Zeta Global Holdings Corp. (ZETA) Earnings Call Transcript & Summary

[ Here ] is David Steinberg, Co-Founder and CEO; and Chris Greiner, CFO. Guys, thanks for being here.

Great. Thanks so much. Wow, that's really aggressive. But it's great to be here, Ryan. Thanks for having us.

It's a later fireside, so we're trying to wake folks up, you know, I mean.

You better serve more coffee.

I can certainly use one. Look, I always dive too far into the details right away. So before I go there, let's take a step back. Would you mind just giving folks who may not know the story as well, just the background and how things been since IPO?

Yes. Well, a tale of 2 cities. The background of the company is that, we were founded 15 years ago, this year by my partner, John Sculley and I, on the focus of helping large enterprises to better manage their marketing. And today, our data cloud and our marketing cloud are probably the most efficient methodologies for marketing out there. You can look at studies, Forrester named us the #1 marketing automation company on the planet. You have other studies out there. But our real mission statement is to use our data and our software to help very large enterprises to create, maintain and monetize customers at a substantially lower cost than they can without our data and our software. And it's proved out again and again to have worked.

And I think when you went public, it was an interesting dynamic because you guys were profitable and people maybe asked, why is that? And now...

We had a lot of big feedback. I remember Chris and I sitting there, and we were getting, people were really beating us up for being too profitable. And this is my sixth company. I've sold 4, taken one public and now run this one that I've obviously also taken public -- really, Chris took it public. I just happened to be a [ long term ] ride. But the reality is that, I always say that as a CEO, you sleep really well at night when you're very profitable with high free cash flow, which we have as a business, which I think that when we were first going public about 18 months ago now, everybody was saying, "Oh, my God, you need to grow faster, grow faster. You're not growing fast. You're too profit, spend all that buddy." And now, I think 18 months into it, people are starting to understand that we look at growth and profit and -- combined and we think a very measured way. If you look at last quarter, we were well above the rule of 40, if you look at both. It's something we look at as a business. And -- but unlike a lot of companies that are at the rule of 40, we're not growing 40% and losing money, right? It's sort of last quarter, we had a particularly good growth quarter and that we grew 32% top line and had just under a 15% operating margin. But if you think about the business itself, we had our highest growth rate in many years last quarter. And I think a lot of that goes back to the efficiency of marketing, right? When you're out there in an environment like this and you're talking about, listen, use our software to save money, we can help you cut your marketing cost by 50% by using our data and our software, that's really resonating in a market where, as Chris likes to say, right, there's -- in an upmarket where everybody is winning, companies are less likely to leave the incumbent. It's working, the incumbent is there. They're generally a very large company. And even though we're projecting -- I don't remember the exact number, but $500 million [ give me ] the exact middle of the range before I screw it up.

[ Give a ] close range, 26%.

26-plus percent growth, high $500 million. We're small in our industry versus the guys that we compete with. And what we're seeing today is the friction has been removed in that because the incumbents are not able to deliver on the return on investment that we are, and we're seeing a record pipeline, record RFPs, record revenue growth. And everybody keeps saying to me, how are you doing this? And I keep explaining, we've been talking about efficiency of marketing and efficacy of marketing for as long as I've been doing this, and people are now starting to really listen.

No change in the tone really since you went public. And I'm glad you brought up the growth side because no [ short-term ] they're accelerating growth over the past few quarters. Chris, now investors are like, why can't you get any more profitable, right? So now it's the other side of the coin. But could you just give investors that your framework and some of the Zeta targets that are out there?

Yes. I think one of the things we did really well that was less understood during the IPO process was we didn't have a stake in the ground on where we were going to take the business over a multiyear period. So we kind of internalized that. And in February of this year, we released Zeta 2025, which was a plan and a target that we shared with investors and analysts like to get to at least $1 billion in revenue by 2025 and at least $200 million in adjusted EBITDA. And it's one thing to throw the javelin and you see companies do that all the time. It's another to give a set of KPIs that if we're going on a cross-country journey together, from New York to California, the mile markers along the way, everything from how many customers we should be adding, the size of those customers over time, the mix of our business, even down to the different E to R profiles of our expense structure so that when we sit down and have conversations like this, a data-driven conversation of, are you ahead of time? Are you on time? Or are you tracking below where you should be? We're in a situation right now where whether it's the metric of how many customers we're adding, but the plan is to add 6% more new scaled customers a year, we're at a rate of about double that. Whether it's the size of our average customer, which is in the plan to be about 14% CAGR. We're running more like 19% and 20%. Even down to the mix shift of the business, which is important from a margin profile, where the goal is to have 80% of our customers use Zeta's owned and operated channels and data versus others that we partner with is already at 80% effectively. So we're able to have a very data-driven conversation, not just around what's around the corner, and that matters. Next quarter matters, this year matters. But we want to help investors get conviction on is, the belief that we're going to be at that Zeta 2025 level of revenue and profitability.

