Q2 2024 Zeta Global Holdings Corp Earnings Call

Greetings and welcome to the Zeta Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference,

Operator: At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please do so now; please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Schmitz, Senior Vice President of Investor Relations. Thank you, Scott. You may begin. Thank you, Operator

Speaker Change: Please press star zero on your telephone keypad as a reminder this conference is being recorded

Speaker Change: It is now my pleasure to introduce your host, Scott Schmitz, Senior Vice President of Investor Relations. Thank you, Scott. You may begin.

Scott Schmitz: Hello, everyone, and thank you for joining us for Zeta's second quarter 2024 conference call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com, where you will also find links to our SEC filings along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's co-founder, chairman, and chief executive officer, and Chris Greiner, Zeta's chief financial officer. Before we begin, I'd like to remind everyone that statements made on this call, as well as in the presentation and earnings release, contain forward-looking statements regarding our financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.

Scott Schmitz: Thank you, Operator. Hello, everyone, and thank you for joining us for Zeta's second quarter 2024 conference call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com, where you will also find links to our SEC filings, along with other information about Zeta.

Scott Schmitz: 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.

Scott Schmitz: 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 GAAP results. We use these non-GAAP measures in managing our business and believe they provide useful information for our investors. Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website, as well as in our earnings release and other filings with the SEC. With that, I will now turn the call over to David. Thank you, Scott. Good afternoon, everyone, and thank you for joining us today.

Scott Schmitz: Before we begin...

Scott Schmitz: I'd like to remind everyone that statements made on this call, as well as in the presentation and earnings release, contain forward-looking statements regarding our financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our products, potential competition,

David A. Steinberg: Three years ago, we went public with the promise of bringing data and AI together to modernize marketing technology. Over the course of these three years, we have delivered on this promise and consistently produced beat and raise results. This quarter was no different.

Scott Schmitz: Revenues of our products and our goals and strategies.

Scott Schmitz: These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.

Scott Schmitz: 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.

Scott Schmitz: In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to, and not as a substitute for, our GAAP results.

Scott Schmitz: We use these non-GAAP measures in managing our business and believe they provide useful information for our investors.

Scott Schmitz: Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website, as well as our earnings release and other filings with the SEC.

David A. Steinberg: In the second quarter of 2024, we generated revenue of $228 million, up 33% year over year, and adjusted EBITDA of $38.5 million, up 44% year over year. Our adjusted EBITDA margin of 16.9% expanded 130 basis points year over year. This accelerated revenue growth combined with strong margin performance means we have achieved the rule of 50 for the first time as a public company. And once again, we are raising our full year 2024 outlook by another $25 million to $925 million at the midpoint.

Speaker Change: With that, I will now turn the call over to David.

David A. Steinberg: Thank you, Scott. Good afternoon, everyone, and thank you for joining us today.

David A. Steinberg: Three years ago, we went public with the promise of bringing data and AI together to modernize marketing technology.

David A. Steinberg: Over the course of these three years, we have delivered on this promise and consistently produced beat and raise results.

David A. Steinberg: This quarter was no different.

David A. Steinberg: In the second quarter of 2024, we generated revenue of $228 million.

David A. Steinberg: Up 33% year-over-year, with adjusted EBITDA of $38.5 million, up 44% year-over-year.

David A. Steinberg: Our adjusted EBITDA margin of 16.9% expanded 130 basis points year over year.

David A. Steinberg: This accelerated revenue growth combined with strong margin performance means we have achieved the Rule of 50 for the first time as a public company.

David A. Steinberg: And once again, we are raising our full year 2024 outlook by another $25 million to $925 million at the midpoint.

David A. Steinberg: This translates into 27% year-over-year revenue growth. This is driven by the AI revolution, which is accelerating the replacement cycle of marketing technology. AI is disrupting legacy marketing clouds, which in some cases are even shutting down parts of their business, creating a large opportunity for more innovative, agile, and AI-powered marketing technology companies like Zeta. As I have stated before, AI has moved from science fiction to a boardroom conversation.

David A. Steinberg: This translates into 27% year-over-year revenue growth.

David A. Steinberg: This is driven by the AI revolution, which is accelerating the replacement cycle of marketing technology.

David A. Steinberg: Artificial intelligence is disrupting legacy marketing clouds, which in some cases are even shutting down parts of their business.

David A. Steinberg: and others creating a large opportunity for more innovative, agile, and AI-powered marketing technology companies like Zeta.

David A. Steinberg: As I have stated before, AI has moved from science fiction to a boardroom conversation.

David A. Steinberg: Boards are asking CEOs what their AI strategy is. In turn, CEOs are asking their CTOs, CMOs, and CIOs for their plan. And they are turning to us because we turn AI into real world results for marketers. Enterprises are looking to Zeta to improve productivity, deliver personalization at scale, and develop marketing programs with a measurable and superior return on investment. This is core to our value proposition. We have been focused on AI for many years, not many months, with AI, natural language processing, and data at the core of our platform. As the use of Gen AI tools has grown, there has been greater acknowledgment that marketing is among the first functions to be transformed by AI. However, realizing the full potential of Gen AI requires proprietary data.

David A. Steinberg: Boards are asking CEOs what is their AI strategy. In turn, CEOs are asking their CTOs, CMOs, and CIOs for their plans.

Speaker Change: And they are turning to us because we turn AI into real-world results for marketers.

Zeta: Enterprises are looking to Zeta to improve productivity, deliver personalization at scale, and develop marketing programs with a measurable and superior return on investment.

Zeta: This is core to our value proposition. We have been focused on AI for many years, not many months, with AI, natural language processing, and data at the core of our platform.

Zeta: As the use of Gen AI tools has grown, there has been greater acknowledgment that marketing is among the first functions to be transformed by AI.

Zeta: Realizing the full potential of Gen-AI requires proprietary data. Over the last 15 years, we have invested and innovated to assemble one of the largest proprietary, opted-in data clouds.

David A. Steinberg: Over the last 15 years, we have invested and innovated to assemble one of the largest proprietary, opt-in data clouds. Our flexible and scalable data platform enhances and extends investments that enterprises have made in modern data warehouses, such as Snowflake and Databricks, and has a robust identity resolution capability built right in. Taken together, these modules make it easier for marketers to target the right customers at the right time while keeping the security of their data and the privacy of their consumers within the enterprise's ecosystem. There is no data exhaust from Zeta's LLMs like there is with others.

Zeta: Our flexible and scalable data platform enhances and extends investments that enterprises have made in modern data warehouses, such as Snowflake and Databricks.

Zeta: and has a robust identity resolution capability built right in.

Zeta: Taken together, these modules make it easier for marketers to target the right customers at the right time, while keeping the security of their data and the privacy of their consumers within the enterprise's ecosystem.

Zeta: There is no data exhaust from Zeta's LLMs like there are with others.

David A. Steinberg: While our AI-powered intelligence delivers value from day one, we are not standing still. We are seeking new ways to expand our AI advantage. We recently announced an advancement in Gen AI functionality by partnering with Amazon's Bedrock platform. This collaboration enhances and extends our long-standing partnership with AWS and gives Zeta greater access to AWS customers with tools to create intelligent AI assistants with personalized workflows that can handle all of their marketing tasks.

Zeta: While our AI-powered intelligence delivers value from day one, we are not standing still. We are seeking new ways to expand our AI advantage.

Zeta: We recently announced an advancement in Gen AI functionality by partnering with Amazon's Bedrock platform.

Zeta: This collaboration enhances and extends our long-standing partnership with AWS.

Zeta: and gives Zeta greater access to AWS customers with tools to create intelligent AI assistants with personalized workflows that can handle all of their marketing tasks.

David A. Steinberg: An emerging example of the power of Zeta's intelligence is the launch of the Zeta Economic Index, or ZEI, which we announced earlier this month. The ZEI is a next-generation barometer of the U.S. economy, leveraging Zeta's proprietary data cloud, which captures the behavior of 240 million Americans.

Zeta: An emerging example of the power of Zeta's intelligence is the launch of the Zeta Economic Index, or ZEI, which we announced earlier this month.

Zeta: The ZEI is a next-generation barometer of the U.S. economy.

Zeta: Leveraging Zeta's proprietary data cloud, which captures the behavior of 240 million Americans, it predicts the trajectory of the macroeconomy and highlights microeconomic levers.

David A. Steinberg: It predicts the trajectory of the macroeconomy and highlights microeconomic levers. Zeta's ability to produce a sophisticated tool like this underscores our commitment to providing unique, actionable business intelligence to enterprises. And with strong initial media coverage by CNBC, Bloomberg, Forbes, CNN, and others, VEI is also an incremental source of brand awareness. Our ability to provide AI-driven intelligence to the world's leading enterprises enables them to understand the drivers of consumer behavior and intent.

Zeta: Zeta's ability to produce a sophisticated tool like this underscores our commitment to providing unique, actionable business intelligence to enterprises.

Speaker Change: And with strong initial media coverage by CNBC, Bloomberg, Forbes, CNN, and others, the VEI is also an incremental source of brand awareness.

Speaker Change: Our ability to provide AI-driven intelligence to the world's leading enterprises enables them to understand the drivers of consumer behavior and intent.

David A. Steinberg: For example, a leading national furniture retailer is leveraging the ZMP, including Zeta's proprietary identity graph and intent signals to predict in-market intent, target prospects, and customers in their preferred channel, optimize the customer journey touchpoints, and deterministically measure their return on investment. Our AI capabilities will also be on full display at our fourth annual Zeta Live event, taking place on September 26 in New York City. This year, our featured speakers include Shaquille O'Neal, Dr. Deepak Chopra, and Michael Milken.

Speaker Change: For example, a leading national furniture retailer is leveraging the ZMP, including Zeta's proprietary identity graph and intent signals, to predict

Speaker Change: In market intent, target prospects and customers in their preferred channel, optimize the customer journey touchpoints, and deterministically measure their return on investment.

Speaker Change: Our AI capabilities will also be on full display at our fourth annual Zeta Live event, taking place on September 26th in New York City.

Speaker Change: This year, our featured speakers include Shaquille O'Neal, Dr. Deepak Chopra, and Michael Milken. In addition, we will have CMOs from many Fortune 500 companies.

David A. Steinberg: In addition, we will have CMOs from many Fortune 500 companies. In total, there will be over $100 billion of annual marketing spend controlled by the people in that room. Data Live provides a unique opportunity to gain deep insights, discover practical strategies, and take advantage of invaluable networking connections that will help brands harness the transformative power of artificial intelligence.

Speaker Change: In total, there will be over $100 billion of annual marketing spend controlled by the people in that room.

Speaker Change: Zeta Live provides unique opportunity to gain deep insights, discover practical strategies, and take advantage of invaluable networking connections that will help brands harness the transformative power of artificial intelligence.

David A. Steinberg: Zeta Live 2023 has been a key driver of our growing pipeline and market awareness, with customers in attendance accounting for over a quarter of our pipeline and one third of new scaled customers this past year. Our increasing brand exposure is giving us a broader vantage point of where the market is going. This strengthens our ability to improve our competitive position through internal development while remaining opportunistic for creative transactions that can enhance our platform, accelerate our speed to market, and deliver additional value to our customers. In closing, I am extremely excited about our growing market awareness and the competitive position of our platform. We remain hyper focused on executing on the huge opportunity in front of us.

Speaker Change: ZetaLive 2023 has been a key driver of our growing pipelines and market awareness.

Speaker Change: with customers in attendance accounting for over a quarter of our pipeline and one-third of new scaled customers this past year.

