NYSE:ZETA Zeta Global Q4 2023 Earnings Report $13.40 +0.26 (+1.98%) Closing price 04/28/2025 03:59 PM EasternExtended Trading$13.40 0.00 (0.00%) As of 04/28/2025 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-$0.22Consensus EPS $0.14Beat/MissMissed by -$0.36One Year Ago EPS-$0.36Zeta Global Revenue ResultsActual Revenue$210.00 millionExpected Revenue$207.53 millionBeat/MissBeat by +$2.47 millionYoY Revenue Growth+19.90%Zeta Global Announcement DetailsQuarterQ4 2023Date2/27/2024TimeAfter Market ClosesConference Call DateTuesday, February 27, 2024Conference Call Time4:30PM 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)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Zeta Global Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 27, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Greetings. Welcome to Zeta's 4th Quarter 20 3 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. Operator00:00:20I will now turn the conference over to Scott Smith, Senior Vice President of Investor Relations. Thank you. You may begin. Speaker 100:00:27Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's 4th quarter and full year 2023 conference call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors. Zetaglobal.com, where you will also find links to our SEC filings along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's Co Founder, Chairman and Chief Executive Officer and Chris Greiner, Zeta's Chief Financial Officer. Speaker 100:00:58Before 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, 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 substitute for our GAAP results. We use these non GAAP measures in managing our business and believe they provide useful information for our investors. Speaker 100:01:53Reconciliations 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. With that, I will now turn the call over to David. Speaker 200:02:10Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. 2023 was a record year for Zeta that finished with a strong Q4, once again exceeding our expectations. For the full year of 2023, we delivered revenue of $729,000,000 up 23% year over year. This marks our 4th consecutive year exceeding 20% revenue growth and we are guiding to a 5th year of 20% growth in 2024. Speaker 200:02:49Over the past 4 years, we have also expanded our adjusted EBITDA margins by 1,000 basis points with over 200 basis points of expansion this past year alone to 17.8% or $129,000,000 in adjusted EBITDA. Today, the marketing ecosystem is in a state of change. AI has moved from theoretical to a boardroom conversation with Chief Marketing Officers mandated to make AI more actionable to deliver greater efficiency and better experiences for consumers. These CMOs are increasingly looking to Zeta as evidenced by the strong growth in our RFPs and our sales pipeline. Because AI has been at the core of the ZMP for many years as opposed to many months, We believe that we are at the forefront of a wave that is driving a replacement cycle. Speaker 200:03:54We currently have more than 1 125 patents issued and or pending around AI, machine learning and other advanced technologies. Marketing has not been able to capitalize on the AI revolution because of an enduring problem. In most enterprises, data is abundant, but intelligence is scarce. The Zeta Marketing platform is closing this intelligence gap by allowing customers to use our generative AI with their data and not share it back to the collective. Our investments in 2024 are about making AI more actionable, delivering better experiences for consumers and widening Zeta's moat. Speaker 200:04:46These investments include strengthening our agile intelligence offering, expanding our mobile capabilities and extending GenAI into new and additional use cases. One of the most exciting developments is the rollout of a new product initially called Intelligent Agent Composer. This creates Gen AI agents that provide dozens of intelligent and automated tools that make our customers more efficient and more effective. Customers will be empowered to build their own intelligent agents within our platform, allowing them to power workflows and customer experiences specific to their brand and their needs. In this model, data becomes even more essential and a more sticky partner to our clients. Speaker 200:05:45Early gen AI products have unlocked creativity and personal productivity, but they have yet to realize their transformative potential for enterprise marketing ecosystems. Our intelligent agent composer has the power to change that. We expect to monetize this new product and additional GenAI functionality multiple ways, creating new billable modules, generating higher consumption and lowering the burden of marketing resources within enterprises and agencies. Going deeper into our mobile strategy for 2024. Today, mobile engagement largely operates as a point solution within enterprise environments. Speaker 200:06:37We see a dual opportunity. 1st, integrate mobile into a more comprehensive platform and second, deliver conversational experiences using GenAI. We believe our intelligent platform provides a competitive advantage for marketers looking to deliver real time personalized experiences for consumers and is a natural fit for mobile environments. For example, we are currently working with a large national retailer to develop a mobile solution to enhance the in store selling experience by putting Zeta's data cloud and the ZMP in the hands of salespeople to deliver real time customer engagement at the point of sale. This simplifies the complex task of logging into multiple systems for answers on the status of an order, inventory or personalized client data. Speaker 200:07:40The ZMP connects to all subsystems and provides information via a simple conversational interface on a mobile device. Today, mobile accounts for less than 2% of revenue through our platform, but we believe it has the potential to be our next $100,000,000 plus business, similar to how CTV is scaling. Our unique position in the market and continued investment in AI powered marketing technology is also creating interest across the ecosystem as we expand our relationships with system integrators. We are in advanced discussions with an array of SIs, including an exciting joint implementation at a large enterprise where solutions spanning data management as well as customer acquisition, growth and retention will be replaced by the ZMP. Overall, our SI implementation is a multiyear rollout and we expect it to have a larger impact into 2025 beyond. Speaker 200:08:57Zooming back out, I also wanted to spend a minute on recent industry headlines related to cookie deprivation and email deliverability. These changes only elevate the importance of Zeta's proprietary first party data as opposed to relying on 3rd party cookie data to identify individuals. In terms of email, the new requirements from Google and Yahoo! Are in line with what we have already incorporated into our infrastructure. Our observations pre and post their rollout show equal to and in some cases even better deliverability and higher open rates. Speaker 200:09:43In short, we believe these changes enhance our competitive position by elevating the value of our identity graph and further improving the effectiveness and return on investment for the ZMP for engagement. Building upon what we discussed at our September 2023 Investor Day, we are taking action on investor feedback related to dilution and stock based compensation. First, we are guiding to bring dilution from incentive based compensation down from 5% in 2023 to 3.5% to 3.75% in 2024. In terms of stock based compensation, we are also planning to evolve how we incentivize senior management. By way of example, Chris Greiner and I along with others are planning not to receive any restricted shares this year. Speaker 200:10:47Instead, equity incentive compensation would be based on performance stock units, which are tied to the appreciation of Zeta's share price and will more closely align us with shareholder value creation. These changes in addition to continuing to benefit from a lower level of pre IPO stock based compensation flowing through our P and L places Zeta on a trajectory to achieve GAAP based profitability in the Q4 of 2024. At the same time, our goal is to continue to invest in innovation and build the strong culture with the foundation of corporate responsibility. In fact, for the 2nd year in a row, I'm proud to share that Zeta was recognized as one of Built In's best places to work. I'm also pleased to announce that for the 2nd year in a row, we achieved carbon net neutrality, which is an important accomplishment for perspective and existing customers as well as our employees. Speaker 200:11:59In closing, 2023 was an incredible year for SADA, but we believe 2024 will be even better. As always, I would like to sincerely thank our customers, our partners, Team Zeta and all of our shareholders for their ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail. Speaker 300:12:30Chris? Thank you, David. I'm excited for all that we're covering today, but let me start with the punch line. First, we're taking share while growing efficiently. I'll cover what is contributing to another quarter year of exceeding guidance, being above the rule of 40 and growing faster than the market. Speaker 300:12:502nd, we're leveraging our flywheel. I'll share the financial profile and the flywheel effect of our direct and integrated revenue streams and how we're expanding and cross selling our new large agency customers to Zeta owned channels. And third, we're guiding ahead of the street, while remaining prudently conservative. I'll wrap up by outlining how 2023's headwinds shift to become 20 24 tailwinds. Altogether, we're executing on our plan, capitalizing on our competitive advantages and guiding 2024 from a position of strength. Speaker 300:13:29Now let's dive into each of these with more color. Starting with the Q4 and full year 2023 results, in 4Q, we delivered revenue of $210,000,000 up 20% year to year or 22% excluding M and A and the prior year's political revenue. Full year's revenue was $729,000,000 up 23% year to year or 24% excluding M and A and the prior year's political revenue. This exceeded our initial 2023 guide of $691,000,000 by $38,000,000 or 5.5 percent and also includes a 7 point growth headwind from our 2 challenged verticals of automotive and insurance. Combined, these two verticals accounted for approximately 10% of revenue in 2023, meaning 90% of Zeta grew over 30% in 2023. Speaker 300:14:26Our ability to consistently exceed guidance and drive 20% plus revenue growth over the past 4 years comes from strong visibility into our Zeta 2025 KPIs. Let's dive into those now. We ended the year with 4.52 scaled customers, who as a reminder account for 97% of total Zeta revenue and spend at least $100,000 on a trailing 12 month basis. This was up 12% from 3Q and 49% or 12% from a year ago at the high end of our 8% to 12% model. We saw accelerated growth in our 1,000,000 plus super scaled customers, which increased by 7 quarter to quarter to 131 and up 27% year to year. Speaker 300:15:12The addition of scaled customers are coming from an array of industries, most notably consumer retail, education, tech and media and travel and hospitality in addition to others, demonstrating the wide application of our platform and continued healthy diversification of customers. To that end, 6 of our 10 largest verticals once again grew more than 25% year to year. In terms of scaled customer ARPU, 4Q grew 7% with the full year up 10% to $1,570,000 coming in at the midpoint of our 8% to 12% growth model. This was driven by customers using 2 or more channels, which increased 27% year to year. Our scaled customer cohort trend slide on number 12 in the supplemental deck shows how our PRU reliably increases the longer our customers are on the platform and really illustrates the drivers of high net revenue retention. Speaker 300:16:14For example, scaled customers less than a year on the scaled customers less than a year on the platform spend an average of $600,000 with many starting at smaller pilots. This group accounted for less than 10% of 2023 revenue. Scaled customers with 1 to 3 years on the platform spend an average of $1,300,000 or 2.3 times more than those with less than a year on the platform. And scaled customers with 3 or more years tenure spend an average of $2,100,000 or 3.6 times more than those with less than a year on the platform. The progression of these cohorts is important for a couple of reasons. Speaker 300:16:51Of the 49 scaled customers added in the last 12 months, 27 are in the 100 ks to 600 ks band, meaning this cohort has the potential to more than double in the next 12 months. And with 90% of Zeta's revenue generated from customers with us more than a year, we have strong forecasting visibility. This is a good lead in to net revenue retention, which is 111% for the year. Excluding the impact of the automotive and insurance industries, net revenue retention would have finished the year at 118%. Our model net revenue retention is 110% to 115%. Speaker 300:17:33And as we sit here today, I would expect us to be towards the high end of that range in 2024. Switching to another one of our Zeta 2025 KPIs, direct revenue mix, which is an area we want to help investors understand. Definitionally, direct platform revenue is generated when customers use Zeta's data, analytics and owned channels to perform their marketing activities on the ZMP, whereas integrated revenue is generated from non Zeta owned channels, principally social networks like Meta, TikTok and others. In terms of the financial attributes of direct revenue, direct mix is consistently greater than 70% of total Zeta, at a 70% to 75% margin profile with approximately 2 thirds of direct revenue being recurring. From a growth perspective, direct revenue grew 15% year to year or 23%, excluding the 2 challenged industries of automotive and insurance. Speaker 300:18:31If we simply assume the percentage of 2024 direct revenue is consistent with 2023, which I see as a balanced assumption, you have a $600,000,000 direct business growing approximately 20% with margins and recurring revenue mix about 10 points above the corporate average. Where the flywheel comes into play is the customer journey from social to Zeta owned channels. This is most relevant with our new large