NYSE:ZETA Zeta Global Q3 2023 Earnings Report $13.40 +0.26 (+1.98%) Closing price 03:59 PM EasternExtended Trading$13.40 0.00 (0.00%) As of 07:58 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Zeta Global EPS ResultsActual EPS-$0.27Consensus EPS $0.09Beat/MissMissed by -$0.36One Year Ago EPS-$0.50Zeta Global Revenue ResultsActual Revenue$189.00 millionExpected Revenue$178.89 millionBeat/MissBeat by +$10.11 millionYoY Revenue Growth+24.30%Zeta Global Announcement DetailsQuarterQ3 2023Date11/1/2023TimeAfter Market ClosesConference Call DateWednesday, November 1, 2023Conference Call Time5:00PM ETUpcoming EarningsZeta Global's Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Zeta Global Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 1, 2023 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00And welcome to the Zeta Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Schmidt, Speaker 100:00:27Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's 3rd Quarter 2023 Conference Call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors. Zetaglobal. Call today are David Steinberg, Zeta's Co Founder, Chairman and Chief Executive Officer and Chris Greiner, Zeta's Chief Financial Officer. Speaker 100:00:57Before 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 and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non GAAP financial measures, which should be considered in addition to and not as a We use these non GAAP measures in managing the business and believe they provide useful information for our investors. Reconciliation 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 other filings with the SEC. Speaker 100:02:05With that, I will now turn the call over to David. Speaker 200:02:09Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. Our Q3 of 2023 was one of our most Stentful and productive quarters yet, highlighted by key events including Zeta Live! Our Customer Advisory Board meeting And our first Investor Day. Most importantly, we continued our track record of consistent execution, Delivering results above our guidance for the 9th consecutive time. Speaker 200:02:40In the quarter, We delivered record revenue of $189,000,000 up 24% year over year With adjusted EBITDA of $34,000,000 up 51% year over year. This translates to an adjusted EBITDA margin of 17.9%, up 3 10 basis points year over year. We generated $23,000,000 of cash from operating activities, up 17% with free cash flow of $13,000,000 Up 43% year over year. On a year to date basis, our adjusted EBITDA and free cash Slow have grown approximately 70% faster than our revenue. Our strong results reflect our growing impact in the marketplace, Which was evidenced by the 50% increase in viewers for our 3rd annual Zeta Live conference To over 12,000 people, this year's Zeta Live conference brought together thought leaders from around the world To learn about the growing impact of AI, discuss innovation that drives business growth and hear from practitioners About the emergence of intelligent powered marketing. Speaker 200:04:04A full replay of every session is available in the Resource Center section of our website at zetaglobal.com. With hundreds of new brands And existing customers added to our pipeline, Zeta Live continues to be an investment in accelerating our business And raising our brand awareness, the evolution of Zeta Who to Y Zeta Was evident in record third quarter RFP volumes with even greater growth in dollar values As we experienced an increase in more complex multi channel opportunities, which was further driven by Zeta Live. Growing deal activity is just one indication of the market moving in our direction. We were also recognized in key industry reports. In the Q3, we were named a leader in the IDC Marketscape For omni channel marketing platforms for B2C Enterprises, the ZMP was recognized for simplifying the complex Marketing Ecosystem. Speaker 200:05:16While we still have further to go to achieve broader recognition across industry analysts, We believe our differentiated approach of bringing identity, intelligence and activation together in a Single platform position us well to win against our core competitors, including Oracle, Salesforce and Adobe. Our industry recognition along with our pipeline growth is fueled by our innovative product roadmap, Which is on full display at Zeta Live. With the release of the Zeta Opportunity Engine or ZOE, marketers have the ability to Ask critical marketing questions and receive real time answers. And through new forecasting and recommendation tools, Marketers can generate new ideas and strategies with speed and scale, so they can deliver Higher ROI and accelerate results. In addition, recent customer requests have Highlighted an opportunity to innovate upon basic mobile capabilities that have been the status quo in the market. Speaker 200:06:29Similar to the enterprise market moving on from its 1st generation CDPs, sophisticated marketers are seeking mobile To be integrated into a more comprehensive platform rather than used as a point solution. To capitalize on this opportunity, Zeta is making investments into expanding our enterprise mobile capabilities to fuel Conversational experiences. Feedback from customers and prospects at DataLive also reinforced our belief That we are at the beginning of a marketing cloud replacement cycle. In fact, at Zeta Live, we signed a multiyear 8 figure deal with 1 of the largest discount retailers in the United States to replace their legacy marketing cloud and consolidate 7 different vendors in their technology stack with just the ZMT. After an extensive search, they chose our next generation technology because of our identity, personalization, Customer journey and AI capabilities. Speaker 200:07:40This retailer is in the process of a multiyear Digital transformation that has re architected their entire tech stack to include our partner Snowflake, which is another key driver of our current record RFP volumes. This customer is an excellent example Of our belief that Zeta helps marketers with modern data architectures to deliver better experiences for consumers And reduce the total cost of ownership for enterprises seeking to replace legacy technologies. One of the fundamental problems marketers face today is the inability to deliver what consumers want due to a Personalization gap created by legacy systems. Even though data is abundant, Intelligence is scarce because legacy systems lack the sophistication to turn data and insights into action. Our software platform solves this problem by unifying complex and disparate sources of data Into a single view of the customer, our proprietary AI synthesizes billions of behavioral signals And environmental data to create intent based scores tied directly to the individual. Speaker 200:09:06We then activate this intelligence through marketing programs that combine precision and scale across every channel. This is intelligence powered marketing. Unlike legacy systems, the Zeta marketing platform has data nai is native to the application layer, offering a differentiated approach for sophisticated marketers seeking to control their data and extract more value from each interaction. This quarter, we also continued to grow our relationships with key players in the value chain, including agencies Where our strategy is to find opportunities to partner to enhance their assets and capabilities So that together, we deliver more to the world's biggest brands. Because this allows us to serve many brands to a Single business relationship. Speaker 200:10:07This one to many strategy accelerates our market penetration and exposes Zeta to marketing decision makers across a broad range of the enterprise brands. As we discussed at our Investor Day, the number of brands we serve is nearly 40% larger than a reported scaled customer count. Looking forward, in addition to our continued growth with agencies, the emergence Of the partner channel and the benefits of the replacement cycle, we expect the macro environment will continue to drive Scrutiny on how and where enterprises invest in marketing technology. As the need for efficiency And effectiveness rises. Enterprises are more likely to change to improve their marketing programs And lower their total cost of ownership. Speaker 200:11:07As we heard at Tate a lot, marketers are looking to consolidate spend with fewer vendors And simplify their technology stacks. Marketing budgets must be tied to measurable outcomes that generate a strong, Verifiable return on investment, Speaker 300:11:25which Zeta delivers. Speaker 200:11:29In summary, I'm incredibly proud of our team and what we have accomplished this quarter. We continue to be well positioned to capitalize on the need More efficient and effective marketing technology. As always, I would like to sincerely thank our customers, Our partners, team Zeta and all our shareholders for the ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail. Chris? Speaker 300:12:01Thank you, David, and good afternoon, everyone. During today's call, I'll focus on the drivers of our consistent execution along with key considerations for the Q4's outlook. Starting with the results, we delivered $189,000,000 in revenue, up 24% year to year. On an organic basis and adjusting for last year's political revenue, growth accelerated from 24% in 2Q to 26% this quarter. I'll note, our growth rate also includes continued headwinds from the insurance and automotive verticals. Speaker 300:12:35Our reported growth would have been in the mid-30s plus, Excluding these two verticals, the strength of our revenue growth this quarter was once again driven by scaled customer additions, Coming in above the high end of the model, we updated at our Investor Day of 8% to 12% growth. We ended the 3rd quarter with 4 40 scaled customers, Up 15% in 2Q and up 13% year over year. We also saw healthy growth from our 1,000,000 plus super scaled customers, which increased by 6 quarter to quarter to 124, up 17% year on year. The addition of CLM customers came from industries ranging from travel to education to several across advertising and marketing. As such, we continue to see strong diversification across industries, With 6 of our 10 largest verticals, once again growing more than 25% year to year. Speaker 300:13:29And for the 13th consecutive quarter, Scaled customer are approved with double digits, coming in at 418,000, growing at the same 10% rate we've seen throughout the year And at the midpoint of our 8% to 12% growth model. Like we've discussed in calls earlier this year, ARPU growth is influenced by the Best we've seen in closing pilots this year, with half of the 51 scaled customers added in the last 12 months in the less than 500 ks revenue band. This is an encouraging data point for us. If you refer to Slide 28 in our earnings supplemental, we show a multiyear trend demonstrating How scaled customers reliably grow spend the longer they're on data's platform. As illustrated on the slide, Scaled customers less than 1 year on the platform spend an average of $400,000 compared to the 1 to 3 year cohort spending $1,500,000 And the more than 3 year cohort spending over $1,800,000 Not only does this draw a trend line for the scaling potential of these less than 500 scale customers, But it also bodes well for net revenue retention. Speaker 300:14:37To that end, on a year to date basis, total beta net Revenue retention is within our 110% to 115% target range as we remain on track to generate half of our growth from new customers and half from existing customers. Now let me transition to the expansion opportunities we're seeing with agencies and how their contribution this quarter is flowing through our metrics and results. Our early experience with agencies has affirmed The effectiveness of our one to many strategy to accelerate market penetration. I'll outline in steps what we're learning from those engagements, How those learnings manifest themselves in our results and what it means to our P and L in the near, mid and longer term. Starting with lesson 1, by filling an intelligence and omni channel engagement gap, we believe The agency's success in our platform with a single brand can quickly lead to expansion into more brands. Speaker 300:15:41By way of example, The 15th scaled customers we added this quarter resulted in an incremental 45 unique brands. In 3Q, Most unique brands came from agencies and this should continue. Lesson 3, because Zaynah has closed partnerships with social and search engagement channels, Agencies can quickly pivot already budgeted spend to Zeta at the starting point. The agency can leverage Our data cloud and intelligence to build higher ROI campaigns inside the walled garden. This shows up as integrated platform revenue, Which due to 3rd party of media has a lower margin profile. Speaker 300:16:20This is where we stand today in the very early days of those engagements. So as we've ramped with agency customers, integrated platform revenue has been the first to grow, up 63% year to date and 44% In the Q3, in lesson 4, agencies need omni channel engagement strategies beyond just social and search. This is typically the next phase of Zeta's engagement and it translates to the use of Zeta's owned and operated channels such as CTV, display video, messaging and e mail. These are proven to drive a better ROI And this shows up as direct revenue and has a margin profile in the low to mid-70s. In the Q3, our direct revenue mix was 70% With our direct revenue growing 17% year to year, improving from 15% last quarter. Speaker 300:17:13By the way, direct revenue growth is also adversely impacted And lastly, Agencies are great long term customers. Their platform evolution from integrated to direct channels can take place over many quarters, resulting in both positive mix shift and increased