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Zeta Global (NYSE: ZETA)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Zeta Global Posts Strong Third Quarter Growth, Driven by Strategic AI Investments

Overview of the Earnings Call

• Prepared Statements
• Question and Answer Segment
• Meet the Speakers

Prepared Statements:

Operator

Welcome to Zeta’s third quarter 2024 earnings conference call. Participants are currently in listen-only mode, with a following question-and-answer session. [Operator instructions] This call is being recorded for your convenience.

Now, I’d like to introduce Madison Serras for investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello to everyone on the call today, and thanks for joining Zeta’s third quarter 2024 conference. You can find our presentation and earnings release on our investor relations website at investors.zetaglobal.com, along with our SEC filings and additional company information. Today, I am joined by David Steinberg, our co-founder, chairman, and CEO, and Chris Greiner, our CFO.

I want to remind everyone that forward-looking statements made during this call, as well as in our presentation and earnings release, involve risks and uncertainties that may cause our actual results to differ. For additional information, please review our earnings announcement and SEC filings. We will refer to certain non-GAAP measures today that should be viewed in conjunction with, and not as substitutes for, our GAAP results.

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We consider these non-GAAP measures essential for managing our business and believe they convey valuable information for investors. In the earnings presentation available on our website, you can find reconciliations of non-GAAP to GAAP measures where appropriate. I’ll now hand it over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone. I appreciate your joining us today. The strategic decisions we made seven years ago regarding artificial intelligence and a unique marketing platform have yielded record third-quarter results that exceed our earlier guidance. In this quarter, we reported revenue of $268 million, marking a 42% increase year-over-year, with adjusted EBITDA reaching $54 million, which is up 59% from last year.

This gives us an adjusted EBITDA margin of 20%, an increase of 210 basis points from the previous year. Additionally, we are raising our full-year 2024 revenue forecast by $61 million to a midpoint of $986 million, reflecting a 35% growth year-over-year. Notably, we achieved the “rule of 60” benchmark for the first time and exceeded the “rule of 50” when political candidate revenue is excluded.

Beyond our financial success, we are enhancing our foundation. In Q3, we secured over $900 million in capital, including an undrawn loan facility. Our annual Zeta Live event saw record in-person attendance. We launched a new intelligent mobile product and our next-generation generative AI, alongside expanding our partnership with Snowflake and welcoming Yahoo as a major new client. Following the third quarter, we finalized the acquisition of LiveIntent, with integration already ahead of schedule.

The current momentum is closely tied to the rapid growth of AI, an area where marketing plays a crucial role. This provides Zeta with exceptional opportunities in the market, as demonstrated by three significant deals finalized in Q3. First, an iconic global retail brand chose Zeta for an eight-figure, five-year contract over a legacy marketing cloud, enabling a comprehensive view of their customers for a better experience while reducing costs.

Next, Zeta expanded its reach in sports and entertainment, securing a multi-year, seven-figure deal with a major professional sports league. This organization sought enhanced identity resolution, purchase intent insights, and sophisticated attribution, which only Zeta could offer in a unified platform meeting their strict timelines.

Finally, Zeta showcased its all-in-one platform capabilities with a leading e-commerce company, allowing them to integrate client acquisition, growth, and retention within a single solution, boosting productivity and ROI efficiently. These engagements illustrate how customers are leveraging the extensive data and AI capabilities of Zeta’s offerings.

Zeta Marketing Soars with Strategic Acquisitions and Record Growth

In a move to enhance its services, Zeta has announced the acquisition of LiveIntent. This addition not only boosts publisher monetization but also elevates Zeta’s newly launched mobile and retail solutions while improving its data cloud capabilities. Industry analysts have taken notice; Forrester recognized Zeta as a leader in marketing automation software and a strong performer in the Customer Data Platform (CDP) Wave, marking it as the only enterprise-grade platform rated highly in both categories.