agency customers as illustrated on Slide 13 in our supplemental deck. Agencies utilize Zeta's data cloud and intelligence products to identify individuals who are in market and reachable inside the walled garden. This powerful proof point of Zeta's intelligence and seamless connection points into the walled gardens forms the foundation for building omni channel journeys on Zeta's own channel. Speaker 300:19:27This is a new and compelling way to think about the profile of the direct business along with the long term value large agency holdco's bring to Zeta. This dynamic of direct and integrated revenue mix was the primary driver of changes in GAAP cost of revenue throughout 2023. Cost of revenue in the quarter was 40.2%, up 260 basis points year to year and 130 basis points quarter to quarter, driven primarily by the growth in integrated revenue from newly added agency customers starting their journey on social channels. Our 4th quarter GAAP net loss was $35,000,000 which includes $63,000,000 of stock based compensation. Full year 2023 GAAP net loss was $187,000,000 which includes $243,000,000 of stock based compensation. Speaker 300:20:21Excluding the accelerated expensing related to our IPO, stock based compensation would have been 102,000,000 dollars 4Q total operating expense growth slowed to 3% year to year, excluding stock based compensation and is down 6.40 basis points as a percentage of revenue. This same leverage was visible over the full year, down 4 10 basis points as a percentage of revenue. Our disciplined expense management and better sales productivity resulted in continued adjusted EBITDA margin expansion. In the quarter, we generated $44,800,000 in adjusted EBITDA, up 38% year to year with 280 basis points of margin expansion to 21.3%. On a run rate basis, we're 2 years ahead of the 20% implied margin target as part of Zeta 2025. Speaker 300:21:18In 4Q was the 12th straight quarter, we've expanded adjusted EBITDA margins year to year. Full year 2023, we delivered adjusted EBITDA of $129,400,000 up 40% year to year with adjusted EBITDA margins of 17.8 percent up 2 20 basis points year to year. Cash flow from 4Q operating activities was $27,000,000 up 17% year to year with free cash flow of $18,000,000 up 32% year to year. For the full year, cash flow from operating activities was $91,000,000 up 15% year to year with free cash flow of $55,000,000 up 39% year to year. This despite a $25,000,000 working capital headwind primarily from the expansion of our agency business. Speaker 300:22:09Now I'll wrap with guidance. First, a handful of points to communicate our approach to guidance and slides you can reference in our supplemental deck. 1, even by starting ahead of the Street, we see our full year guide in revenue and adjusted EBITDA as prudently conservative, which is outlined on Slide 17 in the supplemental. 2, like last year, we're providing guidance for each quarter of the year on Slide 18, which is based upon the SKU of 2022 to take into consideration political cyclicality. 3, along those lines, as seen on Slide 19, we're showing how much of each quarter's revenues associated with political candidates. Speaker 300:22:53We see this as simply a starting point. 4, we're guiding to the full year 2024 free cash flow, showing an increase in cash conversion as we wrap on working capital headwinds from newly added agency Holdco customers. To 5, as David mentioned, we're targeting a decrease in dilution from incentive based stock compensation at 5% to 3.5% to 3.75 percent on route to GAAP profitability by the Q4 of 2024. As for the details, we're guiding the midpoint of full year 2024 revenue to $875,000,000 up 20% year to year and the Q1 revenue at $187,000,000 up 19% year to year at the midpoint of our range. We have a starting placeholder of political candidate revenue in 2024 of $15,000,000 with $2,000,000 in 2Q, dollars 5,000,000 in 3Q and $8,000,000 in 4Q. Speaker 300:23:51We're guiding adjusted EBITDA at the midpoint of full year guidance of 100 and $66,000,000 or 19 percent margin with 1st quarter adjusted EBITDA of $29,100,000 representing a margin of 15.5 percent at the midpoint of our range. We're guiding full year free cash flow in the range of $75,000,000 to 85,000,000 translating to 48% conversion of adjusted EBITDA at the midpoint, up from 42% in 2023. In summary, we see our 2024 guidance, which already exceeds The Street's growth rate by 300 basis points and adjusted EBITDA by $8,000,000 as a good starting point with high visibility to tailwinds that layer throughout the year. With that, let me hand the call back to the operator for David and me to take your questions. Operator? Operator00:24:42Thank Our first question is from Ryan MacDonald with Needham and Company. Please proceed. Speaker 400:25:08Hi, thanks for taking my questions and congrats on an excellent quarter. David, as we think about in 2024, you talked about some interesting sort of priorities around the strategy and some really interesting product investments. As we think about sort of intelligent agent, Composam and mobile the mobile strategy, how do you look at the magnitude of impact or maybe how you're building any impact in terms of expectations into sort of 2024 outlook from contributions from these newer offerings? Speaker 200:25:42Well, first of all, thank you, Ryan. We appreciate it. We obviously were incredibly proud of the quarter. When we look at and talk about new development, I think philosophically you should always think that we don't need that to get to the guidance that we're giving. So as we look at the investment into the intelligent agent, we look into the investment of mobile, it's already fully baked in to our investment into the company and how we think about it from a guidance perspective. Speaker 200:26:15But we also are not including it in what we expect to deliver from a revenue perspective. Now, obviously, we believe the intelligent agent is a massive revenue opportunity where for the first time we will begin to sell our artificial intelligence products instead of just using them for efficiency. And mobile is one of I joke that post the elimination of the IDFA, it's become almost like the Wild West where most organizations are taking a very small sample, call it 8%, which is the one that's most talked about and they're extrapolating that whereas we can go into the mobile ecosystem and really focus on deterministic attribution using the Zeta ID. If either of those were to really hit, I think that would give us upside to the estimates that we put out there. And I think Chris said it best when he said not only are we starting the year at 20%, I think if I remember correctly, last year we started the year at 17% from a guidance perspective and finished at 23%. Speaker 200:27:21This year we're starting at 20%. We feel those numbers are already conservative. This would be a part of what would be additional upside. Speaker 400:27:32Really helpful. Maybe as a follow-up, Chris, for you. So maybe 2 topics to talk about with the guidance as well. So obviously, auto insurance industry's challenge last year. Can you just talk about what you're seeing in terms of sight lines or pipeline building that gives you confidence in maybe stabilization or recovery there this year? Speaker 400:27:50And then just curious on the conservatism that you're building in from the political contributions this year, maybe what you're seeing in the market, why you felt that $15,000,000 was the right starting point and maybe potential for upside from Speaker 300:28:07there? Thanks. Speaker 500:28:09Thanks, Ryan. On the first question around the 2 challenged verticals, the automotive vertical and the insurance vertical, The short answer is very good visibility into the sales pipeline, much of that frankly already starting late 4Q. So it will already start to feather in beginning in the Q1. So feeling really good about the return of those industries back to growth in 2024, probably even starting to see some in the latter part of the first half of this year. As it relates to your other question, which was around our political assumptions, You'll recall that in 2020, we did $15,000,000 of political revenue and we did about half of that $7,500,000 in 2022. Speaker 500:28:53We wanted to just start with the baseline of what 2020 was knowing that it was likely conservative. What's also good to recall though is that advocacy tends to draft off of political. So the combination of candidate revenue and the work we do with advocacy groups, both are probably conservative on our outlook and would have upside throughout the year and we'll continue to provide visibility as to what we're assuming for political candidate revenue as well. Speaker 400:29:21Excellent. Congrats again. Operator00:29:26Our next question is from Elizabeth Porter with Morgan Stanley. Please proceed. Speaker 600:29:32Hi, thank you so much. I wanted to go back to the example that you provided in mobile. You talked about getting the technology enhanced salespeople, which I thought was interesting and it sounds like you may be getting into a new end user there outside of the traditional marketing department. So if so, kind of would love to hear who you might expect to compete within the segment? Should we view this as a TAM expander? Speaker 600:29:56And how you plan on addressing a potentially new buyer segment with an additional wallet opportunity? Thank you. Speaker 200:30:03Great question as usual, Elizabeth. We appreciate it. The answer is yes to both. So we see an opportunity to add mobile as a channel to our existing scaled and super scaled customers, which today would increase our TAM pretty dramatically when you think about it, because we've never really played in that mobile ecosystem because quite frankly, while the IDFA was around, there was a lot of efficacy there and there were a lot of players running around there. With the elimination of the IDFA, the efficacy of that channel has dissipated ratably. Speaker 200:30:42So it puts us in a very unique position where we can take assets that we already own, which is the $240,000,000 plus opted in individuals, which we can tie back to the Zeta ID number, which we can identify in the mobile ecosystem. So it gives us an advantage that nobody else in the mobile ecosystem has outside of the walled gardens. So it's a very unique opportunity to do that. At the same time, what we're finding is CIOs want to buy our technology as well. So there's the opportunity to expand from just focusing on the marketing to also selling the technology directly to the CIOs. Speaker 200:31:27And I think you're going to see some very big developments out of Zeta this year as it relates to the sale of our technology to CIOs to power other functions of their businesses in addition to the marketing function. Speaker 600:31:46Great. And just as a follow-up, I wanted to ask about the sales cycles that you have with working with agencies versus directly with enterprises. On one hand, you might have more decision makers sitting at the table, but on the other hand, you have that trusted agency partner. So is there any opportunity for accelerated sales cycles or lengthening sales cycles as you're working with more agencies? Speaker 200:32:11Yes. So it's another great question. I think when you work with agencies, you work with them in 1 of 2 ways. It's very interesting. You go in as a master relationship to the agency and then you go from enterprise to enterprise, which is dramatically faster than when we go directly to an enterprise ourselves. Speaker 200:32:32Put in perspective, some Fortune 500 companies can take up to 6 months to move from contract through procurement, through data security, through legal, whereas when you're doing it in partnership with the HoldCo, it's turning it on. So it moves very, very quickly. The other thing is there are some agencies that literally manage the marketing on behalf of the enterprise themselves. And what we're starting to do is as we've expanded from 1 to now what our 3 agency HoldCo clients, where they're able to just say, let's do this. And we're seeing that side of the business scaling quickly, but massively shortening the sales slot. Speaker 200:33:20Elizabeth, first, welcome back. Speaker 500:33:22On Slide 13, because this is a topic we spend a lot of time with investors on recently is understanding the relationship between direct revenue and integrated revenue and the role that our new agency holdcos are playing in that. And what we've shown on Slide 13 is the journey of our first holdco from now several years ago to recent holdcos. And what you'll note is that those recent holdcos are starting significantly bigger initial investments with Zeta with the same opportunity to expand, but also evolve and shift to their mix over time. So it's laid out, I think, well on Slide 13. Thanks for your question. Speaker 600:33:58Okay. Thank you. Operator00:34:01Our next question is from Jason Kreyer with Craig Hallum. Please proceed. Speaker 700:34:07Great. Thank you. David, I just wanted to ask if you can maybe summarize how the your conversations with customers have evolved around AI over the last couple of quarters and then maybe how you see Zeta's opportunity evolving with that? Speaker 200:34:23Well, thank you, Jason. As I think I said in my sort of scripted notes, and it's something I say a lot, AI has moved from theoretical to really starting in the boardroom. And what I'm seeing is the board is saying to the CEO, what's your AI strategy? They then go down and they sort of yell at the CMO, what's our AI strategy and how do we keep our data protected and safe? And those CMOs are often calling me and saying, what do we do here, right? Speaker 200:35:01So when you look at our ability to put a CDP in place, which creates a closed ecosystem for the client's data, you're then able to append our data in. You're adding, in many cases, 1,000,000,000 and in some cases even 1,000,000,000,000 of data points to their data and the algorithm can operate inside of there. So by way of example, you've got a lot of people talking about large language models, you've got some people talking about small language models. I like to joke we're a midsized language model. We have the benefits of the large language models with the security, safety and privacy of the small language models for our data. Speaker 200:35:45And every CMO that I'm talking to is asking for products around efficiency