Q3 2023 Zeta Global Holdings Corp Earnings Call

Greetings and welcome to these data third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press.

Star Zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Scott Schmitz Senior Vice President of Investor Relations. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining us for data third quarter 2023 conference call today's presentation and earnings release are available on <unk> Investor Relations website at investors that Vantiv Global Dot Com, where you will also find links to our SEC filings along with other information about the data.

Joining me on the call today are David Steinberg, Natus co founder Chairman and Chief Executive Officer, and Chris Greiner Data's, Chief Financial Officer.

Unknown Executive: Greetings and welcome to the Zeta Third Quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

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.

Unknown Executive: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Scott Schmitz: It is now my pleasure to introduce your host, Scott Schmitz, Senior Vice President of Investor Relations. Please go ahead. Thank you operator. Hello, everyone. Thank you for joining us for Zeta Third Quarter 2023 conference call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com, where you will also find links to our SEC filings along with other information about Zeta.

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.

Scott Schmitz: Joining me on the call today are David Steinberg, Zeta's co-founder, chairman and chief executive officer and Chris Greiner, Zeta's Chief Financial Officer. Before we begin, I'd like to remind everyone that Zeta has made a statement made on this call, as well as in the presentation and earnings release, contained bold and 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 and strategies.

We use these non-GAAP measures and managing the business and believes they provide useful information for our investors.

Scott Schmitz: These statements are subject to risk and uncertainties that may cause actual results to different material from those projected. These risks and uncertainties include those described in the company's earnings release and other fileings with the SEC and speak only as of today's date.

Reconciliation of the non-GAAP measures to the corresponding GAAP measures, where appropriate can be found in the earnings presentation available on our website as well as our earnings release and other filings with the SEC.

That I will now turn the call over to David.

Thank you Scott good afternoon, everyone and thank you for joining US today, our third quarter of 2023 was one of our most of dental and productive quarters, yet highlighted by key events, including stayed alive, our customer Advisory Board meeting and our first Investor day.

Scott Schmitz: In addition, our discussion today will include references to certain supplemental non-get financial measures, which should be considered in addition to and not as a substitute for our gap results. We use these non-get measures, managing the business, and believe they provide useful information for our investors. These references, reconciliation of the non-get measures to the corresponding get measures where appropriate can be found in the earnings presentation available on our website, as well as our earnings release and other fileings with the SEC.

Most importantly, we continued our track record of consistent execution delivering results above our guidance for the ninth consecutive time.

In the quarter, we delivered record revenue of $189 million up 24% year over year with adjusted EBITDA of $34 million up 51% year over year.

This translates to an adjusted EBITDA margin of 17, 9% up 310 basis points year over year.

Scott Schmitz: With that, I will now turn the call over to David. Thank you, Scott.

David Steinberg: Good afternoon, everyone, and thank you for joining us today. Our third quarter of 2023 was one of our most eventful and productive quarters yet. Highlighted by key events, including state alive, our customer advisory board meeting, and our first investor day. Most importantly, we continued our track record of consistent execution, delivering results above our guidance for the ninth consecutive times. In the quarter, we delivered record revenue of $189 million, up 24% year-over-year, with adjusted EBITDA of $34 million, up 51% year-over-year.

We generated $23 million of cash from operating activities up 17% with free cash flow of $13 million up 43% year over year.

On a year to date basis, our adjusted EBITDA and free cash flow have grown approximately 70% faster than our revenue.

Our strong results reflect our growing impact in the marketplace, which was evidenced by the 50% increase in viewers for our third annual <unk> conference.

Over 12000 people this.

This year's <unk> conference brought together thought leaders from around the world to learned about the growing impact of AI discuss innovation that drives business growth and hear from practitioners about the emergence of intelligence powered marketing.

David Steinberg: This translates to an adjusted EBITDA margin of 17.9%. Up 310 basis points year-over-year. We generated $23 million of cash from operating activities, up 17%, with free cash flow of $13 million, up 43% year-over-year. On a year-to-date basis, our adjusted EBITDA and free cash flow have grown approximately 70% faster than our revenue. Our strong results reflect our growing impact in the marketplace, which was evidenced by the 50% increase in viewers for our third annual ZetaLive conference to over 12,000 people.

A full replay of every session is available in the resource Center section of our website at <unk> Global Dot com.

With hundreds of new brands and existing customers added to our pipeline <unk> continues to be an investment and accelerating our business and raising our brand awareness.

Evolution of data, who two wives Ada was evident in record third quarter RFP volumes with even greater growth in dollar values as we experienced an increase in more complex multichannel opportunities, which was further driven by zaid alive.

David Steinberg: This year's ZetaLive conference brought together thought leaders from around the world to learn about the growing impact of AI, discuss innovation that drives business growth, and hear from practitioners about the emergence of intelligence-powered marketing. A full replay of every session is available in the Resource Center section of our website at ZetaGlobal.com. With hundreds of new brands and existing customers added to our pipeline, ZetaLive continues to be an investment in accelerating our business and raising our brand awareness.

Growing deal activity is just one indication of the market moving in our direction. We were also recognized in key industry reports.

In the third quarter, we were named a leader in the IDC market scape for Omnichannel marketing platforms for <unk> enterprises.

<unk> was recognized for simplifying the complex marketing ecosystem.

While we still have further to go to achieve broader recognition across industry analysts. We believe our differentiated approach of bringing identity intelligence and activation together in a single platform position us well to win against our core competitors, including Oracle Salesforce.

David Steinberg: The evolution of ZetaHoo to YZeta was evident in record third quarter RFP volumes, with even greater growth in dollar values as we experienced an increase in more complex multi-channel opportunities, which was further driven by ZetaLive. Growing the activity is just one indication of the market moving in our direction. We were also recognized in key industry reports. In the third quarter we were named a leader in the IDC market skate for on the channel marketing platforms for B2C enterprises.

<unk> and Adobe.

Our industry recognition along with our pipeline growth is fueled by our innovative product roadmap, which was on full display at data lives.

With the release of the Zeta opportunity engine or zoghby marketers have the ability to ask critical marketing questions and receive real time answers.

David Steinberg: The ZMP was recognized for simplifying the complex marketing ecosystem. While we still have further to go to achieve broader recognition across industry analysts, we believe our differentiated approach of bringing identity, intelligence, and activation together in a single platform positioned us well to win against our core competitors, including Oracle Salesforce and Adobe. Our industry recognition along with our pipeline growth is fueled by our innovative product roadmap, which was on full display at ZetaLive.

And through new forecasting and recommendation tools marketers can generate new ideas and strategies with speed and scale. So they can deliver higher ROI and accelerate results.

In addition, recent customer requests have highlighted an opportunity to innovate upon basic mobile capabilities that had been the status quo in the market.

Similar to the enterprise market moving on from its first generation Cdp's sophisticated marketers are seeking mobile to be integrated into a more comprehensive platform rather than used as a point solution.

David Steinberg: With the release of the Zeta Opportunity Engine or Zoe, marketers have the ability to ask critical marketing questions and receive real time answers. Through new forecasting and recommendation tools, marketers can generate new ideas and strategies with speed and scale so they can deliver higher ROI and accelerate results. In addition, recent customer requests have highlighted an opportunity to innovate upon basic mobile capabilities that have been the status quo in the market. Similar to the enterprise market moving on from its first generation CDPs, sophisticated marketers are seeking mobile to be integrated into a more comprehensive platform rather than used as a point solution.

To capitalize on this opportunity Zeta is making investments into expanding our enterprise mobile capabilities to fuel conversational experiences.

Feedback from customers and prospects at <unk> live also reinforced our belief that we are at the beginning of our marketing cloud replacement cycle.

In fact at <unk>, we signed a multi year eight figure deal with one of the largest discount retailers in the United States to replace their legacy marketing cloud and consolidate seven different vendors in their technology stack with just the GMP.

After an extensive search they chose our next generation technology because of our identity personalization customer journey and AI capabilities.

David Steinberg: To capitalize on this opportunity, Zeta is making investments into expanding our enterprise mobile capabilities to fuel conversational experiences. The largest discount retailers in the United States to replace their legacy marketing cloud and consolidate seven different vendors in their technology stack with just the ZMP. After an extensive search, they chose our next generation technology because of our identity, personalization, customer journey and AI capabilities. This retailer is in the process of a multi-year digital transformation that has re-architected their entire tech stack to include our partner, Snowflake, which is another key driver of our current record RFP volumes.

This retailer is in the process of a multi year digital transformation that is re architected their entire tech stack to include our partner Snowflake, which is another key driver of our current record RFP volumes.

This customer is an excellent example of our belief.

That data helps marketers with modern data architectures to deliver better experiences for consumers and reduce the total cost of ownership for enterprises seeking to replace legacy technologies.

One of the fundamental problems marketers face today is the inability to deliver what consumers want due to a personalization gap created by legacy.

The sophistication to turn data and insights into action.

Our software platform solves this problem by unifying complex and disparate sources of data into a single view of the customer.

David Steinberg: This customer is an excellent example of our belief that Zeta helps marketers with modern data architectures to deliver better experiences for consumers and reduce the total cost of ownership for enterprises seeking to replace legacy technologies. One of the fundamental problems marketers face today is the inability to deliver what consumers want due to a personalization gap created by legacy systems. The sophistication to turn data and insights into action. Our software platform solves this problem by unifying complex and disparate sources of data into a single view of the customer.

Our proprietary AI synthesizers billions of behavioral signals and environmental data to create intent based scores tied directly to the individual.

We then activate this intelligence through marketing programs that combined precision and scale across every channel.

This is intelligence powered marketing unlike legacy systems. This Ada marketing platform has data and AI as native to the application layer offering a differentiated approach for sophisticated marketers seeking to control their data and extract more value.

<unk> from each interaction.

This quarter. We also continued to grow our relationships with key players in the value chain, including agencies, where our strategy is to find opportunities to partner to enhance their assets and capabilities. So that together we deliver more.

David Steinberg: Our proprietary AI synthesizes billions of behavioral signals and environmental data to create intent based scores tied directly to the individual. We then activate this intelligence through marketing programs that combine precision and scale across every channel. This is intelligence-powered marketing. Unlike legacy systems, the Zeta marketing platform has data and AI as native to the application layer offering a differentiated approach for sophisticated marketers seeking to control their data and extract more value from each interaction.

So the world's biggest brands.