New Partnerships Drive Innovation

This quarter, Zeta formed valuable partnerships with Yahoo and Snowflake. Zeta was chosen by Yahoo to transition its email marketing operations to the intelligent-powered Zeta marketing platform, impacting hundreds of millions of users. Additionally, Zeta’s platform will integrate with Yahoo ConnectID to enhance audience targeting for both companies. This cooperation is anticipated to increase market share and improve business outcomes for their shared clients. Alongside this, Zeta and Snowflake introduced the Zeta Media Engine, which leverages Snowflake’s data, allowing marketers to effectively utilize their first-party data for personalized campaigns without losing reach.

Record Attendance at Zeta Live Conference

The continued momentum in 2024 culminated in Zeta’s most successful annual conference to date, Zeta Live, which saw over 1,100 industry leaders from more than 400 enterprises attending, doubling last year’s turnout. Highlights included the introduction of Zeta’s AI-powered intelligent mobile solution and an expansion of its generative AI agents lineup. This progress enables marketers to harness AI for creating personalized cross-channel campaigns, significantly enhancing customer experiences.

Strong Financial Performance in Q3

Now, let’s turn to the financial results for the third quarter from Chief Financial Officer Chris Greiner.

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon to everyone. The third quarter can be characterized by a momentum that began earlier in the year and has only grown stronger. Revenue climbed to $268 million, reflecting a remarkable 42% increase from the previous year, even surpassing expectations that included $21 million from political candidate revenue. Our focus on sales and growing customer count has paid off, with net revenue retention positioned at the upper end of our model range.

Key Performance Indicators and Future Outlook

For the third quarter, direct revenue also saw an increase of 41%, indicating an uptick in agency adoption. The net customer earnings before interest, tax, depreciation, and amortization (EBITDA) margins rose to 20%, notably higher than last year’s figures. Our customer base now includes 475 scaled customers, which is an 8% increase year over year, with significant contributions from various sectors like insurance and technology.

Although we faced a GAAP net loss of $17.4 million, this figure includes $47 million in stock-based compensation. On a positive note, our cash from operating activities totaled $34 million, reflecting a 51% year-over-year increase, with free cash flow achieving $26 million, up 93%. This has resulted in an impressive free cash flow to adjusted EBITDA ratio of 48%, even considering a $10 million working capital headwind.

As we look ahead, we remain optimistic about our ability to capitalize on these trends and enhance our market position. Thank you to our customers, partners, Team Zeta, and shareholders for your continued support. I’ll now hand the call back over to our CEO, David.

Zeta Focuses on Growth with Agencies and Strong Financial Guidance

In this quarter, Zeta highlighted an impressive cash flow conversion rate and an ambitious strategy to expand its presence among agencies. If not for certain adjustment cycles, the cash flow conversion would have reached 67%. This statistic indicates a significant opportunity for Zeta as it looks to enhance its agency partnerships, driven largely by a shift toward addressable marketing.

Marketing Trends Fueling Zeta’s Growth

There are three major trends propelling Zeta’s business forward. First, the importance of people-based marketing is leading to increased returns on investment for clients who partner with Zeta. Second, first-party data has emerged as a valuable asset, making customer data platforms essential for personalization strategies. Zeta’s integrated data cloud is pivotal for brands to manage their customer relationships comprehensively.

Lastly, the ongoing technology replacement cycle is encouraging Chief Marketing Officers (CMOs) and Chief Technology Officers (CTOs) to modernize their tech stacks. By streamlining operations and cutting obsolete features, Zeta is uniquely positioned to service both large agency holding companies and independent agencies seeking fresh solutions. Currently, Zeta works with nearly 100 established brands out of the many housed in the portfolios of these large agencies.

Agency Partnerships Expand Rapidly

Zeta’s footprint within the agency ecosystem is expanding. As of now, it’s important to note that the revenue Zeta captures from these large agency holding companies barely scratches the surface compared to the significant sums each invests in digital media. The vast majority of this spend is addressed by Zeta’s marketing solutions, allowing for substantial potential growth.

In the third quarter alone, Zeta saw positive developments with several agency partnerships. One large automotive service center awarded Zeta a contract that expanded from one integrated channel to over 500,000 in just two quarters. Additionally, a prominent office supply retailer utilized Zeta’s omnichannel capabilities, tripling their spend in six months while maintaining a balanced approach to direct and integrated channels.