spend. As an example, Theta's first large agency customer in 2020 Starting with 7% direct mix and $3,000,000 in revenue, growing to 76% direct mix and over $20,000,000 in revenue over a 3 year period. And the pipeline of agency customers we've signed and expect to sign have the potential to do the same and more. Bringing us back to Q3's results, our success in adding new agency business is the driver of integrated platform mix being up And for GAAP cost of revenue of 38.9 percent being up 110 basis points year to year and 280 basis points quarter to quarter. Speaker 300:18:17I want to reiterate, the margin profile of our direct revenue continues to hold firmly in the low to mid-70s. So the change in margin is principally driven by how early we are in the life cycle with new agency customers. Because we have visibility into the mix and margin dynamics of our agency growth strategy, we have plenty of runway to optimize operating expenses Without having to compromise new product investment, growing Zeta Live or increase in quota carriers. To this end, Total OpEx growth slowed to 11% year to year, excluding stock based compensation on a dollars basis and is down 490 basis We're seeing expense to revenue leverage from 2 primary drivers: 1st, savings in G and A And second, from wrapping on prior year sales and marketing infrastructure investments. On a combined basis, These two drivers accounted for 4.20 basis points of the overall 4.90 basis point reduction year to year in operating expense to revenue efficiency. Speaker 300:19:21As we sit here today, our quota carrier headcount is at 132 and we anticipate ending the year in the high 130s to low 140s, Roughly in line with our updated data 2025 model, our disciplined expense management and better productivity Resulted in an acceleration of our adjusted EBITDA growth to 51% year to year or $34,000,000 compared to 45% growth last quarter. In fact, adjusted EBITDA margin of 17.9 percent increased 310 basis points year to year. This is the 11th straight quarter in which we've expanded adjusted EBITDA margins year over year. On a GAAP basis, 3rd quarter net loss was $43,000,000 which includes $58,000,000 of stock based compensation. Excluding the accelerating expenses related to our IPO, Stock based compensation would have been $25,000,000 We continue to drive strong cash generation. Speaker 300:20:18Cash flow from operating activities was $23,000,000 up 17% year to year with free cash flow of $13,000,000 up 43% year to year. Now let me transition from the results to our outlook. The big picture first, we're fully flowing through Our Q3 revenue and adjusted EBITDA beats and raising the 4th quarter as seen on Slide 13 in our earnings supplemental presentation. Speaking first to revenue, we're increasing the midpoint of full year revenue guidance by $10,000,000 to $725,000,000 representing 23% growth. And we're taking 4th quarter guidance up $500,000 at the midpoint to $207,000,000 or 18% As a reminder, our 4th quarter revenue growth rate includes a 3 point headwind from last year's political revenue And facing continued pressure from automotive and insurance verticals. Speaker 300:21:16As we look around the corner to 2024, We expect these industries to become tailwinds with the insurance and automotive headwinds likely persisting into the Q1 and then turning positive in 2Q, With political being most prevalent in the second half of twenty twenty four. Also relevant to revenue, we expect 4Q direct mix to look a lot like the 3rd quarter With a similar cost of revenue profile as well. In terms of adjusted EBITDA, we're increasing the midpoint of full year guidance by 2,100,000 to $126,600,000 an increase of 37% year to year or 17.5 percent margin, up 190 basis points year to year. The 4th quarter adjusted EBITDA midpoint of guidance is $42,000,000 An increase of 29% year to year or 20.3% margin, up 180 basis points year to year. Before turning to Q and A, let me quickly close with a couple of final thoughts. Speaker 300:22:15We're growing revenue rapidly Even in the face of industry specific headwinds, with over 90% of the portfolio growing in the mid-30s plus year to year. We're growing customers rapidly. The 15 scaled customers added this quarter resulted in 3 times as many unique brands added, Evidence of the very early days of scaling of our new agency customers and we're rapidly expanding adjusted EBITDA and free cash flow. We're striking a balance of expanding adjusted EBITDA margins while managing for agency customer mix and gross margin dynamics Now let me hand the call back to the operator for David and me to take your questions. Operator? Operator00:23:01Thank you. We will now be conducting a question and answer session. First question comes from Jason Kreyer with Craig Hallum. Please go ahead. Speaker 400:23:35Perfect. Thank you, guys. Chris, I just wanted to clarify a little bit more detail on gross margins. You indicated the NPE mix for Q4 would be pretty similar to Q3. 3. Speaker 400:23:47Look, I know it's too early to give a guide for 2024, but I'm just curious what that progression looks like. Do you think next year looks more like 2nd half of the year, do you think it looks more like the first half of the year? Or do we just start to kind of see a progression in between those two figures? Speaker 500:24:05Hey, Jason. Thanks for the question. I appreciate it. I don't want to get too far into 2024 yet. But I think you can draw a trend line for we're in the early days with a lot of these agencies. Speaker 500:24:19I do believe that as we work Across 2024 that mix will then begin to become will still be an integrated component, but there will be more and more direct mix over time. So I think you said it well that the first half of twenty twenty four could look more similar to the second half of twenty twenty three and then improving in the second half of 2024 as that direct mix and those agency relationships get bigger and a positive mix shift happens. Speaker 400:24:47Appreciate the detail. And then David, we've talked for a few quarters on Bigger deal sizes, obviously, we're seeing that happen in the ARPU growth figures. Can you just dissect that in terms of what you're seeing from customers today? Just new channels that are being added, new use cases or any changes that you're noticing that are driving that Bigger ARPU growth and bigger deal size. Speaker 200:25:13Yes. First of all, thank you very much. I appreciate the question. I think what we're seeing first and foremost is as we've Switched from Zeta Who to YZeta, we're seeing much bigger RFPs, Much larger organizations that in the past might not have chosen us, they might have put us in the RFP, We might have gotten a good look at it, but we wouldn't have won because we didn't have the reputation and we didn't have the brand. We're now winning those. Speaker 200:25:42So it's not just channel expansion and use case expansion, it's just substantially larger organizations with substantially larger budgets Now what we're seeing a lot of is connected messaging. We're seeing messaging connected to CTV And we're seeing messaging connected to social, both of which are very, very powerful when you look at the return on investment through our use case capabilities. Speaker 600:26:15Appreciate it. Operator00:26:18Next question comes from Ryan McWilliams with Barclays. Please go ahead. Speaker 700:26:24Hey, Chris and David. This is Eamon on for Ryan. From a macro perspective, would you say that the environment was consistent from 2Q to 3Q? And what are you baking into guidance in terms of holiday season spend at this point? Speaker 200:26:41Well, first, yes. I mean, we saw some headwinds in automotive and insurance in the 1st three quarters of the year or the 1st two quarters of the year prior to this quarter. So That was pretty consistent. The good news was all of our other verticals really hung in there. And we saw most So, we continue to see a tale of 2 nations. Speaker 200:27:08The good news is there's far more good than bad, which is why we continue to over deliver. But there's still some choppiness in the market And we continue to grapple with that. Speaker 500:27:18I think, yes, there's a it's a good illustrative. It also goes to Jason's question around your deals. We included a new slide in the earnings supplemental, you'll find it in Slide 20, where a lot of the feedback we received coming out of the Investor Day was Continuing to clarify the competitive universe and what we've done is we've broken down how that marketer buys into categories around data management or CDPs, Marketing automation or the marketing clouds, if you will, and then paid media. What's interesting about the 8 figure deal that David mentioned, the discount retailer in his prepared remarks, Here you had Zeta's marketing platform that was able to address what 7 vendors were doing in 1. We replaced Salesforce for the Marketing Cloud. Speaker 500:28:01We replaced Acquia for the data management CDP and we replaced 5 other activation vendors on the engagement channel side. So A good illustrative why deals are getting bigger because we can consolidate all that, but there is still a need and a push with the replacement cycle And Zeta is filling that through lowering total cost of ownership and creating a better ROI. So just kind of brings those two questions together. Speaker 200:28:23Yes. And quite frankly, as you're seeing choppiness in the marketplace, We're seeing deals close faster and I think that was one of the reasons you saw our scaled customer count and our super scaled customer count grow faster than Clients are willing to take more risk in this environment, especially now that we're more of a known entity. They know who we are. They see us winning in the marketplace. They see the amount of savings we're able to drive to them through the elimination of point solutions And the ability to get to that very high level of intent quickly and we're seeing enterprises move faster to go through that pipeline. Speaker 700:29:07Got it. Perfect. And how do you guys think of enterprise customers And their budgets for 2024. And would you say there's any difference between the buying patterns of the normal customers and scaled customers? Speaker 200:29:22Yes. Interestingly enough, there's always been this narrative that marketing is one of the first things you can cut in a down environment. We are not seeing that. Now we're seeing some headwinds in certain industries, and we're trying to be very transparent about that. Some of that had to do with strikes, which fortunately have now settled. Speaker 200:29:43And some of that had to do with under reserving for coming out of COVID is related to how people were going to drive and get into accidents. We do believe those headwinds become tailwinds going into some point next year. And quite frankly, we're not seeing enterprises cut marketing. We're seeing enterprises invest The same, if not more, but at the same time, we're taking substantial market share in a growing market, Which is once again not to say that we're not without challenges as we've been very open with. But on the most part, We're seeing enterprises investing in their marketing and growing it. Speaker 200:30:28The only clarification, Eamon, in your question, Speaker 500:30:32Maybe you didn't mean it, but if I'm interpreting correctly, the scaled customers, all 4.40 of them, these are very large enterprises And obviously large agency as we've been discussing. So the difference between if you're at $100,000 to $1,000,000 and $1,000,000 plus is really the time you've spent on Zeta's platform, Your tenure with us and there's a slide in the earnings supplemental that shows those less than 12 month enterprise skilled customers That have been with us again less than a year spend an average of $400,000 The 1 to 3 year cohort then accelerates to an average of 1.5 and then the greater than 3 year cohort grows spends more than 1.8. So it's not really a kind of a normal and a super scale customer. They're all large enterprises. It's just time on the platform drives net revenue retention growth. Operator00:31:17Thank you. Next question, Arjun Bhatia with William Blair. Please go ahead. Speaker 800:31:23Perfect. Thanks, guys. And congrats on the execution and organic acceleration here. Chris, it seems like or maybe for David, this one, but it seems like the agencies still continue to be a strong growth driver. As you're thinking about just how the business evolves and how you dedicate your own go to market resources over the next year or 2, How do you think about balancing how much you're focusing on the agencies versus which customers you want to have a direct relation Chip, with like are there pros and cons and how do you allocate sales and marketing, your own sales and marketing resources to reflect that? Speaker 200:32:04As usual, Arjun, a great, great question. It is a bifurcation. It is a different team of sales People who sell into agencies and then go into work with the enterprises as a subset of the agency, then it is The salespeople who go directly to an enterprise. And I think the truth of the matter is we're trying to staff up in both. We have far more enterprise Salespeople then we have agency salespeople by the vast majority because that's what we've been doing for many years. Speaker 200:32:35But Like a lot of sort of baseball franchises, we're trying to bring in the world's best free agents In the agency space who can really bat cleanup and the people we're bringing in and you guys have heard me talking about this. I've been laying groundwork in the agency ecosystem for 4 or 5 years now. And the sales cycles there took a long time to Crack the code, they're cracked and we're now seeing that scale. But I want to be very, very clear. When we partner with an agency, We