Q4 2022 Zeta Global Holdings Corp Earnings Call
Yes.
Thank you for standing by this is the conference operator welcome to the <unk> fourth quarter 2022 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue you May press star.
Then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Scott Schmitz.
Senior Vice President Investor Relations. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us for Dana as fourth quarter 2022 Conference call today's presentation and earnings release are available on <unk> Investor Relations website at investors data Global Dot Com, where you will also find links to our SEC filings along with other information about data.
Joining me on the call today are David Steinberg as co founder Chairman and Chief Executive Officer, and Chris Greiner Data's, Chief Financial Officer.
Before we begin I'd like to remind everyone that statements made on this call as well as in the presentation and earnings release contain forward looking statements regarding our financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our product potential competition and revenues of our products and our goals in <unk>.
G.
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 and managing the business and believe they provide useful information for our investors reconciliations.
Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate can be found in the earnings presentation available on our website as well as our earnings release and our filings with the SEC with that I will now turn the call over to David.
Thank you Scott good afternoon, everyone and thank you for joining us today.
2022 was a stellar year for <unk>, which we capped off with an incredible Q4, once again exceeded our expectations for the full year 2022, we delivered revenue of $591 million up 29% year over year.
With adjusted EBITDA of $92 million up 46% year over year the leverage in our model resulted in 180 basis points of adjusted EBITDA margin expansion to 15, 6% in 2022.
And importantly, we generated $78 million of cash from operations with free cash flow of $39 million up 123% year over year.
On the back of this momentum we are providing initial 2023 revenue and adjusted EBITDA guidance above current consensus, which Chris will discuss in detail shortly.
The strength of our results highlight the power of <unk> patented AI and proprietary data to help large enterprise brands improve their ability to acquire grow and retain customers more efficiently and effectively than ever before.
And evidenced by our 48, new scaled customer additions in 2022. It is clear that chief marketing officers, who are under pressure to do more with less or willing to make changes to improve the effectiveness of their marketing programs and lower their total cost of ownership.
This is Ada marketing platform or CMP was purpose built to improved marketing efficiency and effectiveness by unifying identity intelligent and activation to create better experiences for our customers and deliver better outcomes for brands as.
We look forward, we believe our competitive position has never been stronger the market continues to move in our direction as foundational elements of <unk> are now board room topics.
Artificial intelligence is exploded and is now vital to setting corporate strategy.
First party data and Cdp's are essential for making mission critical business decisions.
And greater personalization and addressable city are crucial to improving the efficacy of marketing campaigns. The underpinnings of our competitive position started 15 years ago with a focus on reducing complexity by making data actionable and eliminating.
Multi point solutions, we assembled one of the largest proprietary opt in databases to improve and enterprises understanding of its customers identify potential new customers and grow existing customers. We made very early investments in machine learning and artificial.
Intelligence, which are combined with our data cloud and is the foundation of the GNP.
AI is in our DNA.
Our goal at <unk> is to create actionable intelligence, our AI technology and deep learning capabilities have become progressively better at distinguishing signal from noise, making it easier for marketers to make smart decisions.
As an example of our innovative approach, we recently introduced chatbot data, which incorporates <unk> proprietary data cloud with chat gpt's generative AI capabilities to produce conversational attributes and descriptions of the individuals as we incorporate.
This functionality into the GMP.
Will allows data to operate even more efficiently and become a more strategic partner to enterprises by replacing more of their existing tech stack.
Most of the legacy marketing clouds, we compete against are noncore assets buried within larger technology conglomerates and as technology peers change their investment priorities and initiate cutbacks. These noncore assets are likely to see deeper cuts, causing them to.
Fall, even further behind us.
As it currently stands legacy marketing clouds are no longer good enough and as a result point solutions that plug into traditional stacks are also feeling the pinch.
We believe the opportunity to gain share has never been greater.
In this uncertain macro environment, we are capitalizing on the replacement cycle of legacy solutions and point products with enterprise environments, let.
Let me give you. An example, we recently replaced our legacy marketing cloud at a leading specialty retailer not only did the GMP deliver more personalized audiences with strong intent signals, resulting in higher ROI, but we substantially lowered the total cost of ownership by <unk>.
Consolidating four different point solutions in a short amount of time, we built a strong relationship with this retailer who views data as an extension of their marketing team and have now signed a five year agreement.
In addition to being complex and expensive to integrate.
I guess the marketing clouds are also ill suited for emerging marketing channels at Veda orchestrating an omnichannel journey across all addressable channels is another area, where we stand out.
A good example is our continued rapid growth in CTV, which grew over 300% again this quarter accounting for a double digit percentage of usage on our platform versus low single digits last year.
And when we combine more addressable channels with our always on intelligence the results are even better.
For instance, we are currently helping one of the leading U S pharmaceutical companies reduce wasted spend from their linear TV budget by leveraging our data cloud and AI capabilities to better target in market consumers that could benefit from their drugs and therapies. It is difficult to.
Find another single company that could have solved this problem for them.
Traditional solutions require a system integrator.