Another notable win was a national pizza chain that began primarily using social media for promotion. Zeta helped them scale their revenue by three times within the first year through the introduction of additional direct channels.

Positive Financial Outlook for 2024

Zeta’s growth story is backed by strong financial projections for 2024. The company has raised both its fourth-quarter and full-year revenue guidance, now expecting $986 million in revenue, a 35% increase compared to the previous year. This updated forecast is broken down into three segments: revenue from LiveIntent, political candidate revenue, and overall Zeta performance.

The revenue from LiveIntent contributed $14 million to the overall guidance increase. Political candidate revenue rose to $41 million, significantly more than the previous estimate. Lastly, Zeta’s own performance exceeded expectations, contributing $21 million to the revised full-year revenue target.

Excluding the impact of LiveIntent and political ad spending, Zeta anticipates a revenue increase of 28%. The adjusted EBITDA also reflects growth, rising by $13 million to a total of $188.5 million for 2024, marking a 46% increase and showcasing a healthy margin.

Looking Ahead to 2025

Zeta is optimistic about 2025 as well. The management is confident in the projected 17% revenue growth, which adjusts for temporary factors such as the LiveIntent acquisition and political candidate spending. When accounting for these variables, the anticipated growth for 2025 could reach up to 22%.

Improvements in operational efficiency and profit margins will continue to be priorities. Zeta plans to lay out its detailed strategy and long-term goals in February during its conference call. This includes exploring new growth opportunities across various sectors and enhancing partnerships, all aimed at driving continued success.

As we draw close to the end of our discussion, we look forward to your questions regarding this promising trajectory.

Zeta’s Publisher Cloud: A Promising New Growth Frontier

Exploring Opportunities in Publisher Cloud

DJ Hynes from Canaccord Genuity kicked off the Q&A session. Thank you for joining us. I appreciate the detailed guidance provided and the insights into the agency color as well.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, DJ. The publisher cloud represents a significant growth opportunity for us. We currently have strong growth in Connected TV (CTV) and are excited about the rapid scalability of our mobile efforts. However, most publishers today struggle to build reliable marketing capabilities for individual user interactions because of the complex networks involving third-party supply-side platforms (SSPs) and demand-side platforms (DSPs).

Our strategy is to streamline this process. By integrating our SSP directly into our DSP and data cloud, we aim to enhance the marketing efficiency for publishers. This unified system is expected to significantly increase the revenue that flows to publishers through our publisher cloud, presenting a high-margin opportunity with rapid scalability.

Growth Metrics and Trends Beyond Political Revenue

DJ Hynes asked about customer metrics, particularly regarding average revenue per user (ARPU) growth if we exclude political candidate revenue.

Chris Greiner — Chief Financial Officer

That’s a good question, DJ. Even without the political revenue, our ARPU growth remains impressive. If we analyze the 33% ARPU growth while excluding political contributions, we still see growth rates in the mid-20s. This stability stems from increased channel adoption and agency customer mix, similar to trends we noted in the second quarter. Over 30% of our total scaled customers are using three or more channels.

Brand adoption among agencies also continues to rise, with brands exceeding $1 million in spending increasing by 29% year over year.

Agency Migration Toward Direct Spending

Next, Arjun Bhatia from William Blair asked about the migration of agency clients toward direct spending channels.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you for the kind words, Arjun. Our agency clients are steadily shifting from integrated platforms to direct spending. We’re seeing notable growth in connected television, online video, and mobile channels. The pace of mobile adoption is particularly encouraging.

For example, one of our most developed agency clients shifted from 93% integrated and 7% direct in their first year to a 50-50 split in their third year. This gradual migration indicates positive trends for our gross margins, and we don’t need to reach a 90% direct mix to realize significant growth.

Channels Driving Direct Revenue Growth

Chris Greiner — Chief Financial Officer

Currently, our direct revenue mix stands at 41%. Key channels contributing to growth include email at 29%, display video at 46%, and connected TV, which has surged over 150% year-over-year. Such a favorable mix has increased our implied gross margin by around 100 basis points. We anticipate continued improvement in gross margin as direct revenue grows consistently across our client base.