Speaker Change: Our increasing brand exposure is giving us a broader vantage point of where the market is going.

Speaker Change: This strengthens our ability to improve our competitive position through internal development while remaining opportunistic for accretive transactions that can enhance our platform, accelerate our speed to market, and deliver outside value to our customers.

Speaker Change: In closing, I am extremely excited about our growing market awareness and the competitive position of our platform. We remain hyper-focused on executing on the huge opportunity in front of us.

David A. Steinberg: While we have come a long way as a public company over the last three years, we truly believe we are just getting started. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn it over to Chris to discuss our results in greater detail.

Speaker Change: While we have come a long way as a public company over the last three years, we truly believe we are just getting started.

Christopher E. Greiner: As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail. Chris?

Christopher E. Greiner: Thank you, David, and good afternoon, everyone. There are many positive developments to highlight as we turn the corner into the back half of 2024. Visibility into our existing customers and prospects is high, and momentum across several of our growth catalysts is building. An adjusted EBITDA margin and cash conversion are increasing. These three factors are contributing to the second quarter's strong beat and our confidence to once again raise our third quarter and four-year guidance. I'll spend time today detailing the drivers of the second quarter's beat and our accelerating performance.

Christopher E. Greiner: Thank you, David, and good afternoon, everyone. There are many positive developments to highlight as we turn the corner into the back half of 2024.

Christopher E. Greiner: Visibility into our existing customers and prospects is high. Momentum across several of our growth catalysts is building. An adjusted EBITDA margin and cash conversion is increasing.

Christopher E. Greiner: These three factors are contributing to the second quarter's strong beat and our confidence to once again raise third quarter and full year guidance.

Christopher E. Greiner: I'll spend time today detailing the drivers of the second quarter's beat and our accelerating performance.

Christopher E. Greiner: Discussing why Zeta's differentiated capabilities, value proposition, and go-to-market is contributing to our share game. And wrap up by outlining how we are flowing through our momentum in the form of increased revenue, adjusted EBITDA, and cash flow guidance.

Christopher E. Greiner: discussing why Zeta's differentiated capabilities, value proposition, and go-to-market is contributing to our share game. And wrap up by outlining how we are flowing through our momentum in the form of increased revenue, adjusted EBITDA, and cash flow guidance. So let's dive in, starting with the second quarter's results.

Christopher E. Greiner: We delivered revenue of $228 million, $16 million better than the midpoint of guidance, and up 33% year-to-year, the fastest growth rate we've seen since going public three years ago. Two growth catalysts contributed to the beat and acceleration this quarter. First, our growth in the insurance and automotive verticals continued its upward trajectory, accelerating at a faster pace than expected. And second, our agency business, driven by the addition of new brands across several verticals, led to the highest quarterly ARPU growth rate in three years.

Christopher E. Greiner: So let's dive in, starting with the second quarter's results.

Christopher E. Greiner: We delivered revenue of $228 million, $16 million better than the midpoint of guidance, and up 33% year-to-year, the fastest growth rate we've seen since going public three years ago.

Christopher E. Greiner: Two growth catalysts contributed to the beat and acceleration this quarter.

Christopher E. Greiner: First, our growth in insurance and automotive verticals continued their upward trajectory, accelerating at a faster pace than expected.

Christopher E. Greiner: And second, our agency business, driven by the addition of new brands across several verticals, led to the highest quarterly ARPU growth rate in three years.

Christopher E. Greiner: From a Zeta 2025 KPI perspective, the scaled customer count increased from 460 in 1Q to 468 in 2Q, up 10% year-to-year, with superscaled customers of 144 equal to last quarter and up 22% year-to-year. Total quarterly scaled customer ARPU was 479,000, up 22% year-to-year, two times faster than the first quarter's growth rate of 11%, and well above our This was fueled by superscaled customers, many of which were large agencies adding incremental brands.

Christopher E. Greiner: From a Zeta 2025 KPI perspective,

Christopher E. Greiner: Scaled customer count increased from 460 in 1Q to 468 in 2Q, up 10% year-to-year, with superscaled customers of 144, equal to last quarter, and up 22% year-to-year.

Christopher E. Greiner: Total quarterly scaled customer ARPU was 479,000, up 22% year-to-year, two times faster than the first quarter's growth rate of 11%, and well above our model of 8-12% growth.

Christopher E. Greiner: This was fueled by super-scaled customers, many of which were large agencies adding incremental brands.

Christopher E. Greiner: This is the equivalent of adding new scaled customers since we only count an agency as one customer. In fact, across our top five agency-held co-customers, we're working with an average of 19 brands at each. Up from 12 a year ago, more than 50% growth. Additionally, each of these brands meet the definition of a scaled customer, which is at least $100,000 in revenue over a trailing 12-month period. We had a solid quarter of adding new quota carriers, increasing from 142 in the first quarter to 152 in the second quarter, up 22 or 17 percent. We continue to see balanced growth across several of our industry verticals, with 6 out of our top 10 growing 25% or more. DirectMix for the quarter was 67%, consistent with the first quarter.

Christopher E. Greiner: This is the equivalent of adding new scaled customers since we only count an agency as one customer. In fact, across our top five agency hold co-customers, we're working with an average of 19 brands at each, up from 12 a year ago, more than 50% growth.

Christopher E. Greiner: Each of these brands meet the definition of a scaled customer, which is at least $100,000 in revenue over a trailing 12-month period.

Speaker Change: We had a solid quarter of adding new quota carriers, increasing from 142 in the first quarter to 152 in the second quarter, up 22, or 17%.

Christopher E. Greiner: We continue to see balanced growth across several of our industry verticals, with six out of our top ten growing 25% or more.

Christopher E. Greiner: DirectMix for the quarter was 67%, consistent with the first quarter, and as has been the case now for several quarters, DirectMix is influenced by our rapid growth of agency hold co-customers adopting our social channel capabilities.

Christopher E. Greiner: And as has been the case now for several quarters, DirectMix is influenced by our rapid growth with agency hold co-customers adopting our social channel capabilities. These revenues are classified as integrated revenue, which grew 71% year-to-year in 2Q. At the same time, direct revenue growth improved to 20% year-to-year in 2Q versus 17% in the first quarter. The second quarter's gap cost of revenue was 40% compared to 39.4% in the first quarter and 36.1% last year.

Christopher E. Greiner: These revenues are classified as integrated revenue, which grew 71% year-to-year in 2Q. At the same time, direct revenue growth improved to 20% year-to-year in 2Q versus 17% in the first quarter.

Christopher E. Greiner: The second quarter's gap cost of revenue was 40%, compared to 39.4% in the first quarter and 36.1% last year.

Christopher E. Greiner: The higher cost of revenue year-to-year is driven primarily by channelness, including the rapid growth in social channels from agencies that, despite a higher cost of revenue profile, is accreted to overall adjusted EBITDA margins. Our second quarter gap net loss was $28 million, which includes $52 million of stock-based compensation.

Christopher E. Greiner: The higher cost of revenue year-to-year is driven primarily by channel mix, including the rapid growth in social channels from agencies that, despite a higher cost-of-revenue profile, is accreted to overall adjusted EBITDA margins.

Christopher E. Greiner: Our second quarter gap net loss was $28 million, which includes $52 million of stock-based compensation.

Christopher E. Greiner: Excluding the accelerated expensing to our ITO, stock-based compensation would have been $33 million. As for the remainder of the P&L and balance sheet, it was a strong quarter across the board. As compared to 48.7% a year ago, excluding stock-based compensation, sales and marketing and G&A declined by an average of 260 basis points year-to-year, while R&D was flat as we made incremental investments in product and engineering related to mobile and generative AI.

Christopher E. Greiner: Excluding the accelerated expensing to our ITO, stock-based compensation would have been $33 million.

Christopher E. Greiner: As for the remainder of the P&L and balance sheet, it was a strong quarter across the board. OPEC, as a percentage of revenue, was 43.3%, as compared to 48.7% a year ago, excluding stock-based compensation.

Christopher E. Greiner: Sales and marketing and G&A declined by an average of 260 basis points year-to-year, while R&D was flat as we make incremental investments in product and engineering related to mobile and generative AI.

Christopher E. Greiner: We generated $38.5 million of adjusted EBITDA, $3 million better than the midpoint of guidance, and up 44% year-to-year at a margin of 16.9%, or 130 basis points better than last year. This represents an acceleration from the first quarter's 40 basis point improvement, with incremental revenue upside dropping to adjusted EBITDA at a 21% margin. Cash from operating activities was $31 million, up 51% year-to-year, and free cash flow was $20 million, up 53%.

Christopher E. Greiner: We generated 38.5 million of adjusted EBITDA, 3 million better than the midpoint of guidance, and up 44% year-to-year at a margin of 16.9%, or 130 basis points better than last year.

Christopher E. Greiner: This represents an acceleration from the first quarter's 40 basis point improvement, with incremental revenue upside dropping to adjusted EBITDA at a 21% margin.

Christopher E. Greiner: Cash from operating activities was $31 million, up 51% year-to-year, with free cash flow of $20 million, up 53%. This translates to an adjusted EBITDA to free cash flow conversion of 51%.

Christopher E. Greiner: This translates to an adjusted EBITDA to free cash flow conversion of 51%. I want to take a moment to share a few observations on one of the more common questions we've received this past quarter, which is the macro's impact on buying decisions and how it's influencing what CMOs and CTOs are requiring from their vendors. The intent is to illustrate why and how they have been able to perform through this period of chopping.

Speaker Change: I want to take a moment to share a few observations discussing one of the more common questions we've received this past quarter, which is the macro's impact on buying decisions and how it's influencing what CMOs and CTOs are requiring from their vendors.

Speaker Change: The intent is to illustrate why and how Zeta has been able to execute through this period of chocolate.

Christopher E. Greiner: First, we're seeing increased involvement and budgetary responsibility by the CTO in close consultation with the CMO. We believe this change is spurred by a marketing technology replacement cycle that continues to pick up steam. From legacy marketing clouds and point solution vendors, this is creating challenges. For Zeta, it's a positive shift as it elevates replacing legacy systems and eliminating point solutions.

Speaker Change: First, we're seeing increased involvement and budgetary responsibility by the CTO in close consultation with the CMO. We believe this change is spurred by a marketing technology replacement cycle that continues to pick up steam.

Speaker Change: For legacy marketing clouds and point solution vendors, this is creating challenges. For Zeta, it's a positive shift, as it elevates replacing legacy systems and eliminating point solutions, sitting squarely in one of our key value propositions of lowering total cost of ownership.

Christopher E. Greiner: Sitting squarely in one of our key value propositions of lowering total cost of ownership, the CTO's involvement is also affecting the RFP timeline. For Zeta, it is far less of an impact than what others are encountering since the vast majority of our customer wins start as pilots, in many cases bypassing an RFP altogether. Postpilot, we expand WalletShare as incremental channels and use cases prove a higher attributable ROI from using our platform. Slide 11 in our Earnings Supplemental best illustrates our unique land, expand, extend, go-to-market sales motion.

Speaker Change: The CTO's involvement is also affecting RFP timeline. For Zeta, it is far less of an impact than what others are encountering since the vast majority of our customer wins start as pilots, in many cases bypassing an RFP altogether.

Speaker Change: Post-pilot, we expand WalletShare as incremental channels and use cases prove a higher attributable ROI from using our platform.

Speaker Change: Slide 11 in our Earnings Supplemental best illustrates our unique land, expand, extend, go-to-market sales motion.

