Thank you for standing by. This is the conference operator. Welcome to the Zeta Third Quarter 2022 Conference Call. As a reminder, all participants are in listen-only and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Scott Schmitz, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's third quarter 2022 conference call. Before we begin, I would like to mention that 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 products, potential competition, and revenues of our products and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to and not as a substitute for GAAP results. We use these non-GAAP measures in managing the business and believe they provide useful information for our investors. Reconciliation of the non-GAAP measures to corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website, as well as in the earnings release and our filings with the SEC. With that, I will now turn the call over to David.

Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. Our third quarter results were an incredible way to celebrate our 15-year anniversary. Our year-over-year revenue growth rate further accelerated to 32% or $152 million with adjusted EBITDA of $22.4 million, which was up 40% year-over-year. We generated $19.5 million in cash from operations up 92% year-over-year, with $9.4 million in free cash flow, up 152% year-over-year. On the back of this momentum, we are once again increasing our fourth quarter and full year 2022 revenue and adjusted EBITDA guidance, which Chris will discuss in further detail shortly. Zooming out, there is no question that the macro environment is creating more uncertainty and driving more scrutiny on how and where enterprises invest. The pressure for enterprises to improve their ability to acquire, grow, and retain customers at a lower cost is greater now more than ever. In the spirit of never wasting a crisis, CMOs are looking to emerge with a more efficient and effective solution with a better return on investment, which Zeta delivers. Marketing spend tied to measurable outcomes that delivers a strong verifiable return on investment has shifted from one of many objectives to the primary objective. That is why enterprises continue to invest in first-party data and customer data platforms or CDPs. That is why enterprises continue to invest in digital transformation. That is why enterprises continue to invest in more addressable and accountable methodologies that deliver greater precision and measurable value. In short, we believe the market is moving even closer to Zeta’s sweet spot, where our value proposition shines. And because we make sophisticated marketing simple and address the requirements for both revenue generation and cost savings. Our growth rate has continued to accelerate. The Zeta Marketing Platform or ZMP was…

Thank you, David, and good afternoon, everyone. Three themes highlight another very strong set of results, all of which we will dive into more detail. First, we extended our track record of beat and raise execution with accelerating revenue growth and increasing profitability and cash generation. Second, the third quarter's outperformance was broad-based across industries, channels and use cases as well as throughout our Zeta 2025 KPIs, serving as a powerful demonstration of our ability to execute through a tough macro backdrop, along with demonstrating our business model's balance and our value proposition's durability. And third, on the back of this momentum, we're raising fourth quarter and full year 2022 guidance for revenue and adjusted EBITDA, with momentum across the business our confidence is increasing. We can exceed our targets of at least $1 billion in revenue and at least 20% adjusted EBITDA margins by 2025. Now let's dive into the results. While our overall business grew 32% this quarter, this elevated 30% plus growth rate has been evident across multiple areas of our business for many quarters now. US revenue in the third quarter was up 36%, representing 96% of total Zeta revenue. And year-to-date, the US is up 32% year-to-year. Scaled customer revenue was up 34% year-to-year, now representing 98% of total data revenue. Year-to-date, scaled customer revenue is up 30% year-to-year. Direct platform revenue was up 33% year-on-year, representing 74% of Zeta revenue. And on a year-to-date basis, direct revenue was up 35% year-to-year at a mix of 78%. And once again, six out of our top 10 industries grew 25% or more. We also executed ahead of plan against our five beta 2025 KPIs. Scaled customer count grew from 373 in 2Q to 389 in 3Q and is up 42% compared to 3Q 2021 or up…

Thank you. We'll now begin the question-and-answer session. [Operator instructions] Our first question is from Ryan MacDonald with Needham. Please go ahead.

Hey, guys. This is Matt Shea on for Ryan MacDonald. Thank you for taking the question and congrats on a really nice quarter here. So first, I wanted to start with the 16 new scaled customers, some strong growth there. With the five up-sells, that seems to be tracking ahead of expectations. So just curious, what is driving these strong up-sells? And then, understanding is the up-sells are not included in the 2025 outlook, so given their kind of strong contributions, how is that changing your long-term vision?