Looking Ahead: Political Revenue in Q4

Arjun highlighted political contributions projected for Q4 and asked for insight into these expectations.

Chris Greiner — Chief Financial Officer

It’s true that guidance suggests a potential decline in political contributions compared to Q3. We are adopting a cautious approach, considering the dynamics of past election cycles and their impacts on revenue.

Zeta CFO Discusses Political Revenue Trends and Strategic Acquisition Plans

Political Revenue Insights for Fiscal Stability

Chris Greiner — Chief Financial Officer

Thank you, Arjun. To clarify, we anticipate three full months of revenue contributions from political candidates during the third quarter, with about a month and a week contributing in the fourth quarter. I expect some upside to our projections at $18 million. However, it may not reach the heights we experienced when we updated our third-quarter outlook. Political and advocacy spending is still trickling in, contributing to this potential growth.

Arjun Bhatia — Analyst

Understood, thank you. Congratulations once again on your performance.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thank you, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Gauging Market Response After LiveIntent Acquisition

Richard Baldry — Analyst

Can you provide any early feedback from the market following the LiveIntent acquisition? Furthermore, with your increased cash flow—despite the cash component paid for LiveIntent—how do you envision future acquisitions, considering your history of consistent buybacks? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Let’s start with your first question, Rich. We are witnessing a faster-than-expected realization of synergies between our two organizations. Thanks to Steve Gerber and his team’s efforts on “quick wins,” we are already seeing several benefits, along with initial cost savings. We’ve also set up numerous cross-selling opportunities between the companies. We aim to fully integrate these operations by the end of the month into our data cloud, enhancing our capabilities significantly.

Chris Greiner — Chief Financial Officer

Regarding acquisitions—

David Steinberg — Co-Founder and Chief Executive Officer

Yes, we are pleasantly surprised by our cash flow generation as a company. Even after covering the cash component for LiveIntent, we still have a strong cash position. We intend to pursue opportunistic acquisitions of companies that exhibit strong teams, innovative technology, and valuable data. Maintaining discipline in our acquisition strategy remains a priority, but I believe we can continue expanding Zeta with valuable additions in the upcoming months and quarters.

Richard Baldry — Analyst

Thank you. Congratulations on a successful quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thank you, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Independent Agency Channel Developments

Ryan MacDonald — Analyst

Hi, thanks for taking my question, and congratulations on a solid quarter. I want to return to the independent agency channel opportunity you mentioned. Have you secured any partnerships with independent agencies so far? If so, could you elaborate on their potential size and revenue mix? Also, how do sales cycles compare to those in your direct business or among the top five agency holding companies? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan. We have successfully executed several contracts in the independent agency sector, and at least one customer is generating significant revenue. The majority of these relationships are on our platform, allowing agencies to interact directly with their customers. This model leads to high gross margins and scalability. Regarding sales cycles, they fall in the middle range. Enterprise clients typically close more quickly, while the larger agency holding companies can take longer. However, following Zeta Live, we see a rapidly expanding pipeline for independent agencies.

We expect to announce multiple wins in this space this quarter.

Ryan MacDonald — Analyst

That’s very helpful. My second question relates to the LiveIntent business. As integration progresses, are there any distinctions in the go-to-market strategy or seasonal fluctuations in that business? Should we anticipate it as a recurrent revenue stream moving forward, and how does its margin profile compare to Zeta’s core operations? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To address your last question first, LiveIntent operates with a percentage-based revenue model on both sides of transactions, leading to high gross margins, all on-platform. We anticipate that this will positively impact our growth as we scale the business. Concerning cycles, Q4 may see slightly elevated revenue due to higher advertising spending at the end of the year. In the long run, the business should remain a steady revenue channel. We see promising potential for cross-selling with existing blue-chip clients who currently do not purchase our offerings or those of LiveIntent.

We have already initiated several contracts for cross-selling, generating revenue from their customer base, which is encouraging.

