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Greetings, and welcome to the

Thank you, operator. Hello, everyone, and thank you for joining us for

Thank you, Scott. Good afternoon, everyone, and thank you for joining us today. 2024 is off to a great start. In the first quarter of 2024, we delivered revenue of $195 million, up 24% year-over-year with adjusted EBITDA of $30.5 million, up 27% year-over-year. Our adjusted EBITDA margin of 15.6% expanded 40 basis points year-over-year. Our strong competitive position combined with the structural forces propelling our momentum give us the confidence to raise our 2024 full year guidance by $25 million to $900 million at the midpoint. This translates into 24% year-over-year revenue growth and acceleration from the 23% growth we achieved last year. This accelerated full year growth rate is the result of strong visibility into key revenue drivers, including the marketing cloud replacement cycle, the rebound of automotive and insurance sectors, the ramp of our agency business and the hyper growth of our artificial intelligence platform. Behind each of these drivers is the need to make AI more actionable with more relevant personalization, more impactful marketing programs and more measurable return on investment. Our AI-powered Marketing Cloud, the

Thank you, David. As you said, it was a strong start to the year, indeed, highlighted by an increase in visibility from new customer wins and rapid expansion of existing customers, which is leading to a big step-up in revenue and adjusted EBITDA guidance. To that end, my remarks today will focus on 2 key topics. First, a run-through of the results with an update on the green shoots we're seeing from several of 2024 growth catalysts, namely, outlining the automotive and insurance verticals return to growth, discussing our progress scaling recently signed large agency holdcos, providing an update on political candidate spending and sharing sales productivity and pipeline conversion metrics with large enterprise customers. And then I'll close by detailing the increase in our second quarter and full year guidance, along with how our growth drivers are incorporated into the outlook. All right. Let's dive in by starting with the results. In the first quarter, we delivered $195 million in revenue, up 24% year-to-year. The $8 million of upside versus the midpoint of guidance was broad-based. We ended the quarter with 460 scaled customers, which, as a reminder, accounts for 98% of total

[Operator Instructions] Our first question comes from the line of Elizabeth Porter with Morgan Stanley.

I wanted to ask about the agency side of the business. Looking at your Slide 12, it looks like it took with the first relationship about 3 years to get to 10 brands. But now you're scaling with 10-plus brands already within the first year of some of the newer relationships. So, I just wanted to ask, what are some of the factors that you think are helping you now land larger with some of those more brands just off of year 1? And then second, any go-to-market motions that you're running in terms of helping shift that direct versus integrated mix faster than what you've seen previously?

Thank you, Elizabeth. I appreciate the question. First, as it relates to starting bigger, we're just better now. It used to be we would go into an agency holdco and we would have to spend a tremendous amount of time educating them on who we are. Now, what we're finding is when we go in, and I think as Chris mentioned in his prepared remarks, we're up to 5 global agency holdcos, we're seeing them land faster, which, by the way, leads to your second question, right? Because when you get to your second question, it's how do we migrate them over. And the efficacy and efficiency of using our on-platform versus integrated platform is substantially higher. So, we are making sure that we're getting in front of the decision-makers faster as it relates to that. And I would say that we believe that the current mix of on-platform versus integrated platform is at its low point, and we will begin to see it come up in the next few quarters to where it would traditionally be, Chris?

Elizabeth, it took us in that first large agency holdco that first year's direct revenue mix is around 7%. And as you noted, in year 3, it was around north of 70%. Year 2 is like 40%. So, it's not as is it's like a hockey stick. We expect the more recent signings to have that same nice kind of linear pacing to it. Back to what David said, we help them win new business. We help them cross-sells. We're providing now client data enrichment opportunities. And because we're people-based in our attribution as opposed to cookie-based, they can use

And just as a follow-up, I wanted to ask on some of the intelligent agent side. Really impressive to hear about the 300 agents. Just curious how you view some of the engagement there? Is a lot of this still kind of in testing and pilot phases? Or is it billing being adopted kind of more widespread? And what are some of the factors that you think you need to customers need to see in order to drive the more meaningful adoption?