Well, I think it's important to note, Steve Gerber, who's our President and COO, who is in the room here today because we have meetings in San Francisco. So this is great that this worked out. When Steve and I laid out the 2025 plan in 2020, we were sort of just thinking, let's get there when Chris joined us a couple of years later and really helped us.

Month later.

Months later, help us really formulate the metrics by which we manage it. It's been incredible to see those 2 sides come together. And I know you're saying we want to set long-term targets. I think it is important to note that we have nicely beat every single quarter we've been public on the top line and bottom line and raised every single quarter in which we have been public and raised the year in every year in which we've been public and every single quarter that we have raised. So while simultaneously focusing on the long-term, we were even able, at the end of the third quarter, to bring up Q4 and the year simultaneously at a time when a lot of other people have not been in a position to do that.

And especially in the industry, as people generally think like, okay, MarTech into a difficult period, but now you're from a record RFPs, right? Strong revenue growth, you guys are hiring, right, which I think is a little different from your [ peers ].

We are. In fact, it's been really interesting, especially out here to be hiring in this environment. And one of the things I think I always say, and listen, when I started my first company, I was 21 years old, and I was generally the youngest person in the room. I'm now 6 companies in, and I am generally the oldest person in the room. When you look at businesses, the single greatest opportunity you have is during a downturn. It's when incredible talent comes available, it's when if you're willing to make a real bet on your future, you can really win. And I think at Zeta, we're hiring as many great salespeople and as many great engineers as we can find. And listen, we're looking at how do we continue to grow our revenue faster than we grow our SG&A, and that's something that we think we can leverage into the coming years. But the good news is we're growing revenue much faster than we expected to, which gives us the latitude to hire more people at a higher level when other companies are laying off. And I sort of joke the single greatest metric is when a company is laying off massive numbers of people is when you go hire the people they didn't lay off, right? You don't want the people, and this is not to be [indiscernible] to those people, but you generally keep the people who are the absolute best as long as you can. But the ripple effect of those layoffs are the great people start to get nervous. And my old pitch is, listen, if you're at one of the very large technology companies, the wealth generation is done. You're not going to generate that next massive leap in your personal wealth as an employee at a company that's got a $150 billion market cap. But at our company, where we believe we've got a 10x run rate, we believe you can generate meaningful wealth for you and your family. And it becomes a very, very interesting sort of pitch. And that's how we got Chris here. But we've been able to bring in some incredible rock stars over the last few months.

As the [indiscernible] balance here at Barclays, I would certainly agree with that. Raimo might have a different view. But you talked about record RFPs and you talked about the ROI-based sale with Zeta. I guess, what about your platform is particularly resonating in this environment?

Well, I think, first and foremost, I don't know of any other platforms that have fully integrated the data, the artificial intelligence and the activation capability into one platform. So instead of hiring 4 different companies, you can hire us. So by way of example, if you hire a sales force, you have to hire Accenture to implement it. You then have to go to the Oracle Data Cloud to buy your data to import to it. We do all of that internally and in one solution. The other thing is, because our data is so rich, we're able to know who's in market for your products. And by way of example, we can tell you who will not be credit approved for your products. If you can take everybody who won't be credit approved for a credit card's product out of the marketing funnel, you've just eliminated 50% of the cost. Like it's gone. So, as you look at that, that works in financial services. That works in insurance. It works in automotive. It works in health and wellness, not only verticals, as Chris likes to point out, we have a lot of verticals and no verticals make up a disproportionate percentage of our revenue. But what it does do is it represents different pivots. We can put on to data before the clients go into market and eliminate people who will either not be approved or have no propensity to want to buy that product, you're effectively taking out 50% of the cost before you even launch by eliminating the cohort that will not buy the product or will not get approved.

