Q2 2025 Zeta Global Holdings Corp Earnings Call
Greetings and welcome to the Zeta second quarter 2025 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. Should anyone require operator assistance? During the conference? 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. Matt fought senior vice president of investor relations. Thank you. You may begin.
Thank you, operator. Hello everyone. And thank you for joining us. For zeta's second quarter 2025 conference. Call today's presentation and earnings release are available on zeta's investor relations website at investors. Zeta global.com where you will also find links to our SEC filings along with other information about SATA.
Joining me on the call today are David Steinberg. Data's co-founder chairman and chief executive officer and Chris grinder, stayed as Chief Financial Officer.
Everyone on this call, as well as in the presentation and earnings release, contains 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, revenues of our products, and our goals and strategies.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date.
In addition, our discussion today will include references to certain supplemental, non-gaap Financial measures which should be considered in addition to and not as the substitute for our Gap 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 Gap. Measures were appropriate, can be found in the earnings presentation of available on our website, as well as our earnings release and our other filings with the SEC.
With that, I will now turn the call over to David.
Thank you, Matt. Good afternoon, everyone, and thank you for joining us.
We delivered another quarter of
Growth fueled by demand for our AI-powered marketing platform.
In the second quarter Revenue was 308. Million up 35% year-over-year and adjusted ebit. Dog grew by 52% to 59 million. Both above our guidance.
Zeta's unified platform, with AI and proprietary data at the core, continues to gain share as marketers look to automate complex workflows and drive measurable ROI at scale.
Our first half results and strong sales pipeline, provide us with the confidence and visibility to increase the midpoint of our full year Revenue, guidance by 21 million which is 10 million more than our second quarter outperformance.
A core differentiator driving, our market share, gains is our Relentless focus on AI Innovation. This quarter, we launched Zeta answers. Our first prescriptive AI framework which transforms raw data into automated outcome, driven actions in real time producing a
Superior return on investment.
Unlike conventional analytics that stop at insights Zeta answers. Closes the loop by delivering immediate next. Best actions enabling marketers to execute with Precision at scale. Let me provide a couple of examples of how marketers are using Zeta answers today.
1 of the largest state governments in the United States, used Zeta to Target job Seekers to relocate to their state.
Using our Circles of Influence capability, they engage not only job seekers, but also their closed networks of friends, family, and colleagues, driving a 30% higher engagement among audiences whose close contacts were also included.
This example also aligns nicely with our new initiative to do more in the public sector.
Second a Fortune. 100 technology company used our leading indicators module to identify intent signals and proactively tailor. Its marketing. Resulting in a 10% Improvement in engagement.
Highlighting our ongoing investment in AI innovation, we recently appointed Nate Johannes as President of the Zeta Data and AI Lab and Global Head of Research and Development.
Nate is a proven leader at the intersection of artificial intelligence, product innovation, and public policy, with more than 15 years of experience in senior roles at Meta, Microsoft, and the White House.
A key driver of our second quarter growth was the sustainable momentum in our agency business.
Our AI powered platform is resonating with both holding companies and independent agencies.
A new capabilities, broadening our scope and making Zeta even more important to their success.
Independent agencies. Also continue to be a strong growth driver adopting our platform much like an Enterprise client.
Since our last earnings call, we platformed 3 additional independent agencies.
Our momentum with independent agencies is building and the second half pipeline is robust. Given that there are hundreds of additional independent agencies that we can serve.
A core long-term growth driver is our 1 Zeta initiative which aims to accelerate multi-use case adoption across acquisition growth and retention.
We have found that clients utilizing us for all 3, use cases, start a flywheel that leads to substantially better return on investment.
A higher net promoter score and a stickier customer that broadens their use of the platform over time.
Since our last earnings call, we have had several significant 1 Zeta wins. Let me provide you with a couple of examples.
A National Discount Furniture chain already using our growth module added both retention and acquisition under 1 Zeta, consolidating life, cycle and acquisition marketing on a single platform and unifying data decisioning and activation.
Second a leading Hospitality brand after demonstrating success with our growth, use case expanded to our retention. Use case through email, and is now evaluating mobile and CDP Integrations showing how 1 Zeta deepens return on investment and fuels ongoing expansion.
Our growing 1, Zeta pipeline shows that broadening from 1 to multiple use case. Deployments will be a significant driver of growth in The Zeta 2028 plan.
And I could not be happier with how quickly the team has hit the ground running, which is giving us confidence to accelerate our investment in sales, headcount behind this initiative.
As we head into the back half of 2025, our AI-driven momentum across the Zeta answers, the release of new ZMPs, rollouts, agency expansions, and one Zeta win give us conviction that our business is poised to capture even more market share going forward.
Before I hand it off to Chris, I'm thrilled to announce that Zeta live returns to New York City, for our fifth annual conference on October 9th. This year's theme is Achieve The Impossible.
To headline the conference. We have chosen 2 icons who embody our theme better than anyone.
7 times Super Bowl champion, quarterback and entrepreneur, Tom Brady and 23 time, Grand Slam, champion and entrepreneur, Serena Williams together. They are goats squared, both changing the game and raising the bar for generations to come
In that Spirit, Zeta live will be a 1-day invite-only event this year with no live stream and only on demand Video available after the event.
