Zeta Global (ZETA) Q1 2023 Earnings Call Transcript

Zeta Global (ZETA 1.32%)
Q1 2023 Earnings Call
May 04, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta first-quarter 2023 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Schmitz, senior vice president of investor relations. Thank you.

You may begin.

Scott Schmitz -- Senior Vice President of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's first-quarter 2023 conference call. Today's presentation and earnings 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 earnings release contain forward-looking statements regarding our financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our products, potential competition and revenues of our products in our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to and not as a substitute for 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 the corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website as well as our earnings release and our filings with the SEC. With that, I will now turn the call over to David.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Thank you, Scott. Good afternoon, everyone, and considering the date May the 4th be with you. 2023 is off to a strong start. We continue to execute through a volatile macro backdrop, producing our seventh consecutive quarter ahead of consensus and raising our outlook.

In the first quarter of 2023, we delivered revenue of $158 million, up 25% year over year, with adjusted EBITDA of $24 million, up 28% year over year. Our adjusted EBITDA margin of 15.3% expanded 40 basis points year over year. Q1 was another proof point in our belief that the market is moving in Zeta's direction, the proliferation of artificial intelligence and data-driven insights, combined with the need to do more with less fits squarely within our sweet spot. Our execution against this enormous opportunity continues to drive strong new customer growth.

In this volatile market, we continue to see organizations more willing to take risk with new partners and adopt new solutions in order to drive better outcomes. This has resulted in our new scaled customer count growing twice as fast as our Zeta 2025 model. Along these lines, I would like to start out by focusing on three topics that outline how we have achieved and what we believe is a long-term sustainable advantage in the marketplace. First, since our founding, we have held steadfast to our vision to reduce marketing complexity by eliminating point solutions, making data actionable, and realizing the promise of more accountability and ROI-driven marketing.

Second, these guiding principles are embodied in our Zeta Marketing Platform or ZMP, which brings together identity, intelligence, and activation into a single differentiated platform that delivers better experiences for consumers and better results for brands. And third, the market's embrace of our strategy during a time of technological change is evident through multiple Fortune 100 wins. In the first quarter, we signed one of our largest contracts ever as a company, which I will outline in detail. But first, let me expand on our vision and our platform differentiation.

Over the last 15 years, we have invested and innovated to assemble one of the largest proprietary opt-in databases, filed more than 100 patents tied to machine learning, AI, and other cutting-edge technologies, and developed a next-generation marketing cloud to help the world's most sophisticated marketers acquire, grow and retain customers at a lower cost than they can without our data and our software. These early investments and innovations have strengthened our competitive position as the marketing technology sector continues to evolve. Our flexible and scalable data layer enhances and extends the investments that enterprises have made in modern data warehouses, such as Snowflake, and has a robust identity resolution capability built in. This makes it easier for marketers to target the right customers at the right time.

Our modern intelligence layer leverages our proprietary AI and ingest trillions of behavioral signals to turn insights into action. And our activation layer delivers superior omnichannel reach and deterministic measurement by unifying around a single view of the customer and delivering more individualized experiences. By consolidating these elements into one single platform, the ZMP increases accountability, reduces complexity, eliminates waste, and ultimately produces better outcomes at lower cost for enterprises versus competing solutions. Let me give you a detailed example.

This past quarter, we signed a multiyear eight-figure deal with one of the largest worldwide retailers to become their marketing cloud. The requirements were very complex. First, they required a modern architecture that could scale globally across channels. Second, they needed localized expertise because as decision-making was decentralized through regional representatives.

Third, they required IT buy-in with the ability to leverage cloud partners such as Snowflake, with optimized integration and data-sharing capabilities. And fourth, they needed a solution that aligned with their mission to efficiently acquire new customers and grow their existing relationships while remaining laser-focused on measurable ROI. The RFP process started with over 10 vendors. All of the legacy marketing clouds we typically see were dismissed in the early rounds as their platforms did not meet the modern architecture and functionality requirements.

And many of the smaller upstarts lack the scale and enterprise sophistication. The ZMP stood out as it combines next-generation technology with enterprise-grade assets and know-how to win during the transition to a new era of marketing technology. Ultimately, we won because we brought a many-to-one solution to this retailer. There were many problems they were trying to solve, and many decision-makers involved.

And we were the only one who came to them with an all-in-one solution. In a world of uncertainty, we provided accountability and delivered a compelling platform that both lowered the cost of ownership and laid a foundation for predictable, profitable, and scalable growth. In a world accelerating toward digital transformation and artificial intelligence, we provided a platform with these foundational elements embedded in the core of our platform. In a world of doing more with less, we were able to demonstrate our ability to provide better outcomes.

We believe no other company had the ability to combine a marketing cloud with real-time intense signals like Zeta and activate to them in real time. We brought a unique ability to identify unknown customers and unlock hidden opportunities that they otherwise would not have known about. Our data and our artificial intelligence create a moat around our business, and that moat is only widening with the new generative AI capabilities embedded in the ZMP announced earlier this week from Zeta labs. As with everything we do, we are approaching generative AI as part of our vision to make sophisticated marketing simple, with the goal to solve our clients' biggest business challenges and deliver better results on their marketing investments.