Yes. So, first of all, we think we are the first marketing cloud to market with build-your-own-agent. And quite frankly, we were even surprised with the level of uptake from our clients and internally. These 300 agents represent, I don't know, thousands of potential use cases. And what we're seeing, I think like a lot of people is, we're seeing a lot of focus on efficiency to start with the intelligent agencies. So, how do they build virtual data scientists using their own data for the first time using our generative AI platform in the form of the intelligent agent. And obviously, that's driving revenue growth for us as you saw the results and the raise of guidance. So, we're seeing that uptake. We're seeing the adoption. We think that's going to continue. But I'm very, very excited about the level of uptake and the level of utilization, we're seeing clients, Elizabeth, who are using this really using it. They're not setting it up and using it once. We're seeing it being really used, and we're seeing a meaningful increase in platform utilization from clients who have done that.

Our next question comes from the line of Clark Wright with D.A. Davidson.

Either a great quarter, just wanted to maybe start off and if you could possibly just quantify how growth in the agency business has impacted the direct revenue mix since it was down 6 points in 4Q? And where do you see this trending over the course of the year?

I think the direct revenue mix in the first quarter at 67% is going to be the low point that we see. It's our expectation that the direct revenue mix will look a heck of a lot like how it ended in 2023, and that the percentage cost of revenue profile would also follow how we ended the fourth quarter of 2023, which was around 40% on a cost of revenue basis. Our plan is, and this is to Elizabeth's point, if you follow the trajectory of the first large agency holdco we started to work with now 4-plus years ago, in their early time frame, they were around 7% mix, and they expanded that to 76% in that range. So, we think the same agencies that have now signed with us these recently new 4 would follow a similar pattern over time.

And we see indication of that already. And quite frankly, even though we saw a slight drop in direct versus integrated, you saw that our cost of revenue went down from Q4 into Q1. I think that's because the direct platform continues to be very, very solid. And we expect both of those trends to continue as we then move the agencies on our platform versus integrated.

And then if I could hear for the second one. Could you also talk about the company's initiatives to drive increased channel usage and any trends you're seeing in terms of the way that brands are engaging as prospective and current customers?

You can actually see it in a couple of places this quarter really meaningfully. The first is the significant increase quarter-over-quarter in super scale customers. So, those are customers that do over $1 million with us on a trailing 12-month basis. That grew 13%. It's the highest we've ever seen on a sequential basis since we've been tracking the metric now over a number of years. And then if you look at the same time, the double-digit strong 11% scaled customer ARPU growth, that's an acceleration from the 7%. And now you look at the channel usage part, the number of our scaled customers that are using 2 or more channels grew over 30% year-over-year. We had good growth across the channel base. CTV was in the low 40s. The rest of the channels were in strong double digits. So, we're seeing good adoption across the different channel mix that we offer our customers.

Our next question comes from the line of Richard Baldry with ROTH.

Congrats again on the quarter. Could you talk about, under what acceleration scenario might you have to increase your rate of internal spending? And it's a broader question about how much automation and leverage you have sort of in your fixed versus variable as the top line is picking up beyond what we had expected.

Rich, first of all, thank you. It's interesting because if you look at a lot of the companies that are putting results out, obviously, they've massively increased their investment into AI. I think the difference is, we started doing this 7 or 8 years ago. So, we don't see a material step-up needed, but it is interesting in our budget for this year. We will invest more money into innovation than in any prior year. So, we are increasing the investment in innovation, but we're doing it in an environment where our revenue and our gross profit dollars are growing dramatically faster than we're making those investments. And as I think, I've said before, it really appears as if the bets we made years ago on putting data and artificial intelligence is native to the application layer, where not just where the puck was going, so to speak. They are really where the puck is today. And I don't see a material step up as a percentage of revenue, but we are investing heavily, and that's already in what we're forecasting for this year.

And for those who don't sort of live in the agency ad world, can you talk a little about sort of the scale of number of customers that those would represent and sort of contrast that with, obviously, your penetration rate? And then maybe think about the budget per customer and how far along that curve you think you are with maybe your most mature agency customer?