Stitch together multiple point solutions and expensive and error prone approach that is no longer sustainable in todays environment in which CMO seek both greater efficiency and greater effectiveness.
Our disruptive and differentiated approach is also creating the strongest hiring environment. We have seen in years, we are attracting and retaining exceptional people while many of our peers are undergoing workforce reductions.
In summary, 2022 was a stellar year for <unk> with results exceeding even our expectations. We have maintained a balanced growth and profitability profile, while continuing to invest in our people products and go to market initiatives. This is resulting.
And better experiences for consumers and better outcomes for enterprises. In addition to creating a better place for people to work.
We're extremely proud to share that data was recently recognized as one of built in best places to work in both New York and La.
We believe our one data culture has been critical to our success and we continue to invest time and resources to build an inclusive innovative and collaborative environment for all employees.
Also achieved our goal of carbon net neutrality in 2022, which is an incredibly important achievement to prospective and existing clients as well as our employees, we intend to be a leader in this critical area and we will continuously work to reduce our emissions.
I would like to sincerely, thank our <unk> team, our customers our partners and our shareholders for their ongoing support of our vision and while we have come a long way on our journey as we like to say it's data. We are just getting started now.
Now, let me turn it over to Chris to discuss our results in greater detail Chris.
Thank you David and good afternoon, everyone.
I will cover three topics on today's call.
First we continue to be a business delivering beyond its commitments fourth quarter results once again exceeded expectations.
By top and bottom line growth rates pacing ahead of the data 2025 model.
Second 2020 two's results established yet another data point in a multiyear trend of accelerating revenue growth and.
<unk> operating leverage and margin expansion.
And third just like last year, our 2023 guidance is above the street and still set purposely conservative intending to be the starting point for how we build throughout the year.
Additionally, we're adding free cash flow as a component of our data at 2025 plants.
So lots of great things to cover so let's dive in.
Our credibility is our currency.
Since going public we built a track record of beat and raise execution with six straight quarters delivering above our guidance.
Last quarter was no exception.
In the fourth quarter revenue was $175 million up 30% year to year and nine points above the midpoint of guidance upside in the quarter was broad based and not attributable to any single factor.
Our U S revenue grew 32% year to year, the third straight quarter growing over 30% and is 96% of total data revenue.
Large enterprises from diverse industries are choosing data and what we see is early innings of a replacement cycle.
We ended the quarter with 403 scaled customers up 14 from the third quarter and up 14% year to year, both pacing well ahead of our Z to 2025 model.
Peeling back a couple of more layers.
New scale customers came from consumer and retail to from financial services to from advertising and marketing and four from technology services and others.
Out of the 14, new scaled customers five were new to data and nine were existing customers that became scaled a consistent mix from prior periods.
Guild customers are adding more channels and more use cases as they achieve better return on investment outcomes from this data marketing platform <unk>.
We have evidence scaled customer quarterly <unk> of 424000 grew 15% year to year and while ahead of our stated 2025 model what really stood out was ARPA growth within our super scale at cohort.
Super scaled quarterly <unk> was $1 3 million up 26% year to year.
This drove 34% year to year revenue growth in our Super scaled cohort. Despite a small decrease in super scaled customer count due to the oscillation around the $1 million scale versus Super scaled cutoff point Youll.
Youll recall, we increased <unk> from upsell and cross sell activity tied to adding channels and use cases.
During the fourth quarter, we continued our strong trend on each dimension.
From an adding channels perspective scaled customers now average over two channels per customer in fact scaled customers using four or more channels grew over 50% from a year ago to 53 and.
And associated with the strong Super scaled ARPA growth I just highlighted the average channels used per super scaled customer is approaching three at two eight.
In terms of increasing multiple use cases, we continue to make exciting inroads all three of data use cases acquire grow and retain grew double digits year to year led by acquire and grow.
And the number of new scale customers using more than one use case increased to 46 up from 33, a year ago or 39% year to year.
Our diversification of customers was evident across verticals with six out of our top 10 growing over 25%.
No vertical represents more than 13% of our revenue and of note fourth quarter mid term candidate revenue was $4 5 million slightly better than our guidance of $4 million.
On a GAAP basis, our net loss was $52 million, which includes $68 million of stock based compensation.
Excluding the accelerating expenses related to our IPO stock based compensation would have been $15 million for.
For the quarter, we delivered adjusted EBITDA of $32 4 million up 42% year to year with adjusted EBITDA margin of 18, 5% up 150 basis points year to year.
Briefly switching to our full year 2022 results revenue of $591 million was up 29% year to year, which exceeded even our internal plan for the year.
Our direct platform revenue mix for the year increased to 77% up from 76% in 2021 and for the year direct revenue grew 32% versus 2021 full.
Full year GAAP cost of revenue and did at 36, 5% down from 38, 1% in 2021 and like many of our <unk> 2025 revenue Kpis. This decrease of 170 basis points from 2022 to 2021 is well ahead of our model of 60 basis points.
[noise] of improvement.