Because this allows us to serve many brands to a single business relationship.

This one to many strategy accelerates our market penetration and exposes Zeta two marketing decision makers across a broad range of the enterprise brands.

As we discussed at our Investor day, the number of brands. We serve is nearly 40% larger than our reported scaled customer count.

Looking forward. In addition to our continued growth with agencies the emergence of the partner channel and the benefits of the replacement cycle. We expect the macro environment will continue to drive scrutiny on how and where enterprises invest in marketing technology.

David Steinberg: This quarter we also continue to grow our relationships with key players in the value chain including agencies where our strategy is to find opportunities to partner to enhance their assets and capabilities so that together we deliver more to the world's biggest brands. Because this allows us to serve many brands to a single business relationship, this one to many strategy accelerates our market penetration and exposes data to marketing decision makers across a broad range of the enterprise brands, as we discussed at our investor debt.

As the need for efficiency and effectiveness rises enterprises are more likely to change to improve their marketing programs and lower their total cost of ownership.

As we heard a data lock marketers are looking to consolidate spend with fewer vendors and simplify their technology stacks.

David Steinberg: The number of brands we served is nearly 40% larger than our reported scaled customer count. Looking forward, in addition to our continued growth with agencies, the emergence of the partner channel and the benefits of the replacement cycle, we expect the macro environment will continue to drive scrutiny on how and where enterprises invest in marketing technology. As the need for efficiency and effectiveness rises, enterprises are more likely to change to improve their marketing programs and lower their total cost of ownership.

Getting budgets must be tied to measurable outcomes that generate a strong verifiable return on investment, which veda delivers.

In summary, I'm incredibly proud of our team and what we have accomplished this quarter.

We continue to be well positioned to capitalize on the need for more efficient and effective marketing technology.

As always I would like to sincerely. Thank our customers our partners teams Ada and all our shareholders for the ongoing support of our vision now let me turn it over to Chris to discuss our results in greater detail.

David Steinberg: As we heard it date a lot, marketers are looking to consolidate spend with fewer vendors and simplify their technology stacks. Marketing budgets must be tied to measurable outcomes that generate a strong, verifiable return on investment, which Zeta delivers.

Chris.

Thank you David and good afternoon, everyone.

During today's call I'll focus on the drivers of our consistent execution, along with key considerations for the fourth quarter outlook.

Starting with the results, we delivered $189 million in revenue up 24% year to year.

On an organic basis and adjusting for last year's political revenue growth accelerated from 24% from <unk> to 26%. This quarter I'll note. Our growth rate also includes continued headwinds from the insurance and automotive verticals our.

David Steinberg: In summary, I'm incredibly proud of our team and what we have accomplished this quarter. We continue to be well positioned to capitalize on the need for more efficient and effective marketing technology.

David Steinberg: As always, I would like to sincerely thank our customers, our partners, teams, Zeta and all our shareholders for the ongoing support of our vision.

Our reported ROE would have been in the mid 30, plus excluding these two verticals.

The strength of our revenue growth. This quarter was once again driven by scaled customer additions coming in above the high end of the model will be updated at our investor day of 8% to 12% growth.

Christopher Greiner: Now let me turn it over to Chris to discuss our results in greater detail. Chris, thank you David and good afternoon everyone. During today's call, I'll focus on the drivers of our consistent execution along with key considerations for the fourth quarter's outlook.

We ended the third quarter were 440 scaled customers up 15 from <unk> and up.

13% year here.

We also saw healthy growth from our 1 million plus super scaled customers, which increased by six quarter to quarter to 124 up 17% year on year.

Christopher Greiner: Starting with the results, we delivered 189 million revenues, up 24% year to year, on an organic basis and adjusting for last year's political revenue growth accelerated from 24% to 2Q to 26% this quarter. All note, a growth rate also includes continued hedgements from the insurance and automotive verticals. A reported growth would have been in the mid-30s plus, excluding these two verticals. The strength of our revenue growth as quarter was once again driven by scaled customer additions, coming in above the high end of the model we updated that our investor day of 8% to 12% growth.

The addition of <unk> customers came from industries, ranging from travel and hospitality to education to several across advertising and marketing.

As such we continue to see strong diversification across industries with six of our 10 largest verticals once again growing more than 25% year to year.

And for the 13th consecutive quarter scaled customer RFP grew double digits coming in at $418000 growing at the same 10% rate we've seen throughout the year and at the midpoint of our 8% to 12% growth model.

Like we've discussed in calls earlier this year ARPA growth is influenced by the success, we've seen in closing pilots each year with half of the 51 scaled customers added in the last 12 months and the less than 500 K revenue band.

Christopher Greiner: The end of the third quarter was 440 scale customers, up 15 and 2Q and up 13% year year. We also saw healthy growth from a 1 million plus super-scale customers which increased by 6 quarter quarter to 124 up 17% year year. The addition of scale customers came from industries ranging from travel and hospitality to education to several across advertising and marketing. As such, we continue to see strong diversification across industries, with six of our 10 largest verticals once again growing more than 25% year to year.

This is an encouraging data point for us if you refer to slide 28 in our earnings supplemental we show a multiyear trend demonstrating our scaled customers reliably gross spend the longer they're on data platform.

As illustrated on the slide scaled customers less than one year on the platform spend an average of 400000 compared to the one to three year cohort spending $1 5 million and the more than three year cohort spending over $1 8 million.

Christopher Greiner: And for the 13th consecutive quarter, scaled customer are approved with double digits, coming in at 418,000, growing at the same 10% rate we've seen throughout the year and at the mid-point of our 8% to 12% growth.

Not only does this trial a trend line for the scaling potential of these less than 500 scale customers, but it also bodes well for net revenue retention.

Christopher Greiner: He is the first model. Like we've discussed and called earlier this year, our progress is influenced by the success we've seen in closing pilots this year, the path of the 51 scale customers added in the last 12 months in the less than 500 K revenue band. This is an encouraging data point for us. If you refer to side 28 in our earnings supplemental, we show a multi-year trend demonstrating how scaled customers reliably grow spend the longer they're on data's platform.

To that end on a year to date basis total Veda net revenue retention is within our 110% to 115% target range as we remain on track to generate half of our growth from new customers and half from existing customers.

Now, let me transition to the expansion opportunities, we are seeing with agencies and how their contribution this quarter is flowing through our metrics and results.

Our early experience with agency has affirmed the effectiveness of our one to many strategy to accelerate market penetration.

Christopher Greiner: As illustrated on the slide, scaled customers less than one year on the platform spend an average of 400,000 compared to the one to three year cohorts spending 1.5 million and the more than three year cohorts, spending over 1.8 million. Not only does this draw a trend line for the scaling potential of these less than 500 scale customers, but it also bloats well for net revenue attention. To that end, on a year-to-date basis, total data net revenue attention. As we mentioned within are 110 to 115% target range as we remain on track to generate half of our growth from new customers and half of existing customers.

I'll outline in steps what were learning from those engagements how those learnings manifest themselves in our results and what it means to our P&L in the near mid and longer term.

Starting with less than one by filling in the intelligence and Omnichannel engagement gap. We believe we are providing the agency with a more comprehensive platform for them to win more business.

Listen to the agency's success on our platform of the single brand can quickly lead to expansion into more brands.

By way of example, the 15th scaled customers. We added this quarter resulted in an incremental 45 unique brand and three Q. Most unique brands came from agencies and this should continue.

Christopher Greiner: Now let me transition to the expansion opportunities we're seeing with agencies and how their contribution this quarter is flowing through our metrics and results. Our early experience with agencies has affirmed the effectiveness of our one-to-many strategy to accelerate market penetration. I'll outline in steps what we're learning from those engagements, how those learnings manifest themselves in our results, and what it means to our P&L in the near mid and longer term. Starting with lesson one, by filling an intelligence and omnichannel engagement gap, we believe we're providing the agency with a more comprehensive platform for them to win more business.

Less than three because Vale has close partnerships with social and search engagement channels.

<unk> can quickly pivot already budgeted spend to data as a starting point.

The agency can leverage our data cloud and intelligence to build higher ROI campaigns inside the walled garden. This shows up its integrated platform revenue, which due to third party media has a lower margin profile.

Christopher Greiner: Lesson two, the agency's success in our platform with a single brand can quickly lead to expansion into more brands. By way of example, the 15-scale customers we added this quarter resulted in an incremental 45-unit brand. And three Q, most unique brands can't come agencies and they should continue. Lesson three, because VAT has closed partnerships with social and search engagement channels, agencies can quickly pivot already budgeted spend to VAT at the starting point.

This is where we stand today in the very early days of those engagements.

So as we've ramped with agency customers integrated platform revenue has been the first to grow up 63% year to date and 44% in the third quarter.

In less than four agencies need omnichannel engagement strategies beyond just social and search. This is typically the next phase of data is engagement and it translates to the use of data is owned and operated channels such as CTV display video messaging and email. These.

These are proven to drive a better ROI and this shows up as direct revenue and as a margin profile in the low to mid seventies.

Christopher Greiner: The agency can leverage our data cloud and intelligence to build higher ROI campaigns inside the wall garden. This shows up its integrated platform revenue, which due to third-party media has a more margin profile. This is where we stand today in the very early days of those engagements. So as we've ran through agency customers, integrated platform revenue has been the first to grow, up 63% year to date and 44% in the third quarter.

In the third quarter, our direct revenue mix was 70% with our direct revenue growing 17% year to year, improving from 15% last quarter.

By the way direct revenue growth is also adversely impacted by the insurance and automotive verticals this quarter growth otherwise would've been in the mid twenties.

And lastly agencies are great long term customers their platform evolution from integrated to direct channels can take place over many quarters, resulting in both positive mix shift and increased spend as an example paid its first large agency customer in 2020 started with 7% dirt.

Christopher Greiner: Lesson four, agencies need on-the-channel agency strategies beyond the social and search. This is typically the next phase of data engagement. And it translates to the use of data's own and operating channels such as CTV, display video, messaging and email. These are proven to drive a better ROI. And this shows up its direct revenue and has a margin profile in the mode to mid-70s. The third quarter are direct revenue mix with 70% with our direct revenue growing 17% year to year improving from 15% last quarter. By the way, direct revenue growth is also adversely impacted by the insurance and automotive verticals of the quarter. Growth otherwise would have been in the mid-20s.

Nick and $3 million in revenue growing to 76% direct mix and over $20 million in revenue over a three year period.