Throughout the conference, we will have three stages of thought leadership sessions by today's leading CEOs, CMOs, athletes, and global thought leaders in branding, marketing, and advertising.
This year because of demand, we will have a dedicated stage for zeta's products and upcoming launches, registration is already outpacing. Last year's record, attendance.
the day before on October 8th, we will host our second investor day, sharing our long-term roadmap R&D Pipeline and the expanded leadership team, driving, zeta's growth,
In closing, I couldn't be prouder of Team, Zeta for delivering 35% Revenue growth and expanding margins at scale.
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,
Thank you, David and good afternoon, everyone.
Earnings call. We outlined an ambitious plan.
To surpass 2.1 billion in Revenue by 2028 and expand our free cash flow margin by 700 basis points over the next 4 years.
Our first half results, put us firmly on track versus those goals.
Compared to our initial guidance. Excluding live intent. And political first, half Revenue growth of 27% came in 600 basis points, above expectations, and free cash flow conversion of 59% is 800 points ahead of our previous 4 year Target.
These first half results, give us confidence to meaningfully. Raise our full year Revenue, guidance and significantly increase our free cash flow expectations.
We also made great progress on our commitment to shareholders to reduce normal course Equity dilution.
And the changes we implemented earlier this year are already having a significant impact. With the ending of the second quarter, share count is flat with the first quarter.
With that, let's dive into the details of the quarter.
In Q2, we delivered revenue of 308 million up 35% year-over-year or 27%. When excluding the contribution from live intent and political candidate Revenue in the year ago, period.
Total revenue was 11 million or 4% better than the midpoint of our guidance.
For context, when we provide quarterly Revenue guidance, we typically try to leave ourselves 2 to 5 Points of cushion relative to the midpoint.
Total scale. Customer count grew to 567, up 21% year-over-year.
And in addition of 19, customers sequentially.
We had success in adding customers across an array of verticals with technology and media consumer and Retail and advertising and marketing being the largest contributors.
We had 168 super scaled customers at the end of the second quarter and the increase of 17% year-over-year and 9 quarter to quarter.
scale customer quarterly arpu of 532,000 increased 11% year-over-year and super scale of customer quarterly, arpu of 1.6 million increased, 19% year-over-year,
The higher RPU was driven by increased agency expansion, channel, and use case adoption.
We saw the highest year-over-year growth in the number of customers leveraging four or more channels, and significant growth in the number of customers using two or more use cases.
On the agency front, the average number of scaled brands within our large agency holding company increased 40% year-over-year in Q2, a strong indicator of our sustained momentum within the agency ecosystem.
this broader platform adoption points to the long, Runway ahead of us as evidenced by less than 20% of scaled customers, using more than 1, use case, less than 20%, using 4 more channels, and very early brand penetration with agencies,
From an industry perspective on a trailing 12-month basis, 6 of our top 10 verticals grew faster than 20% year-over-year and like the first quarter, some of our fastest growing verticals. Those like consumer retail travel, and hospitality and technology and media to name a few continue to be with customers who are the most Roi Centric.
We ended the quarter with 179. Coda carriers up, 18% year-over-year and 6, head. Sequentially supported by an expanding sales pipeline.
Our direct mix in the second quarter was 75% up from 73% in the first quarter of 2025 and higher than 67% a year ago, resulting in direct Revenue growth of 51%, year-over-year
Higher usage of email.
Agency direct Channel adoption and live intent, where the contributors to the increase in direct mix.
On the back of higher direct mix, our Gap costs of Revenue. In the quarter was 37.9% a 120 basis, point Improvement, sequentially and 200 basis points improvement from the second quarter of 2024.
In the second quarter, we generated 58.8 million of adjusted ibida and a margin of 19.1%. 210 basis points, higher year-over-year and 3.9 million better than the midpoint of our guidance.
This was our 18th straight quarter of expanding adjusted IBA, margins year by year.
Our gaap, net loss for the second quarter was 12.8 million and improvement from a loss of 28.1 million and the second quarter of 2024.
Second quarter, net cash provided by operating activities was 42 million up 35% year-over-year with free cash. Flow of 33.6 million up, 69% year-over-year and representing a margin of 11%.
This translated to a free cash flow conversion of 57%. A significant improvement from 51% in the second quarter of 2024.
A key driver of our improving free cash flow conversion is disciplined capital expenditure spending.
which was 7.5 million lower in the first half of 2025 versus 2024
We continue to have a working capital headwind from our growth with large agency, hold codes. But we expect this to lessen over time.
To that end. If working capital was neutral, our free cash flow conversion would have been over 80% in the second quarter.
We also repurchased 2.7 million shares for 32 million accounting for 96% of our free cash flow generated in the quarter.
Year to date. As of July 25th, we have repurchased 69 million of our shares.
We've utilized $85 million of our $100 million share repurchase authorization that was approved in November, and our board just approved an additional $200 million two-year share repurchase authorization.