are partnering with that agency and the enterprise client directly. Speaker 200:33:16The agency is not hiring us and saying go across our customer They are bringing us in to the enterprise as the partner to the agency to either fill holes For product categories they do not have or help them scale certain components faster, but in 100% of the cases, We're directly working with the enterprise in partnership with the agency. So when you look at it, One sales rep can close multiple brands simultaneously by working with an agency whereas on an enterprise basis it's 1 to 1. I would say that we want to continue to focus on both. We're going to continue to staff up in both. And the good news about being ahead, Which is where we are is we're in a position to hire the world's best salespeople on both sides of the house. Speaker 500:34:08Yes, I think bringing it's a great David, bringing the math to it, I think there's an interesting sales productivity statistic on how we're investing in our go to market Arjun. It did to be led by quality over quantity. And when we add it, it's very data driven. For example, last quarter, we talked about on a trailing 12 month basis, we'd added 52 scaled customers, While adding 15 quota carriers over that same period of time, so roughly 3.5 quota carriers per scale customer added, this quarter we saw that improve pretty meaningfully quarter to quarter Where we've added 51 scaled customers over the last 12 months, while adding 11 quota carriers, so going from a 3.5 times to a 5 times leverage. And those 15 scale customers this quarter alone equated to 45 unique brands, each of which fit the scale of customer definition of spending at least 100 ks On a trailing 12 month basis, so productivity continues to be in our favor. Speaker 500:35:01We get really good leverage, as David mentioned, from the agency relationship, in addition to what we're seeing on the enterprise side. Speaker 800:35:08Perfect. That's very helpful color. And then, Chris for you, I think you had mentioned that the headwinds In auto and insurance, that kind of continued this quarter and maybe sometime in 2024, those flip and Become a benefit. Can you just give a sense for how the magnitude of the headwinds are trending quarter to quarter from Q2 to Q3? And What visibility you have into any improvement with those verticals? Speaker 800:35:38I mean, what might those customers be saying qualitatively That gives you some conviction that they might improve from a spending perspective next year? Speaker 500:35:47Sure. The 3rd quarter was a little bit worse in terms of an aggregate headwind than the second. 4th quarter will be better than the 3rd, But it will still be with us as a headwind and it will still be with us although less so in the Q1 of next year. And we expect that headwind to then turn into a tailwind Going into Q2 and beyond of 2024, quantitatively or I should say, from what we're hearing from Our public company customers, we all are also seeing them from financial metrics they're posting, what they're saying in their earnings calls They are also seeing the environment improve. So I don't think we're at the I think we're on our way kind of upward again versus still on that downward trend. Speaker 200:36:33It's also conversations we're having. Remember, we have a tremendous number of success oriented people in our organization that are helping our enterprise clients To figure out how to better manage their marketing and we're embedded with most of these clients. They're very large customers on a historic basis And we're getting buying signs that are very clear asking for plans, talking about the future For the first time in quite some time. So I think it's quantitative and it's qualitative that we do believe this We'll go from being a headwind to a tailwind here sometime in the near future. Operator00:37:16Thank you. Next question comes from Elizabeth Porter with Morgan Stanley. Please go ahead. Speaker 600:37:23Hey, guys. This is Chris Cantero on for Elizabeth Porter. David, maybe one for you. I know you all have talked about getting kind of more at bats can lead to Accelerating growth. So just curious, when you think about the new at bats that you're getting today, what go to market channels are those mostly coming in through? Speaker 600:37:40And Where do you think more of those at bats can come from over the next year? Speaker 200:37:45Yes, great question. Thank you. I think that first of all, People are undervaluing our relationship with Snowflake. It's really been an important component of our RFP strategy, Both when they're bringing clients to us from a partnership perspective and when we are bringing clients to them, We're able to do more as a collective and we continue to see a large number of at bats. In my prepared statement, I did say that RFP volumes hit an all time record in Q3, which was up from a record in Q2. Speaker 200:38:21So we continue to see a lot of it In addition to agency relationships, where we could potentially be partnering with professional services firms And working with them for more at bats. But on an absolute gross basis, I have Never seen our pipeline go up more than I did after Zeta Live. We just had an incredible group of potential clients come. We had An incredible group of existing clients come and came out saying, wow, what how do we do this together or how do we do that together? And we were really as it relates to at bats, I think we're starting to see a really Citing number of them. Speaker 200:39:12And quite frankly, I think that we're continuing to win a disproportionate percentage The RFPs and engagements that we get invited to do, which is why we had such a large growth in scaled customers and super scaled customers in the 3rd quarter. Speaker 600:39:32Awesome. Very helpful. And then I also wanted to ask on the mobile opportunity. I know you all have talked about it being a key channel and one where you're looking to improve your capabilities there. I guess, how big of an Could this be for you and what do you need to exactly improve upon and could M and A be a part of that solution there? Speaker 200:39:51Yes, we always look at buyer bill, but the truth of the matter is that today we have a series of partnerships and we have a series of products in mobile. We believe with the elimination of Apple's IDFA, which I will remind everybody again, we never used in the first place, There is now a unique opportunity in the mobile environment for the first time to really consolidate And grow our business. And we are starting to see meaningful RFPs as it relates to connected Campaigns that include not just messaging and not just CTV and not just social and other, but mobile. And we continue to have the right products at the right time. We are continuing to build out our own products and we continue to Where we think there are best of breed partners that we can work with. Speaker 200:40:45Quite frankly, we have bought some of those guys in the past and we might in the future. But as I always I believe that transformative deals transform both companies for the worse. So we will continue on with our Discuss M and A strategy that we talked about at length at our Investor Day, where we'll continue to do smaller tuck in deals where we think we can pick up Great people, great technology, great data and can syndicate those products or can I should say integrate those products Into the ZMP and then allow all of our clients to use them? Speaker 300:41:24Excellent. Thank you so much. Operator00:41:27Next question, D. J. Hynes with Canaccord Genuity. Please go ahead. Speaker 600:41:32Hey, good evening, guys. Congrats on a nice quarter. Chris, one for you on the direct revenue mix as it pertains to the agency customers. As those customer relationships mature, would you expect That mix of direct and indirect revenue to start to look like your direct enterprise relationships over time or will it always be kind of structurally A little bit higher indirect revenue? Speaker 500:41:57No, I mean, look, I think you got to learn from experience. And in our case, we have Number of examples, the most material of which, as I mentioned in the prepared remarks, the first large global agency we began working with in 2020 Spend $3,000,000 with us and only 7% of that was direct revenue. If you fast forward to ending 2022, It was an over $20,000,000 a year customer and 76% of that spend was using our direct channels. And as you'd expect the margin profile of that business evolved half of our direct revenue mix And it's been holding steady. The gross margin profile there is between the low 70s and mid 70s. Speaker 500:42:39This quarter was closer to the mid 70s. So Yes. We do expect that as those relationships get more tenured, not only do they get bigger, but the mix starts to balance out and look a lot like Our first example with that large global holdco in 2020. Speaker 600:42:53Yes. Okay. Got it. Makes sense. And then David, maybe a high level Question for you. Speaker 600:42:58So I'm sure you're early kind of in the planning cycle for 2024, but as you think about the sequencing of investment dollars, like what are your highest priority initiatives at this Speaker 200:43:09Well, as Chris said, it's a little early to get into 2024. But I mean, I think you will see us continue to invest heavily in generative AI, where our goal is to automate everything. We'll continue to invest heavily into salespeople and high quality engineers, right, that can help us to do those things, Which quite frankly were also things we talked about on our Investor Day. I do think mobile is going to be a bigger and bigger part Of what we do and I think we're going to start more heavily investing in the partner channel where we are working with Larger professional services firms that have direct relationships with enterprises where we can partner with them to bring our products through them Into the enterprise and roll out a suite of analytics products as partners, roll out Different deliverables that the professional services firms can build on top of the ZMP. We've already begun meaningful conversations in that ecosystem and we'll be investing in that as we continue to grow the business. Speaker 600:44:21Yes, very good. I appreciate the color. Thank you, guys. Speaker 500:44:24Thanks, TJ. Operator00:44:25Next question, Brian MacDonald with Needham and Company. Please go ahead. Speaker 900:44:31Hi, congrats on a great quarter and thanks for taking my questions. Maybe piggybacking off of the agency question from before from DJ, I'm curious, As you continue to add brands and deepen those relationships, do you expect that when you start with a new brand that it will continue To be at that heavy mix of indirect or will the agencies as you grow with them have better experience saying As we add on an incremental brand that each incremental brand will start with a greater mix of direct versus indirect. Hopefully that was clear. Speaker 200:45:06No, it was clear and it's a great question and the answer is absolutely the latter. As the agency gets more comfortable with the platform, they Start with new brands already on platform. And we are seeing a lot of that where when they jump from social, Which is integrated to CTV or online video or integrated messaging, all of that is on platform. So what happens is usually it's a nose under the tent and it's not usually with 1 brand. It's usually with 2 or 3, where you're starting On integrated. Speaker 200:45:45And as we get to know them and they start using the platform, they see The power of being on our platform. So one of the most interesting things about this is why did that other agency Go from 7% on platform to 76% on platform. It wasn't just because they liked us. It's because the power of being on platform is very evident and very clear when you begin to use it. The return on investment, The attribution capabilities, the ability to access data assets are substantially higher. Speaker 200:46:24Therefore, once they start using it, they want to use it for all their clients, which is why you see that accelerate as a percentage of revenue as they grow to new brands. Speaker 900:46:37Super helpful. Thanks for the color there. And David, in terms of the priorities for next year, you talked about having meaningful conversations and really investing in the partner channel. As we've been at industry conferences, it's clearly an area where the SIs are putting a lot of focus in terms of making an investment. How competitive are the conversations, if you will, amongst the best of breed vendors like AZEDA and others To try to be the established partner or CDP for some of these large SIs right now, do you think it's a, I guess, a winner takes all in terms of the partnership side or do you get the sense it's going to be sort of multi sourced opportunities? Speaker 900:47:18Thanks. Speaker 200:47:19Unfortunately, I think it's going to be multi sourced opportunities. I don't think you're going to see the large service providers consolidating behind 1, Which by the way is really good for us because they're already working with 2 or 3 of our competitors. So it allows us to get in there and get our nose under the tent. What I do believe As I believe that our products are best of breed. I believe we have the best CDP. Speaker 200:47:44I believe we have the best data cloud. I believe we have the best messaging system, and I believe we have the best activation system in the world. So all things being equal, I believe That those service providers are going to recommend our products over our competitors because our products are superior. The other thing that I think is really important here We've never really had a deliverable that the service provider could build on top of what we do before. And one of the things we learned is if they don't have a