Q4 2023 Zeta Global Holdings Corp Earnings Call

Greetings and welcome to <unk> fourth quarter twenty-three earnings conference call. At this time, all participants are in a listen only mode.

Operator: At this time, all participants may disconnect at this time. Q&A,.com. Zeta Glo Hldg, president of YouTube, Thank you, operator. Hello everyone.

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. Please note. This conference is being recorded I will now turn the conference over to Scott Smith Senior Vice President of Investor Relations. Thank you you may begin.

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

Operator: And thank you for joining us for Zeta's fourth quarter and full year 2023 conference call. Today's presentation and earnings release are available on Zeta's investor relations website at investors.zetaglobal.com, where you will also find links to our SEC filings, along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's co-founder, chairman, and chief executive officer, and Chris Greiner, Zeta's chief financial officer. 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 These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.

Joining me on the call today are David Steinberg, <unk> co founder Chairman and Chief Executive Officer, and Chris Greiner Davis, Chief Financial Officer.

Before we begin I'd like to remind everyone that statements made on this call as well as in the presentation and earnings release contain forward looking statements regarding our financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our products potential competition revenues of our products and our go.

All in strategy.

These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected these.

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

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.

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

Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate can be found in the earnings presentation available on our website as well as our earnings release and other filings with the SEC with that I will now turn the call over to David.

Operator: With that, I will now turn the call over to David. Thank you, Scott. Good afternoon, everyone, and thank you for joining us today.

Thank you Scott good afternoon, everyone and thank you for joining us today.

David Steinberg: 2023 was a record year for Zeta that finished with a strong Q4, once again exceeding our expectations. For the full year of 2023, we delivered revenue of $729 million, up 23% year over year. This marks our fourth consecutive year exceeding 20% revenue growth, and we are guiding to a fifth year of 20% growth in 2024. Over the past four years, we have also expanded our adjusted EBITDA margins by a thousand basis points, with over 200 basis points of expansion this past year alone to 17.8% or $129 million in adjusted EBITDA.

2023 was a record year for saying that.

Finished with a strong Q4, once again exceeding our expectations for.

For the full year of 2023, we delivered revenue of $729 million up 23% year over year.

This marks our fourth consecutive year exceeding 20% revenue growth and we are guiding to a this year up 20% growth in 2024 over.

Over the past four years, we have also expanded our adjusted EBITDA margins by 1000 basis points with over 200 basis points of expansion. This past year alone to 17, 8% or $129 million and adjusted EBITDA.

David Steinberg: Today, the marketing ecosystem is in a state of change. AI has moved from theoretical to a boardroom conversation with chief marketing officers mandated to make AI more actionable to deliver greater efficiency and better experiences for consumers. These CMOs are increasingly looking to Zeta, as evidenced by the strong growth in our RFPs and our sales pipeline because AI has been at the core of the ZMP for many years as opposed to many months. We believe that we are at the forefront of a wave that is driving a replacement cycle. We currently have more than 125 patents issued or pending around AI, machine learning, and other advanced technologies. However, marketing has not been able to capitalize on the AI revolution because of one enduring problem.

Today, the marketing ecosystem is in a state of change.

It's moved from theoretical to our board.

<unk> room conversation with chief marketing officers mandated to make AI more actionable to deliver greater efficiency and better experiences for consumers.

<unk> are increasingly looking to zeta as evidenced by the strong growth in our Rfps and our sales pipeline.

Because AI has been at the core of the GNP for many years as opposed to many months.

We believe that we are at the forefront of a wave that is driving a replacement cycle.

We currently have more than 125 patents issued and or pending around AI machine learning and other advanced technologies.

Marketing has not been able to capitalize on the AI revolution because of an enduring problem in.

David Steinberg: In most enterprises, data is abundant, but intelligence is scary. The Zeta Marketing Platform is closing this intelligence gap by allowing customers to use our generative AI with their data and not share it back with the collector. Our investments in 2024 are about making AI more actionable, delivering better experiences for consumers, and widening Zeta's moat. These investments include strengthening our Agile intelligence, expanding our mobile capabilities, and extending Gen AI into new and additional use cases. One of the most exciting developments is the rollout of a new product initially called Intelligent Agent Composer. This creates Gen A. I.

In most enterprises data is abundant but intelligence is scarce.

The <unk> marketing platform is closing this intelligence gap by allowing customers to use our generative a off with their data and not share it back to the collective.

Our investments in 2024 are about making AI more actionable delivering better experiences for consumers and widening Vedas moat.

These investments include strengthening our agile intelligence offerings, expanding our mobile capabilities and extending gen AI into new and additional use cases.

One of the most exciting development is the rollout of a new product initially called intelligent agent can pose it.

This creates gen AI agents that provide dozens of intelligent and automated tools that make our customers more efficient and more effective.

David Steinberg: Agents that provide dozens of intelligent and automated tools that make our customers more efficient and more effective. Additionally, customers will be empowered to build their own intelligent agents within our platform, allowing them to power workflows and customer experiences specific to their brand and their needs. In this model, Zeta becomes even more essential and a more sticky partner to our goal. Early-gen AI products have unlocked creativity and personal productivity, but they have yet to realize their transformative potential for enterprise marketing ecosystems. Our intelligent agent composer has the power to change that.

Customers will be empowered to build their own intelligent agents within our platform, allowing them to power workflows and customer experiences.

Ossific to their brand and their needs in this model data becomes even more essential in a more sticky partner to our clients.

Early Gen AI products have unlocked creativity and personal productivity, but they have yet to realize their transformative potential for enterprise marketing ecosystem.

Our intelligent agent composer has the power to change that.

David Steinberg: We expect to monetize this new product and additional Gen AI functionality in multiple ways, creating new billable modules, generating higher consumption, and lowering the burden of marketing resources within enterprises and agencies, going deeper into our mobile strategy for 2024. Today, mobile engagement largely operates as a point solution within enterprise environments. We see a dual opportunity. First, integrate mobile into a more comprehensive platform. And second, deliver conversational experiences using Gen AI.

We expect to monetize this new product and additional gen AI functionality multiple ways, creating new billable modules generating higher consumption and lowering the burden of marketing resources within enterprises and agencies.

Going deeper into our mobile strategy for 2024.

Today mobile engagement largely operates as a point solution within enterprise environments.

We see a dual opportunity.

Integrate mobile into a more comprehensive and.

And second deliver conversational experiences using gen AI.

David Steinberg: We believe our intelligent platform provides a competitive advantage for marketers looking to deliver real-time, personalized experiences for consumers and is a natural fit for mobile environments. For example, we are currently working with a large national retailer to develop a mobile solution to enhance the in-store selling experience by putting Zeta's data cloud and the ZMP in the hands of salespeople to deliver real-time customer engagement at the point of sale. This simplifies the complex task of logging into multiple systems for answers on the status of an order, inventory, or personalized client data. The ZMP connects to all subsystems and provides information via a simple conversational interface on a mobile device.

We believe our intelligent platform provides a competitive advantage for marketers looking to deliver real time personalized experiences for consumers and is a natural fit for mobile environments.

For example, we are currently working with a large national retailer to develop a mobile solution to enhance the in store selling experience by putting <unk> data cloud and the CMP in the hands of salespeople to deliver real time customer engagement at the point.

Of sale.

This simplifies the complex task of logging into multiple systems for answers on the status of an order.

Inventory were personalised client data.

<unk> connects to all subsystems and provides information via a simple conversational interface on a mobile device.

David Steinberg: Today, mobile accounts for less than 2% of revenue through our platform, but we believe it has the potential to be our next $100 million plus business, similar to how CTV is scaling. Our unique position in the market and continued investment in AI-powered marketing technology is also creating interest across the ecosystem as we expand our relationships with systems integrators. We are in advanced discussions with an array of SIs, including an exciting joint implementation at a large enterprise where solutions spanning data management, as well as customer acquisition, growth, and retention will be replaced by the ZMP.

Today mobile accounts for less than 2% of revenue to our platform.

But we believe it has the potential to be our next 100 million dollar plus business similar to how CTV is scaling.

Our unique position in the market and continued investment in AI powered marketing technology is also creating interest across the ecosystem as we expand our relationships with system integrators.

We are in advanced discussions with an array of best size, including an exciting joint implementation at a large enterprise where solutions spanning data management as well as customer acquisition growth and retention will be replaced by the <unk>.

David Steinberg: Overall, our SI implementation is a multi-year rollout, and we expect it to have a larger impact into 2025 and beyond. Zooming back out, I also wanted to spend a minute on recent industry headlines related to cookie deprivation and email deliverability. These changes only elevate the importance of Zeta's proprietary first-party data, as opposed to relying on third-party cookie data to identify individuals.

Overall, our Psi implementation is a multiyear rollout and we expect it to have a larger impact into 2025 and beyond.

Yeah.

Zooming back out.

Also wanted to spend a minute on recent industry headlines related to cookie deprivation.

And email deliverability.

These changes only elevate the importance of <unk> proprietary first party data as opposed to relying on third party cookie data to identify individuals.

David Steinberg: In terms of email, the new requirements from Google and Yahoo are in line with what we have already incorporated into our infrastructure, and observations pre and post their rollout show equal to, and in some cases even better, deliverability and higher open rates. In short, we believe these changes enhance our competitive position by elevating the value of our identity graph and further improving the effectiveness and return on investment for the ZMP for engagement, building upon what we discussed at our September 2023 Investor Day We are taking action on investor feedback related to dilution and stock-based compensation. First, we are guiding to bring dilution from incentive-based compensation down from 5% in 2023 to 3.5% to 3.75% in 2024. In terms of stock-based compensation, we're also planning to evolve how we incentivize senior management. By way of example, Chris Greiner and I, along with others, are planning not to receive any restricted shares this year.

In terms of email the new requirements from Google and Yahoo are in line with what we have already incorporated into our infrastructure.

Our observations pre and post their rollout show.

Equal to and in some cases, even better deliver ability and higher open rates.

In short we believe these changes enhance our competitive position by elevating the value of our identity graph and further improving the effectiveness and return on investment for the CMP for engagement.

Building upon what we discussed at our September 2023, Investor Day, we are taking action on investor feedback related to dilution and stock based compensation.

First we are guiding to bring dilution from incentive based compensation down from 5% in 2023 to 3.5% to 375% in 2024.

In terms of stock based compensation, we're also planning to evolve how we incentivize senior management.

My way of example, Chris Greiner and I, along with others are planning not to receive any restricted shares this year.

