ZETA - NYSE

Greetings, and welcome to the

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

Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. 2025 began much like 2024 ended, with

Thank you, David, and good afternoon, everyone. Before diving into the details of our quarterly results and updated 2025 guidance, I want to highlight four key takeaways. First, despite global macro uncertainty, we report in a strong quarter with broad-based contribution across all areas of our business. Second, our increased 2025 projections are reflective of our momentum exiting the first quarter and the good visibility we have into the second quarter, while being thoughtfully conservative in the second half, given macroeconomic and policy uncertainty. Third, we've looked at our capital allocation strategy and are taking significant steps to reduce dilution and stock-based compensation expense. And fourth, Our increased focus on free cash flow generation is evident in our first quarter results, with free cash flow growth significantly ahead of revenue and adjusted EBITDA, and a substantial improvement in free cash flow conversion. Now, let's get into the details of our first quarter results. In Q1, we delivered revenue of $264 million, up 36% year-over-year, or 26% excluding the contribution from LiveIntent. Total scaled customer count grew to 548, up 19% year-over-year, and an addition of 21 customers sequentially. We had 159 Super Scaled customers at the end of the first quarter, an increase of 10% year-over-year, and 11% quarter-to-quarter. Scaled customer quarterly ARPU of $467,000 increased 12% year-over-year and Super Scaled customer quarterly ARPU of $1.4 million increased 23% year-over-year. From an industry perspective on a trailing 12 month basis, sis of our top 10 verticals grew faster than 20% year-over-year. We ended the quarter with 173 quota carriers, up 22% year-over-year and down [7 heads] (ph) sequentially. The sequential decline was in line with our expectations and driven by the completion of the LiveIntent integration. Our direct mix in the first quarter was 73%, down from 74% in the fourth quarter of 2024, but up from 67% a year ago, resulting in direct revenue growth of 48% year-over-year. Our GAAP cost of revenue in the quarter was 39.1%, 90 basis point improvement sequentially, and a 30 basis point improvement from the first quarter of 2024. This improvement in cost of revenue, as well as leverage in other areas of our operating expenses, resulted in our 17th straight quarter of expanding adjusted EBITDA margins year-over-year. In the first quarter, we generated $46.7 million of adjusted EBITDA at a margin of 17.7%, 200 basis points higher year-over-year, and $2.2 million better than the midpoint of our guidance. One of the addbacks to adjusted EBITDA was $3 million of restructuring expenses, which were anticipated and primarily related to the integration of LiveIntent. Our GAAP net loss for the first quarter was $22 million, an improvement from $40 million in the first quarter of 2024. First quarter net cash provided by operating activities was $34.8 million, up 41% year-over-year, with free cash flow of $28.2 million, up 87% and representing a margin of 10.7%. This translated to a free cash flow conversion of 60%, a significant improvement from 45% in the fourth quarter of 2024 and 50% in the first quarter of 2024. We also repurchased 1.6 million shares for $25 million, accounting for 89% of our free cash flow generated in the quarter. We continue to repurchase shares after the close of the quarter, acquiring an additional 1.8 million shares for $21 million between April 1st and April 25th. We have approximately $38 million remaining under our current share repurchase authorization and upon completion of this authorization, we plan to initiate a new one. Before diving into our 2025 guidance, I want to highlight a few key elements of our business model that are especially relevant given the current macro environment and informed how we approached guidance. First, as David discussed earlier, we deliver a clear, measurable ROI to our customers. This value proposition has helped us maintain an annual net revenue retention rate of 111% or higher every year since our IPO in 2021. Second, nearly all of the marketing and advertising spend we support is tied to measurable KPIs, particularly lower funnel conversion metrics. We believe this makes our platform more resilient in volatile macro environments as lower funnel spend tends to be less discretionary than top of funnel brand awareness efforts. Third, we primarily address large enterprises whose marketing spend tends to be more stable than small businesses in our view. And fourth, typically more than 90% of our annual revenue comes from customers that have been with us more than a year. These dynamics have contributed to our relative outperformance during challenging periods. For example, in 2022, a year when many tech companies experienced a sharp slowdown in growth, and then rising inflation and broader budget rationalization, our revenue growth accelerated by 4 percentage points, reaching 29%. Lastly, and relevant in the context of the current macro environment, our direct exposure to Federal Government and China is minimal. Following a strong quarter and considering our current data points, including a robust sales pipeline, positive customer interactions, and good visibility into the second quarter, we would typically revise our full-year guidance upwards by the amount we exceeded the first quarter's expectations, as well as increase our second quarter forecast. However, we'd all agree these are not typical circumstances. Because of this, we prefer to adopt a thoughtful approach that blends short-term momentum and visibility with second half conservatism. We are increasing our second quarter revenue outlook by $2 million, while adjusting our growth expectations for the second half of the year. The conservatism in our guidance can be seen through three lenses. First, we are one month into our second quarter and have good visibility for this period. Second, although we continue to see healthy demand, our guidance assumes a softer macro in the second half of the year. Third, to meet our guidance, our four fastest growing industries in the first half of the year only need to grow at half that rate in the second half. To be clear, our customers have not expressed intentions to decrease their investments with

