Zeta Global Holdings Corp.

Thank you for standing by. This is the conference operator. Welcome to the Zeta fourth quarter 2021 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Scott Schmitz, Head of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining us for Zeta's fourth quarter and full year 2021 conference call. Before we begin, I would like to mention that today's presentation and press release are available on Zeta's website at www.investors.zetaglobal.com, where you will also find links to our SEC filings along with 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 press 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 our gap results. We use these non-gap financial measures in managing the business and believe they provide useful information for our investors. Reconciliations of the non-gap measures to corresponding gap measures, where appropriate, can be found in the company's earnings release and other filings with the SEC. With that, I will now turn the call over to David.

Thank you, Scott. Good afternoon. and thank you all for joining us. 2021 was an incredible year for Zeta, filled with many important milestones, from going public to hosting our inaugural Zeta Live conference to achieving record results. In 2021, we generated revenue of $458 million, up 25% year over year, or 30% adjusting for the 2020 presidential cycle. And we drove significant operating leverage by maintaining a disciplined cost structure. Our financial performance is a reflection of the measurable value we deliver for our customers. And as a result of continuous investments we have made in our products, our people, and our go-to-market initiatives. These results underscore the disruption that is accelerating in the marketing technology landscape. as marketers seek to re-architect their strategies and systems to improve how they reach and engage customers and achieve the full potential of data-driven, identity-based marketing. Zeta's founding vision has never been more relevant in the marketplace to help brands navigate these challenges. As a sign of our confidence, we're announcing the long-term targets of our Zeta 2025 plan. The financial goals of this plan are to generate in excess of $1 billion in annual revenue with at least a 20% adjusted EBITDA margin by 2025. We believe in our ability to achieve these results because of the changes in the digital marketing ecosystem, the evolution of our platform, and the expansion of our go-to-market capabilities over the last 15 months which are truly resonating in the marketplace. The Zeta marketing platform with the customer data platform or CDP Plus at its core was purpose-built to empower marketers to ingest, synthesize, and activate identity-based data to create personalized marketing programs at scale through any channel and across the entire customer life cycle. This single platform makes it easier and faster for marketers to deliver better consumer experiences and achieve higher return on investment. The ZMP is electrified by Zeta's proprietary first-party data set, which resolves to our Zeta ID that our customers access automatically. The presence of this identity-based data means that our customers are unaffected by environmental changes, such as the elimination of Apple's IDFA, the elimination of third-party cookies, or even Google's recent announcement to the changes in the Android app tracking platform. We do not rely on any of these elements to identify individuals or measure marketing performance. These shifts in the environment are creating incremental demand for Zeta. The proof is not only in our results, but also substantiated by independent third parties. For example, Forrester included our customer data platform in the large market presence segment of their NowTech customer data platforms report published earlier this month. Zeta was one of only five CDPs out of the 34 they analyzed to be included in the large market presence segment, which denotes greater than $75 million in annual revenue. Additionally, Zeta was recognized as an automation CDP, the segment with the most highly functional capabilities. This was also supported by the CDP Institute, which recently conducted a thorough review of our CDP and issued a report highlighting Zeta's quote, powerful capabilities. Zeta exceeded the core functionality requirements and earned perfect scores in each of their 17 categories evaluated, which span core data management, unified customer profiles, activation, and analytics. The most important validation of this is coming from the customers as we continue to win against the largest marketing clouds in the world. Let me give you an example. In the fourth quarter, one of the largest players in the US retail industry replaced Salesforce after a 15-year partnership with Zeta's all-in-one data marketing platform. Our team's expertise drove rapid time to deployment And in only a matter of weeks, this client began deriving insights into their own customer base. Zeta's CDP now sits at the heart of their marketing ecosystem, enriching their existing data and helping to inform on key business decisions. Delivering differentiated value is our North Star. We will continue to invest in the areas of greatest opportunity and the highest return to strengthen our platform and sharpen our differentiation. Over the last two years, Zeta has invested approximately $250 million into research and development and go-to-market initiatives. And while this investment has contributed to our record 2021 performance, I continue to tell our Zeta team, not all things that got us here will get us where we want to go. As such, we continue to evolve as a company to support our Zeta 2025 growth and profitability targets. For starters, we are raising our brand awareness through events like Zeta Live. With over 3,000 participants at our inaugural conference, paired with incredible content from some of the foremost leaders in the industry, we have seen an increase in new pipeline opportunities and an acceleration of our close rate. I encourage you to view the Zeta Live content, which is available in the events section of our investor relations website. We will further expand our partnerships similar to what we announced in 2021 with Snowflake and Dun & Bradstreet. We will continue to look to drive more sales productivity behind our newly appointed chief revenue officers, leading us to the next phase of growth for the company. Looking out to 2025, We believe Zeta is well-positioned to become the leading marketing cloud in the world. We plan on accelerating disruption in the ecosystem as creating massive opportunities for Zeta. Walled garden providers continue to attempt to tighten their grip and change the rules. Just last week, Google announced plans to restrict cross-app tracking on Android devices, mirroring the IDFA changes at Apple. This is forcing marketers to look for new alternatives like Zeta. Zeta has evolved from a disparate set of silos to the unified hub of a modern enterprise. Artificial intelligence has gone from experimentation to mission critical. New ways of ingesting, synthesizing, and storing data like the CDP are transformational for marketers. So the acceleration of channels that deliver scale and precision such as connected TV. And while CTV is the fastest growing channel in the marketing ecosystem, marketers have struggled to realize its potential and integrate CTV with their other people-based channels. Marketers need the ability to target individuals, not groups, through more relevant omni-channel experiences and measure the impact with deterministic attributions. The need for data-driven, identity-based marketing has never been stronger, and we are just beginning to scratch the surface of our rapidly growing, multi-billion dollar addressable market. And of course, none of this would be possible without our talented and dedicated data people, which is why we're making major investments in our own team. We recently expanded the number of paid holidays, doubled our health and wellness benefits, and quadruple the number of learning and development classes to reward and retain our most valuable resource, our Zeta people. Where we have done the best job attracting new people is in skilled and constrained areas such as sales and engineering, where we actually exceeded our hiring plans for last year. We are focused on becoming an employer of choice and strive to create a positive, diverse, and inclusive environment with significant growth opportunities for all. Diversity, equity, and inclusion is a strategic imperative at Zeta and we believe critical to our long-term success. In conclusion, I would like to sincerely thank our Zeta team, our customers, and our partners for an incredible 2021. I have never been more optimistic about our future and I am honored to be able to share our Zeta 2025 goals with you. We're off to a fantastic start in 2022 as we continue to capitalize on the disruption in the market and provide more value than ever to our customers. And the best part is we are just getting started. Now let me hand it off to Chris to discuss our results in greater detail.