Christopher E. Greiner: Second, we're seeing large enterprises shift investment to first-party data partners, spurred by a focus on personalization. This is causing disruption for legacy CDPs and marketing cloud vendors who could not own proprietary data. In Zeta's case, we provide access to our first-party proprietary data cloud out-of-the-box, along with an end-to-end platform of audience creation, orchestration, and activation capability. For a CMO, this allows for the seamless creation of a singular customer record.

Speaker Change: Second, we're seeing large enterprises shift investment to first-party data partners spurred by a focus on personalization.

Speaker Change: This is causing disruption for legacy CDP and marketing cloud vendors who do not own proprietary data.

Speaker Change: In Zeta's case, we provide access to our first-party proprietary data cloud out-of-the-box, along with an end-to-end platform of audience creation, orchestration, and activation capabilities.

Speaker Change: For a CMO, this allows for the seamless creation of a singular customer record.

Christopher E. Greiner: Zeta is one of the only platforms merging the data ecosystem of existing customers and prospects. For a CTO, it allows for the elimination of multiple data vendors and first-generation CDPs while creating faster paths to integrate data because of Zeta's partnerships with companies like Snowflake and AWS. And finally, CMOs want to practically understand what generative AI can do for them and their team. Otherwise, generative AI can be a distraction for buyers if you're not able to demonstrate its real-world utility and ease of use. Zeta is solving for this.

Speaker Change: Zeta is one of the only platforms merging the data ecosystem of existing customers and prospects.

Speaker Change: For a CTO, it allows for the elimination of multiple data vendors and first-generation CDPs, while creating faster paths to integrate data because of Zeta's partnerships with companies like Snowflake and AWS.

Speaker Change: And finally, CMOs want to practically understand what generative AI can do for them and their teams. Otherwise, generative AI can be a distraction for buyers if you're not able to demonstrate its real-world utility and ease of use.

Christopher E. Greiner: We've transformed our internal learning and development team into external-facing customer trainers so we could flatten the AI learning curve for our customers and prove its ease of use. The utility of our AI can be viewed through the lens of conversations our customers are having with our intelligent agents. We now have over 400 agents created to date, and while it's still very early, we saw conversations increase 300% month-over-month in June alone.

Speaker Change: Zeta is solving for this. We've transformed our internal learning and development team into external facing customer trainers so we could flatten the AI learning curve for our customers and prove its ease of use.

Speaker Change: The utility of our AI can be viewed through the lens of conversations our customers are having with our intelligent agents.

Speaker Change: We now have over 400 agents created to date. And while it's still very early, we saw conversations increase 300% month-over-month in June alone.

Christopher E. Greiner: Agent Conversations drive a more efficient and effective marketing campaign for our customers. It's these factors, in combination with a well-diversified large enterprise and agency customer set, that we can execute through the choppiness others are having challenges navigating. Which is a good lead-in to my final topic, how we're flowing through our upsided 2Q and the details of our increased 2024 guidance. We are raising revenue and adjusted EBITDA guidance for the third quarter and full year, along with increasing the midpoint of 2024's pre-cash flow guidance. Details can be found starting on slide 16 of our earnings supplement.

Speaker Change: Agent conversations drive a more efficient and effective marketing campaign for our customers.

Speaker Change: It's these factors, in combination with a well-diversified large enterprise and agency customer set, that we can execute through the choppiness others are having challenges navigating.

Speaker Change: Which is a good lead-in to my final topic, how we're flowing through our upsided 2Q and the details of our increased 2024 guidance.

Speaker Change: We're raising revenue and adjusted EBITDA guidance for the third quarter and full year, along with increasing the midpoint of 2024's free cash flow guidance.

Speaker Change: Details can be found starting on slide 16 of our earnings supplement.

Christopher E. Greiner: For the full year of 2024, we're increasing the midpoint of revenue guidance to $925 million, representing 27% growth year-over-year. This is a $25 million increase from our prior guidance, more than the $16 million of upside we delivered in 2Q, and represents an acceleration of full-year growth from 23% last year. Our second-quarter political candidate revenue was consistent with our guidance at $1.5 million, and we're maintaining our $15 million outlook for the year, as shown on slide 18 in our earnings supplemental presentation.

Speaker Change: For the full year of 2024, we're increasing the midpoint of revenue guidance to $925 million, representing 27% growth year-over-year.

Speaker Change: This is a $25 million increase from our prior guidance, more than the $16 million of upside we delivered in 2Q and represents an acceleration of full-year growth from 23% last year.

Speaker Change: Second quarter political candidate revenue was consistent with our guidance at $1.5 million, and we're maintaining our $15 million outlook for the year, as shown on slide 18 in our earnings supplemental presentation.

Christopher E. Greiner: Advocacy revenue, which becomes more prominent during political cycles, increased every month of the quarter, another positive sign for growth in the back half of the year. For the third quarter of 2024, we're increasing the midpoints of revenue guidance by $9.2 million to $239.2 million, up 27% year-to-year. In terms of full year 2024 adjusted EBITDA, we're increasing the midpoint of our 2024 guidance to $175.5 million, representing a year-over-year increase of 36% or 19% margin.

Speaker Change: Advocacy revenue, which becomes more prominent during political cycles, increased every month of the quarter, another positive sign for growth in the back half of the year.

Speaker Change: For the third quarter of 2024, we're increasing the midpoints of revenue guidance by $9.2 million to $239.2 million, up 27% year-to-year.

Speaker Change: In terms of full year 2024 adjusted EBITDA, we're increasing the midpoints of 2024 guidance to $175.5 million, representing a year-over-year increase of 36% or 19% margin.

Christopher E. Greiner: For the third quarter of 2024, we're increasing the midpoints of adjusted EBITDA guidance by $1.8 million to $47.1 million, up 39% year-to-year or 19.7% margin. We're also raising the midpoint of full-year free cash flow guidance to $85 million from $80 million in our prior outlook.

Speaker Change: For the third quarter of 2024, we're increasing the midpoints of adjusted EBITDA guidance by $1.8 million to $47.1 million, up 39% year-to-year, or 19.7% margin.

Speaker Change: We're also raising the midpoint of full-year free cash flow guidance to $85 million from $80 million in our prior outlook. This represents a cash conversion percentage of 48% up versus 42% last year.

Christopher E. Greiner: This represents a cash conversion percentage of 48%, up versus 42% last year. Before we take your questions, I'll wrap with a couple of final thoughts. First, it's clear investments made years ago to re-architect our platform, make data and AI native to the application layer, and re-engineer our go-to-market motion are proving to be precious. [inaudible] Visibility into our business is high, and therefore confidence in our guidance continues to strengthen. Now, let me hand the call back over to the operator for me and David to take your question. Operator.

Speaker Change: Before we take your questions, I'll wrap with a couple of final thoughts.

Speaker Change: First, it's clear investments made years ago to re-architect our platform, make data and AI native to the application layer, and re-engineer our go-to-market motion is proving to be prescient.

Speaker Change: And second, visibility into our business is high, and therefore confidence in our guidance continues to strengthen.

Speaker Change: Now, let me hand the call back over to the operator for me and David to take your questions. Operator?

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: Thank you. We will now be conducting a question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Ryan Michael MacDonald: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. The first question comes from Ryan MacDonald with Needham & Company. Please go ahead. Hi, thanks for taking my questions, and congrats on an amazing quarter. David, maybe I could start with you, excellent to hear about all the strong scaled customer ARPU expansion, and clearly, the agency channel continues to be a big driver of that. As we think about the additional brands that were added, just as a clarification, were there any new agency customers added during the quarter, or are these all brand expansions within the existing base of agencies? And is there any seasonality in brand additions with these agency partners as we move forward? Well, first, thank you, Ryan. I appreciate it.

Speaker Change: First question comes from Ryan MacDonald with Needham & Company. Please go ahead.

Ryan Michael MacDonald: Thanks for taking my questions and congrats on an amazing quarter. David, maybe to start with you, excellent to hear about all the strong-scaled customer ARPU expansion.

Speaker Change: Clearly, the agency channel continues to be a big driver of that.

Speaker Change: As we think about the additional brands that were added, just as a clarification, were there any new agency customers added during the quarter, or are these all brands that were added?

Speaker Change: expansions within the existing base of agencies. And is there any season that way we should think about seasonality of brand additions with these agency partners as we move forward? Thanks.

David A. Steinberg: You know, we said in the last couple of quarters that we had gone from one to three to five. So the answer is that these are in those five, but we're seeing the new agencies, as in the ones we've added over the last six months, scale very, very rapidly. One of the things I found so interesting about the quarter is this. Look at it.

Speaker Change: Well, first, thank you, Ryan. Appreciate it. You know, we had said...

Speaker Change: over the last couple of quarters that we have gone from one to three to five. So the answer is that these are in those five, but we're seeing the new agencies, as in the ones we've added over the last six months,

Speaker Change: scale very, very rapidly. One of the things I found so interesting about the quarter was

David A. Steinberg: The ARPU growth of 22% from existing customers is really emblematic of how well our AI, our data, and our software are working because we're seeing clients that are using them growing at an accelerated pace. When you look at going from an average of 12 brands per agency to an average of 19 brands per agency, which Chris talked about in the prepared remarks, That's really just scratching the surface. Because if you look at it...

Speaker Change: If you look at it...

Speaker Change: The ARPU growth of 22% from existing customers

Speaker Change: is really emblematic of how well our AI, our data, and our software are working. Because we're seeing clients that are using it growing at an accelerated pace.

Speaker Change: When you look at going from an average of 12 brands per agency to an average of 19 brands per agency, which Chris talked about in the prepared remarks,

Speaker Change: That's really just scratching the surface, because if you look at it...

David A. Steinberg: These five agency hold codes that we work with today have hundreds each of clients, so we're very happy about the progress there. As it relates to seasonality,

Christopher E. Greiner: These five agency hold codes that we work with today have hundreds each of clients. So we're very happy about the progress there. As it relates to seasonality,

David A. Steinberg: You know, it all depends on if you're asking about seasonality or the addition of brands. It's not really the case, right? We are working with our agency clients. We love our agency clients.

Christopher E. Greiner: You know it all depends on if you're asking about seasonality about the addition of brands. It's not really the case right we are working with our agency clients

David A. Steinberg: They've been incredible partners to us. Our goal is to help them be the heroes of their stories with their brands, right? So we're there to service the agency, and as a subset, they're bringing more brands to work with us as a part of that. So I expect that trend to continue. I expect us to continue to grow brands within those agencies. And by the way, there are a whole host of incredible midsize agencies, some of which we're working with very, very closely. And our goal is to grow with them as well. As it relates to the business for seasonality of revenue, it really depends on the brand.

Christopher E. Greiner: We love our agency clients. They've been incredible partners to us. Our goal is to help them be the heroes of their stories with their brands, right? So we're there to service the agencies.

Christopher E. Greiner: And as a subset, they're bringing more brands to work with us as a part of that. So I expect that trend to continue. I expect us to continue to grow brands within those agencies. And by the way, there's...

Christopher E. Greiner: A whole host of incredible mid-sized agencies.

Christopher E. Greiner: [inaudible]

David A. Steinberg: You've got some brands that go up in the fourth quarter around the holiday season, and you've got some brands that go up in the first quarter around the buying season. You have some brands that go up in the third quarter around back to school, right? And you can go through that. But we've been consistently increasing the number of brands that we work with, with those five age groups, And the goal is to continue to add those. Really helpful color there.

Speaker Change: It really depends on the brand. You've got some brands that go up.

Speaker Change: In the fourth quarter around the holiday season, and you've got some brands that go up in the first quarter around buying season, you have some brands that go up in the third quarter around back to school, right? And you can go through that. But we've been consistently increasing the number of brands that we work with, with those five agencies.