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Terry Tillman with Truist Securities. Please proceed with your question.

Yes. Hey, David, Chris, and Matt. Bear with me. I've got my own preamble here. First of all, congrats on the 15th beat and raise quarter and then also on the color on the second half guidance velocity. That's actually very helpful. My first question relates to like progress on One

Well, let me start by saying thank you, Terry. I'm losing my voice here a little bit. But you know, the One

Just bringing the data points to life there, Terry, for you. All three of our use cases, the acquire, grow, and retain, all three grew double digits year-over-year. And our fastest growing cohort in terms of channel expansion were those scaled customers that are using three or more and that's up 42% year-over-year. So just to kind of bring the data to David's point.

That's great. Thank you for that both of you. Just one question is, when we think about the growth algorithm kind of excluding LiveIntent which I'm sure you'll get some questions on. I'm just curious, how are you thinking about the rest of the year as it relates to scaled customers and ARPU from scaled customers?

I think in line with our model. We did -- ARPU growth in the quarter was 12% year-over-year, our model is 12% to 16%. Scaled customer count grew 19% year-over-year. Interestingly, the scaled customer count growth is obviously aided by LiveIntent, but the ARPU is impacted negatively by LiveIntent, just given what their average customer size is, but I would expect us to continue to operate in a similar way as we did in the first quarter through the remainder of the year on the scaled customer count and ARPU growth site.

That's great. Thank you.

Our next question comes from Jason Kreyer with Craig-Hallum. Please proceed with your question.

Wonderful. Thank you. Great job again guys. David you had mentioned in your prepared remarks just maybe more pronounced macro uncertainty at the start of Q2. Maybe you can break that down a little bit, kind of what

Thanks Jason, I appreciate it. At this point we're not seeing any turbulence inside of

In fact, Jason, April ended just as strong as March did. So the quarter itself is even off to a great start, which gives us the type of confidence we did, we had to have to raise the quarter.

Perfect, good to hear. Wanted to also just ask about this independent agent opportunity. Curious there if the go-to-market, like how to go to market with independents is different than holdcos. And then Chris, in the past we've dealt with kind of some headwinds to margin and cash flow as you've seen greater opportunities with holdcos. So just curious if there's anything we need to think about as you deepen that opportunity with independent agents.

So, interestingly enough, you don't have those headwinds with independent agencies. Traditionally, we are platforming the entire independent agency at once, Jason. So you're seeing long-term contracts where you've got a lot more visibility, almost all of it's on platform, and we're getting paid more in line with our normal DSOs than the DSOs from the agency holdcos. Although I will say, our largest agency holdco in the first quarter did execute and move to a multi-year contract, and we expect that client to continue to be very, very solid and grow in the years to come.