for their business. And once again, you look at our new agent product, that is going to disintermediate very highly paid data scientists inside of our clients' ecosystems. And in some cases, it's not disintermediating anybody. They just can't even get enough bodies to do the work. So our ability to automate all of that and now sell it to them and the way we look at it is, listen, if they're paying a data scientist $250,000 a year, why not pay us $50,000 a year per instance? Speaker 200:36:28And you're talking $4,000 or $5,000 a month on a subscription basis as you roll that out. And you just have to do that thousands of times, which is actually not as hard to do with the number of scaled and super scaled clients we have. So I would tell you, Jason, that this is becoming day to day conversation. But the solution that Zeta has by putting the CDP in place, allowing the algorithms to operate with their data in conjunction with our data without ever risking their data going out into the environment or out into the ether has been a game changer in our conversations. And by the way, I think it's one of the reasons you're seeing that ripple through our numbers and ripple through our projections. Speaker 700:37:15Thank you. I wanted to squeeze in one for Chris. Just on the gross margins and I know you just talked about agency influence and direct and indirect. I think you've appropriately telegraphed kind of the trajectory of gross margins. I just want to ask on we saw that slide a little bit from Q3 to Q4. Speaker 700:37:36As we look into 2024, do you think we've hit a bottom in gross margins or do you have an idea of when that bottoms out before you kind of get the reacceleration of the direct mix? Speaker 500:37:50Jason, thanks for the question. So here's where our head is at on gross margins and it's I think you articulated really well is that I think 4Q it bottoms out or did bottom out. With the upside now in 2024, so kind of setting the base at that 60% level, the upside beyond there is tied to how quickly we move those new large agency customers from integrated to direct channels, that's lever number 1. Lever number 2 is how quickly we see our automotive and our insurance customers start to grow again who happen to be at the higher end of our gross margin mix in terms of channel usage on the direct platform. And then 3rd, where political and advocacy also comes in. Speaker 500:38:36So those 3 should begin to work our way up throughout the year starting at that base point of around 60. Speaker 700:38:45Perfect. Thanks guys. Operator00:38:50Our next question is from Koji Ikeda with Bank of America. Please proceed. Speaker 800:38:56Hey, guys. Thanks so much for taking the questions. A couple from me here. First one, I wanted to ask a question about Boomerang customers with you. You guys have been in the market for over a decade now and I'm sure over the past 10 years plus, many customers have tried out the Zeta platform before, but my gosh, the Zeta platform has changed quite a bit since the early days. Speaker 800:39:17And so just wanted to hear a little bit about commentary about how customers have come back to Zeta after trying Zeta before. What are some of the most common reasons why you've seen customers come back? Speaker 200:39:27Koji, so it's actually really we're laughing here because it's been a big thing lately where we've been sort of like using the term back to the future where, I mean, one of the world's largest fashion houses, very recently came back to us at scale after leaving us for 3 years because they felt like they needed to use one global platform for everything. Think one of the large marketing clouds, which might be owned by a large technology holding corporation. And what they found was their marketing clouds couldn't deliver what the Zeta Marketing Platform could. And it's funny, we talk a lot about disintermediating point solutions, but there was a big move a few years ago that you had to move everything. Your publishing, all of your sales force management to one company globally and you saw some companies over the years leave us to go to those bigger platforms. Speaker 200:40:34We are quite frankly even surprised by how many of them are coming back because those guys just can't deliver on what they talk about in the Marketing Cloud. Now they might be really good at Salesforce automation. They might be really good at publishing, right? They might be great on financial services packages and databases, but they're not great marketing clouds and they're really not able to deliver the data with the artificial intelligence is native to the application layer, which is becoming a bigger and bigger problem. So, it's funny you ask it and it's been a trend that has been something that's literally been to the point that we have been focusing on revisiting with customers that we lost a few years ago and winning them back at a higher rate than even our traditional RFP win rate. Speaker 800:41:28Got it. That's super helpful. And a follow-up here maybe for Chris. As I look at the deck for the Q4 and compare it against the deck for the Q3, question here really on stock based compensation. It looks like it ended up this year about 10,000,000 dollars to $12,000,000 higher than we're on the non IPO side than when it was originally guided to last quarter. Speaker 800:41:50And it looks like it's about $10,000,000 higher for 2024. So just really wanted to understand the dynamics there. Thanks. Speaker 500:41:59Thanks, Koji. On the stock based compensation side, much of that was the awards that happened in the first half of twenty twenty three. There were some compensation related end of year grants that were made. But I think more importantly kind of zooming out to the prepared remarks, we are very focused and we're really acting on 3 primary areas from being on the road extensively in 2023, feedback specific items from investors. The first is taking dilution down tied to incentive compensation. Speaker 500:42:33So going from 5% in 2023 dilution to now guiding to a pretty substantial reduction year over year to a dilution rate of 3.5% to 3.75% en route to 3% over time. The second area of feedback was around our guidance approach and wanting to just continue to be more predictable and tighter in guidance rather than have these wild swings and beats. We're going to continue to be a beat raised company, but tightening that up a little bit. And then David, you talked to the 3rd area. It's been Speaker 200:43:07Yes, the big thing in Koji, as you know, I've been personally out there with Chris and Scott over the last couple of quarters and that's a trend that will continue as I begin to spend more time with investors. Case studies, right? One of the things we hear a lot is, gosh, what you're doing is so cool, but it's so confusing to Wall Street. How do you simplify it and how do you get case studies? So today for the first time in Zeta's history, we are putting forth multiple named client case studies and we expect that to be a trend that will continue. Speaker 200:43:48Our goal is to continue to work with our enterprise clients to add more case studies. Chris is now writing on a piece of paper that I should say this is slides 27, 2829. I don't think anybody would believe I actually remember that. So I'll give you full credit for that, Chris. But at the end of the day, what we're doing makes a massive difference to our enterprise and agency clients. Speaker 200:44:17And putting forth what those case studies are, we think will help us as we grow as a company. So I know that was a very long answer to a very short question around comp, stock based comp, but I will point out not only are we moving from what has traditionally been 5% plus to 3.5% to 3.75% on the road to 3% dilution, which is what we think is the right goal, we are also making a decision as a senior management team to take no restricted shares this year. So I'm taking only performance stock units as is Chris Greiner, as is Steve Gerber and as is Steve Vine. And we will be more aligned with shareholders as they will require increases in stock price for us to get those to vest, not just time, because we want to make sure that all of our existing shareholders know that they're being heard and we're making the decisions to do a better job in the things that they want us to do. Speaker 800:45:26Got it. Thank you so much guys. Appreciate it. Operator00:45:30Our next question is from TJ Hynes with Canaccord Genuity. Please proceed. Speaker 100:45:37Hey, guys. This is Luke on for TJ. Thanks for taking the question. So I was wondering if you can flesh out your comments a bit on the intelligent agent and mobile opportunity. I recognize it's still early days there, but any early thoughts on sort of penetration potential across your existing customer base? Speaker 100:45:56And then also on how that rollout could impact margins over time? Speaker 200:46:02Yes. Thank you, Luke. Listen, we're really excited about this intelligent agent product because to me and I don't want to get too ahead of ourselves here, but not only does this begin to help our enterprise clients to do a better job running their business, but it gets into what I really, really am excited about long term, which is business intelligence. We talk about intelligence at the core of our product today. How do we extrapolate that down the road into true business intelligence products, and I believe this is the first jump into that. Speaker 200:46:41We have almost 500, I think I can say that, scaled clients And the goal is to get a disproportionate percentage of them to adapt these products or adopt these products in the coming months, quarters and years. And once again, I want to reiterate, they're not baked into what we think are conservative projections around 20%, but they're upside to that. And I think that they carry traditional software margins. So you're talking, I don't know if that's mid-80s or high-80s, but you're talking about a high margin product, but it's coming into a pretty sizable base company, meaning we'll have to get a bunch of clients on board to move the needle from a margin perspective. What I can tell you is we believe our clients are going to adopt them. Speaker 200:47:35We believe they're going to adopt them at scale. And we do believe that in the long run, these products will help us continue to move our gross margins up. Speaker 100:47:46That's great to hear. And just to follow-up, a lot of streaming companies are rolling out ad tiers nowadays and we think that probably notionally increases the size of the CCB market opportunity for you guys. Do you have a similar perspective there? And any impacts on your business as you've seen that rollout? Speaker 200:48:10Yes. So it's interesting. Yes. So to answer your question, unequivocally, the more of these streaming platforms that insert ads pre I call it pre roll, but it's not always accurate, but sort of pre the beginning of the content, the middle of the content, the end of the content, all of the above, every one of those units is a massive opportunity for us. And to be totally transparent, we are already plugged into all of them. Speaker 200:48:40So we see this as a unique opportunity to expand out. Now the largest platform sort of started off trying to get these massive minimums out of enterprises to partner with them and it didn't work quite the way they had originally planned to say the least. They've now come back and we're seeing what we think are very unique opportunities to scale that business with all of the streaming platforms including the largest one. Speaker 500:49:12We had a neat growth quarter actually in the Q4, Luke, on CTV. It grew 30% Speaker 900:49:19quarter to quarter. Speaker 500:49:20And if you follow the pattern of CTV's usage around advocacy and political, one word foreshadow would be a nice year in 2024 as well. Speaker 200:49:28I mean, it's Chris beat me to the punch as usual. I shudder to use the term political. I generally call it all advocacy for a host of reasons, but obviously our advocacy business does and the way to really do that is CTV not linear. So we see this as a big opportunity to your point, Luke. Speaker 100:50:00Awesome. Thank you. Operator00:50:03Our next question is from Zach Cummins with B. Riley Securities. Please proceed. Speaker 100:50:10Hi, good afternoon, David and Chris. Congrats on the strong 4Q and thanks for taking my questions. Chris, my first one is more of just a clarifying question. I believe there's a year over year decline in your super scaled customer ARPU here in Q4. I'm assuming most of that's related to headwinds with auto and insurance, but just wanted to get some clarity around that and expectations for growth in that metric moving forward? Speaker 500:50:34Yes. No, I think that is the driver. What's interesting on the scaled customer count side, we've got 131 now, which is up 7 quarter to quarter, but on a year over year basis was up 27% in count with the revenue associated with superscalves customers up 25%. There's a good slide that we update annually in the slide deck that demonstrates the progression of scaled customers in their tenure, which I think is a really good kind of progression, if you will, on how they spend with us, where those year 1 scaled customers, which was around 10% of this year's revenue, their average revenue spend is around 600 ks. If you go to that next tier of 1 to 3 year scaled customers, they spend more than 2 times that on average at 1,300,000 and then you go to that next cohort of now more than 3 year tenured scaled customers, they're spending 3.5 times as much as the year 1 at over 2,000,000. Speaker 500:51:32So it's a nice way to demonstrate the stickiness of the platform as we talked about the net revenue retention for the year was right in our model of 110 to 115 at 111. But if you exclude automotive and insurance to your question, that net revenue retention was 118%. As I said as part of the prepared remarks, we think we'll be at the high end of that 110% to 115% range just as we sit here today in 2024. Speaker 100:51:58Understood. And my one follow-up question is most of your growth over the past couple of years has really been driven by your direct go to market motion and investing in that. But it seems you're starting to get more opportunities on partnership side, especially the system integrators. So just curious of how you're thinking about investments in the direct channel