And the pipeline of agency customers signed and expect to sign had the potential to do the same and more.

Bringing this back the third quarter's results our success in adding New agency business was the driver of integrated platform mix being up inter GAAP cost of revenue of 38, 9% being up 110 basis points year to year, and 280 basis points quarter to quarter.

Christopher Greiner: And lastly, agencies are great long-term customers. Their platform evolution from integrated to direct channels can take place over many quarters, resulting in both positive mix shift and increased spend. As an example, Faith's first large agency customer in 2020 started as a 7% direct mix and 3 million revenue growing to 76% direct mix in over 20 million revenue over a three year period. And the pipeline of agency customers we've signed and expect to find had the potential to do the same and more.

I want to reiterate the margin profile of our direct revenue continues to hold firmly in the low to mid seventies. So the change in margin is principally driven by how early we are in the lifecycle with new agency customers.

Because we have visibility into the mix and margin dynamics of our ABC growth strategy with plenty of runway to optimize operating expenses without having to compromise new product investment growing data LIBOR increase in quota carriers too.

To this end total opex growth slowed to 11% from year to year, excluding stock based compensation on a dollars basis and is down 490 basis points as a percentage of revenue.

Christopher Greiner: Bringing us back to third quarter's results are success in adding new agency business with the driver of integrated platform mix being up and for gap cost of revenue is 38.9% being up 110 basis points year to year and 280 basis points quarter to quarter. I want to reiterate the margin profile of our direct revenue continues to hold firmly in the low to mid-70s. So the change in margin is principally driven by how early we are in the life cycle with new agency customers.

We're seeing expense to revenue leverage through two primary drivers first savings in G&A and second for wrapping on prior year sales and marketing infrastructure investments on.

On a combined basis. These two drivers accounted for 420 basis points of the overall 490 basis point reduction year to year in operating expense to revenue efficiency.

As we sit here today, our quota carrying head count is that a 130 <unk>.

Christopher Greiner: Because we are visibility to the mix and margin dynamics of our agency growth strategy with plenty of runway to optimize operating expenses without having to compromise new product investment, growing data live or increasing quota carriers. To this end, total RAPX growth slowed to 11% near the year, excluding stock based compensation on a dollar basis and it's down 490 basis points as a percentage of revenue. We're seeing expense to revenue level to two primary drivers.

We anticipate ending the year in the high 130 to 140 roughly in line with our updated data 2025 model.

Our disciplined expense management and better productivity resulted in acceleration of our adjusted EBIT growth of 51% year on year or $34 million compared to 45% growth last quarter.

In fact, adjusted EBITDA margin of 17, 9% increased 310 basis points year to year. This is the 11th straight quarter in which we've expanded adjusted EBIT margin year over year on a GAAP basis third quarter net loss was $43 million, which includes 58 million of stock based compensation.

Christopher Greiner: First, state is a GNA and second, for wrapping on prior year sales and marketing infrastructure investments. On a combined basis, these two drivers account for 420 basis points of the overall 490 basis point reduction year to year in operating expense to revenue efficiency. As we sit here today, our quota carrier head count is at 132 and we anticipate ending the year in the high 130 to more 140 roughly in line with their updated data 2025 model.

<unk>, the accelerating expenses related to our IPO stock based compensation would have been $25 million.

We continued to drive strong cash generation cash flow from operating activities was $23 million up 17% year to year with free cash flow of $13 million up 43% year to year.

Christopher Greiner: Our disciplines, expense management and better productivity resulted in the acceleration of our adjusted EBITDA growth to 51% year year or 34 million compared to 45% growth last quarter. In fact, adjusted EBITDA margin of 17.9% increased 310 basis points year to year. This is the 11th straight quarter in which we've expanded adjusted EBITDA margins year over year.

Now, let me transition from the results to our outlook.

Big picture first we're fully flowing through our third quarter revenue and adjusted EBITDA beat and raise in the fourth quarter as seen on slide 13, and our earnings supplemental presentation.

Speaking first to revenue, we're increasing the midpoint of full year revenue guidance by $10 million to 725 reps.

Christopher Greiner: On a gap basis, third quarter net loss is 43 million, which includes 58 million of stock based compensation, excluding the accelerating, spending related to our IPO, stock based compensation would have been 25 million. We continue to drive strong cash generation cash flow from operating activities with 23 million up to 72% year year with free cash flow of 13 million up 43% year year.

Representing 23% growth.

And we're taking fourth quarter guidance up 500000 at the midpoint to $207 million or 18% year to year growth.

As a reminder, our fourth quarter revenue growth rate includes a three point headwind from last year's political revenue and patients continued pressure from automotive and insurance verticals.

As we look around the corner to 2024, we expect these industries to become tailwind with the insurance and automotive headwinds likely persisting into the first quarter and then turning positive in <unk> with political being most prevalent in the second half of 'twenty four.

Christopher Greiner: Now let me transition from the results to our outlook. The big picture first, we're fully flowing through our third quarter revenue and adjusted EBITDA beats and raising the fourth quarter as seen on slide 13 in our earnings supplemental presentation. He's been first to revenue, we're increasing the midpoint of four year revenue guidance by 10 million to 725 million, representing 23% growth. And we're taking fourth quarter guidance up 500,000 at the midpoint to 207 million or 18% year to year growth.

Also relevant to revenue, we expect for Q direct mix to look a lot like the third quarter with a similar cost of revenue profile as well.

In terms of adjusted EBITDA, we are increasing the midpoint of full year guidance by $2 1 million to $126 6 million, an increase of 37% year to year or 17, 5% margin up 190 basis points year to year.

Fourth quarter adjusted EBITDA midpoint of guidance is $42 million, an increase of 29% year to year or 23% margin up 180 basis points year to year.

Christopher Greiner: As we look around the corner to 2024, we expect these industries to become tailwinds, with the insurance and automotive headwinds likely persisting into the first quarter and then turning positive into Q, the political being most prevalent in the second half of 24. Also relevant to revenue, we expect four Q direct next to look a lot like the third quarter with a similar cost of revenue profile as well. In terms of adjusted, we're increasing the midpoint of four year guidance by 2.1 million to 126.6 million and increase the 37% year year or 17.5% margin of 190 basis points year to year. The fourth quarter adjusted even a midpoint of guidance is 42 million and increase of 29% year to year or 20.3% margin of 180 basis points year to year.

Before turning to Q&A, let me quickly close with a couple of final thoughts.

We're growing revenue rapidly even in the face of industry specific headwinds with over 90% of the portfolio growing in the mid 30 plus year to year.

We're growing customers rapidly.

The 15th scaled customers added this quarter resulted in three times as many unique brand that evidence of the very early days of scaling of our new agency customers.

And we're rapidly expanding adjusted EBITDA and free cash flow, we're striking a balance of expanded adjusted EBITDA margins, while managing for agency customer mix and gross margin dynamics.

Disciplined expense management and investment prioritization.

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

Thank you we will now be conducting a question and answer session.

Christopher Greiner: Before turning to Q and A, let me quickly close with a couple of final thoughts. For growing revenue rapidly, even in the face of industry-specific headwinds, with over 90% of the portfolio growing in the mid 30 plus year to year. For growing customers rapidly, the 15 scaled customers added this quarter resulted in three times as many unique brands added, evidence of the very early days of scaling of our new agency customers. And we're rapidly expanding adjusted EBITDA and free cash flow. We're striking a balance of expanded adjusted EBITDA margins while managing for agency customer mix and gross margin dynamics with disciplined expense management and investment prioritization.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

I ask that you limit to one question and one follow up so that others may have the opportunity to ask questions for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

First question comes from Jason <unk> with Craig Hallum. Please go ahead.

Perfect. Thank you guys, Chris I, just wanted to clarify a little bit more detail on gross margins.

You indicated.

<unk> mix for Q4 would be pretty similar to Q3 look I know, it's too early to give a guide for 2024, but I'm just curious what that progression looks like do you think next year looks more like the second half of the year do you think it looks more like the first half of the year do we just start to kind of see a progression in between those two figures.

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Hey, Jason Thanks, Thanks for the question.

I appreciate it I don't want to get too far into 2020 for yet.

But I think you can draw a trend line four were in the early days with a lot of these agencies I do believe that as we work across 2024 that that mix will then begin to become there'll still be an integrated component, but there will be more and more direct mix overtime. So I think you said it well that the first half of 2024 could look.

Jason Kreyer: First question comes from Jason Kreyer with Craig Hall. Please go ahead. Perfect. Thank you guys. Chris, I just wanted to clarify a little bit more detail on gross margins. You indicated, you know, the NP mix for Q4 would be pretty similar to Q3. Look, I know it's too early to give a guide for 2024, but I'm just curious what that progression looks like. Do you think next year looks more like the second half of the year? Do you think it looks more like the first half of the year? Do we just start to kind of see a progression in between those two figures?

Similar to the second half of 2023, and then improving in the second half of 2024 is that direct mix and those agency relationships get bigger and a positive mix shift happens.

Appreciate that I appreciate the detail.

And then David.

For a few quarters on bigger deal sizes, obviously, we're seeing that happen in the ARPA growth figures can you just dissect that in terms of what youre seeing from customers today, just new channels that are being added new use cases or any changes that you're noticing that are driving that bigger bigger ARPA growth.

Jason Kreyer: Jason, thanks for the question. I appreciate it. I don't want to get too far into 2024 yet, but I think you can draw a trend line for, you know, we're in the early days with a lot of these agencies. I do believe that as we work across 2024, that mix will then begin to become... There will still be an integrated component, but I believe we have more and more direct mix over time.

Bigger deal size.

Yes first of all thank you very much I. Appreciate the question I think what we're seeing first and foremost is as we've switched from seta, who to wise data, we're seeing much bigger rfps much larger organizations that in the past might not have chosen us they might have put us in.

Jason Kreyer: So I think you said it well that the first half of 2024 could look more similar to the second half of 2023. And then improving in the second half of 2024 as that direct mix and those agency relationships get bigger and a positive mix shift happens.

The RFP, we might've gotten a good look at it but we wouldn't have won because we didn't have the reputation and we didn't have the brand we're now winning those.

David Steinberg: I appreciate the detail. And then David, we've talked for a few quarters on bigger deal sizes. Obviously, we're seeing that happen in the Arapu growth figures. Can you just dissect that in terms of what you're seeing from customers today? Just new channels that are being added, new use cases or any changes that you're noticing that are driving that bigger, bigger Arapu growth and bigger deal size?