deliverable that can be built on top of your platform when our platform doesn't really require the type of integration That most of our competitors do, right? Speaker 200:48:24Because if you choose Salesforce, Oracle, Adobe, you're going to have to spend 1,000,000 of dollars on integrating those platforms with Accenture, Merkle or others, with ours, you don't need to do that. So that we were coming from behind. We've now built Some direct deliverables that these service providers can build to their clients has added value on top of the ZMP, Which are also subscription services to the service provider, which I don't know anybody else who's doing that. So as I talk to the service providers, they want to move as much of their revenue to subscription as possible and the deliverables that we've built for them Our recurring revenue in nature versus our competitors, which is integration revenue in nature, and we're getting a lot of excitement on that. Speaker 900:49:19Excellent. Thanks for the color and congrats again. Operator00:49:23Next question from Richard Baldry with ROTH MKM. Please go ahead. Speaker 1000:49:28Thanks. If we look historically, 4Q is on a dollar basis, always been Sequentially a lot stronger than what we see out of the Q3. That's not implied in your guidance this time around. Sort of curious, is there anything we need to normalize out of there? Or do you think it's just Your typical conservatism or is there something about macro that we should be thinking about? Speaker 1000:49:49Thanks. Speaker 500:49:51No, Rich, it's really if you look at the starting point growth rate for the Q4 at 18%, I think we've started every quarter's Next quarter's guide at a similar level 18% or 19%. What you do and I think is a fair normalization is last year's political is a 3 point headwind. You could say the 18% is really 21%. But no, I mean we're very comfortable with the guide, Very comfortable with both the top and the bottom line guide. And as we look forward to 2024, the tailwinds we've had Some of these very strong signings quarters and by the way, if you when the queue comes out tomorrow, you'll see that it's not cause for victory lap by any stretch, but It's a big improvement in RPO going from $135,000,000 in RPO to $210,000,000 this quarter. Speaker 500:50:40So I think that tailwind kicks in next year, political kicks in. As I mentioned, auto and insurance, we think in Q2 turned positive. So, we think Q4 is going to be a nice running start into the Q1 of next year. Speaker 1000:50:54And you talked about sales cycles accelerating, which is not the experience of a lot of the companies. Talk about maybe on the competitive win side of the table, the win rates. As you're getting into larger engagements and people are more, say, committed to legacy vendors, it Obviously, it should be harder to displace those. So do you think there's some trade off over maybe the intermediate term where competitive win rates might come down a little, but Still a net positive because you're getting into engagements you might not have previously, but just Speaker 500:51:23a little tougher to pull Speaker 1000:51:24the legacy vendor out It may be your first go around, but it might set you up to win it the next time around. Speaker 200:51:31It's funny you say that. We thought that would happen. I've said Privately and publicly that as we dramatically increased RFPs, we would probably see our close rate go below 50%. We've not seen that, Rich. We continue to close greater than 50% of the RFPs and engagements we get invited to. Speaker 200:51:50I think what's happening We are really entering a cycle where people are looking to upgrade from their 1st generation clouds in their 1st generation CDPs and they know that the large legacy vendors have not invested $0.01 Into their products in the last few years. As I like to joke, right, Salesforce's side hustle used to be their Marketing Cloud. Now their side hustle is Slack and their marketing cloud is the side hustle to the side hustle. And as those organizations have cut investment, Which we've seen across the board, we're seeing a lot of those cuts being done in Marketing Cloud, which Is allowing us to further the distance in capabilities and quality of our technology to theirs. And Quite frankly, we're winning bigger deals than we've ever won before at the same percentage that we've Consistently won over the years, which even in some cases surprises us. Speaker 200:52:57I probably shouldn't say that on this call, but quite frankly, it does. Speaker 1000:53:03Great. Congrats on a great quarter. Speaker 200:53:07Thanks, Rich. Operator00:53:08Next question, Zach Cummins with B. Riley Securities, please go ahead. Speaker 1100:53:14Hi, good evening. Thanks for taking my questions. David, I know you outlined generative AI as one The key areas of investment going into next year, can you just talk about some of the early adoption you've seen from your ZOE product and how really that could transform into maybe Driving even further adoption of your Zeta marketing platform over the next 12 or 18 months? Speaker 200:53:36Yes, it's almost incredible How many people are using the ZOE component of the data analysis tool? It's effectively today A generative AI platform that becomes your own internal data scientist, so you can ask real world questions. What are my most valuable audiences? Where am I losing money from a marketing investment perspective? What cohorts of my existing customers are Buying more products from my competitors than they are from me. Speaker 200:54:08All of those are real world questions that people are using. And what we're finding is clients who are using ZOE are spending substantially more money on the platform. And our goal is to roll ZOE out to all of our clients in the very near future, and we think that will continue to drive Additional adoption rate and additional utilization of platform. As Chris points out all the time, if you look at the period of time that clients are on our platform, you can draw a line up into the right with the amount of You can draw a line up into the right with the amount of money they spend. We believe ZOE will accelerate that And take the top of that line even higher. Speaker 1100:54:53Understood. That's helpful. And Chris, just one question for me regarding free cash flow. With the increasing traction with agencies in the near term, I mean, can you talk about the dynamics and how we should think Speaker 500:55:06I think the best example is if you look through our financial statements In the Q and what's been published in the press release, you'll see that there was about an $8,000,000 working capital headwind, And that's principally driven by the days sales outstanding going from 55 days to 68 driven by the agencies Period. If you plug that back in, you would have been looking at cash conversion to EBITDA in the 60s. So we but it is a reality that we're going to wrap on that. We think by the second half of next year that normalizes. So we'll live with it. Speaker 500:55:41We'll look for another couple of quarters. But you should start to see that cash conversion move up. Speaker 200:55:47And we don't expect it to affect our 2025 plan in any way shape or form. Speaker 1100:55:55Got it. Well, thanks for taking my questions and best of luck with Q4. Thank you. Operator00:56:01Next question, Camden Leddy with Oppenheimer. Please go ahead. Speaker 1000:56:05Hi. This is Camden Leddy sitting in for Brian Thank you for taking my question. In regards to the updated 2025 guidance for direct revenue mix, is most of the Expansion on a forward basis going to be coming from channel expansion or is it more so branded option? And I was wondering, could you like stack rank The drivers for that metric as it relates to 2024? And then additionally, did the mix shift impact your ARPU growth expectations directly? Speaker 1000:56:34Anything there that you could provide would be helpful. Thanks. Speaker 500:56:38Sure. Thanks and good to meet you. Good to get the question. If I go back to the Investor Day when we adjusted the direct revenue mix to 75%, we really pegged it to what we've seen over the last 12 months and if you think about the growth of the overall business, not just the direct revenue, but the overall business and the ARPU, It's driven principally by 3 different forces continuing to do more with existing customers through a single channel they've chosen. Although now it's more driven by multi channel adoption. Speaker 500:57:09So this quarter, for example, our scaled customers and there's about a third of them now That are using 3 or more channels is up over 40% year over Speaker 300:57:18year and then expansion of use cases. And when we Speaker 500:57:20look at our use case growth rates, The grow and retain and the acquire use case both grew well into the double digits year over year in revenue in the Q3. Speaker 200:57:31And by the way, we don't expect our long term direct versus indirect revenue to change and we have not changed guidance for that for 2024 or 2025 at this point. Speaker 1000:57:44Okay. Awesome. Thank you. And then just thinking about the gross margin, do you guys expect gross margins to have troughed here and improve? I know you guys said that they should be more similar Sequentially, but anything that we should keep in mind in regards to modeling 2024 gross margin and the considerations there? Speaker 1000:58:03Thank you. Speaker 500:58:04Yes, yes, of course. No, it's a good question. I think there was an earlier question in the same realm. And how we answer that was the first half of next year probably looks a lot like the second half of twenty twenty three. And then in the second half of twenty twenty four, you'd start to see a sequential improvement from there as the mix and the business grows with the agencies we're working with Speaker 1000:58:30Perfect. Thank you so much. Speaker 300:58:32Thanks a lot. Operator00:58:34Next question, Cody Kishala with Bank of America Securities. Please go ahead. Speaker 1200:58:40Hey, this is George on for Koji. Thanks for taking my question. It's great to hear encouraging about sales cycles improving and win rates kind of Remaining strong. I was just going to ask, have you guys seen any notable changes in the competitive landscape? And kind of when did you notice the sales cycles kind of improving? Speaker 200:59:07Yes. So good question. Thank you. I think starting earlier this year, we started to See a number of the big legacy competitors not getting invited into the final stages of RFPs. And that was a really interesting sort of turning point because it used to be a few years ago, we would get down to the final three And they would choose 1 of the big legacy providers because they were the big known brand. Speaker 200:59:39Now what we're seeing is We're not even seeing a lot of the big legacy providers make it to the final round even when they are the incumbent. And that has allowed us to shine in a very unique way and it's allowed us to continue to close At this greater than 50% rate, even while we're seeing more at bats, which once again is why we Delivered so many scaled customers and super scaled customers in the second and third quarter combined. Speaker 1201:00:15That makes sense. And I know you called out kind of greater brand awareness. This is Kind of one of the reasons you're getting more RFPs. Is there anything else to kind of call out there and what's kind of driving the strength there? Speaker 201:00:30Yes, we're seeing a lot of analysts give us attention that we never would have gotten before. As I said in my prepared remarks, we were named one of the best CDPs in the world, believe that was by IDC. Forrester continues to have us in the furthest Rightest quadrant of the leader category in marketing automation, messaging and a number of other categories. And I think that As they've evaluated our products, we've seen analysts which are very responsible for the RFPs, Right. So a lot of these RFPs start with the analyst groups. Speaker 201:01:10We're seeing analysts say you have to talk to Zeta. We simplify complex marketing problems and by putting data and AI as native to the application layer, not as step outs, We're able to move at a substantially accelerated speed with substantially more Operator01:01:41Thank you. I would like to turn the floor over to David Steinberg for closing remarks. Speaker 201:01:47Thank you, everybody. Obviously, an incredible quarter for Zeta in a very choppy market. I could not be more proud of our Zeta people than I am today because to get to these types of outputs, We must have the inputs. And as we look at our business and we look at our innovation and we look at our product development Zeta is at the forefront from a product, people and innovation perspective, we expect to continue to win in the So we thank you very much for your time today and we look forward to speaking to you again in the near future. Thank you. Operator01:02:48This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallZeta Global Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Zeta Global Earnings HeadlinesZeta Global sees price target cut at RBC ahead of Q1 resultsApril 28 at 1:40 PM | msn.comAdvertising Software Stocks Q4 Highlights: AppLovin (NASDAQ:APP)April 28 at 8:38 AM | finance.yahoo.comMassive red flag about American consumerWhy is the U.S. Dollar suddenly crashing? Pundits on either side of the aisle have been warning that the U.S. dollar would crash for years. In 2025, it looks like it finally is. What does that mean for you money... and was this President Trump's plan all along? A widely followed 25-year economist and investor explains exactly what's happening, what could come next, and how to position your money on this page here.April 28, 2025 | Stansberry Research (Ad)Zeta: Ambitious 2028 Growth Targets Set Against Ultracheap ValuationApril 25 at 11:06 AM | seekingalpha.comAdvertising Software Stocks Q4 Earnings Review: Zeta (NYSE:ZETA) ShinesApril 25 at 10:56 AM | finance.yahoo.comedgeTI names Zeta Global's Eric Slater to its boardApril 25 at 10:56 AM | msn.comSee More Zeta Global Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Zeta Global? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Zeta Global and other key companies, straight to your email. Email Address About Zeta GlobalZeta Global (NYSE:ZETA) operates an omnichannel data-driven cloud platform that provides enterprises with consumer intelligence and marketing automation software in the United States and internationally. The company's Zeta Marketing Platform analyzes billions of structured and unstructured data points to predict consumer intent by leveraging sophisticated machine learning algorithms and the industry's opted-in data set for omnichannel marketing; and Consumer Data platform ingests, analyzes, and distills disparate data points to generate a single view of a consumer, encompassing identity, profile characteristics, behaviors, and purchase intent. It also offers various types of product suites, such as agile intelligence suite, which synthesizes Zeta's data and data generated by its customers to uncover consumer insights that are translated into marketing programs; and CDP, which helps in consolidating multiple databases and internal and external data feeds and organize data based on needs and performance metrics. 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There are 13 speakers on the call. Operator00:00:00And welcome to the Zeta Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Schmidt, Speaker 100:00:27Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's 3rd Quarter 2023 Conference Call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors. Zetaglobal. Call today are David Steinberg, Zeta's Co Founder, Chairman and Chief Executive Officer and Chris Greiner, Zeta's Chief Financial Officer. Speaker 100:00:57Before 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 and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non GAAP financial measures, which should be considered in addition to and not as a We use these non GAAP measures in managing the business and believe they provide useful information for our investors. Reconciliation 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 other filings with the SEC. Speaker 100:02:05With that, I will now turn the call over to David. Speaker 200:02:09Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. Our Q3 of 2023 was one of our most Stentful and productive quarters yet, highlighted by key events including Zeta Live! Our Customer Advisory Board meeting And our first Investor Day. Most importantly, we continued our track record of consistent execution, Delivering results above our guidance for the 9th consecutive time. Speaker 200:02:40In the quarter, We delivered record revenue of $189,000,000 up 24% year over year With adjusted EBITDA of $34,000,000 up 51% year over year. This translates to an adjusted EBITDA margin of 17.9%, up 3 10 basis points year over year. We generated $23,000,000 of cash from operating activities, up 17% with free cash flow of $13,000,000 Up 43% year over year. On a year to date basis, our adjusted EBITDA and free cash Slow have grown approximately 70% faster than our revenue. Our strong results reflect our growing impact in the marketplace, Which was evidenced by the 50% increase in viewers for our 3rd annual Zeta Live conference To over 12,000 people, this year's Zeta Live conference brought together thought leaders from around the world To learn about the growing impact of AI, discuss innovation that drives business growth and hear from practitioners About the emergence of intelligent powered marketing. Speaker 200:04:04A full replay of every session is available in the Resource Center section of our website at zetaglobal.com. With hundreds of new brands And existing customers added to our pipeline, Zeta Live continues to be an investment in accelerating our business And raising our brand awareness, the evolution of Zeta Who to Y Zeta Was evident in record third quarter RFP volumes with even greater growth in dollar values As we experienced an increase in more complex multi channel opportunities, which was further driven by Zeta Live. Growing deal activity is just one indication of the market moving in our direction. We were also recognized in key industry reports. In the Q3, we were named a leader in the IDC Marketscape For omni channel marketing platforms for B2C Enterprises, the ZMP was recognized for simplifying the complex Marketing Ecosystem. Speaker 200:05:16While we still have further to go to achieve broader recognition across industry analysts, We believe our differentiated approach of bringing identity, intelligence and activation together in a Single platform position us well to win against our core competitors, including Oracle, Salesforce and Adobe. Our industry recognition along with our pipeline growth is fueled by our innovative product roadmap, Which is on full display at Zeta Live. With the release of the Zeta Opportunity Engine or ZOE, marketers have the ability to Ask critical marketing questions and receive real time answers. And through new forecasting and recommendation tools, Marketers can generate new ideas and strategies with speed and scale, so they can deliver Higher ROI and accelerate results. In addition, recent customer requests have Highlighted an opportunity to innovate upon basic mobile capabilities that have been the status quo in the market. Speaker 200:06:29Similar to the enterprise market moving on from its 1st generation CDPs, sophisticated marketers are seeking mobile To be integrated into a more comprehensive platform rather than used as a point solution. To capitalize on this opportunity, Zeta is making investments into expanding our enterprise mobile capabilities to fuel Conversational experiences. Feedback from customers and prospects at DataLive also reinforced our belief That we are at the beginning of a marketing cloud replacement cycle. In fact, at Zeta Live, we signed a multiyear 8 figure deal with 1 of the largest discount retailers in the United States to replace their legacy marketing cloud and consolidate 7 different vendors in their technology stack with just the ZMT. After an extensive search, they chose our next generation technology because of our identity, personalization, Customer journey and AI capabilities. Speaker 200:07:40This retailer is in the process of a multiyear Digital transformation that has re architected their entire tech stack to include our partner Snowflake, which is another key driver of our current record RFP volumes. This customer is an excellent example Of our belief that Zeta helps marketers with modern data architectures to deliver better experiences for consumers And reduce the total cost of ownership for enterprises seeking to replace legacy technologies. One of the fundamental problems marketers face today is the inability to deliver what consumers want due to a Personalization gap created by legacy systems. Even though data is abundant, Intelligence is scarce because legacy systems lack the sophistication to turn data and insights into action. Our software platform solves this problem by unifying complex and disparate sources of data Into a single view of the customer, our proprietary AI synthesizes billions of behavioral signals And environmental data to create intent based scores tied directly to the individual. Speaker 200:09:06We then activate this intelligence through marketing programs that combine precision and scale across every channel. This is intelligence powered marketing. Unlike legacy systems, the Zeta marketing platform has data nai is native to the application layer, offering a differentiated approach for sophisticated marketers seeking to control their data and extract more value from each interaction. This quarter, we also continued to grow our relationships with key players in the value chain, including agencies Where our strategy is to find opportunities to partner to enhance their assets and capabilities So that together, we deliver more to the world's biggest brands. Because this allows us to serve many brands to a Single business relationship. Speaker 200:10:07This one to many strategy accelerates our market penetration and exposes Zeta to marketing decision makers across a broad range of the enterprise brands. As we discussed at our Investor Day, the number of brands we serve is nearly 40% larger than a reported scaled customer count. Looking forward, in addition to our continued growth with agencies, the emergence Of the partner channel and the benefits of the replacement cycle, we expect the macro environment will continue to drive Scrutiny on how and where enterprises invest in marketing technology. As the need for efficiency And effectiveness rises. Enterprises are more likely to change to improve their marketing programs And lower their total cost of ownership. Speaker 200:11:07As we heard at Tate a lot, marketers are looking to consolidate spend with fewer vendors And simplify their technology stacks. Marketing budgets must be tied to measurable outcomes that generate a strong, Verifiable return on investment, Speaker 300:11:25which Zeta delivers. Speaker 200:11:29In summary, I'm incredibly proud of our team and what we have accomplished this quarter. We continue to be well positioned to capitalize on the need More efficient and effective marketing technology. As always, I would like to sincerely thank our customers, Our partners, team Zeta and all our shareholders for the ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail. Chris? Speaker 300:12:01Thank you, David, and good afternoon, everyone. During today's call, I'll focus on the drivers of our consistent execution along with key considerations for the Q4's outlook. Starting with the results, we delivered $189,000,000 in revenue, up 24% year to year. On an organic basis and adjusting for last year's political revenue, growth accelerated from 24% in 2Q to 26% this quarter. I'll note, our growth rate also includes continued headwinds from the insurance and automotive verticals. Speaker 300:12:35Our reported growth would have been in the mid-30s plus, Excluding these two verticals, the strength of our revenue growth this quarter was once again driven by scaled customer additions, Coming in above the high end of the model, we updated at our Investor Day of 8% to 12% growth. We ended the 3rd quarter with 4 40 scaled customers, Up 15% in 2Q and up 13% year over year. We also saw healthy growth from our 1,000,000 plus super scaled customers, which increased by 6 quarter to quarter to 124, up 17% year on year. The addition of CLM customers came from industries ranging from travel to education to several across advertising and marketing. As such, we continue to see strong diversification across industries, With 6 of our 10 largest verticals, once again growing more than 25% year to year. Speaker 300:13:29And for the 13th consecutive quarter, Scaled customer are approved with double digits, coming in at 418,000, growing at the same 10% rate we've seen throughout the year And at the midpoint of our 8% to 12% growth model. Like we've discussed in calls earlier this year, ARPU growth is influenced by the Best we've seen in closing pilots this year, with half of the 51 scaled customers added in the last 12 months in the less than 500 ks revenue band. This is an encouraging data point for us. If you refer to Slide 28 in our earnings supplemental, we show a multiyear trend demonstrating How scaled customers reliably grow spend the longer they're on data's platform. As illustrated on the slide, Scaled customers less than 1 year on the platform spend an average of $400,000 compared to the 1 to 3 year cohort spending $1,500,000 And the more than 3 year cohort spending over $1,800,000 Not only does this draw a trend line for the scaling potential of these less than 500 scale customers, But it also bodes well for net revenue retention. Speaker 300:14:37To that end, on a year to date basis, total beta net Revenue retention is within our 110% to 115% target range as we remain on track to generate half of our growth from new customers and half from existing customers. Now let me transition to the expansion opportunities we're seeing with agencies and how their contribution this quarter is flowing through our metrics and results. Our early experience with agencies has affirmed The effectiveness of our one to many strategy to accelerate market penetration. I'll outline in steps what we're learning from those engagements, How those learnings manifest themselves in our results and what it means to our P and L in the near, mid and longer term. Starting with lesson 1, by filling an intelligence and omni channel engagement gap, we believe The agency's success in our platform with a single brand can quickly lead to expansion into more brands. Speaker 300:15:41By way of example, The 15th scaled customers we added this quarter resulted in an incremental 45 unique brands. In 3Q, Most unique brands came from agencies and this should continue. Lesson 3, because Zaynah has closed partnerships with social and search engagement channels, Agencies can quickly pivot already budgeted spend to Zeta at the starting point. The agency can leverage Our data cloud and intelligence to build higher ROI campaigns inside the walled garden. This shows up as integrated platform revenue, Which due to 3rd party of media has a lower margin profile. Speaker 300:16:20This is where we stand today in the very early days of those engagements. So as we've ramped with agency customers, integrated platform revenue has been the first to grow, up 63% year