I think, Ryan, if I may, just an interesting data point to support that. And if you look over -- just not even in the last quarter, but you kind of zoom out over the last 2 quarters, say, and the amount of new scaled customers that we're bringing in and the industries that they represent, chances are, if we were all sitting around the table and we put in the middle of the table, the industries we thought were most exposed right now in a tougher macro environment, we probably all say consumer retail. We probably say financial services, advertising and marketing and probably now tech and media. All of those 4 industries that I just named make up 90% of the customers that are coming to Zeta. So -- over the last 2 quarters. So where there is the biggest need, they're looking for efficiency and marketing, but also the ability to grow at a more efficient rate.

So right, Chris. And if you think about it, as Machiavelli said and then absconded by Churchill, which he did very well, never let a good crisis go to waste. And we see this crisis as the single biggest opportunity to get our products out in front of organizations that are simultaneously dealing with the crisis.

Excellent. I have 2 questions that I've been dying to ask you. But Chris, before I get in trouble by not asking this, just how can investors think about next year as like they put together models for Zeta?

Yes. I'm not going to give you a headline today. We'll talk about it in February. But look, I'll go back to Zeta 2025 because that matters, right? We are anyway to slice it. We're ahead of pace. We've bent the curve down for what's required of us to do in the future. It doesn't mean we're going to, by any means, settle on that. But we feel really good about where the business is. We're excited for February to come around.

So just, David, from your standpoint. Yes. I mean, I would have loved to break this here, but it's okay. Maybe next time. What are your takeaways from Black Friday and Cyber Monday?

So we had -- that's a great question, which is not to insinuate your other questions. But we publicly announced that our platform grew 67% year-over-year over the Cyber 5, which I never actually heard that term before, but Steve Gerber has now familiarized me with it, which is sort of Thanksgiving through Cyber Monday, probably has to giving Tuesday to get to 5 days, if you really do the math. But our platform grew 67% from a utilization perspective. Now, we announced that number from a sales and marketing perspective because we wanted the industry to understand, not only did our platform deal with a 67% capacity growth, we had 0.00 downtime in that 5 days, which in our world is really, really impressive. We actually had a vendor who was one of the largest tech companies in the world who had a slowdown for about 30 minutes, which pissed us off, but that was not our fault, and our clients didn't even see it. But the capacity load was incredible. And what I think we're seeing is, I think the trend of people shopping earlier, but not wanting to get stampeded personally going into a store. I mean, I never personally -- I'm a Jewish guy from New York City, like the thought of me standing at a Walmart getting pushed over to get a TV for an extra $50 off is not high on my level at any point.

I would love to see it, though. That would be a site.

By the way, I think my kids would love to see it, too. I think my kids would push -- but in all seriousness, I think that we're seeing the continued migration to digital. And I think we're going to continue to see that. And I think there was this very big narrative around COVID that the transition to digital was done and that it happened. Now listen, it accelerated. There's no question about that. And necessity is the mother of whole innovation, it sort of had to accelerate. We think it's going to continue to accelerate. And we think that what we saw through the Cyber 5 is going to continue from a digital transformation perspective into the foreseeable future as companies look for efficiencies, as companies close physical locations and as companies look to be able to be as competitive as they can with other organizations.

Maybe it's a good place to talk about connected TV, Chris, also saw strong growth rates during Black Friday, Cyber Monday. I guess, why are more people looking for Zeta as the option there?

Well, we asked you the question, but I'm probably the right person to answer.

Well, maybe growth rate was pretty crazy. Yes. Okay, here we go.