Jason, on the cash flow point, and I'm glad you raised it. Throughout the course of the quarter as we were meeting with investors, there were three things that were important to them that we delivered on. The desire to have a clean quarter with clean comps, we clearly delivered that. To address stock-based compensation and dilution. I think we've definitively addressed that as well. And then the third was to continue to focus on more and more free cash flow conversion and generation. So to your point, this quarter had a 60% conversion from adjusted EBITDA was a record for us on an ad reported basis. That still included a headwind in terms of working capital by virtue of the growth we're having with the agencies. But I feel like we've more than covered for that in our guidance conservatism for free cash flow conversion, which is right around 50%, again compared to the 60% that we just generated this quarter. David?

And, I would think about it, Jason, that the independent agency space is more like just signing a very large multinational enterprise where you're looking at comparable margins and comparable term of contracts to those versus with the agency holdcos.

In fact, this week, in addition to the promise, we just signed another independent agency.

Yes, I mean, the independent agency ecosystem has over a 1,000 potential prospects in it, and we doubled it in the first quarter over last year. And I think that's a trend. I think you can't probably double it every quarter from a cyclical perspective. But I would say, I would expect that strategy to continue to bear fruit in the form of expanded on-platform revenue and expanded conversion of EBITDA to free cash flow from where we originally projected.

All right. Great stuff, guys. Thanks.

Thanks, Jason.

Our next question comes from DJ Hynes with Canaccord Genuity. Please proceed with your question.

Hey guys, congrats on the next quarter and glad to hear April closed equally as strong. David, you gave us some great expansion examples in telco and insurance and finance. If you think about some of the verticals that maybe you're keeping a closer eye on today in this current environment, what are those and where would the impact show up first? Is it in ARPU? What are you paying attention to and what are the verticals?

Oh, yes. Sorry. Thank you DJ. I would say listen, I came into April most worried about automotive. We have a bunch of automotive manufacturing clients who are international in addition to manufacturing in the US, but as we all know I think even organizations in the US that manufacture here are bringing parts and they have supply chain issues in there. We saw the opposite. We actually saw the automotive space grow a little faster. Then we started looking with that pull forward. And it does not appear to be because most of the increase came from new contracts and new agreements that were signed for the calendar year or longer. But I would have been most worried about automotive. We're not seeing anything there yet. And then retail, right? As retailers look at their businesses, how did they perform? And very similar. Through April, we've seen no disruption in the retail space. In fact, it's interesting. One retailer who I met with at the possible conference made a comment that because we are by far their most efficient partner, we might see additional growth out of them that we might not have expected as they shift budget from partners that don't have the type of return on investment and, quite frankly, the ability to prove it that we currently have in evidence. Chris?

Yes, DJ, a few points of color on the industry vertical question because it's obviously really important as you kind of start to break down your guidance. For us, and I mentioned in the prepared remarks, on a trailing 12-month basis, six out of our top 10 verticals grew over 20%, and it was well over 20%. If you look at it on a first quarter basis alone, there were seven out of the 10 that grew north of 20% and it was well north of 20%. As I think about those verticals and we put in our guidance commentary our four fastest growing verticals can grow half that rate in the second half, and we still get to our guide. And again, we're not seeing any data-driven reasons as to why that would be the case in our sales pipeline, et cetera. It's just our conservatism and the buffer that we're putting in place. But we've even gone to the lengths in verticals like consumer and retail, where we've gone customer by customer, and we've looked at it through two dimensions. What is their business model sensitivity to China and where are they on the curve of discretionary spending and we walked away from that analysis in consumer retail and other verticals not having -- being very comfortable with where we've set guidance in terms of our relative exposure and their exposure.

Yes. Okay. That's all very helpful color. Chris maybe this is probably not a fair question, given the way you're talking about the business and kind of the optimism going forward, but if growth were to slow to sub 20%, is it right to think that the trade-off would be showing more operating leverage? Maybe you could just talk philosophically with respect to kind of the internal scenario planning that you're doing?