to date and 44% In the Q3, in lesson 4, agencies need omni channel engagement strategies beyond just social and search. This is typically the next phase of Zeta's engagement and it translates to the use of Zeta's owned and operated channels such as CTV, display video, messaging and e mail. These are proven to drive a better ROI And this shows up as direct revenue and has a margin profile in the low to mid-70s. In the Q3, our direct revenue mix was 70% With our direct revenue growing 17% year to year, improving from 15% last quarter. Speaker 300:17:13By the way, direct revenue growth is also adversely impacted And lastly, Agencies are great long term customers. Their platform evolution from integrated to direct channels can take place over many quarters, resulting in both positive mix shift and increased spend. As an example, Theta's first large agency customer in 2020 Starting with 7% direct mix and $3,000,000 in revenue, growing to 76% direct mix and over $20,000,000 in revenue over a 3 year period. And the pipeline of agency customers we've signed and expect to sign have the potential to do the same and more. Bringing us back to Q3's results, our success in adding new agency business is the driver of integrated platform mix being up And for GAAP cost of revenue of 38.9 percent being up 110 basis points year to year and 280 basis points quarter to quarter. Speaker 300:18:17I want to reiterate, the margin profile of our direct revenue continues to hold firmly in the low to mid-70s. So the change in margin is principally driven by how early we are in the life cycle with new agency customers. Because we have visibility into the mix and margin dynamics of our agency growth strategy, we have plenty of runway to optimize operating expenses Without having to compromise new product investment, growing Zeta Live or increase in quota carriers. To this end, Total OpEx growth slowed to 11% year to year, excluding stock based compensation on a dollars basis and is down 490 basis We're seeing expense to revenue leverage from 2 primary drivers: 1st, savings in G and A And second, from wrapping on prior year sales and marketing infrastructure investments. On a combined basis, These two drivers accounted for 4.20 basis points of the overall 4.90 basis point reduction year to year in operating expense to revenue efficiency. Speaker 300:19:21As we sit here today, our quota carrier headcount is at 132 and we anticipate ending the year in the high 130s to low 140s, Roughly in line with our updated data 2025 model, our disciplined expense management and better productivity Resulted in an acceleration of our adjusted EBITDA growth to 51% year to year or $34,000,000 compared to 45% growth last quarter. In fact, adjusted EBITDA margin of 17.9 percent increased 310 basis points year to year. This is the 11th straight quarter in which we've expanded adjusted EBITDA margins year over year. On a GAAP basis, 3rd quarter net loss was $43,000,000 which includes $58,000,000 of stock based compensation. Excluding the accelerating expenses related to our IPO, Stock based compensation would have been $25,000,000 We continue to drive strong cash generation. Speaker 300:20:18Cash flow from operating activities was $23,000,000 up 17% year to year with free cash flow of $13,000,000 up 43% year to year. Now let me transition from the results to our outlook. The big picture first, we're fully flowing through Our Q3 revenue and adjusted EBITDA beats and raising the 4th quarter as seen on Slide 13 in our earnings supplemental presentation. Speaking first to revenue, we're increasing the midpoint of full year revenue guidance by $10,000,000 to $725,000,000 representing 23% growth. And we're taking 4th quarter guidance up $500,000 at the midpoint to $207,000,000 or 18% As a reminder, our 4th quarter revenue growth rate includes a 3 point headwind from last year's political revenue And facing continued pressure from automotive and insurance verticals. Speaker 300:21:16As we look around the corner to 2024, We expect these industries to become tailwinds with the insurance and automotive headwinds likely persisting into the Q1 and then turning positive in 2Q, With political being most prevalent in the second half of twenty twenty four. Also relevant to revenue, we expect 4Q direct mix to look a lot like the 3rd quarter With a similar cost of revenue profile as well. In terms of adjusted EBITDA, we're increasing the midpoint of full year guidance by 2,100,000 to $126,600,000 an increase of 37% year to year or 17.5 percent margin, up 190 basis points year to year. The 4th quarter adjusted EBITDA midpoint of guidance is $42,000,000 An increase of 29% year to year or 20.3% margin, up 180 basis points year to year. Before turning to Q and A, let me quickly close with a couple of final thoughts. Speaker 300:22:15We're growing revenue rapidly Even in the face of industry specific headwinds, with over 90% of the portfolio growing in the mid-30s plus year to year. We're growing customers rapidly. The 15 scaled customers added this quarter resulted in 3 times as many unique brands added, Evidence of the very early days of scaling of our new agency customers and we're rapidly expanding adjusted EBITDA and free cash flow. We're striking a balance of expanding adjusted EBITDA margins while managing for agency customer mix and gross margin dynamics Now let me hand the call back to the operator for David and me to take your questions. Operator? Operator00:23:01Thank you. We will now be conducting a question and answer session. First question comes from Jason Kreyer with Craig Hallum. Please go ahead. Speaker 400:23:35Perfect. Thank you, guys. Chris, I just wanted to clarify a little bit more detail on gross margins. You indicated the NPE mix for Q4 would be pretty similar to Q3. 3. Speaker 400:23:47Look, I know it's too early to give a guide for 2024, but I'm just curious what that progression looks like. Do you think next year looks more like 2nd half of the year, do you think it looks more like the first half of the year? Or do we just start to kind of see a progression in between those two figures? Speaker 500:24:05Hey, Jason. Thanks for the question. I appreciate it. I don't want to get too far into 2024 yet. But I think you can draw a trend line for we're in the early days with a lot of these agencies. Speaker 500:24:19I do believe that as we work Across 2024 that mix will then begin to become will still be an integrated component, but there will be more and more direct mix over time. So I think you said it well that the first half of twenty twenty four could look more similar to the second half of twenty twenty three and then improving in the second half of 2024 as that direct mix and those agency relationships get bigger and a positive mix shift happens. Speaker 400:24:47Appreciate the detail. And then David, we've talked for a few quarters on Bigger deal sizes, obviously, we're seeing that happen in the ARPU growth figures. Can you just dissect that in terms of what you're seeing from customers today? Just new channels that are being added, new use cases or any changes that you're noticing that are driving that Bigger ARPU growth and bigger deal size. Speaker 200:25:13Yes. First of all, thank you very much. I appreciate the question. I think what we're seeing first and foremost is as we've Switched from Zeta Who to YZeta, we're seeing much bigger RFPs, Much larger organizations that in the past might not have chosen us, they might have put us in the RFP, We might have gotten a good look at it, but we wouldn't have won because we didn't have the reputation and we didn't have the brand. We're now winning those. Speaker 200:25:42So it's not just channel expansion and use case expansion, it's just substantially larger organizations with substantially larger budgets Now what we're seeing a lot of is connected messaging. We're seeing messaging connected to CTV And we're seeing messaging connected to social, both of which are very, very powerful when you look at the return on investment through our use case capabilities. Speaker 600:26:15Appreciate it. Operator00:26:18Next question comes from Ryan McWilliams with Barclays. Please go ahead. Speaker 700:26:24Hey, Chris and David. This is Eamon on for Ryan. From a macro perspective, would you say that the environment was consistent from 2Q to 3Q? And what are you baking into guidance in terms of holiday season spend at this point? Speaker 200:26:41Well, first, yes. I mean, we saw some headwinds in automotive and insurance in the 1st three quarters of the year or the 1st two quarters of the year prior to this quarter. So That was pretty consistent. The good news was all of our other verticals really hung in there. And we saw most So, we continue to see a tale of 2 nations. Speaker 200:27:08The good news is there's far more good than bad, which is why we continue to over deliver. But there's still some choppiness in the market And we continue to grapple with that. Speaker 500:27:18I think, yes, there's a it's a good illustrative. It also goes to Jason's question around your deals. We included a new slide in the earnings supplemental, you'll find it in Slide 20, where a lot of the feedback we received coming out of the Investor Day was Continuing to clarify the competitive universe and what we've done is we've broken down how that marketer buys into categories around data management or CDPs, Marketing automation or the marketing clouds, if you will, and then paid media. What's interesting about the 8 figure deal that David mentioned, the discount retailer in his prepared remarks, Here you had Zeta's marketing platform that was able to address what 7 vendors were doing in 1. We replaced Salesforce for the Marketing Cloud. Speaker 500:28:01We replaced Acquia for the data management CDP and we replaced 5 other activation vendors on the engagement channel side. So A good illustrative why deals are getting bigger because we can consolidate all that, but there is still a need and a push with the replacement cycle And Zeta is filling that through lowering total cost of ownership and creating a better ROI. So just kind of brings those two questions together. Speaker 200:28:23Yes. And quite frankly, as you're seeing choppiness in the marketplace, We're seeing deals close faster and I think that was one of the reasons you saw our scaled customer count and our super scaled customer count grow faster than Clients are willing to take more risk in this environment, especially now that we're more of a known entity. They know who we are. They see us winning in the marketplace. They see the amount of savings we're able to drive to them through the elimination of point solutions And the ability to get to that very high level of intent quickly and we're seeing enterprises move faster to go through that pipeline. Speaker 700:29:07Got it. Perfect. And how do you guys think of enterprise customers And their budgets for 2024. And would you say there's any difference between the buying patterns of the normal customers and scaled customers? Speaker 200:29:22Yes. Interestingly enough, there's always been this narrative that marketing is one of the first things you can cut in a down environment. We are not seeing that. Now we're seeing some headwinds in certain industries, and we're trying to be very transparent about that. Some of that had to do with strikes, which fortunately have now settled. Speaker 200:29:43And some of that had to do with under reserving for coming out of COVID is related to how people were going to drive and get into accidents. We do believe those headwinds become tailwinds going into some point next year. And quite frankly, we're not seeing enterprises cut marketing. We're seeing enterprises invest The same, if not more, but at the same time, we're taking substantial market share in a growing market, Which is once again not to say that we're not without challenges as we've been very open with. But on the most part, We're seeing enterprises investing in their marketing and growing it. Speaker 200:30:28The only clarification, Eamon, in your question, Speaker 500:30:32Maybe you didn't mean it, but if I'm interpreting correctly, the scaled customers, all 4.40 of them, these are very large enterprises And obviously large agency as we've been discussing. So the difference between if you're at $100,000 to $1,000,000 and $1,000,000 plus is really the time you've spent on Zeta's platform, Your tenure with us and there's a slide in the earnings supplemental that shows those less than 12 month enterprise skilled customers That have been with us again less than a year spend an average of $400,000 The 1 to 3 year cohort then accelerates to an average of 1.5 and then the greater than 3 year cohort grows spends more than 1.8. So it's not really a kind of a normal and a super scale customer. They're all large enterprises. It's just time on the platform drives net revenue retention growth. Operator00:31:17Thank you. Next question, Arjun Bhatia with William Blair. Please go ahead. Speaker 800:31:23Perfect. Thanks, guys. And congrats on the execution and organic acceleration here. Chris, it seems like or maybe for David, this one, but it seems like the agencies still continue to be a strong growth driver. As you're thinking about just how the business evolves and how you dedicate your own go to market resources over the next year or 2, How do you think about balancing how much you're focusing on the agencies versus which customers you want to have a direct relation Chip, with like are there pros and cons and how do you allocate sales and marketing, your own sales and marketing resources to reflect that? Speaker 200:32:04As usual, Arjun, a great, great question. It is a bifurcation. It is a different team of sales People who sell into agencies and then go into work with the enterprises