Now, let's turn to our increase. Third quarter, and 2025 Outlook,
Before getting to the numbers, let me highlight a few factors we considered when updating our Outlook.
First, since our last earnings call customer Behavior has remained consistent Brands. Continue to invest in growth and we are winning market share.
Second.
Given our first half performance and strong pipeline, we have increased visibility and confidence in the back half of the year.
Third team Zeta continues to execute at a high level, and we're seeing early traction with our key long-term growth drivers, including AI consumption, based usage, agency expansion, and 1 Zeta.
And forth our increased focus on free cash flow has resulted in first half, cash conversion coming in, meaningfully ahead of expectations.
With those factors in mind. We now expect 2025 revenue of 1 billion, 263 million at the midpoint and increase of 21 million versus the midpoint of our prior guidance.
this represents reported growth of 26% and growth of 24%, when adjusting for live intent and political candidate Revenue, in the year ago, comps,
For the third quarter. We now expect revenue of 328 million at the midpoint 5 million higher than our previous guidance, and representing growth of 22% both on a reported basis. And when adjusting for live intent and political candidate Revenue in the year ago, comps
For adjusted ibida, were increasing the midpoint of our 2025 guidance, to 264.6 million up, 6 million, from our prior guidance and representing a year-over-year increase of 37% at a margin of 21%.
The 6 million full year, increase to adjusted IBA, guidance drops at a margin rate of 29%.
for the third quarter of 2025 we now expect adjusted Eva of 70.7 million at the midpoint up from our previous guidance, expectations of 69.7 million and representing growth of 32% and a margin of 21.5%
We are significantly, increasing the midpoint of our 2025 free cash flow guidance to 142 million up. 10.5 million from the midpoint of our previous guidance and representing year-over-year growth of 54%.
Our free cash flow. Guidance, increase is meaninglessly ahead of our adjusted. Eva increase driving our expected. Free cash flow conversion to improve to 54% up from our previous guidance of 51% and 48% in 2024.
This puts us on a great trajectory to achieve our 2028 Target of 65% conversion.
as mentioned up front, we are also making solid progress on reducing dilution
Driven by changes to our Equity Compensation Plan, as well as our aggressive share buyback. During the quarter,
As a result, we remain on track to achieve. Both our 4% to 6%. Normal course dilution Target in 20125 and our 190 million Equity, compensation expense Target
Lastly, we remain confident in our Zeta 2028 plan and are reaffirming our long-term targets which project over 2.1 billion in annual revenue, at least 25% adjusted Eva margin and 16% plus free cash flow margin in 2028.
Now, let me hand the call back over to the operator for David and myself to take your questions, 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 for participants using speaker equipment and may be necessary to pick up your handset, before pressing the star Keys 1 moment, please while we pull for questions.
The first question is from Scott Berg from Neiman Company. Please go ahead.
Hi, David, and Chris really, uh, nice results here in the quarter. I guess several questions. Um, David you you, you, you released a new AI, uh, module in the quarter. There's a lot of excitement, obviously, around the technology and whatnot. But what are you seeing around? You know, um, interest level from customers and agencies. It sounds like you got out of the gate. Well, with, with the product but is the awareness where it needs to be with those customers. And uh, Partners here in the short term to, you know, really kind of supercharge, your results over the next couple quarters or do you think it's really more of a fiscal um, 26 event than a maybe a near-term, 25 opportunity?
Well first of all, thank you Scott. We're obviously very proud of the quarter and and feel like we we did a pretty good job as an organization. I think a lot of what you're seeing when you see the financials at these rates, that's the output. The input is clients, buying more of our products and getting more clients, right? And being efficient while running the business which I think we did. Well our AI Suite of products continues to be the lead and tip of the spear in driving additional growth to customers who are currently working with and new customers. So I think the awareness is good. I think we can continue to do better and I think you're
You're going to see all of this, showcased at Zeta live. 1 of the big differences Scott in Zeta live this year.
We are going to have a dedicated Zeta stage. We were able to get an extra floor in the building that we're operating in. Quite frankly, it was something that I had always shied away from because I wanted to use it to live as thought leadership and really build the brand. But what started to happen is our clients are so excited about our new products that they asked us if we could do our own stage to really just highlight a full Zeta track. I think you're going to see a number of meaningful new releases, and you're going to see a bunch of major upgrades around AI. So, to answer your question, I think the awareness is good and we're seeing meaningful uptake, but we can always do better, and I think that's what we're focused on.
Excellent. Looking forward to my first Zeta live and then, uh, from a follow-up, uh, question wanted to just understand linearity in the quarter, you know, Liberation day we saw, you know, cause some um, unfavorable um, I don't know, time of your results for some other, uh, software vendors. Did you see anything in the quarter that maybe made the quarter back-end loaded as as something was caught up in April, or was everything pretty well in line with your
Expectations pre-quarter.
