Q3 2024 Earnings Summary
- Zeta raised its full-year guidance by $61 million, demonstrating strong growth and confidence in future performance. The company aims for its 14th consecutive quarter of beating and raising guidance.
- The accelerated migration of agency clients from integrated platforms to direct channels is boosting margins and revenue. A major agency client renewed for another 2 to 3 years, and there is significant adoption in connected television, online video, and mobile channels, contributing to growth.
- Faster-than-expected traction in Zeta's mobile product, enhanced by the integration of LiveIntent's capabilities, is driving growth. Mobile adoption is scaling faster than expected and is expected to be the next significant product line after connected television.
- Management expects organic revenue growth to slow to the low 20% range in 2025, compared to over 30% in recent quarters, indicating potential challenges in maintaining growth momentum.
- Working capital headwinds due to longer payment cycles from agency customers could impact cash flow conversion and financial flexibility. The company experienced a $10 million working capital headwind associated with this in the third quarter. ,
- A cautious approach to scaling the sales force, focusing on quality over quantity, may limit the company's ability to capitalize on market opportunities if they cannot expand their sales team rapidly enough.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | 42% increase (from $188.98M in Q3 2023 to $268.295M in Q3 2024) | Total Revenue surged primarily due to robust demand in the US market and successful customer acquisition initiatives, reflecting growth strategies that built on prior increases in key verticals. This growth builds on earlier solid performance, such as the strong incremental revenues observed in previous quarters. |
US Market Revenue | 43.5% increase (from $182.23M in Q3 2023 to $261.496M in Q3 2024) | The US market drove revenue expansion through deepened client relationships and increased brand acquisitions, expanding on earlier performance improvements with agency partnerships and enhanced product offerings that contributed to prior period growth. |
Operating Income | Narrowed losses by 66% (from –$37,166K in Q3 2023 to –$12,379K in Q3 2024) | Operating income improved markedly due to robust revenue gains outpacing cost increases, benefiting from continued cost management and operational efficiencies that built on earlier initiatives to reduce expenses and streamline operations versus prior results. |
Net Income Loss | Reduced by nearly 60% (from –$43,086K in Q3 2023 to –$17,375K in Q3 2024) | The significant contraction in net loss was driven by strong revenue growth combined with disciplined expense control, demonstrating improved operational leverage compared to previous periods versus. This improvement indicates the company is moving toward better profitability even though it continues to report a net loss. |
Basic EPS | Shifted from $0.27 in Q3 2023 to –$0.08 in Q3 2024 | Despite the overall reduction in net loss, Basic EPS deteriorated due to factors such as dilution from an increased share count and timing effects of stock-based compensation, highlighting a divergence between aggregate profitability improvements and per-share performance versus. |
Liquidity (Net Change in Cash) | Increase to $263,834K in Q3 2024 with cash rising to $418,538K; markedly higher compared to previous quarter levels | Liquidity improved significantly as strong cash generation from operating activities, bolstered by non-cash adjustments and better working capital management, more than offset higher investing and financing outflows. This turnaround builds on earlier liquidity management enhancements and positions the company for increased financial flexibility. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2024 | no prior guidance | $295 million, increased by $32 million | no prior guidance |
Adjusted EBITDA | Q4 2024 | no prior guidance | $65.9 million, raised by $6.5 million, 22.3% margin, up 105 bps | no prior guidance |
Revenue | FY 2024 | $925 million, representing 27% YoY growth | $986 million, increased by $61 million, representing 35% YoY growth | raised |
Adjusted EBITDA | FY 2024 | $175.5 million, representing 36% YoY increase, 19% margin | $188.5 million, raised by $13 million, representing 46% YoY increase, 19.1% margin | raised |
Free Cash Flow | FY 2024 | $85 million (raised from $80 million, 48% cash conversion ) | $90 million (increased from $85 million, 48% cash conversion ) | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI and Data Integration | Across Q2 2024 earnings, executives emphasized AI as a “core” component integrated with data clouds for real‑time intelligence. In Q1 2024, the focus was on native integration distinguishing them from competitors. In Q4 2023, they stressed secure data ecosystems with the integration of a CDP. | In Q3 2024, Zeta highlighted enhanced AI integration powering personalization and a 360‑degree customer view to boost productivity. | Consistently important. The sentiment remains bullish as integration evolves from a competitive differentiator to a key growth enabler. |