Yes. I mean just to put it in perspective, the 5 agency holdcos we work with spend over $100 billion a year in marketing. So, even with our mature partner, we are just scratching the surface. Now, I think back to Elizabeth's original question, we are focusing on migrating those clients, those agencies on to being direct versus indirect. But I think that we are just scratching the surface. I mean, to put it in perspective, with our largest client in this ecosystem, I don't think we are 1% of their business. So, I think we have a lot of headroom. I think we have meaningful relationships with these agency holdcos. And by the way, they see us as part of their solution set. As Chris has said, they're winning clients with us. Our entire strategy is to make our clients the hero of their stories. And when you look at the agency holdcos, we are here to support them and help them do a better job with their enterprise clients, and it really appears to be resonating.

Our next question comes from the line of Ryan MacDonald with Needham.

Congrats on the great quarter. I wanted to focus on the large 7-figure financial services win in sort of the interesting aspect of that being partner-driven deal and sort of quick time to close. As you think about the pipeline where it stands today maybe versus 6 to 12 months ago, what's the mix of pipeline that's coming sort of direct versus partner driven? And are the initiatives that you have to sort of build out relationships with SIs, sort of accelerating that mix shift at all? How should we think about that?

So, thank you, Ryan. I appreciate it. Today, 100% of our sales effectively are direct. I mean whether we're selling direct to the agency holdco or we're selling direct to the enterprise. We are in integration with, quite frankly, more than 1 SI at this point. We believe that will be a big driver of the business but in the out years, it is not contemplated in our current guidance. We continue to focus on building our sales force. And as Chris has said, and I think you should touch on again, the productivity of our sales force just continues to climb as we hire more and more senior people.

Yes. Ryan, I would say, I don't have the exact numbers, but greater than 90% of the sales pipeline today, which is growing very nicely, is generated directly from our sellers. We are, though, starting to see as the benefit of working with more and more in the partner ecosystem, starting to see deals enter our sales pipeline that were created by those sellers that then we'll ultimately take on and help duly Shepherd to close. As David mentioned, what's really exciting, and if you think about what helped deliver the upside in the quarter, you can almost think about it as 1/3, 1/3, 1/3. Auto and insurance coming back to growth was great. It came in faster than we thought. We flowed that through the outlook and the guide, as you can see. About another 1/3 was from more rapid agency expansions than we were counting on our guidance. We've now flowed some of that through. And then sales productivity we're seeing on the enterprise side from our direct sellers. I think the best evidence point that we continue to talk about in these calls is, what is this most recent cohort of sellers, those that are still in their first year with data? And how does their sales productivity compare to the classes before them, before them, before them. So now, going back 3-plus years. There's some pretty good data points there. Those sellers time to close in the most recent class we've hired is now at 4 months' time to close their first deal. So, 20% better than what the average 3 years have been. And then as they get more tenure with data and more experience more deals under their belt, there are a number of deals they carry at the same time. The average value of the deals go up, their win rates go up and their pipelines expand. So, we're seeing really nice sales productivity to enormous credit to the business unit sales leaders and our training and development team.

And by the way, it might be 20% above the 3-year running average. It's 100% above where we were 3 years ago. So, we're really seeing that. And, of course, going from

Maybe as a follow-up, great to see sort of the guidance increase for the full year being sort of fully driven by the core business and the strength there. But I did want to ask about political and expectations there. I think as we are getting closer and closer to election, we're hearing more conversations about perhaps funding going more towards legal fees from one party than the other, which is forcing sort of by the administration to maybe not spend as aggressively or maybe they don't need to. How are this factoring in, if at all into your expectations for political ad spend as we look into the second half of the year?

So, let me be totally clear. There will be more money spent on marketing in this election than any election in the history of the United States of America. And that will be, I believe, the statistical fact when people look back on this cycle. What I can tell you is, yes, there is a percentage of revenue for one of the candidates that is currently being utilized for legal fees. But the candidates are raising very large amounts of money and they're going to spend it. As Chris said, our current guidance, I think, does not include an increase in what we believe to be political. And if you look at our historical levels, we feel that we've put a good placeholder in for where we think it's going to be, but I would not expect it to be down from there.

Our next question comes from the line of Jason Kreyer with Craig-Hallum.

Congrats from me as well. Great quarter. David, just wondering if you can maybe frame the importance of AI in your pipeline conversations. Like it seems like you've always won more than your fair share, but maybe now that you're winning even more than your fair share because of AI, but curious if you can kind of parse that out.