Hey, Matt. Good to hear from you. A couple of data points. First, on the mix of the net new 16 added, five were actually new to data and 11 were existing customers, so just kind of on the highlights there. And I'll go through and hand it to David on how we make them bigger and how we bring them in kind of on the go-to-market motion. But just some stats for you that I think are important that speak to not just the record number of 16 that we added, but in our view, why it was such a quality number. So I think first, starting with the linearity across the quarter, we added six in the month of July. We added three in the month of August and seven in September. So really just a nice distribution across the quarter. The size was great, adding six new superscale over 1 million customers is really, really powerful for us. I think it's over 24% growth on that number year-over-year. In terms of the industry representation, industries that probably you and I would suggest -- be under pressure right now macro, 9 of the 16 came from consumer retail. Another three came from the technology and media, another two in advertising marketing and there were a couple of others sprinkled in terms of the other industries. So it was a really good quality result, David will speak to how we make them bigger.

Well, I also want to point out but I think that what Chris just pointed out is emblematic of what we're seeing in the marketplace, right? CMOs are under more pressure than ever to focus on the efficiency of their marketing dollars. They're being -- their CEOs are coming down every day and saying, how do we do more with our existing budget? And one of the reasons we were able to win so many of these clients was our sales motion starts with a pilot that starts with a $50,000 or $100,000 test where we're testing in the market where we take their data, we put it into a CDP, we match it to our data ecosystem, and we're able to really rearchitect the journey that every one of their existing high-quality customers followed before becoming one of their customers. And we're able to then go find others in the over 235 million Americans who are opted into our data cloud today, and we're able to take out of the marketing funnel all of the people who either would not be interested in their product, are not currently in market for their product or wouldn't be credit approved for their product in certain cases. By removing all of that excess, you're able to target on the people who are in market qualified for your products and launch your products. So you're able to be substantially more efficient and we're able to move through that sales motion of a $50,000 to $100,000 test, and we were able to move, as we said, 16 customers pretty quickly into scaled customers. And I think also, as Chris pointed out, I'm also really excited we were able to have a very large increase in our super scale customers. And we think that we can continue to move from pilots to scale to superscale as the efficiency of the platform, the data and the artificial intelligence gets smarter and smarter, we have case study after case study that the longer a platform -- an enterprise uses our platform, the more efficient the marketing gets, the better the return on investment for the enterprise client the more they spend on the Zeta marketing platform.

Matt, one thing I wanted to point out on your question around being incremental to the model. You're correct in that we modeled ARPU growth in data 2025 on channels and the addition of channels. So as you heard in the prepared remarks, we grew the average channels per scaled customer by 15%. We're now at $1.94 per and we added another 24% in terms of channel growth for superscale customers. They're now at an average of 2.6%. But to your point, what's incremental to the model is the expansion of use cases. And as I talked about in this quarter's call, we now have 39 of our 389 scaled customers is still a big, big opportunity for us that are now using more than one use case. That's up 36% year-over-year. That is the piece that you're correct is incremental to our ARPU, but the channels is built into it, just to be clarified.

Great. Thanks. Got it.

Next question, please.

Thanks, Matt.

The next question is from Jason Kreyer with Craig-Hallum. Please go ahead.

Thanks guys and congrats on just a phenomenal quarter. I wanted to ask about the six super scaled customers. Are there any metrics you can give on that, the timeframe to get to that super scaled level? And then any callouts just in terms of the use cases or the channels where you're seeing some acceleration that's getting to those -- that's helping customers get to that level more rapidly?