as a subset of the agency, then it is The salespeople who go directly to an enterprise. And I think the truth of the matter is we're trying to staff up in both. We have far more enterprise Salespeople then we have agency salespeople by the vast majority because that's what we've been doing for many years. Speaker 200:32:35But Like a lot of sort of baseball franchises, we're trying to bring in the world's best free agents In the agency space who can really bat cleanup and the people we're bringing in and you guys have heard me talking about this. I've been laying groundwork in the agency ecosystem for 4 or 5 years now. And the sales cycles there took a long time to Crack the code, they're cracked and we're now seeing that scale. But I want to be very, very clear. When we partner with an agency, We are partnering with that agency and the enterprise client directly. Speaker 200:33:16The agency is not hiring us and saying go across our customer They are bringing us in to the enterprise as the partner to the agency to either fill holes For product categories they do not have or help them scale certain components faster, but in 100% of the cases, We're directly working with the enterprise in partnership with the agency. So when you look at it, One sales rep can close multiple brands simultaneously by working with an agency whereas on an enterprise basis it's 1 to 1. I would say that we want to continue to focus on both. We're going to continue to staff up in both. And the good news about being ahead, Which is where we are is we're in a position to hire the world's best salespeople on both sides of the house. Speaker 500:34:08Yes, I think bringing it's a great David, bringing the math to it, I think there's an interesting sales productivity statistic on how we're investing in our go to market Arjun. It did to be led by quality over quantity. And when we add it, it's very data driven. For example, last quarter, we talked about on a trailing 12 month basis, we'd added 52 scaled customers, While adding 15 quota carriers over that same period of time, so roughly 3.5 quota carriers per scale customer added, this quarter we saw that improve pretty meaningfully quarter to quarter Where we've added 51 scaled customers over the last 12 months, while adding 11 quota carriers, so going from a 3.5 times to a 5 times leverage. And those 15 scale customers this quarter alone equated to 45 unique brands, each of which fit the scale of customer definition of spending at least 100 ks On a trailing 12 month basis, so productivity continues to be in our favor. Speaker 500:35:01We get really good leverage, as David mentioned, from the agency relationship, in addition to what we're seeing on the enterprise side. Speaker 800:35:08Perfect. That's very helpful color. And then, Chris for you, I think you had mentioned that the headwinds In auto and insurance, that kind of continued this quarter and maybe sometime in 2024, those flip and Become a benefit. Can you just give a sense for how the magnitude of the headwinds are trending quarter to quarter from Q2 to Q3? And What visibility you have into any improvement with those verticals? Speaker 800:35:38I mean, what might those customers be saying qualitatively That gives you some conviction that they might improve from a spending perspective next year? Speaker 500:35:47Sure. The 3rd quarter was a little bit worse in terms of an aggregate headwind than the second. 4th quarter will be better than the 3rd, But it will still be with us as a headwind and it will still be with us although less so in the Q1 of next year. And we expect that headwind to then turn into a tailwind Going into Q2 and beyond of 2024, quantitatively or I should say, from what we're hearing from Our public company customers, we all are also seeing them from financial metrics they're posting, what they're saying in their earnings calls They are also seeing the environment improve. So I don't think we're at the I think we're on our way kind of upward again versus still on that downward trend. Speaker 200:36:33It's also conversations we're having. Remember, we have a tremendous number of success oriented people in our organization that are helping our enterprise clients To figure out how to better manage their marketing and we're embedded with most of these clients. They're very large customers on a historic basis And we're getting buying signs that are very clear asking for plans, talking about the future For the first time in quite some time. So I think it's quantitative and it's qualitative that we do believe this We'll go from being a headwind to a tailwind here sometime in the near future. Operator00:37:16Thank you. Next question comes from Elizabeth Porter with Morgan Stanley. Please go ahead. Speaker 600:37:23Hey, guys. This is Chris Cantero on for Elizabeth Porter. David, maybe one for you. I know you all have talked about getting kind of more at bats can lead to Accelerating growth. So just curious, when you think about the new at bats that you're getting today, what go to market channels are those mostly coming in through? Speaker 600:37:40And Where do you think more of those at bats can come from over the next year? Speaker 200:37:45Yes, great question. Thank you. I think that first of all, People are undervaluing our relationship with Snowflake. It's really been an important component of our RFP strategy, Both when they're bringing clients to us from a partnership perspective and when we are bringing clients to them, We're able to do more as a collective and we continue to see a large number of at bats. In my prepared statement, I did say that RFP volumes hit an all time record in Q3, which was up from a record in Q2. Speaker 200:38:21So we continue to see a lot of it In addition to agency relationships, where we could potentially be partnering with professional services firms And working with them for more at bats. But on an absolute gross basis, I have Never seen our pipeline go up more than I did after Zeta Live. We just had an incredible group of potential clients come. We had An incredible group of existing clients come and came out saying, wow, what how do we do this together or how do we do that together? And we were really as it relates to at bats, I think we're starting to see a really Citing number of them. Speaker 200:39:12And quite frankly, I think that we're continuing to win a disproportionate percentage The RFPs and engagements that we get invited to do, which is why we had such a large growth in scaled customers and super scaled customers in the 3rd quarter. Speaker 600:39:32Awesome. Very helpful. And then I also wanted to ask on the mobile opportunity. I know you all have talked about it being a key channel and one where you're looking to improve your capabilities there. I guess, how big of an Could this be for you and what do you need to exactly improve upon and could M and A be a part of that solution there? Speaker 200:39:51Yes, we always look at buyer bill, but the truth of the matter is that today we have a series of partnerships and we have a series of products in mobile. We believe with the elimination of Apple's IDFA, which I will remind everybody again, we never used in the first place, There is now a unique opportunity in the mobile environment for the first time to really consolidate And grow our business. And we are starting to see meaningful RFPs as it relates to connected Campaigns that include not just messaging and not just CTV and not just social and other, but mobile. And we continue to have the right products at the right time. We are continuing to build out our own products and we continue to Where we think there are best of breed partners that we can work with. Speaker 200:40:45Quite frankly, we have bought some of those guys in the past and we might in the future. But as I always I believe that transformative deals transform both companies for the worse. So we will continue on with our Discuss M and A strategy that we talked about at length at our Investor Day, where we'll continue to do smaller tuck in deals where we think we can pick up Great people, great technology, great data and can syndicate those products or can I should say integrate those products Into the ZMP and then allow all of our clients to use them? Speaker 300:41:24Excellent. Thank you so much. Operator00:41:27Next question, D. J. Hynes with Canaccord Genuity. Please go ahead. Speaker 600:41:32Hey, good evening, guys. Congrats on a nice quarter. Chris, one for you on the direct revenue mix as it pertains to the agency customers. As those customer relationships mature, would you expect That mix of direct and indirect revenue to start to look like your direct enterprise relationships over time or will it always be kind of structurally A little bit higher indirect revenue? Speaker 500:41:57No, I mean, look, I think you got to learn from experience. And in our case, we have Number of examples, the most material of which, as I mentioned in the prepared remarks, the first large global agency we began working with in 2020 Spend $3,000,000 with us and only 7% of that was direct revenue. If you fast forward to ending 2022, It was an over $20,000,000 a year customer and 76% of that spend was using our direct channels. And as you'd expect the margin profile of that business evolved half of our direct revenue mix And it's been holding steady. The gross margin profile there is between the low 70s and mid 70s. Speaker 500:42:39This quarter was closer to the mid 70s. So Yes. We do expect that as those relationships get more tenured, not only do they get bigger, but the mix starts to balance out and look a lot like Our first example with that large global holdco in 2020. Speaker 600:42:53Yes. Okay. Got it. Makes sense. And then David, maybe a high level Question for you. Speaker 600:42:58So I'm sure you're early kind of in the planning cycle for 2024, but as you think about the sequencing of investment dollars, like what are your highest priority initiatives at this Speaker 200:43:09Well, as Chris said, it's a little early to get into 2024. But I mean, I think you will see us continue to invest heavily in generative AI, where our goal is to automate everything. We'll continue to invest heavily into salespeople and high quality engineers, right, that can help us to do those things, Which quite frankly were also things we talked about on our Investor Day. I do think mobile is going to be a bigger and bigger part Of what we do and I think we're going to start more heavily investing in the partner channel where we are working with Larger professional services firms that have direct relationships with enterprises where we can partner with them to bring our products through them Into the enterprise and roll out a suite of analytics products as partners, roll out Different deliverables that the professional services firms can build on top of the ZMP. We've already begun meaningful conversations in that ecosystem and we'll be investing in that as we continue to grow the business. Speaker 600:44:21Yes, very good. I appreciate the color. Thank you, guys. Speaker 500:44:24Thanks, TJ. Operator00:44:25Next question, Brian MacDonald with Needham and Company. Please go ahead. Speaker 900:44:31Hi, congrats on a great quarter and thanks for taking my questions. Maybe piggybacking off of the agency question from before from DJ, I'm curious, As you continue to add brands and deepen those relationships, do you expect that when you start with a new brand that it will continue To be at that heavy mix of indirect or will the agencies as you grow with them have better experience saying As we add on an incremental brand that each incremental brand will start with a greater mix of direct versus indirect. Hopefully that was clear. Speaker 200:45:06No, it was clear and it's a great question and the answer is absolutely the latter. As the agency gets more comfortable with the platform, they Start with new brands already on platform. And we are seeing a lot of that where when they jump from social, Which is integrated to CTV or online video or integrated messaging, all of that is on platform. So what happens is usually it's a nose under the tent and it's not usually with 1 brand. It's usually with 2 or 3, where you're starting On integrated. Speaker 200:45:45And as we get to know them and they start using the platform, they see The power of being on our platform. So one of the most interesting things about this is why did that other agency Go from 7% on platform to 76% on platform. It wasn't just because they liked us. It's because the power of being on platform is very evident and very clear when you begin to use it. The return on investment, The attribution capabilities, the ability to access data assets are substantially higher. Speaker 200:46:24Therefore, once they start using it, they want to use it for all their clients, which is why you see that accelerate as a percentage of revenue as they grow to new brands. Speaker 900:46:37Super helpful. Thanks for the color there. And David, in terms of the priorities for next year, you talked about having meaningful conversations and really investing in the partner channel. As we've been at industry conferences, it's clearly an area where the SIs are putting a lot of focus in terms of making an investment. How competitive are the conversations, if you will, amongst the best of breed vendors like AZEDA and others To try to be the established partner or CDP for some of these large SIs right now, do you think it's a, I guess, a winner takes all in terms of the partnership side or do you get the sense it's going to be sort of multi sourced opportunities? Speaker 900:47:18Thanks. Speaker 200:47:19Unfortunately, I think it's going to be multi sourced opportunities. I don't think you're going to see the large service providers consolidating behind 