Speaker Change: And the goal is to continue to add those brands.

Ryan Michael MacDonald: Maybe as a follow-up, just wanted to ask about the automotive and the insurance verticals, because they were obviously called out for that sort of acceleration again this quarter. Can you just remind us maybe where those verticals are trending relative to what's called the 2022 levels? Are we fully back to those levels yet?

Speaker Change: Really helpful color there. Maybe as a follow-up, I just wanted to ask on the automotive and the insurance verticals because they were obviously called out for that.

Christopher E. Greiner: And as you kind of think about the current environment, is there a possibility for those verticals to sort of get to a point and grow to a point where they exceed those prior levels and not just recover, but improve? Thanks, Ryan. The automotive and the insurance verticals each returned to growth in the first quarter. In the second quarter, both individually and then, obviously, on a combined basis grew even faster than total Zetas by 33%. But no, not yet at their peak.

Speaker Change: Scott Schmitz, Christopher Greiner

Speaker Change: Is there a possibility for those verticals to sort of get to a point and grow to a point where they exceed those prior levels and not just recover but improve? Thanks.

Speaker Change: Thanks, Ryan.

Speaker Change: The automotive and the insurance verticals each returned to growth in the first quarter. In the second quarter, both individually, and obviously on a combined basis, grew even faster than total Zetas at 33%. But no, not yet at peak. And we have existing...

Speaker Change: And there's no reason to think they can't grow over the years to substantially larger than they were at one point.

Christopher E. Greiner: And we have existing pipeline opportunities into different brands in those verticals as well, but we feel like we've got good momentum in those two places, and there's no reason to think they can't grow over the years to substantially larger than they were at one. Excellent, congratulations again on a great job. Next question, Terry Tillman with Truist Security, please go ahead. Yeah, hey, David, Chris, and Scott, congratulations from me as well.

Speaker Change: Next question, Terry Tillman with Truist Securities, please go ahead.

Terry Tillman: I had a couple questions. The first question, I'd love to delve a little bit more into the Gen AI traction you're seeing. I know you don't have a direct monetization strategy at this point, but indirectly, is it then actually driving more consumption revenue at this point? Or is it creating the conversation to use other modules?

Terry Tillman: Hey David, Chris, and Scott, congratulations from me as well. I had a couple questions. The first question, I'd love to delve a little bit more into the Gen-AI traction you're seeing. I know you don't have a direct monetization strategy at this point.

Terry Tillman: But indirectly, is it then actually driving more consumption revenue at this point, or is it creating the conversation to use other modules?

Speaker Change: And the second part of that first question on, you know, the six billion plus replacement market opportunity.

Speaker Change: How direct and involved in the RFPs for those replacements are you seeing Gen-AI as part of the language in the deal? And then I had a follow-up for Chris.

David A. Steinberg: And the second part of that first question on, you know, the six billion plus replacement market opportunity. How direct and involved in the RFPs for those replacements are you seeing Gen-AI as part of the language in the deal? Okay, so thank you. First of all, thank you, Terry. Appreciate it. So I would tell you when I actually know the percentage. I'm not sure I can share it.

Christopher E. Greiner: Okay, so thank you. First of all, thank you, Terry. I appreciate it.

David A. Steinberg: But but the vast majority of our customers are now actively using our gen AI products. I believe it is a direct result of the 22% ARPU growth of our. We are seeing customers that use it scale substantially faster than customers who have not adopted it yet in utilization fees and increasing their contractual relationships with us. So, correct, it's not a direct result.

Speaker Change: I actually know the percentage, I'm not sure I can share it, but the vast majority of our customers are now actively using our Gen AI products. I believe it is a direct result of the 22% ARPU growth of our existing customers.

Speaker Change: We are seeing...

Speaker Change: Customers that use it scale substantially faster than customers who have not adopted it yet in utilization fees and increasing their contractual relationships with us. So, correct, it's not a direct...

David A. Steinberg: General Revenue Generation today. We're not charging for it yet. I do see a scenario where we will in the years to come as we build more advanced data scientists in a box. But for now,

Speaker Change: General Revenue Generation today. We're not charging for it yet. I do see a scenario where we do in the years to come as we build more advanced data scientists in a box, but for now

Terry Tillman: I think it is directly responsible for the corporate 33% growth. As it relates to the replacement cycle, I personally have not seen an RFP over the last three months that did not have an AI component. And I believe that it is the reason that we are winning and will continue to win RFPs at an incredibly high percentage of the ones we see. Our goal is to continue to grow Zeta from what used to be Zeta Who to now what is YZeta.

Speaker Change: I think it is directly responsible for the corporate 33% growth rate.

Speaker Change: As it relates to the replacement cycle, I personally have not seen an RFP over the last three months that did not have an AI component to it, and I believe

Speaker Change: that it is the reason that we are winning and will continue to win RFPs.

Speaker Change: at an incredibly high percentage of the ones we see.

Speaker Change: to continue to grow Zeta from what used to be Zeta-who to now what is why Zeta. My long-term goal is to get to must-have Zeta, and we continue to work on that. So the more RFPs we get...

Terry Tillman: My long-term goal is to get to must-have Zeta, and we continue to work on that. So the more RFPs we get, the more language around AI that's in there, the higher the percentage of them we win. That's great, thanks for that. And I guess Chris, just the final question here is on the scaled customer RPO. I mean, it was substantial. I mean, I had to, like, look at it a second time.

Speaker Change: The more language around AI that's in there, the higher the percentage of them we are winning.

Christopher E. Greiner: So congrats on that. But how do we think about 3Q and 4Q? I know some of this was definitely driven by the agency Holt Cotraction with Brandt. But should we assume something more in that 8 to 12% growth range in 3Q and 4Q? Thank you.

Speaker Change: That's great. Thanks for that. And I guess, Chris, just the final question here is, on the skilled customer RPO, I mean, it was substantial. I mean, I had to, like, look at it a second time. So, congrats on that. But how do we think about 3Q and 4Q? I know some of this was definitely driven by the agency Holt Cotraction with Brands, but should we assume something more in that 8 to 12 percent growth range in 3Q and 4Q? Thank you.

Christopher E. Greiner: Thanks, Terry. I do think it's best to keep expectations within our model. So both for adding the amount of scaled customers, which is to grow between 8 and 12%, and then making them bigger and growing the ARPU between 8 and 12%. What really helped the ARPU this quarter, and it's a great, you know, it's a great tailwind to have, is that we now have a third of our total scaled customers. Transcribed by https://otter.ai, And the count of those customers grew over 30%.

Speaker Change: Thanks, Terry. I do think it's best to...

Speaker Change: to keep expectations within our model. So both for adding the amount of skilled customers.

Speaker Change: which is to grow between 8 and 12%, and then making them bigger, and to grow the ARPU between 8 and 12%. What really helped the ARPU this quarter, and it's a great, you know, it's a great tailwind to have, is we now have a third of our total scaled customers using three or more channels.

Christopher E. Greiner: And then, for the first time I can think of in a while, all three of our use cases, so we offer the Acquire, the Grow, and the Retain use case; all three use cases, in terms of revenue growth, grew over 25%. So it was broad-based, it was cross-industry verticals, and it was strong adoption of our multi-channel. Next question, Matt Swanson with RBC.

Speaker Change: And that count of those customers grew over 30%.

Speaker Change: and then

Speaker Change: For the first time I can think of in a while...

Speaker Change: All three of our use cases, so we offer the Acquire, the Grow, and the Retain use case, all three use cases in terms of revenue growth were over 25%. So it was broad-based, it was cross-industry verticals, and it was strong adoption of our multi-channels.

Matthew Louis Saltzman: Please go ahead. Yeah, thank you so much for taking my questions. And I'll echo my congratulations on the quarter. Um, David, maybe, staying on Gen AI, could we get a little bit deeper into what you're seeing as kind of the largest pain point that's causing this accelerated shift? And then also for the people that have been with you the longest going down this AI pathway? How long do you think it will be before that real personalized marketing, you know, end of one, becomes an achievable goal with your CD? Well, thank you, Matt.

Speaker Change: Next question, Matt Swanson with RBC. Please go ahead.

Matthew Louis Saltzman: Yeah, thank you so much for taking my questions.

Matthew Louis Saltzman: I'll echo my congratulations on the quarter. David, maybe staying on Gen-AI.

Matthew Louis Saltzman: Could we just get a little bit deeper into what you're seeing as kind of the largest pain point that's causing this accelerated shift, and then also for the people that have been with you the longest going down this AI pathway,

Speaker Change: How long do you think it is before that real, like, personalized marketing, you know, N of 1 becomes an achievable goal with your CDP?

David A. Steinberg: Let me start by saying that the biggest pain points in marketing really haven't changed over the last, you know, pick a number hundred years, right? How do you eliminate the percentage of your marketing that does not show a high quality return on investment? And if you look at the industries that are ripe for disruption, utilizing artificial intelligence, marketing should be right at the top of that. What we're seeing is the ability to take our data, which is native to the application layer, and our artificial intelligence, which is native to the application layer, and get down to the people with the highest level of intent and the ability to buy, and the inclination to buy our clients' products. We're able to show an even higher return on investment by using our Gen AI and data than we could a year ago. And we were already doing pretty well a year ago.

Speaker Change: Well, thank you, Matt. Let me start by saying that the biggest pain points in marketing really haven't changed over the last, you know, pick a number, 100 years, right? How do you eliminate the percentage of your marketing that does not show a high-quality return on investment?

Speaker Change: And if you look at the industries that are ripe for disruption, utilizing artificial intelligence, marketing should be right at the top of that.

Speaker Change: what we're seeing.

Speaker Change: That is the ability to take our data.

Speaker Change: which is native to the application layer and our artificial intelligence, which is native to the application layer and get down to the people with the highest level of intent and the ability to buy and the inclination to buy our client's products.

Speaker Change: We're able to show an even higher return on investment by using Artificial Intelligence and data than even we could a year ago.

David A. Steinberg: So we're seeing that return on investment for our clients go up exponentially, which is why I think you can see our existing clients who are using it. They're seeing the advances. They're buying the products at a substantially higher rate, and as we're onboarding clients, we're able to get them in and then up to speed. As you also asked, you know, how do you get to that literally targeted individual? We're already doing one to one marketing at massive scale. And I don't really know another organization that's able to do that.

Speaker Change: And we were already doing pretty well a year ago. So we're seeing that return on investment for our clients go up exponentially, which is why I think you see our existing clients who are using it, they're seeing the advancement.

Speaker Change: They're buying the products at a substantially higher pace, and as we're onboarding clients, we're able to get them in and then up to speed.

David A. Steinberg: So we're able to look at as many as five to 7,000 individual data points to target an individual as it relates to our clients' products and services. So, you know, we're not fully where I'd like to be, right? Because long-term... I would like to only run marketing to clients who are in the market and will be approved for our clients and continue to evolve the return on investment.

Speaker Change: as you as you also asked, you know, how do you get to that?

Speaker Change: literally targeted individual, you know, we're already doing one-to-one marketing at massive scale. And I don't really know another organization that's able to do that. So we're able to look at as many as 5,000 to 7,000.

Speaker Change: Individual Data Signals

Speaker Change: To target an individual as it relates to our clients products and services. So, you know, we're not Fully where I'd like to be right because long term

David A. Steinberg: And that's how we continue to grow our ARPU and continue to onboard existing customers. But I think we're very much well on our way to, Yeah, no, that's fantastic. Um, and then Chris, not that the size of the land matters when you guys are expanding as well as you are currently. But, kind of, as David mentioned, getting past the who's data point, are you starting to see larger lands as you get more brand recognition through things like your index, but also just your prevalence in the market? We've done it where it's most prominent, Matt.