Chris. Thank you, David. And good afternoon, everyone. As David highlighted, 2021 was an incredible year at Zeta with momentum building across our business. I have two agenda items for today's call. First, I want to provide deeper insight into the underlying drivers of our Q4 and full year results. And second, I will outline our path to Zeta 2025 and provide more detail on our 2022 guidance. Throughout 2021, we remained focused on executing our plan and the fourth quarter was no exception. In fact, we exceeded our guidance and internal expectations for each of our major reporting metrics and KPIs in the fourth quarter, which can be found on slides four through six in our supplemental deck on our IR website. Revenue of $135 million was up 18% year-to-year or 32% adjusting for the 2020 presidential cycle. Additionally, revenue increased 17% quarter-to-quarter. Our top line results were driven by the strength in each of our core drivers. Scaled customer count of 355 expanded by 19 customers year to year and eight quarter to quarter. Scaled customer ARPU of 368,000 increased 10% year to year and 15% quarter to quarter. And we generated 77% of our revenue direct on the Zeta marketing platform, up from 60% last year and 74% last quarter. And related to our direct platform mix improvement, cost of revenue in the fourth quarter declined by 590 basis points year to year or 675 basis points excluding stock-based compensation. On a GAAP basis, our net loss was 61.1 million, which includes 70.5 million of stock-based compensation. We generated adjusted EBITDA of 22.9 million or 17% of revenue in the fourth quarter. Our strong fundamentals were evident over the full year's time horizon. For the full year 2021, we delivered revenue of $458 million, which was up 25% year to year. Normalized for the $15 million of 2020 presidential cycle revenue that did not repeat in 2021, growth came in at 30% year to year. Our growth is coming in a variety of ways. We're winning across industry verticals. against numerous competitors with different products and across channels. We saw a similar number of multi-year deals at a greater TCV than last quarter as a further testament to our sales factories gearing up. We're seeing deals sourced from many different areas, from Zeta Live to marketing campaigns to sales development reps to quota carriers to partner referrals. For example, we won a multi-year CDP contract at a large retail company that was sourced by an SDR or sales development rep. We won a multi-year data cloud contract in the financial services vertical sourced by a partner. We also won a large multi-year CDP contract in the healthcare vertical through an internal cross-sell. And we continue to compete against and beat legacy competitors ranging from Adobe, Oracle, Salesforce, and others. And while these examples highlight new customer wins, Approximately half of our revenue growth came from existing customers in 2021. For the year, our total Zeta NRR was 113%, with scaled customer NRR once again above 120%. Including the retail, financial services, and healthcare verticals that I just referenced, seven of our top 10 verticals grew greater than 25% in 2021. Our revenue remains well diversified, with a broad coverage across industries as our largest vertical accounts for only 13% of revenue. Our cost of revenue percentage was 38.1% in 2021, representing an improvement of 230 basis points year-to-year or 290 basis points excluding stock-based compensation, significantly outpacing our 2021 annual guidance of at least 150 basis points and long-term guidance of 100 basis points. This was driven by the competitive strength of our platform, our pricing power, and our ability to generate more revenue directly on the Zeta marketing platform. For 2021, our gap net loss was $249.6 million, which includes $259.2 million of accelerated stock-based compensation. The strength of our top line, combined with our cost discipline, flowed through the P&L. expanding our 2021 adjusted EBITDA by 60% year to year to 63.3 million. This translates to an adjusted EBITDA margin of 13.8%, which is up 300 basis points year to year. From a cash perspective, it was also a record year. cash flow from operating activities was $44.3 million for the full year 2021, with free cash flow generation of $17.5 million, up 73% year-to-year. We ended 2021 with a cash balance of $104 million after completing our acquisition of Atlas. With 2021 as a backdrop, let me dive into the details behind our 2025 plan with the goal of achieving an excess of $1 billion in revenue in at least 20% adjusted EBITDA margin by 2025. From a four-year TAGR perspective, this would imply 22% top-line growth and 33% bottom-line growth. This rate of growth is consistent with our three-year TAGR from 2019 to 2021 from a revenue perspective and half the growth rate we achieved in adjusted EBITDA over the same period of time. While our broader go-to-market initiatives, product innovation, and the need for durable identity data provide the high-level catalyst behind Zeta 2025, I wanted to provide a simple framework with trackable KPIs to help you monitor our progress. This can be found starting on slide 9 of our supplemental deck. At the most basic level, achievement of this plan assumes at least 5% annual growth in our scaled customer count and approximately 15% annual growth in our scaled customer RPU. both of which are consistent with our prior results. Expanding our scaled customer count by 5% annually equates to adding approximately 20 new scaled customers per year. This is consistent with what we achieved in 2021, despite the fact that one third of our sellers were with Zeta for less than a year. We expanded our