It's not just channel expansion and use case expansion, it's just substantially larger organizations with substantially larger budgets choosing us now what we're seeing a lot of is connected messaging, we're seeing messaging connected to CTV and we're seeing messaging connected to social.

Both of which are very very powerful when you look at the return on investment through our use case capabilities.

David Steinberg: Yeah, first of all, thank you very much. I appreciate the questions. I think what we're seeing first and foremost is as we've switched from Zeta, who to why Zeta? We're seeing much bigger Arapu, much larger organizations that in the past might not have chosen us. They might have put us in the RFP. We might have gotten a good look at it, but we wouldn't have won because we didn't have the reputation and we didn't have the brand.

Appreciate it.

Next question comes from Ryan Macwilliams with Barclays. Please go ahead.

Hey, Christian data this is amin on for Ryan.

From a macro perspective would you say that the environment was consistent from <unk> to <unk>.

David Steinberg: We're now winning those. So it's not just channel expansion and use case. It's just substantially larger organizations with substantially larger budgets choosing us. Now, what we're seeing a lot of is connected messaging. We're seeing messaging connected to CTV and we're seeing messaging connected to social, both of which are very, very powerful when you look at the return on investment through our use case capabilities. I appreciate it.

And what are you baking into your guidance in terms of holiday students spent at this point.

Well first yes, I mean, we saw some headwinds in automotive and insurance in the first three quarters of the year or the first two quarters here prior to this quarter. So that was pretty consistent the good news was our all of our other verticals really hung in there and.

And we saw most of them growing in the mid Twenty's and some growing in the 30 or so.

We continue to see a tale of two nations.

The good news is there is far more good than bad which is why we continue to over deliver but theres still some choppiness in the marketplace and we continue to grapple with that I think yes. There is.

Ryan McWilliams: Next question comes from Ryan McWilliams with Barclays. Please go ahead. Hey, Chris and David, this is Aminon for Ryan. From a macro perspective, would you say that the environment was consistent from 2Q to 3Q? And what are you baking into guidance in terms of holiday season spent at this point? Well, first, yes. I mean, we saw some headwinds in automotive and insurance in the first 3Q at the year or the first 2Q prior to this quarter.

It's a good a luxury it also goes to Jason's question around your deals. We included a new slide in the earnings supplemental you'll find on slide 20, where a lot of the feedback we received coming out of the Investor day was continuing to clarify the competitive universe and what we've done is we've broken down how that marketer buys into categories around <unk>.

Data management, or Cdp's marketing automation or the marketing clouds. If you will and then paid media what's interesting about the eight figure deal that David mentioned the discount retailer in his prepared remarks.

Ryan McWilliams: So that was pretty consistent. The good news was all of our other verticals really hung in there and we saw most of them growing in the mid 20s and some growing in the 30s. So, you know, we we continue to see, you know, a tale of two nations, but, you know, the good news is there's far more good than bad, which is why we continue to over deliver. But there's still some choppiness in the marketplace and we continue to grapple with that. Yeah, there's a good illustrious also goes to Jason's question around your deals.

Here you had the <unk> marketing platform that was able to address what seven vendors. We're doing in one we've replaced salesforce for the marketing cloud we replaced aquifer for the data management CDP and we replaced five other activation vendors on engagement channel side. So a good illustrative why deals are getting bigger because we can consol.

Sedate all of that but there is still a need and a push with the replacement cycle and data is filling that through lowering total cost of ownership and creating a better ROI. So just kind of brings those two questions together and quite frankly as youre seeing choppiness in the marketplace. We're seeing deals close faster and I think that was one of the reasons you saw.

Ryan McWilliams: We included a new slide in the earnings supplemental you'll find in slide 20, where a lot of the feedback we received coming out of the investor day was continuing to clarify the competitive universe. And what we've done is we've broken down how that marketer buys into categories around data management or CDPs, marketing automation or the marketing clouds, if you will, and then paid media. What's interesting about the eight figure deal that David mentioned, the discount retailer and his prepared remarks.

Our scaled customer count and our super scaled customer count grow faster than expected clients are willing to take more risk in this environment, especially now that we're more of a known entity. They know who we are they see us winning in the marketplace. They see the amount of savings were able to drive to them through the elimination of.

Ryan McWilliams: Here you had Zeta's marketing platform that was able to address what seven vendors were doing in one. We replaced sales force for the marketing cloud. We replaced aquia for the data management CDP and we replaced five other activation vendors on the engagement channel side. So a good illustrative why deals are getting bigger because we can consolidate all that. But there is still a need and a push with the replacement cycle and Zeta is stealing that through lowering total cost of ownership and creating a better ROI.

Point solutions and the ability to get to that very high level of intent quickly and we're seeing enterprises move faster to go through that pipeline.

Okay.

Got it perfect.

How do you how do you guys think of enterprise customers.

And their budgets for 'twenty 'twenty, four and would you say there is any difference between the buying patterns.

Ryan McWilliams: So it just kind of brings those two questions together. Yeah, and quite frankly, as you're seeing choppiness in the marketplace, we're seeing deals close faster. And I think that was one of the reasons you saw our scaled customer count and our super scaled customer count grow faster than expected. Clients are willing to take more risk in this environment, especially now that we're more of a known entity. They know who we are.

Normal customers and scaled customers.

Yes, interestingly enough there's always been this narrative.

Marketing is one of the first things you can cut in a down environment.

We are not seeing that now we're seeing some headwinds in certain industries and we're trying to be very transparent about that.

Some of that had to do with strikes which for us Fortunately have now settled and some of that had to do with.

Ryan McWilliams: They see us winning in the marketplace. They see the amount of savings were able to drive to them through the elimination of point solutions and the ability to get to that very high level of intent quickly. And we're seeing enterprises move faster to go through that pipe.

Under reserving for coming out of Covid as it related to how people were going to drive and get into accidents. We do believe those headwinds become tailwind going into some point next year.

And quite frankly, we're not seeing enterprises cut marketing, we're seeing enterprises invest the same if not more but at the same time, we're taking substantial market share in a growing market, which is once again not to say that we're not without challenges as we are.

Ryan McWilliams: How do you guys think of enterprise customers and their budgets for 2024? And would you say there's any difference between the buying patterns and the normal customers and skilled customers? Yeah, interestingly enough, there's always been this narrative that marketing is one of the some headwinds in certain industries. And we're trying to be very transparent about that. Some of that had to do with strikes, which fortunately have now settled. And some of that had to do with, you know, underreserving for coming out of COVID, is it related to how people were going to drive and get into accidents?

Been very open with but on the most part we're seeing enterprises investing in their marketing.

And growing it.

Only clarification aim in your question.

Maybe you didn't mean, it but if im interpreting correctly.

The scaled customers all 440 of them. These are very large enterprises.

Obviously large agency as we've been discussing so the difference trained if youre at a 100 K two 1 million and a million plus is really the time you've spent on the <unk> platform. Your tenure with us and there's a slide in the earnings supplemental that shows those less than 12 month enterprise scale customers that have been with US again lesson year spend an average of 400 K the one to three year cohort.

Ryan McWilliams: We do believe those headwinds become tailwinds going into some point next year. And quite frankly, we're not seeing enterprises cut marketing. We're seeing enterprises invest the same, if not more, but at the same time, we're taking substantial market share in a growing market, which is once again, not to say that we're not without challenges, as we've been very open with. But we've been growing it. The only clarification in your question, maybe you didn't mean it, but if I'm interpreting correctly, the scaled customers, all 440 of them, these are very large enterprises.

Then accelerates to an average of one five and the the greater than three year cohort grows our spend more than one eight so there's not really a kind of a normal and a super scale customer Theyre. All large enterprises is just time on the platform drives net revenue retention growth.

Okay.

Thank you next question Arjun Bhatia with William Blair. Please go ahead.

Perfect. Thanks, guys.

Graph on the execution and organic acceleration here.

Chris It seems like or maybe for David This one but it seems like the agencies. So we'll continue to be a strong growth driver.

Ryan McWilliams: And obviously large agency, as we've been discussing. So the difference between, if you're at 100k to a million and a million plus, is really the time you've spent on Zeta's platform, you're ten year with us. And there's a slide in the earnings supplemental that shows those less than 12-month enterprise skilled customers that have been with us again less than a year, spend an average of 440k, the one to three-year cohort then accelerates to an average of 1.5, and the greater than three-year cohort grows or spends more than 1.8. So it's not really a kind of a normal and a super-skilled customer. They're all large enterprises. It's just time on the platform drives net revenue attention growth.

Ryan McWilliams: Thank you.

As you're thinking about just how the business evolves and how you dedicate your own go to market resources over the next year or two.

How do you think about balancing how much you're focusing on the agencies versus.

Which customers you want to have a direct relationship with like are there pros and cons.

How do you allocate sales and marketing your own sales and marketing resources to reflect that.

As usual large and a great great question.

It is a bifurcation it has a different team of salespeople, who sell into agencies and then go into work with the enterprises as a subset of the agency than it is the salespeople who go directly to an enterprise and I think the truth of the matter is we're trying to staff up and vote.

Arjun Bhatia: Next question, Arjen Bofier with William Blair, please go ahead. Perfect. Thank you guys. And congrats on the execution and the organic acceleration here. Chris, it seems like, or maybe for David, this one, but it seems like the agency still continue to be a strong growth driver. As you're thinking about just how the business evolves and how you dedicate your own go-to-market resources over the next year or two, how do you think about balancing how much you're focusing on the agencies versus which customers you want to have a direct relationship with? Like are there pros and cons? And how do you allocate sales and marketing, your own sales and marketing resources to reflect that?

We are far more enterprise salespeople than we have agency salespeople by by the vast majority because that's what we've been doing for many years, but one.

Like a lot of sort of baseball franchises, we're trying to bring in the world's best free agents in the agency space, who can really bat cleanup.

The people, we're bringing in and you guys have heard me talking about this I've been laying groundwork in the agency ecosystem for four or five years now and the sales cycles. There took a long time to crack the code there cracked and we're now seeing that scale, but I want to be very very clear when we.

David Steinberg: As usual, Arjen, a great, great question. You know, it is a bifurcation. It is a different team of salespeople who sell into agencies and then go into work with the enterprises as a subset of the agency. Then it is the salespeople who go directly to an enterprise. And I think the truth of the matter is, we're trying to staff up in both. We have far more enterprise salespeople than we have agency salespeople by the vast majority because that's what we've been doing for many years.