Who growth model. Um, our fastest growing cohort, kind of a good reflection of the progress and traction. We're getting under the 1 Zeta program, where those customers using more than 1, use case, which is great. And then, lastly is David has talked about our progress with the agencies, we had 40% growth, in the large agency, hold codes in terms of the number of brands on average that we're working with, so nicely broad-based and very consistent across the quarter. And Scott, I would just add to it. You know, we have found through the years that turbulence in the marketplace drives major adoption from our clients because unlike our competitors, our platform is so focused on return on investment and it's so far superior to our competitors in return on investment.
when there are lots of different moving Parts in the economy, we have found that our growth rate has accelerated, as I think you saw on the second quarter,
Understood real nice quarter. Everyone thanks again.
Thank you, Scott.
The next question is from DJ Hines from canaccord. Genuity, can you just go ahead?
Hey guys, this is Luke on for DJ, thanks for, for taking the questions. So, uh, Chris, we recently listened to a podcast that you were on which was great, by the way.
Uh, 1 of 1 of the things you said about Zeta in your role, is that it's all about turning the right dials at the right time. But so I guess I'm curious as you. Look at all the kpis that you can control today, what dials are you turning? Uh, and which are you dialing back?
Uh, you and my mom, uh, and my dad. Uh, so I think thank you for that. I was, I thought you were very good. I appreciate that. Uh, Luke. Thanks for the question. Um, look, the dials that we have most under our control really are in the cost of Revenue and in the extent line and and what the sellers have been driving on the top line, uh, is, is really a great byproduct of, you know, converting on the pipeline. So, I'll give you a, you know, a few data points on the sales pipeline conversion, which speaks to sales productivity and what we're doing there and then I'll share with you what drove the very strong margin Improvement across the board. Um the sales productivity front as you know, we track our sellers in the class or in will if you will the year in which they join Zeta.
You have data going back to 2021 for these so we can reliably look at the metrics and get a sense for facc and efficiency. What's interesting about the latest class that we're working with right now is both the less than 12 months seller as well as the 12 to 24 months to their class day of the highest pipeline, both in Deal count and in Deal value that we've seen since 2022. And I think that's a reflection, as we really pivoted to hire more experienced sellers that come in with industry, expertise really great pipelines speaks to their fast start and then even our most experienced, sellers, those that have been with us 2 or more years, they continue to have win rates of over 50%. So the converting of the pipeline and the training enablement that's happening in the market. And the product leadership speaks I think to some of the sales productivity that we're seeing on the dials as it relates to margin, obviously we had a really good direct mix quarter. We talked about how our fastest growing channels were those that customers using for more with the vast majority of that being those direct channels. Um, that
Direct Channel usage was up from 67% a year ago to 75%. Not surprisingly, our cost of revenues as a percentage of revenue was down 200 basis points, so, um, really nice congruence there. Then, on the expense line and on the cash conversion line, you're seeing very good discipline as it relates to CapEx and just continued strong management and measurement of where we invest, namely in world-class engineers. Nate is a great reflection of that; we're having great people under.
Nate and Chris manberg and Nish Gore and then obviously adding more and more sellers at the supported by our Pipeline and our productivity statistics
We've also been smart about, you know, eliminating certain functions in the company that are not driving value to free up additional budget. So we can bring in the quality of Engineers and sales people we want. And and I think we've been very disciplined about that as a company.
Really, really great color. Thank you. And and then maybe just to follow up, you know, 1 of 1 of the themes to emerge from Amazon's recent earnings is that firms. Momentum in advertising, which is obviously, uh, it's complementing your e-commerce and Cloud business.
But what do you see as their approach to embracing ecosystem Partners? You know, is that a channel you work with today? And how do you think about them from a competitive standpoint?
Generally ever see them as a competitor. I think, Amazon has done a really good job. I mean understatement. Uh, as it relates to monetizing their existing platform and data, uh, I think that they're going to continue to focus on that. And, and, you know, the vast majority of their advertising dollars come from vendors that are selling products or sellers, that are selling products inside their ecosystem, uh, as they expand and, and certainly through Prime where we run a considerable amount of marketing, uh, for connected television, they've been an incredible partner to us and and we see them as somebody who will be an expanding channel for us.
Excellent, thank you very much.
The next question is from Gabriella, borgas. From Goldman Sachs, please go ahead.
Hi team. This is Callie on for Gabriella. Um, first, 1 for me is, we're hearing a lot across the ecosystem, around the ROI that people are seeing from AI, being Incorporated, in both Ai and marketing campaigns. Um, did you notice a substantial increase in AI driven campaigns in 2q and are you seeing any potential, um, changes in customer Behavior? As a result of that?
Well, I'll take that Gabrielle, I'm David. Uh, so what what I would say is that we are seeing a massive adoption of our existing customers for our AI tools and platforms and customers last year who adapted our AI agent, Studio grew, at 44% versus our average. I believe is 30 or 31% last year as a company. So we're seeing meaningful, uptake Gabrielle in that AI adoption. We're also seeing the return on investment for for clients of ours who are adopting, the AI agent Studios. So they're running a genetic workflows the return on investment is substantially higher than the return on investment for our clients who have not yet adopted them. So from an ecosystem perspective, as your as you know, we've been programming and artificial intelligence since 2017 and we're the only marketing cloud.
That has Ai and data as native to the application layer. So the latency that is created by the stepping out of the platform to the algorithm to do a query and then stepping out of the algorithm to do a data dip, back to the algorithm, back to the platform, to make a decision that latency destroys return on investment.