David Steinberg: Instead, equity incentive compensation would be based on performance stock units which are tied to the appreciation of Zeta's share price and will more closely align us with shareholder value creation. These changes, in addition to continuing to benefit from a lower level of pre-IPO stock-based compensation flowing through our P&L, place Zeta on a trajectory to achieve gap-based profitability in the fourth quarter of 2024. At the same time, our goal is to continue to invest in innovation and build a strong culture with the foundation of corporate responsibility. In fact, for the second year in a row, I'm proud to share that Zeta was recognized as one of Built-in's best places to work. I'm also pleased to announce that for the second year in a row, we achieved carbon net neutrality, which is an important accomplishment for prospective and existing customers, as well as our employees. In short, 2023 was an incredible year for Zeta. But we believe 2024 will be even better.

Instead equity incentive compensation would be based on performance stock units, which are tied to the appreciation of <unk> share price and will more closely align us with shareholder value creation.

These changes in addition to continuing to benefit from a lower level of pre IPO stock based compensation flowing through our P&L places data on a trajectory to achieve GAAP based profitability in.

In the fourth quarter of 2024.

At the same time, our goal is to continue to invest in innovation and build a strong culture with a foundation of corporate responsibility in fact for the second year in a row I'm proud to share. The data was recognized as one of built ins Best places.

Where.

I'm also pleased to announce that for the second year in a row, we achieved carbon net neutrality, which is an important accomplishment for prospective and existing customers as well as our employees.

In closing <unk>.

1023 was an incredible year for Cedar fair.

We believe 2024 will be even better.

David Steinberg: As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for their ongoing support of our venture. Now, let me turn it over to Chris to discuss our results in Graded. Chris?

As always I would like to sincerely, thank our customers partners teams data.

And all of our shareholders for their ongoing support of our vision now.

Now, let me turn it over to Chris to discuss our results in greater detail Chris.

Chris.

Christopher E. Greiner: Thank you, David. I'm excited about all that we're covering today, but let me start with the punchline first.

Thank you David.

I'm excited for all that we're covering today. So let me start with the punch line.

Christopher E. Greiner: We're taking share while growing efficiently. I'll cover what is contributing to another quarter and year of exceeding guidance, being above the rule of 40 and growing faster than the market. Second, we're leveraging our flywheel.

First we're taking share while growing efficiently.

I'll cover what is contributing to another quarter and year.

Exceeding guidance being above the rule of 40 and growing faster than the market.

Second we're leveraging our flywheel.

Christopher E. Greiner: I'll share the financial profile and the flywheel effect of our direct and integrated revenue streams and how we're expanding and cross-selling our new large agency customers to Zeta-owned channels. And third, we're guiding ahead of the street while remaining prudently conservative. I'll wrap up by outlining how 2023's headwinds shift to become 2024's tailwinds. All together, we're executing on our plan, capitalizing on our competitive advantage, and guiding 2024 from a position of strength. Now, let's dive into each of these with more color.

I will share the financial profile and the flywheel effect of our direct and integrated revenue streams, and how were expanding and cross selling our new large agency customers because they have their own channels.

And third we're guiding ahead of the street, while remaining prudently conservative.

I'll wrap up by outlining how 2020 three's headwinds shift to become 2024 tailwind.

Altogether, we are executing on our plan capitalizing on our competitive advantages.

Guiding 2024 from a position of strength.

Now, let's dive into each of these with more color.

Christopher E. Greiner: Starting with the fourth quarter and full year 2023 results, in 4Q, we delivered revenue of $210 million, up 20% year-to-year, or 22%, excluding M&A and the prior year's political revenue. Full year revenue was $729 million, up 23% year-to-year, or 24%, excluding M&A and the prior year's political revenue. This exceeded our initial 2023 guide of $691 million by $38 million, or 5.5%, and also includes a seven point growth headwind from our two challenged verticals of automotive and insurance. Combined, these two verticals accounted for approximately 10% of revenue in 2023, meaning 90% of Zeta grew over 30% in 2021. Our ability to consistently exceed guidance and drive 20% plus revenue growth over the past four years comes from strong visibility into our Zeta 2025 KPI. Let's dive into those.

Starting with the fourth quarter and full year 2023 results in <unk>, we delivered revenue of $210 million up 20% year to year or 22%, excluding M&A and the prior year's political revenue.

The full year's revenue was $729 million up 23% year to year or 24%, excluding M&A and the prior year's political revenue.

This exceeded our initial 2023 guide of $691 million by $38 million or five 5% and also includes a seven point growth headwind from our two challenged verticals of automotive and insurance.

Combined these two verticals accounted for approximately 10% of revenue in 2023.

90% of the data grew over 30% in 2023.

Our ability to consistently exceed guidance can drive 20% plus revenue growth over the past four years comes from strong visibility into our data 2025 kpis.

Let's dive into those now.

Christopher E. Greiner: We ended the year with 452 scaled customers, who, as a reminder, account for 97% of total Zeta revenue and spend at least $100,000 on a trailing 12-month baseline. This is up 12 from 3Q and 49, or 12%, from a year ago. This is at the high end of our 8 to 12% model. We saw accelerated growth in our 1 million plus superscaled customers, which increased by seven quarter to quarter to 131 and was up 27% year to year. The addition of scaled customers is coming from an array of industries, most notably consumer retail, education, tech, and media, and travel and hospitality, in addition to others, demonstrating the wide application of our platform and continued healthy diversification of customers. To that end, 6 of our 10 largest verticals once again grew more than 25% year-to-year. In terms of scaled customer ARPU, 4Q grew 7%, with the full year up 10% to 1.57 million, coming in at the midpoint of our 8 to 12% growth model. This was driven by customers using two or more channels, which increased 27% year-to-year. Our Stealed Customer Cohort Trends slide, on number 12 in the Supplemental Deck, shows how our PRU reliably increases the longer our customers are on the platform and really illustrates the drivers of high net revenue retention. For example,

We ended the year with 452 scaled customers, who as a reminder account for 97% of total data revenue and spend at least 100000 on a trailing 12 month basis.

This was up <unk> 12 from <unk>, and 49 or 12% from a year ago at the high end of our 8% to 12% model.

We saw accelerated growth in our 1 million plus super scaled customers, which increased by seven quarter to quarter to 131 and up 27% year to year.

The addition of scaled customers are coming from an array of industries, most notably consumer retail edgy.

Education.

Tech and media.

And travel and hospitality in addition to others.

Demonstrating the wide application of our platform and continued healthy diversification of customers.

And six of our 10 largest verticals once again grew more than 25% year to year.

In terms of scaled customer <unk> <unk> grew 7% with the full year up 10% to one $5 7 million coming in at the midpoint of our 8% to 12% growth model. This.

This was driven by customers using two or more channels, which increased 27% year to year.

Our scaled customer cohort trends slide number 12 in the supplemental deck shows how our approved reliably increases the longer our customers are on the platform. It really illustrates the drivers of high net revenue retention for example.

Christopher E. Greiner: The Old Curf, Less than a year on the platform, spend an average of $600,000, with many starting at smaller pilots. This group accounted for less than 10% of 2023 revenue. Scaled customers with 1-3 years on the platform spend an average of $1.3 million, or 2.3 times more than those with less than a year on the platform, and scaled customers with three or more years of tenure spend an average of $2.1 million, or 3.6 times more than those with less than a year on the platform. The progression of these cohorts is important for a couple of reasons. Of the 49 scaled customers added in the last 12 months, 27 are in the $100K to $600K band, meaning this cohort has the potential to more than double in the next 12 months. And with 90% of Zeta's revenue generated from customers with us for more than a year, we have strong forecasting visibility. This is a good lead-in to net revenue retention, which is 111% for the year, including the impact of the automotive and insurance businesses. Net Revenue Tension would have finished the year at $118.

[noise] scaled customers less than a year on the platform spend an average of 600000 with many starting at smaller pilots.

This group accounted for less than 10% of 2023 revenue.

Scaled customers with one to three years on the platform spend an average of $1 3 million or two three times more than those with less than a year on the platform.

And scaled customers with three or more years tenure spend an average of $2 1 million or three six times more than those with less than a year on the platform.

The progression of these cohorts is important for a couple of reasons.

Of the 49 scaled customers added in the last 12 months 27 are in the 100 K to 600 K band, mainly this cohort has the potential to more than double in the next 12 months.

And with 90% of <unk> revenue generated from customers with us more than a year, we had strong forecasting visibility.

This is a good lead in to net revenue retention, which was 111% for the year.

Excluding the impact of the automotive and insurance industries net revenue retention would have finished the year at 118% or.

Christopher E. Greiner: Our model net revenue retention is 110% to 115%. And as we sit here today, I would expect us to be towards the high end of that range in 2024. Switching to another one of our Zeta 2025 KPIs, Direct Revenue Mix, which is an area we want to help investors understand. Definition: Direct platform revenue is generated when customers use Zeta's data, analytics, and owned channels to perform their marketing activities on the ZMP, whereas integrated revenue is generated from non-Zeta-owned channels, principally social networks like Meta, TikTok, and others. In terms of the financial From a growth perspective, direct revenue grew 15% year to year or 23%, excluding the two challenged industries of automotive and insurance.

Our model net revenue retention is 110% to 115% and as we sit here today I would expect us to be towards the high end of that range in 2024.

Switching to another one of our data 2025, Kpis direct revenue mix, which is an area we want to help investors understand.

Definitions of <unk> direct platform revenue is generated when customers use data data analytics and owned channels to perform their marketing activities on the Z M P.

Whereas integrated revenues generated from non data owned channels, principally social networks like meta tick tock and others.

In terms of the financial attributes of direct revenue.

Correct mix is consistently greater than 70% of total data at the 70% to 75% margin profile with approximately two thirds of direct revenue being recurring from.

From a growth perspective, direct revenue grew 15% year to year or 23%, excluding the two challenged industries of automotive in insurance.

Christopher E. Greiner: If we simply assume the percentage of 2024 direct revenue is consistent with 2023, which I see as a balanced assumption, you have a $600 million direct business growing approximately 20% with margins and recurring revenue mix about 10 points above the corporate average. Where the flywheel comes into play is the customer journey from social to Zeta-Owned chat. This is most relevant with our new large agency customers, as illustrated on slide 13 in our supplemental deck. Agencies utilize Zeta's data cloud and intelligence products to identify individuals who are in-market and reachable inside the walled garden. This powerful proof point of Zeta's intelligence and seamless connection points into the walled gardens forms the foundation for building omni-channel journeys on Zeta Zones.

If we simply assume the percentage of 'twenty 'twenty four direct revenue was consistent with 2023, which I see as a balanced assumption you'd have a $600 million direct business.

Approximately 20% with margins and recurring revenue mix about 10 points above the corporate average.

