Q3 2024 Zeta Global Holdings Corp Earnings Call
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Greetings and welcome to the VEDA 3Q24 earnings conference call.
At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation.
Speaker Change: please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Madison Saras, Investor Relations. Thank you, Madison. You may begin.
Speaker Change: Thank you, Operator. Hello, everyone, and thank you for joining us for Zeta's third quarter 2024 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.
Speaker Change: Joining me on the call today are David Steinberg, Zeta's co-founder, chairman, and chief executive officer, and Chris Greiner, Zeta's chief financial officer.
Speaker Change: Business Plans and Objectives, and other future events and developments, including statements about the market potential of our products, potential competition, revenues of our products, and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
Speaker Change: 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.
Speaker Change: In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to, and not as a substitute for, our GAAP results. We use these non-GAAP measures in managing our business and believe they provide useful information for our investors.
Speaker Change: Reconciliations of the non-GAP measures to the corresponding GAP measures, where appropriate, can be found in the earnings presentation available on our website, as well as our earnings release and other filings with the SEC.
Speaker Change: With that, I will now turn the call over to David.
David Steinberg: Thank you, Madison. Good afternoon, everyone, and thank you for joining us today.
David Steinberg: The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customers' success has resulted in record-setting third-quarter financial results above our previously raised guidance.
David Steinberg: In this quarter, we generated revenue of $268 million, up 42% year-over-year, with adjusted EBITDA of $54 million, up 59% year-over-year.
David Steinberg: This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year.
David Steinberg: Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth.
David Steinberg: Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50 excluding political candidate revenue.
David Steinberg: In addition to our financial achievements, we also strengthened our foundation. In Q3, we raised over $900 million in capital, including the Undrawn Loan Facility.
We had record in-person attendance for our annual ZetaLive event.
David Steinberg: We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer.
David Steinberg: And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.
David Steinberg: Our momentum can be directly linked to the acceleration of the AI revolution where marketing is at the forefront.
David Steinberg: This is creating unprecedented opportunity for disruptive technology like the Zeta Marketing Platform, which is winning in the marketplace and winning big.
David Steinberg: Here is a snapshot of three transformative seven- and eight-figure deals we closed in the third quarter.
First.
David Steinberg: For an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers.
David Steinberg: and to deliver better experiences at every touchpoint while lowering their total cost of ownership. This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do.
David Steinberg: Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest growing properties globally in a multi-year seven-figure deal.
David Steinberg: This organization had outgrown its previous vendors' capabilities and needed sharper identity resolution for a 360 degree customer view, deeper insights into purchase intent, and more sophisticated attribution.
David Steinberg: Among the enterprise-grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.
David Steinberg: Third, Zeta showcased the strength of its OneZeta model by securing an all-in-one platform agreement with a leading e-commerce company.
This agreement integrates acquisition,
David Steinberg: growth and retention into a single platform powered by proprietary data and AI.
Reducing complexity.
David Steinberg: boosting productivity and driving higher ROI, all core to Zeta's value proposition.
David Steinberg: Only Zeta can meet all of these needs in one platform.
David Steinberg: During the third quarter, Zeta deepened its relationship with its five agency Holdco customers to bring multiple new brands, including a global automotive brand, into our direct channels.
David Steinberg: Platform engagements like these are representative of customers utilizing the full breadth of Zeta's data, AI, and direct channels for activation.
David Steinberg: In addition to Key Wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta's newly released mobile and retail solutions,
and enhances Zeta's data cloud.
David Steinberg: Our increasing capabilities are being recognized by industry analysts in the marketplace.
David Steinberg: We were named a leader in marketing automation software by Forrester and a strong performer in the CDP wave also by Forrester.
David Steinberg: The only enterprise-grade platform to be cited at these levels for each category.
David Steinberg: We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets.
David Steinberg: First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people, to the AI-powered Zeta marketing platform.
David Steinberg: Second, the Zeta Marketing Platform will be integrated with the Yahoo Connect ID, which will allow Zeta to enhance the Yahoo DSP with Zeta's advanced audience targeting capabilities.
David Steinberg: As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients.
David Steinberg: The second announcement was our joint efforts with Snowflake. We unveiled a new solution, the VEDA media engine powered by Snowflake.
David Steinberg: enabling marketers to enrich, expand, and activate their first-party data and deliver richer personalization across all paid media.
David Steinberg: This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.
David Steinberg: The momentum we've had in 2024 was a catalyst for our most successful annual ZetaLive conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person.
David Steinberg: doubling attendance year over year. Most notably on display were Zeta's launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup.
with VEDA's new intelligent mobile solution.
David Steinberg: Marketers will be able to leverage AI to better activate and coordinate personalized, cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touchpoints.
resulting in better consumer interactions and better business outcomes.
David Steinberg: In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform.
David Steinberg: unleashing powerful first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version 3.
David Steinberg: This game-changing event further bolstered our business momentum, as already evidenced by record pipeline demand and commitments from customers.