direct sales force by over 35% in 2021, ending the year with 100 quota carriers, This exceeded our plan and reflects our ability to attract talent. Our new hires are coming to us directly from competitors after they experienced the power of our platform. We will continue to use a disciplined, data-driven approach to add sales capacity and maintain strong productivity with the goal to reach approximately 250 quota carriers ending 2025. A major component of our Salesforce development is attributable to what we call our sales factories, which we break into three categories. The first factory is focused on demand generation. This includes our investment in brand awareness, the build out of our demand generation capabilities, expansion of our SDR team, and the sophistication of the systems we use to grow the sales pipeline. Second factory is focused on velocity, ensuring a better flow through of deals through our pipeline from early stage to late stage to closure. And the third factor is focused on sales productivity. We see good evidence of progress here with our strong win percentages and increasing deal sizes, which I'll touch upon shortly. Through the expansion of our direct sales force, along with our expanding partnerships with companies like Dun & Bradstreet and Snowplate, we believe 20 new scaled customers per year is an achievable target and would still only put us at a 5% penetration of our customer-centric total addressable market. In addition to new scaled customers, we also see a large opportunity to expand ARPU with our existing customer base. One of the key strengths of the data marketing platform is the ability to generate new learnings, insights, and signals, making it more valuable over time, leading to strong loyalty and significant ARPU expansion. On average, we've seen a 3x increase in scaled customer ARPU from customers with us less than a year versus those with us three years or more. As customers measure attribution from our platform, it creates stickiness and drives use case and channel expansion. As evidence, in 2019, our average channel per scaled customer is 1.2, which improved to 1.4 in 2020 and then to 1.9 in 2021. By 2025, We expect this to expand to approximately four as customers realize even higher returns from a multi-channel approach and leverage faster growing channels such as CTV. Further proof of ROI customers experience on our platform is the growth of super scale of customers, which are customers that have spent more than 1 million with us on a trailing 12 month basis from 2020 to 2021. our superscaled customer count increased 43% to 97 customers. Nearly all of the growth in our superscaled customer count was from existing customers or customers that started small and expanded on our platform. In total, we expect to generate approximately half of our growth from new customers and half from existing customers. We expect total Zeta NRR to be in the range of 110% to 115% annually with scaled customer NRR slightly higher. In addition to durable top line growth, we expect to drive strong operating leverage over the next four years. Specifically, we expect approximately 80% of our revenue to be generated directly on the Zeta marketing platform, which carries about a two times margin profile of our integrated platform revenue. We expect favorable mix to reduce our cost of revenue by approximately 100 basis points per year. We also expect to drive operating expense leverage, most notably in the G&A line, as the infrastructure we've put in place over the last two years is highly scalable. Net-net, we believe the path to greater than $1 billion in revenue and at least 20% adjusted EBITDA margin is highly achievable. It requires consistent execution on our core drivers, which we work to prove every day. Before wrapping up, Let me provide details on our outlook for 2022. After all, the path to Zeta 2025 starts now. The details of our guidance can be found on slide 21 of our supplemental deck. For the full year 2022, we expect to generate revenue of $540 million to $550 million, up 18% to 20% year-to-year. We expect to generate adjusted EBITDA in the range of $80 to $83 million. representing an increase of 26 to 31% year-over-year. On a quarterly basis, we expect 2022 to follow our three-year average revenue linearity, which we outlined on slide 22 of our supplemental deck. More specifically, for the first quarter of 2022, we expect to generate revenue of $118 million to $121 million, up 17 to 19% year-to-year. We expect to generate adjusted EBITDA in the range of $16.5 million to $17 million, representing a year-over-year increase of 27% to 31%. In terms of KPIs, we expect a typical seasonal decrease in scaled customer count from Q4 to Q1, but anticipate growth of 20 to 25 scaled customers for the full year. Overall, we expect the same growth and margin factors laid out in our Zeta 2025 plan to drive our performance in 2022 while maintaining the right balance across growth, investment, and profitability. In summary, we believe we're building a culture of high performance and a track record of consistent and predictable execution. Zeta 2025 is galvanizing our employees, serving as a North Star for extending our product leadership and providing a roadmap to ensure our execution and investment decisions serve our near and long-term goals of emerging as the marketing cloud leader. Finally, I encourage all of you to download our supplemental earnings presentation on our IR website, which details our multi-year plan. With that, let me hand the call back to the operator for David and me to take your questions. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Richard Baldry from Ross Capital. Please go ahead.