Where the flywheel comes into play is the customer journey from social to Veda owned channels. This is most relevant with our new large agency customers as illustrated on slide 13 in our supplemental deck.

Agencies utilize data data cloud and intelligence products to identify individuals who are in market and reachable inside the walled gardens.

It's powerful proof point of the Datas intelligence and seamless connection points into the walled gardens forms the foundation for building Omni channel journeys unveil his own channels.

Christopher E. Greiner: This is a new and compelling way to think about the profile of the direct business along with the long-term value large agency holdcos bring to Zeta. This dynamic of direct and integrated revenue mix was the primary driver of changes in gap cost of revenue throughout 2023. Cost of revenue in the quarter was 40.2%, up 260 basis points year to year and 130 basis points quarter to quarter, driven primarily by the growth in integrated revenue from newly added agency customers starting their journey on social channels. Our fourth quarter GapNet loss was $0.35 million, which included $63 million of stock-based compensation.

This is a new and compelling way to think about the profile of the direct business along with the long term value large agency hold coast bring to data.

This dynamic of direct and integrated revenue mix was the primary driver of changes in GAAP cost of revenue throughout 2023.

Cost of revenue in the quarter was 42% up 260 basis points year to year, and 130 basis points quarter to quarter, driven primarily by the growth in integrated revenue from newly added agency customers starting their journey on social channels.

Our fourth quarter GAAP net loss was $35 million, which includes $63 million of stock based compensation.

Full year 2023, GAAP net loss was $187 million, which includes 243 million of stock based compensation.

Christopher E. Greiner: Excluding the accelerated expensing related to our IPO, stock-based compensation would have been $102 million. Our disciplined expense management and better sales productivity resulted in continued adjusted EBITDA margins. On a run rate basis, we're two years ahead of the 20% implied margin target as part of Zeta 2025. And 4Q was the 12th straight quarter.

Excluding the accelerated expenses related to our IPO stock based compensation would have been $102 million.

<unk> total operating expense growth slowed to 3% year to year, excluding stock based compensation and is down 640 basis points as a percentage of revenue.

The same leverage was visible over the full year down 410 basis points as a percentage of revenue.

Our disciplined expense management and better sales productivity resulted in continued adjusted EBITDA margin expansion.

In the quarter, we generated $44 8 million and adjusted EBITDA up 38% year to year with 280 basis points of margin expansion to 21, 3%.

On a run rate basis. We're two years ahead of the 20% implied margin target as part of the date of 2025.

Christopher E. Greiner: We've expanded adjusted EBITDA margins year to year. For full year 2023, we delivered adjusted EBITDA of $129.4 million, up 40% year-to-year, with adjusted EBITDA margins of 17.8%, up 220 basis points year-to-year. 1, Even by starting ahead of the street.

And for Q was the 12th straight quarter, we've expanded adjusted EBIT margins year to year.

Full year 2023, we delivered adjusted EBITDA of $129 4 million up 40% year to year with adjusted EBITDA margins of 17, 8% up 220 basis points year to year.

Cash flow from <unk> operating activities was $27 million up 17% year to year with free cash flow of $18 million up 32% year to year.

For the full year cash flow from operating activities was $91 million up 15% year to year with free cash flow of $55 million up 39% year to year.

Christopher E. Greiner: 2, showing how much of each quarter's revenue is associated with politics. Or we're guiding to the full year 2024 free cash flow, showing an increase in cash conversion as we wrap on working capital headwinds from newly added Agency Holdco customers. And five, as David mentioned, we're targeting a decrease in dilution from incentive-based stock compensation at 5%.

This despite a 25 million in working capital headwind, primarily from the expansion of our agency business.

Now I'll wrap with guidance.

First a handful of points to communicate our approach to guidance and slides you can reference in our supplemental deck.

One.

Even by starting ahead of the Street.

We see our full year guide in revenue and adjusted EBITDA of prudently Conservative which is outlined on slide 17 in the supplemental.

<unk>.

Like last year, we're providing guidance for each quarter of the year on slide 18, which is based upon the skew of 2022 to take into consideration political cyclicality.

Sorry.

Along those lines as seen on slide 19, we're showing how much of each quarter's revenues associated with political candidates.

Christopher E. Greiner: 3.5 to 3.75% on route to gap profitability by the fourth quarter of 2024. We're guiding the midpoint of full-year 2024 revenue to $875 million, up 20% year-to-year, and first quarter revenue at $187 million, up 19% year-to-year at the midpoint of our range. We have a starting placeholder for political candidate revenue in 2024 of 15 million, with 2 million in 2Q, 5 million in 3Q, and 8 million in 4Q. We're guiding adjusted EBITDA at the midpoint of full year guidance of 166 million, or 19% margin, with first quarter adjusted EBITDA of 29.1 million, representing a margin of 15.5% at the midpoint of our range. We're guiding full-year free cash flow in the range of $75 million to $85 million, translating to 48% conversion of adjusted EBIT at the midpoint, up from 42% in 2023.

See this is simply a starting point.

Four we are guiding to the full year 2020 for free cash flow showing an increase in cash conversion as we wrap on working capital headwinds from newly added agency Holdco customers and five as David mentioned, we're targeting a decrease in dilution from incentive based stock compensation at 5%.

The three five to $3 75 per cent on route to GAAP profitability by the fourth quarter of 2024.

As for the details.

We're guiding the midpoint of full year 2020 for revenue to $875 million up 20% year to year and the first quarter revenue at $187 million up 19% year to year at the midpoint of our range.

We have a starting place holder of political candidate revenue in 2024, a $15 million.

With 2 million into Q4.

5 million in <unk> and $8 million in <unk>.

We're guiding adjusted EBITDA at the midpoint of full year guidance of $166 million or 19% margin with first quarter adjusted EBITDA of $29 1 million, representing a margin of 15, 5% at the midpoint of our range.

We're guiding full year free cash flow in the range of $75 million to $85 million translating to 48% conversion of adjusted EBITDA at the midpoint up from 42% in 2023.

Christopher E. Greiner: In summary, we see our 2024 guidance, which already exceeds the Street growth rate by 300 basis points and adjusted EBITDA by $8 million, as a good starting point with high visibility to tailwinds that layer throughout the year. With that, let me hand the call back to the operator for David and me to take your questions. Thank you. If you would like to ask a question, please do so. Thank you. Press star one on your telephone, http://www.youtube.com Press star 2 if you would like to remove your question from the show, and for a part, go to www.youtube.com. Our first question is from Ryan McDonald.

In summary, we see our 2024 guidance, which already exceeds the streets growth rate by 300 basis points and adjusted EBITDA by $8 million as a good starting point with high visibility of the tailwind that layer throughout the year.

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

Thank you if he would like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the start. He is our first question is from Ryan Macdonald with Needham and company. Please proceed.

Ryan McDonald: Hi, thanks for taking my questions and congrats on an excellent quarter. David, as we think about 2024, you talked about some interesting priorities around the strategy and some really interesting product investments. As we think about sort of the intelligent agent composum and the mobile strategy, how do you look at the magnitude of impact or maybe how you're building any impact in terms of expectations into sort of the 2024 outlook from contributions from these newer offices? Well, first of all, thank you, Ryan; we appreciate it. We were obviously incredibly proud of the quarter.

Alright, Thanks for taking my questions and congrats on an excellent quarter Dave.

David as we think about in 2024, and you talked about some interesting sort of priorities around the strategy and some some really interesting product investments.

As we think about sort of intelligent agent compose them and mobile the mobile strategy. How do you look at the magnitude of impact or maybe how you're building any impact in terms of expectations into 2024 outlook from contributions from these newer offerings.

Well first of all thank you Ryan we appreciate it.

We're incredibly proud of the quarter.

David Steinberg: You know, when we look at and talk about new developments, I think philosophically, you should always think that we don't need them to get to the guidance that we're giving. So as we look at the investment in the intelligent agent, we look at the investment in mobile; it's already fully baked into our investment in the company and how we think about it from a guidance perspective, but we also are not including it in what we expect to deliver from a revenue perspective. Now, obviously, we believe the intelligent agent is a massive revenue opportunity where, for the first time, we will begin to sell our artificial intelligence products instead of just using them for efficiency. And mobile is one of, you know, I joke that, you know, post the elimination of the IDFA, it's become almost like the Wild West where most organizations are taking a very small sample, you know, call it 8%, which is the one that's most talked about.

When we look at and talk about New development I think philosophically you should always think that we don't need that to get to the guidance that we're giving.

So as we look at the investment into the intelligent agent, we look into the investment of mobile it's already fully baked in to our investment into the company and how we think about it from a guidance perspective, but we also are not including it in what we expect to deliver from a revenue perspective now.

Obviously, we believe the intelligent agent is a massive revenue opportunity where for the first time, we will begin to sell our artificial intelligence products instead of just using them for efficiency and mobile is one of.

I joke that post the elimination of the <unk>, it's become almost like the wild West where most organizations are taking a very small sample call it 8%.

Which is the one that's most talked about and they're extrapolating that whereas we can go into the mobile ecosystem and really focus on deterministic attribution using this Ada I D.

David Steinberg: And they're extrapolating that, whereas we can go into the mobile ecosystem and really focus on deterministic attribution using the Zeta ID. If either of those were to really hit, I think that would give us upside to the estimates that we put out there. And I think Chris said it best when he said, not only are we starting the year at 20%, but I think, if I remember correctly, last year we started the year at 17% from a guidance perspective and finished at 23. This year we're starting at 20%.

Either of those were to really hit I think that would give us upside to the estimates that we put out there and I think Chris said it best when he said not only are we starting the year at 20% I think.

I remember correctly last year, we started the year at 17% from a guidance perspective and finished at 23. This year, we're starting at 20% we feel those numbers already conservative this would be a part of what would be additional upside.

David Steinberg: We feel those numbers are already conservative. This would be a part of what would be additional upside. Really helpful.

Really helpful. Maybe as a follow up Chris for you. So maybe two topics to talk about with the guidance as well. So obviously auto insurance industry's challenge last year can you just talk about what youre seeing in terms of sight lines or pipeline building that gives you confidence in maybe a stabilization or recovery. There this year and then.

Christopher E. Greiner: Maybe as a follow-up, Chris, for you, so maybe two topics to talk about with the guidance as well. So obviously, the auto insurance industry's challenge last year. Can you just talk about what you're seeing in terms of sight lines or pipeline building that gives you confidence in maybe a stabilization or recovery there this year? And then, you know, just curious about the conservatism that you're building in from the political contributions this year, maybe what you're seeing in the market, and why you felt that $15 million was the right starting point and maybe potential for auto. Thanks, Ryan.