A testament to Zeta's roadmap and strategic vision resonating.
David Steinberg: And we are succeeding in our evolution from zeta who, to why zeta, to ultimately must have zeta.
David Steinberg: In closing, I'm excited about what the Zeta team has achieved, and the opportunities ahead of us, and our ability to execute in the marketplace so consistently.
David Steinberg: As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now let me turn the call over to Chris to discuss our results in greater detail.
Chris.
Thank you, David, and good afternoon, everyone.
David Steinberg: The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter Continued into the third quarter with even some notable improvements
David Steinberg: Revenue growth accelerated to 42% and excluding the benefit from political candidates, once again topped 30% year-to-year. We set another scaled customer ARPU record with 33% year-over-year growth.
David Steinberg: Direct revenue is up 41% year-to-year, reflecting agency adoption of direct channels.
David Steinberg: On the back of this positive mixed shift, operating leverage flowed solidly to the bottom line, with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year-to-year. All told, it was our 13th consecutive beat-and-raise quarter.
David Steinberg: I'll focus today on three topics. I'll dive into the KPI's driving third quarter performance.
David Steinberg: I'll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies and sharing examples of the positive direct mix shift we're starting to see.
Finally...
David Steinberg: I'll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model.
Let's start with the drivers of the third quarter's results.
David Steinberg: Revenue of $268 million grew 42% year-over-year, or 31%, excluding $21 million of political candidate revenue.
David Steinberg: On both dimensions, our results exceeded recently updated guidance of at least $255 million or $245 million excluding political candidate revenue.
Strength was broad-based.
David Steinberg: On a year-to-date basis, net revenue retention is at the high end of our 110-115% model.
David Steinberg: We had another productive quarter of sales hiring. We're up to 155 quota carriers, a 20% increase from last year.
David Steinberg: Re-accelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to ZetaLive and multiple industry analyst reports naming Zeta as a leader.
David Steinberg: Total scaled customer count grew to 475, up 8% year-to-year, and 7 quarter-to-quarter, with scaled brand count up 25 versus 2Q.
David Steinberg: Superscaled customers of 144 was up 16% year-to-year and flat quarter-to-quarter with superscaled brand count up nine quarter-to-quarter and 29% year-to-year.
David Steinberg: Scaled customer ARPU of 557,000 was a standout, growing 33% year-to-year, which compares to the previous high watermark of 22% growth achieved last quarter.
David Steinberg: The forces continuing to drive strong ARPU growth are channel adoption, use case expansion, scaling with agencies, and political candidate contribution.
David Steinberg: From an industry perspective, 5 of our top 10 industries grew faster than 35% year-over-year, with insurance, technology and media, and consumer and retail leading the way.
David Steinberg: On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024, and on par with 3Q last year, reflecting positive mix shift from our agency customers.
David Steinberg: The improved mix resulted in lower GAP cost of revenue quarter-to-quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year-to-year.
David Steinberg: Our third quarter gap net loss was $17.4 million, which includes $47 million of stock-based compensation.
David Steinberg: Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been $31 million.
David Steinberg: Finally, cash from operating activities was $34 million, up 51% year-to-year, with free cash flow of $26 million, up 93%.
David Steinberg: This translated to a free cash flow to adjusted EBITDA ratio of 48%.
David Steinberg: It's worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry's longer payment cycles. Absent this, cash flow conversion would have been 67%.
David Steinberg: which is a good segue to the broader agency opportunity ahead of us.
David Steinberg: The same forces driving Zeta's growth with enterprises are propelling Zeta's growth with agencies.
David Steinberg: Those being a shift to addressable marketing. And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta.
second
David Steinberg: The emergence of first-party data as an enterprise or brand asset, this is the rise of customer data platforms as foundational to personalization. Only through Zetas Data Cloud and CDP can a brand see its existing customers and prospects in one platform.
and third, the replacement cycle.
David Steinberg: Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions.
David Steinberg: This is creating significant opportunity for Zeta with large agency hold codes and a newer segment of independent agencies.
David Steinberg: I'll start with the five largest holdcos. Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios.
David Steinberg: And this only considers the volume of brands as an opportunity set.
David Steinberg: On the value, or wallet share side of the equation, the total spend Zeta is capturing with the five large agency hold codes today barely registers with the tens of billions each hold code deploys in digital media, the bulk of which is addressable by the Zeta Marketing Platform.
David Steinberg: Last year, we began prospecting a new segment of independent agencies.
David Steinberg: Scott Schmitz, David Steinberg, Scott Schmitz, David Steinberg, Scott Schmitz, David Steinberg,
David Steinberg: We're growing our footprint within the agency ecosystem and shifting mix to direct channels. Here's a few examples just from the third quarter alone.
David Steinberg: In first quarter, a large agency Holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.
David Steinberg: In the third quarter, we upsold two additional direct channels, increasing direct mix from 0 to 30 percent, while growing revenue by 6x to a super-scale brand in just nine months.