Thanks and congrats on a great quarter. I'm sort of curious in that path to 2025, you know, are there areas you'd be willing to accelerate, you know, opportunistically, or do you feel like there's a balanced approach to this? So for example, you're, you know, much more profitable than most companies grow on your pace. So, you know, would you hire faster if the right sales people came in or does that stress the ability to bring in, you know, people in the, the marketing ecosystems, et cetera, that need to support them. Thanks.

So, Rich, I'll jump in on that. First of all, thank you. Always great to hear from you. I would say, you know, even with our profitability, we have publicly stated that we've invested over $250 million over the last few years in research and development and our go-to-market strategy. And quite frankly, because of our new sales motion, we're seeing sales reps become profitable with, in many cases, within six months of starting work with us. So I don't see any reason. that the two in the Zeta marketing platform have to not run parallel, meaning we could absolutely bring on more people, we could absolutely accelerate that growth, and it would not hurt our current profitability. In fact, quite frankly, we are budgeting to potentially give ourselves room because we want to say no to nothing, meaning we're If there's an opportunity to bring in great people, we want to do it. If there's an opportunity to grow faster, we want to do it. And we're not going to slow that growth. All we're trying to do is put a real benchmark out there. The interesting thing is, just so you know, this plan started in 2020. It was an internal plan that Steve Gerber and I launched in 2020 to get to a billion a year by 2025. And Chris and the team have helped us to accelerate it, although I will tell you we are ahead of where we expected to be at this point when we started in 2020. Chris?

Yeah, I think, Rich, you know, we wanted to be very, very mindful of the different KPIs we provided, the supplemental debt costs, all of those laid out. A key one that's tied to our investment is around sales capacity. So if you look at what we're counting on to go from 100 quota carriers that we ended 2021 to to the roughly 250 by the end of 2025, it would imply right around a 25% CAGR, whereas over the last couple of years, we've averaged north of 30%. So trying to leave ourself room in all the metrics from what we've traditionally executed to versus what's relied upon. But as David said, we believe we can continue to invest in sales and marketing, invest in innovation, and get efficient on our cost of revenue line as well as our G&A line. Great. Thanks.

The next question is from DJ Hines from Canaccord Genuity. Please go ahead, DJ.

Hey, thanks, guys. Congrats on the strong results here and super helpful color with the Zeta 2025 and all the drivers there, Chris. So thanks for doing that. David, one for you. Just I want to ask about what kind of opportunities you're seeing with agency partners and how they may influence kind of your reach in the go-to-market model.

Well, DJ, thanks. I would start by saying that 10 years ago, when we were really building the formation of what was Zeta today, I had a very, very poorly put together thesis on what was going to happen to the agency ecosystem. And quite frankly, for as many things as we called right, that was one that we called wrong. We have now heavily invested. I would say I am spending a disproportionate percentage of my personal time working with the holding companies to help them. And it's really interesting because when you look at solving problems, which is ultimately what we're trying to do with our software and our data, what we have found is a lot of the agency holding companies just can't get the people to grow at the rates they're still growing. So we're stepping in and saying, listen, Not only are we an alternative platform to some of the platforms you're using now, we're able to do it in such an efficient and effective way. It requires 80% less people to operate the Zeta marketing platform with the Zeta data cloud. all put together in one place versus if they're going to use one of our competitors. So we are starting to see some meaningful traction there. I think, quite frankly, it was one of the reasons you saw the sizable beat in the fourth quarter. And the great thing is, you know, you're simultaneously seeing a pretty material reduction. I think the exact percentage was 590 basis points down in cost of goods sold in the quarter. So You're seeing the business firing on all cylinders right now. And as the software businesses are growing faster than other businesses, and you saw the platform business go from 60% on platform to 77% on platform, you're really starting to see the cost of goods sold go down, even in an environment where we're working very closely and growing rapidly with the agency holding companies.

Yeah. Yeah. It makes a ton of sense. And then maybe a follow up. I don't know if it's better for you, David or Chris, but just thinking about the 2025 targets. I mean, clearly you kind of gave us the underpinnings that you can get there organically. But how do you think about M&A maybe turbocharging those efforts? I mean, historically, you guys have been pretty acquisitive. So we'd love to just kind of get like a high level philosophy on how you think about that.