Our platform is able to do what takes them 5 to 7, seconds in a millisecond. In many cases that allows us to substantially better Target our clients marketing and allows substantially higher interaction rates and substantially higher return on investment to our clients. So, we do see a meaningful change in the marketplace and we are exactly where the marketplace is turning to.
Really appreciate all the details there and then, um, wanted to ask on the investments in sales, headcount that are kind of behind that 1 Zeta approach. Um, can you provide any more detail on where these additions will be concentrated? And what types of customers are you seeing the most 1 day to success, with either, by a customer size geography or any other detail? You can give would be great. Thank you.
Uh, geography primarily in this round, uh, mostly to the US uh, from an industry vertical perspective. It really is very specific to who we are hiring, we we don't hire industry generalists. We we try to really be focused on where those individuals have had the most success. It's difficult to walk into a bank on a Monday and an airline on a Thursday.
Needing to a substantially higher drop to profit than Revenue growth. And I think that's a trend. You'll see continued where, yes, we're going to continue to invest into sales, people and Engineers, but based on our current trajectory, we expect to continue to grow profit and gross profit faster than we're growing Revenue. Uh, in the years to come.
Great, thank you so much.
The next question is from Koji ikada from Bank of America. Please go ahead.
Hey guys, thanks so much for taking the questions. Um, I wanted to ask about your your product strategy here and which which 1 of the 3 products is maybe driving better usage or net retention and which 1 is driving better land. You know, looking at the data management piece, the marketing automation piece and the engagement piece is there 1. That's better than the other within, those 2 categories or, or is it really about the 1 data land strategy right now?
I think we're seeing growth across the board Koji. We're seeing growth in all use cases. We're seeing a higher number of of channels being utilized by our clients than ever before. And and as I've said before the the reason 1 Zeta is such a good strategy is not only does it drive substantially higher Revenue growth and profit to Zeta. It starts a flywheel for the customers where customers, who have adopted
Opted are 3, main use cases, customer acquisition, customer retention customer. Monetization are, are seeing the flywheel Drive substantially higher return on investment across all 3, use cases for them. So what we learned in acquisition drives value to retention, which drives value to monetization, which drives value back to acquisition and as clients adopt it we're seeing them move substantially more wallet share from our competitors to us. So I think that's 1 of the reasons we're growing so much faster than the market itself. So we're seeing individual clients growing we're seeing all 3, use cases, growing we're seeing more channels per client, although we're seeing that at an even faster pace.
When it's happening inside of the 1 Zeta environment, the other Koji metric. That's, you know. You could argue even more important than the financial metrics is NPS. Net promoter score for customers that use more than 1 use case of Zeta. It's higher than those that don't.
Got it, got it. Thank you. And Chris a follow-up for you. It's on Gross. Margins. And so maybe remind us if you've given us a target of world gross, margins can go for the business. And the reason why I ask is you know, direct Revenue mix is now 75%, driving gross, margins of 62.2%.
The last quarter. 73 73%, direct mix driving 61%. It does feel like we're on that upward trajectory of gross margins. And so, help us understand kind of the puts and takes their in World gross. Margins could go.
Thank you, coach. That's such a good question. Um, if you go back to our February earnings call, when we put out the Zeta 2028 model and we talked about our at least growth goals, getting to 2.1 billion at least 25% adjust. Even margins. And at least 16% free cash flow margins embedded in. That was an assumption for where our cost of revenues could go down by which we said was between 100 basis points and 300 basis points. So with that ability to kind of zoom out as what is the kind of, you know, the big goal and where we see uh ourselves being and, you know, trying to conceal these conservatives. But now, you kind of zoom into the quarter as you pointed out 75%, direct mix compared to 67% a year ago resulted in 200 basis points of reducing cost of Revenue. So, right in that kind of midpoint of our target range. Um, so, you know, we're really happy with where mix landed. Um, it, it very much drives with, you know, kind of our expectations for the model.
How could we be higher than 63? Of course, could we be higher than 62% gross margin? We definitely can but right now we're happy with the expansion that drove.
Those types of margins was because agencies are converting more and more to direct.
and,
It's really important to note that our clients see a substantially higher return on investment to them when they're on our direct platform versus integrated platforms and the migration is really just beginning so we feel very good about where we are.
Thank you.
The next question is from Terry Tillman from Truist Securities. Please go ahead.
Great David. Chris, Matt thanks for taking the questions. This is Bobby Dion for Terry. I'm curious if you all have seen a trend at all with brands, starting to bring their marketing operations, more and more in-house particularly as a result of AI and AI agents helping folks, do more with less. And if that is the case, how do you think that affects data going forward? And then I'd 1 follow up. Thank you.
So, if Bobby, uh, great question. The the funny thing is and and I hate to even say this, but the answer is really not yet.