David Steinberg: In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started Omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scaled brand.
David Steinberg: And lastly, Zeta was awarded a national pizza chain in the middle of 2023.
David Steinberg: For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%.
David Steinberg: The punchlines are straightforward. First, the same structural forces driving demand from enterprises are also influencing agencies to expand with data.
David Steinberg: Second, we're very, very early in penetrating this opportunity, both in terms of brand count and wallet share.
David Steinberg: And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels.
David Steinberg: I'll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.
David Steinberg: Starting with 2024, we're raising 4Q and full-year revenue, adjusted EBITDA, and free cash flow guidance.
David Steinberg: Details can be found on slide 16 in our Earnings Supplemental.
David Steinberg: For the full year 2024, we're increasing the midpoint of our revenue guidance issued on July 31st.
David Steinberg: by 61 million to 986 million, representing 35% growth year-over-year. We've outlined our increased guidance into three steps, given the moving parts associated with live intent,
David Steinberg: Political Candidate Revenue, and our Equity Raise. You can refer to slides 18 and 19 in our Earnings Supplemental for ease of tracking. Step 1 is Live Intent. $14 million of the $61 million raise is related to approximately 2 months of 4th quarter stub period revenue.
David Steinberg: Step 2 is political. $26 million of the $61 million raise is related to higher political candidate revenue. Our prior full year guidance of $15 million included $1.5 million in 2Q, $5 million in 3Q, and $8 million in 4Q.
David Steinberg: Our updated full year guidance now has a total of $41 million, with $1.5 million in 2Q, $21 million in 3Q, and $18 million in 4Q.
David Steinberg: Step 3 is the rest of Zeta. The remaining $21 million of the $61 million raise is related to flowing through Zeta's third quarter overachievement of $13 million versus our original guidance of $239 million.
plus our $8 million raise to fourth quarter guidance.
David Steinberg: You'll recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September.
David Steinberg: From a full-year growth rate perspective, excluding the contribution from live intent and removing the benefit from political candidate spending, we expect revenue to be up 28 percent, better than our prior full-year guide of 25 percent.
David Steinberg: The increase in fourth quarter revenue guidance of $32 million to $295 million at the midpoint is driven by $14 million from live intent, $10 million in additional political candidate revenue, and $8 million from the rest of data.
David Steinberg: Fourth quarter, year-over-year revenue growth excluding live intent and removing the benefit from political candidate revenue is expected to be 25 percent.
David Steinberg: In terms of full-year 2024 adjusted EBITDA, we're raising the midpoint of 2024 guidance.
David Steinberg: In a similar vein as revenue, half of the raise stems from flowing through 3rd quarter upside versus our original guidance, while the other half is in connection with our 4th quarter raise.
David Steinberg: We're increasing the midpoint of fourth quarter adjusted EBITDA by $6.5 million to $65.9 million or 22.3% margin, up 105 basis points year-over-year.
David Steinberg: We're also raising the midpoint of full year 2024 free cash flow guidance to $90 million from $85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023.
David Steinberg: Two items worth noting on this point. First, in connection with the third quarter's equity raise and acquisition of live intent, we incurred $6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter.
Savings being realized in higher free cash flow in 2025.
David Steinberg: And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low.
David Steinberg: Before we take your questions, I'll close by previewing our thoughts on 2025 and our next long-term model. We'll provide full details on each during the fourth quarter conference call in February.
David Steinberg: As we sit here today, we're very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates.
David Steinberg: As it relates to consensus revenue growth of 17%, this excludes the contribution from live intent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue.
David Steinberg: So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22 percent next year. Once again, we're very comfortable at these levels.
David Steinberg: Second, we're looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February.
David Steinberg: Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geographies.
in addition to conveying drivers of continued operating leverage.
David Steinberg: Now let me hand the call back over to the operator for David and me to take your questions. Operator?
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for questions.
Speaker Change: Thank you. Our first question comes from line of DJ Hines with Canon Core Dignity. Please proceed.
DJ Hines: Hey guys. Thanks for all the color on the guidance. We appreciate you breaking all that stuff out and obviously the agency color as well. Super helpful.
David, I want to ask...
DJ Hines: about a completely separate topic, which is publisher cloud, right? It's newer to the business. Just can you talk a little bit about your vision there? How to think about sizing the potential for that opportunity? I just don't have a good feel for how material that effort might be.
Speaker Change: Well, thank you DJ what I'd start by saying we see the publisher cloud as sort of our next
really meaningful growth opportunity we've got.
Speaker Change: Obviously, CTV, which is growing very, very rapidly at scale, and then we've added mobile, which we're very excited about. Mobile we expect to scale very, very quickly over the next few years.
As you think about the Publisher Cloud today,
to an individual that's visiting their portal.
Speaker Change: because you've got a third-party SSP, the third-party SSP has to connect to a third-party DSP, and the third-party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.