Yeah, DJ, I'll take it, and David, and certainly add color, just given the company's historical expertise on it. So, you know, certainly it is an organic plant. You know, our focus is on continuing to identify great new pipes of first-party data, great engineers, great sales talent, which could lead us to small tuck-in, aqua hire-type scenarios, but, you know, nothing transformational by any stretch assumed in our 2025 model or 2022 guidance.

Yeah, and quite frankly, I think that we have – As I like to joke, we've done 16 deals in 14 years. I think it's highly probable we'll do a 17th. But the deals we're doing, as you've seen from a size perspective, not only are they really small, they're businesses that we believe we can grow rapidly and transform them into product services or data ecosystems for our existing customers. So we feel like We're really well positioned to continue to do the type of deals we've been really good at. But I do want to say again, because I don't want it to be lost, the 2025 plan is an organic plan. If we were to do continued M&A, we would get to that billion in revenue sooner.

Understood.

Thank you, guys. Congrats.

Thank you.

The next question is from Ryan McDonald from Needham. Please go ahead.

Thanks for taking my questions and congrats on a great quarter. David, first one for you. You know, you've really talked about, I guess, since the IPO of really improving the market awareness for the Zeta platform and the functionality. And you've since, you know, added partnerships with Dun & Bradstreet and Snowflake and, you know, had some improvements around, you know, getting into the Forrester report. I'm just curious how these partnerships and sort of this increased marketing is translating to sort of more deal visibility and perhaps with the help of the partners, how that's translating to win rates versus what you've historically seen.

All right. First of all, thank you. And really, really good question. Not that the others weren't. But the reality is that that's one of the reasons you really saw the fourth quarter increase beat by such a handed amount, and we increased 2022 and felt really comfortable putting out the 2025 plan. If you look at the big transformational moves to our brand last year, whether we liked the initial outcome or not, the IPO was transformational as it related to our brand. Zeta Live was transformational where we had 3,000 thought leaders and clients show up. We're already planning Zeta Live for later this year, and we think it's going to be substantially bigger. Signing partnerships with Dun & Bradstreet and Snowflake. These are just major moves in the marketplace. I believe a couple of quarters ago, we publicly said that we closed over 50% of the engagements we got invited to participate in from a sales perspective. What I would tell you was, you know, quite frankly, we would have liked to get more at-bats. Really, I'd rather close 40% of twice the RFPs than 50% of where we were. In the fourth quarter, we saw more RFPs than we've ever seen in any quarter ever by a lot, and none of it even translated into revenue in that quarter. So I think, once again, we feel like all of these transformational changes events have led to the numbers and the results and the guidance. Chris? Nope, nothing here.

Awesome. I think, Chris, maybe a follow-up for you in terms of how we should think about 2022 guidance and for gross margins. Obviously, a really strong year of expansion in 21. I think you had talked previously about a cadence of trying to focus on 100 basis points of improvement. each year, is this something that you think is achievable as you think about the 2022 guidance here?

Yeah, we do, Ryan. And, you know, certainly sticking to that at least 100 on the COGS line, obviously we well exceeded that in 2021. The model even, you know, going out farther to 2025 would even imply, you know, a slightly, you know, I think it's right around 65-ish basis points of expansion. So still very much committed to the 100 basis points that David mentioned. continuing to be tied to continuing to drive a positive mix shift to the direct platform. You know, so just really, you know, really pleased with the progress on that front.

Excellent. Congrats again.

Thanks, Ryan.

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

Awesome. Thank you very much and congrats on a great quarter, guys. I want to maybe tack on to DJ's earlier question around not necessarily M&A, but maybe how the product and the Zeta platform looks like in 2025. Do you feel that you have all the pieces in place to get you to a billion, or are we looking at, hey, additional innovation, additional changes, you know, to the platform? Yeah. Not minor changes, but large structural changes that might be needed to get you there. Do you feel confident with what you have? And then, Chris, a follow-up for you on the 2025 vision. Maybe just is there a linearity that we should assume with that 2022 CAGR? Is it going to be higher growth up front and maybe closer to, you know, low 20s later on? How should we think about that?

Do you want to take the second part first? Or should I take the first part first? Yeah. I am older than you. That is true. Arjun, I would tell you that we could put $10 billion in revenue through the Zeta marketing platform this week. It is an infinitely scalable platform that over the last five years, we fully re-architected, rolled out, built and as you know you know we're moved from sort of the lat I would joke the laggard category to the leader in the leader category with Forrester you know really putting artificial intelligence and data at the absolute heart as native to the Zeta marketing platform now the beauty of the platform itself is is that it is activation agnostic. As we roll out new activation methodologies, our only criteria is we want to keep them on platform from a margin perspective. Once again, you saw us go from 60% on platform to 77% on platform. I think we've given long-term guidance to get that upwards of 80. But as new activation methodologies are created, augmented reality, virtual reality, how the blockchain begins to play into marketing, how tokenization and gamification ultimately begin to change the way the marketing ecosystem operates. The Zeta marketing platform is already built to integrate into them, which is not to say there might not be little tweaks that have to happen to incorporate blockchain or gamification or crypto. But today, we could turn on augmented reality, virtual reality. It's really a question as to how does that market mature. And one of the bets we made when we made the decision to completely re-architect the platform was to really stay agnostic and not make an all-in bet. on one platform or another, which is why we chose never to use Apple's IDFA and why we chose not to use a third-party cookie to identify people or measure marketing campaigns over the Internet. Because I didn't want to be dependent on another company to operate our company. And I will tell you that the Zeta marketing platform is fully ready for what comes next. Chris?

