much, Ryan. Next question, operator.

Operator

Our next question comes from the line of Stan Zlotsky with Morgan Stanley. Please go ahead.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much, and good afternoon, guys. Couple of questions from my end. Very impressive the six deals with 16 million of TCV, and the 90% of it that's recurring revenue.

What are you doing in terms of the contracting and how you're selling the product to drive all of this recurring revenue versus reoccurring revenue, you know, from a contractual standpoint?

David Steinberg -- Co-Founder and Chief Executive Officer

Well, Stan, first of all, thank you for joining us, and, you know, we're trying to evidence that we listen, right? And when we've said that we have the ability to change our sales motion and focus on longer-term subscription contracts, you know, we have pivoted from a sales perspective, and we've been able to work with customers. Now, the really good news is a lot of the disruption in the marketplace around the IDFA and the elimination of third-party cookies is giving us the ability to go to clients and say, yes, we can help you fix this problem, but if we're going to do it, we need meaningful long-term relationships together. And clients are saying yes. You know, this is a trend that we're really focused on.

We've heard, you know, a number of people, including you, loud and clear that this is an important metric as we think of the evolution of our business. And quite frankly, I think you're going to see that trend continue as we continue to shift our sales motion to focus on long-term subscription contracts with clients that are on platform. And this is a trend that I think we'll see continue and I think will accelerate.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Got it. And then just wanted to dig into these -- the six big deals that you mentioned. So, if we kind of do the math on six deals, $16 million incremental TCV.

Let's assume like, I mean, how about a three-year average contract life. You know, let's call it about a million dollar of ACV being added. Can you help us just -- walk us through the dynamics of these six logos being added and four net new logos of scaled customers that you reported in the quarter? Kind of what's the flow through between signed deal and why would this -- you know, look at the six logos, maybe some of them were existing customers, right, and this was just expansion. Just, you know, kind of help us bridge the -- these numbers. 

Chris Greiner -- Chief Financial Officer

Yup, great, great question, Stan, and glad you asked it. So, I think let's start first with, you know, David talked about in his prepared remarks three things. You know, like David said, we put this under the category of just getting started. And I think, you know, first off, when you think about the total model, it's working as we wanted to.

So, the scaled customer count increasing was more reflection this quarter of making our larger customers or our scaled customers even larger. And in fact, only one out of the six multiyear recurring revenue contracts you just mentioned were scaled in the quarter. So, it creates a nice head start going into the fourth quarter when those will become scaled. And as you'd expect in our plan, as David mentioned, is can you layering those customers and then, therefore, layering that revenue.

But I think the math you did on the average term is about right. The math you did on the average value is about right. What was great to us, and this kind of speaks to the sales productivity transformation we're driving, is the new deals we're adding with -- these are new customers, by the way, are coming in at a higher average revenue per than the existing customer expansion that we're doing.

David Steinberg -- Co-Founder and Chief Executive Officer

Yeah. And, Stan, all six of these customers were new. Just to be clear about that. And they all scaled in the quarter for the quarter.

What you're not seeing in these results are all of the clients we signed that will scale in the fourth quarter. So, I think that's what Chris was --

Chris Greiner -- Chief Financial Officer

Yeah. So, just to be clear. So, one out of the six is scaled in the third quarter. The rest will become scaled, which means greater than 100K in a TTM basis, in the fourth.

David Steinberg -- Co-Founder and Chief Executive Officer

Yeah. But they're all new customers.

Chris Greiner -- Chief Financial Officer

Yeah. Yes.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Very helpful. Thank you, guys.

Chris Greiner -- Chief Financial Officer

Thanks, Stan.

Scott Schmitz -- Senior Vice President, Investor Relations

Thanks, Stan. Next question, please.

Operator

Our next question comes from the line of Richard Baldry with ROTH Capital. Please go ahead.

Rich Baldry -- ROTH Capital Partners -- Analyst

Thanks, and congrats on the quarter. I'm sort of curious, without, you know, asking for specifics on 2022, but with your win rates accelerating, how do you think about your strategy in terms of balancing top and bottom line? You're adjusted EBITDA numbers are obviously strong enough to fund, you know, your operations. I think maybe -- do you feel there's any need to disproportionately invest because that win rate is climbing so much to kind of broaden that pipeline as fast as possible and capture market share or do you feel like, you know, you can stay on sort of the same tact you've been, which is strong top-line and bottom-line growth at the same time?

David Steinberg -- Co-Founder and Chief Executive Officer

Well, first of all, thank you so much. I appreciate the comments. It's great to talk to you. Listen, there's no investment that we won't make if we think it can help us accelerate growth, Rich.