Chris Greiner — Chief Financial Officer

Ryan, they also have a stable go-to-market model similar to Zeta’s, utilizing both hunters and farmers. This alignment fosters an effective integration.

Ryan MacDonald — Analyst

Excellent. Thank you for the clarity.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

I’d like to echo my congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been addressed, but I wanted to revisit a statistic you mentioned, David, regarding the 60% growth in RFP or RFP pipeline.

Zeta Experiences Remarkable Growth: Sales Pipeline Sees 60% Increase

Interviewer Asks About Factors Behind Sales Surge

During a recent earnings call discussion, analyst Terry Tillman sought to understand the reasons behind Zeta’s impressive pipeline growth. He questioned whether this surge was due to an accelerating replacement cycle, the impact of new sales reps, or the success of the Zeta Live event.

David Steinberg, Co-Founder and CEO, Responds

David Steinberg addressed the inquiry, highlighting a staggering 60% increase in the company’s sales pipeline. He expressed excitement over this significant growth, noting it as the largest pipeline increase Zeta has experienced to date. Steinberg attributed this boost to several factors, including the hiring of experienced sales reps who can effectively share their existing client connections.

Zeta Live, according to Steinberg, was a “100% grand slam,” enhancing customer engagement significantly. Over 400 enterprises participated in the event this year, an essential factor contributing to pipeline growth. “We’ve already outstripped the cost of Zeta Live in terms of contract value generated,” he stated, indicating the event’s success in fostering business opportunities.

Analyst Probes Future Hiring Strategies

Tillman continued the discourse by raising the issue of hiring more sales representatives, noting Zeta’s current staffing comprises around 155 reps. He asked if the company planned to expedite the hiring process moving into the next year, particularly regarding the influx from the LiveIntent acquisition.

Quality Over Quantity in Hiring

In response, Chris Greiner, Zeta’s CFO, clarified that the 25 to 30 sales reps from LiveIntent would be added separately. He reaffirmed the company’s commitment to quality hiring rather than merely increasing numbers. Half of Zeta’s top 10 verticals showed growth rates of over 35%, reflecting their strategic hiring approach focused on experienced individuals within industry sectors.

Steinberg added that these new representatives would enhance Zeta’s existing workforce and contribute significantly to potential sales growth.

Acquisition Strategy and Sales Representative Performance

Analyst Jackson Ader inquired about the anticipated ramp-up time for salespeople acquired through MergeIntent compared to new hires from other firms. Steinberg noted that the integration would largely depend on the similarities in products between the two companies. He expressed optimism about a quick start for the new sales team, given the parallels with Zeta’s offerings.

Exploring Opportunities with Independent Agencies

Ader also asked about how independent agencies contribute to Zeta’s growth compared to major agency networks. Steinberg emphasized that independent agencies could represent considerable spending opportunities, noting that many have billions in annual ad spend. He expects Zeta to onboard these agencies onto their platform effectively.

Political Advertising and Market Dynamics

Matt Swanson of RBC raised concerns regarding potential bottlenecks within the advertising ecosystem due to political spending affecting nonpolitical budgets. Steinberg’s response is eagerly awaited as Zeta navigates these market dynamics while aiming for steady growth.

Overall, Zeta’s strategic focus on enhancing its sales force, leveraging successful events like Zeta Live, and expanding into diverse agency markets paints a promising picture for sustained growth in the upcoming quarters.

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Insights from Recent Earnings Call Highlight Strategic Growth and Challenges

Understanding the Value of Data

In today’s data-driven landscape, companies are continuously seeking ways to enhance their services by integrating diverse data sources. David Steinberg, Co-Founder and CEO, shared insights into the capabilities of their data cloud, emphasizing its comprehensive view of customers through LiveIntent. He pointed out that LiveIntent holds hashed emails for over 240 million individuals every month across thousands of top publishers in the U.S.

The integration of additional datasets promises to enhance the data cloud’s effectiveness, boosting visibility from approximately 240 million to around 245 million individuals. This growth, though it may seem incremental, contributes significantly to refining predictive analytics and customer insights. Steinberg likened the data integration process to an added layer of security, referring to it as a “belt and suspenders” approach.