Partner with an agency, we are partnering with that agency and the enterprise client directly the agency is not hiring us and saying go across our customer base. They are bringing us in to the enterprise as the partner to the agency to either fill holes for product cat.

David Steinberg: But like a lot of sort of baseball franchises, we're trying to bring in the world's best free agents in the agency space who can really bat clean up and the people we're bringing in. And you guys have heard me talking about this. I've been laying groundwork in the agency ecosystem for four or five years now. And you know, the sales cycles there took a long time to crack the code. They're cracked and we're now seeing that scale.

<unk>, they do not have or help them scale certain components faster, but in a 100% of the cases.

We are directly working with the enterprise in partnership with the agency. So when you look at it one sales rep can close multiple brands simultaneously by working with an agency, whereas on an enterprise basis. Its one to one I would say that we want to continue to focus on both we're going.

David Steinberg: But I want to be very, very clear. When we partner with an agency, we are partnering with that agency and the enterprise client directly. The agency is not hiring us and saying, go across our customer base. They are bringing us in to the enterprise as the partner to the agency to either fill holes for product categories they do not have or help them scale certain components faster. But in a hundred percent of the case, We're directly working with the enterprise in partnership with the agency.

Continue to staff up in both and the good news about being ahead, which is where we are is we're in a position to hire the worlds best salespeople on both sides of the house I think.

Yes, I think bringing bringing its a great point, David bringing the math to it I think there is an interesting sales productivity statistic on how we're investing in our go to market Arjun.

It would be led by quality over quantity and when we add it's very data driven for example last quarter, we talked about on a trailing 12 month basis. We had added 52 scaled customers, while adding 15 quota carriers over that same period of time, so roughly $3 five quota carriers per scale customer added this quarter, we saw that improve pretty meaningfully quarter to.

David Steinberg: So when you look at it, one sales rep can close multiple brands simultaneously by working with an agency, whereas on an enterprise basis, it's one to one. I would say that we want to continue to focus on both. We're going to continue to staff up in both. And the good news about being ahead, which is where we are, is we're in a position to hire the world's best salespeople on both sides of the house.

A quarter, where we've added 51 scale customers over the last 12 months, while adding 11 quota carriers, so going from a three five times to five times leverage in.

And those 15 scaled customers this quarter alone equated to 45 unique brands each with each of which fit the scale customer definition of spending at least 100 K on a trailing 12 month basis. So productivity continues to be in our favor we get really good leverage as David mentioned from the agency relationship. In addition to what we're seeing on the enterprise side.

Christopher Greiner: Yeah, I think bringing it's a great point, David, bringing the math to it. I think there's an interesting sales productivity statistic on how we're investing in our go-to-market, Arjun. Did it be led by quality over quantity? And when we added, it's very data driven. For example, last quarter, we talked about on a trailing 12 month basis, we added 52 scaled customers while adding 15 court of carriers over that same period of time.

Perfect. That's very helpful color and then Christopher you I think you had mentioned that the headwinds in auto and insurance that kind of continued this quarter and maybe some time in 2024 of those those weapons.

From a benefit can you just give a sense for how the magnitude of the headwinds are trending quarter to quarter from Q2 to Q3, and what visibility you have into any improvement.

Christopher Greiner: So roughly three and a half court of carriers per scaled customer added. This quarter, we saw that improve pretty meaningfully quarter to quarter, where we added 51 scaled customers over the last 12 months while adding 11 court of carriers. So going from a three and a half times to a five times leverage. And those 15 scaled customers, this quarter alone equated to 45 unique brands, each of which fit the scaled customer definition of spending at least 100k on a trailing 12 month basis. So productivity continues to be in our favor. We get really good leverage as David mentioned from the agency relationship. In addition to what we're seeing on the enterprise side.

Arjun Bhatia: Perfect. That's a very helpful color.

With those verticals what might those customers be saying quantitatively, but.

I'll give you some conviction that they might improve from a spending perspective next year.

Sure mathematically.

The third quarter was a little bit worse in terms of an aggregate headwind than the second.

Fourth quarter will be better than the third but it will still be with us as a headwind and it will still be with us although less so in the first quarter of next year and we expect that headwind to then turn into a tailwind.

Christopher Greiner: And then Chris, for you, I think you had mentioned that the headwinds in auto and insurance that kind of continued this quarter and maybe sometime in 2024, those flip and become a benefit. Can you just give a sense for how the magnitude of the headwinds are trending quarter to quarter from Q2 to Q3 and what visibility you have into any improvement with those verticals. What might those customers be saying qualitatively that gives you some conviction that they might improve from a spending perspective next year?

Going into the second quarter and beyond of 2024.

Quantitatively or I should say from what we're hearing from our public company customers.

All are also seeing them from financial metrics, they're posting what theyre, saying in the earnings calls, but they are also seeing the environment improves I don't think we are at the I think we're on our way kind of upward again versus still on that on that downward trend. It's also conversations we're having remember we have a tremendous number of success oriented people.

In our organization that are helping our enterprise clients to figure out how to better manage their marketing and we're embedded with most of these clients. They are very large customers on a historic basis, and we're getting buying signs that are very clear asking for planned talks.

Christopher Greiner: Sure. Mathematically, the third quarter was a little bit worse in terms of an aggregate headwind than the second. Fourth quarter will be better than the third, but it'll still be with us as a headwind. It'll still be with us although less so in the first quarter of next year. And we expect that headwind to then turn into a tailwind going into second quarter and beyond of 2024 quantitatively. Or I should say from what we're hearing from our public company customers, we all are also seeing them from financial metrics.

About the future for the first time in quite some time, so I think its quantitative and qualitative that we do believe this will.

We will go from being a headwind to a tailwind here sometime in the near future.

Yes.

Christopher Greiner: They're posting what they're saying in their earnings calls that they are also seeing the environment improve. So I don't think we're on our way kind of upward again versus still on that downward trend. It's also conversations we're having. Remember, we have a tremendous number of success oriented people in our organization that are helping our enterprise clients to figure out how to better manage their marketing. And we're embedded with most of these clients.

Thank you next question comes from Elizabeth <unk> with Morgan Stanley. Please go ahead.

Hey, guys. This is Chris <unk> on for Elizabeth Florida.

David maybe one for you I know you all have talked about getting more at bats can lead to accelerating growth. So I'm. Just curious when you think about the new Bachelor game today, but go to market channels are those mostly coming in through and where do you think more of those at bats can come from or over them off here.

Christopher Greiner: They're very large customers on a historic basis. And we're getting buying signs that are very clear, asking for plans, talking about the future for the first time in quite some time. So I think it's quantitative and it's qualitative that we do believe this will will go from being a headwind to a tailwind here sometime in the near future.

Yes, great Great question. Thank you.

Elizabeth Porter: Thank you.

I think that first of all.

People are undervalue wing, our relationship with Snowflake, it's really been an important component of our RFP strategy. Both when they are bringing clients to us from a partnership perspective, and when we are bringing clients to them.

We're able to do more as a collective and we continue to see a large number of at bats. In my prepared statement I did say that RFP volumes hit an all time record in Q3, which was up from a record in Q2.

Christopher Quintero: Next question comes from Elizabeth Porter with Morgan Stanley, please go ahead. Hey guys, this is Chris Quinteroan for Elizabeth Porter.

Christopher Quintero: David, maybe one for you. I know you all have talked about getting more at BASC and lead to accelerating growth. So just curious, when you think about the new at BASC that you're getting today, what go to market channels are those most becoming in through and where do you think more of those at BASC and come from over over the next year? Yeah, great, great question. Thank you. I think that first of all, people are undervaluing our relationship with snowflake.

So we continue to see a lot of at bats.

We're also really focused for the first time on building channel partnerships. In addition to agency relationships, where we could potentially be partnering with professional services firms and working with them for more at bats, but on an absolute gross basis.

Christopher Quintero: It's really been an important component of our RFP strategy, both when they're bringing clients to us from a partnership perspective and when we are bringing clients to them, where we're able to do more as a collective and we continue to see a large number of at BASC. In my prepared statement, I did say that RFP volumes hit an all time record into three, which was up from a record into two. So we continue to see a lot of at BASC.

I've never seen our pipeline go up more than I did after zaid alive. We just had an incredible group of potential clients come.

An incredible group of existing clients come in came out saying Wow.

How do we do this together or how do we do that together.

And we were really.

As it relates to add that I think we're starting to see a really exciting number of them and quite frankly.

We're continuing to win a disproportionate percentage of the Rfps and engagements that we get invited to do which is why we had such a large growth and scaled customers and super scaled customers in the third quarter.

Christopher Quintero: We're also really focused for the first time on building channel partnerships in addition to agency relationships, where we could potentially be partnering with professional services firms and working with them for more at BASC. But on an absolute, grow spaces, I have never seen our pipeline go up more than I did after Zeta Live. We just had an incredible group of potential clients come. We had an incredible group of existing clients come and came out saying, wow, how do we do this together or how do we do that together?

Awesome very helpful. And then I also wanted to ask on the mobile opportunity.

I know you all have talked about it being a key channel and one where youre looking to improve their capabilities there I guess.

How big of an opportunity could this be for you and what do you need to exactly improve upon and could M&A be a part of that solution there.

Yes, we always look at buyer bill, but the truth of the matter is that today, we have a series of partnerships and we have a series of products and mobile we believe with the elimination of apples idea FA, which I'll remind everybody again, we never used in the first place there is now a unique opportunity.

Christopher Quintero: And we were really, you know, as it relates to at BASC, I think we're starting to see a really exciting number of them. And, you know, quite frankly, I think that we're continuing to win a disproportionate percentage of the RFP's and engagements that we get invited to do, which is why we had such a large growth in scale customers and super scaled customers in the third quarter.

In the mobile environment for the first time to really consolidate and grow our business and we are starting to see meaningful rfps as it relates to connected campaigns that include not just messaging and not just CTV and not just social and other.

David Steinberg: Awesome, very helpful.

David Steinberg: And then I also wanted to ask on the mobile opportunity. I know you all have talked about it being a key channel and one where you're looking to improve your capabilities there. I guess how big of an opportunity could this be for you and what do you need to exactly improve upon and could M&A be a part of that solution there? Yeah, we always look at buyer bill, but the truth of the matter is that, you know, today we have a series of partnerships and we have a series of products in mobile.