We continued to see healthy expansion of existing customers as demonstrated by net revenue retention of 112% in 2022, consistent with our model of 110% to 115% and in line with last year.
On a GAAP basis, our 2022 net loss was $279 million, which includes $299 million of stock based compensation.
Excluding the accelerated expenses related to our IPO stock based compensation would have been $57 million and for the year. We delivered adjusted EBITDA of $92 2 million up 46% year to year with adjusted EBIT margin of 15, 6% up 180 basis points year to year.
We realized strong cash generation at an increased conversion from adjusted EBITDA of 42% in 2022 versus 28% in 2021 and more specifically cash flow from operating activity was 78 million up 77% with free cash flow of $39 million up 123.
3%.
This brings me to my second topic.
Data has been delivering sustained operating leverage over a multi year period, something we expect to continue as we drive towards data 2025 in that setting it's valuable to take a step back at the trajectory of established and expanding profitability, while simultaneously accelerating revenue growth at scale.
2019. This head count has only grown from 1400 and for team members to 1604, ending 2022, just a 5% compound annual growth rate over that period.
Because of our globally distributed resource model, we can add teammates for impact and efficiency at the same time for example from 2019 to 2022 U S. Head count grew only 2% annually, while global centers, primarily India in Prague have expanded 7% annually. Meanwhile.
Revenue growth accelerated each year from 2019 to 2022 with a three year compound annual growth rate of 25% or five times the rate of head count growth over the same period.
The recipe for sustained operating leverage.
Altogether, our adjusted EBIT margins have grown from 8% in 2019 to 15, 6% in 2022, averaging 260 basis points of expansion per year, well ahead of our <unk> 2025 model of 160 basis points.
What we've accomplished over this period is humbling, we've achieved product category leadership as recognized by multiple industry analysts, while many competitors are pulling investment and going backwards, we transform to a new go to market by shifting to a hunter farmer model and greatly expanding our branding and demand generation capabilities total.
Quota carriers have more than doubled from 2019 to 123 sales reps ending 2022.
And of course, we established the back office infrastructure to be a public company and we are emerging as a leading place to work a key component to date of 2025 inside our company and.
In fact, we're not only attracting great talent with our culture, we're retaining teammates as well we had about 95% leadership retention rate at the VP level and above and.
And we've accomplished all of this while reducing G&A, excluding stock based compensation as a percentage of revenue every year since 2019 going from 24% to now 17% in 2022, the use of our own AI and automation is aiding in the realization of operational efficiencies.
Which brings me to my third topic.
Our initial 2023 guidance since Ada 2025 updates.
Clearly the market backdrop is turbulent.
But we're still seeing strong demand for platforms, delivering a lower total cost of ownership generating verifiable rois and offering fast implementations.
The GMP delivers on each.
As a point of reference as data CFO I'm, replacing multiple legacy point solution vendors in our back office by implementing a single platform, allowing us to lower expense and simplify systems <unk> are using the same period of opportunity to make similar decisions across their technology stacks.
Our sales pipeline reflects this theme of consolidation and is currently at an all time high.
We've been speaking throughout 2022 about RFP volumes being up what is also interesting is the dollar value of those deals is growing even faster.
This is because brands need to consolidate multiple point solutions in their marketing stack.
Putting up bigger contract value opportunities for hours E&P to replace.
While we're optimistic about our win rates sales capacity and opportunity pipeline. We believe it remains prudent to set initial 2023 guidance purposely conservative.
We want this to be clearly understood as a starting point for how we will build throughout the year, which is consistent with the approach. We took at the same time last year.
And in doing so our view of the full year 2023 is $20 million higher than consensus on the top line and greater than the $15 million of upside we delivered in the fourth quarter.
Guidance figures are as follows as seen on slide 16 in our supplemental.
With respect to full year 2023 revenue, we expect to generate $691 million or 17% year to year growth at the midpoint of our range.
From a quarterly cadence perspective, we expect 2023 to follow our three year average revenue linearity, which we outlined on slide 17 of our earnings supplemental.
Share of revenue delivered in each quarter as a percentage of the total has adhered to a very tight range that we expect to continue and therefore it is prudent to follow as you spread our full year guidance across the quarters.
With that in mind in the first quarter of 2023, we expect to generate revenue of $150 million up 19% year to year at the midpoint of our range.
In terms of adjusted EBITDA for the full year of 2023, we expect to generate $117 4 million or 17% margin at the midpoint of our range. This represents 140 basis points of improvement from 2022 and consistent with the expansion required to achieve Veda 2025 of adjusted.
<unk> EBIT margins of at least 20%.
One point of note <unk>.
Last year's adjusted EBIT margin expansion was driven by a combination of a lower cost of revenue percentage as well as leverage in G&A and R&D as.
As we think about 2023 adjusted EBITDA margin expansion, it's our expectation more leverage will come through each of our operating expense budgets rather than cost of revenue.
For the first quarter, we expect to generate adjusted EBITDA of $22 6 million, representing a margin of 15% at the midpoint of our range.
We're also introducing free cash flow as a target to date of 2025.