Zeta's generative AI agents powered by ZOE or Zeta Opportunity Engine, which has evolved from ChatBotZeta technology will behave, experience, and learn like humans within the ZMP, putting the power of AI directly into marketers' hands. With a simple question, ZOE will answer critical marketing questions such as who should I target, which channels are most profitable for me, what are the most common journeys my customers take. We believe our generative AI will not only improve what marketers currently do but also generate new ideas and strategies with speed and scale so they can deliver higher ROI and accelerate results. There is a lot more to come as we're incredibly focused on AI as we have been for many years.

In summary, we are off to a strong start in 2023 as we continue to capitalize on the need for more efficient and effective marketing technology. And as always, I would like to sincerely thank our customers, our partners, team Zeta and all of our shareholders for the ongoing support of our vision. Now let me turn it over to our young Jedi, Chris, to discuss our results in greater detail. Chris?

Chris Greiner -- Chief Financial Officer

Thank you, David, and good afternoon, everyone. In the words of the great Yoda, "Do or do not, there is no try." I'll spare you my voice impersonation. But in all seriousness, in the first quarter, Zeta did a lot. I'll cover them in three broad categories.

First, I'll share what led to our seventh consecutive quarter of beat and raise execution and how we're navigating a challenging macro backdrop. Second, I'll detail what's driving the continued growth in our sales pipeline and RFPs. I'll also cover our strong sales productivity metrics. Third, I'll walk through our KPIs and how they continue to power revenue and adjusted EBITDA growth rates above what is required to deliver the Zeta 2025 long-term model of at least $1 billion in revenue, $200 million in adjusted EBITDA and $110 million in free cash flow.

And I'll wrap up with the details of our $10 million increase to full-year revenue guidance and the operating leverage contributing to more than a $2 million increase in adjusted EBITDA guidance to $120 million. OK. With that, let's dive in. Our results illustrate the importance of having a diverse customer set and a multichannel use case revenue model.

These characteristics certainly contributed to our execution in a more challenging macro environment. To illustrate this, nine out of our 10 largest industry verticals grew double digits year to year, resulting in first-quarter revenue of $158 million, up 25% year to year. Results like this have been consistent from Zeta with 8 out of the last nine quarters delivering revenue growth in excess of 20% while simultaneously expanding adjusted EBITDA margins year over year for nine straight quarters. That's a track record very hard to replicate, especially in today's environment.

This dual focus on near- and long-term execution is enabling Zeta to stay ahead of our 2025 long-term plan for revenue, profit, and cash. And staying ahead is underpinned by continuing to execute on our KPIs, which in the first quarter once again powered our growth. Total scaled customer count to 411 was up 8% from last quarter and up 52% versus last year, representing 14% year-to-year growth, two times the rate of growth required to achieve our Zeta 2025 model of at least 500 scaled customers. The drivers behind the scaled customer increases were encouraging, especially considering seasonality where the first quarter is oftentimes the most challenging for the martech ecosystem.

For context, the eight scaled customers we added this quarter were more than twice the Q4 to Q1 average sequential change over the last two years. Of the eight scaled customer increase quarter to quarter, six were new to Zeta, and two were existing customers that became scaled. And we continue to see industries under the most economic pressure choose Zeta. In the super-scaled cohort alone, which increased seven quarter to quarter, we gained customers in consumer retail, advertising and marketing, travel and hospitality, and technology industries.

We're growing customer count and customer spend on the platform. The first quarter was the 11th consecutive quarter in which scaled customer ARPU grew double digits, up 10% year to year from first-quarter 2022. Our superscale cohort once again led the way, growing ARPU 18% year to year with superscaled revenue up 31% year to year. At the same time, the pipeline for future superscale customers, those in the $100,000 to $1 million cohort, saw strong year-to-year customer count growth of 16%.

This was the second quarter in a row where customer count grew 16%. Increases from this cohort driven by pilots can grow to more than $700,000 in the first 12 months as seen on Slide 11 of our supplemental earnings presentation, making these customers fertile ground for our farmers. We're also benefiting from an increasing number of connection points added to the ZMP by our product team as shown through the lens of multichannel scaled customer adoption. This is defined by scaled customers using three or more channels, which in the first quarter grew year over year by 41%, now representing more than 25% of Zeta-scaled customers.

This is further exemplified in the $100,000 to $1 million and greater than $1 million cohort, where both groups saw year-to-year increases in average channels per customer. Shifting to mix and margin, we saw good cost of revenue percentage dynamics in 1Q, even with direct mix-up against prior-year compares that were very strong. A couple of drivers worth noting here. First, this could be the case with newly added scale customers and new buyers like agencies, for example, platform usage can start with integrated channels.