We continue to see most Enterprises using very large or independent agencies to manage their marketing. That that being said,
I don't know 1 Enterprise, that is not currently testing internally with AI tools to better manage their marketing in partnership with their agencies. Uh, and and with others and and I think it's 1 of the reasons we continue to see the momentum and sustainability.
in our agency and independent, uh,
I guess company. It's it's it's it's their agencies but I should say agency, hold goes and independent agencies, sorry, that's a mouthful but that's how I should put it. We continue to see, incredible, sustainability and growth there as evidenced. By the fact. We grew the brands we work with with our current agency hold codes by 40% year-over-year. We're still only touching a minuscule percentage of the brands that they work with. And that's because the agencies are adopting, our AI tools to better help their clients. And it's become a very symbiotic relationship between the Enterprise, the agency and Zeta.
Thanks David.
Also, very much intrigued by the SATA data and AI lab group. I'm curious, if you can discuss, their, their Northstar goals, and what success for them looks like over time. Thank you. Well thanks. So we were very excited to get Nate uh, Johannes to come join us after being at meta for many years, Microsoft for many years and at the White House and really for us,
This is what I would call our Innovation Factory. It's going to be cranking out next Generation, AI tools like we haven't before. And you know quite frankly we're probably 18 months ahead of most of our competitors. It as it relates to a gentic workflows AI products. AI tooling my goal is to continue to stay 18 to 24 months ahead of our competitors and bringing in somebody like Nate to help Chris monberg and help Niche Gore to really continue and drive Innovation. I'm just incredibly excited about bringing him in. You'll see a lot of new releases and very exciting announcements from The Zeta Ai and data Lab at Zeta live.
Great. Thank you.
The next question is from Matthew Swanson from RBC. Please go ahead.
Great. Thank you. Yes, for taking my question. I I know this is kind of cool up in bits and pieces during Q&A but if we could just kind of double click on the success that you're seeing with independent agencies and maybe looping in a previous question are independent agencies, do you think seeing more pressure to, you know, partner with the Zeta to get Genai tools now that they're competing with so many Genai tools from Walgreens?
Gardens and other, you know, big direct companies.
Make the type of investments into building AI in today's world that we have made. I think people forget that by starting building AI in 2017, we were able to buy a lot of the things that today are 5710 times more expensive. We were able to get those things in a much more reasonable cost and we've been able to drive, meaningful free, cash flow growth because those Investments have been made, they were still very large Investments over the years, it would be very difficult for the average independent agency to make that investment. So by partnering with Zeta, we're able to put them in a place where they can have the most Cutting Edge tools, artificial intelligence access to proprietary data. They would never have access to and we're treating to answer your first question. We're treating these independent agencies more like a very large Enterprise where we're
fully platforming them and everything they're doing is on platform.
And I think you're starting to see that in sort of the clicking up of the direct, and you're seeing our larger agency, hold codes migrating, on to direct, uh, channels. And you're starting to see that in the lowering of our cost of goods sold. So, you know, right now, we're feeling very good about the independent agency ecosystem. I mean it's it has incredible people in
It, they have incredible clients and I I want to be clear. These can long-term
Many of them can be 9, figure customers. So, you know, these are, these are some of these agencies are running. 1, 2 3, 5 billion dollars a year in marketing. Uh, we're we're very excited about the opportunity and and we continue to focus on it.
That's a that's super helpful and then maybe, maybe kind of following up in the same mindset. Maybe it's a similar answer, but it it seemed like, throughout the call. We talked about the strength of the pipeline over and over again. I know in q1 there was some commentary about, you know, the best that you guys have ever felt about pipeline, maybe thinking about how that pipeline gets filled compared to a couple of years ago, and just the scale of the company and the brand recognition, how, how much has kind of the marketing and go to market side change in terms of how many people are coming to you already understanding, what Zeta does or at least understanding the need for the solution relative to where you were before.
So, Matt, that's a big question. Let me start by saying that we feel like we are solidly moving from what we call Zeta, who we are now, solidly in the Y Zeta.
Section of our brand's evolution and
truly what we're seeing is, we're seeing this Evolution where people are now coming to us. They know who we are, or if we're going into a meeting people know who we are and why we're there. Now, we just have to convince them why our products are better. And you know, I'll tell you we just recently did the canned lion uh conference and we did our first ever activation there. We did. Uh The Zeta Cafe at Zeta Beach and I would tell you it was the most exciting time
For me, in 17 years of running Zeta, we met with everybody. We were doing 17 meetings a day, times, you know, 20 or 30 people there. I was bumping into the CEOs of Fortune 500 companies at cocktail parties and dinners, and everybody knew who we were.
Not 1. Person said, who are you guys? What are you doing here? And to me, that is why we're seeing the pipeline continue to be at records, it's why we're continuing to see conversion rate higher than ever and, and I think it's going to continue to drive where we're going as a business.
Thank you.
The next question is from Zach. Cumins from B Riley Securities. Please go ahead.