Addition to generating at least 1 billion in revenue and at least $200 million and adjusted EBITDA. We also expect to yield at least $110 million of free cash flow.
This implies 55% of our adjusted EBITDA will convert to free cash flow by 2025 up from 42% we achieved in 2022.
It also factors the adverse impact of higher interest expense.
Finally in terms of Kpis were increasing scaled customer count targets to more than 500 by 2025 up from our initial target of 450.
To recap our mantra as a public company is quite simple and continues to reflect three core principles one exceed expectations.
To guide conservatively.
Three drive revenue and margins higher.
We believe this approach gives investors' confidence.
Confidence, we can execute on our pipelines.
<unk> risk for an uncertain macro and further expand our operating leverage characteristics.
With that let's move to questions operator.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
Our first question comes from Brian Schwartz of Oppenheimer. Please go ahead.
Yeah, Hi, congratulations on the quarter and thank you very much for taking my question.
David first thing I wanted to talk about was just.
And overall view from what Youre hearing from customers when they're talking about marketing budgets for this new year in 2023, what are you hearing from them are they thinking about growing.
Are they resetting them lower.
Does the budget growth seem to be more resilient from their point of view any color will be helpful. Thank you.
First of all thank you Brian we appreciate your attending.
Truth of the matter is it's like almost anything I meet with a ton of Ceos in a ton of customers.
Everybody says that we're dealing with their businesses are doing well, but there is some trepidation because of what they are hearing in the wider marketplace to date, we are not seeing any marketing contraction in any of our customers budgets.
That could change later in the year, but right now we're seeing very very solid numbers in fact, I would say more of them are talking about how do they grow the budget, but.
The topic in every boardroom and the topic with every CMO is efficiency right, how do we take our existing budget and <unk>.
Focus more on getting more with the exact same amount, it's not sort of how do we cut and then get more from that.
Thank you and then the follow up I had one for David and then a layer and Chris too.
David can you talk at all about the momentum that you're seeing with some of the bigger new partners that you signed up over the last couple of years I'm thinking about snowflake and dominant brand Bradstreet are you seeing meaningful interest in pipeline coming from them and then for Chris can you touch on how this can help the business.
The sales and marketing leverage over the long term. Thanks again for taking my questions.
Oh no of course, Brian .
I would say first of all as I.
Chris said, our pipeline is at an all time high.
<unk>.
We've gone from 50, some odd salespeople to over 130 salespeople over the last few years and we're seeing incredible throughput from that but at the same time.
The marketing partnerships I would say you mentioned snowflake them in particular have been an incredible partner and have generated a tremendous amount of deal flow.
Other partners have done well, but snowflake really stands out as the absolute best which is not to say the others havent flow deals.
But we're really experiencing quite frankly.
As you saw I think in the numbers the growth rates or even surprising us a little bit coming out of how strong those partnerships have been and how strong our new salespeople are Chris Yeah, and Brian as you would expect.
The extension of of our partner networks and those three the Amazon Dun, <unk>, Bradstreet and Snowflake and <unk>.
Our expectation is we'll continue to grow those add leverage to the sales model and would be incremental to the data in 2025, we built into 2025 on our own sales productivity. So the further lift we get from those partners and more partners down the road should be incremental.
Congratulations thanks, Brian operator.
Thanks again, Brian .
Our next question comes from Arjun Bhatia of William Blair. Please go ahead.
Hey, Thanks, guys and I'll add my.
Congrats on the quarter.
David.
You're obviously stressing that there is a need for efficiency with Cmos and the platform consolidation kind of plays into that perfectly.
When you see the customers that are consolidating is there a typical profile of <unk>.
Customers that are looking to move off of legacy platforms or point solutions right maybe.
The customers that have had a solution in place for 10 years 15 years, but they haven't modernized like what do you typically see out there and is there an opportunity to use that profile to go out and target customers that are ripe.
For consolidation.
Yes, so Arjun first of all thank you secondly, without question. What we're seeing is the vast majority of the customers that are looking for efficiency are currently using legacy and larger marketing clouds and.
As I think I pointed out in my prepared remarks.
Most of these legacy marketing clouds, if not all of them are subsidiaries of subsidiary is sitting inside a very large tech conglomerates and the truth of the matter is they have been under investing in these assets for many years as a percentage of what they invest because theyre investing in their core products and if I were them might probably.
Doing the same thing our core product is US right. We are bespoke to do this so what we're seeing.
As as contracts are coming up with the legacy marketing cloud they are going out to bid at a much higher rate than we've ever seen before.
And we are winning at the same time.
Our ability to sit alongside of them during the existing contract and help them with some of our.
Sure.
Functionality, meaning we can help with acquisition, while they're using a legacy marketing cloud for CRM and we can move through different functions with them, that's getting our nose under the tent and then when they go out to bid we are generally in the cat bird seat. So to answer your question simply is large market.
<unk>, who are using legacy.
Marketing clouds as they are coming up for contract we are seeing them move at a much higher pace than in the past.
Perfect that's very helpful and one for Chris.
Appreciate the.