Arjun, on the linearity point, in the most immediate term, so for 2022, if you haven't had a chance to download the supplemental on the IR website yet, on slide 22, we actually provide the in-year expected linearity of revenue based upon our three-year historical average. Now, zooming out, which was your question, for our model purposes, we've assumed an even rate of growth of right around 22%. So if you look at our top line CAGR from 19 to 2021, It was right at 22%. We've modeled the same out for 2021 through 2025. And on the bottom line, we've actually enjoyed twice as high a rate of growth of around 61% from 2019 to 2021 than what we're assuming for the out years. And that goes back to the beginning questions we got from Rich, was wanting to make sure we're committed to investing in innovation, investing in growth, but while still able to drive margin expansions.

Perfect. That's very helpful and appreciate all the details in the slides, Chris. One quick follow-up, David, if I can. You mentioned third-party cookies, and obviously there's been a lot of changes in that broader ecosystem, especially with the law of gardens. I'm curious to what level that's coming up in customer conversations as a reason to look to a platform like Zeta that's not reliant on any of those for marketing efficacy and customer targeting.

I would tell you, first of all, a very intuitive question. Every conversation we have involves that conversation at this point. Every RFP we submit talks about it, and every engagement with every existing client really focuses on it. I know we talk about going from 347 to 355 scaled customers, but if you look at the revenue per customer, that to me is really the interesting story, where you're seeing the ARPU per customer begin to really scale. And that's because they're moving what they've spent with other companies that are not able to do where the puck is going to us. And, you know, that's a trend that we think will continue. Listen, I don't want to sort of get too focused on what the very large tech platforms are doing. But I think it's fairly safe to say they are consolidating their own marketplaces. And as they consolidate, I think marketers want an open opportunity to work in the part of the internet that is not fully controlled by one player or another, which, by the way, then begins to suck up you know, additional margin from our clients. So not only are clients talking to us about our ability to do this, they're really excited by the ability to manage their marketing at upwards of a 50% efficiency versus working with other marketers. So, you know, and a lot of that is directly because we're able to work in the open web, and quite frankly, we're able to work in many of the walled gardens as well, And like most of us, we cooperate with them as often as we do not.

That's very helpful. Thank you, Arjun. Thank you, Arjun.

The next question is from Stan Vlotsky from Morgan Stanley. Please go ahead.

Hi, this is Elizabeth on for Stan. Congrats on the quarter. I had a question on the 2025 plan. The 355 scaled customers this year with 100 sales heads implies about three and a half accounts per person in fiscal 21. And when we fast forward to fiscal 25, the plan implies about 1.8. So my question is, what drives that contraction? Is it any sort of increased complexity in requiring more sales heads to support customers, or is that just a level of conservatism?

Well, Elizabeth, you're assuming we closed every customer we've ever worked with this year, which is a pretty poor assumption. So when you look at the average customer tenure, the average customer has been with us for over three years. So you can't just take that one screenshot and then extrapolate it and divide it by the number of sales reps. I would also point out we doubled our number of sales reps throughout the year. So I don't see it as a contraction. I see it as, quite frankly, conservatism as we look at the model, and we fully believe that we will be able to continue our strategy of putting out results that we feel that we can beat and then raise from.

Elizabeth, just from a model perspective, I think it's important to take into consideration that about half of our sellers today, and you could assume a similar mix going out to 2025, are hunters and farmers. Obviously, it's the hunters that are going out and closing new scaled customers, and it's the farmers that are the ones that are charged with starting small and getting bigger. And if you had a chance to kind of dig through the transcript or look at some of the supplemental earnings materials, I think one of the areas that the company has excelled since we put the focus of a hunter-farmer is growing those large customers. So, for example... we mentioned in the call, a 43% increase, now up to 97 scaled customers doing over a million per year in revenue with us. That's the manifestation of growing the number of channels per. So we've gone from 1.2 to 1.4 at the end of 2020 to now 1.9. In fact, if you look even deeper within that metric, in 2019, 80% of our scaled customers were using one channel. We've now gotten that down to about half. So all of this is leading to the ARPU growth, which is, you know, I think the other part of the Zeta 2025. So while the count assumes about a 5% CAGR over the next four years, we're assuming about a 15% CAGR on ARPU, both below what we've been driving. So back to David's kind of last point that he closed with, look, we want to be conservative. That holds true for our model. It also holds true, by the way, for 2022, building that track record of consistent execution.

Thank you, Elizabeth. Next question, please.

Next question is from Koji Ikeda from Bank of America. Please go ahead.

Yeah. Hey, guys. Thanks for taking my questions. I wanted to ask another question on the 2025 REV target, the billion dollars here. You know, doing the math, 450 customers, 2.1 million in annual ARPU. You know, I guess that is a pretty big increase in the annual ARPU from where we are today. I mean, I guess what gives you the confidence in that sort of ARPU expand from here?