Just curious on the on the conservatism.

You're building in from the political.

Contributions this year, maybe what youre seeing in the market why why you felt that $15 million was because with the right starting point and maybe potential for upside from there. Thanks.

Thanks, Brian on the first question around the two challenged verticals the automotive vertical and the insurance vertical the short answer is very good visibility into the sales pipeline.

Christopher E. Greiner: On the first question around the two challenged verticals, the automotive vertical and the insurance vertical, the short answer is very good visibility into the sales pipeline. Much of that, frankly, is already starting late for Q. So it'll already start to feather in beginning in the first quarter.

Much of that frankly already starting late <unk>. So it will already start to feather in beginning in the first quarter. So feeling really good about the return of those industries back to growth in 2024, probably even starting to see some in the latter part of the first half of this year.

Christopher E. Greiner: So feeling really good about the return of those industries to growth in twenty twenty four, probably even starting to see some in the latter part of the first half of this year. Yeah. As it relates to your other question, which was around our political assumptions.

As it relates to your other question, which was around.

Our political assumptions.

Christopher E. Greiner: You'll recall that in 2020, we did $15 million in political revenue, and we did about half of that, seven and a half million in 2022. We wanted to just start with the baseline of what 2020 was, knowing that it was likely conservative. What's also good to recall, though, is that advocacy tends to draft off of politics. So the combination of candidate revenue and the work we do with advocacy groups, both are probably conservative in our outlook and would have upside throughout the year and will continue to provide visibility as to what we're assuming for political candidate revenue as well. Excellent, congratulations again. Our next question is from Elizabeth Porter with Mark. Hi, thank you so much.

Youll recall that in 2020, we did $15 million of political revenue and we did about half of that $75 million in 2022.

Wanted to just start with the baseline of what 2020 was knowing that it was likely conservative whats also good to recall, though is that advocacy tends to draft off of political so the combination of candidate revenue and the work we do with advocacy groups. Both are probably conservative in our outlook and would have.

<unk> throughout the year and will continue to provide visibility as to what we're assuming for political candidate revenue as well.

Okay.

Excellent and congrats again.

Our next question is from Elizabeth <unk> with Morgan Stanley. Please proceed.

Hi, Thank you so much I wanted to go back to the example that you provided in mobile you talked about getting into the technology enhances salespeople, which I thought was interesting and it sounds like you may be getting into a new end user there outside of the traditional marketing department. So if so kind of would love to hear who you might ask.

Elizabeth Porter: I wanted to go back to the example that you provided in mobile. You talked about getting technology-enhanced salespeople, which I thought was interesting, and it sounds like you may be getting into a new end user there outside of the traditional marketing department. So if so, I would kind of love to hear who you might expect to compete within the segment. Should we do this as a TAM expander? And how you plan on addressing a potentially new buyer segment with an additional wallet opportunity. Thank you.

Back to compete within the segment should we view this as a Tam expander and how you plan on addressing a potentially new buyers had been with an additional wallet opportunity. Thank you.

David Steinberg: Great question, as usual, Elizabeth; we appreciate it. The answer is yes to both. So we see an opportunity to add mobile as a channel to our existing scaled and super-scaled customers, which, you know, today would increase our TAM pretty dramatically when you think about it, because we've never really played in that mobile ecosystem. Because, quite frankly, while IDFA was around, there was a lot of efficacy there. And There were a lot of players running around there.

Great question as usual Elizabeth we appreciate it the answer is yes to both so we see an opportunity to add mobile as a channel to our existing scale.

Scaled and Super scaled customers, which today, we didn't increase our Tam pretty dramatically when you think about it because we've never really played in that mobile ecosystem, because quite frankly, while the <unk> was around there was a lot of efficacy there and there were a lot of players running around there.

David Steinberg: With the elimination of the IDFA, the efficacy of that channel has dissipated radically. So it puts us in a very unique position where we can take assets that we already own, which is the 240 million plus opt-in individuals, which we can tie back to the Zeta ID number, which we can identify in the mobile ecosystem. So it gives us an advantage that nobody else in the mobile ecosystem has outside of the walled garden. So it's a very unique opportunity to do that.

With the elimination of the <unk>.

The efficacy of that channel has dissipated ratably. So it puts us in a very unique position, where we can take assets that we already own which is the $240 million plus opted in individuals' it.

We can tie back to the <unk> number, which we can identify in the mobile ecosystem. So it gives us an advantage that nobody else in the mobile ecosystem has outside of the walled gardens.

It's a very unique opportunity to do that at the same time, what we're finding is cio's want to buy our technology as well.

David Steinberg: At the same time, what we're finding is CIOs want to buy our technology as well. So there's the opportunity to expand from just focusing on marketing to also selling the technology directly to CIOs. And I think you're going to see some very big developments out of Zeta this year as it relates to the sale of our technology to CIOs to power other functions of their businesses in addition to the marketing function.

There's the opportunity to expand from just focusing on the marketing to also selling the technology directly to the Cio's and I think youre going to see some very big developments out of <unk>. This year as it relates to the sale of our technology to <unk>.

To power other functions of their businesses in addition to the marketing function.

Great and then just as a follow up I wanted to ask about the sales cycles that you have with working with agencies versus directly with enterprises on one hand, you might have more decision makers sitting at the table, but on the other hand, you have that trusted agency partner.

David Steinberg: And just as a follow-up, I wanted to ask about the sales cycles that you have when working with agencies versus directly with enterprises. On the one hand, you might have more decision-makers sitting at the table, but on the other hand, you have that trusted agency partner. Is there any opportunity for accelerated sales cycles or lengthening sales cycles as you're working with more agencies? Yeah, so that's another great question. I think when you work with agencies, you work with them in one of two ways. It's very interesting. You go in as a master relationship to the agency, and then you go from enterprise to enterprise, which is dramatically faster than when we go directly to an enterprise ourselves. Put in perspective, some Fortune 500 companies can take up to six months to move from contract through procurement, through data security, through legal, whereas when you're doing it in partnership with the holding company, it's turning it on. So it moves very, very quickly.

Any opportunity for accelerated sales cycles are lengthening sales cycles, as you're working with more agencies.

Yes so.

Another great question I think when you work with agencies you work with them in one of two ways. It's very interesting you go in as a master relationship to the agency and then you go from enterprise to enterprise, which is dramatically faster than when we go directly to an enterprise ourselves to put in perspective.

Some fortune 500 companies can take up to six months to move from contractor procurement through data security through legal, whereas when you're doing it in partnership with the Holdco.

Turning it on so it moves very very quickly the other thing is.

David Steinberg: The other thing is that they're able to just say, let's do this. And we're seeing that side of the business scaling quickly but massively shortening the sales cycle. Elizabeth, first, welcome back.

There are some agencies that literally manage the marketing on behalf of the enterprise themselves. What we're starting to do is as we've expanded from one to know what our three agency holdco clients, where they're able to just say lets do this and we're seeing that side of the business.

Christopher E. Greiner: On slide 13, because this is a topic we spend a lot of time with investors on recently, understanding the relationship between direct revenue and integrated revenue and the role that our new agency holdcos are playing in that. And what we've shown on slide 13 is the journey of our first holdco from now, you know, several years ago to recent holdcos, and what you'll note is that those recent holdcos are making significantly bigger initial investments with Zeta with the same opportunity to expand but also evolve and shift their mix over time. So it's laid out, I think, well on slide 13.

Scaling quickly, but massively shortening the sales slide Elizabeth first welcome back on Slide 13, because this is a topic we spend a lot of time with investors on recently is understanding the relationship between direct revenue and integrated revenue and the role that our new agency Holdco as theyre, playing in that and what we've shown on slide.

13 is the journey of our first Holdco from now several years ago.

Two recent hold Cosan, what Youll note is that those recent hold codes are starting significantly bigger initial investments with data with the same opportunity to expand but it also evolve and shifted their mix over time. So it's laid out I think well on slide 13. Thanks for your question.

Elizabeth Porter: Thanks for your question. Great, thank you. Our next question is from Jason Kreyer with Craig Hallam.

Great. Thank you.

Our next question is from Jason <unk> with Craig Hallum. Please proceed.

Jason Michael Kreyer: David, I just wanted to ask if you could maybe summarize how your conversations with customers have evolved around AI over the last couple of quarters and then maybe how you see Zeta's opportunity evolving. Well, thank you, Jason. You know, as I think I said, in my sort of scripted notes, and it's something I say a lot, AI has moved from theoretical to really starting in the boardroom. And what I'm seeing is the board is saying to the CEO, "What's your AI strategy?" And then they said, and make sure that our data stays secure inside of that strategy. They then went down, and they sort of yelled at the CMO, what's our AI strategy? And how do we keep our data protected and safe? And those CMOs are often calling me and saying, "What do we do here?" Right?

Great. Thank you David I just wanted to ask if you could maybe summarize how the your conversations.

Inverse stations with customers have evolved around AI over the last couple of quarters and then maybe how you see this opportunity evolving with that.

Well, thank you Jason.

As I think I said in my sort of scripted notes, it's something I say a lot AI has moved from theoretical to really starting in the boardroom and what I'm seeing is the board is saying that the CEO, what's your AI strategy.

And then they are saying and make sure that our data stays secure inside of that strategy.

Then go down and they sort of yell at the CMO, what's our AI strategy and how do we keep our data protected and safe and those <unk> are often calling me.

Saying, what do we do here right. So when you look at.

David Steinberg: So when you look at our ability to put a CDP in place, which creates a closed ecosystem for the client data, you're then able to append our data in. You're adding, in many cases, billions, and in some cases, even trillions of data points to their data. And the algorithm can operate inside of there. So, by way of example, you've got a lot of people talking about large language models; you've got some people talking about small language models.

Our ability to put our CDP in place, which creates a closed ecosystem for the clients' data, you're then able to append, our data and you're adding in many cases billions and in some cases, even trillions of data points to their data and we.

AGA rhythm can operate inside of there. So by way of example, you've got a lot of people talking about large language models, you've got some people talking about small language models I like to joke. We're a midsized language model, we have the benefits of the large language models with the security safety and privacy of the small language.

David Steinberg: I like to joke that we're a midsize language model. We have the benefits of large language models with the security, safety, and privacy of small language models for our data. And every CMO that I'm talking to is asking for products around efficiency for their business. And once again, you look at our new agent product, that is gonna disintermediate very highly paid data scientists inside of our client's ecosystems. And in some cases, it's not disintermediating anybody; they just can't even get enough bodies to do the work.

Models for our data and every CMO that I'm talking to is asking for.