versus maybe leaning into some of these channel partnership opportunities? Speaker 200:52:24It's a great question, Zach. Obviously, we've added channel partners in Snowflake, AWS. We've added the agency channel, which is sometimes directly with the agency, sometimes partnering with them to go to other enterprises. We are going live with our first two SI integrations, probably be done with them this quarter, perhaps early Q2. So this has also gone from sort of what we want to do to what we're doing. Speaker 200:52:55We're very excited about the SI environment. And what we're seeing is enterprises are going to their SI vendors and asking them to work with us in addition to us going to the SIs and saying we'd like partner with you. I want to reiterate again and I'm sure I'll sound like a broken record, but if I don't, Scott will kick me under the table. Our currently conservative projections do not include meaningful revenue in the SI channel for this year, which is not to say we don't think it could be meaningful this year and which is not to say that we don't expect it to be meaningful in the years to come. But to have gone from talking about this to where knee deep in 2 integrations with them now, which will launch 2 separate systems integrators with 2 separate enterprises, we're very excited about those prospects. Speaker 100:53:55Great. Well, thanks for taking my questions and best of luck in the coming quarter. Speaker 200:53:59Of course. Thank you. Operator00:54:01Our next question is from Arjun Bhatia with William Blair. Please proceed. Speaker 1000:54:08Hey guys, thank you and nice job on a strong Q4 here. When we kind of talk to customers and agencies throughout the ecosystem, it seems like this the CDP layer certainly is an important differentiator to drive more personalization. I know you guys have a pretty strong CDP layer yourself. But can you maybe just talk about when you're going up against or going to customers in RFPs, like how much of a factor is that in deciding to choose Zeta versus some of the players? And maybe if you could compare and contrast the CDP layer relative to your data capabilities, where customers are placing more emphasis in recent RFPs? Speaker 200:54:54It's a great question, Arjun. Listen, I would say that our CDP technology is as good, if not better than any other CDP technology in the world. And I will also tell you that the vast majority of the large holdcos, as it relates to technology holding corporations that say they have CDPs or really DMPs that they've sort of rebranded. So when we go up against a lot of those big guys, we're really able to talk about what a CDP is, right? What does that stand for? Speaker 200:55:29It's a consumer data platform. And what does that mean? It means you can see to the absolute individual level of your customers by record. It doesn't mean you're building cohorts, it doesn't mean you're putting together large sort of segments. It means you can see an individual. Speaker 200:55:49Most of these other large companies can't do that, right? They're just not there. And most of the smaller guys who are coming up, they either run it as a standalone product, which is quite hard, or it's part of another perhaps roll up or something that it's sitting inside of there. So when we look at our technology, we think it's best to breathe. Now it's hard to bifurcate that from our data and data quality because it's such an important component of how we sell the product, right? Speaker 200:56:24The ability to import all of your data to the CDP, the ability to match on average greater than 80% of that data to the Zeta Data Cloud, The ability to append into your data 100, if not 1000 of incremental data elements. The ability to seamlessly integrate our algorithms around natural language processing and now generative AI into that CDP while keeping all of their data safe while simultaneously importing the data from the Zeta Data Cloud. There's just nobody else out there that can do those things. So I don't know why people choose us as it relates to is our technology superior, is our data superior, is our AI superior. What I know is we're winning greater than 50% of the RFPs and engagements we get invited to participate in and there's an average of 12 enterprises that show up to compete in each one of those RFPs. Speaker 200:57:25So I think that the collective is really important. And to just final put a final sort of footnote on that, I can't think of anybody who's bought a CDP from us that didn't integrate our data, right? There's just no reason not to. Like it's extra data that imports that you can't get from any other source in the world because we don't sell our data to anybody at any time at any price. So I do think it's pretty interconnected. Speaker 200:57:54If a client came to us and said we'd like to buy your CDP and we don't want to integrate to your data cloud, we're more than happy to do that and I think we would win that as well if that makes sense. Speaker 1000:58:04Yes, yes, that's clear, super helpful. And if I can maybe follow-up again on some of the agency traction that you're seeing in the mix between direct and indirect. Do you have a sense for some of these newer agencies that have come on since you started this initiative? How their mix is either shifting or how they're kind of indicating to you that they may shift the mix in 2024? Are we getting signs that they're shifting more to direct? Speaker 1000:58:36Or is it a little bit too early to tell at this point? Speaker 200:58:40Yes. So it is early to tell. But I think as Chris eloquently pointed out, we think that gross margins sort of hit bottom in Q4. And one of the big opportunities is migrating those large agency holding corporations the exact way we've migrated the first one that we worked with where I know there's a great slide on that in our deck because they showed it to me earlier today, but we went from Slide 13, Chris is writing it down for me again. So on Slide 13 of our supplemental investor deck, you can see how that client started at sub-ten percent and grew to greater than 70%, right, over the years. Speaker 200:59:23We believe that our other 2 scaled agency hold corps are going to follow a very similar pattern. Now the one caveat is we're drinking out of the fire hose with some of these guys. I mean it's growing rapidly. And as those divisions are growing rapidly, are you able to migrate the other guys fast enough for the 3rd or new guys coming in? What I really care about and this might be an unpopular thing to say, but to me, I've always aspired to run a company that was at the rule of 40. Speaker 201:00:05And that's sort of what I've looked at, right? Not only did we deliver our 7th quarter in a row above the rule of 40, we have guided this year to the rule of 40. And a lot of that is because even if the gross margins stay in the low 60s, the gross margin on the agency hold companies is substantially higher than our operating margins. It's higher than our long term operating margin goals and they take on very limited incremental overhead. So most of that money drops to the EBITDA line at a substantially higher percentage than the actual current operating margins even in the Q4. Speaker 201:00:52So yes, we think they'll come back. Yes, we think we'll migrate them. But to me, what matters is are we going to grow the business greater than 20%, we believe we will. And are we going to see greater than a 20% operating margin? We believe we will. Speaker 201:01:07So I think we're in good shape for this year. Speaker 1001:01:11Appreciate that. Thank you. Operator01:01:15Our final question is from Richard Baldry with ROTH Capital Partners. Please proceed. Speaker 901:01:21Thanks. First one may or may not even be a question, but I think in the past I've heard that the average number of people in HRP was higher. I have a number of 17 in my head. If I'm wrong, then just disregard. But if it is higher, who would you be seeing sort of fading out of the competition, sort of smaller, midsize or larger? Speaker 901:01:42And then the second question would be around free cash flow. And I came on later, so I'm not sure if this has been addressed. But over this year's guidance and then the 2025 guide that you're ahead of, you generate something close to $200,000,000 in free cash flow. Could you talk maybe about where your priorities are to deploy that, either more aggressive buybacks offensively on acquisitions, pay down of debt, just so we have some idea where that's going to get deployed? Thanks. Speaker 201:02:12Rich, so no, thank you for joining. We know you're on vacation. I didn't even know you took vacation. So I appreciate you're joining us from it. Yes, it used to be a larger number showing up to the RFPs. Speaker 201:02:24And what we're seeing is the point solutions are just not being invited the way they used to be, right? So you've got especially around CDPs where you have a lot of small independent CDPs that are really having a tough time as standalone businesses. And quite frankly, we're not seeing some of the former European players who were talking a big game a couple of years ago. We're just not seeing them anymore. So it is down and I have said $17,000,000 in the past and now I would say $12,000,000 I had a funny joke to make around the $200,000,000 in free cash flow, which Chris told me not to tell, but I will let Chris talk to what we're going to do with the next 2 years just to quantify for anybody else listening. Speaker 201:03:13That would be about $200,000,000 between $24,000,000 and $25,000,000 combined. Speaker 501:03:17I think we'll continue to be opportunistic on share buyback. We'll continue to be opportunistic on M and A. And I think Steve Vain and David did a really neat job laying out what does opportunistic mean for M and A at our Investor Day. But we're very focused on increasing free cash flow conversion. You'll see that the guide this is the first time we've put out an in year guide on free cash flow. Speaker 501:03:39We've obviously had the long term model. But at $80,000,000 in free cash flow at the end of 2024, that represents 48% conversion up from 42% the last 2 years. So continuing to get up to that 55% level. I think it's interesting, we talked about in the prepared remarks, Rich, we had $25,000,000 working capital headwind from the agencies and just their difference in payment cycles than our enterprise customers. If not for that headwind, if it just would have been neutral, conversion would have been in the 60%. Speaker 501:04:08So there's a we see a nice clear path as we get through the years of continuing to increase that percentage. David, anything you'd want to close with? Speaker 201:04:16Yes, I just and to that point, we knew that was going to happen and we said it was going to happen at Analyst Day, right? So when we did our Investor Day, we were clear about that. One of the things you do when you work with these very large agency hold companies is you understand that you're going to be paid a little bit slower than you're normally paid. The good news is we've collected 99.999 percent of the revenue. I'm not allowed to say 100. Speaker 201:04:45I can't think of ever writing any of it off, but I'm sure somebody slow paid out or didn't pay us on Speaker 301:04:50a dollar at some point. Speaker 201:04:52I'm being facetious, so I shouldn't do that on this call. But we collected all and it's put us in a very unique position that we have the balance sheet to be able to do that where a number of the smaller competitors do not have the balance sheet to partner with those large agency hold companies, which is giving us yet another competitive advantage as we move into the marketplace. And by the way, Rich, as we put more cash on the balance sheet, it puts us in a position to more M and A, more buybacks, but it also puts us in a position to do more deals like this, where we're able to expand and scale even faster as a company. Speaker 901:05:38Great. Thanks for the commentary and congrats on a great quarter. Operator01:05:44We have reached the end of our question and answer session. I would like to turn the conference back over to David Steinberg for closing remarks. Speaker 201:05:52Well, I will close it as I think I've closed the last few, which is thank you. I really appreciate all of the different constituencies that are involved in our organization. 