Later 2025 free cash flow target I'm curious I didnt notice that the conversion picks up the EBITDA conversion picks up over the years can you give us a sense of what levers you have available to drive that conversion higher on free cash flow.
Over the next couple of years.
Sure.
First we've come a long way in a short period of time. So if you just look back a couple of years you can see that the cash flow conversion was in the mid Twenty's call. It and then ticked up to 28 this year at 42 so.
The.
Tools, we have in our tool belt that we've been using over the last several years.
We will continue to use it all I will stress that that 110 million isn't at least just like the profit number just like the revenue number is for Zane or 2025, but we feel like we've got we've learned a lot over the years getting much more efficient and how much drops from EBITDA to cash flow and expect that efficiency to continue and there's a reason why there isn't at least on it.
Thanks, Operator next question please.
Our next question comes from Richard Baldry of Roth Capital. Please go ahead.
Thanks, Sir.
Getting back to the partnership idea as you're scaling up now and driving so much more revenue per client.
How about the opportunities to partner with the non traditional players like the agencies themselves too I think they are battling for mind share and the ability to do targeting versus the larger players like us.
Google or.
And Facebook.
Facebook.
Is there we saw them talking on a panel at your user conference at are there ways for those to really expand into a deeper partnership to go to market with.
First of all thank you rich, yes. It was not a coincidence we had the president of the largest U S holding companies I'd say to live this year.
We see the agencies as our partners and we have for quite some time. The difference is what's changed is the elimination of Apple's IV FAA rippled through the efficacy and modeling of most of the <unk>.
Agencies ability to focus on social media and at the same time I think you've got a big contingent in the agency world that are very nervous about pricing power from Google and they're looking for alternative partners to scale with as it.
<unk> to that so.
We've made our living direct to enterprise, it's still the vast majority of our revenue even when we partner with an agency, we have a deep and very meaningful relationship with the underlying client it's not like the agency just says here go forth and conquer it's we come in together as partners to that enterprise and we work.
Block step it is a.
Very exciting growth opportunity for <unk>, it's something we are spending a tremendous amount of time on and I would say that the time I have personally invested into this segment of our business has been bearing some fruit, which we think could bear additional fruit going forward.
Also I will point out we did mentioned we had 300% growth in our CTV business. There is a lot of linear TV thats going to move from linear to CTV over the next few years that today sits in the control of the agency holding corporations.
We feel we're very well positioned to partner with them and help them to do a better job for their clients in lockstep.
Okay.
And last one for me would be.
You walked through how the head count leverage has been pretty extraordinary over the past few years.
In terms of.
It's slower pace of growth and revenue growth.
Any concern that if the top line keeps growing as fast that does that you could end up a little stressed on the service delivery side, maybe that's a way to talk about how much of what you do is automated.
Hi touch.
I think you hit on a really good point.
Our customers use and love, our AI and we're using the automation inside the company to become more efficient. So I think thats part of why we feel comfortable with what were adding in terms of capacity for the requirements. We have for our customers. The second though is we have an impressive global footprint. So while total.
Head count over the last three years has only grown 5% U S grew two our global centers, primarily in India in Prague have grown seven that gives us not just tremendous operating leverage.
But we have very skilled long tenured leaders at those locations that have built amazing culture, and we can very quickly ramp up in resources.
David do you want to see if you ever built to suit well.
Steve really spend a lot of time on the India in Czech Republic, or I should say Prague operation and now we're standing up operations in the Philippines, as well, which has been pretty exciting.
I think it's important to note rich that we on boarded 48 customers of scale last year that is a big number for a company like us we couldnt have done that without automation and we couldnt have done it with our amazing global people. The other thing I would say is we have over 100 patents either issued or close to being issued.
In artificial intelligence and machine learning.
15 years ago, when we started out as a business.
Big data and AI, we're not even in the vernacular of what you would talk about as it relates to marketing our business intelligence. They were both things of science fiction today. They are table Stakes right, but what we really focused on even from day. One was owning a large pool of first party permission based data and two.
Automation and automation has sat at the core of what we are building.
We originally thought of ourselves many years ago as a marketing automation platform in fact that was sort of our tagline for many years.
Today, its AI at the core and as native to our platform and what are the other things I would like to point out is when you look at some of those legacy marketing clouds to use their artificial intelligence you have to step out of their platform and do a data dip into a separate platform to get to AI.
Same thing for their data sets when they're importing them they sit outside of the core of the platform. The <unk> marketing platform has data and artificial intelligence is native to the application layer and it just makes things so much faster it allows decisioning to move.
Move in 100 millisecond versus.
Some much longer period of time, so I think we're very well positioned to continue this trend.
Thank you operator next question.
Thanks Rich.
Our next question comes from Jason <unk> of Craig Hallum. Please go ahead.
Thank you guys two for me, maybe I'll start with David.
On the connected TV side I wanted to dig into that increased contribution I'm curious if there are meaningful changes to your product set that youre going to market with or if this is just more awareness of the product and just organic improvement. There second question for Chris you mentioned bigger deals on the pipeline just wondering if you're going to.