We're really focused on that. And I think you saw the evidence as we went from 70 to 90-plus quota carriers. We are in this market trying to hire every quota carrier we can possibly get, right? And the other really interesting thing that Chris pointed out that I think is really amazing and, Chris, keep me honest here. I think the exact number was 66% of our sales reps in their first year have now created a sale.

Chris Greiner -- Chief Financial Officer

That's right, up from 50%.

David Steinberg -- Co-Founder and Chief Executive Officer

Up from 50. So, I mean, that's a 50% increase almost -- you know, call it a 40% increase of win rates for new sales reps. And a lot of that is because the enter -- the Opportunity Explorer is just a simpler sale. It's easier for people to come in, and we're stealing people out of the very large marketing clouds to leave them and come work for us.

It's amazing. What I see is when we compete head-to-head and then we win, we end up getting calls from the sales reps of the other side who are like, wow, what you got is really cool, we want to come over. So, as it relates to the balance, I think -- you know, we have said publicly that we think the Rule of 40, at a minimum, is the right place to get to. And, you know, there'll be some quarters where there are some quarters we're not there.

But we think that from a long-term growth strategy, we'd like to figure out how to get closer to the Rule of 50. And in order to do that, we're going to make the investments that are necessary. If you look at Zeta Live, it's probably the biggest investment we've ever made as a company into marketing. We're going to have some of the world's most interesting speakers.

Sir Martin Sorrell is coming. My partner, John Sculley, is coming. Michael Rubin is coming, the chairman and CEO of Fanatics, which he doesn't do a lot of these things. Imran Khan, the former chief strategy officer of Snap.

Adam Singolda, the head of Taboola. And so on and so forth. We're really investing into building the Zeta brand because the more RFPs we get, the more we're going to win. So, as it relates to that balancing act, I feel like we're going to continue to invest to continue to accelerate growth.

And that's something that we're very, very focused on. But we're not going to invest stupidly. If we don't see something we really think can drive growth, we're going to save the money and create incremental profit. I mean, Chris, do you want to --

Chris Greiner -- Chief Financial Officer

Yeah. Rich, it's really tempting to throw quantity rather than quality at the problem, but I think what we've done well, and credit to Steve Gerber and his sales team, is we're so data-driven on the productivity of our teams. And I think that the best example of that, as David mentioned, is the last 12-month hires, two-thirds have already closed their first deal, up 50%. Their win rates are on par with our most experienced sellers.

The average number of deals that each of them are carrying are on par with our most experienced sellers, as is their average deal size. So, there -- I think it's a function of hiring really experienced -- industry-experienced professionals. We're getting them great training. We're trying to make their lives as easy as we can to do contracts with customers.

So, really happy. We'll get to 2022 soon enough. But look, the model is accelerate growth and continue to expand margins, just throttling investment in the very data-driven way.

David Steinberg -- Co-Founder and Chief Executive Officer

And let me be clear, we're simplifying the message. We're simplifying the message as a company and we're simplifying the message from a sales motion perspective. And the Opportunity Explorer is the single best example of how we evidence our capabilities in a real-time proof of concept, which makes it easier for salespeople to close deals faster.

Chris Greiner -- Chief Financial Officer

Thanks, Rich.

Rich Baldry -- ROTH Capital Partners -- Analyst

Maybe last, building on that for me. Your direct is improving your win rates really well. So, maybe talk about how you're positioning with your partners are changing, maybe if there's any update on Dun & Bradstreet as a specific partner? But more broadly, with your win rates growing and your strength in the marketplace, you know, being pretty clear, are you seeing interest from other people, other vendors to try to work with you so that they can, you know, piggyback off the successes that you're seeing?

David Steinberg -- Co-Founder and Chief Executive Officer

Yeah. So -- I mean, great question, Rich. We were sort of joking the other day. I don't know if it's that we made the right decisions five years ago to build the data cloud and marketing cloud or if it was the transition from being a private company to a public company, we have seen a massive acceleration in interest in working with Zeta from a strategic partner perspective.

And of course, starting with Dun & Bradstreet, you know, which is a 100-year-old-plus blue chip brand, centralized around business to business, and that partnership has grown and continues to grow. It's been really, really exciting. And they continue to do a great job. We love them as a partner.

The reality is that the number of inbound and the people who are willing to take our calls as it relates to strategic partnerships where we stood up a B2B cloud with them to give a 360-degree view on the enterprise buyer, you're going to see, I think, additional cloud stood up around different verticals and industries, each one starting with a major global partner. And, you know, I spend a lot of my personal time on that. And it's a place where I think I'm really investing. And we're seeing a lot of velocity there.

Rich Baldry -- ROTH Capital Partners -- Analyst

Great. Congrats on the quarter.

David Steinberg -- Co-Founder and Chief Executive Officer

Thanks so much, Rich.