When this occurs, our track record with these customers shows an evolution to higher direct mix over time. One such example with an existing agency who is now our superscaled customer, shifted its direct mix over a two-year period from 7% of revenue to 76% of revenue, effectively on par with our corporate average. In the first quarter, because of very strong cost of revenue and leverage dynamics within our direct channels, we absorbed the higher cost of revenue profile of these integrated platform campaigns. In first-quarter 2023, our direct revenue mix was 71%, and we realized 34.5% of cost of revenue, up 140 basis points year to year and better by 320 basis points quarter to quarter.

Just like we communicated in our February conference call, we are not counting on year-to-year reductions in cost of revenue percentage to achieve our 2023 adjusted EBITDA margin expansion guidance of 140 basis points. We developed our guidance in this manner so that if we do better, then it is incremental upside to our outlook. From a modeling perspective, we want to continue to be conservative by assuming a similar cost-of-revenue profile for the remainder of 2023 as we saw in the second half of 2022, which anticipates continued strong new customer additions and more inroads with new buyers like large agencies. We're comfortable with this strategy because we're generating strong operating expense unit economics, contributing to another quarter of year-over-year adjusted EBITDA margin expansion, our ninth straight.

Excluding stock-based compensation, each of our expense-to-revenue ratio, sales and marketing, G&A, and R&D were better year to year. Sales and marketing was down 40 basis points, G&A down 60 basis points, and R&D down 120 basis points. This led to an adjusted EBITDA in the first quarter of $24 million, up 28% year to year with adjusted EBITDA margin of 15.3%, up 40 basis points year to year. On a GAAP basis, our first quarter net loss was $57 million, which includes $64 million of stock-based compensation.

Excluding the accelerated expensing related to our IPO, stock-based compensation would have been $22 million. And we continue to drive strong cash generation. Cash flow from operating activities was $20 million with free cash flow of $10 million, equating to 42% of adjusted EBITDA. Our success in adding new scaled customers two times faster than our Zeta 2025 model and doing so at a more efficient sales and marketing expense-to-revenue ratio speaks to the strong sales productivity we're seeing.

This is a good segue to my second topic, pipeline growth, and sales productivity. We ended the quarter with 130 quota carriers, up from 123 at the end of 2022. And as I've always emphasized, this is about quality, not simply quantity. To that end, new sales hires are averaging over 10 years of experience, bringing with them new customer relationships to Zeta.

Our optimism and where we're taking our sales organization is rooted in three primary areas: one, the continued growth in the sales pipeline and RFP volumes; two, the progression of the pipeline and the performance of our more than 12-month tenured sellers now accounting for almost two-thirds of our sales team; and three, our win rates, highlighted by the increasing size and duration of deals and the caliber of enterprises selecting Zeta over the competition. Let me add some color on each. On the heels of a record pipeline in 4Q, we increased pipeline again in the first quarter, growing at a rate two times our quota carrier headcount, a metric we measure closely. From an RFP perspective, the first quarter could be seasonally slow.

However, that was certainly not the case in 2023. Q1 was our second-highest RFP quarter ever, and the 8-figure win David mentioned was not a one-off. The deals in our pipeline today are bigger and more complex as any time in our history as Zeta becomes not only an essential strategic partner for their marketing, but also for our customers' enterprise intelligence initiatives. Having a great sales pipeline is only meaningful if it's comprised of deals that can progress to closure.

Again, back to my point about quality over quantity. The velocity that we move opportunities from the early to the late stage is something we measure rigorously as evidenced by the value of late-stage pipeline deals being up over 50% year to year. This not only bodes well for sales visibility, but also momentum going into the second half of 2023 and 2024. But of course, this is only relevant if you're winning and yielding the right unit economics along the way.

We're experiencing both. First quarter RFP win rates exceeded even our overall win rates. And our experienced sellers, those with Zeta for more than 12 months are responsible for 86% of deals won. These are the class of sellers who completed an initial wave of training and have made their way through certification programs.

Our history with this cohort shows a flywheel effect with great employee retention rates and the confidence gained with each deal closed, leading to more success as their time with Zeta extends, which brings me to my third and final topic, 2023 guidance and Zeta 2025. With the context of what is driving our execution out of the gate, the expansion and the visibility we have into our sales pipeline and the strong productivity of our sellers, we're raising second-quarter and full-year 2023 revenue and adjusted EBITDA guidance. For the second quarter of 2023, we are increasing the midpoint of revenue guidance by $2 million to $162 million, up 18% year to year, a similar starting point as Q1. We're also increasing the midpoint of our second quarter adjusted EBITDA guidance by $900,000 to $24.5 million, up 32% year to year, which represents 15.1% margin at the midpoint of guidance or 160 basis points of year-to-year expansion.

This is an acceleration from the 40 basis points of expansion generated in the first quarter. The combination of our first-quarter upside and higher second-quarter outlook raises the midpoint of our full-year 2023 revenue guidance by $10 million to $701 million, representing 19% growth year over year. On an adjusted EBITDA basis, we're increasing the midpoint of our full-year 2023 guidance to $119.7 million, up 30% year to year. At the midpoint of our increased full-year guidance, adjusted EBITDA margins would expand 140 basis points year to year to 17%.