Well, first of all, thank you, Jason. I appreciate it. It's funny, before I got here this today, we're out on the West Coast, I literally moderated the artificial intelligence panel for the Milken and Global Conference from $1,150 to 1,245. And then we put out a results at 105, and then I sort of rushed over here to do this with Chris and the team. I'm telling you, there is not an organization out there today that is not looking at how to solve their AI problem. And one of the panelists was really interesting. He said, you've got the Fortune 5000. They are not going to be able to do this on their own. They are going to need vendors and partners who bring artificial intelligence to the table for them. And one of the big consensuses of the panel, I'm not sure I said that right, but one of the big consensuses of the panel was, if you are not focused on AI right now, they're going to find partners who are. And I can tell you that from all of our conversations, this is the issue. It's what people are focused on and it's starting with efficiency, which is very logical. And if you look at how technologies have evolved through the ages, so to speak, they start with efficiency and then they move to a meaningful revenue generation. It just so happens that our AI platform can do both. It can help enterprises to more efficiently run their platforms by better utilizing their existing data, expanding out, building agents internally so they can build their own virtual data scientists using our agent building program, which, by the way, then generates meaningful revenue increment to us, which once again, is why I think we posted the first quarter we did and why we feel so comfortable raising our guidance for the year. But it is, Jason, the conversation that starts every conversation that we have today.

Just one more, I wanted to pivot over to the build-out of this mobile platform. Just maybe if you can give us kind of an idea of the progression there because we've seen products like CTV that has kicked in and become a growth accelerant for

Yes. So, I mean, listen, we believe that the

Our next question comes from the line of Koji Ikeda with Bank of America.

I wanted to ask about the super scaled customer strength, the net new addition strength there. But I did want to focus again on the agency customer strength. So, question is around how is

Koji, it's Chris. I'll go first on a couple of super scale data point, then I'll pass it over to David. Yes, as you mentioned, the up 13 record for us. All 13, by the way, scaled up from that $100,000 to $1 million cohort. So, a really good demonstration of the land expand extend strategy working and then the benefit of now of having over 90% of our revenue with customers with us beyond a year. What was also great about those expansions is they were primarily driven by enterprise relationships rather than just agencies. And it came from various industries range from technology to consumer retail, even through travel and hospitality. And as you saw on the ARPU side, use of more than 2 channels up 30% is also a very strong data point for us. David?

And Koji, thank you again. What I would tell you as it relates to the agency relationships, if you asked is a top down or bottoms up, the answer is, yes. It's both. We're coming in, in many cases, at the CEO or Global Chairman of the Holding Corporation. And we're simultaneously working from the ground up. We have a team now that is fully integrated into the 5 agencies we work with. Quite frankly, over the last 3 years, we've invested very heavily in that team. The other thing is, we're going where the agencies are, right? So, we had a presence at the Consumer Electronics Show this year. We had a presence at the possible conference and will have a meaningful presence at Canlion this year. And, as we think about the relationships with these agencies, it's mission-critical that you work both sides, but more than anything, you have to make them the hero. You have to be able to come in and make sure that the client knows that the agency is the hero, and we are servicing them, and that's mission-critical to how we make this work long term. So, I will tell you, I feel very good about the relationships we have at the absolute top. And, as you can imagine, I spend a lot of personal time on that. And we have an incredible team that's integrated. And then we have another team that's farming, that's in there working with them on a day-to-day basis.

And just a follow-up here. I wanted to ask a question. On the guidance, I appreciate the raise in the revenue and also the raise in the EBITDA. But when I look at the flow-through from revenue to EBITDA, it looks a little bit less on the EBITDA raise versus the revenue rate. So, I just wanted to understand some of the puts and takes there. And then also just on the free cash flow, it looks like that wasn't raised at all on the guidance. I'm just wondering, help us bridge from revenue to EBITDA and then free cash flow.