But mobile and we continue to have the right products at the right time.

We are continuing to build out our own products and we continue to partner, where we think there are best of breed partners that we can work with <unk>.

Quite frankly, we have bought some of those guys in the past and we might in the future, but as I always say I believe that quote transformative deals transform both companies for the worse. So we will continue on with our discussed M&A strategy that we talked about at length at our Investor Day, where we will.

David Steinberg: We believe with the elimination of Apple's IDFA, which I will remind everybody again. We never used in the first place. There is now a unique opportunity in the mobile environment for the first time to really consolidate and grow our business. And we are starting to see meaningful RFPs as it relates to connected campaigns that include not just messaging and not just CTV and not just social and other, but mobile. And, you know, we continue to have the right products at the right time.

To do smaller tuck in deals, where we think we can pick up great people great technology, great data.

<unk>.

Syndicate, those products or I should say integrate those products into the GMP and then allow all of our clients to use them.

Excellent. Thank you so much.

Next question DJ Hynes with Canaccord Genuity. Please go ahead.

David Steinberg: We are continuing to build out our own products and we continue to partner where we think there are best of breed partners that we can work with. Quite frankly, we have bought some of those guys in the past and we might in the future. But, you know, as I always say, I believe that, quote, transformative deals transform both companies for the worse. So we will continue on with our Discussed M&A strategy that we talked about at length at our investor day.

Hey, good evening guys congrats on a nice quarter.

Chris one for you on the direct revenue mix.

The agency customers as those customer relationships mature or would you expect that mix of direct and indirect revenue to start to look like your direct enterprise relationships over time or will always be kind of structurally a little bit higher indirect revenue.

No I mean look I think you've got to learn from experience and in our case we are.

David Steinberg: We will continue to do smaller tuck-in deals where we think we can pick up great people, great technology, great data, and can... Syndicate those products, or I should say integrate those products into the ZMP and then allow all of our clients to use them.

A number of examples the most material of which as I mentioned in the prepared remarks. The first large global agency, we began working with in 2020.

Spend $3 million with us and only 7% of that was direct revenue.

If you fast forward to ending 2022, it was an over $20 million a year customer and 76% of that spend was using our direct channels and as you would expect the margin profile of that business evolved.

David Steinberg: Excellent, thank you so much.

Christopher Greiner: Next question, DJ Hynes with Canacorn Genuity, please go ahead. Hey, good evening guys, congrats on the nice quarter. Chris, one for you on the direct revenue mix is it pertains to the agency customers. As those customer relationships, make sure. Would you expect that mix of direct and indirect revenue to start to look like your direct enterprise relationships over time or will always be kind of structurally a little bit higher in direct revenue?

You'll have.

Our direct revenue mix and it's been holding steady the gross margin profile. There is between the low seventy's and mid seventies. This quarter was closer to the mid 70. So yes, we do expect that as those relationships get more tenured not only do they get bigger, but the mix starts to balance out and look a lot like our first example would that large global holdco in 2020.

Christopher Greiner: No, I mean, look, I think you got to learn from experience. And in our case, we have, you know, a number of examples that the most material of which, as I mentioned in the prepared remarks, the first large global agency we began working with in 2020 spent $3 million with us and only 7% of that was direct revenue. If you fast forward to ending 2022, it was an over 20 million a year customer and 76% of that spend was using our direct channels.

Yes, Okay got it makes sense and.

And then David maybe a high level question for you. So I'm sure. Your early kind of in the planning cycle for 'twenty four but if you think about the sequencing of investment dollars like what are your highest priority initiatives at this point as you look out to next year.

Well as Chris said, it's a little early to get into 2024, but I mean, I think you will see us continue to invest heavily in generative AI.

Christopher Greiner: And as you'd expect, the margin profile of that business evolved. You know, half of our direct revenue mix and it's been holding steady, the gross margin profile there is between the low 70s and mid 70s and this quarter was closer to the mid 70s. So yeah, we do expect that as those relationships get more tenure, not only do they get bigger, but the mix starts to balance out and look a lot like our first example with that large global hold code in 2020. Yeah, okay, got it.

Our goal is to automate everything.

We will continue to invest heavily into salespeople and high quality engineers right that can help us to do those things, which which quite frankly, we're also things we talked about on our Investor Day I do think mobile is going to be a bigger and bigger part of what we do and I think we're going to start more heavily.

Investing in the partner channel, where we are working with.

David Steinberg: And then David, maybe a high level question for you. So I'm sure you're early kind of in the planning cycle for 24. But if you think about the sequencing of investment dollars, like what are your highest priority initiatives at this point, if you look out the next year. Well, as Chris said, it's a little early to get into 2024, but I mean, I think you will see us continue to invest heavily in generative AI, where our goal is to automate everything.

Larger professional services firms that have direct relationships with enterprises, where we can partner with them to bring our products through them into the enterprise.

The.

Rollout a suite of analytics products as partners rollout different deliverables that the professional services firms can build on top of the GMP, we've already begun meaningful conversations in that ecosystem and we will be investing in that as we continue to grow the business.

David Steinberg: We'll continue to invest heavily into sales people and high quality engineers, right, that can help us to do those things, which, which quite frankly, we're also things we talked about on our investor day. I do think mobile is going to be a bigger and bigger part of what we do. And I think we're going to start more heavily investing in the partner channel, where we are working with, you know, larger professional services firms that have direct relationships with enterprises, where we can partner with them to bring our products through them into the enterprise.

Very good I appreciate the color. Thank you guys.

Thanks Vijay.

Next question, Ryan Macdonald with Needham <unk> Company. Please go ahead.

Hi, Congrats on a great quarter and thanks for taking my questions of maybe piggybacking off of the agency question from before from Vijay I'm curious as you continue to add brands and deepen those relationships do you expect that when you start with a new brand that it will continue to be at that heavy mix of indirect.

Correct.

Or will the agencies as you grow with them.

David Steinberg: And, you know, roll out a suite of analytics, products as partners roll out different deliverables that the professional services firms can build on top of the ZMP. We've already begun meaningful conversations in that ecosystem, and we'll be investing in that as we continue to grow the business. Yeah, very good. I appreciate the color. Thank you guys.

Have better experience, saying as we add an incremental brands that each incremental brand will start with a greater mix of direct versus indirect hopefully that was clear.

David Steinberg: Thanks, DJ.

No it was clear and it's a great question and the answer is absolutely the latter as the agency gets more comfortable with the platform they start with new brands already on platform.

Ryan McDonald: Next question, Ryan McDonald with need of a company. Please go ahead. Hi, congrats on a great corner. Thanks for taking my questions. Maybe piggybacking off of the agency question from before from DJ. I'm curious as you continue to add brands and deepen those relationships, do you expect that when you start with a new brand that it will continue to be at that heavy mix of indirect or will the agencies as you grow with them, you know, have better experience saying as we add on an incremental brand that that each incremental brand will start with a greater mix of direct versus indirect. Hopefully that was correct.

And we're seeing a lot of that where when they jumped from social which is integrated to CTV or online video or integrated messaging.

All of that is on platform. So what happens is usually it's a nose under the tent and it's not usually with one brand, it's usually with two or three.

Where youre starting on integrated and as we get to know them and they start using the platform. They see the power of being on our platform. So one of the most interesting things about this is why did that other agency go from 7% on.

David Steinberg: No, it was clear, and it's a great question, and the answer is absolutely the latter. As the agency gets more comfortable with the platform, they start with new brands already on platform. And, you know, we're seeing a lot of that where, you know, when they jump from social, which is integrated to CTV or online video or integrated messaging, you know, all of that is on platform. So what happens is, usually, it's a nose under the tent, and it's not usually with one brand, it's usually with two or three, where you're starting on integrated.

On platform to 76% on platform. It wasn't just because they like us it's because of the power of being on platform is very evident in very clear when you begin to use it the return on investment the attribution capabilities the ability to access data assets are.

<unk> higher therefore, once they start using it they want to use it for all of their clients, which is why you see that accelerate as a percentage of revenue as they grow to new brands.

Super helpful. Thanks for the color there and then.

David Steinberg: And as we get to know them, and they start using the platform, they see the power of being on our platform. So one of the most interesting things about this is, why did that other agency go from 7% on platform to 76% on platform? It wasn't just because they liked us. It's because the power of being on platform is very evident and very clear when you begin to use it. The return on investment, the attribution capabilities, the ability to access data assets are substantially higher. Therefore, once they start using it, they want to use it for all their clients, which is why you see that accelerate as a percentage of revenue as they grow to new brands.

David.

Terms of the priorities for next year, you talked about having meaningful conversations and really investing in the partner channel.

We've been at industry conferences. It it's clearly an area where the size are putting a lot of focus in terms of making an investment how competitive.

Are the conversations if you will amongst the best of breed vendors like us data and others.

Try to be the established partner our CDP for some of these larger size right. Now you think it's a I guess a winner takes all in terms of the partnership side or do you get the sense, it's going to be sort of a multi sourced opportunities. Thanks.

Unfortunately, I think it's going to be multi sourced opportunities I don't think youre going to see the large service providers consolidating behind one which by the way is really good for us because they are already working with two or three of our competitors. So it allows us to get in there and get our nose under the tent what I do believe.

David Steinberg: Super helpful, thanks for the call over there. And then David, you know, in terms of the priorities for next year, you talked about having meaningful conversations and really investing in the partner channel. You know, as we've been at industry conferences, it's clearly an area where the SIs are putting a lot of focus in terms of making an investment. How competitive are the conversations, if you will, amongst the best of breed vendors like Azeta and others, you know, to try to, you know, be the established partner or CDP for some of these large SIs right now. Do you think it's a, I guess, a winner takes all in terms of the partnership side or do you get the sense it's going to be sort of multi-source opportunities?

As I believe that our products are best of breed I believe we have the best CDP I believe we have the best data cloud I believe we have the best messaging system and I believe we have the best activation system in the world. So all things being equal I believe that those service providers are going to recommend our products over our competitors.

Because our products are superior.

The other thing that I think is really important here is we've never really had a deliverable that the service provider could build on top of what we do before and.

David Steinberg: Thanks. Unfortunately, I think it's going to be multi-sourced opportunities. I don't think you're going to see the large service providers consolidating behind one, which by the way is really good for us because they're already working with two or three of our competitors. So it allows us to get in there and get our nose under the tent. What I do believe is I believe that our products are best to breed. I believe we have the best CDP.