Spanned on that like are you talking about more use cases more channels or just more committed volumes.
So I'll take the first part second.
Yes, I think first of all we are sitting at the precipice of what is a new dawn of the way people consume video content right. So when TV started out 100 years ago with Milton Berle Texaco show you had one channel to channel.
<unk> then three channels then.
My children like to point out in my lifetime I started with five channels now we're up to hundreds of channels, but at the end of the day, that's not the way the younger generation is consuming their video content, they're consuming it through connected TV online video or over the top TV and you are big.
<unk> to see that in the results of the linear TV providers. So I believe we have the world's best CTV platform and because the <unk> data cloud is able to identify a unique individual online through either programmatic or online video.
And through social mobile and CTV same individual same zeta IV number can be identified across all of those channels as marketers are looking to move from.
From linear TV to connected TV. They want a platform that can help them focus on return on investment the ability to do what we do with.
With the direct target to CTV is game changing and I'm quite frankly, not aware of anybody else out there that can do that and there are other platforms that can do CTV campaigns, but they're doing it to probabilistic datasets not deterministic data sets and theyre going to have to catch a lot of.
Dolphins and their net to get to that tuna.
Able to really get down and just catch that tuna, and our net which allows the client to spend the same amount of money, but drive substantially more customers Chris for the second question. Yes. Thank you Jason It's interesting if you look at the number of deals in our pipeline a year ago.
As at the end of the fourth quarter. It's a similar number of deals are up a little bit year over year, but the dollar value is what's so much greater and I talked about and also through the lens of Rfps, which is obviously a subset of that pipeline not only as the RFP volume up David talked about getting more chances at that.
These marketing clouds come up but the value of those deals is getting bigger and as you pointed out yes. It's more use cases, yes. It has more channels, but it's a bigger opportunity to take out parts of their marketing stack than we were getting before that's ultimately what's driving it and we're not obviously, we're not shy about starting with pilots, but we.
Equally loved starting bigger and we continue to see the deal sizes are getting bigger sales productivity stats and our ability to execute on that pipeline is also meeting our expectations and in many areas exceeding it.
Thank you Jason.
Operator next question please.
Our next call comes from Zach Cummins of B Riley Securities. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. David. The first question for me is just really around your CDP plus product.
It seems like that's really a great opportunity to really drive momentum within that that product line. So I'm just curious of the go to market function and how youre looking to really drive adoption there.
Thanks <unk>.
CDP plus sits at the core of every single conversation, we have with existing and potentially new customers and.
The ability to bring together all of an enterprise's disparate datasets into one data ecosystem and then.
Allow them to append and add hundreds if not thousands of fields of incremental data from the <unk> data cloud really begins to change the game as they think about first and foremost what is what is the difference between the marketing signal and what is the difference between just noise.
And what we're doing is we're synthesizing through our artificial intelligence what signals are really relevant on their customer base to make sure that they can lower their churn rates and keep their customers as long as possible what other products do they have in their arsenal that they should be selling to their existing customer set that.
They are actively researching for and then third how do we take the 240 million plus people in the United States, who have opted into our data cloud and help extend that to help them add new customers all of that sits in the center.
With the CDP plus and.
<unk>.
Quite frankly, we.
We win.
Well over half the engagements we go after in this category, it's when people see what the CVP plus can do they are generally blown away and for US. It's also in many ways a Trojan horse how do we get into the enterprise. They start learning all of this incredible stuff about that.
Our consumer one of the things I think most people don't understand is once they learn everything about that individual they cannot activate to them in less they use the data marketing cloud because everything synthesizers to this age I'd.
<unk> does not allow them to identify that individual outside of this Ada marketing platform.
<unk>.
It's one of the reasons, we talk about the sales motion, which Chris does so eloquently, where you start with a pilot.
And then you grow once again, if you look at the 48 scaled customers we added this year.
Call. It two thirds of them started small and then group and that is really a very very powerful thing and the CDP plus is mission critical to that.
Great. That's very helpful and just one quick follow up for Chris.
Really appreciate the free cash flow guidance, that's given for those Ada 2025 target.
When youre thinking about excess free cash flow how are you thinking about allocating that to debt paydown versus stock buybacks versus maybe even incremental M&A.
Yes.
The beauty of having a long term plan in places that not only do we have quarterly gates that each of our business units make their way through it kind of releases funds at the same applies for multi years out.
That is becoming much more expensive today, obviously than it was a year ago. So that's very topical and on our on our brain.
We will continue to do small tuck in deals as kind of has been our legacy history.
But otherwise we're going to continue to be very disciplined on investment rigor that.
We've had David and by the way you could see us as we do some of these tuck ins use a higher percentage cash than we have in the past, where we feel like were getting far more leverage in our business that we can tuck in and grow dramatically.
But we will make those decisions as we continue to go in.
Listen the more cash we generate the more flexibility we have as a company cash flow has been a key metric to us internally for many years and as we look at the current market landscape, we thought adding an additional metric to date of 2025 made prudent.