Yeah, so if you look at the ARPU rate of growth, right, so as you pointed out, we'd be at 2.1 million per in 2025. compared to the 1.2 we're at today. So that's about a 14% CAGR. We've grown north of almost 20% on a CAGR basis over the last couple of years. So we see ourselves continuing to drive the number of channels used per scaled customer. We're at about 1.9 today. Our super scaled customers, those that are greater than a million, are already north of two. And we see that getting to four. So I think the combination of adding more farmers, continuing to be able to drive more of our scaled customers to using a larger number of channels. And by the way, still 90% of our scaled customers are only using Zeta for one of the three use cases that we offer today. So a significant amount of white space even from that dimension of growing our existing customer set. That on top of the newest deals we've been signing have been coming in at a much larger average revenue per. That's a combination of them being multi-year deals, but also out of the gate selling more channels on the platform.

Got it. Got it. Thanks, Chris. And then just one follow-up, kind of adding on to a previous question on the QBRs here. So maybe help us understand the sales motion here and understanding why do you guys need to add so many sales reps but not that many new scaled customers, right? It's kind of going from $355 to maybe $450 plus to get to that $1 billion target, but really increasing the sales reps, you know, two and a half times here over the next few years. So, you know, could you help us understand, you know, why so many reps? Are those mostly farmers here or, you know, why do you need so many reps to just add kind of only 100 customers from here?

Well, first of all, I want to say I think we're going to add a lot more customers than that, just so we're all on the same page. But we are in a position now where if we can get a sales rep to break even in the first six to 12 months, we want to add as many of them as we possibly can, and we want to scale the business as fast as we can. So I think that, yes, on paper, it looks like we're adding a lot of bodies to not specifically add a lot of enterprise customers, but But I think what you're going to see in reality is probably more customers and the ARPU in a similar place. But I think a lot of it is right now we've got the margin to invest. We believe we can hit our operating margin expansion plans with this headcount increase. And I think with the amount we want to continue to grow, it's a good investment to do that. Chris?

The other thing I'd add, Koji, is that we want to continue to be data-driven like we've been. We've been very transparent in our sales productivity metrics, which have continued to be very strong. But just to bring it to life, why we believe we need incremental sales capacity, not only are we investing more in brand awareness, not only are we investing more in demand generation, our quota carriers have been significantly adding to the pipeline because of our investment in the sales development rep function. So if you zoom out, our hunters are carrying roughly 20 deals per in their pipeline today. That's too many. That's just way too many deals for one individual to chase at the same time. So I think we wanted to strike a good balance of, again, investment, profitability, but making sure that our quota carriers have the right amount of opportunities that they can go close versus not to get everything in their pipeline.

Thank you, Koji. Got it. Got it. Next question, please. Thank you.

Thanks, Koji. The next question is from Phil Winslow from Credit Suisse. Please go ahead.

Hey, thanks, people, for taking my question. Congrats on a strong quarter. I just wanted to focus on the channels per scaled customer. As you mentioned, it went up to 1.9 from 1.2 just a couple years ago. Can you just give a sense sort of what's inflecting, what's the feedback you're getting from customers, and then Obviously, the path that you gave to 2025 is approximately four. Just kind of help us, what's been inflecting, and then how are you thinking about that in the context of 2025?

Yeah, great question, Phil. Good to hear from you. For us, if you kind of look at the revenue growth by major channels, so I think about major channel, it's messaging, it's social, it's site optimization, it's CTV. growing double digits and have been growing double digits what we've been successful at is leading with the first channel and that could be email it could be something in the programmatic universe but very quickly following on with connected TV with display video we've accelerated our sales motion from the time for the first channel and the ability to attribute our work to an ROI and And then a very fast follow. And kind of going back to the growth we've seen, if you look at the slide in the supplemental, you'll see that those customers that are still with us in that first year, there's an average revenue per around 700K. Our ability to get them to 3X that, so if you kind of zoom out, those in the scaled customer universe that are three or more years with us have an average revenue per of 1.7K. So I think it's us continuing to hone the farming sales motion, the upselling and the cross-selling, which we're doing great. We just think we can do even better in getting to four. But all channels are resonating well. I think it more points back to the time to show the ROI and a very fast follow on the second sale.

Got it. Then just one follow-up to that. There have been some recent surveys, in fact, just one from Gardner today, about pretty distinct changes and shifts in just the efficacy of different marketing channels. The fact that, to your point, that Zeta offers multiple that you can consolidate on, are you starting to hear that resonate with customers? Just as you mentioned with IDFA, et cetera, you're just seeing variability in the efficacy of different channels?

Yeah, I couldn't agree with you more. I think some of it is what's going on in the wider ecosystem. Some of it is the changes that are coming. And some of it is just the focus on efficiency as clients move from analog to digital. But what I really want to make clear, Phil, is that the Zeta ID number can identify an individual across any digital channel. So our ability to have a high level of efficiency in messaging, social, mobile, display, Online video, CTV, addressable TV goes across the entire methodology. And it is without question one of the reasons you saw us overperform in the fourth quarter and why we felt comfortable raising the goals for 2022 and out. I think to your point, it's becoming table stakes. Whereas two or three years ago, it was just becoming a conversation. Now it's everybody wants to talk about it, and it's really where the puck is going. It's almost where the puck is and going at the same time. So it's been very impactful to our business.