Hi, good afternoon, David and Chris. Thanks for taking my questions, and congrats on the strong results. Um, maybe you could just expand a bit on Matt's question around independent agencies, and maybe Chris, you could give more insight on this, but...
you give us a sense of of when you're Landing, what are these new independent agencies? What's the mix of direct versus indirect spend? When you start out in, in kind of, how does that evolve, um, over the life of the relationship versus maybe 1 of your cold Co companies?
as David mentioned, there's there's a lot of
synergy with how we would land an Enterprise frankly. Um, often times, they'll start with pilots and proof of Concepts, just to get a sense of the capabilities of the platform, then they'll lead to a much larger, what we call platforms deal, which in our speak means multi-year engagement. And then, you know, usage around our direct channels. So in the indent independent agency side, it would be unusual to start heavily in Social. Uh, it's much more common and, and the norm to begin first and direct
Nice to hear the call out around the the big public sector opportunity you had, was they to answer? So just curious of how you're thinking about just opportunities for expansion in the public sector. Just giving us not really a, a notable vertical for Zeta at this point.
Yeah. I we're very excited about the public sector. I, I would tell you that uh We've brought in a very solid team as Chris always points out. It's very difficult to walk into a credit card company on Monday and an airline on Tuesday. So so we have begun the process of building out. A very experienced highly capable team that is used to selling into the public sector. And interestingly enough, if you look at our political business, the relationships that we built, there are leading to other business as those candidates win. So it's been very
Interesting to look at it from a life cycle perspective. It's just getting started but I think in the years to come it's going to become a very meaningful business.
Understood. Well, thanks for taking my questions and, uh, looking forward to Zeta live later this year.
We're looking forward to having you, Zach.
The next question is from Richard, baldry from Ross, Capital Partners please go ahead.
Thanks. Uh we look back a year ago and 2q you added, you know, 43 scale, customers year-over-year moving up to this year, that number is 99 on a year-over-year basis. Can you talk a little bit about how that's happening? Is it, is it? You know, our who growth that's taking people up across that that threshold is a little faster. Um or is it more about just new logo wins? The win rates are accelerating pipelines. Help us, understand how, you know?
Sensible. That is thanks.
Yeah, Rich. Once again, we We meaningfully Grown our sales force as Chris can get into in a moment. Uh, and this movement from why from Zeta who to why Zeta has been incredibly impactful in the conversion of our pipeline to sales because we're seeing people who come into the pipeline, they know who we are. We don't have to spend our entire time, trying to convince them that we are capable. They come in knowing that
And I think that's led to a much higher sales rate Chris. Yeah, it's it's it's clearly outpaced our expectations, which is a positive. Um, you know, I don't want to get too far ahead of ourselves. I mean, we put out the Zeta 2028 model for a certain account of growth in customers in a certain growth in our poo, I think right now we continue to see the Synergy benefits of live intent. Uh, which results in more customers? Albeit at a smaller starting rpu, but that's fine. That's our model to cross sell. Um, but yeah, very pleased with how we've gotten started and to have our model.
and uh, the you talked
briefly by saying there is, you had a minuscule percentage of brands with the large agencies, is there a way to put any numbers around that and and is this really applicable across their whole bases and sort of where they Maybe started. They started with small mid-size, customers going up to large? How how do we think about the the growth path ahead with those agencies, thanks?
I, I, I'm going to take a wild guess here, and it is a wild guess, which I would tell you. In the United States, we are currently working with between 1% and 3% of the clients that the agency holds. This country represents.
In addition to the other Enterprise Direct business growing nicely as well. So, you know, I I think that
Metrics. I like to talk about is today are 567. Global Enterprise clients spend
Greater than 100 billion dollars a year in marketing at the middle of our range. This year, we have approximately 125 basis points of volunteer
How do I get?
To 5.
500 basis points or a thousand basis points, while a chair in the years to come. I think the agency hold co-penetration, which is so small but growing, will be a meaningful part of that in the years to come.
Thanks, congrats on a great quarter.
Thank you, rich.
The next question is from Elizabeth Porter from Morgan Stanley. Please go ahead.
Great. Thank you so much. You've really accelerated the pace of AI products for recently and we often hear just more broadly in the industry about AI Solutions needing a lot more handholding or support with customers just to get them up and running.
So I wanted to know if Zeta is seeing a similar Dynamic and if so kind of what investments are you looking to make to support adoption? Or if not kind of how your products may be different and easier to implement for customers?
You know, that's a, that's a great question. Elizabeth. And, and I would say that we invested early in our Learning and Development Group and it's it's 1 of the most important and most unsung groups in Zeta and a lot of it started. Because when we started selling Ai and data is native to the application layer. Nobody at any idea what we were talking about,
So we built this incredible group and and literally they built an incredible repository that can be accessed by the clients that automatically trains them using this repository of training materials tools and of course Zoe which is the voice enabled system, which also helps with training on the utilization of the agentic workflows and other tools. So, what I would say is, there's always some handholding. I imagine our handholding is substantially less than most companies because ours is fully integrated. And I believe that our Learning and Development Group is incredibly well positioned to do this.
Great. And then, you know, at
For quick follow-up. Um, at Candle, I and you certainly sounds like you were very busy. Um, historically has that been a driver to the model at all whether kind of seeing an inflection in in customer changes?
Uh, is it something? We should pay attention to more in the future? Just as kind of that brand recognition, expands.