Yes. So, free cash flow in the prepared remarks, we had a pretty wide range entering the year to begin with at 75 to 85. And one of the comments I made in the prepared remarks was, there's definitely a scenario where we're at the higher end of that range now after this raise. But it was more a reflection of kind of how wide that range was at the start of the year. The only gating factor there is just the timing with these new agencies that we've been signing with in the collections. There's no really anything fundamentally beyond that, that would drive the conversion ratio to be lower. In terms of deleverage in the model, I appreciate the point. If you look at the amount that we raised, grew our revenue, full year revenue year-over-year in the updated guide in relation to EBITDA's growth from the prior guide to the current guide, I think it drops like a 24% EBITDA margin. On adjusting pure guidance increase basis, you're right, it drops around 20%. I think that's a reflection of David talked about. You're going to see us this year, look, we're running ahead of our plan. We want to make continued investments in marketing. Just last week, we held a regional-based

And Koji, I also want to point out, we are now guiding to the rule of 43% at the end of the first quarter of the year. So, if you take our 19% operating margin plus our projected 24% growth rate, we feel like we're doing a pretty good job of sort of projecting forward as an organization.

Our next question comes from the line of

Congrats on the strong results. I'm not sure if somebody already asked, I apologize I had half from another call, but can you give us a little more sense on the recovery in the insurance vertical specifically? I mean we've seen many of the lead Gen players really see a big recovery in demand in the first half of this year. So, just curious what you're seeing on that side and what's really being built into your guidance for the rest of the year within that vertical?

Thanks,

And I apologize if maybe you addressed it in the script, but any sort of update to how you're thinking about your 2025 targets? Or is that fair to think about that as a future date potentially?

I'll point out again, everything we say about 2025

I was getting ready to kick you because I thought you were going to go somewhere different.

You thought I was going to say $2 billion in 2025. That's a joke. I was kidding.

Our next question comes from the line of Ryan MacWilliams with Barclays.

So, good to see the improvement in ARPU growth from scale customers in the quarter. Now that we're further along into the year, do your larger customers feel better about where they stand compared to where they started the year in terms of their marketing spend, just on the macro side? Or are they just waiting to kind of see the outcome of the election and interest rates before getting more involved to you?

No. We're seeing marketer spend. I mean I would say that this is as bullish a marketing environment as I have seen in the last few years. And I'm not seeing people affected by interest rates as it relates to marketing, and I have not seen, and when I say people, I mean organizations, and I've not seen organizations worried about the election as it relates to spending. Now, what will happen is, you get into the election cycle is this massive flood of dollars will begin to come in, and you'll see marketing get more expensive in some of the channels. But quite frankly, we are a big beneficiary of that on our political business. So, I'm not seeing any issues there right now.

And even if you look at it, Ryan, from an industry vertical perspective, like I think it was half of our top 10 verticals grew over 30%. So, it seems to be very healthy out there.

And then a 2-part question. It would be one for David, one for Chris. David, you guys have booked since IPO with the organic results split. Any updates here on your thoughts around M&A and maybe how they could provide additional sell into some of your scale customers? And then for Chris, just like a quick housekeeping item. Any update on how we could think about modeling gross margins for this year?

Ryan, we continue to focus on being a high-quality organic growth company. But at the same time, we're always looking for organizations we could merge in that have incredible human capital, great technology, great data and/or great people. And we continue to look. Until we find something that we think could be incredibly accretive, we will continue to look and not pull the trigger. But it is a good environment for M&A from the purchase side perspective, which is the side we're on. And we look at a lot. We just haven't pulled the trigger because we haven't seen anything we thought could be accretive with all of the things we really need in an acquisition.

And just hitting quickly, second question, Ryan. I think it's same as what we said back in February. I would assume a similar direct revenue mix profile that we saw exiting 2023, so call it low 70s and a similar percentage cost of revenue on a GAAP basis that we saw exiting 2023, which was around 40%. We did a little bit better this quarter, about 60 bps. But I think that's a good operating assumption for the rest of the year. That's where our heads are at anyway, just given where our large agency holdcos are in their early ramping process.

Our next question comes from the line of Arjan Bhatia with William Blair.

This is Chris on for Arjan. Congrats on a great quarter. First question for me, were what are some of the main factors behind the success that you're seeing with enterprise customers, in particular? Is this primarily channel expansion that's driving the accelerated scaling you've seen? Or are there other levers that customers are using to grow their spend as well?

Well, thank you, Chris. I think AI is a major one. And I don't want to downplay what an important component of why enterprises are choosing

Yes, perfect.