Speaker Change: Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds.
Speaker Change: We believe by putting our SSP fully integrated into the DSP fully integrated into the data cloud
Speaker Change: fully integrated into the publisher will allow us to massively drive up the yield.
Speaker Change: of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So I think it's a big opportunity on platform with high gross margin that will scale quickly in the years to come.
Speaker Change: Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer R approved growth?
If we were to exclude the political candidate revenue
Speaker Change: if we're excluding the agency customers or maybe looking at them at like a brand level. I mean, obviously the agencies skew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.
Speaker Change: It does make sense, D.J. Thanks for the question. If you take...
Speaker Change: use case adoption and agency customer mix. It's actually very similar to what we saw in the second quarter where about a third of the growth is attributable to each one of those drivers. So over 30% of our total skilled customers are now still using over three or more channels.
Speaker Change: Youth case growth was, again, consistent across the acquired, grow, and retain level. And, as we mentioned and highlighted, brand adoption within the agencies continues to scale rapidly, even at that super-scale level. So, brands that meet that greater than a million plus threshold, that was up 29% year-over-year.
Yeah, okay, got it. That's helpful. Thank you guys. Congrats.
Thanks, CJ. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Arjun Bhatia with William Blair. Please proceed.
Arjun Bhatia: perfect thank you guys and congrats on a very strong quarter here maybe if I can start with
The agencies, again, it sounded like the makeshift
Arjun Bhatia: in terms of the channels agencies are using is starting to move a little bit more towards direct, which certainly is a big benefit. Can you just talk a little bit about which channels on the digital side that you're seeing?
Arjun Bhatia: early adoption from and, you know, where kind of we are in that overall journey of
Speaker Change: agencies moving more and more of their spend onto the Zeta platform. And then for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.
Speaker Change: the migration of our agency clients from integrated platform to direct.
Speaker Change: what I would say is the three biggest wins we're seeing right now are connected television
Speaker Change: online video and mobile. We're seeing the mobile adoption rate happen perhaps a little bit faster than we originally expected, but...
Speaker Change: It's been exciting because not only have we been migrating some of the existing customers over, but as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks.
We're seeing them start.
on DIRECT.
Speaker Change: And I think that's a trend that will continue. If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I'll remind you, the first year they worked with us, they were approximately 93% integrated and 7%
Speaker Change: direct. In their third year, that was over 50-50 for direct versus indirect. So we don't need to move.
Speaker Change: from 10% to 90% to continue to move the mean up.
Speaker Change: which continues to move on platform versus integrated which continues to drive gross margins, which I'll let Chris talk about. Yeah, so I think starting, Arjun, with the 41% direct revenue mix, if you were to break down which channels drove that and then why we saw a benefit of mix.
Speaker Change: You had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of 150% year-to-year. And by the way, that still has social growing over 50.
Speaker Change: So, when you have that type of positive mix shift, like we saw quarter over quarter, we effectively moved the gross, you know, the implied gross margin of the business up around 100 bps.
Speaker Change: which should begin to, you know, chip away. It's not going to be moving 200 to 300 basis points at a time, quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.
Speaker Change: wonderful that's that's great to hear thank you for that and Chris if I can follow up on one for you I saw the guidance
Speaker Change: for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect and
Speaker Change: in political on the fourth quarter. And, you know, is that just, is that conservatism or is there kind of anything else that we should be aware of given how the last few election cycles have played out for political revenue? Thank you.
Speaker Change: Yes, thanks, Arjun. Look, I think it's nothing really more than you've got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week.
Speaker Change: in the fourth quarter. I do think that there's upside to the 18. I don't think it's going to be as significant as what we saw when we updated the third quarter, but I do think we've left some room as there's still some political and advocacy spending trickling in.
All right. I understand. Thank you. Congrats again, guys.
Thank you.
Excuse my hair.
Speaker Change: Thank you. Our next question comes from the line of Richard Baldry with Roth. Please proceed.
Speaker Change: And then maybe if that is a backdrop, your cash stepped up, you know, significantly even once you pay the cash component of live intent. So how's your appetite, you know, looking forward for acquisitions or how does that play into your back, you know, history of doing sort of buybacks on an ongoing basis? Thanks.
Speaker Change: Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins.
and we're seeing a number of them really flow through.
Speaker Change: and quite frankly we're also seeing in addition to cost savings we have executed already.
Speaker Change: a number of cross-selling relationships between the organizations. So we're very excited about that and we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So really puts a belt and suspenders and suspenders on the data cloud by adding all of those signals and all of that data.
What was the second question?
Thank you.
Speaker Change: Oh yeah, we were even surprised. We were generating meaningful free cash flow as a company yes we will be up even after paying the cash portion of live intent and we will continue to look for
Speaker Change: very opportunistic acquisitions with great teams, great technology, great data where we believe that we can implement our four main pillars of M&A. We're going to stay disciplined to that, but what I would tell you in the current environment...