1st and foremost, our Zeta people. I do believe we have built one of the best teams in the world. It was funny because we had had some meetings recently with an organization that was trying to get to know us for a whole host of reasons and they called me and said, you have one of the best management teams I have ever experienced and I believe you could run a company 10 times bigger than the current loop current one you're running. Speaker 201:06:29And I very quickly said I look forward to doing that in the next 5 to 10 years. But the reality is we have an incredible team, we have incredible people who really work their butts off to deliver for our clients, keep us on the cutting edge innovationally and focusing on doing the absolute best job we can while simultaneously creating one of the best places to work. I also deeply appreciate the analysts who follow us. I know there's a lot of time and a lot of companies you can follow. I deeply appreciate our shareholders who have stuck with us and believed in us and our goal is to make you look really smart over the next year or 2 as we continue to execute. Speaker 201:07:13As I like to say internally, this was our 10th consecutive quarter of beating and raising. I look forward to next December when I can say or next February whenever, when I can say this is our 14th consecutive quarter of beating and raising. And I want to thank our customers who have really banked their relationship with their end users and their enterprises on the Zeta people and the Zeta platform. Thank you very much and I hope everybody has a wonderful day. Bye. Operator01:07:45Thank you. This does conclude our conference. Thank you for your participation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallZeta Global Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) 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.comWarning: “DOGE Collapse” imminentElon Strikes Back You may already sense that the tide is turning against Elon Musk and DOGE. Just this week, President Trump promised to buy a Tesla to help support Musk in the face of a boycott against his company. But according to one research group, with connections to the Pentagon and the U.S. government, Elon's preparing to strike back in a much bigger way in the days ahead.April 29, 2025 | Altimetry (Ad)Zeta: Ambitious 2028 Growth Targets Set Against Ultracheap ValuationApril 25, 2025 | seekingalpha.comAdvertising Software Stocks Q4 Earnings Review: Zeta (NYSE:ZETA) ShinesApril 25, 2025 | finance.yahoo.comedgeTI names Zeta Global's Eric Slater to its boardApril 25, 2025 | 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. Zeta Global Holdings Corp. was incorporated in 2007 and is headquartered in New York, New York.View Zeta Global ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Alphabet Rebounds After Strong Earnings and Buyback AnnouncementMarkets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial Earnings Upcoming Earnings AstraZeneca (4/29/2025)Booking (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Regeneron Pharmaceuticals (4/29/2025)Starbucks (4/29/2025)American Tower (4/29/2025)América Móvil (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 11 speakers on the call. Operator00:00:00Greetings. Welcome to Zeta's 4th Quarter 20 3 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. Operator00:00:20I will now turn the conference over to Scott Smith, Senior Vice President of Investor Relations. Thank you. You may begin. Speaker 100:00:27Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's 4th quarter and full year 2023 conference call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors. Zetaglobal.com, where you will also find links to our SEC filings along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's Co Founder, Chairman and Chief Executive Officer and Chris Greiner, Zeta's Chief Financial Officer. Speaker 100:00:58Before 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, 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 substitute for our GAAP results. We use these non GAAP measures in managing our business and believe they provide useful information for our investors. Speaker 100:01:53Reconciliations 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. With that, I will now turn the call over to David. Speaker 200:02:10Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. 2023 was a record year for Zeta that finished with a strong Q4, once again exceeding our expectations. For the full year of 2023, we delivered revenue of $729,000,000 up 23% year over year. This marks our 4th consecutive year exceeding 20% revenue growth and we are guiding to a 5th year of 20% growth in 2024. Speaker 200:02:49Over the past 4 years, we have also expanded our adjusted EBITDA margins by 1,000 basis points with over 200 basis points of expansion this past year alone to 17.8% or $129,000,000 in adjusted EBITDA. Today, the marketing ecosystem is in a state of change. AI has moved from theoretical to a boardroom conversation with Chief Marketing Officers mandated to make AI more actionable to deliver greater efficiency and better experiences for consumers. These CMOs are increasingly looking to Zeta as evidenced by the strong growth in our RFPs and our sales pipeline. Because AI has been at the core of the ZMP for many years as opposed to many months, We believe that we are at the forefront of a wave that is driving a replacement cycle. Speaker 200:03:54We currently have more than 1 125 patents issued and or pending around AI, machine learning and other advanced technologies. Marketing has not been able to capitalize on the AI revolution because of an enduring problem. In most enterprises, data is abundant, but intelligence is scarce. The Zeta Marketing platform is closing this intelligence gap by allowing customers to use our generative AI with their data and not share it back to the collective. Our investments in 2024 are about making AI more actionable, delivering better experiences for consumers and widening Zeta's moat. Speaker 200:04:46These investments include strengthening our agile intelligence offering, expanding our mobile capabilities and extending GenAI into new and additional use cases. One of the most exciting developments is the rollout of a new product initially called Intelligent Agent Composer. This creates Gen AI agents that provide dozens of intelligent and automated tools that make our customers more efficient and more effective. Customers will be empowered to build their own intelligent agents within our platform, allowing them to power workflows and customer experiences specific to their brand and their needs. In this model, data becomes even more essential and a more sticky partner to our clients. Speaker 200:05:45Early gen AI products have unlocked creativity and personal productivity, but they have yet to realize their transformative potential for enterprise marketing ecosystems. Our intelligent agent composer has the power to change that. We expect to monetize this new product and additional GenAI functionality multiple ways, creating new billable modules, generating higher consumption and lowering the burden of marketing resources within enterprises and agencies. Going deeper into our mobile strategy for 2024. Today, mobile engagement largely operates as a point solution within enterprise environments. Speaker 200:06:37We see a dual opportunity. 1st, integrate mobile into a more comprehensive platform and second, deliver conversational experiences using GenAI. We believe our intelligent platform provides a competitive advantage for marketers looking to deliver real time personalized experiences for consumers and is a natural fit for mobile environments. For example, we are currently working with a large national retailer to develop a mobile solution to enhance the in store selling experience by putting Zeta's data cloud and the ZMP in the hands of salespeople to deliver real time customer engagement at the point of sale. This simplifies the complex task of logging into multiple systems for answers on the status of an order, inventory or personalized client data. Speaker 200:07:40The ZMP connects to all subsystems and provides information via a simple conversational interface on a mobile device. Today, mobile accounts for less than 2% of revenue through our platform, but we believe it has the potential to be our next $100,000,000 plus business, similar to how CTV is scaling. Our unique position in the market and continued investment in AI powered marketing technology is also creating interest across the ecosystem as we expand our relationships with system integrators. We are in advanced discussions with an array of SIs, including an exciting joint implementation at a large enterprise where solutions spanning data management as well as customer acquisition, growth and retention will be replaced by the ZMP. Overall, our SI implementation is a multiyear rollout and we expect it to have a larger impact into 2025 beyond. Speaker 200:08:57Zooming back out, I also wanted to spend a minute on recent industry headlines related to cookie deprivation and email deliverability. These changes only elevate the importance of Zeta's proprietary first party data as opposed to relying on 3rd party cookie data to identify individuals. In terms of email, the new requirements from Google and Yahoo! Are in line with what we have already incorporated into our infrastructure. Our observations pre and post their rollout show equal to and in some cases even better deliverability and higher open rates. Speaker 200:09:43In short, we believe these changes enhance our competitive position by elevating the value of our identity graph and further improving the effectiveness and return on investment for the ZMP for engagement. Building upon what we discussed at our September 2023 Investor Day, we are taking action on investor feedback related to dilution and stock based compensation. First, we are guiding to bring dilution from incentive based compensation down from 5% in 2023 to 3.5% to 3.75% in 2024. In terms of stock based compensation, we are also planning to evolve how we incentivize senior management. By way of example, Chris Greiner and I along with others are planning not to receive any restricted shares this year. Speaker 200:10:47Instead, equity incentive compensation would be based on performance stock units, which are tied to the appreciation of Zeta's share price and will more closely align us with shareholder value creation. These changes in addition to continuing to benefit from a lower level of pre IPO stock based compensation flowing through our P and L places Zeta on a trajectory to achieve GAAP based profitability in the Q4 of 2024. At the same time, our goal is to continue to invest in innovation and build the strong culture with the foundation of corporate responsibility. In fact, for the 2nd year in a row, I'm proud to share that Zeta was recognized as one of Built In's best places to work. I'm also pleased to announce that for the 2nd year in a row, we achieved carbon net neutrality, which is an important accomplishment for perspective and existing customers as well as our employees. Speaker 200:11:59In closing, 2023 was an incredible year for SADA, but we believe 2024 will be even better. As always, I would like to sincerely thank our customers, our partners, Team Zeta and all of our shareholders for their ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail. Speaker 300:12:30Chris? Thank you, David. I'm excited for all that we're covering today, but let me start with the punch line. First, we're taking share while growing efficiently. I'll cover what is contributing to another quarter year of exceeding guidance, being above the rule of 40 and growing faster than the market. Speaker 300:12:502nd, we're leveraging our flywheel. I'll share the financial profile and the flywheel effect of our direct and integrated revenue streams and how we're expanding and cross selling our new large agency customers to Zeta owned channels. And third, we're guiding ahead of the street, while remaining prudently conservative. I'll wrap up by outlining how 2023's headwinds shift to become 20 24 tailwinds. Altogether, we're executing on our plan, capitalizing on our competitive advantages and guiding 2024 from a position of strength. Speaker 300:13:29Now let's dive into each of these with more color. Starting with the Q4 and full year 2023 results, in 4Q, we delivered revenue of $210,000,000 up 20% year to year or 22% excluding M and A and the prior year's political revenue. Full year's revenue was $729,000,000 up 23% year to year or 24% excluding M and A and the prior year's political revenue. This exceeded our initial 2023 guide of $691,000,000 by $38,000,000 or 5.5 percent and also includes a 7 point growth headwind from our 2 challenged verticals of automotive and insurance. Combined, these two verticals accounted for approximately 10% of revenue in 2023, meaning 90% of Zeta grew over 30% in 2023. Speaker 300:14:26Our ability to consistently exceed guidance and drive 20% plus revenue growth over the past 4 years comes from strong visibility into our Zeta 2025 KPIs. Let's dive into those now. We ended the year with 4.52 scaled customers, who as a reminder account for 97% of total Zeta revenue and spend at least $100,000 on a trailing 12 month basis. This was up 12% from 3Q and 49% or 12% from a year ago at the high end of our 8% to 12% model. We saw accelerated growth in our 1,000,000 plus super scaled customers, which increased by 7 quarter to quarter to 131 and up 27% year to year. Speaker 300:15:12The addition of scaled customers are coming from an array of industries, most notably consumer retail, education, tech and media and travel and hospitality in addition to others, demonstrating the wide application of our platform and continued healthy diversification of customers. To that end, 6 of our 10 largest verticals once again grew more than 25% year to year. In terms of scaled customer ARPU, 4Q grew 7% with the full year up 10% to $1,570,000 coming in at the midpoint of our 8% to 12% growth model. This was driven by customers using 2 or more channels, which increased 27% year to year. Our scaled customer cohort trend slide on number 12 in the supplemental deck shows how our PRU reliably increases the longer our customers are on the platform and really illustrates the drivers of high net revenue retention. Speaker 300:16:14For example, scaled customers less than a year on the scaled customers less than a year on the platform spend an average of $600,000 with many starting at smaller pilots. This group accounted for less than 10% of 2023 revenue. Scaled customers with 1 to 3 years on the platform spend an average of $1,300,000 or 2.3 times more than those with less than a year on the platform. And scaled customers with 3 or more years tenure spend an average of $2,100,000 or 3.6 times more than those with less than a year on the platform. The progression of these cohorts is important for a couple of reasons. Speaker 300:16:51Of the 49 scaled customers added in the last 12 months, 27 are in the 100 ks to 600 ks band, meaning this cohort has the potential to more than double in the next 12 months. And with 90% of Zeta's revenue generated from customers with us more than a year, we have strong forecasting visibility. This is a good lead in to net revenue retention, which is 111% for the year. Excluding the impact of the automotive and insurance industries, net revenue retention would have finished the year at 118%. Our model net revenue retention is 110% to 115%. Speaker 300:17:33And as we sit here today, I would expect us to be towards the high end of that range in 2024. Switching to another one of our Zeta 2025 KPIs, direct revenue mix, which is an area we want to help investors understand. Definitionally, direct platform revenue is generated when customers use Zeta's data, analytics and owned channels to perform their marketing activities on the ZMP, whereas integrated revenue is generated from non Zeta owned channels, principally social networks like Meta, TikTok and others. In terms of the financial attributes of direct revenue, direct mix is consistently greater than 70% of total Zeta, at a 70% to 75% margin profile with approximately 2 thirds of direct revenue being recurring. From a growth perspective, direct revenue grew 15% year to year or 23%, excluding the 2 challenged industries of automotive and insurance. Speaker 300:18:31If we simply assume the percentage of 2024 direct revenue is