Yeah. So what I would say is it really does differ by customer, Jason, how quickly they scale. What we've said and what I'll continue to say is we're seeing faster growth from pilots to super scaled customers than we've ever seen before. And I think that is shown in the record scale client growth. I don't know if we can say that this was a super scaled client growth record, but I can't remember ever adding this many before. But the reality is that -- what's happening today is in the time of uncertainty, we are seeing clients grow faster than ever as they're consolidating from multiple vendors to a one-point solution, which quite frankly, I think we're the only company I know of that can be that true single point solution. And we're seeing them consolidate those spends onto our platform faster than they have in the past. The other thing we've said is we continue to be at record RFP requests. And I think a lot of that is also what's going on in the market. So listen, as Machiavelli one said, never waste a crisis, and we are investing heavily into our sales team, our sales motion, and we are making sure that we are getting the word out. I think Zeta Live, I want to reiterate again, not only did we have over 8,000 people attend either in-person or virtually, but we generated over 1,500 high-quality leads for the company to have our sales team go really get after. So we're really seeing a really exciting time right now at Zeta. Chris?

Yes. Jason, on the -- some color around the channel growth and use case growth, CTV continues to be a great standout. It's incredible. A year ago, it was in the low single digits percentage of usage on the platform. It's now gotten into double digits, which is great. Its growth was 250%. But back to the broad-based strength in the quarter, all of our channels grew very strong double digits. So it was a nice distributed performance even setting aside CTV's outstanding growth. In terms of use cases, all grew year-over-year, which is, I think another testament to the balance. The acquiring grow use cases are really firing. So that's -- that continues to be a good thing. That's just a bit more color to your question.

That's great. Thank you.

Thanks Jason.

The next question is from Elizabeth Porter with Morgan Stanley. Please go ahead.

Hi, great. Thank you so much. Just a question on Q4 guidance implies about 2018 to 2019 growth year-over-year compared to just over 30 that you did in Q3. So just wanted to figure out what conservatism have you baked in for macro? Just given that usually Q4 is a pretty strong quarter, and any assumptions that you're including into the outlook. Thank you.

Hi. Elizabeth. Always great to hear from you. I think that what we're focused on right now is executing. And we're seeing the business executing extremely well. At the same time, we're trying to make sure that we put out, as conservative guidance as we possibly can. We -- now I think Chris will correct me, if I'm wrong, but we beat and raised six quarters in a row as a public company. And we want to make sure that we continue to put ourselves in a position that we can do so. We're not seeing anything in the business today that is "Slowing Down". You would also look at the fact we're seeing sizable growth in the business. We had a pretty big fourth quarter last year. So we're putting ourselves in a position where we can continue to be successful, but we're not seeing a deceleration in the business.

Got it. And then, I just had a quick follow-up on the impressive kind of new customer adds. I know that the partnership with AWS and Snowflake has an opportunity to kind of introduce you to new customers. So is that starting to have a benefit, or is that still a separate opportunity that we should kind of look forward to in the future that hasn't yet shown up in results?

That's actually a great question, Elizabeth. The answer is that, we're seeing more deal flow from strategic partners than we've ever seen before. But quite frankly, it's not resulted in what you're seeing in the current results. I think it's going to continue to fuel the business going into next year. And will help us continue to grow the business at a sizable pace. What I would tell you is that, a number of clients that we have engaged have been because we're integrated into AWS and because we're integrated into Snowflake, they haven't come in through those channels, although, I would say that a big part of the record RFPs that we're seeing are now coming through those channels, if you know what I'm saying. So I think, they've been incredibly important partners from credibility and a technology perspective to-date, I think they will be incredibly important clients from a new scaled customer adds going into the foreseeable future. Chris, does that make sense?

Yeah. Yeah. Totally.

Thanks, Elizabeth.

Thank you.

The next question is from Arjun Bhatia with William Blair. Please go ahead.

Perfect. Thank you and congrats on another great quarter guys, I wanted to maybe just continue on the theme of the customer additions. I mean, it's not just customer additions, right? I think you're seeing pretty good ARPU growth. You're seeing large customers. You're seeing your super scaled customers, add to your cohorts. But when you just think about the business for 2023, we know we're entering a little bit more of an uncertain macro here. What does that do? What does this traction that you're seeing today with new customers do for your confidence in your 2023 growth plans? And then, what does it do, Chris, for visibility into your future revenue streams now that you have a more -- a larger and more established base of customers that you can sell into, if things do get tougher.