Lastly, we're providing the quarterly cadence of third and fourth-quarter revenue and adjusted EBITDA on Slide 14 in the earnings supplemental deck. As I wrap up my prepared remarks, I want to leave you with 3 final thoughts. First, and zooming in, we continue to be a team delivering on our commitments and more. Zooming out, our top and bottom line growth rates continue to track ahead of the compound annual growth rates required to deliver our Zeta 2025 long-term plan.

There simply are not a lot of businesses with sustained 20% plus growth and expanding adjusted EBITDA and free cash flow margins in the technology universe today. We're really proud of that, and it's a big motivator for the team. And third, while we spend a lot of time on near and long-term goals, Zeta doesn't end in 2025, far from it. As shown in our wins and the opportunities we're pursuing, we believe Zeta is being recognized as a platform that the largest and most complex enterprises can rely on to grow their businesses profitably.

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

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of DJ Hynes with Canaccord. Please proceed with your question.

DJ Hyne -- Canaccord Genuity -- Analyst

Hey, guys. Congratulations on a next quarter. Chris, maybe one for you. I want to ask about the scaled customer ARPU.

I mean it seemed like a slightly larger Q4 to Q1 seasonal dip than we've seen in the past. I'm just curious kind of how that may inform your views on marketing budgets this year. Any implications with respect to thinking about net revenue retention or other metrics?

Chris Greiner -- Chief Financial Officer

Thanks, DJ. I wouldn't read that into it. I think in this case, it was more driven by the high number of growth that we saw in that $100,000 to $1 million category. So that grew 16% year over year in count, and that was kind of the second straight quarter that it did that.

So it's more being influenced by those pilots starting to kind of scale. If you look even within the bands of that $100,000 and $1 million, most of that growth came in that $100,000 to $300,000 cohort. But the superscaled group and cohort, as you saw, increased 7% quarter over quarter. That was obviously a great rebound from last quarter, up 18% on an ARPU basis, the revenue up 31%.

So we're really happy with the scale of customer count. From a net revenue retention, obviously, last year was $112 million year, before that was $113 million. You can kind of back into, even though it's an annual metric for Zeta, you can back into that the first quarter was even ahead of those rates.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

And let me just say, DJ, we're not seeing right now any slowdown in the marketing ecosystem on our end. In fact, what we're seeing is as there's more volatility, there's less friction in new companies moving to us, and we're seeing many of our existing customers moving more budget. Now you might not have seen all of that evidence in the first quarter, but we're definitely seeing that coming online in our pipeline and as we're growing.

DJ Hyne -- Canaccord Genuity -- Analyst

Yep. Yep. Makes sense. Good to hear.

Maybe as a follow-up. One of the questions I occasionally get from investors looking at Zeta for the first time, is why you guys need 130 sales reps to add roughly 50 net new scaled customers per year? And I don't mean that as a slide. I mean you guys are obviously growing nicely and efficiently. But maybe you could just talk about kind of what's unique in the go-to-market model that requires this.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

I think, first of all, it's important to note that a lot of those people have been added over the last 12 months, right? So we have been ramping up our salespeople. And one of the metrics we look at is sales productivity per person on how long they've been with us. Chris, you should probably touch on how much more productive people who have been with us for a while versus the percentage of people who have just joined us.

Chris Greiner -- Chief Financial Officer

Yeah. I'll get to that, David, I'll definitely highlight that. I think DJ, just important to understand. I think it's a fair question.

About half of the sales teams are hunters, right? And we still see a massive new customer TAM in front of us, right? We have, call it, a little over 400 total skilled customers. There's 10,000 large U.S. enterprises. So about half the sales team is devoted toward hunting the other half toward farming.

At the same time, we have 400 scaled customers that average revenue per annualized is a little over $4 million. They should all be many times bigger than that, right? So we focus the teams very much on kind of two different areas of the market. In terms of the productivity, as David mentioned, one of the areas that was really stood out to us this quarter is just how well those 12 months and beyond tenured reps are performing. These are the reps that went through the first sets of training that when we divided the sales force into hunters and farmers, they're that class that kind of went through that initial wave.

I think there's an interesting metric. Obviously, your sales and marketing ratio was better year over year. There's an interesting metric that I think Barclays puts out around the magic number, which is the change in revenue growth year over year divided by your sales and marketing expense. And if you were to plot that for, call it, the 20 or odd core software companies that are public, ours at about 1.34 going off of last year's results is in like the top 5, right? So really happy with the efficiency, but we don't feel like we need to kind of wildly add reps.

I mean, in fact, we're, if anything, we feel like we don't need to add as many because of the productivity that we're seeing right now.

DJ Hyne -- Canaccord Genuity -- Analyst

Yeah. Very helpful. Very detailed answers. Thank you, guys.

Operator

Our next question comes from the line of Ryan MacDonald with Needham. Please proceed with your question.