consistent with 2023, which I see as a balanced assumption, you have a $600,000,000 direct business growing approximately 20% with margins and recurring revenue mix about 10 points above the corporate average. Where the flywheel comes into play is the customer journey from social to Zeta owned channels. This is most relevant with our new large agency customers as illustrated on Slide 13 in our supplemental deck. Agencies utilize Zeta's data cloud and intelligence products to identify individuals who are in market and reachable inside the walled garden. This powerful proof point of Zeta's intelligence and seamless connection points into the walled gardens forms the foundation for building omni channel journeys on Zeta's own channel. Speaker 300:19:27This is a new and compelling way to think about the profile of the direct business along with the long term value large agency holdco's bring to Zeta. This dynamic of direct and integrated revenue mix was the primary driver of changes in GAAP cost of revenue throughout 2023. Cost of revenue in the quarter was 40.2%, up 260 basis points year to year and 130 basis points quarter to quarter, driven primarily by the growth in integrated revenue from newly added agency customers starting their journey on social channels. Our 4th quarter GAAP net loss was $35,000,000 which includes $63,000,000 of stock based compensation. Full year 2023 GAAP net loss was $187,000,000 which includes $243,000,000 of stock based compensation. Speaker 300:20:21Excluding the accelerated expensing related to our IPO, stock based compensation would have been 102,000,000 dollars 4Q total operating expense growth slowed to 3% year to year, excluding stock based compensation and is down 6.40 basis points as a percentage of revenue. This same leverage was visible over the full year, down 4 10 basis points as a percentage of revenue. Our disciplined expense management and better sales productivity resulted in continued adjusted EBITDA margin expansion. In the quarter, we generated $44,800,000 in adjusted EBITDA, up 38% year to year with 280 basis points of margin expansion to 21.3%. On a run rate basis, we're 2 years ahead of the 20% implied margin target as part of Zeta 2025. Speaker 300:21:18In 4Q was the 12th straight quarter, we've expanded adjusted EBITDA margins year to year. Full year 2023, we delivered adjusted EBITDA of $129,400,000 up 40% year to year with adjusted EBITDA margins of 17.8 percent up 2 20 basis points year to year. Cash flow from 4Q operating activities was $27,000,000 up 17% year to year with free cash flow of $18,000,000 up 32% year to year. For the full year, cash flow from operating activities was $91,000,000 up 15% year to year with free cash flow of $55,000,000 up 39% year to year. This despite a $25,000,000 working capital headwind primarily from the expansion of our agency business. Speaker 300:22:09Now I'll wrap with guidance. First, a handful of points to communicate our approach to guidance and slides you can reference in our supplemental deck. 1, even by starting ahead of the Street, we see our full year guide in revenue and adjusted EBITDA as prudently conservative, which is outlined on Slide 17 in the supplemental. 2, like last year, we're providing guidance for each quarter of the year on Slide 18, which is based upon the SKU of 2022 to take into consideration political cyclicality. 3, along those lines, as seen on Slide 19, we're showing how much of each quarter's revenues associated with political candidates. Speaker 300:22:53We see this as simply a starting point. 4, we're guiding to the full year 2024 free cash flow, showing an increase in cash conversion as we wrap on working capital headwinds from newly added agency Holdco customers. To 5, as David mentioned, we're targeting a decrease in dilution from incentive based stock compensation at 5% to 3.5% to 3.75 percent on route to GAAP profitability by the Q4 of 2024. As for the details, we're guiding the midpoint of full year 2024 revenue to $875,000,000 up 20% year to year and the Q1 revenue at $187,000,000 up 19% year to year at the midpoint of our range. We have a starting placeholder of political candidate revenue in 2024 of $15,000,000 with $2,000,000 in 2Q, dollars 5,000,000 in 3Q and $8,000,000 in 4Q. Speaker 300:23:51We're guiding adjusted EBITDA at the midpoint of full year guidance of 100 and $66,000,000 or 19 percent margin with 1st quarter adjusted EBITDA of $29,100,000 representing a margin of 15.5 percent at the midpoint of our range. We're guiding full year free cash flow in the range of $75,000,000 to 85,000,000 translating to 48% conversion of adjusted EBITDA at the midpoint, up from 42% in 2023. In summary, we see our 2024 guidance, which already exceeds The Street's growth rate by 300 basis points and adjusted EBITDA by $8,000,000 as a good starting point with high visibility to tailwinds that layer throughout the year. With that, let me hand the call back to the operator for David and me to take your questions. Operator? Operator00:24:42Thank Our first question is from Ryan MacDonald with Needham and Company. Please proceed. Speaker 400:25:08Hi, thanks for taking my questions and congrats on an excellent quarter. David, as we think about in 2024, you talked about some interesting sort of priorities around the strategy and some really interesting product investments. As we think about sort of intelligent agent, Composam and mobile the mobile strategy, how do you look at the magnitude of impact or maybe how you're building any impact in terms of expectations into sort of 2024 outlook from contributions from these newer offerings? Speaker 200:25:42Well, first of all, thank you, Ryan. We appreciate it. We obviously were incredibly proud of the quarter. When we look at and talk about new development, I think philosophically you should always think that we don't need that to get to the guidance that we're giving. So as we look at the investment into the intelligent agent, we look into the investment of mobile, it's already fully baked in to our investment into the company and how we think about it from a guidance perspective. Speaker 200:26:15But we also are not including it in what we expect to deliver from a revenue perspective. Now, obviously, we believe the intelligent agent is a massive revenue opportunity where for the first time we will begin to sell our artificial intelligence products instead of just using them for efficiency. And mobile is one of I joke that post the elimination of the IDFA, it's become almost like the Wild West where most organizations are taking a very small sample, call it 8%, which is the one that's most talked about and they're extrapolating that whereas we can go into the mobile ecosystem and really focus on deterministic attribution using the Zeta ID. If either of those were to really hit, I think that would give us upside to the estimates that we put out there. And I think Chris said it best when he said not only are we starting the year at 20%, I think if I remember correctly, last year we started the year at 17% from a guidance perspective and finished at 23%. Speaker 200:27:21This year we're starting at 20%. We feel those numbers are already conservative. This would be a part of what would be additional upside. Speaker 400:27:32Really helpful. Maybe as a follow-up, Chris, for you. So maybe 2 topics to talk about with the guidance as well. So obviously, auto insurance industry's challenge last year. Can you just talk about what you're seeing in terms of sight lines or pipeline building that gives you confidence in maybe stabilization or recovery there this year? Speaker 400:27:50And then just curious on the conservatism that you're building in from the political contributions this year, maybe what you're seeing in the market, why you felt that $15,000,000 was the right starting point and maybe potential for upside from Speaker 300:28:07there? Thanks. Speaker 500:28:09Thanks, Ryan. On the first question around the 2 challenged verticals, the automotive vertical and the insurance vertical, The short answer is very good visibility into the sales pipeline, much of that frankly already starting late 4Q. So it will already start to feather in beginning in the Q1. So feeling really good about the return of those industries back to growth in 2024, probably even starting to see some in the latter part of the first half of this year. As it relates to your other question, which was around our political assumptions, You'll recall that in 2020, we did $15,000,000 of political revenue and we did about half of that $7,500,000 in 2022. Speaker 500:28:53We wanted to just start with the baseline of what 2020 was knowing that it was likely conservative. What's also good to recall though is that advocacy tends to draft off of political. So the combination of candidate revenue and the work we do with advocacy groups, both are probably conservative on our outlook and would have upside throughout the year and we'll continue to provide visibility as to what we're assuming for political candidate revenue as well. Speaker 400:29:21Excellent. Congrats again. Operator00:29:26Our next question is from Elizabeth Porter with Morgan Stanley. Please proceed. Speaker 600:29:32Hi, thank you so much. I wanted to go back to the example that you provided in mobile. You talked about getting the technology enhanced salespeople, which I thought was interesting and it sounds like you may be getting into a new end user there outside of the traditional marketing department. So if so, kind of would love to hear who you might expect to compete within the segment? Should we view this as a TAM expander? Speaker 600:29:56And how you plan on addressing a potentially new buyer segment with an additional wallet opportunity? Thank you. Speaker 200:30:03Great question as usual, Elizabeth. We appreciate it. The answer is yes to both. So we see an opportunity to add mobile as a channel to our existing scaled and super scaled customers, which today would increase our TAM pretty dramatically when you think about it, because we've never really played in that mobile ecosystem because quite frankly, while the IDFA was around, there was a lot of efficacy there and there were a lot of players running around there. With the elimination of the IDFA, the efficacy of that channel has dissipated ratably. Speaker 200:30:42So it puts us in a very unique position where we can take assets that we already own, which is the $240,000,000 plus opted in individuals, which we can tie back to the Zeta ID number, which we can identify in the mobile ecosystem. So it gives us an advantage that nobody else in the mobile ecosystem has outside of the walled gardens. So it's a very unique opportunity to do that. At the same time, what we're finding is CIOs want to buy our technology as well. So there's the opportunity to expand from just focusing on the marketing to also selling the technology directly to the CIOs. Speaker 200:31:27And I think you're going to see some very big developments out of Zeta this year as it relates to the sale of our technology to CIOs to power other functions of their businesses in addition to the marketing function. Speaker 600:31:46Great. And just as a follow-up, I wanted to ask about the sales cycles that you have with working with agencies versus directly with enterprises. On one hand, you might have more decision makers sitting at the table, but on the other hand, you have that trusted agency partner. So is there any opportunity for accelerated sales cycles or lengthening sales cycles as you're working with more agencies? Speaker 200:32:11Yes. So it's another great question. I think when you work with agencies, you work with them in 1 of 2 ways. It's very interesting. You go in as a master relationship to the agency and then you go from enterprise to enterprise, which is dramatically faster than when we go directly to an enterprise ourselves. Speaker 200:32:32Put in perspective, some Fortune 500 companies can take up to 6 months to move from contract through procurement, through data security, through legal, whereas when you're doing it in partnership with the HoldCo, it's turning it on. So it moves very, very quickly. The other thing is there are some agencies that literally manage the marketing on behalf of the enterprise themselves. And what we're starting to do is as we've expanded from 1 to now what our 3 agency HoldCo clients, where they're able to just say, let's do this. And we're seeing that side of the business scaling quickly, but massively shortening the sales slot. Speaker 200:33:20Elizabeth, first, welcome back. Speaker 500:33:22On Slide 13, because this is a topic we spend a lot of time with investors on recently is understanding the relationship between direct revenue and integrated revenue and the role that our new agency holdcos are playing in that. And what we've shown on Slide 13 is the journey of our first holdco from now several years ago to recent holdcos. And what you'll note is that those recent holdcos are starting significantly bigger initial investments with Zeta with the same opportunity to expand, but also evolve and shift to their mix over time. So it's laid out, I think, well on Slide 13. Thanks for your question. Speaker 600:33:58Okay. Thank you. Operator00:34:01Our next question is from Jason Kreyer with Craig Hallum. Please proceed. Speaker 700:34:07Great. Thank you. David, I just wanted to ask if you can maybe summarize how the your conversations with customers have evolved around AI over the last couple of quarters and then maybe how you see Zeta's opportunity evolving with that? Speaker 200:34:23Well, thank you, Jason. As I think I said in my sort of scripted notes, and it's something I say a lot, AI has moved from theoretical to really starting in the boardroom. And what I'm seeing is the board is saying to the CEO, what's your AI strategy? They then go down and they sort of yell at the CMO, what's our AI strategy and how do we keep our data protected and safe? And those CMOs are often calling me and saying, what do we do here, right? Speaker 200:35:01So when you look at our ability to put a CDP in place, which creates a closed ecosystem for the client's data, you're then able to append our data in. You're adding, in many cases, 1,000,000,000 and in some cases even 1,000,000,000,000 of data points to their data and the algorithm can operate inside of there. So by way of example, you've got a lot of people talking about large