You're right. What we've said is that, our confidence is increasing that we can exceed the 2025 plan. And we think it's -- it's why it was so important for us to not just throw the GAAP on the revenue and where prop could be. But to give you and our investors the mile markers along the way of scaled customer count of ARPU of mix of net revenue retention, so that we have the same yard stick for the type of progress we're making. We'll talk about 2023 in February. But you should leave this call feeling like our confidence has only been increasing with the quarters that we're putting up. And you're right, in terms of the super scaled customers, they have a higher net revenue retention rate than those that are $100,000 to $1 million, which makes them very sticky, easier to predict and rely upon, but also there's a 10x difference in the ARPU for greater than $1 million customer versus $100,000 to $1 million. As David said, the faster and faster we're getting them to that $1 million-plus, you can almost see the moving as fast past that $1 million to the average of what is now over $4 million per. David?

Yes. And I -- without touching on 2023 because obviously, we've not given guidance on that, I think we'll do that in February, right? Right, Chris. But we believe that the times of uncertainty and the potential of a downturn is a net benefit to our firm. I don't want to insinuate we’re countercyclical. What I want to insinuate is that, as times get tougher, marketers inside of companies look for new methodologies to cut cost. We are the single most efficient marketing platform that I'm aware of in the marketplace. And when you think about that at scale, what we're seeing and what we've publicly said is we currently are dealing with record RFP requests. In fact, we're hiring people to try to respond to all of the RFPs that we're getting. And then you couple that with Zeta Live coming out with 8,000 people attending, 1,500 high-quality leads, which for us, of course, is a big chunk. And you look at where the business is executing, I would actually argue that, that as things get more turbulent, it's actually a net benefit to us, and we don't want to waste this crisis. We are continuing to add great salespeople. And I want to reiterate, again, we said we'd get to 120 to 130 by the end of the year. We said we're above 120 now. That's quality. We're still pruning the ones that are not exceptional. And we would have had a much higher number had we not pruned. What I would also tell you is that, as times get uncertain, we get better flow of potential salespeople and engineers. So as we're seeing the marketplace where we're beating other companies on RFPs, the salespeople who are working for those other companies are calling us and saying, we want to come over here. One of the metrics we didn't get into today, that Chris and you can't get into every metric on every call, is how incredibly fast our new salespeople are getting to their first transaction. I know it's faster than we've ever seen in the past. And a lot of that is the quality of people we're onboarding, the sales motion, our sales university. And in a downturn, I think we'll be able to accelerate hiring of great people, and I think we'll see more enterprises willing to take the risk on a pilot when we can come in and say, we can cut your cost to create, maintain and monetize customers by up to 50%.

Perfect. That's super helpful. And then, maybe just the last one for me. And David, you kind of touched on it a little bit there, but I was hoping to put a finer point on it is, when you think about investing, not just in the go-to-market motion, but also in developers and product, how are you approaching that at this time? Should we expect a balance between growth profitability? Are you leaning one way or another as the market evolves here? A – David Steinberg: I think one of the great things about our budgeting process and how flexible we are is we build a rollable budget, so we sort of look at the first quarter before we make all of our investment decisions for Q2 and Q2 for Q3. So we don't take any meaningful risk there. Although, before I throw it over to Chris to give better detail on that, I've been speaking, and I regularly speak to a lot of business leaders, and it's funny. I continue to hear from a lot of other business leaders. My business is executing incredibly well, I'm seeing my pipeline full. I'm seeing more requests than I've seen in the past, but I'm really nervous because of all of the noise out there and everybody talking about it. I think we'd be naïve, if we weren't at least thinking about how we would roll forward that investment, but we're prepared to make the investments we need to execute on the business that we're closing we can do it on a rolling basis, which I think gives us a lot of flexibility. Chris? A – Chris Greiner: Yes and Arjun, we'll do what we said we would do in the dated 2025 plan. So as David mentioned earlier, we'll continue to invest in sales and marketing. We've said it will grow on an absolute dollars basis as fast or slightly faster than revenue growth. And on R&D and G&A, like you saw this quarter, where the R&D ETR was better 120 basis points, and the G&A ETR was better 170, similar mix last quarter in 2Q, we'll get efficiencies. What the team has done exceptionally well as continue to utilize a global footprint for both R&D and G&A. So we can add people at a very compelling cost point. And we've done so, right? I think that's something we'll continue to focus on. A – David Steinberg: Thanks, Arjun Q – Arjun Bhatia: Very helpful. Thank you, guys. A – David Steinberg: Thank you