1, Which by the way is really good for us because they're already working with 2 or 3 of our competitors. So it allows us to get in there and get our nose under the tent. What I do believe As I believe that our products are best of breed. I believe we have the best CDP. Speaker 200:47:44I believe we have the best data cloud. I believe we have the best messaging system, and I believe we have the best activation system in the world. So all things being equal, I believe That those service providers are going to recommend our products over our competitors because our products are superior. The other thing that I think is really important here We've never really had a deliverable that the service provider could build on top of what we do before. And one of the things we learned is if they don't have a deliverable that can be built on top of your platform when our platform doesn't really require the type of integration That most of our competitors do, right? Speaker 200:48:24Because if you choose Salesforce, Oracle, Adobe, you're going to have to spend 1,000,000 of dollars on integrating those platforms with Accenture, Merkle or others, with ours, you don't need to do that. So that we were coming from behind. We've now built Some direct deliverables that these service providers can build to their clients has added value on top of the ZMP, Which are also subscription services to the service provider, which I don't know anybody else who's doing that. So as I talk to the service providers, they want to move as much of their revenue to subscription as possible and the deliverables that we've built for them Our recurring revenue in nature versus our competitors, which is integration revenue in nature, and we're getting a lot of excitement on that. Speaker 900:49:19Excellent. Thanks for the color and congrats again. Operator00:49:23Next question from Richard Baldry with ROTH MKM. Please go ahead. Speaker 1000:49:28Thanks. If we look historically, 4Q is on a dollar basis, always been Sequentially a lot stronger than what we see out of the Q3. That's not implied in your guidance this time around. Sort of curious, is there anything we need to normalize out of there? Or do you think it's just Your typical conservatism or is there something about macro that we should be thinking about? Speaker 1000:49:49Thanks. Speaker 500:49:51No, Rich, it's really if you look at the starting point growth rate for the Q4 at 18%, I think we've started every quarter's Next quarter's guide at a similar level 18% or 19%. What you do and I think is a fair normalization is last year's political is a 3 point headwind. You could say the 18% is really 21%. But no, I mean we're very comfortable with the guide, Very comfortable with both the top and the bottom line guide. And as we look forward to 2024, the tailwinds we've had Some of these very strong signings quarters and by the way, if you when the queue comes out tomorrow, you'll see that it's not cause for victory lap by any stretch, but It's a big improvement in RPO going from $135,000,000 in RPO to $210,000,000 this quarter. Speaker 500:50:40So I think that tailwind kicks in next year, political kicks in. As I mentioned, auto and insurance, we think in Q2 turned positive. So, we think Q4 is going to be a nice running start into the Q1 of next year. Speaker 1000:50:54And you talked about sales cycles accelerating, which is not the experience of a lot of the companies. Talk about maybe on the competitive win side of the table, the win rates. As you're getting into larger engagements and people are more, say, committed to legacy vendors, it Obviously, it should be harder to displace those. So do you think there's some trade off over maybe the intermediate term where competitive win rates might come down a little, but Still a net positive because you're getting into engagements you might not have previously, but just Speaker 500:51:23a little tougher to pull Speaker 1000:51:24the legacy vendor out It may be your first go around, but it might set you up to win it the next time around. Speaker 200:51:31It's funny you say that. We thought that would happen. I've said Privately and publicly that as we dramatically increased RFPs, we would probably see our close rate go below 50%. We've not seen that, Rich. We continue to close greater than 50% of the RFPs and engagements we get invited to. Speaker 200:51:50I think what's happening We are really entering a cycle where people are looking to upgrade from their 1st generation clouds in their 1st generation CDPs and they know that the large legacy vendors have not invested $0.01 Into their products in the last few years. As I like to joke, right, Salesforce's side hustle used to be their Marketing Cloud. Now their side hustle is Slack and their marketing cloud is the side hustle to the side hustle. And as those organizations have cut investment, Which we've seen across the board, we're seeing a lot of those cuts being done in Marketing Cloud, which Is allowing us to further the distance in capabilities and quality of our technology to theirs. And Quite frankly, we're winning bigger deals than we've ever won before at the same percentage that we've Consistently won over the years, which even in some cases surprises us. Speaker 200:52:57I probably shouldn't say that on this call, but quite frankly, it does. Speaker 1000:53:03Great. Congrats on a great quarter. Speaker 200:53:07Thanks, Rich. Operator00:53:08Next question, Zach Cummins with B. Riley Securities, please go ahead. Speaker 1100:53:14Hi, good evening. Thanks for taking my questions. David, I know you outlined generative AI as one The key areas of investment going into next year, can you just talk about some of the early adoption you've seen from your ZOE product and how really that could transform into maybe Driving even further adoption of your Zeta marketing platform over the next 12 or 18 months? Speaker 200:53:36Yes, it's almost incredible How many people are using the ZOE component of the data analysis tool? It's effectively today A generative AI platform that becomes your own internal data scientist, so you can ask real world questions. What are my most valuable audiences? Where am I losing money from a marketing investment perspective? What cohorts of my existing customers are Buying more products from my competitors than they are from me. Speaker 200:54:08All of those are real world questions that people are using. And what we're finding is clients who are using ZOE are spending substantially more money on the platform. And our goal is to roll ZOE out to all of our clients in the very near future, and we think that will continue to drive Additional adoption rate and additional utilization of platform. As Chris points out all the time, if you look at the period of time that clients are on our platform, you can draw a line up into the right with the amount of You can draw a line up into the right with the amount of money they spend. We believe ZOE will accelerate that And take the top of that line even higher. Speaker 1100:54:53Understood. That's helpful. And Chris, just one question for me regarding free cash flow. With the increasing traction with agencies in the near term, I mean, can you talk about the dynamics and how we should think Speaker 500:55:06I think the best example is if you look through our financial statements In the Q and what's been published in the press release, you'll see that there was about an $8,000,000 working capital headwind, And that's principally driven by the days sales outstanding going from 55 days to 68 driven by the agencies Period. If you plug that back in, you would have been looking at cash conversion to EBITDA in the 60s. So we but it is a reality that we're going to wrap on that. We think by the second half of next year that normalizes. So we'll live with it. Speaker 500:55:41We'll look for another couple of quarters. But you should start to see that cash conversion move up. Speaker 200:55:47And we don't expect it to affect our 2025 plan in any way shape or form. Speaker 1100:55:55Got it. Well, thanks for taking my questions and best of luck with Q4. Thank you. Operator00:56:01Next question, Camden Leddy with Oppenheimer. Please go ahead. Speaker 1000:56:05Hi. This is Camden Leddy sitting in for Brian Thank you for taking my question. In regards to the updated 2025 guidance for direct revenue mix, is most of the Expansion on a forward basis going to be coming from channel expansion or is it more so branded option? And I was wondering, could you like stack rank The drivers for that metric as it relates to 2024? And then additionally, did the mix shift impact your ARPU growth expectations directly? Speaker 1000:56:34Anything there that you could provide would be helpful. Thanks. Speaker 500:56:38Sure. Thanks and good to meet you. Good to get the question. If I go back to the Investor Day when we adjusted the direct revenue mix to 75%, we really pegged it to what we've seen over the last 12 months and if you think about the growth of the overall business, not just the direct revenue, but the overall business and the ARPU, It's driven principally by 3 different forces continuing to do more with existing customers through a single channel they've chosen. Although now it's more driven by multi channel adoption. Speaker 500:57:09So this quarter, for example, our scaled customers and there's about a third of them now That are using 3 or more channels is up over 40% year over Speaker 300:57:18year and then expansion of use cases. And when we Speaker 500:57:20look at our use case growth rates, The grow and retain and the acquire use case both grew well into the double digits year over year in revenue in the Q3. Speaker 200:57:31And by the way, we don't expect our long term direct versus indirect revenue to change and we have not changed guidance for that for 2024 or 2025 at this point. Speaker 1000:57:44Okay. Awesome. Thank you. And then just thinking about the gross margin, do you guys expect gross margins to have troughed here and improve? I know you guys said that they should be more similar Sequentially, but anything that we should keep in mind in regards to modeling 2024 gross margin and the considerations there? Speaker 1000:58:03Thank you. Speaker 500:58:04Yes, yes, of course. No, it's a good question. I think there was an earlier question in the same realm. And how we answer that was the first half of next year probably looks a lot like the second half of twenty twenty three. And then in the second half of twenty twenty four, you'd start to see a sequential improvement from there as the mix and the business grows with the agencies we're working with Speaker 1000:58:30Perfect. Thank you so much. Speaker 300:58:32Thanks a lot. Operator00:58:34Next question, Cody Kishala with Bank of America Securities. Please go ahead. Speaker 1200:58:40Hey, this is George on for Koji. Thanks for taking my question. It's great to hear encouraging about sales cycles improving and win rates kind of Remaining strong. I was just going to ask, have you guys seen any notable changes in the competitive landscape? And kind of when did you notice the sales cycles kind of improving? Speaker 200:59:07Yes. So good question. Thank you. I think starting earlier this year, we started to See a number of the big legacy competitors not getting invited into the final stages of RFPs. And that was a really interesting sort of turning point because it used to be a few years ago, we would get down to the final three And they would choose 1 of the big legacy providers because they were the big known brand. Speaker 200:59:39Now what we're seeing is We're not even seeing a lot of the big legacy providers make it to the final round even when they are the incumbent. And that has allowed us to shine in a very unique way and it's allowed us to continue to close At this greater than 50% rate, even while we're seeing more at bats, which once again is why we Delivered so many scaled customers and super scaled customers in the second and third quarter combined. Speaker 1201:00:15That makes sense. And I know you called out kind of greater brand awareness. This is Kind of one of the reasons you're getting more RFPs. Is there anything else to kind of call out there and what's kind of driving the strength there? Speaker 201:00:30Yes, we're seeing a lot of analysts give us attention that we never would have gotten before. As I said in my prepared remarks, we were named one of the best CDPs in the world, believe that was by IDC. Forrester continues to have us in the furthest Rightest quadrant of the leader category in marketing automation, messaging and a number of other categories. And I think that As they've evaluated our products, we've seen analysts which are very responsible for the RFPs, Right. So a lot of these RFPs start with the analyst groups. Speaker 201:01:10We're seeing analysts say you have to talk to Zeta. We simplify complex marketing problems and by putting data and AI as native to the application layer, not as step outs, We're able to move at a substantially accelerated speed with substantially more Operator01:01:41Thank you. I would like to turn the floor over to David Steinberg for closing remarks. Speaker 201:01:47Thank you, everybody. Obviously, an incredible quarter for Zeta in a very choppy market. I could not be more proud of our Zeta people than I am today because to get to these types of outputs, We must have the inputs. And as we look at our business and we look at our innovation and we look at our product development Zeta is at the forefront from a product, people and innovation perspective, we expect to continue to win in the So we thank you very much for your time today and we look forward to speaking to you again in the near future. Thank you. Operator01:02:48This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by