Products around efficiency for their business and once again, you look at our new agent product.

That is going to disintermediation very highly paid data scientist inside of our clients' ecosystems in some cases, it's not disintermediation anybody they just can't even get enough bodies to do the work so our ability to automate all of that and now sell it to them and the way we look at it is less.

David Steinberg: So our ability to automate all of that and now sell it to them. And the way we look at it is, listen, if they're paying a data scientist $250,000 a year, why not pay us $50,000 a year per instance? And you're talking four or $5,000 a month on a subscription basis as you roll that out. And you just have to do that thousands of times, which is actually not as hard to do with the number of scalable and superscaled clients we have.

If they are paying a data scientist $250000 a year why not pay us $50000 a year per instance.

And Youre talking $4 $5000, a month on a subscription basis as you roll that out and you just have to do that thousands of times, which is actually not as hard to do with the number of scaled and Super scale clients. We have so I would tell you Jason that this is becoming day to day conversation, but.

David Steinberg: So I would tell you, Jason, that this is becoming a day-to-day conversation, but the solution that Zeta has, by putting the CDP in place, allowing the algorithms to operate with their data in conjunction with our data, without ever risking their data going out into the environment or out into the ether, has been a game changer in our conversations. And by the way, I think it's one of the reasons you're seeing ripples through our numbers and ripple through our projections. Thank you. I wanted to squeeze in one for Chris.

The solution the data has by putting the CDP in place, allowing the auger rhythms to operate with their data in conjunction with our data without ever risking their data going out into the environment or out into the ether has been a game changer in our conversations and by the way.

It's one of the reasons youre seeing that ripple through our numbers and ripple through our projections.

Yeah.

Thank you I wanted to squeeze in one for Chris just on the gross margins and then I know you just talked about agency influenza in direct and indirect.

Jason Michael Kreyer: Just on the gross margins, and I know you just talked about agency influence and direct and indirect, you know, I think you've appropriately telegraphed kind of the trajectory of gross margins. I just want to ask whether we saw that slide a little bit from Q3 to Q4. As we look into 2024, do you think we've hit a bottom in gross margins? Or do you have an idea of when that bottoms out before you kind of get the re-acceleration of the direct?

I think you've appropriately telegraph kind of the trajectory of gross margins I just wanted to ask on.

We saw that slide a little bit from Q3 to Q4 as we look into 2024 do you think we've hit a bottom in gross margins or do you have an idea when that bottoms out before you kind of get the reacceleration of the direct mix.

Christopher E. Greiner: Jason, thanks for the question. Um, so here's where our head is at, uh, on gross margins. And it's, it's, it's, I think you articulate it really well is that, you know, I think 4Q it bottoms out, uh, or did bottom out with the upside now in 2024, so kind of setting the base at that 60% level, the upside beyond there is tied to how quickly we move those new large agency customers from integrated to direct channels. That's lever number one, lever number one.

Jason Thanks for the question, so here's where our head is at.

Gross margins and it'll take you articulated it really well is that.

I think <unk> it bottoms out or did bottom out with the upside now in 2024, so kind of setting the base at that 60% level. The upside beyond there is tied to how quickly we move those new large agency customers from integrated to direct channels Thats lever number one lever number two.

Christopher E. Greiner: Number two is how quickly we see our automotive and our insurance customers start to grow again, who happened to be at the higher end of our gross margin mix in terms of channel usage on the direct platform. And then third, where political and advocacy also comes in. So those three should begin to work their way up throughout the year, starting at that base point of around six. Perfect.

Two is how quickly we see our automotive and our insurance customers start to grow again, who happen to be at the higher end of our gross margin mix in terms of channel usage on the direct platform and then third where political and advocacy also comes in so those three should begin to work our way up throughout the year.

Starting at that base point of around 60%.

Perfect. Thanks, guys.

Jason Michael Kreyer: Thanks, guys. Our next question is from Koji Akita with Bank of America. Zeta Glo Hldg, uh... first one I wanted to ask a question about. You guys have been in the market for a long time. You guys have been in the market for a long time. Many customers have tried out the Zeta.

Our next question is from Koji Ikeda with Bank of America. Please proceed.

Hey, guys. Thanks, so much for taking the questions a couple from me here.

First one I wanted to ask a question about Boomerang customers with you and you guys have been in the market for over a decade, now and I'm sure over the past 10 years plus.

Many customers have tried out the data platform before but my gosh as EDA platform has changed quite a bit since the early days. So just wanted to hear a little bit about commentary about how customers have come back to date after trying to data before what are some of the most common reasons why you're seeing customers come back.

Koji Akita: Zeta Plot, what if you hear a little bit about commentary about how it came back? What are some of the most common... Koji says it's actually really, we're laughing here because it's been a big thing lately, where we've been sort of like using the term "back to the future," where, I mean, one of the world's largest fashion houses very recently came back to us at scale after leaving us for three years because they felt like they needed to use one global platform for everything. You know, think of one of the large marketing clouds which might be owned by a large technology holding corporation. Their marketing clouds couldn't deliver what the Zeta marketing platform could. And, you know, it's funny; we talk a lot about disintermediating point solutions, but there was a big move a few years ago where you had to move everything, you know, your publishing, and, you know, all of your Salesforce management to one company globally. And you have seen some companies over the years leave us to go to those bigger platforms. We are, quite frankly, even surprised by how many of them are coming back because those guys just can't deliver on what they talk about in the marketing cloud. Now, they might be really good at Salesforce automation. They might be really good at publishing, right?

Koji is that it's actually really were laughing here, because it's been a bit.

Big thing lately, where we've been sort of like using the term back to the future where.

I mean, one of the worlds largest fashion houses very recently came back to us at scale after leaving us for three years, because they felt like they needed to use one global platform for everything.

One of the large marketing clouds, which might be owned by a large technology holding corporation and what they found was.

Their marketing clouds, couldnt deliver what does Ada marketing platform could.

And it's funny, we talked a lot about disintermediation point solutions, but there was a big move a few years ago that you had to move everything.

You are publishing.

All of your sales force management to one company globally and you saw some companies over the years leave us to go to those bigger platforms. We are quite frankly, even surprised by how many of them are coming back because those guys just cant.

Deliver on what they talk about in the marketing cloud now they might be really good at Salesforce automation they might be really good at publishing right. They might be great on financial services packages and databases, but theyre not great marketing clouds, and they are really not able to deliver the day.

David Steinberg: They might be great for financial services packages and databases, but they're not great marketing clouds. And they're really not able to deliver the data with artificial intelligence as native to the application layer, which is becoming a bigger and bigger problem. So it's funny you ask it, and it's been a trend that has literally been to the point that we have been focusing on revisiting with customers that we lost a few years ago and winning them back at a higher rate than even our traditional RFP win rate. As I look at the deck for the fourth quarter and compare it...

With the artificial intelligence is native to the application layer, which is becoming a bigger and bigger problem. So it's funny you asked it and it's been a trend that has been something that's literally been to the point that we have been focusing on revisiting with customers that we lost a few years ago and.

Turning them back at a higher rate than even our traditional RFP win rate.

Got it that's super helpful and a follow up here maybe for Chris.

As I look at the deck for the fourth quarter and compare it against the deck for the third quarter.

Koji Akita: Question here, really, on stock. 12 million. Then we're on the non-IPO side. Thanks, Koji.

Question here really on stock based compensation it looks like it ended up this year about 10 million to $12 million higher than were on the non IPO side than when it was originally guided to last quarter and it looks like it's about $10 million higher for 2024. So just really wanted to understand the dynamics there.

Thanks, Koji on the stock based compensation side.

Christopher E. Greiner: On the stock-based compensation side, you know, much of that was the awards that happened in the first half of 2023. There were some compensation-related end-of-year grants that were made. But I think more importantly, kind of zooming out to the prepared remarks, you know, we are very focused, and we're really acting on three primary areas from being on the road extensively in 2023. Feedback-specific items from investors. The first is taking dilution down tied to incentive compensation.

Much of that was deal awards that happen in the first half of 2023. There was some compensation related end of year grants that were made but I think more importantly kind of zooming out to the prepared remarks, we are very focused and we are really acting on three primary areas.

Being on the road extensively in 2023 feedback specific items from investors. The first is taking dilution down tied to incentive compensation, so going from 5% in 2023 dilution to now guiding to a pretty substantial reduction year over year to a dilution rate of three five to $3 75.

Christopher E. Greiner: So going from 5% in 2023 to now guiding to a pretty substantial reduction year-over-year to a dilution rate of 3.5 to 3.75 en route to 3% over time. The second area of feedback was around our guidance approach and, you know, wanting to just continue to be more predictable and tighter in guidance rather than have these, you know, wild swings and beats. You know, we're going to continue to be a beat-and-raise company, but, you know, tightening that up a little bit. And then, David, you can talk to the third area.

In route to 3% overtime.

Second area of feedback was.

Does around our guidance approach and wanting to just continue to be more predictable and tighter in guidance rather than have these.

<unk> swings and beats were continued to be beat and raise company, but tightening that up.

Little bit.

And then David you can talk to the third area. It's been the big thing in <unk> as you know I've been.

David Steinberg: The big thing in Cogi, as you know, I've been personally out there with Chris and Scott over the last couple of quarters, and that's a trend that will continue as I begin to spend more time with investors. You know, case studies, right? One of the things we hear a lot is, gosh, what you're doing is so cool, but it's so confusing for Wall Street. How do you simplify it, and how do you get case studies?

Personally out there with Chris and Scott.

Over the last couple of quarters, and that's a trend that will continue as I begin to spend more time with.

With investors.

Case studies right one of the things we hear a lot is gosh, what youre doing is so cool, but it's so confusing to wall Street, how do you simplify it and how do you get case studies. So today for the first time in <unk> history, we are putting forth multiple named climb.

David Steinberg: So today, for the first time in Zeta's history, we are putting forward multiple named client case studies, and we expect that to be a trend that will continue. Our goal is to continue to work with our enterprise clients to add more case studies. You know, Chris is now writing on a piece of paper that I should say this is slides 27, 28, and 29. I don't think anybody would believe I actually remembered that, so I'll give you full credit for that, Chris.

<unk> case studies, and we expect that to be a trend that will continue our goal is to continue to work with our enterprise clients to add more case studies. This Chris is now writing on a piece of paper that I should say this is slides 27, 28, and 29 I don't think anybody would believe I actually remember that so I'll give you full credit for.

Of that Chris.

But.