Ryan MacDonald -- Needham and Company -- Analyst

Hi, Thanks for taking my questions and congrats on a great quarter. David, I think there's been a lot of focus from the team about sort of continuing to solve for the Zeta-who problem and really trying to sort of continue to drive the brand awareness out there. It sounds like the top of the funnel pipeline metrics are looking pretty attractive. So can you just talk about the progress you're making there and how that's sort of starting to impact things on the win rate side, especially in RFPs?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Well, thank you, Ryan, and it's funny because I just wrapped up four days at the Milken Global Conference, where I was personally asked to host and moderate the generative AI panel for the entire Milken Global Conference and host the Chief Marketing Officer panel with the CMOs of Visa, Pepsi, Logitech and other very, very large organizations. We also hosted a Zeta VIP dinner, and I was invited to so many events I couldn't attend. I did on my Monday morning call say to the team -- no, I'm sorry, on my Wednesday management call, we might have actually finally solved the Zeta-who problem. It was really amazing to me to see how known we were and how many organizations and people were starting to recognize that.

I think what we're also seeing is, if last quarter we said we were at record RFPs and record pipelines, quite frankly, we are now well above even that. We are seeing pipelines that we have never seen. We are closing deals with multinational global enterprises that years ago would have probably not displaced as we said, the legacy marketing clouds just because of the brand. Most of the legacy marketing clouds, in fact, all of them, in the case of the transaction we announced today, were dismissed in the first round, which we're not just seeing us move up the food chain, we're seeing many of our biggest competitors as they focus on their core businesses.

So one of the things I like to talk about, right? So if you look at the core marketing clouds or the sort of the legacy marketing clouds, years ago they bought the assets to build those inside of tech conglomerates. Every one of those conglomerates has now bought something that dwarfs the size of those clouds, the marketing cloud. So it's not even their side hustle anymore. It's now the side hustle to their side hustle.

And as they think about investment dollars in a world where they are all cutting jobs, they are all cutting costs, I promise you they are cutting them the fastest from the side hustle to their side hustle. So we are winning in that we see Zeta getting through the "Zeta-who" problem, while simultaneously, what has traditionally been our biggest competitors, they're starting to fall to the wayside in their marketing cloud. I'm not going to suggest their core businesses are not doing incredibly well and aren't game-changing, but we're definitely seeing a big separation between us and them in what we do.

Ryan MacDonald -- Needham and Company -- Analyst

That's really great to hear. Maybe as a follow-up for Chris. I wanted to touch on sort of mix of direct platform revenue. And I apologize if I missed it in your commentary, but can you talk about what's driving that mix down? But you're obviously still sort of outperforming on the top line.

So I guess the question really is, how important is sort of reaching that 80% direct platform mix to Zeta 2025 still today?

Chris Greiner -- Chief Financial Officer

It's still important. What we saw this quarter was really a great set of new customer additions. And even obviously within that super-scaled group as well. It's interesting, when you look at how that mix can be influenced within a quarter, within a year, even kind of within a month, in our case we added the combination of several new enterprises, but also began to onboard to Zeta's platform agencies.

And that, as you know, has been a big opportunity of ours in our pipeline that's now starting to come through. It's not uncommon for those agencies in particular to start off channel or off our direct mix, more likely with social. But what's interesting, and we put in the script, with our existing superscaled customer, the agency that we've had now for a couple of years, we've seen their mix evolve from 7% direct revenue as a percentage of the total to 76% direct revenue as a percentage of their total just over a two-year period. So we feel like we've got a really good playbook as we build great omnichannel strategies with them.

It's going to continue to mean they do some social. They do some other channel work. But over time, we feel confident we can get them to use Zeta's owned and operated channels, which then drives obviously a higher direct mix and a better gross margin profile.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. And by the way, we also saw our cost of goods sold come down nicely in our direct, which we were able to more than offset anything that would have been on the other side, Ryan. So we're really feeling good about this business right now. But like in any business, you're going to have some metrics that vacillate up and down.

If the biggest problem we have is we onboarded too many new, very large clients, which artificially brought the off-platform up slightly for one quarter, that's a trade we're definitely willing to make.

Ryan MacDonald -- Needham and Company -- Analyst

All the top-line metrics keep moving up, so it's great to see. Congrats again.

Operator

Our next question comes from the line of Jason Kreyer with Craig-Hallum. Please proceed with your question.

Unknown speaker

Hey. This is Colin here for Jason. A couple from me. Just first to start, can you kind of talk about the pipeline of opportunities and how that's being influenced by your channel relationships? Just trying to understand if some of those relationships are starting to bear fruit in terms of revenue generation or if most of the leads from the channel are still in the pilot phase.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

So great question, Colin. We are seeing record velocity into our pipeline directly and through our biggest channel partner. I don't think -- I mean, obviously, it's Snowflake. We do a ton with them.

They've been an incredible partner. They are bringing us major customer opportunities. And we're lighting up major customer opportunities on their platform coming out of our people. So it's -- you hate to say you're winning across the board.

But quite frankly, we're really seeing the channel partnerships primarily with Snowflake working very, very well. But simultaneously, we are across the board winning.