Yes, I mean we have -- our business model is, we don't have to sacrifice one for the other As we've been growing fast we just talked about our 17th straight quarter of adjusted EBITDA margin expansion. To your point, if we were to see a slowdown, we have the levers in our business, when you think about it from a sales and marketing perspective, the amount of variable spend there, obviously if revenue were to slow, that has an element of commission's expense that you have flexibility on. And at the same time, within G&A and R&D, which we've done for a while, we continue to move work where it could be performed best and most effectively. So continuing to use our global distribution would be a lever that we have. But I will point out even though we didn't fully roll through the revenue beat, we did fully roll through the adjusted EBITDA beat in the first quarter through to the full year as well as free cash flow to the full year. That was an important signal to the street that there's more leverage in our business for us to get for the rest of the year as well.

Yes. Very helpful. Thank you guys.

Our next question comes from Arjun Bhatia with William Blair. Please proceed with your question.

Perfect. Thank you guys and congrats on a strong start to the year. David, I think you were kind of right to point out earlier in the call that you grew through 2020, you grew through the post-COVID kind of [indiscernible] slowdown. But if I think about the business, it seems like you're in a very different situation now than you were two years ago or five years ago. Just the business has grown. You have a lot more growth avenues. So if there is in the back half of the year some sort of a macro slowdown, I'm curious what strategies you have at your disposal now that you can maybe undertake to protect the growth rate somewhat, not suggesting that you'd be immune, but I'm sure there's maybe new products or different use cases or different customer types that you can lean into at this point, but I'm curious what that looks like.

Arjun, as usual, you're totally right. I mean, when you look at our business today, the incremental use cases and the incremental channels that we have available to us allow us to move things around in a way that we even couldn't in 2020 or 2022. The other thing that has changed is our attribution capabilities are a step function better than they were even two years ago. When we look at return on investment, the return we give clients today is superior to at any point we've ever run this business. So what we believe would happen, even if there were macro -- if macro uncertainty went to macro headwinds, which we're not seeing today, We don't believe we will be as affected as others because of that return on investment. Now, we are already out speaking with clients, showing them clear return on investment, wrapping our arms around them, and we're seeing upsells currently that we might not have expected because we're being more proactive in wrapping our arms around our clients than maybe others would be. But I do think, as Chris said, in addition to the levers we have in EBITDA and free cash flow, we have a number of levers in growth as well. The other thing that I think people might not understand are our relationships with the holdcos are really a help there. Because as they see turbulence, we are so much more profitable than the other partners they work with, they are already bringing us new brands to get started in case they need to really scale those in the back half of the year. So once again, we don't want anybody to confuse conservatism with any weakness in the business?

All right. Perfect. Very helpful. And then one for you, Chris. It's encouraging to see the cash flow conversion get better, obviously something investors have been focused on. But what are you doing actually to drive cash flow conversion higher and maybe what's still available to get that metric to move higher through the year?

Yes, look, something that we have talked about with investors and the street is we fully expected our -- if you look at CapEx, let's just come drill in on that as an example, not only do we expect that to continue to be more efficient from an [indiscernible] perspective, but you saw a really sizable tick down in CapEx, both software capitalization and data capitalization from the fourth quarter. So it's areas like that that we talked about, we expected to see that we're executing on and just more and more the business is dropping to the bottom line. The headwind that we have is just pure timing of when the agencies pay us right now and we're optimistic as to where we ended the first quarter for [indiscernible] for sure.

All right. Perfect. Thank you guys.

Thanks, Arjun.

Our next question comes from Elizabeth Porter with Morgan Stanley. Please proceed with your question.

Great. Thank you so much for the question. I first just wanted to ask on the mix between integrated and direct. The direct growth remained really strong and elevated. Well, it looks like integrated just slowed a bit. So I was wondering if there was anything to call out there as it relates to customer changing their mix or agencies that typically spend more on that integrated platform?