Thank you, Phil. Thanks, Tim. Appreciate it.

The next question is from Ryan McWilliams from Barclays. Please go ahead.

Thanks for taking the question and happy to hear about the strong EBITDA margin guidance through 2025. I think that message of profitability-focused growth, you know, is now resonating with investors more than ever. You know, you just called out kind of your growth rates year over year against the presidential election. You know, Chris, just going forward for this year's guidance, anything baked in for the midterm elections into your revenue guidance?

Yeah, we think of it around 20% to 30% of what we saw in 2020 is how we have it factored in. And you'd expect kind of a heavy part of that being again in September and in October of this year.

But I want to be clear, the midterms are not anywhere near as impactful. It's almost like just adding a few extra customers.

Excellent. And then, David, I know you expect to close every customer that you come into contact with in a quarter. Maybe we'll hold you that to next year. But last quarter you mentioned some strong initial wins with Opportunity Explorer. Anything to call out there, or are you seeing continued momentum with that product?

Yeah, so I am disappointed, Ryan, if I don't close everybody I pitch. That is true. What I would say is we publicly announced two quarters ago that we had closed over half of the initiatives we were invited to be in. I would tell you that we closed even greater than that last quarter. So we're starting to really see the messaging, back to one of the earlier questions that It used to be when we would talk about what we could do, people would sort of look at us like, how can you do that? There was a bit of disbelief. Now, when they hear that 34% of the Fortune 100 use us and they see that we're a publicly traded company on the New York Stock Exchange and they see the logos that are associated with, it actually makes it even easier to close the deal. And it's been really rewarding to see that. I would tell you, I am so incredibly proud of our Zeta people and the work that they're doing behind the scenes. It's interesting because I would tell you that as of last quarter, I touch less than 1% of our sales channel. 99% of the deals that we close are being done through the sales factories that Steve Gerber has built with Chris Greiner. And I'm occasionally trotted out when they need somebody to close up, you know, normally if I'm doing 1%. I like to joke there's a lot of wine, a lot of steak, and a lot of revenue involved. But the reality is that the factories themselves are what are driving the business. And we've really made a very successful shift. from what was an entrepreneurial-led sales motion to what is today a more factory-driven sales motion. And as I look out three years to getting to that billion-plus in revenue, I feel like we've never been better positioned to do that.

I think, Ryan, something that has held true from last quarter, which was new but we called it out, is Opportunity Explorer has been and continues to be a very effective land tool. typically in a pilot, but more often than not, that opportunity explorer can be a seven-figure leader of a sales process. That, in addition to the fact that of the deals we closed through OE, we continue to hold to about a third of them being cross-sell and up-sell, and the balance being with new customers. So those data points that we highlighted last quarter continue to hold true, and we'd expect to continue to be true over the next several quarters and years.

Thank you, Ryan. Operator, I think we have time for questions. Sorry. Operator, I think we have time for one more question.

Certainly. The next question, the last question is from Brian Schwartz from Oppenheimer. Please go ahead.

Hi, this is Ari Friedman subbing in for Brian Schwartz. Thanks for taking my question and congrats on the quarter. I was wondering if you could talk a little bit about the competitive landscape and what you've seen coming into 2022 and if you ever see experienced management vendors. when you go out for RFP. Thanks.

Well, thanks for joining, Ari. So as I like to say, in 100% of the wins we had last quarter, we either beat or displaced Salesforce, Oracle, Adobe, or Epsilon. So we feel pretty good about our position in the competitive landscape. Now, These are large companies. They have very formidable teams, and they have incredible core products. In fact, all four of them have – well, three of the four have incredible core products. But the reality is that as they've built their marketing clouds, they've really been more of a container where they're effectively putting different businesses into that container and and sort of trying to consolidate HR legal accounting and sales to the top of that silo. As we've gone to market as really the largest independent marketing cloud out there today, fully bespoke for what we do with artificial intelligence and data native to the platform, which none of our competitors can say, I think it's the reason we win It's also important to note that an average of 17 companies are invited to participate in most of the RFPs that we win over half of. So it's not like we're going up against one or two. As it relates to experienced managers, we don't really bump into them. You know, because we're still out there selling software, we really bump in more to sort of the Oracle, Adobe, Salesforce, Epsilon, and others that have focused heavily on marketing automation and being a marketing cloud.

Chris? Thank you, David. Just as we wrap up, I know we're past time, so I appreciate everybody's patience. Zeta is really excited about attending two conferences this quarter. On March 8th, we'll be with Morgan Stanley in San Francisco. We'd love to be meeting with folks. And then on March 14th and 15th, we'll be attending the Roth Conference here in Laguna, California. So looking forward to that. And as always, very grateful for your time and the questions and look forward to staying in touch with everyone. Thank you again.

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