One of the things we learned is if they don't have a deliverable that can be built on top of your platform. When our platform doesn't really require the type of integration that most of our competitors do right. Because if you choose salesforce Oracle Adobe youre going to have to spend millions of dollars on integrating those platforms with Accenture merkle.

Or others with ours, you don't need to do that so that we were coming from behind we've now built some direct deliverable that these service providers can build.

David Steinberg: I believe we have the best data cloud. I believe we have the best messaging system. And I believe we have the best activation system in the world. So all things being equal, I believe that those service providers are going to recommend our products over our competitors because our products are superior. The other thing that I think is really important here is we've never really had a deliverable that the service provider could build on top of what we do before.

Bill to their clients is added value on top of the CMP, which are also subscription services to the service provider, which I don't know anybody else, who is doing that so as I talked to the service providers. They want to move as much of their revenue to subscription as possible and the deliverable that we bill.

David Steinberg: And one of the things we learned is if they don't have a deliverable that can be built on top of your platform, when our platform doesn't really require the type of integration that most of our competitors do, right? Because if you choose Salesforce Oracle Adobe, you're going to have to spend millions of dollars on integrating those platforms with Accenture, Merkel, or others with ours. You don't need to do that. So that we were coming from behind.

<unk> for them.

Our recurring revenue in nature versus our competitors, which is integration revenue in nature, and we're getting a lot of excitement on that.

Excellent thanks for the color and congrats again.

Thanks Richard.

Richard Baldry with Roth.

Please go ahead.

Thanks.

If we look historically <unk> on a dollar basis, how has been sequentially a lot stronger than what you see out of the third quarter. That's not implied in your guidance. This time around sort of curious is there anything we need to normalize out of there or do you think it's just your typical conservatism.

David Steinberg: We've now built some direct deliverables that these service providers can build. Bill to their clients has added value on top of the ZMP, which are also subscription services to the service provider, which I don't know anybody else who's doing that. So as I talk to the service providers, they want to move as much of their revenue to subscription as possible, and the deliverables that we've built for them are recurring revenue in nature versus our competitors, which is integration revenue in nature. And we're getting a lot of excitement on that.

Is there something about macro that we should be thinking about thanks.

No rich it's really.

If you look at the starting point growth rate for the fourth quarter at 18% I think we've started every quarters.

Next quarter's guide at a similar level, 18%, 19%.

You do and I think it is a fair normalization as last year's political was a three point headwind. So you can say the 18% is really 21%.

David Steinberg: Excellent, thanks for the call and congrats again.

But no I mean, we're we're.

Uh huh.

Richard Baldry: Next question, Richard Baldry with Roth MKM, please go ahead. Thanks. If we look historically, 4Q is on a dollar basis, always been sequentially a lot stronger than what we see out of the third quarter.

Very comfortable with the guide very comfortable with both the top and the bottom line guide and as we look forward to 2024.

<unk>, we've had from some of these very strong signings quarters and by the way if you when the Q comes out tomorrow, you'll see that it's not.

Richard Baldry: That's not implied in your guidance this time around. Is there anything we need to normalize out of there? Or do you think it's just your typical conservatism or is there something about macro that we should be thinking about? Thanks. No, Richard, it's really, you know, if you look at the starting point growth rate for the fourth quarter at 18%, I think we've started every quarter's next quarter's guide at a similar level, 18% or 19%.

Cause for victory lap by any stretch, but it is a big improvement in Rps going from $135 million in <unk> to $210 million. This quarter. So I think that tailwind kicks in next year political kicks in as I mentioned auto and insurance, we think in second quarter turned positive. So we think fourth quarter is going to be a nice running start into the first quarter of next year.

Richard Baldry: What you do, and I think it's a fair normalization, is last year's political is a three point headwind, so you could say the 18% is really 21%. But no, I mean, we're, you know, we're very comfortable with the guide, very comfortable with both the top and the bottom line guide. And as we look forward to 2024, you know, the tailwinds we've had from some of these very strong signings quarters. And by the way, if you, when the queue comes out tomorrow, you'll see that, you know, it's not, you know, calls for a victory lap by any stretch.

And you talked about sales cycle is accelerating which is not the experience of a lot of other companies.

Talk about maybe on the competitive win side of the table the win rates as youre getting into larger engagements and people are more committed to legacy vendors. It obviously should be harder to displace those.

So do you think there is some trade off over maybe the intermediate term where competitive win rates might come down a little but it's still a net positive because youre getting into engagements you might not have previously.

Just a little tougher to pull the legacy vendor out maybe your first go around but it might set you up to when is the next time around.

Richard Baldry: But it's a big improvement in RPO going from 135 million in RPO to 210 million this quarter. So I think that tailwind kicks in next year, political kicks in. As I mentioned, auto and insurance, we think in second quarter turn positive. So we think fourth quarter is going to be a nice running start into the first quarter of next year. And you talk about sales cycles accelerating, which is not the experience of a lot of the companies.

It's funny, you say that we thought that would happen Ive said privately and publicly that as we dramatically increased rfps, we would probably see our close rates go below 50%, we have not seen that rich we continue to close greater than 50% of the rfps and engagements, we get invited to I think what.

Is happening is we are really entering a cycle where people are looking to upgrade from their first generation marketing clouds and their first generation cdp's and they know that the large legacy vendors have not invested one sent into their products.

Richard Baldry: Talk about maybe on the competitive wind side of the table, the wind rates. As you're getting into larger engagements and people are more committed to legacy vendors, it obviously should be harder to displace those. So do you think there's some trade off over maybe the intermediate turn where competitive wind rates might come down a little, but it's still a net positive because you're getting into engagements. You might not have previously, but just a little tougher to pull the legacy vendor out maybe your first go around, but it might set you up to win at the next time around.

<unk> in the last few years as I as I like to joke right sales forces side hustle used to be their marketing cloud now they're side hustle of slack and their marketing cloud is the side hustle to the side hustle and as those organizations have cut investment, which we've seen across the board we're seeing a lot.

David Steinberg: You know, it's funny. You say that we thought that would happen. I've said privately and publicly that as we dramatically increased RFPs, we would probably see our close rate go below 50%. We've not seen that rich. We continue to close greater than 50% of the RFPs and engagements we get invited to. I think what's happening is we are really entering a cycle where people are looking to upgrade from their first generation marketing clouds and their first generation CDPs and they know that the large legacy vendors have not invested one cent into their products in the last few years.

Lot of those cuts being done in marketing cloud, which is allowing us to further the.

The distance in capabilities and quality of our technology to theirs and.

Frankly, where we are.

Winning bid.

Bigger deals than we've ever one before at the same percentage that we've consistently won over the years, which even in some cases surprises us I, probably shouldnt say that on this call, but quite frankly it does.

Sure.

Alright, congrats on a great quarter.

David Steinberg: As I as I like to joke, right, Salesforce's side hustle used to be their marketing cloud. Now their side hustle is slack and their marketing cloud is the side hustle to the side hustle. As those organizations have cut investment which we've seen across the board, we're seeing a lot of those cuts being done in marketing cloud which is allowing us to further the distance in capabilities and quality of our technology to theirs.

Thanks Rich.

Next question Zach Cummins with B Riley Securities. Please go ahead.

Hi, good evening, Thanks for taking my questions. David I know you outlined generative AI is one of the key areas of investment going into next year can you just talk about some of the early adoption you've seen from your Zoe product and how really that could transform into maybe driving even further adoption of your data marketing platform.

Over over the next 12 to 18 months.

Yes, it's almost incredible how many people are using the Zoe component of the data analysis tool. It's effectively today, a generative AI platform that becomes your own internal data scientist. So you can ask real world questions. What are my most valuable audience.

David Steinberg: And you know, quite frankly, we're winning. Bigger deals than we've ever won before at the same percentage that we've currently, you know, consistently won over the years, which even in some cases surprises us. I probably shouldn't say that on this call, but quite frankly it does.

Richard Baldry: Great congrats on a great quarter.

Where am I, losing money from a marketing investment perspective, what cohorts of my existing customers are buying more products from my competitors than they are for me all of those are real world questions that people are using and what we're finding is clients who are using <unk>.

Zach Cummins: Thanks Rich.

David Steinberg: Next question, Zach Cummins with B Riley Securities, please go ahead. Hi, good evening. Thanks for taking my questions. David, I know you outlined generative AI as one of the key areas of investment going into next year. Can you just talk about some of the early adoption you've seen from your Zoey product and how really that could transform into maybe driving even further adoption of your data marketing platform over over the next 12 or 18 months?

<unk> are spending substantially more money on the platform and.

And our goal is to roll <unk> out to all of our clients in the very near future and we think that will continue to drive additional adoption rate and additional utilization of platform as Chris points out all the time. If you look at the period of time that clients are on our platform you can draw.

David Steinberg: Yeah, it's almost incredible. How many people are using the Zoey component of the data analysis tool? It's effectively today, a generative AI platform that becomes your own internal data scientist. So you can ask real-world questions. What are my most valuable audiences? Where am I losing money from a marketing investment perspective? What cohorts of my existing customers are buying more products from my competitors than they are from me? All of those are real-world questions that people are using.

Line up into the right with the amount of money. They spend we believe Zoe will accelerate that and take the top of that line even higher.

Understood that's helpful and Chris just one question for me regarding free cash flow.

The increasing traction with agencies in the near term I mean can you talk about the dynamics and how we should think about free cash flow conversion over the coming quarters.

David Steinberg: And what we're finding is clients who are using the Zoey are spending substantially more money on the platform. And our goal is to roll Zoey out to all of our clients in the very near future. And we think that will continue to drive additional adoption rate and additional utilization of platform. As Chris points out all the time, if you look at the period of time that clients are on our platform, you can draw a line up into the right with the amount of money they spend. We believe Zoey will accelerate that and take the top of that line even higher. I understand that's helpful.

I think the Best example is if you look through.

Our financial statements.

In the Q and what's been published in the press release Youll see that there was about an $8 million working capital headwind and.

And that's principally driven by the days sales outstanding going from 55 days to 68, driven by the agencies period.

If you plug that back in you would have been looking at of cash conversion to EBITDA in the sixties. So we but it is a reality that we're going to we're going to wrap on that we think by the second half of next year that normalizes. So we'll live with it we'll look for another couple of quarters.