No, Elizabeth. We're actually going through the process we expected to go through, right? So we've been saying for a while that we expected the early agencies to follow the same pattern as our first agency client, which started very, very highly on integrated and then moved to direct, we're already seeing the agencies that are scaling very, very rapidly begin to move to direct a little faster than we expected them to.

In fact, Elizabeth, amongst our fastest growing channels, CTV is still the fastest, but social grew really nicely. So nothing there at all that alarmed us or caused us any concern.

Great. And then just as my follow-up, I wanted to get more perspective on how you're thinking about the growth opportunity with agencies longer-term. I think it was about 20% of the business last year, and given the move more into the independent side as to -- could we start to think about the agency business as being a majority piece of the business in the not too distant future? And then any sort of more [near term] (ph) changes to be thinking about as it relates to the cohort in 2025?

Yeah. So let me say that, order for that agency business to get to 50%, it would have to grow substantially faster than we're currently growing and what we expect. So I think it's going to continue to grow. It'll continue to inch up as a percentage of revenue. But as they move from indirect to direct, I think we'll continue to see on platform and cost of goods sold continue to get better. Right now, we're seeing that as very, very solid. But our direct enterprise business is still growing very rapidly. So we're not seeing a slowdown there. And I will also point out that I think it's important to note that the independent agencies of which we doubled that business in Q1 over Q4 and we expect to continue to grow that at an accelerated pace, really acts like the enterprise business. You're platforming there, cost of goods sold is very, very low, and we're able to work with them as it relates to cash flow. So I think right now we've got a really good mix, and I think it's going to continue at its current pace.

Thank you.

Thanks.

Our next question comes from Ryan MacDonald with Needham & Co. Please proceed with your question.

Hi, thanks for taking my question and congrats on a nice quarter. David, curious to know about sort of how the generative AI adoption continues to trend throughout Q1, particularly with the launch of Agent Studio. And as you think about within this environment, are you seeing sort of maybe a tighter budgetary environment, if that happens, being a catalyst for faster adoption of sort of AI agents doing more with less? Or do you think this causes maybe more of a pausing on some AI initiatives? What's the sense you're getting from your customers?

We are not seeing any pausing whatsoever Ryan on AI adoption. In fact, if anything, I think the uncertainty is accelerating it. We saw a meaningful step up in adoption in Q1. I think that's one of the reasons you saw the numbers flow through. Our AI adoption leads to a substantially higher revenue from customers who adopt it. And we continue to invest in it. As Chris said, our percentage of capital investment lowered as a percentage of revenue. We expect that to continue, but that's because revenue is growing so fast. We're still spending more money on innovation almost exclusively in artificial intelligence than we've ever spent on innovation in our entire corporate life. So, we continue to invest there. We continue to see adoption there. And I believe that's one of the reasons we saw the numbers come in where they did and why we feel very comfortable raising the year.

Super helpful, Color. Chris, maybe for you as a follow-up. I notice that in the updated guidance that the expectation for LiveIntent didn't really change much. I know it's obviously a small portion of the business relative to the overall size. But is there any reason to believe that that business acts differently or would be more or less resilient than the core business to the extent you have that visibility given how new it is?

Look, it performed right in line with what we expected it to do. I think it did like $19.5 million compared to the $20 million guide that we had in place. So It's right on the trajectory for the year that we expected to be on. You're not necessarily seeing show up in LiveIntent because that's kind of their standalone business' performance. Are all of the synergies and the products that we're creating, that that's actually benefiting the organic side of the business to some degree. But combined, the standalone capabilities in the business model of LiveIntent has added new channels for us to sell, which is additive to the business model. And then the products that we're jointly developing with them that are in market are actively being sold and contributing to the overall performance of the company. So very, very happy with how LiveIntent is performing out of the gate.