No. Listen, we've been growing our connected TV business by between 200% and 300% on a quarter-over-quarter basis for a number of quarters now. The thing about connected TV is, today, if you think about the way television is run, it goes to 2 very basic principles. First and foremost, the vast majority of all marketing that has run from when vendors in Egypt would stream about their wares in the market 2,000 years ago right up through the advent of television has been based on the premise that you run marketing alongside of content. That's it. This is content because this content is there, I need to run my marketing alongside of it. People always laugh. I'm like, did you ever, in my age, remember, must-see TV on Thursday nights, right, started with -- probably shouldn't talk about The Cosby Show at this point for a whole host of reasons, but started with that, moved into Friends, Seinfeld, all those different shows. Why did NBC make that investment? Because Thursday nights open movies. If you are opening a movie on Friday for the weekend, you must own Thursday night. So NBC figured out -- I think it was Littlefield, I forget his first name, figured out, "well, if we can own Thursday, it doesn't matter if we lose money because we're going to own movie over this, wide live sports work, automotive and beer, right? All of this stuff is relevant. But the thing that most people are now starting to realize is 50% of the people watching a football game, don't care about beer. And it's not as simple as the age-old analogy, half people want beer, half the people want wine because it's not. Half the people might want beer, but they might want 7 different types of beer, and the other half might be broken into cohorts who want bottled water or Diet Coke or Coca-Cola. Connected TV allows us to target and add on multiple planes. One plane is the content because that's important, right? If you're watching sports, that's going to save something. But more importantly, it's you personally and your behavior. So what we're able to do is build micro targeted audiences inside of Hulu, inside of Roku, inside of other platforms. We connect into every connected TV platform that has an open API today. But -- and because you're able to so hypertarget, you're able to do it at a substantially lower cost than if you're running on linear TV, same person, same content, totally connected. So you're able to put it together in a hypertargeted way, and we're also able to look at that individual from a Zeta ID perspective across every digital methodology. So I don't know about you guys. My wife who is amazing, subjected me to the TV show The Handmaid's Tale, which is a good show, but she made me watch it and really watch it. Like if I would look at my phone, she'd get annoyed with me for not paying attention. And I remember the first 6 months I watched it, I saw the average ad 18x for the same advertiser for the exact same program, and we're binging this stuff, right? So it's like 18 the first one, 18 the second one. And it just so happened. It was -- we know that company very well, who was running the ad. Frequency caps are a really important component of how marketers think about their brands. I mean, they're starting to think about brand awareness as it relates to brand safety as well. And the Zeta Marketing Platform is bespoke to be able to say, "yes, you saw this ad 3x on video on Yahoo! today. You don't need to see it 6x on The Handmaid's Tale, but you might want to see it twice. My best example is the connected nature, and I'm sure I'm droning on about this, but I'm very excited about this product. We can see that somebody opened an e-mail, didn't click on it, but spend a minute reading the content and we can show them 2 ads on connected TV that evening. All of that interconnection comes out of where we believe the puck is going as it relates to marketing.

And we all have the shows that we see really like, Selling Sunset [ would be mine ]. So maybe you see the exact like ad for me during that, but that'd be pretty...

I don't know if you know that Heather and Tarek are my wife and my closest friend. So, in fact, I had dinner with Heather and Tarek. I was [indiscernible] on with them this afternoon. I'll have to tell her you like...

[indiscernible] Zeta I was like is it Zeta? I recognize to see this as a Selling Sunset and Chris you break up your revenue buckets to recurring or reoccurring. Where will connected TV fall in that? And can you just give investors some background there?

It depends. So you think about those 2 buckets as in 3 different pieces. First piece is the licensing and subscription for the platform. The second piece being the consumption part of our revenue model, that might be locked under multiyear minimum usage commitments. And there could be some CTV volumes that sit there and other CTV volumes that sit not under a multiyear but maybe multi-quarter or an annual contract. And those are the 2 buckets. So I think a good example is, we have this on our website. One of our larger customers, a U.S. auto insurer, if you look at the materials, you'll see that over time, not only has their revenue grown, but the mix of how much of the revenue they do with Zeta is more and more covered by the subscription plus the minimum contractual usage. That's where we're taking the business. It will take time to get it to materially, materially higher, but that's the journey that we're on as a company. Interestingly, 85% -- more than 85% of Zeta's revenue is already known to us with an existing customer. So that's 85% of revenue covered by customers that been with Zeta for at least a year or more. In fact, it's 2/3 that have been with us 3 or more years. So even where there's not that multiyear agreement in place, there's so much pattern in history that our farmers have with that brand, that it makes it very predictable revenue, which kind of goes back to what David said, allows us to be very accurate and keep building the track we have as a public company of beating and raising.

Yes. I mean, a lot of people are like, "Oh, your recurring revenue is only half." I'm like, what? We go into every quarter with 85% to 90% visibility into the client spend. And I think that now that we've been public, I don't know if we've given 5, 6 quarters, I don't know how many we've done, but beat and raise each quarter top and bottom line pretty handedly. Hopefully, people are starting to figure out, we've got pretty good visibility into our business. So...