We believe at least 55% of our EBITDA by 2025 will convert to free cash flow in.
It in perspective, we could pay down a 100% of our debt in 2025 and 2024 from the proposed cash flow. We're currently forecasting.
But our net debt continues to be pretty low as a company.
Thank you operator next question please.
Our next question comes from Ryan Macwilliams of Barclays. Please go ahead.
Hi, Thanks for taking the question are you seeing any differences to start this year versus how Q4 ended and any changes in customer interest across your acquire grow and retain their use cases.
Well just to answer your first question.
Traditionally sees a seasonally slower quarter in the first quarter from the fourth quarter and that is reflected in our guidance, even though we feel very comfortable with the guidance, we put out and like a lot of companies were trying to over index on being conservative in the world today, because there's a lot of turbulence going on but.
The truth of the matter is if you look at the last number of years of this company seasonally Q4 is very very strong and then you come into Q1, where you are resetting a little bit.
But at the middle of our range I believe we projected a 19% growth rate year over year for the first quarter.
And continue to feel like we've been conservative Chris do you want to answer the second question yes.
In fact on slide 17 on the earnings supplemental Youll see that we laid out the three year average revenue linearity.
<unk> guidance by quarter, but to David's point, that's also where you see the seasonality show up he.
He asked about the use cases as well and use cases.
All of them are growing double digits acquiring.
Acquire and grow are growing the fastest both at about equal rates above the company's growth rate. What was interesting is and this is now the second quarter in a row, where we've added many more scaled customers that are using more than one use case. We're now almost at 50 were at 46, but thats a 39.
<unk> improvement year over year and that in the last quarter also grew in the 30% so.
That's a big incremental opportunity for us it's incremental data 2025, all of the <unk> expansion in data 225 modeled off of channel expansion. So our continued inroads here is only incremental upside.
Next question.
Yes.
Yes.
With more and more channels.
You guys got me interested in talking about the accelerating replacement opportunity for the legacy marketing cloud and.
This is a pretty big opportunity as you previously called out there was like 10000 customers that could potentially be scale data customers.
Are these legacy marketing cloud customers typically on the contract length of like three years or five years.
What the yearly opportunity it could be off.
$36 billion you with them.
They are almost all on three years and you see effectively coming out every year. The big question is how do we and quite frankly I think it's one of the things. We did best last year was how do we begin to get far more shots at the basket right. So we've all.
We said, we close a disproportionate percentage of the rfps or engagements, we get invited to participate in the Big question was how did we grow that number at the top of the funnel. So what did we do we built a whole new sales motion with a great team focused on lead generation we were.
Named we are in the far right hand, upper corner of the Forrester report for marketing automation companies.
We were named top five in the world by multiple sources for CDP.
Zane alive was an absolute blowout with.
Over 7000 attendees either in person or online and we look forward to seeing everybody again. This year, we just sent out the save the date.
And that has materially increased the number of Rfps, we're seeing which allows us to get more bites at the Apple. So if you think of them as three year contracts you are talking about every year about 33% come up.
Thanks, Brian Operator next question.
Our next question comes from Ryan Macdonald of Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on an excellent quarter and fiscal year. David first for you you talked about in one of your earlier responses that two thirds of the deals.
The 48, new customers you added since you started small and grew given this larger opportunity for multi product consolidation do you feel like you need to change the way you go to market at all to win some of these larger deals on the initial land and do you have you started to see any potential gaps or natural adjacency.
And as you can expand to do with the product portfolio to capture more share on these consolidations.
Brian that is not to suggest the other questions weren't great, but thats a really good question and I think Chris even hinted at the size and scale of the deals we're seeing coming out of the gate are substantially larger than we've ever seen before we are often now going to market with fortune.
1000 companies.
For the whole shebang, where theyre moving massive.
Dollars in one fell swoop.
And I think I pointed out the one retailer who signed a five year contract with us that's not something that would have happened a few years ago right. So I think in order to go to market. What we've seen is with the turbulence that a number of the large legacy marketing clouds are having we've been able to.
Steel, but shouldn't say that a number of their very senior salespeople have left those organizations and then we have been able to hire them. Shortly thereafter.
<unk>.
We're not just bringing in more salespeople, we're bringing in senior salespeople coming out of these marketing clouds, who have made these very large sales and they are building a go to market strategy that in many cases are sort of all of it versus a very small part.
Yeah.
That's really helpful. Maybe as a follow up for Chris Chris You mentioned in terms of the incremental leverage that youre going to see this year that it's going to come more from the at the opex level than at the gross margin level.
Is that being driven at all by sort of a continuation of maybe more of this mid seventy's mix of direct platform and if so whats driving I guess, maybe that mix shifting and remained in the mid seventies versus you put up a couple of I think high 70% to 80% quarters. Thanks.
Yes, it's not as much that Ryan is more reflection that we are significantly ahead in terms of what we should be reducing our cost of revenue by our model says 60 points of year last year for the full year, we reduced it by 170 <unk>. So we're ahead I think the second part is we wanted to add a layer of conservatism.