The Political Campaign Advantage

Jason Kreyer, an analyst at Craig Hallum, queried the potential for expanding the success seen in political campaigns into other sectors. Steinberg acknowledged a “halo effect” stemming from these campaigns, stating that when candidates succeed, they often transition into influential government positions or advocacy groups. Conversely, losing campaigns can also lead to new partnerships in other enterprises.

Navigating Financial Headwinds

Chris Greiner, CFO, addressed the ongoing financial impacts due to agency relationships, noting a consistent headwind translating into a $25 million working capital deficit last year. He clarified that while conversion from EBITDA seems promising, challenges remain primarily due to cash flow timing rather than client defaults.

Mobile Product Advancements

In a discussion about mobile product development, Elizabeth Porter from Morgan Stanley expressed interest in Zeta’s rapid traction in this area, especially in comparison to LiveIntent’s offerings. Steinberg highlighted the integration of AI within Zeta’s mobile product, enhancing its ability to accurately target users based on deterministic data, setting it apart from competitors. This enhanced capability is expected to position Zeta’s mobile product as a key future revenue driver.

Political and Advocacy Revenue Trends

As the conversation shifted to revenue from political and advocacy sectors, Greiner remarked on the significant growth in political candidate revenue, stating it has surged by over 440% compared to the 2022 cycle. This revenue currently comprises 56% of total income from advocacy and political candidates, a marked shift from past cycles where advocacy dominated. He indicated that while advocacy contributions may not match previous years, efforts are underway to establish a sustainable practice in this area for long-term growth.

Conclusion

Overall, the company is navigating a complex landscape with both opportunities and challenges. Maintaining a strategic focus on integrating data and expanding into new markets will be crucial as they advance into the next fiscal year.

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Zeta Set for Continued Growth Despite Conservative Projections

Operator

Thank you. Our next question comes from Koji Ikeda at Bank of America. Please go ahead.

Koji Ikeda — Analyst

Thanks for taking my questions. I have two. First, regarding your outlook for 2025, Chris, it sounds promising this year with an exit rate of 40%. However, if we exclude political and one-time contributions, it appears growth could roughly settle around 25%. I’ve noticed organic growth has been over 30% for the past two quarters. What considerations should we keep in mind regarding your 2025 organic growth expectations, which you indicated would be in the low 20s?

Chris Greiner — Chief Financial Officer

Koji, our outlook reflects a cautious stance. We’ll provide detailed projections during our February call, discussing not just next year’s model but also our long-term expectations. We still aim for over 20% organic growth. My comments imply that even when adjusting for political candidate revenue, we have a robust sales pipeline and are strengthening our team while introducing new products. Our conservative approach for 2025 aims to build realistic expectations.

David Steinberg — Co-Founder and Chief Executive Officer

Let’s not forget, Koji, we started this year below 20%. Now we’re on track. We want to be clear about our aims without overstating projections. Our objective is consistent growth, and we have exceeded our expectations in 13 consecutive quarters. Ideally, we’d like to celebrate our 17th quarter of growth next year.

Koji Ikeda — Analyst

Understood, thank you. My follow-up pertains to LiveIntent. The acquisition deck mentioned pro forma revenue around $76 million for 2024. Can you share updates on growth rates or purchasing accounting assumptions we should consider with this acquisition?

Chris Greiner — Chief Financial Officer

Hi Koji. Regarding growth rates, we anticipate that LiveIntent’s growth is in line with Zeta’s historical performance, which is about 20% or slightly higher. We are currently in the integration phase and are encouraged by the synergies we’re seeing. We plan to share more specifics during the February call.

Koji Ikeda — Analyst

Thanks, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes from Zach Cummins at B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Good afternoon, David and Chris. Congratulations on another strong quarterly performance. I want to ask about the new lineup of AI agents introduced at Zeta Live. Can you elaborate on the interest from agencies and enterprise clients regarding this feature? Additionally, what are the adoption trends as you expand this lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Zach. When we launched the AI agent studios, we did so on a smaller stage, but it was packed; attendees preferred it over the main event. The response was overwhelming, signaling a significant level of interest. The adoption rate for our AI agents has exceeded anything we’ve experienced before. Clients are actively creating their own agents and utilizing the available options.