David Steinberg: At the end of the day, you know, what we're doing makes a massive difference to our enterprise and agency clients. And putting forward what those case studies are, we think will help us as we grow as a company. So I know that was a very long answer to a very short question around comp, stock-based comp. But I will point out that not only are we moving from what has traditionally been 5% plus to 3.5 to 3.75 on the road to 3% dilution, which is what we think is the right goal. We are also making a decision as a senior management team to take no restricted shares this year.

At the end of the day.

What we're doing makes a massive difference to our enterprise and agency clients and putting forth. What those case studies are we think will help us as we grow as a company. So I know that was a very long answer to a very short question around comp.

Talk based comp, but I will point out not only are we moving from what has traditionally been 5% plus to three 5% to 375 on the road to 3% dilution, which is what we think is the right goal.

We are also making a decision as a senior management team to take no restricted shares. This year. So I'm, taking only performance stock units as as Chris Greiner as Steve Gerber and Steve Vine.

David Steinberg: So I'm taking only performance stock units, as are Chris Greiner, as is Steve Gerber, and as is Steve Vine. And we will be more aligned with shareholders as they will require increases in stock price for us to get those to vest, not just time. Because we want to make sure that all of our existing shareholders know that they're being heard, and we're making the decisions to do a better job in the things that they want us to do. Our next question is from T.J. Hynes with Canaccord. Hey guys, this is Luke on for DJ.

And we will be more aligned with shareholders as they will require increases in stock price for us to get those to vest not just time, because we want to make sure that all of our existing shareholders know that they are being heard and we're making the decisions.

To do a better job in the things that they want us to do.

Got it. Thank you so much guys I appreciate it.

Our next question is from T J Hynes with Canaccord Genuity. Please proceed.

T.J. Hynes: Thanks for taking the question. So I was wondering if you could flesh out your comments a bit on the intelligent agent and mobile opportunity. I recognize it's still early days there, but any early thoughts on sort of penetration potential across your existing customer base, and then also on how that rollout could impact margins over time. Yeah, thank you, Luke.

Hey, guys. This is Luke on for Vijay. Thanks for taking the question. So I was wondering if you could flesh out your comments a bit on the intelligent agent.

Mobile opportunity I recognize it's still early days, there, but but any early thoughts on sort of penetration potential across your existing customer base and then also on how that rollout could impact margins over time.

Yes, Thank you Luke.

David Steinberg: You know, listen, we're really excited about this intelligent agent product because, to me, and I don't want to get too ahead of ourselves here, but not only does this begin to help our enterprise clients to do a better job running their business, but it gets into what I really, really am excited about long term, which is business intelligence. We talk about intelligence at the core of our product today. How do we extrapolate that down the road into true business intelligence products? And I believe this is the first step into that.

Listen we're really excited about this intelligent agent product because to me and I don't want to get too ahead of ourselves here, but not only does this begin to help our enterprise clients to do a better job running their business, but it gets into what I really really I'm excited about long term, which is business in <unk>.

Diligence, we talk about intelligence at the core of our product today how.

Do we extrapolate that down the road.

True business intelligence products and I believe this is the first jump into that.

David Steinberg: We have almost 500, I think I can say that, scaled clients, and the goal is to get a disproportionate percentage of them to adapt these products or adopt these products in the coming months, quarters, and years. And I, once again, I want to reiterate, they're not baked into what we think are conservative projections around 20%. But they're an upside to that. And I think that, you know, they carry traditional software margins. So you're talking, you know, I don't know if that's mid 80s or high 80s.

We have almost 500, I think I can say that scaled clients.

And the goal is to get a disproportionate percentage of them to adapt these products or adopt these products.

In the coming months quarters and years and.

Once again I want to reiterate they're not baked into what we think are conservative projections around 20%, but there upside to that and I think that they carry traditional software margins. So you're talking I don't know if thats mid <unk> or high <unk>, but youre talking about a high margin.

David Steinberg: But you're talking about a high-margin product, but it's coming into a pretty sizable base company, meaning we'll have to get a bunch of clients on board to move the needle from a margin perspective. What I can tell you is that we believe our clients are going to adopt them.

Product, but it's coming into a pretty sizable base company, meaning we will have to get a bunch of clients on board to move the needle from a margin perspective, what I can tell you is we believe our clients are going to adopt them, we believe they're going to adopt them at scale and we do believe that in the long run these products will help us continue to.

David Steinberg: We believe they're going to adopt them at scale, and we do believe that, in the long run, these products will help us continue to move our gross margins up. That's great to hear.

Move our gross margins up.

That's great to hear and just a follow up.

David Steinberg: And just to follow up, a lot of streaming companies are rolling out ad tiers nowadays, and we think that probably notionally increases the size of the CTV market opportunity for you guys. Do you have a similar perspective there?

A lot of streaming companies are rolling out at tiers, Nowadays and we think that probably notionally increases the size of the CTV market opportunity for you guys you have a similar perspective there.

David Steinberg: And, you know, any impact on your business as you've seen that roll out? Yeah, so it's interesting. Yes. So to answer your question, unequivocally, the more of these streaming platforms that insert ads, pre, I call it pre-roll, but it's, you know, it's not always accurate, but sort of before the beginning of the content, the middle of the content, the end of the content, all of the above.

Any any impacts.

On your business as you've seen that rollout.

Yes, so it's interesting yes, so to answer your question Unequivocably. The more of these streaming platforms that insert ads pre I call it pre roll, but it's.

It's not always accurate, but sort of pre the beginning of the content the middle of the content at the end of the of content all of the above every one of those units is a massive opportunity for us and to be totally transparent we are already plugged into all of them. So we see this as a unique opportunity to expand.

David Steinberg: Every one of those units is a massive opportunity for us, and to be totally transparent, we are already plugged into all of them. So we see this as a unique opportunity to expand out. Now, the largest platform sort of started off trying to get these massive minimums out of enterprises to partner with them, and it didn't work quite the way they had originally planned, to say the least.

<unk> out now.

The largest platform sort of started off trying to get these massive minimums out of enterprises to partner with them and it didn't work quite the way. They had originally planned to say the least.

David Steinberg: They've now come back, and we're seeing what we think are very unique opportunities to scale that business with all of the streaming platforms, including the largest one. We had a neat growth quarter. Actually, in the fourth quarter, Luke on CTV, it grew 30 percent quarter to quarter, and if you follow the pattern of CTV's usage around advocacy and politics, you know one word for shadow would be a nice year in 2024 as well. I mean, it's it's uh I I Chris beat me to the punch as usual. You know, I shudder to use the term political.

They've now come back and we're seeing what we think are very unique opportunities to.

To scale that business with.

All of the streaming platforms, including the largest one we had a neat.

Quarter actually in the fourth quarter, Luke on CTV grew 30% quarter to quarter and if you follow the pattern of Ctv's usage around advocacy and political one where for shadow would be a nice year in 2024 as well.

It's up Chris beat me to the punch as usual.

I shudder to use the term political I generally call. It all advocacy for host of reasons, but obviously, our advocacy business does encapsulate political.

David Steinberg: I generally call it all advocacy for a host of reasons. But, but, obviously, our advocacy business does encapsulate politics, very CTV-centric, very focused on hyper targeting nowadays. And the way to really do that is CTV, not linear.

Very CTV centric very focused on hyper targeting nowadays and the way to really do that is CTV not linear so we see this as a big opportunity to your point Luke.

David Steinberg: So we see this as a big opportunity to your point, Luke. Awesome, thank you. Our next question: be Riley Secured.

Awesome. Thank you.

Our next question is from Zach Cummins with B Riley Securities. Please proceed.

Zach: Hi, good afternoon, David and Chris. Congratulations on the strong 4Q. And thanks for taking my questions. Chris, my first one is more of just a clarifying question.

Yeah, Hi, good afternoon, David and Chris Congrats on the strong <unk> and thanks for taking my questions.

My first one is more of just a clarifying question I believe there is a year over year decline in your scale Super scale customer ARPA here in Q4, I'm, assuming most of that is related to headwinds with auto and insurance, but just wanted to get some clarity around that and expectations for growth in that metric moving forward.

Christopher E. Greiner: I believe there's a year over year decline in your scale, super-scaled customer ARPU here in Q4. I'm assuming most of that's related to headwinds with auto and insurance, but just wanted to get some clarity around that and expectations for growth in that metric moving forward. Yeah, no; I think that is the driver.

Yeah, No I think that is the driver what's interesting on the scaled customer count side.

Christopher E. Greiner: What's interesting on the scaled customer count side, we've got 131 now, which is up seven quarters quarter, but on a year over year basis, it was up 27 percent in count, with the revenue associated with super scaled customers up 25 percent. There's a good slide that we update annually in the slide deck that demonstrates the progression of scaled customers in their tenure, which I think is a really good kind of progression, if you will, on how they spend with us. For those year-one scaled customers, which accounted for around 10 percent of this year's revenue, their average revenue spend is around 600K. If you go to that next tier of one to three-year scaled And then you go to that next cohort of now more than three-year-tenured scaled customers. They're spending three and a half times as much as the year before, at over two million. So it's a nice way to demonstrate the stickiness of the platform.

We've got 131, now which is up seven quarter to quarter, but on a year over year basis was up 27% in count with the revenue associated with Super scale customers up 25%.

There's a good slide that we update annually in the slide deck that demonstrates the progression of scaled customers and their tenure, which I think is a really good kind of progression. If you will on how they spend with us where those year, one scaled customers, which was around 10% of this year's revenue.

Their average revenue spend is around 600 K. If you go to that next tier of one to three year scaled customers. They spend more than two times that on average at $1 3 million and then you go to that next cohort of now more than three year tenured scaled customers Theyre spending three five times as much as a year one at over $2 million. So it's.

Nice way to demonstrate the stickiness of the platform as we talked about the net revenue retention for the year was right in their model of 110 to $1 15 at 111, but if you exclude automotive and insurance to the to your question that net revenue retention was 118% and as I said as part of the prepared remarks, we think we'll be at the high end of that 110 to one.

Christopher E. Greiner: As we talked about, the net revenue retention for the year was right in our model of one ten to one fifteen at one hundred and eleven. But if you exclude automotive and insurance from your question, that net revenue retention was one hundred and eighteen percent. And as I said, as part of the preliminary marks, we think we'll be at the high end of that one ten to one fifteen range just as we sit here today in twenty twenty four.

15 range as we sit here today in 2024.

Okay.

Understood and my one follow up question is.

Zach: And my one follow-up question is, Most of your growth over the past couple of years has really just been driven by your direct go-to-market motion and investing in that, but it seems you're starting to get more opportunities on the partnership side, especially with system integrators. So just curious about investments in the direct channel versus maybe leaning into some of these channel partnership opportunities. It's a great question, Zach.