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you, Rich. Operator, we'll take one more question, please.

Operator

And our last question is from the line of Koji Ikeda with Bank of America. Please go ahead.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Thanks for taking my questions. Apologies from my end, I've been jumping around from a couple other calls, and if this question was asked. Just did anybody get to ask anything on IDFA yet or, you know -- I guess the question is lots of noise around that recently.

You know, can you remind us how we should be thinking about IDFA? You know, with Zeta Global, is there any potential tailwinds or headwinds, or is that just no effect to you guys at all? 

David Steinberg -- Co-Founder and Chief Executive Officer

Yeah. No, so we had talked about it a couple of times. But just to point it out what I'd said earlier on a synopsis basis, we have never used the IDFA, and we do not now. We do not use the third-party cookie to identify anybody in our data cloud.

So, what's happening and what we're seeing is it's creating an opportunity for us and giving us a very strong tailwind to be frank. In fact, as I said earlier in the call, and I -- listen, we understand, it's a busy day. So, I appreciate your joining. But as I said earlier in the call, we're seeing it as a massive inbound opportunity for us.

We're seeing a lot of the RFPs we're getting, companies interested in figuring out how to deal with marketing in a post-IDFA world and how to prepare for marketing and a post-third-party cookie world. And, you know, we're seeing a lot of RFP velocity. I would tell you that a number of the wins we had in the third quarter were because of it. And I do know that it's been tough on certain companies that are heavily dependent on it.

That is flowing to us as an opportunity because we've never used it. We use the Zeta ID to identify the deterministic individual. We don't use the IDFA,  and we don't use third-party cookies. So, it really has been a tailwind for us.

There was more on it earlier, I can expand again if you need me to.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

No, that's good. Thanks, David. And then just one last one for me. Maybe for Chris.

You know, I was reading in the press release, and I was reading your quote there. And I noticed you said refocusing business on higher-margin, more recurring. It does sound a little bit like a strategy shift. Is that right? And what were those lower-margin, less recurring parts of the business? And does this help margin expansion in the future?

Chris Greiner -- Chief Financial Officer

Yes. Not a margin shift, Koji, emphasis.

David Steinberg -- Co-Founder and Chief Executive Officer

Not a strategic shift.

Chris Greiner -- Chief Financial Officer

Not a strategic shift. But just I call it emphasis in early days, right? When we talked about the number of multiyear contracts, there were six of them, 16 million in TCV, 90% recurring revenue. We want to demonstrate a few things that that data point. First, there's going to be more of it.

As I said, early days. Second, four of those six came from Opportunity Explorer, which continues to be a sales accelerator for us, and CDPs are a major theme in these wins, either taking out the hub or sitting right next to the marketing hub and giving us a nice opportunity to compete side by side. And same names were seen in all the engagements we beat multiple times. Salesforce's ExactTarget.

There was Oracle's Responsys, Adobe's Neolane. They were in all these bids or some combination of the bids, and each time, we beat them.

David Steinberg -- Co-Founder and Chief Executive Officer

And quite frankly, you know, it -- I wouldn't call it a strategic shift, Koji. I'd say it's an emphasis. You know, we hear the Street. We understand.

We are pushing harder. But back to your first question, the elimination of the IDFA has created a unique opportunity for us to say to new customers, yes, we can help you with this. Yes, our CDP can be implemented quickly. Yes, our CDP resolves to the Zeta ID, not an IDFA or a cookie.

But we really need a longer-term, deeper, and more meaningful relationship to make this work. And quite frankly, because of a lot of disruption, customers are saying yes. So, I think Chris said it perfectly. We are just getting started.

It's not a strategic shift, but it's definitely an emphasis and a focus. We have changed our sales motion to focus more on subscription revenues. And I think you're going to see that trend continue.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks, guys. Thanks for taking my questions. Really appreciate it.

Chris Greiner -- Chief Financial Officer

Thanks, Koji. Have a great night.

David Steinberg -- Co-Founder and Chief Executive Officer

Thanks, Koji. Have a good evening.

Scott Schmitz -- Senior Vice President, Investor Relations

Thank you, everybody, for joining.

Operator

[Operator signoff]

Duration: 76 minutes

Call participants:

Scott Schmitz -- Senior Vice President, Investor Relations

David Steinberg -- Co-Founder and Chief Executive Officer

Chris Greiner -- Chief Financial Officer

Arjun Bhatia -- William Blair and Company -- Analyst

Luke Hannan -- Canaccord Genuity -- Analyst

Brian Schwartz -- Oppenheimer and Company -- Analyst

Ryan MacDonald -- Needham and Company -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Rich Baldry -- ROTH Capital Partners -- Analyst

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

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