This may be one of the factors behind our impressive net retention rate of 110% to 115%. Adoption has been exceptionally rapid among agencies and enterprise clients.

Zach Cummins — Analyst

That makes sense. My follow-up focuses on your partnership channels. I see you’re expanding relationships with Snowflake and initiating a new one with Yahoo. Can you provide updates on the system integrator channel, which I know was a planned growth area for you?

David Steinberg — Co-Founder and Chief Executive Officer

Sure, Zach. Interestingly, we’ve already established two system integrator partnerships. We want to ensure we have a solid strategy in place before elaborating further. The system integrator channel is intended to drive growth, although it isn’t currently factored into the numbers for 2025. However, initial adoption is promising, and we’re aiming to onboard a couple more partners in the near future.

Zach Cummins — Analyst

Got it. Thank you for addressing my questions, and best of luck with the quarter ahead.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from Clark Wright at D.A. Davidson. Please proceed.

Clark Wright — Analyst

Thank you. Could you elaborate on how the LiveIntent deal will affect KPIs like scaled customer count? Also, do you believe the 17x increase in ARPU from scaled to super-scaled customers will apply to LiveIntent customers who adopt additional data services?

Chris Greiner — Chief Financial Officer

Sure, Clark. We will provide detailed metrics for LiveIntent, including their figures, at the end of this fiscal year during our February call. However, we expect that their ARPU will align more closely with ours in the mid-tier category. Their clients who exceed a certain threshold are likely to show an ARPU closer to one and a half times what we typically observe.

Zeta’s Earnings Call Highlights Key Growth Opportunities

Financial Results and Notable Client Agreements

During the earnings call, David Steinberg, Co-Founder and CEO, acknowledged a significant deal that the company closed in Q4, which will not impact the Q3 numbers released earlier. “Currently, we have early estimates reaching almost 5 million for incremental scale customers,” he stated. “The full details will be available in February.”

New Products and Budget Considerations

As the discussion moved toward the new agent studio product, analyst Brian Schwartz inquired about spending sources for these innovations. Steinberg explained that investments originate from various budgets, including IT, software, and marketing. He noted the increasing trend of companies establishing separate AI budgets specifically for innovation. “AI performance depends largely on the data it is fed,” he explained. “By integrating our Customer Data Platform (CDP), companies can utilize both their proprietary data and ours, enhancing algorithm efficiency.”

Steinberg emphasized the cost-benefit aspect of adopting these AI products, highlighting potential savings versus investment. “An AI agent that replaces ten $250,000-a-year data science jobs can save $2.5 million, while clients might spend just $200,000 to $300,000 with us, creating a strong return on investment,” he said.

Market Reactions and Holiday Season Insights

When asked about market conditions influenced by the recent elections, Steinberg noted that election clarity has led to increased advertising budgets. “We’ve observed advertisers unlocking funds that we hadn’t anticipated,” he said.

Regarding the holiday season, Steinberg stated that the company raised its guidance by $61 million, a significant adjustment to their budget. “We’re optimistic about the fourth quarter and aim to meet again in February to discuss 2025 guidance and our long-term plans,” he noted.

Future Projections and Agency Relationships

In response to further questions about next year’s plans, Steinberg commented on the health of their agency relationships. He indicated that their largest agency client has renewed for another multi-year term, contributing to positive expectations for ongoing growth. “This could mark our sixth consecutive year of over 20 percent organic growth,” he added.

Closing Remarks

Concluding the call, Steinberg expressed pride in the company’s progress and the partnership approach taken with both clients and strategic partners. “The organic growth we’ve seen is promising, and we’re well-positioned for the future,” he remarked.

Operator

“Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.”

David Steinberg — Co-Founder and Chief Executive Officer

“Thank you, operator. I appreciate your time today and look forward to engaging with you soon. Goodbye.”

Operator

This concludes today’s teleconference.

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

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