It's a new thing. And yes, I think it'll be very impactful. We saw a meaningful increase to our pipeline coming out of Canada Line. Uh, and I would tell you that the the the praise for our team that did that activation was off the charts. It it, I mean, we were right in the middle of the beach so if your angling to to, to be able to come over to the south of France with us next summer, Elizabeth, and check this out. We're all in. We'd love to have you. Uh, and it it is worthwhile because we see meaningful stuff up there. I would go so far as to say right now, the 2 most important events of the year for Zeta or Zeta live and can lion. And it's, that's a bit of a change over the last few years, but but very excited.
Sounds great. Thank you.
The next question is from Arjun, Bhatia from William, Blair & Company, please go ahead.
Thanks for taking our question and fitting Us in. So, in the past, uh, you spoke on the 4-year guide with a layer of conservatism given the dynamic macro. Can you give me a comment on what the current guide contemplates in terms of the macro?
In half. And then, you know, further bolstered by as David mentioned, the very strong pipeline in the sales productivity behind it.
The next question is from Jason Kerr from Craig Hallam. Please go ahead.
Thanks gentlemen. Uh, just 1 question for me on.
Pardon Me.
1 moment, please only reconnect, uh, Jason
Pardon me. Jason you can go ahead again.
You guys got me.
Uh, yeah, Jason, I'm sorry. We didn't we didn't hear any of your questions. I apologize. Other than you said, just 1 question from me.
Okay, you can hear me now.
So when you launched 1 Zeta last year, you started with like 10 clients, you expanded that to a lot more this year. I'm curious how you take 1 Zeta and you go back to the existing 500 customers and help them add more use cases.
Well let's let's let's talk about 50067 customers, come on, you know, we don't want to, we don't want to lose that last 67, uh, in all seriousness.
We are doing incredible case, studies internally with existing clients who are using 1 Zeta and The NPS score as Chris pointed out is so much higher than our regular NPS score. And the return on investment is so much higher than even our very high average. As we're showing that to other customers Ed and the elite team that he's building are showing them a road map to build in the same flywheel for themselves and it's been very exciting to see the adoption rate there. I mean I will tell you Jason my goal is to have every client be a 1 Zeta client. We're not going to get there overnight. It might take us years to get there but there's no reason that they shouldn't be.
Wonderful, thank you.
The next question is from Jackson AER from KeyBank. Please go ahead.
Great. Uh, thank you, guys. Thanks for taking our questions. Um, the brand count within the agency customers being, uh, um, 40%. I'm just curious. Like, how much is that within your power, like zeta's power to kind of Ratchet up or, or well, I guess you would never had to sit it down to like, how much is that within your power versus? Maybe the agency being the 1 to decide the rate and pace of turning on the different brands.
I I mean, it's a joint relationship between us and the agency and I think it's like any other business, the better you do, the more they give you. And, you know, the fact that we were able to grow Brands 40% year-over-year while still being well under 5% of the brands that the agency hold goes in this country represent. I think speaks to the sustainability and durability Jackson of our agency, hold Co business. And, you know, I, I think that we've got a team that's fully embedded and every day we're growing. The brands we work with and we are adding additional brands.
All right, I'll sneak 1 more in. I know it's getting late at the, at the outset of the Year, autos, and insurance. Th those 2 particles were coming off. Um, ex exceptional 2024. And so part of like the growth rate
You know, assumption and guidance was like, look, these are not going to you, you can't run that back. But I guess my question is, like, I'm surprised to see those two verticals in the top five throwers. So, but just given the strong 24. So what are like the durable trends driving those still being in the top half of your verticals? Even after.
Unlikely sustainable 2024. Thank you.
I mean we're just so thinly penetrated into those 2 verticals. So I mean,
By the way, again, another part of the business, that's exceeded where kind of our head space was, but you're right, they both not only laughed on really strong growth but have have sustained it as have, by the way, um, lots of other verticals. But I think it more speaks to, even though they're, you know, you know, call it 4% on the automotive side and on the insurance side like 10 11, 12% of Revenue.
Platform and our ability to show return on investment.
Okay, all right, great. Thank you.
The next question is from Clark, right? From da Davidson? Please go ahead.
Awesome. Thank you. Uh, this quarter, you know, you're firing all cylinders and it seems like momentum with the agency business is very strong, love it kind of understand where you expect this that segment to be as a percentage of the business at year end and additionally. If you could exclude the agency business, what would our poop growth have been this quarter?
Um, you know, we those are 2 data points Clark that we, you know, I don't want to give guidance to the the, you know, it it, especially on the American agencies Diff'rent. I mean this year they'll you know from 2023 to 2024 if effectively doubled in size and and they're really growing nicely. And um, yeah, not not going to break it out that way. And by the way I I think it's important to note Clark our our Enterprise business is growing nicely too. So it it's not like you just have the agency hold Co business and the independent agency business growing and the Enterprise business is not. So, you know, I think I, I think as, as Chris said, we're not going to break it out, but I have said publicly, you know, we think that agency business continues to be a minority component of our business for many many many, many years to come
Got it. Appreciate that clarity. Thank you.
Thanks Clark. We'll see you in this quarter.
There are no further questions at this time.
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