Speaker Change: I would like to only run marketing to clients who are in market and will be approved for our clients and continue to evolve the return on investment. And that's how we continue to grow our ARPU and continue to onboard existing customers. But I think we're very much well on our way to getting there.

Speaker Change: Yeah, no, that's, that's fantastic. Um, and then Chris, not that.

Christopher E. Greiner: Now that seems like the size of the land matters when you guys are expanding as well as you are currently.

Christopher E. Greiner: But kind of as David mentioned, getting past the who's data point, are you starting to see larger lands as you get more brand recognition through things like your index, but also just your prevalence in the market?

Christopher E. Greiner: The sales team has done a very, very good job in creating the RFP processes. So as we get deeper through the first phase into the second phase, and then as we enter the sandbox phase, what we're able to demonstrate to the customer is the breadth of the platform. And we're able to up-sell what was maybe an email scope into an email plus a CDP scope. So that's where we see the most evidence of deals getting bigger.

Christopher E. Greiner: We've done where it's most prominent, Matt, is...

Speaker Change: is the sales team has done a very, very good job in making RFP processes bigger. So as we get deeper through the first phase into the second phase, and then as we enter the sandbox phase, what we're able to demonstrate to the customers the breadth of the platform.

Speaker Change: and we're able to upsell what was maybe an email scope into an email plus a CDP scope. So that's where we see the most evidence of deals getting bigger. But as I mentioned in the prepared remarks, and I think one of the many secret sauces we have of navigating the choppiness,

Christopher E. Greiner: But as I mentioned in the prepared remarks, and I think one of the many secret sauces we have for navigating the choppiness is we're not too shy to start off with a 100K pilot or a proof of concept. And as you noted, and as I think is outlined nicely on the slide, we are very quickly able to go from that pilot to then adding channels. Next question: Bratney Schwartz with Oppenheimer, please go ahead.

Speaker Change: is, you know, we're not too shy to start off with a 100K pilot or a proof of concept and as you noted, and as I think is outlined nicely on the slides, we very quickly are able to go from that pilot to then adding channels and use cases.

Bratney Schwartz: Yeah, hi, thanks for taking my questions this afternoon. Chris, I was hoping to ask you for a little more color specifically on the revenue growth acceleration, giving us a sense of the contribution near term and medium term to revenue growth from these three items, seat growth versus upselling, versus consumption. Is it possible at all to rank that order or quantify anything that you can give us a sense of what's driving that strong? It's a really interesting question, Brian.

Speaker Change: Next question, Bratney Schwartz with Oppenheimer. Please go ahead.

Bratney Schwartz: Yeah, hi, thanks for taking my questions this afternoon. Chris, I was hoping to ask...

Bratney Schwartz: Thank you for a little more color specifically on the revenue growth acceleration.

Bratney Schwartz: Giving us a sense of what the contribution near-term, medium-term to revenue growth from these three items, seat growth,

Speaker Change: First up, Salang.

Speaker Change: Is it possible at all to rank that order or quantify anything that you can give us a sense of what's driving that strong number? Thanks.

Christopher E. Greiner: I would say this quarter we saw very strong consumption. And as I noted, what really stood out to us is that we've crossed the neat threshold of a third of our scaled customers. And I think that's a really good thing, using three or more channels.

Speaker Change: It's a really interesting question Brian . I would say this quarter we saw very strong consumption.

Speaker Change: And as I noted, what really stood out to us is we've crossed a neat threshold of a third of our scaled customers.

Christopher E. Greiner: So consumption was a big driver this quarter, and cross-selling means adding more use cases. You know that point of evidence I just highlighted around all three use cases being over 25% year-to-year growth. I can't think of a quarter there might have been, but if that stood out to us as well.

Speaker Change: using three or more channels.

Speaker Change: So, consumption was a big driver this quarter. Cross-selling, meaning adding more use cases, you know, that point of evidence I just highlighted around all three use cases being over 25% year-to-year growth. I can't think of a quarter there might have been.

Christopher E. Greiner: See growth for us isn't really part of how we price, but the size of the analytics that we're processing, and you know I think that was a key driver too. Great question though. We're seeing that... The ZOE product, which is really analytical at its core. You know, it has been, quite frankly, growing at such a fast pace that it's really starting to drive material growth into the overall business, and that's really your own data scientist in a box.

Speaker Change: But that stood out to us as well.

Speaker Change: See growth for us isn't really part of how we price, but the size of the analytics that we're processing is.

Speaker Change: [inaudible]

Speaker Change: The ZOE product, which is really analytics at its core.

Speaker Change: You know it has been you know quite frankly growing at such such a fast pace. It's really starting to drive

Speaker Change: you know, material growth into the overall business.

Christopher E. Greiner: So it's really a voice-enabled analytics package that allows enterprises to better understand their customers, who their customers could be, how to target additional customers, and every output you could possibly get into the market. I appreciate that caller.

Speaker Change: And that's really, you know, your own data scientist in a box. So it's really a...

Speaker Change: Voice-enabled analytics package that allows enterprises to better understand their customers, who their customers could be, how to target additional customers, and every output you could possibly get into the marketing ecosystem.

Bratney Schwartz: The one follow-up question I had was just a question about what you're seeing with your scaled customers in terms of sales cycles, the duration. Are you seeing the cadence of the scaled customers coming back to buy more from you picking up compared to either earlier this year or, you know, what you saw last year? Thanks for taking my questions today. No, of course, Brian, you know, we didn't see a slowdown at Zeta.

Speaker Change: I appreciate that caller. The one follow-up I had was just a question on what you're seeing with your scaled customers in terms of

Speaker Change: sales cycles, the duration.

Speaker Change: Are you seeing the cadence of the scaled customers coming back to buy more from you picking up compared to either earlier this year or what you saw last year? Thanks for taking my question today. No, of course, Brian . You know, we've

David A. Steinberg: So I wouldn't say it's ticking up. It's continued on a very high quality process. If you look at the first half numbers for super scaled, it was very solid growth. And the other thing that I think was really important for Chris to know, and I want to reiterate, is our average agency client went from 12 brands to 19, even though each one of those 19 could be a super scaled client. Our accounting only shows each agency as one individual customer.

Speaker Change: We didn't see a slowdown at Zeta. So I wouldn't say it's ticking up. It's continued on a very high quality process.

Speaker Change: If you look at the first half numbers for super-scaled, it was very solid growth.

Speaker Change: The other thing that I think was really important for Chris to know, that I want to reiterate, is our average agency client went from 12 brands to 19.

Christopher E. Greiner: Even though each one of those 19 could be a super-scaled client,

David A. Steinberg: So inside of the numbers, we're growing super scaled and scaled clients substantially faster, even though it's represented inside of super scaled and scaled, consolidating to one. Next question, Elizabeth Porter with Morgan Stanley, please go ahead. Great, thank you so much.

Christopher E. Greiner: Our accounting only shows each agency as one individual customer. So, inside of the numbers, we're growing super-scaled and scaled clients.

Christopher E. Greiner: substantially faster even though it's represented inside of superscaled and scaled consolidating to one entity.

Christopher E. Greiner: Next question, Elizabeth Porter with Morgan Stanley , please go ahead.

Elizabeth Mary Elliott Porter: I wanted to follow up on the ARPU growth. The first two drivers you called out were agency and auto insurance coming back, but I wanted to double-click on more of the non-agency, non-auto, and insurance side.

Elizabeth Mary Elliott Porter: Great. Thank you so much. I wanted to follow up on the ARPU growth. The first two drivers you called out were being agency and auto insurance coming back.

Elizabeth Mary Elliott Porter: But I wanted to double click on more of the non-agency, non-auto and insurance.

Speaker Change: And are you seeing a sizable prevent and spend in that cohort kind of more broadly? And AI seems to be a third driver and just given it's really early, what would make the ARPU growth rate kind of not as durable from kind of what we're seeing today? Thank you.

David A. Steinberg: And are you seeing a sizable improvement in spend in that cohort kind of more broadly? And AI seems to be a third driver. And just given it's really early, what would make the ARPU growth rate kind of not as durable from kind of what we're seeing today? Thank you. Thank you, Elizabeth.

Elizabeth Mary Elliott Porter: Thank you, Elizabeth. So let me start by saying we saw ARPU growth across the board.

David A. Steinberg: So, let me start by saying we saw ARPU growth across the board. We didn't just see it with the agency hold codes. So, you know, as I said earlier, and I want to reiterate it again, the vast majority of our customers are now using our generative AI products. And we rolled them out to almost all of our customers in an automated upgrade that just went out to them that they were able to start using in real time as a part of the ZMP, which is really just integrated into the user interface.

Speaker Change: We didn't just see it with the agency hold codes. So, you know, as I said earlier, and I want to reiterate it again,

Elizabeth Mary Elliott Porter: Majority of our customers are now using our generative AI.

Elizabeth Mary Elliott Porter: Products, and

Speaker Change: We rolled them out to almost all of our customers in an automated upgrade that just went out to them that they were able to start using in real time as a part of the ZMP. It was really just integrated into the user interface.

Speaker Change: And as a part of that we started to see ARPU growth go up.

David A. Steinberg: And as a part of that, we started to see ARPU growth go up. As it relates to AI and its ability to continue that type of ARPU growth, you know, we're, I'm not sure I can sit here today and say it's going to continue at that exact pace, but I would expect us to continue to grow at a faster pace than we have in the past because of artificial intelligence. Chris, it's neat.

Elizabeth Mary Elliott Porter: AI and its ability to continue that type of ARPU growth, you know, we're, I'm not sure I can sit here today and say it's going to continue, you know, at that exact pace, but but I would expect us to continue to grow ARPU.

Elizabeth Mary Elliott Porter: at a faster pace than we have in the past.

Christopher E. Greiner: We, you know, we started to measure conversation now. So we talked last quarter about having 300 intelligent agents launched in our library, if you will. We're now up to 400, and what we're seeing, as David mentioned, is a really high level of engagement. So those conversations, think of them as completed threads, right? It's you, as a user, interacting with the platform and getting your answers. And that conversation isn't just kind of a back and forth. It's actually one, https://www.youtube.com.au, making it easy for customers to use as we've turned our internal learning and development resources...

Elizabeth Mary Elliott Porter: Because of artificial intelligence. Chris, it's neat. We, you know, we started to measure now conversations Elizabeth.

Speaker Change: So we talked last quarter at having 300 intelligent agents launched in our library, if you will.

Speaker Change: We're now up to 400. And what we're seeing, as David mentioned, is a really high level of engagement. So those conversations, think of as completed threads, right? It's you, as a user, interacting with the platform and getting your answers. And that conversation isn't just kind of a back and a forth. It's actually one complete.

Speaker Change: [inaudible]

Speaker Change: Making it easy for the customers to use is we've turned our internal learning and development resources into external customer trainers, and that's also really helped platform usage.

Christopher E. Greiner: External Customer Trainers, and that's also really helped the platform. And I really want to drive that home. You know, rolling out our learning and development to our clients has been really game changing for their ability to scale with us. And we think that's a trend that, Great. And then I wanted to follow up on the mobile opportunity.

Speaker Change: And I really want to drive that home. You know, rolling out our learning and development to our clients has been really game changing with their ability to scale with us. And we think that's a trend that will continue.