In the middle of the P&L, just like we have at the top part of the P&L.
Not to say that it just gives us flexibility frankly, and then third it's really more a reflection of the investments we made particularly in sales and marketing, adding multiple <unk>, David talked about adding mechanisms and infrastructure around marketing, we don't need to make those same investments. This year. So they're just going to be some natural natural leverage as we wrap around on those investments, but it's more.
Ah bound conservatism and leaving ourselves flexibility.
Thank you Ray operator next question please.
Thanks. Our next question comes from Elizabeth <unk> of Morgan Stanley . Please go ahead.
Hey, guys. This is Chris <unk> on for Elizabeth.
I wanted to better understand the reduction in the Super scale customers.
Primarily due to them falling below that spend threshold, but just curious kind of where that reduction was was it more kind of on the activation media passenger side or is it on the more kind of subscription side.
It was usage driven and it was it was frustratingly assay because it was literally fell right at that cutoff point, none of them left they're all now hanging around the hoop at that high 900, K level and wouldn't be surprised if they if they jump back in so it was more fourth quarter usage, driven but I think the important point here is if you look at the <unk> of <unk>.
Those customers are super scaled our pro grew 26% Super scaled revenue as a contributor to overall <unk> revenue grew 34% and then even zooming out further we've got a great slide in the supplemental that breaks out a cohort of those scaled customers and how long they've been with us what's really exciting to see is those customers in the cohort of one year with data to <unk>.
Three years with data their average revenue went from 900 K to $1 4 million in a year.
So.
David's point, we're not shy about getting in on pilots because we've proven over time the longer they stay with us the bigger they become thanks, Chris.
Our next question operator.
Our next question comes from Koji Ikeda of Bank of America. Please go ahead.
Hey, this is Natalie how on for Koji. Thanks for squeezing me in.
I wanted to ask for a bit more clarity on the impact from political customers. If you could help us understand the contribution there.
We're hoping to get a bit more granular in particular, what the impact on Q4. Thank you.
Yeah, So our guidance entering the quarter was for $4 million midterm candidate revenue and it ended up being four 5%.
Better but was right in line with our expectations.
Yes.
Okay, we did disclose.
Oh, Oh go ahead, sorry, I'm, sorry, I was just to say we did disclose that.
We think it's an important metric we agree with you so.
Sure.
It was about $4 $5 million of the 175.
Okay. Thank you and then quick follow up you guys mentioned youre investing more on brand recognition.
Should we expect increase in expenses, there and is there any insight on the trajectory of that this year in the next few years.
Yes, so we did say that we expected to get material leverage out of SG&A. This year. So that would imply that we will not be increasing overall expense as it relates to our sales marketing and general and administrative expenses, which brand building fits into.
We quite frankly, we just shifted budget from other places.
And we've been very fortunate right because over the last few years, we've materially lowered our cost of goods sold which has given us more flexibility I don't see us spending more money this year.
I mean, you might spend a little more on an absolute dollar perspective, but I don't see the percentage going up on brand build the big thing last year was eight alive.
We expect to do it again this year. The funny thing is <unk> to live was such an incredible success last year, a number of our partners have come to US and said can we help sponsor. This next year can we do a dinner can we hosted a session. So shockingly, we're now potentially going to look.
Lower the cost of building the brand for the company, while simultaneously hopefully growing Zeta live even bigger than it's ever been.
Thank you Natalie operator, we have time for one more question. Please.
Our next question comes from D. J Hynes of Canaccord Genuity. Please go ahead.
Hey, guys congrats on all the momentum.
Sounds great.
Chris One for you just given the growth Youre talking about in CTV is there anything we should be aware of from a margin profile standpoint as that revenue layers in.
No nothing in particular in fact, we've seen over the last several years the margin profile of that channel improve steadily and by the way we've moved it. So the vast majority of that is on platform D. J. So we feel good about that because it's plugging into our device graph.
Is now the largest device graph in the United States.
And gives us a lot of flexibility as it relates to targeting which leads to higher margin.
Yes.
Did you have a follow up D J.
This concludes the question and answer session I would like to turn the conference back over to David Steinberg for any closing remarks.
Well.
Yeah.
Spectacular quarter, I mean, it's hard to say anything other than that we really delivered on every metric we expected too.
We were able and feel like in an incredibly conservative way, we raised our guidance from where I think most people expected us to be and we feel like we've got the right people the right technology with our artificial intelligence and marketing platform and the right Dave.
It is set to continue to win in the marketplace and more than exceed on our 2025 plan more than anything I want to thank all of our <unk> to people. They have just worked tirelessly to deliver on the metrics that we have put out and it is a.
A team that really has come together and congealed in a way that makes me as the cofounder and CEO incredibly proud Steve.
Steve Gerber, Chris Greiner, Steve Vine and their respective teams are.
I could go on and on with Chris <unk> and niche GOR and will Marvel off and just everybody who is really helping us to grow build and deliver on this business have just done an exceptional job I hope everybody has a wonderful day and I look forward to seeing everybody in person sometime soon bye.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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