Generative AI Adoption | Q2 2024 featured widespread adoption with over 400 intelligent agents and high engagement metrics. Q1 2024 saw the launch of a Generative Intelligent Agent Composer Store and meaningful ongoing usage. Q4 2023 introduced the Intelligent Agent Composer as a game‑changing product. | In Q3 2024, an expanded lineup of generative AI agents already in version 3 was emphasized, with record-high adoption rates contributing to strong net retention. | Steadily growing. Upgrades to more advanced versions reflect continuous innovation and customer acceptance, reinforcing a positive long‑term outlook. |
Agency Channel Dynamics and Client Migration | Q2 2024 discussions detailed a migration from social to omnichannel with gradual shifts and improved margins. Q1 2024 emphasized a clear strategic pivot with large agency holdcos growing direct channel revenue. In Q4 2023, significant migration from integrated channels to Zeta‑owned channels was highlighted. | In Q3 2024, the positive mix shift toward direct channels was noted along with higher gross margins and accelerated pipeline growth. | Consistently expanding. The strategy remains central to growth with ongoing improvements in margins and sales cycle efficiency, confirming its critical future impact. |
Mobile and Connected TV Growth Strategy | Q2 2024 announced a forthcoming mobile product debut and noted historical CTV success. Q1 2024 underscored the Zeta ID advantage in mobile and initial CTV growth. Q4 2023 discussions addressed mobile integration and deterministic attribution using Zeta ID. | In Q3 2024, mobile traction is scaling faster than expected while CTV revenue grew over 150% year-over-year, underscoring both as key growth drivers. | Increasing focus. Mobile is emerging as a next major revenue line while CTV continues its strong momentum, highlighting expansion into high‑growth digital channels. |
Revenue Guidance and Growth Outlook Adjustments | In Q2 2024, full‑year guidance was raised to $925M with 27% growth. Q1 2024 saw a raised midpoint to $900M with 24% growth. Q4 2023 maintained conservative guidance at a 20% increase. | Q3 2024 raised the full‑year guidance midpoint to $986M (35% YoY growth) with adjustments driven by LiveIntent, political revenue, and Q3 overperformance. | Upward trajectory. The upward revisions reflect robust performance and growing confidence, supported by multiple revenue drivers. |
Working Capital and Payment Cycle Challenges | Q2 2024 disclosed a $5M headwind due to slow payment cycles. Q1 2024 mentioned longer payment cycles from new agency customers affecting free cash flow. Q4 2023 described a $25M headwind from large agency HoldCos. | Q3 2024 reported a $10M working capital headwind with a 20‑point annualized impact, a recurring challenge as agency growth continues. | Persistent challenge. While the challenge remains modestly lower than Q4 2023, it continues to impact cash flow conversion, requiring ongoing management. |
Sales Force Expansion and Operational Scaling Challenges | Q1 2024 reported headcount growth from 136 to 142 with a focus on hiring experienced sellers. Q2 2024 had limited specific commentary, and Q4 2023 did not present explicit discussion. | Q3 2024 noted a 20% year-over-year increase to reach 155 quota carriers with no major operational scaling issues highlighted. | Steady improvement. Consistent, quality‑focused expansion with improved productivity suggests robust long‑term sales operations without significant scaling roadblocks. |
Customer Growth and Cross‑Channel Adoption | Q2 2024 described increased scaled customer count and a significant push in multi‑channel usage. Q1 2024 highlighted 460 scaled customers and the expansion of cross‑channel adoption. Q4 2023 detailed record ARPU gains and multi‑channel growth among scaled customers. | Q3 2024 reported 475 scaled customers (8% YoY growth) and noted that over 30% of scaled customers are using three or more channels, driving ARPU to record levels. | Robust and expanding. The consistent growth and deeper cross‑channel adoption underline increasing customer engagement and higher lifetime value, reinforcing a positive outlook. |
Recovery of Automotive and Insurance Verticals | Q2 2024 saw both verticals returning to growth, with expectations for double‑digit increases. Q1 2024 highlighted an earlier-than‑expected return with double‑digit growth prospects. Q4 2023 provided strong pipeline visibility and recovery outlook. | In Q3 2024, while insurance was highlighted with over 35% growth, automotive was less emphasized or not mentioned explicitly. | Mixed emphasis. Insurance recovery remains robust but automotive recovery is less prominent in Q3, suggesting either a shift in focus or differing recovery trajectories that could impact overall revenue mix. |
New AI Product Initiatives and Mobile Strategy Innovations | Q1 2024 featured the launch of the Intelligent Agent Composer Store and early mobile strategy using Zeta ID. Q2 2024 discussed broader generative AI integration and partnerships (e.g. with Amazon Bedrock) alongside beta mobile testing. Q4 2023 introduced the Intelligent Agent Composer with clear revenue potential. | Q3 2024 has further expanded its generative AI product lineup (now on version 3) and introduced advanced mobile solutions integrated with LiveIntent, building on prior developments. | Increasing sophistication. Continued evolution in AI and mobile products is broadening the TAM and strengthening the value proposition, indicating significant future growth potential. |