So I've been dying to ask you this. Salesforce, Retail Hub, Insights said that e-mail growth actually accelerated year-over-year compared to the year prior. And there were some other channels that have been in [ fare ] as well. So from your perspective, I mean, why do you think like e-mails continue to show this resiliency?

Well, first of all, I think that it's an interesting metric. And you'll have different channels that grow at different times. I have said for many years, e-mail is the most cost-effective, highest return on investment of any marketing channel anywhere in the world. It's just that simple. And to give Salesforce credit, they bought ExactTarget. Steve was screaming that to me mentally, and they are the largest ESP in the world. I think people don't realize we are the second largest ESP in the world. We're bigger than Oracle, we're bigger than Adobe and much, much better on e-mail, well, better than most of them on most things. But they all have great core products. Their marketing cloud is not so much. But I think that what we see back to what we were talking about, marketers who really understand the ecosystem look to the most cost-efficient, highest return on investment channels when the heat is really on them to show return on an investment. And quite frankly, I can't think of anything better than e-mail.

And look, we talked to many players in the space, fast-moving private, well-funded start-ups or even later stage. And they say they can do everything. But what we've seen examples of even customers use them for different use cases, go back to -- go to Zeta for e-mail, right? So what about e-mail at scale is so difficult?

Let me be clear. We don't lose a lot of deals to small companies. We battle it out more Salesforce and Adobe at this point. And quite frankly, we've also publicly said we win over 50% of the engagements we get invited to participate in, which is more than our fair share. To your point, there have been global enterprises that have moved their entire global footprint to companies like Adobe or Salesforce or Oracle and still done their e-mail with us. And e-mail is not our largest product by a long shot, but we're really, really good at.

Yes. It's a lot more difficult at enterprise scale than people think.

Yes. We also own probably the world's largest MTA. Like people forget that when SendGrid was purchased by Twilio, we dwarf them by size. And we just don't sell it as a service. We use it as a connected platform for our e-mail product, which allows us to be better, faster, cheaper by controlling the backbone of the Internet as it relates to that MTA and the user interface and the software.

Yes. And like you said, it's one thing to send e-mails in the middle of July, but [indiscernible] on Cyber Monday.

The big day is actually Thanksgiving afternoon. That's when it starts to drop and it goes through the next day very, very hard. When you're at Black Friday, small business Saturday and whatever they're calling Sunday tends to slow down a little bit globally. This is not us. And then Monday is probably on par with the 24 hours starting Thursday at 2 or 3 o'clock.

And when I kind of wrap this up is, I thought another thing you were ahead of was the first-party debt opportunity, right, using Zeta as a platform with your data assets and your CDP, right? So, I guess, how has that evolved? And how can you help companies as they go through like IDFA changes or Google cookie [ deprecation ]?

Well, one of the great things about our business is, we've never used Apple's IDFA or the third-party cookie to identify or build attribution for our business. So, one of the things that really helped drive that outsized growth rate last quarter and allowed us to upgrade Q4 was when that tracking methodology was eliminated by Apple, obviously, people have seen that ripple through the mobile-focused platforms. I won't name them, but I think you all know who they are. It's not just because they couldn't build attribution models. The algorithms were broken. When you have no feedback, you have no ability to go target new customers. Therefore, the algorithm becomes broken because we never use those things, we actually stayed going straight. People are like, did it benefit your business? Our business was doing well, but everybody else went down. So, our existing clients started moving more budget to us so that we could help them build those models and do that. And as it relates to first-party data, that was one of the things John and I really thought about when we started the business, which was, we want to own a massive pool of first-party data. The weird part is, we take this data and we never sell it to anybody at any price at any time. We effectively synthesize it down to a Zeta ID number, we eliminate the personally identifiable spot, and it serves as the electricity to sell the software. And I think that's created a lot of confusion as a public company, and I think it's what's creating a lot of opportunity for people who can understand that and see what that means to the business long term.

Absolutely. Well, I like to thank Zeta for your continued support, and I got to figure out a way to get you to Walmart on Black Friday. That's an amazing -- I know. I do like have my chances. Thank you so much.

I go to Walmart often. My daughters were in the college. You got to go to Walmart and [indiscernible].

Absolutely. Thank you, guys. Appreciate it.

Appreciate it. Yes.