David A. Steinberg: We haven't touched on that as much. So if you could just give us an update on where we're trending on product development, and the kind of expectations for rolling that out to customers. And historically, how long does it usually take before you see new products really start contributing to the revenue line? Well, we said we would debut our mobile product at Zeta Live on September 26 in New York, and we will be there.

Speaker Change: Great. And then I wanted to follow up on the mobile opportunity. We haven't touched on that as much.

Speaker Change: So if you could just give us an update on, you know, where we're trending on product development, kind of expectations on rolling that out to customers, and historically, how long does it usually take before you see new products really start contributing to the revenue line?

David A. Steinberg: So we're very excited. We were already beta testing it with a few clients, and we feel like we're very well positioned. To your second question, I think it took us about three years to get to 100 million in Connected Television, CTV. I would think mobile could be faster than that.

Speaker Change: Well, so we said we would debut our mobile product at ZetaLive on September 26th in New York and we will be there. So we're very excited. We're already beta testing it with a few clients and we feel like we're very well positioned.

Speaker Change: To your second question, I think it took us about three years to get to 100 million.

David A. Steinberg: I would say again, and I want to be clear, it's not baked into our numbers for this year. We believe that we will be fully operational this year with mobile, and we think it's a business that can scale very, very quickly. There are a few other companies out there that are using mobile as their primary source of CRM that do a very good job of it. We think we've got a competitive advantage with our customer base, having it as a part of the solution, not the entire solution, and the ability to synthesize everything to the Zeta ID and putting our artificial intelligence products at the top of the utilization.

Speaker Change: [inaudible]

Speaker Change: Connected Television, CTV, I would think...

Speaker Change: Mobile could be faster than that. I would say again, and I want to be clear, it's not baked into our numbers for this year.

David A. Steinberg: So ZOE will be able to activate into mobile the same way ZOE activates into CTV, online video, social, or any other activation methodology that we operate in. Great, thank you so much. Next question, D.J. Hynes with Canaccord Genuity, please go ahead.

Speaker Change: Great, thank you so much.

David E. Hynes: Hey guys, congrats on the quarter, excellent results. David, with Google's U-turn decision on the deprecation of third-party cookies, I'm wondering what you're hearing from clients in the field and how, if at all, you think that might impact, you know, spend decisions, how advertising dollars are allocated, and anything else that's top of mind there. Yeah, I mean, it was interesting.

David A. Steinberg: They've gone back and forth. I've been saying for quite some time, as you know, DJ, because I said it to you, I never believed Google would get rid of the cookie. I just believe they're going to make the opt-out process for consumers extremely easy and at the forefront of the process of loading Chrome. So I do think we're going to see a dissipation of cookies over the next few years. I just don't think it's going to be all or nothing.

Speaker Change: Hey guys, congrats on the quarter, excellent results.

Speaker Change: Yeah, I mean, it was interesting. They've gone back and forth. I've been saying for quite some time, as you know, DJ, because I've said it to you, I never believed Google would get rid of the cookie. I just believe they're going to make the opt-out process for consumers

David A. Steinberg: Marketers want return on investment, and a part of that is the ability to build true attribution models. I'm not even sure third-party cookies can do that effectively today. If you look at it, almost all third-party cookies are what I call last-touch attribution.

Speaker Change: Marketers want return on investment, and a part of that is the ability to build true attribution models.

Speaker Change: I'm not even sure third-party cookies can do that effectively today, where if you look at it, almost all third-party cookies are what I call last-touch attributions.

David A. Steinberg: So you might spend, $100. I'm making this up, addressing a customer to get them to buy a $500 product. But it's going to look like the absolute last ad you ran to them that they clicked on and then purchased was 100% of the attribution of that $100. What we're really looking at is every touchpoint by utilizing the Zeta ID and being able to deliver a true return on investment versus a last-click or last-touch attribution.

Speaker Change: So you might spend...

Speaker Change: $100, I'm making this up, addressing a customer to get them to buy a $500 product, but it's going to look like the absolute last ad you ran to them that they clicked on and then purchased was 100% of the attribution of that $100.

Speaker Change: What we're really looking at is every touchpoint by utilizing the Zeta ID and being able to deliver a true return on investment.

David A. Steinberg: So I think most marketers are already understanding that, and we're seeing dollars flow to where they are the most efficient as it relates to return on investment. It's going to be very interesting to see how Google rolls out the, you know, consumer choice component of it. There are a lot of companies that have a lot invested in this, but Zeta is not one of them.

Speaker Change: versus a last click or last touch attribution. So I think most marketers are already understanding that. And we're seeing dollars flow to where they are the most efficient as it relates to a return on investment.

Speaker Change: It's going to be very interesting to see how Google rolls out the consumer choice component of it.

Speaker Change: There are a lot of companies that have a lot

David A. Steinberg: As I've pointed out repeatedly, we do not use a third-party cookie for building our models, attribution, or addressing individuals. But at the same time, we do believe that the disappearance of the cookie is going to continue, and we believe that our ability to track without it will continue to be a major competitive advantage.

Speaker Change: But, at the same time, we do believe that the dissipation of the cookie is going to continue and we believe that our ability to track without it will continue to be a major competitive advantage.

Speaker Change: Yeah, yeah, makes a ton of sense. And then Chris, a follow up for you. So I have a question on

David E. Hynes: So I have a question about, So once you get an agency on board with Sado, how active do your direct reps have to be in helping that agency onboard new customers? I mean, is it all led by the agency? Do your sellers get involved?

Speaker Change: Sales capacity as it pertains to the agency business. So, once you get an agency on board with SADA,

Speaker Change: How active do your direct reps have to be in helping that agency onboard new customers? I mean, is it all led by the agency? Do your sellers get involved? Just trying to think about kind of capacity and how much time your reps have to spend with those ramping agency accounts.

Christopher E. Greiner: Just trying to think about the kind of capacity and how much time your reps have to spend with those ramping agencies. It's an efficient go-to-market model for us because think about it in two different ways. Very much have a top down. Relationship Building Process. The bottom-up selling is happening by the reps, but the agency team is the only sales team in Zeta where we have our hunters and our farmers in the same pot.

Speaker Change: It's an efficient, go-to-market...

Speaker Change: model the agencies are for us because

Speaker Change: Think about it in two different ways.

Speaker Change: We very much have a top-down...

Speaker Change: Relationship building process and then the bottoms up selling is happening by the reps but the agency team is the only sales team in Zeta where we have our hunters and our farmers in the same pot. So what becomes very effective is as we land these

Christopher E. Greiner: So what becomes very effective is as we land these new large agencies, and the hunters are very much involved in that process. Farmers then begin working with the sub agencies within that, and it's really those farmers working with their partners inside the agency that then begin to work with more and more brands.

Speaker Change: new large agencies and the hunters very much involved in that process. The farmers then began working with the sub-agencies within that HLDCO.

Speaker Change: And it's really those farmers working with their partners inside the agency that then begin to work with more and more brand. And that's how we've gone from that average of 12 a year ago to up more than 50% to 19 today.

Christopher E. Greiner: And that's how we've gone from that, you know, average of 12 a year ago to more than 50% to 19 today. Perfect. Makes sense. Thank you, guys. Next question: Arjun Bhatia with William Blair, please go ahead.

Speaker Change: Yeah, perfect. Makes sense. Thank you, guys.

Speaker Change: Next question, Arjun Bhatia with William Blair. Please go ahead.

Arjun Rohit Bhatia: Thank you and I'll add my congrats. Nice work guys on the acceleration here.

Arjun Rohit Bhatia: One, maybe to continue on the agency theme, certainly great to see a lot of new brands coming in, but can you give us a sense of what are the steps that maybe Zeta needs to take, or is it just a function of time to get these new brands coming in from agencies to move beyond the social channel and really start to scale some of your other channels that you have on the platform? Is that just something that you can do, or is that just a function of the brand itself and where the agency might take them over time? Well, let me start by saying thank you, Arjun. I appreciate it. I think it's a combination of all three, right?

Arjun Rohit Bhatia: Well, maybe to continue on the agency theme, it's certainly great to see a lot of the

Arjun Rohit Bhatia: New brands coming in but can you give us a sense of

Speaker Change: What are the steps that maybe Zeta needs to take or is it just a function of time to get these new brands coming in from agencies to move beyond

Speaker Change: the social channel and really start to scale some of your other channels that you have on the platform. Is that just something that you can do or is that just a function of, you know, a combination of the brand itself and where the agency might take them over time?

David A. Steinberg: I think, as Chris said, our farmers are actively embedded into the agencies and actively working with the brands. So, you know, we're able to onboard and remind everybody into the social ecosystem like an ecosystem because we have such a good automation process there where others do not, which is very efficient for the agency holds code to operate inside of social using the Zeta ID and being able to automate the process. If you look at our largest, most scaled agency client, it took them about three years to really compare and really go from primarily agency to primarily on platform.

Arjun Rohit Bhatia: Well, let me start by saying thank you, Arjun. I appreciate it.

Speaker Change: I think it's a combination of the three, right? I think, as Chris said, our farmers are actively embedded into the agencies and actively working with the brands.

Speaker Change: So, you know, we're able to onboard, to remind everybody into the social ecosystem because we have such a good automation process there where others do not, which is very efficient.

Speaker Change: for the agency HLDCO to operate inside of social using the Zeta ID.

Speaker Change: If you look at our largest, most scaled agency client, it took them about three years to really juxtapose and really go from primarily agency to primarily on platform.

David A. Steinberg: We believe we're going to see the same. www.larryweaver.com You know, we expect that we will be able to ultimately move a substantially greater percentage of those brands on to the platform versus through the social platform. I think another important point, though, Arjun, and I know you understand this, but I'm saying it for everybody, is that the gross margin is lower, yes, but it is still accretive to our operating profit. So from a contribution perspective, and we feel like this is a very efficient methodology, although I don't want anybody to think that we're sort of primarily focused on agents. We work directly with brands, and we work with agencies. And we will continue to do both of them. All right, very helpful. And then, kind of along similar lines.

Speaker Change: We believe we're going to see the same.

Speaker Change: process with the other four agencies that we've onboarded and are growing with.

Speaker Change: You know, we expect that we will be able to ultimately move a substantially greater percentage of those brands

Arjun Rohit Bhatia: on-to-on platform versus through the social platform. I think another important point, though, Arjun, and I know you get this, but I'm saying it for everybody, is that the gross margin is lower, yes, but it is still accretive to our operating margin.

Speaker Change: So from a contribution perspective, and we feel like this is a very efficient methodology. Although I don't want anybody to think that we're sort of primarily focused on agencies now.

Speaker Change: We work directly with brands and we work with agencies.

Speaker Change: And we will continue to do both of those things.

Speaker Change: All right, very helpful. And then...

Arjun Rohit Bhatia: You know, I was pleasantly surprised, I guess, to hear that the retain and grow use cases are growing above 25%. I believe the number was. What has changed there, if anything, to get that growth to pick up? Because, if I remember correctly, I think Acquire has been your kind of primary use case for some time. And so I'm curious if there's anything operationally that you've done from a sales perspective or a technology perspective to drive that growth. Yeah, I hate to keep beating a dead drum, but it's artificial intelligence.

Speaker Change: Kind of along similar lines, you know, I was pleasantly surprised, I guess, to hear that

Speaker Change: The retain and grow use cases are growing above 25%, I believe the number was. What has changed there, if anything, to get that?

Speaker Change: growth to pick up, because if I remember right, I think Acquire has been your kind of primary use case for some time, and so I'm curious if there's anything operationally that you've done from a sales perspective or a technology perspective to drive that growth.