Unknown speaker

Perfect. And then just last one for me. You guys have really been highlighting AI more lately. And I'm just curious if you can kind of give your vision for utilizing AI within the ZMP and how that can either help you optimize performance, lower cost of operations, just kind of where you see that going?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

So we've been talking about artificial intelligence since it wasn't even artificial intelligence. We started talking about deep learning, machine learning before these large language models really started coming into play. One of the things I think has not been talked about. And as I think I said, when I hosted and moderated the generative AI panel at the Milken Conference this week, one of the things that really gets lost is AI is only as good as the data that's put into it.

And our ability to incorporate large language models today is quite frankly, unparalleled. But in addition to that, we're able to put small language models into place in the form of a CDP that exists between us and our very large enterprise customers. So that CDP where you merge their data and our first-party data into an unparalleled data ecosystem, then can learn not just from the large language models that exist outside of Zeta, but the small language private models that exist inside of it, the ability to then map that to the greater than 240 million Americans who have opted in to be in our data cloud is really unparalleled. How does that translate into our business performance.

We can generally lower our customers' cost to create a customer by greater than 50% quickly. We're able to lower that by up to 90-plus percent in the years to come per customer creation as the models get smarter and smarter. That is all the incorporation of artificial intelligence as it relates to ingesting trillions of open signals, mapping that into hundreds of millions of private signals, using that to build intent-based scores on what do individuals intend to do next, and we can consistently remove the customers who are not in market for our enterprise clients' products or won't be approved for them. All of that comes out before they spend money on marketing.

So quite frankly, I think one of the reasons we continue to win and one of the reasons you saw our scaled customer count go up by greater than 100% more than we needed to hit our Zeta 2025 model is how effective our artificial intelligence and our data are at creating what people intend to do next.

Unknown speaker

Thank you, guys, so much.

Operator

Our next question comes from the line of Elizabeth Porter with Morgan Stanley.

Elizabeth Porter -- Morgan Stanley -- Analyst

Great. Yes. I had another kind of follow-up along kind of the AI side, but more particularly for the agents and the Zeta Opportunity Engine. It's a really interesting technology.

So could you just give us a bit more detail on the capabilities, kind of what is it augmenting versus replacing? And then how do you see the evolution of these capabilities playing into the top line for the financial model? Is this something that you think could be monetized via a separate SKU? Or is it monetized to be taking more share?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

First of all, thank you, Elizabeth. I wasn't sure anybody even bothered to read that press release. But I think that, first of all, ZOE, which is sort of the modernization of customer help, customer support, and the ability to allow a CMO or a marketer to ask real-world questions and get incredibly accurate answers is going to be a major driver to our business in multiple ways. First of all, to describe the product, it is all new and it is game-changing.

It is effectively a new AI layer that sits on top of the Zeta marketing platform that's ingesting everything that, that enterprise customer is doing inside of their CDP and outside in the global world because it's ingesting, as I said. Large language models can be imported and small language models can be imported. It then allows a marketer to say something to ZOE like what are the most valuable cohorts in my database, who can I be targeting from an audience perspective for this new product that I'm rolling out. As they look at the integration and what we're starting to see is chief marketing officers are taking a bigger and bigger ownership of product development inside their enterprises than I've ever seen in my life.

Why is that? Because CMOs hate being told, here's a new product, go sell it. They're now being asked to participate in the building of new products. ZOE can help them with that. If I build this new product, what percent of my existing customers would like to buy it.

And it spits out real-world simplistic answers. How does this drive the model? It moves more and more of their marketing onto our platform, which drives a greater and greater business relationship for us and them. It also allows us to grow our headcount slower because we won't need as many people to be helping with analytics and other services to the enterprise. It can now be handled with effectively humans or bots or intelligence living inside the ZMP that can answer the questions that they would otherwise need to be asking.

Elizabeth Porter -- Morgan Stanley -- Analyst

Great. Thank you so much.

Operator

Our next question comes from the line of Richard Baldry with ROTH. Please proceed with your question.

Rich Baldry -- ROTH Capital Partners -- Analyst

Thanks. I'm sort of curious if you think that the generative AI will target most likely your superscaled customers first. And then sort of a side note to that, how much do you think that it could actually help you with cross-sales? So when it's giving recommendations or auto piloting, will it be able to demonstrate that there are other channels that may not have been adopted whose ROIs could be equal or higher, sort of showing them opportunities that they may not be able to access yet?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Well, Rich, as usual, I think you nailed both, right? So yes, there is no question that the larger the enterprise, the more the efficiency matters to their bottom line, the more they're going to be willing to adopt generative AI faster. What we're hearing from most companies is they love the concept of the closed generative AI solution in what we call the small model versus the open model. Now I think we all saw that OpenAI got hacked for the first time. I'm into the impression another algorithm was just annoyed by how much attention ChatGPT was getting, so they hacked it to get a little attention for themselves.

But the truth of the matter is, we still don't understand how the importation of data into ChatGPT is going to be benefiting the collective, including large enterprises competitors. Inside of the generative AI that Zeta has, ZOE, we're able to keep that as a closed model. It is exclusive to them. It can import the large language information, but it can also keep the small language model tight to them.

