Zeta Global Holdings Corp. Q1 FY2025 earnings call

• Zeta exceeded expectations in Q1 2025, marking 15th consecutive quarter of beating and raising guidance. • Launched AI Agent Studio with generative AI tools and agentic workflows in beta, aiding marketers in streamlining tasks. • Agency business saw momentum, with two new independent agencies launched in Q1 and agreements finalized with additional ones. • Highlighted success with Super Scaled customers in various industries, showing outperformance in customer acquisition cost and increased spend. • Focus on performance-based outcomes and exposure to lower funnel marketing contributed to resilience.

In the first quarter of 2025, Zeta generated revenue of $264 million, a 36% year-over-year increase. Adjusted EBITDA was $47 million, up 53% year-over-year. Total scaled customer count grew to 548, a 19% year-over-year increase, with 159 Super Scaled customers, up 10% year-over-year. Scaled customer quarterly ARPU was $467,000, up 12% year-over-year, and Super Scaled customer quarterly ARPU was $1.4 million, up 23% year-over-year. Direct mix in Q1 was 73%, up from 67% a year ago, with direct revenue growth of 48% year-over-year. GAAP cost of revenue was 39.1%, improving sequentially and year-over-year, leading to 17th consecutive quarter of expanding adjusted EBITDA margins.

• Raised second quarter 2025 revenue guidance to $297 million midpoint, $2 million higher than prior guidance. • Full-year 2025 revenue guidance increased to $1.242 billion midpoint, $2 million higher. • Adjusted EBITDA midpoint for 2025 raised to $258.5 million, $2 million higher, with 2025 free cash flow guidance raised to $131.5 million midpoint, $2 million higher. • Conservative approach due to ongoing macro uncertainty, but confident in achieving margins through operating expense leverage.

Macro uncertainty remains a risk, influencing the conservative guidance approach.

Q: Terry Tillman from Truist Securities asked about progress on One Zeta and cross-sell expansion.

A: David Steinberg and Chris Greiner responded that One Zeta strategy is ahead of schedule, with cross-sell and use case expansion driving growth, and all three use cases (acquire, grow, retain) growing double digits.

Q: Jason Kreyer from Craig-Hallum asked about macro uncertainty impact and independent agent go-to-market.

A: David Steinberg and Chris Greiner discussed that Zeta is not seeing turbulence, independent agencies have long-term contracts with better visibility, and cash flow conversion is improving.

Q: DJ Hynes from Canaccord Genuity asked about verticals and operating leverage.

A: David Steinberg and Chris Greiner talked about automotive and retail verticals showing growth, and operating leverage available through sales, marketing, G&A adjustments.

Q: Arjun Bhatia from William Blair asked about AI adoption and cash flow conversion.

A: David Steinberg and Chris Greiner mentioned no pausing in AI adoption, with strong growth, and cash flow conversion improved due to CapEx efficiency and agency business timing.

Q: Elizabeth Porter from Morgan Stanley asked about agency mix and growth.

A: David Steinberg and Chris Greiner discussed agency mix moving from indirect to direct, with independent agencies growing and direct enterprise business strong.

Q: Ryan MacDonald from Needham & Co. asked about AI adoption and LiveIntent performance.

A: David Steinberg and Chris Greiner said AI adoption is strong, with customers growing at over 40% year-over-year, and LiveIntent performing in line with expectations.

Q: Richard Baldry from ROTH Capital Partners asked about M&A and agency growth.

A: David Steinberg mentioned being fielded calls about potential acquisitions and agency business growing with independent agencies.

Q: Unidentified Analyst from RBC Capital Markets asked about Zeta Economic Index and macro impact.

A: David Steinberg and Chris Greiner discussed the Zeta Economic Index showing customer concern but no slowing spend, and growth driven by return on investment.

Q: Unidentified Analyst from KeyBank asked about M&A and share buybacks.

A: David Steinberg talked about M&A focus and share buybacks as a way to reward shareholders.

Q: Koji Ikeda from Bank of America asked about guidance conservatism.

A: David Steinberg and Chris Greiner emphasized conservatism is due to uncertainty, with no pullbacks from customers and strong execution.

Q: Brian Schwartz from Oppenheimer & Co. asked about AI agent consumption trends.

A: David Steinberg said meaningful percentage of customers have adopted AI agents, growing at over 40% year-over-year.

Q: Zach Cummins from B. Riley Securities asked about agency holding companies and trends.

A: David Steinberg mentioned acceleration in opportunities with agency holding companies due to data-driven marketing.

Q: Gabriela Borges from Goldman Sachs asked about AI agentic studio and marketing cloud competitors.

A: David Steinberg discussed acceleration in marketing cloud replacement cycles due to Zeta's native AI architecture.

Q: Clark Wright from D.A. Davidson asked about walled gardens and multi-year deals.

A: David Steinberg and Chris Greiner talked about potential opportunities from walled garden fragmentation and multi-year deals with agencies.