Margin and EBITDA Pressure Concerns | Q1 2024 showed consistent margin expansion (15.6% adjusted EBITDA and improved cost profile). Q2 2024 highlighted improved adjusted EBITDA margins (16.9% with raised full‑year guidance). Q4 2023 noted margins improved to 21.3%, driven by channel shifts. | Q3 2024 reported an adjusted EBITDA margin of 20% with strong margin expansion while acknowledging working capital pressures. | Improving overall. Operational efficiencies and favorable channel migrations have supported margin expansion despite persistent cash flow headwinds, indicating healthy long‑term prospects. |
Political Candidate Revenue Uncertainty | Q1 2024 maintained steady guidance at $15M (with planned quarterly distributions). Q2 2024 reiterated $15M full‑year guidance with conservative estimates. Q4 2023 set a conservative $15M placeholder based on historical performance. | Q3 2024 noted that Q4 revenue from political candidates is expected to be lower than in Q3, with potential minor upside, yet overall uncertainty from the election cycle remains. | Cautious and variable. Despite consistent baseline guidance, uncertainties persist due to the timing of political activity and election‑cycle dynamics, warranting continued vigilant monitoring. |
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Agency Shift to Direct and Gross Margins
Q: How is the shift of agencies to direct channels impacting gross margins?
A: The migration of agency clients from integrated platforms to direct channels is boosting gross margins by shifting the revenue mix. Significant wins are in connected television, online video, and mobile, with mobile adoption happening faster than expected. Direct revenue mix reached 41%, with email growing 29%, display video 46%, and CTV over 150% year-over-year, effectively increasing gross margin by around 100 basis points. This positive trend is expected to continue as more enterprise brands adopt direct channels. -
LiveIntent Acquisition Synergies and Integration
Q: What are the early synergies from the LiveIntent acquisition?
A: Zeta is experiencing faster-than-expected synergies with LiveIntent, including cost savings and executed cross-selling opportunities. They've integrated signals and data into the data cloud, enhancing its capabilities. The acquisition adds a high gross margin, on-platform business, and brings 25 to 30 additional sales reps who will sell core data products, significantly expanding the sales force. -
Pipeline Growth Post Zeta Live Event
Q: What drove the significant 60% increase in pipeline?
A: The pipeline increased by over 60%, driven by the addition of senior sales reps with existing books of business and the success of the Zeta Live event. Over 400 enterprises attended the event, leading to substantial pipeline growth and contracts already exceeding the event's cost in lifetime value. Industry recognition from Forrester and IDC also contributed to this growth. -
Independent Agency Channel Opportunity
Q: How is Zeta progressing with independent agencies?
A: Zeta has executed contracts with independent agencies, with customers already generating meaningful revenue. These relationships are primarily on-platform, resulting in high gross margins and rapid scalability. The sales cycle is moderate, and the pipeline for independent agencies has multiplied significantly, especially following the Zeta Live event. More growth in this area is expected soon. -
Guidance for Political Advertising Revenue
Q: What should we expect for political advertising revenue in Q4?
A: Political candidate revenue contribution is expected to decrease in Q4 due to only one month and a week of activity compared to three full months in Q3. While some upside is possible, it's not anticipated to match Q3 levels. Nonetheless, there's still some political and advocacy spending continuing into the quarter. -
Sales Force Expansion and Hiring Plans
Q: Are there plans to accelerate sales hiring, including from LiveIntent?
A: Zeta focuses on quality over quantity in hiring, maintaining a balance of hunters and farmers. The current sales team does not include the 25 to 30 sales reps from LiveIntent, who will be added and will sell core data products. There's a commitment to hire every good salesperson available, with no restrictions on hiring approvals. -
Integration of LiveIntent Affecting Revenue and Margins
Q: How does the LiveIntent acquisition impact revenue seasonality and margins?
A: LiveIntent operates an exhaust rate business, taking a percentage from both advertisers and publishers, resulting in very high gross margins on-platform. There's slight seasonality with higher Q4 ad spending, but it's expected to be a solid, steady revenue channel moving forward. The acquisition brings unique cross-selling opportunities with blue-chip clients, and their go-to-market model aligns well with Zeta's.