language models, you've got some people talking about small language models. I like to joke we're a midsized language model. We have the benefits of the large language models with the security, safety and privacy of the small language models for our data. Speaker 200:35:45And every CMO that I'm talking to is asking for products around efficiency for their business. And once again, you look at our new agent product, that is going to disintermediate very highly paid data scientists inside of our clients' ecosystems. And in some cases, it's not disintermediating anybody. They just can't even get enough bodies to do the work. So our ability to automate all of that and now sell it to them and the way we look at it is, listen, if they're paying a data scientist $250,000 a year, why not pay us $50,000 a year per instance? Speaker 200:36:28And you're talking $4,000 or $5,000 a month on a subscription basis as you roll that out. And you just have to do that thousands of times, which is actually not as hard to do with the number of scaled and super scaled clients we have. So I would tell you, Jason, that this is becoming day to day conversation. But the solution that Zeta has by putting the CDP in place, allowing the algorithms to operate with their data in conjunction with our data without ever risking their data going out into the environment or out into the ether has been a game changer in our conversations. And by the way, I think it's one of the reasons you're seeing that ripple through our numbers and ripple through our projections. Speaker 700:37:15Thank you. I wanted to squeeze in one for Chris. Just on the gross margins and I know you just talked about agency influence and direct and indirect. I think you've appropriately telegraphed kind of the trajectory of gross margins. I just want to ask on we saw that slide a little bit from Q3 to Q4. Speaker 700:37:36As we look into 2024, do you think we've hit a bottom in gross margins or do you have an idea of when that bottoms out before you kind of get the reacceleration of the direct mix? Speaker 500:37:50Jason, thanks for the question. So here's where our head is at on gross margins and it's I think you articulated really well is that I think 4Q it bottoms out or did bottom out. With the upside now in 2024, so kind of setting the base at that 60% level, the upside beyond there is tied to how quickly we move those new large agency customers from integrated to direct channels, that's lever number 1. Lever number 2 is how quickly we see our automotive and our insurance customers start to grow again who happen to be at the higher end of our gross margin mix in terms of channel usage on the direct platform. And then 3rd, where political and advocacy also comes in. Speaker 500:38:36So those 3 should begin to work our way up throughout the year starting at that base point of around 60. Speaker 700:38:45Perfect. Thanks guys. Operator00:38:50Our next question is from Koji Ikeda with Bank of America. Please proceed. Speaker 800:38:56Hey, guys. Thanks so much for taking the questions. A couple from me here. First one, I wanted to ask a question about Boomerang customers with you. You guys have been in the market for over a decade now and I'm sure over the past 10 years plus, many customers have tried out the Zeta platform before, but my gosh, the Zeta platform has changed quite a bit since the early days. Speaker 800:39:17And so just wanted to hear a little bit about commentary about how customers have come back to Zeta after trying Zeta before. What are some of the most common reasons why you've seen customers come back? Speaker 200:39:27Koji, so it's actually really we're laughing here because it's been a big thing lately where we've been sort of like using the term back to the future where, I mean, one of the world's largest fashion houses, very recently came back to us at scale after leaving us for 3 years because they felt like they needed to use one global platform for everything. Think one of the large marketing clouds, which might be owned by a large technology holding corporation. And what they found was their marketing clouds couldn't deliver what the Zeta Marketing Platform could. And it's funny, we talk a lot about disintermediating point solutions, but there was a big move a few years ago that you had to move everything. Your publishing, all of your sales force management to one company globally and you saw some companies over the years leave us to go to those bigger platforms. Speaker 200:40:34We are quite frankly even surprised by how many of them are coming back because those guys just can't deliver on what they talk about in the Marketing Cloud. Now they might be really good at Salesforce automation. They might be really good at publishing, right? They might be great on financial services packages and databases, but they're not great marketing clouds and they're really not able to deliver the data with the artificial intelligence is native to the application layer, which is becoming a bigger and bigger problem. So, it's funny you ask it and it's been a trend that has been something that's literally been to the point that we have been focusing on revisiting with customers that we lost a few years ago and winning them back at a higher rate than even our traditional RFP win rate. Speaker 800:41:28Got it. That's super helpful. And a follow-up here maybe for Chris. As I look at the deck for the Q4 and compare it against the deck for the Q3, question here really on stock based compensation. It looks like it ended up this year about 10,000,000 dollars to $12,000,000 higher than we're on the non IPO side than when it was originally guided to last quarter. Speaker 800:41:50And it looks like it's about $10,000,000 higher for 2024. So just really wanted to understand the dynamics there. Thanks. Speaker 500:41:59Thanks, Koji. On the stock based compensation side, much of that was the awards that happened in the first half of twenty twenty three. There were some compensation related end of year grants that were made. But I think more importantly kind of zooming out to the prepared remarks, we are very focused and we're really acting on 3 primary areas from being on the road extensively in 2023, feedback specific items from investors. The first is taking dilution down tied to incentive compensation. Speaker 500:42:33So going from 5% in 2023 dilution to now guiding to a pretty substantial reduction year over year to a dilution rate of 3.5% to 3.75% en route to 3% over time. The second area of feedback was around our guidance approach and wanting to just continue to be more predictable and tighter in guidance rather than have these wild swings and beats. We're going to continue to be a beat raised company, but tightening that up a little bit. And then David, you talked to the 3rd area. It's been Speaker 200:43:07Yes, the big thing in Koji, as you know, I've been personally out there with Chris and Scott over the last couple of quarters and that's a trend that will continue as I begin to spend more time with investors. Case studies, right? One of the things we hear a lot is, gosh, what you're doing is so cool, but it's so confusing to Wall Street. How do you simplify it and how do you get case studies? So today for the first time in Zeta's history, we are putting forth multiple named client case studies and we expect that to be a trend that will continue. Speaker 200:43:48Our goal is to continue to work with our enterprise clients to add more case studies. Chris is now writing on a piece of paper that I should say this is slides 27, 2829. I don't think anybody would believe I actually remember that. So I'll give you full credit for that, Chris. But at the end of the day, what we're doing makes a massive difference to our enterprise and agency clients. Speaker 200:44:17And putting forth what those case studies are, we think will help us as we grow as a company. So I know that was a very long answer to a very short question around comp, stock based comp, but I will point out not only are we moving from what has traditionally been 5% plus to 3.5% to 3.75% on the road to 3% dilution, which is what we think is the right goal, we are also making a decision as a senior management team to take no restricted shares this year. So I'm taking only performance stock units as is Chris Greiner, as is Steve Gerber and as is Steve Vine. And we will be more aligned with shareholders as they will require increases in stock price for us to get those to vest, not just time, because we want to make sure that all of our existing shareholders know that they're being heard and we're making the decisions to do a better job in the things that they want us to do. Speaker 800:45:26Got it. Thank you so much guys. Appreciate it. Operator00:45:30Our next question is from TJ Hynes with Canaccord Genuity. Please proceed. Speaker 100:45:37Hey, guys. This is Luke on for TJ. Thanks for taking the question. So I was wondering if you can flesh out your comments a bit on the intelligent agent and mobile opportunity. I recognize it's still early days there, but any early thoughts on sort of penetration potential across your existing customer base? Speaker 100:45:56And then also on how that rollout could impact margins over time? Speaker 200:46:02Yes. Thank you, Luke. Listen, we're really excited about this intelligent agent product because to me and I don't want to get too ahead of ourselves here, but not only does this begin to help our enterprise clients to do a better job running their business, but it gets into what I really, really am excited about long term, which is business intelligence. We talk about intelligence at the core of our product today. How do we extrapolate that down the road into true business intelligence products, and I believe this is the first jump into that. Speaker 200:46:41We have almost 500, I think I can say that, scaled clients And the goal is to get a disproportionate percentage of them to adapt these products or adopt these products in the coming months, quarters and years. And once again, I want to reiterate, they're not baked into what we think are conservative projections around 20%, but they're upside to that. And I think that they carry traditional software margins. So you're talking, I don't know if that's mid-80s or high-80s, but you're talking about a high margin product, but it's coming into a pretty sizable base company, meaning we'll have to get a bunch of clients on board to move the needle from a margin perspective. What I can tell you is we believe our clients are going to adopt them. Speaker 200:47:35We believe they're going to adopt them at scale. And we do believe that in the long run, these products will help us continue to move our gross margins up. Speaker 100:47:46That's great to hear. And just to follow-up, a lot of streaming companies are rolling out ad tiers nowadays and we think that probably notionally increases the size of the CCB market opportunity for you guys. Do you have a similar perspective there? And any impacts on your business as you've seen that rollout? Speaker 200:48:10Yes. So it's interesting. Yes. So to answer your question, unequivocally, the more of these streaming platforms that insert ads pre I call it pre roll, but it's not always accurate, but sort of pre the beginning of the content, the middle of the content, the end of the content, all of the above, every one of those units is a massive opportunity for us. And to be totally transparent, we are already plugged into all of them. Speaker 200:48:40So we see this as a unique opportunity to expand out. Now the largest platform sort of started off trying to get these massive minimums out of enterprises to partner with them and it didn't work quite the way they had originally planned to say the least. They've now come back and we're seeing what we think are very unique opportunities to scale that business with all of the streaming platforms including the largest one. Speaker 500:49:12We had a neat growth quarter actually in the Q4, Luke, on CTV. It grew 30% Speaker 900:49:19quarter to quarter. Speaker 500:49:20And if you follow the pattern of CTV's usage around advocacy and political, one word foreshadow would be a nice year in 2024 as well. Speaker 200:49:28I mean, it's Chris beat me to the punch as usual. I shudder to use the term political. I generally call it all advocacy for a host of reasons, but obviously our advocacy business does and the way to really do that is CTV not linear. So we see this as a big opportunity to your point, Luke. Speaker 100:50:00Awesome. Thank you. Operator00:50:03Our next question is from Zach Cummins with B. Riley Securities. Please proceed. Speaker 100:50:10Hi, good afternoon, David and Chris. Congrats on the strong 4Q and thanks for taking my questions. Chris, my first one is more of just a clarifying question. I believe there's a year over year decline in your super scaled customer ARPU here in Q4. I'm assuming most of that's related to headwinds with auto and insurance, but just wanted to get some clarity around that and expectations for growth in that metric moving forward? Speaker 500:50:34Yes. No, I think that is the driver. What's interesting on the scaled customer count side, we've got 131 now, which is up 7 quarter to quarter, but on a year over year basis was up 27% in count with the revenue associated with superscalves customers up 25%. There's a good slide that we update annually in the slide deck that demonstrates the progression of scaled customers in their tenure, which I think is a really good kind of progression, if you will, on how they spend with us, where those year 1 scaled customers, which was around 10% of this year's revenue, their average revenue spend is around 600 ks. If you go to that next tier of 1 to 3 year scaled customers, they spend more than 2 times that on average at 1,300,000 and then you go to that next cohort of now more than 3 year tenured scaled customers, they're spending 3.5 times as much as the year 1 at over 2,000,000. Speaker 500:51:32So it's a nice way to demonstrate the stickiness of the platform as we talked about the net revenue retention for the year was right in our model of 110 to 115 at 111. But if you exclude automotive and insurance to your question, that net revenue retention was 118%. As I said as part of the prepared remarks, we think we'll be at the high end of that 110% to 115% range just as we sit here today in 2024. Speaker 100:51:58Understood. And