Speaker Change: I believe we'll be able to continue to add great companies to Zeta in the coming months and quarters.
Thanks and congrats on a great quarter.
Thank you, Rich.
Speaker Change: Thank you. Our next question comes from the line of Ryan McDonald with Needham. Please proceed.
Speaker Change: Hi, thanks for taking my questions and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about, obviously going after about a thousand of these opportunities and have expanded the sales force. Can you just talk about, one, have you won any of these independent agencies thus far? And if so, what do the size potentially or revenue mix of those customers look like when you initially land them?
Speaker Change: And then just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or, you know, maybe the top five agency hold costs. Thanks.
Speaker Change: agency space and have more than one customer generating meaningful revenue.
Thank you.
Speaker Change: The beauty of these relationships is they are all, for the most part, I would say the vast majority, are on platform. It's a platformization of the ZMP to the independent agency that allows them to be hands-on keyboard for their customers.
Speaker Change: So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it's sort of in the middle. If we can generally close a
Speaker Change: enterprise client in a faster period of time than a very large agency, HopeCo. These are sort of in the middle, but I would tell you in particular coming out of ZetaLive
The pipeline for these independent agencies is up.
multiples
Speaker Change: and I expect we will have very good news on more than one of these to grow that this quarter.
Speaker Change: Super helpful. You know, maybe just then on a second question on the live intent business as you start to get that integrated and go to market there, is there any difference in sort of the how this the go-to-market motion or the seasonality of that business?
Speaker Change: As we move forward and then any differences on the on the margin profile relative to core data. Thanks
Speaker Change: from the advertiser, and you then take a percentage of that net from the publisher. So it's a very high gross margin business, all of which is on platform. So I think that...
Speaker Change: That should be additive as we're able to really scale that business in the years to come.
Speaker Change: As it relates to its cycle, you know, it'll have a slightly higher Q4 only because ad dollars tend to come in at a slightly higher growth rate in the fourth quarter just across the ecosystem.
Speaker Change: But I expect it to continue to be a very solid, very steady
channel for us.
Speaker Change: The ability to cross-sell here is very unique, and I will tell you we've already executed a number of contracts to cross-sell and are generating revenue from their customers in. So it's an exciting deal for us.
Speaker Change: Ryan, they also have a consistent, go-to-market sales model like Zeta does, meaning a hunter-farmer, so it really kind of folds in very nicely.
Excellent, thanks for the cover.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Terry Tillman with Terra Securities. Please proceed.
Speaker Change: I'll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered, but one of the statistics that I think, David, you had discussed was 60% plus RFP or...
Speaker Change: RFT pipeline growth, I hope I got that right, but from 90 days ago, that seems pretty dramatic. I'm curious if you could kind of
Speaker Change: Double click on that in terms of, is this the replacement cycle that's accelerating or was it some of the sales reps that Chris was talking about that you added and they're just having an effect and becoming productive? Maybe the timing of ZetaLive. I just love to unpack that a little bit more because it sounds like that was a standout and then I had a follow up for Chris.
Speaker Change: Well, thank you, Terry. Actually, Chris said it, but I'll take the question.
Speaker Change: Yes, the pipeline is up 60%. We're very excited. It's probably the biggest pipeline increase we've ever seen, and we're already at scale. I think it was a combination of all of the above, right? What is the goal? The goal for Zeta is to go from Zeta who?
Speaker Change: to why Zeta to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books to business that help us evolve with that process.
Zeta Live was a 100% grand slam this year.
Speaker Change: even I was happy with our performance. And I joke, I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Data Live this year. That was a big part of it. In fact,
We've already executed
Speaker Change: a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So really excited about that and of course we're continuing to evolve the brand with Forrester and IDC and others rating us
Speaker Change: a leader or one of the leaders in categories across the board, that drives incremental pipeline.
Speaker Change: That's great to hear and I guess, yeah, sorry for my confusion earlier. I guess it's been a long earnings season. Oh, I was just making, I was just mentioning it.
Speaker Change: On the sales reps, one of the questions I think people are going to ask you all, it seems like you're at an inflection point here, what about maybe stepping on the gas more in hiring? And I know you're looking for the best of the best, but I think Chris had said about 150 or 155 reps.
Speaker Change: and I like up 20 or up 25 percent. I'm just curious how you're thinking about as you go into the new year kind of steady growth potentially if you can find it pick up the pace of growth and this long-winded question I'll end it with does that include the 25 to 30 folks from live intent? Thank you.
Speaker Change: Hey, Terry. No, it does not. That's still core Zeta. We'll add probably around 25 to 30 live intent reps when we reproduce the results next quarter and we blend the two businesses together. Look, it continues to be, as you said, really measured by quality over quantity.
Speaker Change: We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That's a first that we've had that type of
balance of that growth rate.
Speaker Change: And we do try to hire on an industry vertical expertise. We still try to maintain the right ratio of hunters versus farmers.