So we're definitely seeing that faster. Biggest benefit to us, bar none, is adding additional channels and adding additional products to these enterprises. Because what we're seeing is, as they're using the AI, the AI is able to move them into the most efficient channels. As Chris said, one of the best examples is we have one client who a number of years ago started out 7% of the revenue was on platform.

Last quarter, I believe, correct me if I'm wrong here, Chris, greater than 90% of their revenue is on platform, close enough. Bottom line, that comes from the AI because it keeps showing them what a better job they can do when on platform, fully integrated using our AI and our data as native to the ZMP, you're able to then move them into new products that are more profitable to us and more efficient to them.

Rich Baldry -- ROTH Capital Partners -- Analyst

And last for me would be, you are seeing layoffs from your a lot of the would-be competitors, we'll call it. Presumably, they let go with their worst people first, but it does leave good people unsettled and unsettled internally. So in an upside growing beat-and-race scenario, why not pull back a little bit on the profitability side, really go after some of the better talent that I would think is more easy to go after these days?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Well, you sound like me in my last HR meeting. And this is not -- I've got to be very, very careful here, right? But you would assume an organization would not lay off its top 10% of people in that scenario, right? Which is not to say that people laid off were not incredible individuals who could do a great job organizationally. We are absolutely positively focused on bringing the world's best human capital into Zeta. Generally, today, it is coming from the people who are still at these large organizations who are unsettled and nervous.

But even more than that, Rich, we are recruiting more people. When we go into an RFP around 17 different companies, and we win the salespeople, the project managers, the high-end operating people from those other companies, call us, because people want to work for the people who are winning in today's environment. And we are seeing an incredible opportunity to onboard amazing people. I don't think we're going to pull back on profitability for a whole host of reasons.

But as I think we point out, we're raising guidance for Q2, we're raising guidance for the year. I think we have been thoughtful in those numbers in making sure we have the dry powder to add incredible people where we see the opportunity to do it. And we feel very confident that in today's world, we can do both.

Rich Baldry -- ROTH Capital Partners -- Analyst

Congrats on a great start to the year.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Thanks, Rich.

Operator

Our next question comes from the line of Zachary Cummins with B. Riley. Please proceed with your question.

Zach Cummins -- B. Riley Financial -- Analyst

Yeah. Hi. Good afternoon. Thanks for taking my questions.

David, could you give us an update on the CTV channel? I know that's one that's been gaining a lot of traction in the past couple of quarters. So any sort of incremental update there would be appreciated.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. So we continue to see CTV as one of our fastest-growing channels, especially inside of our scaled customers. What we're really seeing is we're seeing, by way of example, the highest percentage of our customers ever in the first quarter use the CTV channel. We continue to see what we call connected CTV, where we're using our data cloud and our AI to best target where to run the marketing as a massive differentiator inside of what we're doing there.

Zach Cummins -- B. Riley Financial -- Analyst

Got it. And final question for me is just really around incremental details on the pipeline. I mean, it's great to hear that RFP levels in the overall pipeline are still at record levels. I mean, can you give us a sense of where these are being sourced from? Is it typically companies that are using point solutions or they're not renewing their deals with some of the legacy marketing clouds? Any sort of incremental detail there would be great.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. I mean, listen, companies are tired of using point solutions. They're expensive. They don't talk.

And the expense that most people don't talk about is you have to bring in one of the major professional services companies on multimillion-dollar integrations to get them even to speak to each other. Whereas if you use the ZMP, everything exists in one marketplace, right? The other thing we're seeing is it appears as if we've entered into a major replacement cycle in the marketing cloud ecosystem, where a lot of companies started three, four, five years ago with the legacy marketing clouds and it's just not giving them what they need anymore. So they're going out to RFP at a greater rate. And quite frankly, our full solution tends to be what they're looking for.

Chris, do you want to add to that?

Chris Greiner -- Chief Financial Officer

The only thing I'd add, Zach, is if you look from an industry perspective, where they're coming from, it's the ones that probably all of us would write down on the sheet of paper and agree are under the most financial and economic turmoil choosing Zeta, right? Because back to David's point earlier on the call, just really needing to be more efficient but to not have to do that to sacrifice of growth. And I think that's where Zeta comes in as a really helpful partner.

Zach Cummins -- B. Riley Financial -- Analyst

Got it. Well, thanks for answering my questions and best of luck with the remainder of the quarter.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Thank you very much, Zach.

Operator

Our next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Arjun Bhatia -- William Blair -- Analyst

Thanks, guys for taking the questions here. David, maybe just to continue on the AI theme. Like I mean, obviously we're living in kind of a rapidly change in paradigm with the rise of generative AI. I'm curious how you think it might change the marketer's job, how it might change the CMO's role? And what does that mean for how you sell Zeta, how you deploy data? And does that mean there's any adjustments that you need to make.

Obviously, there's a lot of great product announcements that you've made already. But what else do you think might need to change in your business as we kind of work through this?