Most of your growth over the past couple of years has really just been driven by your direct go to market motion and investing in that but it seems you are starting to get more opportunities on the partnership side, especially the system integrators. So just curious of how you're thinking about investments in the direct channel versus maybe leaning into some of these channel partnership.

<unk>.

It's a great question Zach obviously, we've added a channel partners in Snowflake AWS, we've added the agency channel, which which is sometimes directly with the agency sometime is partnering with them to go to other enterprises.

David Steinberg: Obviously, we've added channel partners in Snowflake, AWS; we've added the agency channel, which is sometimes directly with the agency, sometimes partnering with them to go to other enterprises. We are going live with our first two SI integrations, and we will probably be done with them this quarter, perhaps early second quarter. So this is also gone from sort of what we want to do to what we're doing. We're very excited about the SI environment. And what we're seeing is enterprises are going to their SI vendors and asking them to work with us in addition to us going to the SIs and saying, we'd like to partner with you. I want to reiterate again, and I'm sure I'll sound like a broken record, but if I don't, Scott will kick me under the table.

We are going live with our first two psi integrations.

Probably be done with them this quarter, perhaps early second quarter. So this is also gone from sort of what we want to do to what we're doing.

We're very excited about the ESI environment.

And what we're seeing is as enterprises are going to their Si cloud vendors and asking them to work with US in addition to us going to the size and saying we'd like to partner with you.

I want to reiterate again and I'll sure I'll sound like a broken record, but if I don't Scott will kick me under the table.

David Steinberg: Our currently conservative projections do not include meaningful revenue from the SI channel for this year, which is not to say we don't think it could be meaningful this year, and which is not to say that we don't expect it to be meaningful in the years to come. But we've gone from talking about this to being knee deep in two integrations with them now, which will launch two separate systems integrators with two separate enterprises. We're very excited about those prospects. Great Well, thanks for taking my questions and best of luck in the coming quarter. Of course, thank you. Our next question is from Arjun Bhatia, with William Blair. Hey guys,

Our currently conservative projections do not include meaningful revenue in the Si channel for this year, which is not to say, we don't think it could be meaningful this year, and which is not to say that we don't expect it to be meaningful in the years to come but two have gone from talking about this too.

We're knee deep in two integrations with them now which will launch.

Two separate systems integrators with two separate enterprises.

Excited about those prospects.

Great well, thanks for taking my questions and best of luck in the coming quarter.

Of course, thank you.

Our next question is from Arjun Bhatia with William Blair. Please proceed.

Hey, guys. Thank you.

Arjun Bhatia: Thank you. And nice job on a strong Q4 here. When we kind of talk to customers and agencies throughout the ecosystem, it seems like this, the CDP layer certainly is an important differentiator to drive more personalization. I know, you guys have a pretty strong CDP layer yourself. But can you maybe just talk about when you're going up against or going to customers in RPs, like how much of a factor is that in deciding to choose Zeta versus some of the other players? And maybe if you could compare and contrast the CDP layer relative to your data capabilities, you know, where customers are placing more emphasis in recent RPs. It's a great question, Arjun.

Nice job.

Q4 here.

When we kind of talk.

Our customers and their agencies throughout the ecosystem. It seems like this the CDC layer certainly is an important differentiator to drive more personalization I know.

You guys have a pretty strong simulator yourself, but can you maybe just talk about when you're going up against.

Or going through customers and rfps like how much of a.

A factor is that in deciding to choose data versus some of the other players in.

And maybe if you could compare contrast, the CDP earlier relative to your data capabilities.

Where customers are placing more emphasis.

In recent RFP.

It's a great question Arjun listen I would say that our CDP technology is as good if not better than any other CDP technology in the world and I will also tell you that the vast majority of the large hold COSE.

David Steinberg: Listen, I would say that our CDP technology is as good, if not better, than any other CDP technology in the world. And I will also tell you that the vast majority of the large holdcos, as it relates to technology holding corporations, that say they have CDPs are really DMPs that they've sort of rebranded. So when we go up against a lot of those big guys, we're really able to talk about what a CDP is, right? What does that stand for? It's a consumer data platform. And what does that mean?

As it relates to technology holding corporations that say they have cdp's, a really dnp's that they've sort of rebranded.

So when we go up against a lot of those big guys were really able to talk about what is CDP is right. What does that stand for it's a consumer data platform and what does that mean it means you can see to the absolute individual level of your customers buy.

David Steinberg: It means you can see to the absolute individual level of your customers by record. It doesn't mean you're building cohorts. It doesn't mean you're putting together large sorts of segments. It means you can see an individual.

Record it doesn't mean, you're building cohorts it doesn't mean, you're putting together large sort of segment. It means you can see in individuals most of these other large companies.

David Steinberg: Most of these other large companies can't do that, right? They're just not there. And most of the smaller guys who are coming up, they either run it as a stand-alone product, which is quite hard, or it's part of another, perhaps, roll-up, or something that it's sitting inside of there. So when we look at our technology, we think it's best to breathe. Now, it's hard to bifurcate that from our data and data quality because it's such an important component of how we sell the product, right? The ability to import all of your data into the CDP, the ability to match, on average, greater than 80% of that data to the Zeta Data Cloud, the ability to append hundreds, if not thousands, of incremental data elements, the ability to seamlessly integrate our algorithms around natural language processing and now There's just nobody else out there that can do those things.

Can't do that right, that's just not there and most of the smaller guys.

Who are coming up they either run it as a standalone product, which is quite hard.

Or it's part of another perhaps roll up or something that is sitting inside of there. So when we look at our technology. We think it's best of breed now it's hard to bifurcate that from our data and data quality, because it's such an important component of how we sell the product.

Right the ability to import all of your data to the CDP the ability to match on average greater than 80% of that data to the say the data cloud the ability to append into your data hundreds if not thousands of incremental data elements the ability to seamlessly integrate our.

Our auger rhythms around natural language processing and now generative AI into that CDP, while keeping all of their data safe while simultaneously importing the data from the <unk>. The data cloud just nobody else out there that can do those things. So I don't know why people choose us as it relates to.

David Steinberg: So I don't know why people choose us as it relates to, is our technology superior? Is our data superior? Is our AI superior?

Two is.

As our technology is superior is our data superior is our AI superior what I know is we're winning greater than 50% of the Rfps and engagements we get invited to participate in and there is an average of 12 enterprises that show up to compete in each one of those rfps. So I think that the.

David Steinberg: What I know is that we're winning greater than 50% of the RFPs and engagements we get invited to participate in, and there's an average of 12 enterprises that show up to compete in each one of those RFPs. So I think that the collective is really important. And to just put a final sort of footnote on that, I can't think of anybody who's bought a CDP from us that didn't integrate our data, right? There's just no reason not to.

Collective is really important and.

And to just final put a final sort of footnote on that I can't think of anybody who's bought a CVP from us that didn't integrate our data right. There is no reason not to like it's extra data that imports.

David Steinberg: Like it's extra data that imports that you can't get from any other source in the world because we don't sell our data to anybody at any time, for any price. So I do think it's pretty interconnected. If a client came to us and said, we'd like to buy your CDP, and we don't want to integrate it with your data cloud, we're more than happy to do that. And I think we would win that as well, if that makes sense. Yep, yeah, that's, that's clear, super helpful. And if I can maybe follow up again on some of the agency traction that you're seeing in the mix between direct and indirect. Do you have a sense for some of the newer agencies that have come on since you started this initiative, how their mix is either shifting, or how they're kind of indicating to you that they may shift the mix in 2024?

That you can't get from any other source in the world because we don't sell our data to anybody at any time at any price. So I do think it's pretty interconnected.

If a client came to us and said, we'd like to buy your CDP and we don't want to integrate to your data cloud, we're more than happy to do that and I think we would win that as well if that makes sense.

Yes, yes.

Clear Super helpful.

And if I can maybe follow up again on some of the agency traction that youre seeing in the mix between direct and indirect.

Do you have a sense for some of these newer agencies that have come on.

Since you started this initiative.

How their mix is.

Shifting or how they are kind of indicating to you that they may shift the mix in 2024 are we getting signs that theyre shifting more to directors and a little bit too early to tell at this point.

David Steinberg: Like, are we getting signs that they're shifting more to directors, and is it a little bit too early? Yeah, so, you know, it is early to tell, but I think, as Chris eloquently pointed out, we think that gross margins sort of hit bottom in Q4. And one of the big opportunities is migrating those large agency holding corporations the exact way we've migrated the first one that we worked with, where I know there's a great slide on that in our deck, because they showed it to me earlier today, but we went forward to slide 13, and Chris is writing it down for me again. So on slide 13 of our Supplemental Investor Deck, you can see how that client started at under 10% and grew to greater than Over the years, we believe that our other two scaled agency hold corps are going to follow a very similar pattern. Now, the one caveat is that we're drinking out of the fire hose with some of these guys.

Yeah. So.

It is early to tell but I think as Chris eloquently pointed out we think that gross margins sort of hit bottom in Q4, and one of the big opportunities is migrating those.

Large agency holding corporations the exact way we migrated the first one that we worked with were.

There's a great slide on that in our deck.

Because they showed it to me earlier today, but we weren't throw at slide 13, Chris is writing it down for me again, so on slide 13 of our supplemental investor deck, you can see how that client started at sub 10% and grew to greater than 70% right over the years, we believe that.

Our other two scaled agency hold corp's are going to follow a very similar pattern now the one caveat is.

We're drinking out of the fire hose with some of these guys I mean, it's growing rapidly and as those divisions are growing rapidly.

David Steinberg: I mean, it's growing rapidly. And as those divisions are growing rapidly, you know, are you able to migrate the other guys fast enough for the third or new guys coming in? Uh, what I really care about, and this might be, might be an unpopular thing to say, but to me, I've always aspired to run a company that was at the age of 40. And that's sort of what I've looked at, right?

Are you able to migrate the other guys fast enough for the third or new guys coming in.

What I really care about and this might be.

It might be an unpopular thing to say, but to me I've always aspired to run a company that was if the rule of 40 and Thats sort of what I've looked at right not only did we.

David Steinberg: Not only did we deliver our seventh quarter in a row above the rule of 40, but we have guided this year to the rule of 40. And a lot of that is because even if the gross margin stays in the low 60s, the gross margin on the agency hold companies is substantially higher than our operating margins. It's higher than our long-term operating margin goals, and they take on very limited incremental overhead. So most of that money drops to the EBITDA line at a substantially higher percentage than the actual current operating margins, even in the fourth quarter.

Deliver seven our seventh quarter in a row above the rule of 40, we have guided this year too.

To the rule of 40 and a lot of that is because even if the gross margin stay in the low sixty's.