But you should start to see that cash conversion move up and we don't expect it to affect our 2025 plan in any way shape or form.

Christopher Greiner: And Chris, just one question for me regarding free cash flow with the increasing traction with agencies in the near term. Can you talk about the dynamics and how we should think about free cash flow conversion over the coming quarters? I think the best example is if you look through our financial statements in the queue and what's been published in the press release, you'll see that there is about an $8 million working capital headwind.

Got it thanks for taking my questions and best of luck with Q4.

Thank you next question Camden <unk> with Oppenheimer. Please go ahead.

Hi, This is Camden Levy sitting in for Brian Schwartz. Thank you for taking my question in.

In regards to the updated 2025 guidance for direct revenue mix is most of the expansion on a forward basis going to be coming from channel expansion or is it more so brand adoption and I was wondering can you Blake stack rank the drivers for that metric as it relates to 2024 and then additionally did the mix shift impact.

Christopher Greiner: And that's principally driven by the day's sales outstanding going from 55 days to 68 driven by the agencies period. If you plug that back in, you would have been looking out of cash conversion to EBITDA in the 60s. But it is a reality that we're going to wrap on that. We think by the second half of next year that normalizes. So we'll live with it. We'll look for another couple quarters. But you should start to see that cash conversion move up. And we don't expect it to affect our 2025 plan in any way, shape or form. Got it.

To your <unk> growth expectations directly anything there that you could provide would be helpful. Thanks.

Sure. Thanks.

Leave it to get the question.

If I go back to the Investor day, when we adjusted the direct revenue mix to 75%, we really pegged it to what we've seen over the last 12 months and if you think about the growth of the overall business not just the direct revenue, but the overall business in the <unk> its driven principally by three different forces continuing to do more.

Christopher Greiner: Well, thanks for taking my questions and best of luck with Q4. Thank you.

Camden Levy: Next question.

Camden Levy: Camden Levy with Oppenheimer. Please go ahead. Hi, this is Camden Levy sitting in for Brian Schwartz. Thank you for taking my question.

With existing customers through a single channel they've chosen although now it's more driven by multi channel adoption. So this quarter for example, our scaled customers and Theres about a third of them now that are using three or more channels is up over 40% year over year, and then expansion of use cases, and when you look at our use case growth rates.

Camden Levy: In regards to the updated 2025, and Zach guidance for direct revenue mix is most of the expansion on a forward basis going becoming from channel expansion or is it more so brand adoption and I was wondering could you like stack rank the drivers for that metric as early to 2024. And then additionally did the mixed shift impact your arpooth growth expectations directly anything there that you could provide would be helpful. Thanks.

B groh and retain and the acquire use case, both grew well into the double digits year over year and revenue in the third quarter and.

Camden Levy: Sure. Thanks and good to meet you good to get the question. If I go back to the investor day when we adjusted the direct revenue mix to 75%. We really tagged it to what we've seen over the last 12 months. And if you think about the growth of the overall business, not just the direct revenue, but the overall business and the arpooth. It's driven princely by three different forces continuing to do more with existing customers through a single channel they've chosen.

And by the way, we don't expect our long term direct versus indirect revenue to change and we have not changed guidance for that for 2024 or 2025 at this point.

Okay awesome. Thank you.

<unk>.

And then just thinking about the gross margin do you guys expect gross margins to a trough here in Peru, I know you guys said that they should be more similar sequentially, but anything that we should keep in mind in regards to modeling 2020 for gross margin and the considerations there. Thank you.

Camden Levy: Although now it's more driven by multi channel adoption. So this quarter, for example, our scaled customers and there's about a third of them now that are using three or more channels is up over 40% year by year and then expansion of use cases. And when we look at our use case growth rates, the grow and retain and the acquire use case both through well into the double digits year by year revenue in the third quarter. And by the way, we don't expect our long term direct versus indirect revenue to change and we have not changed guidance for that for 2024 or 2025 at this point. Okay. Awesome. Thank you.

Yes, yes of course, it's a good it's a good question I think there was an earlier question in the same same realm and how we answer that was the first half of next year, probably looks a lot like the second half of 2023 and then in the second half of 2024 you'd start to see a sequential improvement from there as the <unk>.

Mix and the business grows with the agencies, we're working with becomes more and more direct.

Perfect. Thank you so much.

Thanks, a lot.

Next question Cody Kishore with Banc of America Securities. Please go ahead.

Camden Levy: And then just thinking about the gross margin, do you guys expect a gross margin to have trough care and improve? I know you guys said that they should be more similar sequentially, but anything that we should keep in mind in regards to modeling 2024 gross margin and the considerations there. Thank you. Yeah. Of course, I know it's a good, it's a good question. I think there was an earlier question in the same, you know, same realm.

Hey, this is George on for <unk>. Thanks for taking my question.

That's great to hear you know encouraging about sales cycles.

Proving.

And when rates kind of.

Remaining strong I was just going to ask have you guys seen any notable changes in the competitive landscape.

Camden Levy: And I think it's a good question. I think there was an earlier question in the same, you know, same realm. And how we answered that was, you know, the first half of next year probably looks a lot like the second half of 2023. And then in the second half of 2024, you'd start to see a sequential improvement from there as the mix and the business grows with the agencies we're working with becomes more and more direct.

Camden Levy: Perfect. Thank you so much. Thanks a lot.

And kind of when did you notice the sales cycles.

Improving.

Yes. So good good question. Thank you I think starting.

Earlier this year.

We started to see a number of the big legacy competitors not getting invited into the final stages of Rfps and that was a really interesting sort of turning point because it used to be a few years ago, we would get down to the final three and they would choose.

George: Next question. Cody Keishler with Bank of America Securities. Please go ahead. Hey, this is George. George for Koji, thanks for taking my question. You know, it's great to hear, you know, encouraging about field cycles improving and and when rates kind of remaining strong. I was just going to ask, have you guys seen any notable changes in the competitive landscape. And kind of when did you notice the field cycles, you know, kind of improving.

One of the big legacy providers, because they were the big known brand now what we're seeing is we're not even seeing a lot of the big legacy providers make it to the final round, even when they are the incumbent.

And that has allowed us to shine in a very unique way and it's allowed us to continue to close at this greater than 50% rate, even while we're seeing more at bats, which once again is why we delivered so many scaled customers and super scaled.

David Steinberg: Yes, so good, good question. Thank you. I think starting. Earlier this year, we started to see a number of the big legacy competitors, not getting invited into the final stages of our fees. And that was a really interesting sort of turning point because it used to be a few years ago, we would get down to the final three. And they would choose one of the big legacy providers because they were the big known brand.

David Steinberg: Now, what we're seeing is we're not even seeing a lot of the big legacy providers make it to the final round, even when they are the incumbent. And that has allowed us to shine in a very unique way. And it's allowed us to continue to close at this greater than 50% rate. Even while we're seeing more at that, which once again is why we delivered so many scaled customers and super scaled customers in the second and third quarter combined.

<unk> in the second and third quarter combined.

Okay.

That makes sense and.

I know you called out.

Kind of greater brand awareness. This is kind of one of the reasons youre getting more rfps is there anything else to kind of call out there and you know.

What's kind of driving the strength there.

Yes, we're seeing a lot of analysts give us attention that we never would have gotten before.

As I said in my prepared remarks, we were named one of the best <unk> in the World believe that was by IDC.

<unk>.

Forrester continues to have us in the furthest brightest quadrant of the leader category in marketing automation messaging and a number of other categories.

And I think that as they've evaluated our products, we've seen analysts which are very responsible for the RFP right. So a lot of these RFP start with the analysts groups. We're seeing analysts say you have to talk to data, we simplify complex marketing <unk>.

David Steinberg: That makes sense. And you know, I know you called out, you know, kind of greater brand awareness. This is kind of one of the reasons you're getting more RFPs. Is there anything else to kind of call out there and, you know, with kind of driving the strength there? Yeah, we're seeing a lot of analysts give us attention that we never would have gotten before. As I said in my prepare remarks, we were named one of the best CDPs in the world.

<unk> and by putting data and AI is native to the application layer not a step outs, we're able to move at a substantially.

Accelerated speed with substantially more intelligence behind the marketing decisions, we're making.

David Steinberg: I believe that was by IDC. You know, Farrester continues to have us in the furthest, brightest quadrant of the leader category in marketing automation, messaging, and a number of other categories. And I think that as they evaluated our products, we've seen analysts, which are very responsible for the RFPs. Right. So a lot of these RFPs start with the analyst groups. We're seeing analysts say you have to talk to Zeta. We simplify complex marketing problems. And by putting data and AI as native to the application layer, not as step outs, we're able to move at a substantially accelerated speed with substantially more intelligence behind the marketing decisions we're making.

David Steinberg: Thank you.

Thank you.

Thank you I would like to turn the floor over to David Steinberg for closing remarks.

Thank you everybody, obviously, an incredible quarter for.

<unk> in a very choppy market I could not be more proud of our zeta people than I am today because to get to these types of outputs, we must have the inputs and as we look at our business and we look at our innovation and we look at our product development and we look at.

The evolution of our sales motion, we're really firing on all cylinders and as we continue to drive through what appears to be the beginning stages of a legacy replacement cycle for marketing clouds, Cdp's and marketing technology.

Data is at the forefront from a product people and innovation perspective, we expect to continue to win in the marketplace. So we thank you very much for your time today and we look forward to speaking to you again in the near future.

David Steinberg: I would like to turn the floor over to David Steinberg for closing remarks. Thank you everybody. Obviously an incredible quarter for Zeta in a very choppy market. I could not be more proud of our Zeta people than I am today because to get to these types of outputs, we must have the inputs. And as we look at our business and we look at our innovation and we look at our product development and we look at the evolution of our sales motion, we're really firing on all cylinders.

Thank you.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Yes.

[music].

Yes.

David Steinberg: And as we continue to drive through what appears to be the beginning stages of a legacy replacement cycle for marketing clouds, CDPs, and marketing technology. Zeta is at the forefront. From a product, people, and innovation perspective, we expect to continue to win in the marketplace. So we thank you very much for your time today and we look forward to speaking to you again in the near future. Thank you.

Okay.

Hum.

Hum.

Uh-huh.

Okay.

Hmm.

This concludes today's teleconference. You may disconnect your lives at this time. Thank you for your participation.

Okay.

Hum.