my one follow-up question is most of your growth over the past couple of years has really been driven by your direct go to market motion and investing in that. But it seems you're starting to get more opportunities on partnership side, especially the system integrators. So just curious of how you're thinking about investments in the direct channel versus maybe leaning into some of these channel partnership opportunities? Speaker 200:52:24It's a great question, Zach. Obviously, we've added channel partners in Snowflake, AWS. We've added the agency channel, which is sometimes directly with the agency, sometimes partnering with them to go to other enterprises. We are going live with our first two SI integrations, probably be done with them this quarter, perhaps early Q2. So this has also gone from sort of what we want to do to what we're doing. Speaker 200:52:55We're very excited about the SI environment. And what we're seeing is enterprises are going to their SI vendors and asking them to work with us in addition to us going to the SIs and saying we'd like partner with you. I want to reiterate again and I'm sure I'll sound like a broken record, but if I don't, Scott will kick me under the table. Our currently conservative projections do not include meaningful revenue in the SI channel for this year, which is not to say we don't think it could be meaningful this year and which is not to say that we don't expect it to be meaningful in the years to come. But to have gone from talking about this to where knee deep in 2 integrations with them now, which will launch 2 separate systems integrators with 2 separate enterprises, we're very excited about those prospects. Speaker 100:53:55Great. Well, thanks for taking my questions and best of luck in the coming quarter. Speaker 200:53:59Of course. Thank you. Operator00:54:01Our next question is from Arjun Bhatia with William Blair. Please proceed. Speaker 1000:54:08Hey guys, thank you and nice job on a strong Q4 here. When we kind of talk to customers and agencies throughout the ecosystem, it seems like this the CDP layer certainly is an important differentiator to drive more personalization. I know you guys have a pretty strong CDP layer yourself. But can you maybe just talk about when you're going up against or going to customers in RFPs, like how much of a factor is that in deciding to choose Zeta versus some of the players? And maybe if you could compare and contrast the CDP layer relative to your data capabilities, where customers are placing more emphasis in recent RFPs? Speaker 200:54:54It's a great question, Arjun. Listen, I would say that our CDP technology is as good, if not better than any other CDP technology in the world. And I will also tell you that the vast majority of the large holdcos, as it relates to technology holding corporations that say they have CDPs or really DMPs that they've sort of rebranded. So when we go up against a lot of those big guys, we're really able to talk about what a CDP is, right? What does that stand for? Speaker 200:55:29It's a consumer data platform. And what does that mean? It means you can see to the absolute individual level of your customers by record. It doesn't mean you're building cohorts, it doesn't mean you're putting together large sort of segments. It means you can see an individual. Speaker 200:55:49Most of these other large companies can't do that, right? They're just not there. And most of the smaller guys who are coming up, they either run it as a standalone product, which is quite hard, or it's part of another perhaps roll up or something that it's sitting inside of there. So when we look at our technology, we think it's best to breathe. Now it's hard to bifurcate that from our data and data quality because it's such an important component of how we sell the product, right? Speaker 200:56:24The ability to import all of your data to the CDP, the ability to match on average greater than 80% of that data to the Zeta Data Cloud, The ability to append into your data 100, if not 1000 of incremental data elements. The ability to seamlessly integrate our algorithms around natural language processing and now generative AI into that CDP while keeping all of their data safe while simultaneously importing the data from the Zeta Data Cloud. There's just nobody else out there that can do those things. So I don't know why people choose us as it relates to is our technology superior, is our data superior, is our AI superior. What I know is we're winning greater than 50% of the RFPs and engagements we get invited to participate in and there's an average of 12 enterprises that show up to compete in each one of those RFPs. Speaker 200:57:25So I think that the collective is really important. And to just final put a final sort of footnote on that, I can't think of anybody who's bought a CDP from us that didn't integrate our data, right? There's just no reason not to. Like it's extra data that imports that you can't get from any other source in the world because we don't sell our data to anybody at any time at any price. So I do think it's pretty interconnected. Speaker 200:57:54If a client came to us and said we'd like to buy your CDP and we don't want to integrate to your data cloud, we're more than happy to do that and I think we would win that as well if that makes sense. Speaker 1000:58:04Yes, yes, that's clear, super helpful. And if I can maybe follow-up again on some of the agency traction that you're seeing in the mix between direct and indirect. Do you have a sense for some of these newer agencies that have come on since you started this initiative? How their mix is either shifting or how they're kind of indicating to you that they may shift the mix in 2024? Are we getting signs that they're shifting more to direct? Speaker 1000:58:36Or is it a little bit too early to tell at this point? Speaker 200:58:40Yes. So it is early to tell. But I think as Chris eloquently pointed out, we think that gross margins sort of hit bottom in Q4. And one of the big opportunities is migrating those large agency holding corporations the exact way we've migrated the first one that we worked with where I know there's a great slide on that in our deck because they showed it to me earlier today, but we went from Slide 13, Chris is writing it down for me again. So on Slide 13 of our supplemental investor deck, you can see how that client started at sub-ten percent and grew to greater than 70%, right, over the years. Speaker 200:59:23We believe that our other 2 scaled agency hold corps are going to follow a very similar pattern. Now the one caveat is we're drinking out of the fire hose with some of these guys. I mean it's growing rapidly. And as those divisions are growing rapidly, are you able to migrate the other guys fast enough for the 3rd or new guys coming in? What I really care about and this might be an unpopular thing to say, but to me, I've always aspired to run a company that was at the rule of 40. Speaker 201:00:05And that's sort of what I've looked at, right? Not only did we deliver our 7th quarter in a row above the rule of 40, we have guided this year to the rule of 40. And a lot of that is because even if the gross margins stay in the low 60s, the gross margin on the agency hold companies is substantially higher than our operating margins. It's higher than our long term operating margin goals and they take on very limited incremental overhead. So most of that money drops to the EBITDA line at a substantially higher percentage than the actual current operating margins even in the Q4. Speaker 201:00:52So yes, we think they'll come back. Yes, we think we'll migrate them. But to me, what matters is are we going to grow the business greater than 20%, we believe we will. And are we going to see greater than a 20% operating margin? We believe we will. Speaker 201:01:07So I think we're in good shape for this year. Speaker 1001:01:11Appreciate that. Thank you. Operator01:01:15Our final question is from Richard Baldry with ROTH Capital Partners. Please proceed. Speaker 901:01:21Thanks. First one may or may not even be a question, but I think in the past I've heard that the average number of people in HRP was higher. I have a number of 17 in my head. If I'm wrong, then just disregard. But if it is higher, who would you be seeing sort of fading out of the competition, sort of smaller, midsize or larger? Speaker 901:01:42And then the second question would be around free cash flow. And I came on later, so I'm not sure if this has been addressed. But over this year's guidance and then the 2025 guide that you're ahead of, you generate something close to $200,000,000 in free cash flow. Could you talk maybe about where your priorities are to deploy that, either more aggressive buybacks offensively on acquisitions, pay down of debt, just so we have some idea where that's going to get deployed? Thanks. Speaker 201:02:12Rich, so no, thank you for joining. We know you're on vacation. I didn't even know you took vacation. So I appreciate you're joining us from it. Yes, it used to be a larger number showing up to the RFPs. Speaker 201:02:24And what we're seeing is the point solutions are just not being invited the way they used to be, right? So you've got especially around CDPs where you have a lot of small independent CDPs that are really having a tough time as standalone businesses. And quite frankly, we're not seeing some of the former European players who were talking a big game a couple of years ago. We're just not seeing them anymore. So it is down and I have said $17,000,000 in the past and now I would say $12,000,000 I had a funny joke to make around the $200,000,000 in free cash flow, which Chris told me not to tell, but I will let Chris talk to what we're going to do with the next 2 years just to quantify for anybody else listening. Speaker 201:03:13That would be about $200,000,000 between $24,000,000 and $25,000,000 combined. Speaker 501:03:17I think we'll continue to be opportunistic on share buyback. We'll continue to be opportunistic on M and A. And I think Steve Vain and David did a really neat job laying out what does opportunistic mean for M and A at our Investor Day. But we're very focused on increasing free cash flow conversion. You'll see that the guide this is the first time we've put out an in year guide on free cash flow. Speaker 501:03:39We've obviously had the long term model. But at $80,000,000 in free cash flow at the end of 2024, that represents 48% conversion up from 42% the last 2 years. So continuing to get up to that 55% level. I think it's interesting, we talked about in the prepared remarks, Rich, we had $25,000,000 working capital headwind from the agencies and just their difference in payment cycles than our enterprise customers. If not for that headwind, if it just would have been neutral, conversion would have been in the 60%. Speaker 501:04:08So there's a we see a nice clear path as we get through the years of continuing to increase that percentage. David, anything you'd want to close with? Speaker 201:04:16Yes, I just and to that point, we knew that was going to happen and we said it was going to happen at Analyst Day, right? So when we did our Investor Day, we were clear about that. One of the things you do when you work with these very large agency hold companies is you understand that you're going to be paid a little bit slower than you're normally paid. The good news is we've collected 99.999 percent of the revenue. I'm not allowed to say 100. Speaker 201:04:45I can't think of ever writing any of it off, but I'm sure somebody slow paid out or didn't pay us on Speaker 301:04:50a dollar at some point. Speaker 201:04:52I'm being facetious, so I shouldn't do that on this call. But we collected all and it's put us in a very unique position that we have the balance sheet to be able to do that where a number of the smaller competitors do not have the balance sheet to partner with those large agency hold companies, which is giving us yet another competitive advantage as we move into the marketplace. And by the way, Rich, as we put more cash on the balance sheet, it puts us in a position to more M and A, more buybacks, but it also puts us in a position to do more deals like this, where we're able to expand and scale even faster as a company. Speaker 901:05:38Great. Thanks for the commentary and congrats on a great quarter. Operator01:05:44We have reached the end of our question and answer session. I would like to turn the conference back over to David Steinberg for closing remarks. Speaker 201:05:52Well, I will close it as I think I've closed the last few, which is thank you. I really appreciate all of the different constituencies that are involved in our organization. 1st and foremost, our Zeta people. I do believe we have built one of the best teams in the world. It was funny because we had had some meetings recently with an organization that was trying to get to know us for a whole host of reasons and they called me and said, you have one of the best management teams I have ever experienced and I believe you could run a company 10 times bigger than the current loop current one you're running. Speaker 201:06:29And I very quickly said I look forward to doing that in the next 5 to 10 years. But the reality is we have an incredible team, we have incredible people who really work their butts off to deliver for our clients, keep us on the cutting edge innovationally and focusing on doing the absolute best job we can while simultaneously creating one of the best places to work. I also deeply appreciate the analysts who follow us. I know there's a lot of time and a lot of companies you can follow. I deeply appreciate our shareholders who have stuck with us and believed in us and our goal is to make you look really smart over the next year or 2 as we continue to execute. Speaker 201:07:13As I like to say internally, this was our 10th consecutive quarter of beating and raising. I look forward to next December when I can say or next February whenever, when I can say this is our 14th consecutive quarter of beating and raising. And I want to thank our customers who have really banked their relationship with their end users and their enterprises on the Zeta people and the Zeta platform. Thank you very much and I hope everybody has a wonderful day. Bye. Operator01:07:45Thank you. This does conclude our conference. Thank you for your participation. You may now disconnect.Read morePowered by