The gross margin on the agency hold companies is substantially higher than our operating margins, it's higher than our long term operating margin goals and they take on very limited incremental overhead. So most of that money drops to the EBITDA line at a.

In Chile higher percentage than the actual current operating margins even in the fourth quarter. So yes, we think they will come back yes, we think we will migrate them, but to me. What matters is are we going to grow the business greater than 20%. We believe we will and are we going to see greater than a 20% operating.

David Steinberg: So yes, we think they'll come back. Yes, we think we'll migrate them. But to me, what matters is, are we going to grow the business by greater than 20%? We believe we will. And are we going to see greater than a 20% operating margin? We believe we will. So I think we're in good shape for this year. I appreciate that. Thank you. Our final question is from Richard Baldry, with Rothkapp. Thanks. The first one may or may not even be a question.

Getting margin.

We believe we will so I think we're in good shape for this year.

I appreciate that thank you.

Our final question is from Richard Baldry with Roth Capital Partners. Please proceed.

Thanks.

First one may or may not even be a question, but I think in the past I've heard that the average number of people in each RFP was higher I have a number of 2017 in my head.

Richard Baldry: But I think in the past, I've heard that the average number of Hrp was higher. I have a number of 17 in my head. If I'm wrong, but if it is higher, who would you be seeing sort of fading out of the competition, sort of smaller, midsize, or larger? And then the second question would be around free cash flow. And I came on later, so I'm not sure if this has been addressed, but, you know, over this year's guidance and then. The 2025 guide that you're ahead of, you generate something close to $200 million in free cash flow. Could you talk maybe about where your priorities are to deploy that, perhaps a more aggressive buyback? Zeta Glo Hldg, Rich, so no, thank you for joining us. We know you're on vacation. I didn't even know you took a vacation, so I appreciate your joining us from it. Yes, but it used to be a larger number showing up for the RFPs.

If I'm wrong, and just disregard, but if it is higher who would you be seeing sort of fading out of the competition sort of smaller and midsized or larger and then.

Second question would be around free cash flow and I came on later, so I'm not sure. If this has been addressed but.

Over this year's guidance and then the <unk>.

25% Guide that you are ahead of you generate something close to $200 million in free cash flow could you talk maybe about where your priorities are to deploy that either more aggressive buybacks offensive Lee on acquisitions pay down of debt. Just so we have some idea of where that's going to get deployed.

Rich so no. Thank you for joining we know you are on vacation I didn't even know you took vacation. So I appreciate youre joining us from it yes, it used to be a larger number showing up to the rfps and what we're seeing is the point solutions or just not being invited the way they used to be.

David Steinberg: And what we're seeing is point solutions are just not being invited the way they used to be, right? So you've got, especially around CDPs, where you have a lot of small, independent CDPs that are really having a tough time as standalone businesses. And quite frankly, we're not seeing some of the former European players who were talking a big game a couple years ago. We're just not seeing them anymore.

Right, So you've got especially around CDP, where you have a lot of small independent cdp's that are really having a tough time as stand alone businesses and quite frankly, where we.

Not seeing.

Some of the former European players, who were talking a big game a couple years ago, we're just not seeing them anymore. So.

David Steinberg: It is down, you know, and I have said 17 in the past, and now I would say 12. I had a funny joke to make around the 200 million in free cash flow, which Chris told me not to tell, but I will let Chris talk about what we're going to do with the next two years, just to quantify it for anybody else listening. That would be about 200 million between 24 and 25 combined.

It's.

It is down.

<unk> 17 in the past and now I would say 12, I had a funny joke to make around the $200 million in free cash flow, which Chris told me not to tell but I will let Chris talk to what we're going to do with the next two years just to quantify for anybody else listening that would be about $200 million between 'twenty four and 'twenty five combined.

Christopher E. Greiner: I think we'll continue to be opportunistic on share buybacks. We'll continue to be opportunistic on M&A, and I think, you know, Steve Vine and David did a really neat job laying out what opportunistic mean for M&A at our investor day, but, you know, we're very focused on increasing free cash flow conversion. You'll see that the guide, this is the first time we've put out an in-year guide on free cash flow.

We will continue to be opportunistic on share buyback will continue to be opportunistic on M&A and I think Steve <unk> and David did a really nice job laying out what is opportunistic mean for M&A at our Investor day.

But we're very focused on increasing free cash flow conversion you will see that the guy. This is the first time, we put out an in year guide on free cash flow with obviously add long term model, but at $80 million in free cash flow at the end of 2024 that represents 48% conversion up from 42%. The last two years, so continuing to get up.

Christopher E. Greiner: We've obviously had the long-term model, but at 80 million in free cash flow at the end of 2024, that represents 48% conversion, up from 42% the last two years, so continuing to get up to that 55% level. I think it's interesting, as we talked about in the prepared remarks, Rich, we had a $25 million working capital headwind from the agencies and just their difference in payment cycles than our enterprise customers. If not for that headwind, if it just would have been neutral, conversion would have been in the 60s.

To that 55% level I think it's interesting we talked about in the prepared remarks, rich we had a $25 million working capital headwind from the agencies and just their difference in payment cycles than our enterprise customers if not for that headwind. If it just would've been neutral conversion would have been in the $60. So there is a.

We see a nice clear path as we get through the years of continuing to increase that percentage.

David anything you'd want to close with just and to that point, we knew that was going to happen and we said it was going to happen at analyst day right. So when we did our investor day.

Christopher E. Greiner: So there's a, you know, we see a nice clear path as we get through the years of continuing to increase that percentage. David, anything you'd want to close with? Yeah, I just, and to that point, we knew that was going to happen, and we said it was going to happen at analyst day, right? So when we did our investor day... We were clear about that, you know, one of the things you do when you work with these very large agency hold companies is you understand that you're going to be paid a little bit slower than you're normally paid. The good news is we've collected 99.999% of the revenue. I'm not allowed to say 100%. I can't think of ever writing any of it off, but I'm sure somebody slow paid or didn't pay us on $1 at some point. I'm being facetious. So I shouldn't do that on the spot.

We were clear about that.

One of the things you do when when you work with these very large agency hold companies as you understand that youre going to be paid a little bit slower than you are normally paid the good news is we've collected 99, 999% of the revenue I'm not allowed to say 100, I can't think of ever writing any of it off but I am.

Sure somebody slow paid out or didn't pay us on a dollar at some point.

I'm being facetious, so I shouldnt do that on this call but.

We collected all and it's put us in a very unique position that we have the balance sheet to be able to do that where a number of the smaller competitors do not have the balance sheet to partner with those large agency hold companies, which is giving us yet another competitive advantage.

As we move into the marketplace and by the way rich as we put more cash on the balance sheet. It puts us in a position to more M&A more buybacks, but it also puts us in a position to do more deals like this where we're able to expand and scale even faster as a company.

David Steinberg: But we collect it all. And it's put us in a very unique position that we have the balance sheet to be able to do that, where a number of the smaller competitors do not have the balance sheet to partner with those large agency hold companies, which is giving us yet another competitive advantage as we move into the marketplace. And by the way, Rich, as we put more cash on the balance sheet, it puts us in a position to do more M&A, more buybacks. But it also puts us in a position to do more deals like this, where we're able to expand and scale even faster as a company. Great

Okay.

Great. Thanks for the commentary and congrats on a great quarter.

We have reached end of our question and answer session I would like to turn the conference back over to David Steinberg for closing remarks.

Well I will close it as I think I've closed the last few which is.

Thank you I really appreciate all of the different constituencies that are involved in our organization first and foremost RSA to people I do believe we have built one of the best teams in the world. It was funny because we had had some meetings recently with an organization that was trying to get to know us for.

David Steinberg: Thanks for the commentary and congratulations on a great job. We have reached the end of our question and answer session. I would like to turn the conference back over to David Steinberg.

David Steinberg: Well, I will close it as I think I've closed the last few, which is a, you know, thank you. I really appreciate all of the different constituencies that are involved in our organization. First and foremost, our Zeta people. I do believe we have built one of the best teams in the world. It was funny because we had some meetings recently with an organization that was trying to get to know us for a whole host of reasons. And they called me and said, you know, you have one of the best management teams I have ever experienced. And I believe you could run a company 10 times bigger than the current loop current one you're running.

A whole host of reasons and they called me and said.

You have one of the best management teams I have ever experienced and I believe you could run a company 10 times bigger than the current loop current one youre running and I very quickly said I look forward to doing that in the next five to 10 years.

But the reality is we have an incredible team.

We have incredible people, who really work their butts off to deliver for our clients keep us on the cutting edge innovation Ali and focusing on doing the absolute best job, we can while simultaneously, creating one of the best places to work I also deeply appreciate the analog.

David Steinberg: And I very quickly said, I look forward to doing that in the next five to 10 years. But the reality is, we have an incredible team. We have incredible people who really work their butts off to deliver for our clients, keep us on the cutting edge of innovation, and focus on doing the absolute best job we can while simultaneously creating one of the best places to work. I also deeply appreciate the analysts who follow us. I know there's a lot of time and a lot of companies you can follow.

Two follow ups I know theres, a lot of time and a lot of companies you can follow I deeply appreciate our shareholders, who have stuck with us and believed in us and our goal is to make you look really smart over the next year or two as we continue to execute as I like to say internally. This was our 10th consecutive quarter of beating and raising.

I look forward to next December when I can say our next February.

February whenever when I can say this is our 14th consecutive quarter of beating and raising.

David Steinberg: I deeply appreciate our shareholders who have stuck with us and believed in us, and our goal is to make you look really smart over the next year or two as we continue to execute. As I like to say internally, this was our 10th consecutive quarter of beating and raising. I look forward to next December when I can say, or next, you know, February, whenever, when I can say, this is our 14th consecutive quarter of beating and raising.

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I want to thank our customers, who have really bank their relationship with their end users and their enterprises.

On the <unk> people and the Zeta platform. Thank you very much and I hope everybody has a wonderful day.

Thank you. This does conclude our conference. Thank you for your participation you may now disconnect.

David Steinberg: I want to thank our customers who have really banked their relationship with their end users and their enterprises on the Zeta people and the Zeta platform. Thank you very much and I hope everybody has a wonderful day. Bye. Thank you. This does conclude our conference. Thank you for your participation, https://otter.ai Hldg Hldg Hldg Hldg Hldg Hldg Hldg Hldg Hldg, Hldg Hldg Hldg Hldg Hldg Hldg Hldg Hldg Hldg Hldg https://www.youtube.com.au Hldg, Zeta Glo Hldg www.mytrendyphone.co.uk https://www.youtube.com

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