And then the second one for me was, so, you've rolled out a number of new products over the past year or so. How are you seeing these products play out in terms of go-to-market? Is this having a role in some of the success you've seen in terms of seller productivity?

Yes. I mean, listen, it's always good when there's another quiver in the arsenal of the salespeople to be able to get out there and sell. And we continue to focus on additional channels and additional use cases. Chris?

Yes. And, Chris, I think our customers appreciate in the early sales meetings that we have, we're not pitching PowerPoints. We're literally going to them with the data cloud, telling them oftentimes more than they know certainly about their prospects, but even sometimes about their existing customers. So, it's a very much very real sale from meeting #1, and it's highly visualized, which I think also helps sales productivity at your point.

Our next question comes from the line of Dan Reagan with Canaccord.

This is Dan Reagan on for DJ. Heinz. I just want to say congrats to another solid quarter of consistent execution. Love to see the guidance raise, too. So you guys touched on this a little bit, but revenue growth has been pretty materially outpacing sales head count growth for several quarters. That productivity gain is great to see. But I want to play devil's advocate with 2 questions. First, you know or do you think you could grow faster with more sales capacity? And then secondly, what signals would inform you that it's time to step up the pace of hiring? Or is it more dependent on the availability of experienced sellers that you're looking for?

Yes. It's interesting. It's like a little bit of a DUC below the surface. We've hired a lot of people. We've just also let go some of the earlier cohorts who are not as productive. I think we've gone through the vast majority of that cycle, and you'll now see head count begin to grow again as it relates to salespeople. But we continue to really win a disproportionate percentage greater than 50% of the RFPs and engagements we get invited to participate in, and I think that will continue.

Yes. We made a nice step up coming out of the fourth quarter. We had $136 million got to $142 million. I think we'll be at $150 range in the third quarter. Sales productivity plays into it, quality over quantity is big. The gates that we use to evaluate talent, marketing domain expertise, specific vertical expertise, many years of experience. So, it kind of narrows the pool down to a high-quality number of people that we're going after. So, really like the sales productivity we're seeing. I appreciate the point. But right now, we feel like we've got the right balance.

And then many agencies have existing relationships with data and platform providers. And also, this question is also for the holdcos. What makes

Well, truthfully, a lot of people talk about doing what we do, but they can't really do it. They come in with PowerPoint presentations, and they're taking a third-party data set, a third-party AI algorithm, different activation methodologies and building attribution and building targeting is almost impossible at scale in that world. So, yes, obviously, the agency holdcos have other partners that they are moving meaningful dollars from them to us, but it's because by putting data and artificial intelligence as native to the application layer, meaning it's native to the marketing cloud itself, we're able to better target, better activate and better build attribution models to prove it. And, like Chris has said multiple times, they're not waking up and saying, let's move $50 million, $100 million to you. They're starting with a test and then expand. Now, what we've seen is the testing that we've been doing over the last year where we said we went from 1 to 3. Now we've gone to 5 holding companies. What's happened is, the 2 that went from 1 to 3 are scaling very, very rapidly because our product. We don't say that our product is superior. We prove that our product is superior, which is why they start on the test and then they move meaningful additional budget to us. Thank you very much.

Our last question comes from the line of Ryan Schwartz with Oppenheimer.

This is Ari Friedman sitting in for Brian Schwartz. I wanted to double click on like the marketing buying environment. And I was wondering kind of has there been a reprioritization since last year of like this time last year of what marketers want to buy in terms of like the marketing stack and marketing solutions and what they're prioritizing? Or is it kind of the same? And then same with like the scrutiny under budget? Is it the same as last year? Or is it better?

Yes. So, Ari, first of all, the answer is we're seeing an upswing in marketing itself. So, you've got a rising tide there. Second, we really are seeing marketers want artificial intelligence and data as native to the application layer. So, when we start the conversations, the interesting thing is, we go into a lot of presentations where other people have promised them the same thing. One of the things Chris talks about that I think is so important is our test, land and expand strategy because our entire strategy is other people will tell you they can do this, we will prove it. And we come in and we prove it again and again. So, as it relates to that, we're not seeing sort of any sort of shift in strategy as it relates to market purchasing. We're seeing agencies and enterprises want the best possible solution with the best technology, the best data to deliver the best results to either their enterprise or their clients. And so far,