Speaker Change: Yeah, I hate to keep beating a dead drum, but it's artificial intelligence. What we're seeing is clients that are using us for the three different use cases that are adopting the AI are growing at an exponential pace. And I want to be clear, just to reiterate, Arjun, we've always been pretty well balanced.

David A. Steinberg: What we're seeing is clients that are using us for the three different use cases that are adopting AI are growing at an exponential pace. And I want to be clear, just to reiterate, Arjun, we've always been pretty well balanced. We have been growing faster over the last couple of years as it relates to Acquire. It was good to see the adoption of the new Gen AI products for clients who were looking at use cases and looking at, I'm sorry, the different use cases, including retain, grow, and acquire.

Speaker Change: We have been growing faster over the last couple of years as it relates to Acquire.

Speaker Change: It was it was good to see the adoption of the new Gen AI products for clients who were looking at use case and looking at

Arjun Rohit Bhatia: I'm sorry, the different use cases.

Speaker Change: including Retain, Grow, and Acquire. We're also seeing more clients, as Chris said, using more use cases and more channels. So it's been exciting. It's funny, I sort of joke.

David A. Steinberg: We're also seeing more clients, as Chris said, using more use cases and more channels. So it's been, it's been exciting. It's funny, I sort of joke, I started operating artificial intelligence seven years ago. When we went public three years ago, the sign on the side of the New York Stock Exchange said, data plus AI equals intent. I had to explain to people what that meant at that time.

Christopher E. Greiner: We started operating artificial intelligence seven years ago.

Christopher E. Greiner: When we went public three years ago, the sign on the side of the New York Stock Exchange said data plus AI equals intent. I had to explain to people what that meant at that time.

David A. Steinberg: It seems like there was a great awakening with the launch of ChatGPT that has really benefited us from a tailwind perspective as clients have begun to adopt it. The market has begun to understand the power of our artificial intelligence. understood. Very helpful. Thank you, David. Next question is Jason Kreyer with Craig Hallam, please go ahead.

Speaker Change: You know, it seems like there was a great awakening with the launch of ChatGPT that has really benefited us from a tailwind perspective as clients have begun to adopt it and, you know, the market has begun to understand the power of our artificial intelligence and our

David A. Steinberg: Understood. Very helpful. Thank you, David.

Christopher E. Greiner: Next question, Jason Kreyer with Craig Hallam, please go ahead.

Jason Michael Kreyer: Great, thank you, and congratulations, guys. I'm just wondering if we can maybe define a little bit more clearly how AI really affects the growth trajectory. I mean, is this more related to filling RFPs and pipeline activity? Is this, you know, generating more wallet share? Are you just onboarding new customers at a faster, faster rate? Jason, I think it's all of the above.

Jason Michael Kreyer: Great, thank you and congrats guys. Just wondering if we can maybe define a little bit more clearly how AI really inflects the growth trajectory.

Jason Michael Kreyer: Is this more related to filling RFP and pipeline activity? Is this, you know, generating more wallet share or are you just onboarding new customers at a faster rate?

David A. Steinberg: I think that you're seeing us winning an even greater percentage of RFPs and engagements we're invited to participate in. We're able to scale new customers faster with our land and expand strategy, and existing customers are growing faster. And we've talked a bit about how AI has influenced use cases. Just curious if that's changing any customer behavior across the different channels you work on. Oh, I wouldn't see it.

Jason Michael Kreyer: Jason, I think it's all of the above. I think that you're seeing...

Jason Michael Kreyer: Us winning an even greater percentage of RFPs and engagements we're invited to participate in, we're able to scale new customers faster with our land and expand strategy and existing customers are growing faster than ever.

Speaker Change: And we've talked a bit about how AI has influenced use case. Just curious if that's changing any customer behavior across the different channels you work with.

Christopher E. Greiner: I mean, the other balance was really good growth across CTV, email, and display; it was really balanced across all three because, again, the AI is informing which channels are to be used in the right kind of omni-channel strategy. So it was pretty balanced growth across the channel set as well. Great, thank you. Next question is from Koji Ikeda with Bank of America. Please go ahead.

Speaker Change: I wouldn't see it. I mean that the other balance was it was really good growth across CTV, email, display, it was it was really balanced across all three because it's again the the AI is informing which channels are to be used in the right kind of omni-channel strategy so it was pretty balanced growth across the channel set as well.

Speaker Change: Great, thank you.

Jason Michael Kreyer: Next question, Koji Ikeda with Bank of America. Please go ahead.

Koji Ikeda: Hey guys, thanks for taking the questions. I wanted to ask a question on the 2025 targets, you know, clearly great results here. Congratulations on that. And one thing I was looking for was maybe the potential for the 2025 targets to be updated this quarter, but I noticed in the press release or in the investor deck they weren't. And it does sound like the commentary all sounds really strong.

Koji Ikeda: Hey guys, thanks for taking the questions. I wanted to ask a question on the

Koji Ikeda: 2025 targets.

Koji Ikeda: Clearly great results here. Congratulations on that.

Speaker Change: And one thing I was looking for was maybe the potential for the 2025 targets to be updated.

Speaker Change: This quarter, but I noticed in the press release, or in the investor deck, they weren't. And it does sound like the commentary all sounds really strong. You know, you did mention visibility is high.

Christopher E. Greiner: You know, you did mention visibility is high. So why not update those targets today? Is there something that happens as the calendar turns into 25, where the visibility might get a little bit murkier than it is today?

Speaker Change: So, why not update those targets today? Is there something that happens as the calendar turns into 25, where the visibility might get a little bit murkier than it is today?

Christopher E. Greiner: No, you know, you were on. You're channeling your inner David, he's been asking. I'm the one who's saying, let's do it like we have the last three years, which is in February. We are super excited about the momentum that we have, and as I started the call, one of the several reasons that's contributed to the growth and the updated guidance that we've given is our visibility into the business is really

Speaker Change: No, you know, you were, uh...

Speaker Change: You're channeling your inner David. He's been asking for the same.

Speaker Change: I'm the one who's saying let's do it like we have the last three years, which is in February .

Speaker Change: We are super excited about the momentum that we have.

Speaker Change: And as I started the call, one of the several reasons that's contributed to the growth and the updated guidance that we've given is our visibility into the business.

Christopher E. Greiner: That doesn't change in, you know, February; it's just we have a good pattern and process of putting out the next year's guide in February, and it wouldn't surprise me if, as part of that process, we also updated the next long-term model. And I definitely would not.

Jason Michael Kreyer: [inaudible]

Christopher E. Greiner: The fact we have not. Just so we're on the, Got it. No, that's super helpful.

Speaker Change: And I would definitely not read any of that.

Speaker Change: Unknown to the fact we have not given that yet, just so we're on the same page.

Koji Ikeda: And then also, just wanted to follow up on a comment that you had in your prepared remarks about being opportunistic out there. And it has been a while since you've done an acquisition, so can you remind us of your M&A framework? You know, what does that look like today versus in the past? Is it similar?

Speaker Change: Got it. No, that's super helpful. And then also just wanted to follow up on a comment that you had in the prepared remarks about being opportunistic out there. And it has been a while since you've done an acquisition.

Speaker Change: So can you remind us your MNA framework, you know, what does that look like today versus in the past? Is it similar or has it changed? And what sort of consideration would there be to go much bigger in that framework? Thank you.

David A. Steinberg: Or has it changed? And what sort of consideration would there be to go much bigger than that framework? Thank you. You know, I always say, Koji, that I believe transformative M&A transforms both companies for the worse. So you won't see us doing anything too terribly big, quite frankly. But at the same time, you know, we now have almost 470 scale clients. What other products that we don't have currently could we plug into the platform and really accelerate the growth of a smaller asset that we might buy? So, you know, we've always done what I've considered tuck-ins. I wouldn't change that strategy. A tuck-in might be slightly different at our current size than it was two or three years ago.

Speaker Change: Yeah, you know, I always say, Koji, that I believe transformative M&A transforms both companies for the worse.

Speaker Change: So, you won't see us doing anything too terribly big, quite frankly, but at the same time,

Speaker Change: You know, we now have almost 470 scale clients.

Speaker Change: What other products that we don't have currently could we plug into the platform and really accelerate?

Speaker Change: the growth of a smaller asset that we might buy.

Speaker Change: So, you know, we've always done what I've considered tuck-ins, you know, I wouldn't change that strategy, a tuck-in might be slightly different at our current size than it was two or three years ago. But at the same time, I think it was important for Zeta.

David A. Steinberg: But at the same time, I think it was important for Zeta as a public company to really show pure organic growth. And I wanted to make sure that as an organization, newly public and maybe, you know, a little early to the AI game where a lot of people didn't understand the power of it initially, we focused on that. The guidance that we have given for this year is purely organic.

Speaker Change: As a public company to really show pure organic growth.

Speaker Change: And I wanted to make sure that as an organization, newly public, and maybe, you know, a little early to the AI game, where a lot of people didn't understand the power of it initially, we did focus on that.

Speaker Change: The guidance that we have given for this year is purely organic.

David A. Steinberg: So as we look at M&A, if something were opportunistic, meaning we could buy it at a substantially lower multiple than we trade at, integrate it into our tech stack completely within nine to 12 months, and believe that it's a product that our existing clients would buy, those are the primary scenarios under which we would do something. We also love picking up great people and great companies.

Speaker Change: So, as we look at M&A, if something were opportunistic, meaning we could buy it at a substantially lower multiple than we trade at, integrate it into our tech stack completely within 9 to 12 months,

Speaker Change: and believe that it's a product that our existing clients would buy. Those are the primary scenarios under which we would do something. We also love picking up great people and great data.

Speaker Change: Got it. Thanks guys. Thanks for taking the questions. Next question, Ryan MacWilliams from Sparkly. Please go ahead.

David A. Steinberg: Got it. Thanks, guys. Thanks for taking the questions. Ryan MacWilliams, Luke Barclay, please go ahead.

Ryan Patrick MacWilliams: Hey guys, thanks for the question. For David, happy to see that advocacy revenue has increased each month of the second quarter. Could these advocacy customers continue beyond the election? And any difference in election spend expectations here given a new Democratic presidential candidate?

Ryan Patrick MacWilliams: Hey guys, thanks for the question. For David, happy to see that advocacy revenue has increased each month of the second quarter. Could these advocacy customers continue beyond the election? And any difference in election spend expectations here given a new Democratic presidential candidate? Thanks.

David A. Steinberg: So the answer is most of our advocacy is always on, Ryan. We see a step up going into the political period, and we did see a step up. But I would not look at the growth rate for this quarter under the lens of it being advocacy. That was a part of it, but it was not a big part of it, quite frankly.

Speaker Change: So the answer is most of our advocacy is always on, Ryan. We see a step-up going into the political period, and we did see a step-up, but I would not.

Speaker Change: Look at the growth rate for this quarter under the lens of it was advocacy. That was a part of it, but it was not a big part of it, quite frankly.

David A. Steinberg: And we, as Chris said in the prepared remarks, are keeping constant on what was a $15 million guidance for political. Obviously, we did $1.5 million in the second quarter, so that would infer $13.5 million in political in Q3 and Q4. That perhaps might be conservative, but we'll see.

Ryan Patrick MacWilliams: And we, as Chris said in the prepared remarks, we're keeping constant.

Speaker Change: on what was a $15 million guidance for political. Obviously, we did 1.5 million in the second quarter, so that would infer 13.5 million in political in Q3 and Q4. That perhaps might be conservative, but we'll see at this point.