Speaker Change: The hiring approvals are in full form. I mean, there is no holding back in that area with our sales leaders, but it is very much a focus on quality over quantity. And Terry, those 25 live intent salespeople are going to be selling core Zeta.
Speaker Change: So, this is going to be a meaningful step up in salespeople right there, and as Chris said, we will hire every good salesperson we can get our hands on. Thanks, Terry.
That's a great caller, thanks.
Speaker Change: Thank you. Our next question comes from the line of Jackson Adder with KeyBank. Please proceed.
Jackson Adder: Thanks for taking our questions guys, good evening. Can we actually follow up really quickly, David, on what you just said about the live intent sales reps. Would the expectation be, or I guess, has it been
Jackson Adder: Your experience that when you make an acquisition, bring on some salespeople, do they ramp up
Jackson Adder: as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data?
Thank you.
Speaker Change: So, the answer is it depends on the business, it depends on the product line they're used to selling. In this case, Jackson, there are tremendous...
[inaudible]
Jackson Adder: similarities between the products they're selling and many of the products we sell at Zeta. So their products
Jackson Adder: that are on platform, high gross margin, that I would expect them to hit the ground really running. And then there'll be products that it might take them a little longer to scale up on. But we're very excited and very bullish on this group of salespeople because there's so many similarities between their current products and what we sell.
Speaker Change: Okay, all right great got it and then a quick follow-up on
on the agencies, I guess.
I totally understand the leverage and the benefit
You know, what kind of
multiplier effect.
Speaker Change: do the independent agencies have and is there like does that multiplier effect in terms of brands that you can attack per agency does that dwindle as you go out to the to the long tail of like the thousand that you're trying to target thank you
Speaker Change: The New York Times, the New York Times, and the New York Times.
Speaker Change: Yeah, I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically, but...
Speaker Change: What I would tell you is there are hundreds of independent agencies.
Speaker Change: that represent billions of dollars in spend per year each. This is a meaningful opportunity and we would expect each one of these independent agencies to be on platform and we expect each one of them to be a super scaled customer at launch.
Okay, all right, great. Thank you.
The
Thanks, Jackson.
Speaker Change: Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.
Speaker Change: Alright, thank you guys for taking my question and I'll add my congratulations on the quarter. In a rural 60 quarter, it feels weird to be asking about a potential headwind, but across a lot of the advertising ecosystem, we've heard about kind of this political crowding effect for non-political spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the wholecos or your non-political spend from the ramp up of political?
If there is, we are not seeing it, Matt.
All right, thank you
Speaker Change: and then second was just on the data cloud and really kind of that 360 view of the customer that you talked about specifically with live intent. Can you talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view kind of one plus one equals three dynamic?
Speaker Change: Yes, so one of the great things about LiveIntent is the number of email, hashed emails they see every month. You're talking over 240 million deterministic individuals that they're seeing across the entire internet.
we're able to see that across
Speaker Change: signal to the data cloud. What I would also say is I do expect us to increase
Speaker Change: the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million.
Speaker Change: might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said too, it also puts a belt and suspenders and suspenders on the data cloud.
Speaker Change: It's another massive importation of opted-in, first-party data, in addition to the other data sets we're already ingesting. In some cases, it's duplicative, but it's nice to know you have a belt and suspenders on that.
Thank you.
Thanks, Pat.
Speaker Change: Thank you. Our next question comes from the line of Jason Crayer with Craig Hallam. Please proceed.
Jason Crayer: Great, thank you guys and congrats again. Great quarter. Just the success you saw in political this season, I'm wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time?
Speaker Change: You know, there's always a halo effect, Jason. First of all, thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government, and they join other PACs, and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them. So there is a nice halo effect that comes out of that component of the business.
Speaker Change: Okay, and then maybe I'll just follow up for Chris. Appreciate the color, you know, on agencies and how that has impacted that EBITDA free cashflow conversion. Do you think we're primarily, like, do you think that's trough by now? Do you think we're through, you know, kind of the majority of the headwind there? Because it sounds like you've penetrated the big five agencies reasonably well. And as you go after that mid-market or independent agencies, probably less of that free cashflow conversion or less of that gets trapped in that conversion there.
You know, Jason, it was a 20-point...
Speaker Change: It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67% if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is...
Speaker Change: still in its very, very early days, and then when you add on top of it the new opportunity we see with an even bigger, by count, independent agency marketplace.
Speaker Change: I still expect us to have those headwinds, again based purely on our growth rates and the industry's payment cycles.
Speaker Change: We have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So it's just pure timing of when we get paid.
All right, got it. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.
Elizabeth Porter: Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction, and I believe LiveIntent also has a mobile product, so I'd just love to better understand the capability of Zeta's mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.
Speaker Change: Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple...
enterprise clients and agency clients already on it.
Speaker Change: to target deterministic individuals wherever they are. That's a big differentiator from others who are not able to see the deterministic level inside of that mobile environment.