The next question is from Richard Baldry with ROTH Capital. Please go ahead. Q – Richard Baldry: Thanks. Can you talk a little bit about the competitive win rates? I'm sort of curious as the RFP percentage or growth in RFPs goes up so much. Are those more competitive, or are you seeing sort of the same people involved, or are they somehow less competitive because they're only targeting a limited number of vendors that they invite in? A – David Steinberg: That's a great question as usual, Rich. So I would expect the percentage of RFPs we close to actually lower as a percentage from a win rate perspective. Like you can't quadruple the number of RFPs and still win 50-plus percent of them, right? But what we're seeing is we continue to win a disproportionately high percentage of them, substantially higher than our market share. And yes, we -- as we get a bigger reputation, we're just naturally going to start to get some RFPs that the company literally just has to go out to RFP and doesn't want to change your existing vendor. And we used to not even bother to respond to those because we didn't have the bandwidth to respond to them. We're now responding because we want to show those companies, even if they're not seriously considering leaving our RFP response might be we can sit alongside of that. Because to remind you, as you know, one of the great things about our platform is we can wrap around an existing tech stack. So if another company is the CRM of record, we can become the customer acquisition platform. If another company is using a particular agency for their customer acquisition versus a software platform like ours and doing it internally, it's very easy…

One for Chris, it's good to see the buyback start up. You talked about using more on cash flow than drawing down the balance sheet. But you're still under half of which your free cash flow was in the quarter. So I'm sort of curious your thought process around how aggressive you expect to be on that, either finishing up the year on a go-forward basis overall? Thanks.

Yeah. You're right. We devoted $4.3 million towards the programs. What we said is that, we've kind of earmarked in our own minds, if you will, anywhere around 50%, maybe as high as 75%, but probably more likely 50% of the free cash flow we generated. So, we kind of right on plan for this quarter.

Yeah. Remember, $9.6 million, $9.4 million in free cash flow, $4.2 million in buyback we were slightly below that. But I think we'll continue to target around 50%.

Thanks, Rich.

Thanks.

The next question is from DJ Hynes with Canaccord Genuity. Please go ahead.

Hey, guys. Congrats on the results and nice to hear of the continued pipeline strength. I have two questions for Chris. So Chris, I'm often asked by investors about visibility into variable or usage-based revenue. Can you just quantify how much that accounts for, how you think about forecasting that part of the business? Any color on kind of the commitments that are made to you on that front? That would be helpful.

Yeah. I think the simplest way to think about it, and one of our customers said this at Zeta Live, which is the more data they run through our CDP, it results in the more they want to activate. And it's that activation that happens that's the point of ROI realization. And that's what compels them to continue to double down and spend more on that part of our revenue stream. So as long as we continue to tie our results to the ROI and they get it in a very fast time to value, that revenue becomes very easy to predict. It's frankly, if you – when working with my team on the planning side, it's one of the fastest models they're able to pull together, because there are so many customers, with so much predictable replenishment – and for many of our contracts, as we've said, are getting longer in duration, has only added to our ability to predict it, forecast it and rely on it as a solid revenue stream.