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Yeah. I think, Arjun, that's a great question. I mean I want to reiterate, I feel like we are aware of the puck is going, not going to where the puck is going, meaning, we, as you know, rearchitected the Zeta marketing platform starting about 5 years ago into what it is today, which has artificial intelligence and data as native to the application layer. So to really put some meat on the bones of what that means.

If you're running a legacy marketing cloud and they claim to have artificial intelligence, your marketing cloud has to talk to their AI algorithm, which then has to do multiple data dips to pull the proper data in based on the instructions from that marketing platform to the algorithm and think about how long that takes to make a decision. When you put everything is native to the application layer, it can make real-world decisions all at once, really a differentiator. Where I think it's going to continue to change the marketplace is we're going to continue to see, first and foremost, a greater focus on return on investment for marketing than ever before. And once again, in addition to running the generative AI panel at Milken, I also moderated the chief marketing officer panel.

And as you can imagine, I made a joke when I came on to the panel. I said, "All right. We're going to now go to a topic that nobody is talking about completely under the radar, getting 0 attention, artificial intelligence, right?" And of course, everybody laughed. But everybody is thinking about how to use this, but not just to use it.

I mean ChatGPT is great. My kids love it. I think it's interesting. But how does it benefit your business, right? And what we're doing is we're using artificial intelligence to first and foremost, help enterprises lower their cost to create, maintain and monetize customers by removing customers from the marketing funnel that are not going to buy your products, are not qualified for them.

Or understanding who in your platform is going to churn really early enough in the process to save them, right? That's one. The other thing we're doing is the rolling out of ZOE from an external perspective. By the way, it's always been our internal AI algorithm. The rolling out of ZOE as a business intelligence tool to help CMOs and marketers better understand their customers, their intelligence, and how to manage their marketing with a simple real-world solution that not only learns from large language models, it learns from small language models that are effectively owned by you because it's your data.

And it also learns what you're interested in. So once you ask it a question, it keeps an eye on everything to do with that question forever. So when you come back and ask it that question again, it's smarter the next time. So it's consistently getting smarter, which allows the enterprise to do more with less, less analysts, less data scientists, which are very expensive, less cost to create a customer, and lower cost to maintain your existing customers, all driven from generative AI.

Arjun Bhatia -- William Blair -- Analyst

That's super helpful and very insightful. I appreciate that. Chris, maybe one for you. Obviously, we saw some good trends this quarter in the scaled and superscaled customers and you had that big deal in retail.

I'm curious just as we look at those metrics, are those new customers coming internally through expansions? Are you starting to see new customer lands in those two buckets as well? How should we think about some of those trends playing into the metrics?

Chris Greiner -- Chief Financial Officer

Kind of the eight new scaled customers that we added quarter to quarter, six were new to Zeta, and then two became scaled. And then even within that existing scaled customers and to the point of moving them from that $100,000 to $1 million cohort to the superscaled of $1 million-plus, one of the metrics we talked about in the earnings call that internally we got really excited about was multichannel adoption. So the number of scaled customers now using three or more channels that grew 41% year over year. So that was good for us to see that we continue to make some really good traction in building these omnichannel experiences, but we're very happy with the new customer additions we had as well as what grew from the base perspective.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

And Arjun, we just continue to see not just record RFPs by number of enterprises, we're seeing deal sizes that are by far the biggest we've ever done.

Arjun Bhatia -- William Blair -- Analyst

Very interesting. All right, appreciate the color guys, and great job on the quarter here.

Operator

There are no further questions in the queue. I'd like to hand the call back over to David Steinberg for closing remarks.

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

I continue to be incredibly proud of our Zeta people. We talk a lot about our technology, we talk a lot about our data, we talk a lot about winning in the marketplace. But ultimately, it is our people that drive these results. And we're feeling as good as we possibly can about our business.

We feel like even in a volatile environment, we are winning. In many ways, the volatility of the current environment is helping us because we're seeing less friction from enterprises willing to take a chance on a new vendor. And as we drive our business to our 2025 plan, we're really, really excited about where we're going to go for 2030 and after. And we feel like we are incredibly well-positioned.

And quite frankly, I have never felt as good about where we are as a business as I do sitting here today. So I will finish, as I always do, by thanking all of our employees, thanking all of our clients, all of our vendors, and all of our shareholders for your belief in our vision. And our goal is to continue to win in the marketplace and win together. Thank you very much for taking the time today.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Scott Schmitz -- Senior Vice President of Investor Relations

David Steinberg -- Co-Founder, Chairman, and Chief Executive Officer

Chris Greiner -- Chief Financial Officer

DJ Hyne -- Canaccord Genuity -- Analyst

Ryan MacDonald -- Needham and Company -- Analyst

Unknown speaker

Elizabeth Porter -- Morgan Stanley -- Analyst

Rich Baldry -- ROTH Capital Partners -- Analyst

Zach Cummins -- B. Riley Financial -- Analyst

Arjun Bhatia -- William Blair -- Analyst

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