Speaker Change: LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on millions and millions of people. So the ability to put their capabilities together with our best-of-breed AI intelligent mobile product
Speaker Change: is scaling faster than expected, I think it'll be our next meaningful product line up after connected television.
Speaker Change: And just as a follow-up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than $10 million collectively between political and advocacy.
Speaker Change: So is there an update that you could provide for Q3? And then looking ahead, the color on the halo effect was super helpful. And I just wanted to know if there's any cyclicality to keep in mind for the advocacy group as we think about next year.
Speaker Change: were up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue was advocacy.
Speaker Change: In fact, advocacy on a third-quarter basis versus the 2022 cycle is only up 3%.
Speaker Change: I think advocacy, not only will it be a good contributor this year, but we're building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem.
Speaker Change: But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.
The End
Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Koji Ikura with Bank of America. Please proceed.
Speaker Change: Yeah, thanks for taking the question, guys. Two for me, and the first one, it's about the 2025 commentary, Chris. You know, I totally understand this year is going to be great from a growth perspective. Exit rate 40%, you know, but then excluding political and inorganic contributions more like 25, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus,
Speaker Change: But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it's, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you're thinking about the business in 2025 where organic growth wouldn't reach the similar type of performance that we've been seeing here?
Speaker Change: Coach, I think what you're hearing from us directly is just Zeta wanting to continue to be conservative.
Speaker Change: A significant amount of detail on the February call, which we'll do again, talk about not only the updated model for next year, but what's included in the new long-term model.
Speaker Change: You know, we continue to see ourselves as being a 20% plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue. But we believe we have a great sales pipeline, we're building the sales force, many new products to bring to the market.
which, again, 2025 is about setting a, you know...
Speaker Change: understanding of what we're comfortable with but continuing to be conservative and we plan to update that in February. And remember Koji, we came into this year below 20% and here we are, right? So we're not suggesting
Speaker Change: We're going to continue to do it in that way. But there's nothing we're seeing in the business that's problematic.
Speaker Change: We're just trying to level set expectations at the same time.
Speaker Change: A lot of people have said, oh, are they going to hit next year? So we want to make it clear, we see next year.
as a starting point.
and we have beat and raised.
Speaker Change: 13 quarters in a row. Our goal is to be sitting here a year from now and saying it's 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.
Speaker Change: Yep, totally get it and just one follow-up here on live intent, you know when I look at the acquisition deck it did mention
Speaker Change: pro forma revenue of around $76 million for this 2024. Any sort of update into the growth rates or growth rates you're seeing there post-close and any sort of purchasing, accounting assumptions that we should be thinking about with this acquisition. Thanks guys.
Speaker Change: Hey, Koji. Just in terms of growth rates, what we said back when we acquired is a similar growth rate as data has historically had, so call it right around, you know, 20% a bit over that.
Speaker Change: and we're still in that kind of integration phase. We're excited about the synergies we're seeing. We'll give very specific guidance on the February call on what we're presuming for that business, but it's got a very healthy growth rate out of the gate.
Thank you.
Thanks, Koji.
Speaker Change: Thank you. Our next question comes from the line of Zach Cummings with B. Reilly Securities. Please proceed.
Speaker Change: Hi, good afternoon David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of Gen-AI agents that you rolled out at ZetaLive. I mean, can you give us a sense of the interest you've been seeing from both agencies and enterprise clients and any sort of update on adoption trends as you think about expanding out that lineup?
David Steinberg: Yeah, so when we rolled out, I don't know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was the smaller stage.
David Steinberg: It was opposite like a rock star panel on the main stage, and the innovation stage was standing remotely. We couldn't get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agents. So what I would tell you is...
The adoption rate of our AI agents is...
David Steinberg: bigger than anything I've seen us do as a company yet.
David Steinberg: Clients are in the studio, they are building their own agents, they are using the collective agents that are available there. I think it's one of the reasons you heard Chris say that we are now at the top of our 110 to 115
David Steinberg: net retention rate as a company and could conceivably continue to go higher. We're seeing clients use these agents at an unparalleled pace, both agencies and enterprises.
Speaker Change: Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel. I know you had plans of building out a practice on that side, so I'm just curious of how you're thinking about that as a lever for growth moving forward.
Speaker Change: Yeah, I mean, interestingly enough, we've already got two up and running. So we're just trying to make sure that we really crack the code before we start really talking about it again.
Speaker Change: It was always meant to be a growth channel, and we've been pretty clear it's not even in the numbers for 2025.
But, at the same time,
It's working.
Speaker Change: So, it's interesting to see the adoption rate, you know, it's something that, it's a very long sales cycle to get these guys up. So, we're happy to have two, our goal is to, you know, get two or three more in the coming quarters and that's when I think it'll become a meaningful driver to the business.
Speaker Change: Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter.
Thanks, Zach.
Speaker Change: Thank you. Our next question comes from the line of Clark Wright with DA Davidson. Please proceed.