Yeah. Okay. That's helpful and good to hear. And then the follow-up would be, look, we have your data 2025 targets, right, $200 million plus in EBITDA. You're clearly tracking ahead of that for now. what do you think free cash flow conversion on that $200 million in EBITDA might look like? Have you put any thought to that?

It's -- we get the question a lot from the analyst community and investors. It's certainly something that we're considering updating as part of our 2023 and update on data 2025 in February. But I think the progression that you've seen from where we are today versus where we were a year ago, we've got 42% conversion year-to-date. That compares to 7% year-to-date last year. The way that we're running the business is, we're driving very profitable contracts, and we're having more and more of a drop to the free cash flow line. But I'd expect that to be something we comment on in more detail when we're in February.

Yes. It sounds like a plan. Well, congrats on the results. Thanks guys.

Thank you.

[Operator Instructions] The next question is from Ryan MacWilliams with Barclays. Please go ahead.

Thanks for taking question. Please see – three straight quarter of accelerating top line. Guys given your improving market opportunity, any additional interest in adding new features to acquisition? And maybe any areas in particular that might make sense there? Thanks.

Yes. So thank you, Ryan. I think -- listen, we we've been, I think, over the years, incredibly opportunistic as it relates to M&A. And we're going into a period of time where I think you could see some opportunities that are out there. We feel like we have developed internally the vast majority of the sort of features and functions we need in the platform. But as you know, we're always looking to add additional great people -- we're always looking to add additional data that is proprietary and differentiated in the marketplace. And we continue to believe that the future of marketing is going to be with CDPs and CTV and as we look out on to the landscape, we think there's some interesting potential opportunities, but I want to reiterate again and I want to be super clear about this. Zeta has never done a transformative acquisition, and we have none currently on the roadmap, right? We continue to focus on smaller businesses where we can pick up great people and great products and wrap them into our platform and now roll them out to our 1,000-plus global enterprise clients. And we'll continue to look at that. But we're always sort of on the lookout for deals and always looking to do interesting tuck-ins.

Appreciate the color there. And it's also nice to see that the scaled customers are using more than one use case that's up 36% year-over-year. Any use case in particular that's particularly resonating with these scale customers, maybe it's CDP or opportunity explorer, a little more color there? Thank you.

Yes. CTV and CDP, what David said is we see as our big, big future growth products, are the products being most added by superscale customers and scaled customers.

The other thing we debuted at Zeta live, which I am super excited about is our agile intelligence product, which it's really the evolution of the opportunity explorer, Ryan, what that does is not only does it put all of the data at the fingertips of the marketer, it puts all of the data at the fingertips of the business intelligence assets inside our enterprise clients. So, they're able to use that data to figure out everything from where should they put their next physical location to where should they be investing the next best marketing dollar. And as we evolve Internet -- I'm sorry, as we evolve our Explorer product to the Agile Intelligence product, I think it just is going to go to the next level. Now, I'm old that I talked about Internet Explorer instead of opportunity Explorer, but I hope you all know what I meant.

We got the picture. I appreciate the color there. Thanks so much, guys.

Thanks Ryan.

This concludes the question-and-answer session. I'd like to turn the conference back over to David Steinberg for any closing remarks.

We feel like we did an exceptional job this quarter. It really comes down to the people that we have at Zeta. We have some of the most amazing people I've ever had the honor of working with and you're seeing people's grip, you're seeing their focus, and you're seeing it first through a global pandemic, now you're seeing it through probably the first rising interest rate environment that the vast majority of them have ever experienced in their careers. Most of them are not, sort of, old like me, and you're seeing it in an environment where competition is as tough as ever. Our people continue to be what drives us to the next level; grit, hard work, and wanting to win is really the culture that we focus on here. And I'll tell you, I could not be more proud of this quarter, I could not be more proud of this team, and I could not be more proud to be the leader of Zeta Global. I hope everybody has a great day, week, and month. Take care. Bye.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.