David A. Steinberg: At this point, we're very, very pleased with the core operations of the business. And once again, I would not look at advocacy as a big driver of that 33% growth rate and that rise in guidance, and Advocates, and most of which for advocacy is always on, so I I just don't want anybody to look at that and say oh that's why they grew it's it's not. Thanks for clearing that up. Yeah, I was just thinking more about what you guys could do with it next year.

Speaker Change: We're very, very pleased with the...

Speaker Change: core operations of the business and once again, I would not Look at advocacy as a big driver of that 33% growth rate and that rise of guidance

Speaker Change: and most of which for advocacy is always on so I I just don't want anybody to look at that and say oh that's why they grew it's it's not

Ryan Patrick MacWilliams: And then just for Chris, on direct platform revenue growth, how are you thinking about that for the second half of this year? And any changes or differences in how you feel about the direct revenue pipeline? Direct pipeline is strong. I think the mix, in terms of, you know, being at 67% in the second half, I think the odds are that it, from first half to second half, and the direct mix becomes more prominent.

Speaker Change: Thanks for clearing that up. Yeah, I was just thinking more about what you guys could do with that next year. And then just for Chris, on the direct platform revenue growth, how are you thinking about that for the second half of this year? And any changes or differences in how you feel about the direct revenue pipeline at this point?

Christopher E. Greiner: direct pipeline strong I think the mix in terms of you know being at 67% in the second half I think the odds are that it improves

Christopher E. Greiner: from first half to second half, and direct mix becomes more prominent. We liked where the growth rate was. The growth rate in year-over-year revenue for direct in the first quarter was 17%, grew to 20%. So, you know, feeling good about the mix of direct increasing as we go across the year. And by the way, to your last point, Ryan, advocacy, once you start working with them...

Christopher E. Greiner: We liked where the growth rate was; the growth rate in year-over-year revenue for direct in the first quarter was 17%, and it grew to 20%, so, you know, feeling good about the mix of direct increasing as we go across the year. And, by the way, to your last point, Ryan, advocacy, once you start working, is a good pipeline through politics, but they do tend to continue on after that, so it could be a component of next year as well. Excellent I appreciate that, Gellar. Thank you, guys. Next question: Clark Wright with DA Davidson, please go ahead.

Ryan: It's a good pipeline through political, but they do tend to continue on after that, so they could be a component of next year as well.

Ryan: Excellent. Appreciate that, Keller. Thank you, guys.

Speaker Change: Next question, Clark Wright with D.A. Davidson, please go ahead.

Clark Joseph Wright: Awesome. Thank you. Maybe just following up on that point about the agency. Given that it is scaling faster than you expected, what do you think the impact will be in terms of gross margins relative to current levels? Hey Clark, it's Chris.

Clark Joseph Wright: Awesome. Thank you. Maybe just following up on that point about the agency business, given that it is scaling faster than you expected, what do you think the impact is in terms of gross margins relative to current levels?

Christopher E. Greiner: When they start, right now, what we're seeing is they start using our social channel capabilities, which gives them a big automation advantage. But what that then leads them to do over time is to go more and more with an omni-channel strategy using our owned and operated channels, so converting to our email, to our display video, and our connected TV. But what that does in the initial part of the contracting process where they're using social media is it'll drive a lower gross margin profile.

Ryan: Hey Clark, it's Chris. When they start...

Christopher E. Greiner: Right now, what we're seeing is they're starting using our social channel capabilities, which gives them a big automation advantage. But what that then leads them to do over time is to go more and more with an omni-channel strategy using our owned and operated channels, so converting to our email, to our display video, our connected.

Christopher E. Greiner: But as you've seen over the last, say, 12 months now where we've seen this hyper-scaling with agencies, even though we've seen a lower gross margin because of higher social channel adoption, it has actually led to a higher adjusted EBITDA margin expansion. So those revenues come in at an accretive operating contribution margin.

Christopher E. Greiner: TV. But what that does in the initial part of the contracting process where the

Speaker Change: Scott Schmitz, Christopher Greiner, Scott Schmitz, Christopher Greiner, Scott Schmitz,

Christopher E. Greiner: Even though we've seen a lower gross margin because of higher social channel adoption, it has actually led to a higher adjusted EBITDA margin expansion. So those revenues come in at an accretive operating contribution margin.

Clark Joseph Wright: And just in terms of going forward, you continue to effectively reiterate what you said last quarter that it's good to need a ramp from currently. Are you speaking specifically about the market profile? Yeah, I think 60 continues to be the right level.

Speaker Change: And just in terms of going forward, you continue to effectively reiterate what you had said last quarter, that it's good to ramp from current levels.

Speaker Change: Bye.

Speaker Change: Are you speaking specifically to the market profile?

Christopher E. Greiner: We talked about 60 being, you know, the percentage of gross margin or call it 40% cost of goods sold throughout the course of the year. It's been that way for the first two quarters. The other question mark in the back half of the year is politics, and political margins can come in on the lower side. It could be pretty dynamic, frankly, so that would be the only thing that takes a plus or minus away from it. Thank you. And then this last one for me.

Speaker Change: Yeah, I think 60 continues to be the right level. We talked about 60 being, you know, the percentage of gross margin or called 40% cost of goods sold throughout the course of the year. It's been that way the first two quarters.

Speaker Change: The question mark in the back half of the ear is political, and political margins can come in on the lower side. It can be pretty dynamic, frankly, so that would be the only thing that takes it plus or minus off of the 60.

Clark Joseph Wright: In terms of sales efficiency, you called that out as a catalyst last quarter. Did that ramp further this quarter, or was that relatively the same quarter over quarter? So I'm sorry, I have to repeat your question. I apologize. It broke up for a second.

Speaker Change: at this point.

Speaker Change: Got it. Thank you. And then this last one for me. In terms of the sales efficiency, you called that out as a catalyst last quarter. Did that ramp further this quarter or was that relatively the same quarter over quarter?

Speaker Change: Bye-bye.

Speaker Change: I'm sorry, repeat your question, I apologize, it broke up for a second.

Christopher E. Greiner: I was gonna say in terms of sales efficiency, you noted that that was a catalyst last quarter in terms of the results and the beat. Was that also a catalyst this quarter, and relative to last quarter, was it about the same? Yeah, I mean, where we continue to see sales productivity go up, but it had nothing to do with politics if that was what I thought I heard the first time. Maybe I heard, Yeah, I guess ex-political, yeah, ex-political is what I was going for, but I appreciate that. Oh, yeah, yeah, ex-political, yes.

Speaker Change: I was going to say, in terms of sales efficiency, you noted that that was a catalyst last quarter in terms of the results and the beat. Was that also a catalyst this quarter and relative to last quarter? Was it about the same?

Speaker Change: Yeah, I mean, we continue to see sales productivity go up, but it had nothing to do with political. I thought I heard that the first time, maybe I misheard.

Clark Joseph Wright: Yeah, I guess ex-political is what I was going for, but I appreciate that. Oh, yeah, yeah. Ex-political, yes. Thank you, Clark.

Clark Joseph Wright: Thank you, Clark. Got it. Yep. Thank you again.

Zachary Cummins: Great quarter. Next question, Zach Cummins with Reilly Securities, please go ahead. Hi, good afternoon, David and Chris.

Speaker Change: Got it. Yep. Thank you again. Great quarter.

Speaker Change: If you have questions, Zach Cummins with the Reilly Securities, please go ahead.

David A. Steinberg: Congratulations on the quarter and thanks for taking my questions. David, you were speaking about the really acceleration of this marketing platform replacement cycle. I was just curious about your commentary on the current competitive landscape, especially considering one of your key competitors is winding down some of their ad tech assets. Yeah, we like that.

Zachary Cummins: Hi, good afternoon, David and Chris. Congrats on quarter and thanks for taking my questions. David, I mean you were speaking to

Zachary Cummins: Really an acceleration of this marketing platform replacement cycle. I was just curious on your commentary on the current competitive landscape, especially considering one of your key competitors is winding down some of their ad tech assets.

David A. Steinberg: We like it when big companies wind down assets that have, in some way, shape, or form, competed with us. We made the decision seven years ago to completely re-architect our platform and put data and artificial intelligence native to the application layer, which allows us to truly put intelligence into the heart of the platform, where our competitive landscape has to step out of their platform to an AI algorithm, which then has to do a data dip into a third-party database, go back to the algorithm, come up with the level of an answer, and go back to the marketing cloud.

Speaker Change: Yeah, we like that. We like when big companies wind down assets that in some way, shape, or form competed with us.

Speaker Change: We made the decision 7 years ago to completely re-architect our platform and put data and artificial intelligence as native to the application layer, which allows us to

Speaker Change: to truly put intelligence into the heart of the platform where our competitive landscape have to do a step out of their platform to an AI algorithm which then has to do a data dip into a third party database, go back to the algorithm, come up with the level of an answer and go back to the marketing cloud.

David A. Steinberg: In our world, where a millisecond matters, we were able to create a substantially better return on investment by making intelligence faster and real-time. So we believe that our competitive advantage over the competitive landscape is getting bigger as we continue to invest and continue to focus on our AI and our data assets, as we'll continue to do that. And while they're trying to catch up to where we are, we're moving to the next generation. We are not standing still. We are incredibly excited about where we are as an organization and where we're going technologically, Zach.

Speaker Change: In our world, where a millisecond matters.

Speaker Change: We're able to create.

Speaker Change: substantially better return on investment.

Speaker Change: by making intelligence faster and real-time. So we believe that our competitive advantage over the competitive landscape is getting bigger as we continue to invest and grow.

Speaker Change: continue to focus on our AI and our data assets.

Zachary Cummins: As we'll continue to do that, and while they're trying to catch up to where we are, we're moving to the next generation. We are not standing still. We are incredibly excited about where we are as an organization and where we're going technologically, Zach.

Christopher E. Greiner: And my one follow-up question for Chris: it is really nice to see the increase in the free cash flow guidance as well. Can you comment on some of the comfort you're getting in the collection cycles with these agency customers and your confidence of being able to raise that free cash flow guidance? It was still a $5 million headwind from a working capital perspective this quarter, driven, you know, by that cohort of customers.

Christopher E. Greiner: Understood. And my one follow up for Chris is really nice to see the increase in the free cash flow guidance as well. Can you comment on some of the comfort you're getting in the collection cycles with these agency customers and your confidence in being able to raise that free cash flow guidance?

Speaker Change: It was still a 5 million headwind from a working capital perspective this quarter, driven by that cohort of customers. We're still learning their payment patterns, as David has said and I've said before, this isn't kind of an if scenario.

Christopher E. Greiner: We're still learning, you know, their payment patterns. As David has said, and I've said before, this isn't kind of an if scenario. These are very, very, very solid corporations. They just have very different kinds of payables and, you know, that they're trying to balance as well.

Christopher E. Greiner: So, high degree of certainty, we're still working through the timing aspect of it. But I feel like even with our call that we've made on free cash flow, we've taken some of that. It's also important to note, Zach, some of this just rolls over, right? Because even if they pay you slower, they pay you 100% of the time, so it does catch up at some point, and we're already starting.

Speaker Change: You know, very, very, very solid corporations, they just have very different kind of payables and, and, you know, that they're trying to balance as well. So, high degree of certainty, we're still working through the timing aspect of it. But I feel like even with our call that we've made on free cash flow, we've taken some of that

Speaker Change: It's also important to note, Zach, some of this just rolls over, right, because even if they pay you slower, they pay you 100% of the time, so it does catch up at some point, and we're already starting to see that.

Zachary Cummins: Okay. Well, thanks for taking my questions and best of luck with the rest of the quarter. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Zachary Cummins: Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.