Clark Wright: Awesome. Thank you. Can you talk about the live intent deal and how this will impact some of the KPIs like the scaled customer account? And then additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super scaled can be applied to the customers who started with live intent and adopted other data offerings?
Speaker Change: Hey Clark, we'll give the live intent figures, you know, obviously, you know, having acquired it post the end of third quarter, we'll do all the inclusion of their metrics at the end of this year, so in the February call.
But broadly speaking from an ARPU perspective, their combined ARPU
as a company.
Speaker Change: Their million plus customers are closer to like a million and a half compared to ours. It's almost five million So we've got some early reads into it, but we'll give the rest of the details in February But it will obviously result in a substantial number of incremental scaled customers
Speaker Change: Yeah, and I do want to point out, Clark, I think this is important to note. We did close that deal in Q4. So none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.
Speaker Change: Got it. Thank you. All my other questions have been answered.
Thanks, Clark. We'll talk to you later.
Speaker Change: Thank you. Our next question comes from the line of Brian Swartz with Oppenheimer. Please proceed.
Speaker Change: Yeah, hi. Thanks for taking my question. I'll just ask one for the sake of time. David, I wanted to ask you where the spending is coming for these new...
your new agent studio.
Speaker Change: product that you released. I know you talked to a lot of C-level executives, so as we think about the spending for these type of products and these agent products next year, is it coming out of IT budgets or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one.
Speaker Change: You know, what is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new Asian products?
Speaker Change: Thank you, Brian. So what I would say is like any new product, you're seeing it come out of multiple buckets, right? It's coming out of the IT budget. It's coming out of the software budget. In some of it, it's coming out of the marketing budget. But truthfully, I do believe going into next year,
Speaker Change: stand-alone AI budgets around innovation, and we believe, with our proprietary data, because as we've said multiple times,
Speaker Change: AI is only as good as the data you feed into it. So when you put the CDP in place, you take their data, all of our data.
Speaker Change: That's where the magic happens. You've got all of their first-party proprietary data, all of our first-party proprietary data.
Speaker Change: and you begin to look at how the algorithms get smarter and smarter. The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings.
to the enterprise.
Speaker Change: So we're able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs.
Speaker Change: to put it in perspective, and in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us.
Speaker Change: So it's a really, really good return on investment, and then from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents, are substantially stickier, they scale faster.
Thanks for that call, Art. Congratulations on the results.
Thank you, Brian. I really appreciate you.
Speaker Change: Thank you. Our last question comes in the line of Ryan McWilliams with Barclays. Please proceed.
Hey guys, thanks for the question.
Speaker Change: I'd love to hear just how the macro impacted Zeta in the quarter, and I know it's early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers' plans for holiday season messaging at this point for the fourth quarter?
Yeah, Ryan, so.
Speaker Change: Yes, where the certainty of the election with a winner without a long drawn-out process has led
Speaker Change: not just the markets to react positively, but we're also seeing advertisers unlock dollars that we might not have expected.
Got you.
Appreciate that. Anything on the holiday season at this point?
Speaker Change: You know, we put out our guidance, you know, we obviously feel good about it. We raised the year's guidance by $61 million, which is, you know, quite a bit against our current budget.
And, you know, listen, our goal is to be sitting.
Speaker Change: with you in February, talking about 2025 guidance, talking about our new 2028.
long-term plan.
Speaker Change: and announcing our 14th consecutive quarter of beating and raising guidance. So right now we're feeling very, very good about the business. We're firing on 10 of 12 cylinders.
Speaker Change: and we really feel like the engine is doing well and we're very bullish on Q4.
Speaker Change: We appreciate that. And just on the guidance for next year, have the top five agency wholesale customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?
Speaker Change: I don't know about the last part. I think we'll have to see about that. The agencies have scaled very nicely and we're very pleased, as I'm sure you heard in our prepared remarks.
Speaker Change: some of our new agency clients are migrating to direct, which showed a step up in our direct versus integrated platform revenue. I think that's a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years.
Speaker Change: We're seeing very bullish signs out of them, and we're working on the plan for next year. But there are minimum agreements already in most of our plans, and as I said, we're feeling very solid at having next year be, I forget if it's our fifth or sixth year in a row,
Speaker Change: six year in a row, thank you Chris, of 20 plus percent growth.
[inaudible]
organic. Thank you Ryan.
Speaker Change: Thank you. There are no further questions at this time. I would like to pass the call back over to David.
for closing comments.
David Steinberg: Thank you, operator. I will end on, I have never been more proud or more excited to be running this business.
David Steinberg: We are executing exceptionally well. We're working in lockstep with our clients.
David Steinberg: and our strategic partners, and I think that has been evidenced.
by the organic growth.
David Steinberg: in this business that we expect to continue for many years to come. So, thank you for attending the call, and we look forward to interacting with many of you again soon.
This concludes today's teleconference.
Speaker Change: You may disconnect your lines at this time. Thank you for your participation.