Appreciate the color. Congrats again.

Thanks, Ryan.

Thanks, Ryan.

Our next question comes from Richard Baldry with ROTH Capital Partners. Please proceed with your question.

Thanks. So you're saying that agencies mix move overall from indirect to direct. I'm sort of curious, is that because some of their brands are maturing and moving along that? Or as they're onboarding new brands, are they bringing them on also more direct given the experiences they've had with initial clients?

Thanks, Rich. The answer is yes to both. Because we're able to evidence that the on-platform business delivers a higher return on investment than the integrated component of the business, we're just seeing the agency holdcos move clients over faster. Some are starting there. A big chunk of them are migrating from integrated to direct. But both of those are tailwinds right now for that part of the business.

And given the strength strategically of the LiveIntent acquisition, sort of curious your thoughts overall on M&A as you go forward. You've been using a lot of free cash flow to do buybacks, but are there other tuck-in technologies or channels that you'd still like to be adding to the suite of offerings? Thanks.

Yes. I mean, Rich, as you know, we'll continue to look at our M&A pillars, and we have a very, very strong balance sheet, and we're currently spending free cash flow on share buybacks. But quite frankly, I've been spending a disproportionate percentage of my time taking calls from people trying to buy us over the last few weeks. And that's been keeping us busy.

Great. Thanks.

Our next question comes from [Matt Sonson] (ph) with RBC Capital Markets. Please proceed with your question.

Yes. Thank you, all. And my congrats on the quarter. It's not too much trouble, another macro one. I guess typically in a macro downturn, we see the expand motion come easier than land, right? Because your existing customers already kind of get the ROI joke and story. Throughout those 2020 and 2022 periods, did you see any kind of difference in mix where maybe it was easier to focus on ARPU than the new lands?

It's interesting, Matt. If you look at our net revenue retention range, it's been like 111% to 114% since from 2021 to 2024. And if you look at our growth rate, it's more or less half what the growth rate has been over that period as well. So half from existing, half from new, and it's been very consistent. And that's also what our expectation is going to be for 2025, is about half the growth comes from the base, half from new. I think it's an interesting point. David, you were going to add?

Yeah, I was going to -- I'll answer the question a little more towards what I think you were asking. No, we didn't see an increase in retain or grow versus new customer acquisition from a use case perspective as it related to 2022 or 2020. But what I would say, and Chris is of course right, when you've got 111% to 114% of your revenue becomes your net retention rate, that often is how do we move from one use case to two. And I would say that customers that are traditionally doing new acquisition, which is what I think Chris was trying to get across, will often expand into retention and monetization in a downturn faster than they will when things are not uncertain. So, listen, it's good to have all three use cases. It's good that they all grew really, really well in the first quarter. It's really good that they all grew really well through April and we think that's a trend that's going to continue.

That's really helpful. And then I know, Chris, previously when you've talked about guidance, you've mentioned the

Yes, so we definitely look at the [

Thank you.

Our next question comes from [Jackson Ader] (ph) with KeyBank. Please proceed with your question.

Great, thanks. Hey, good evening, guys. David, can I just confirm, did you say that you've been fielding calls from people interested in buying

No, it was the prior, but I probably shouldn't have said it. It was -- yes. But it's neither here nor there. The reality is, right now we are executing the company. As we continue to grow and take massive market share we're just getting a lot of attention on that side that we hadn't gotten in the past.

Understood. Second question, a little bit maybe capital allocation wise, right? So the idea that you're looking to buy back more shares, $25 million a quarter, you have $30 million, $40 million left. And coupled with the comment that you continue to spend money on innovation, but why spend the $25 million, $30 million, $40 million buying back a relatively small number of your shares each quarter if you are seeing a direct correlation to the amount of money you are spending on innovation driving revenue growth?

Listen, first of all that's a great question Jackson. If we could spend more money on innovation faster, we would. The challenge is we are very, very selective about the engineers we bring into this company, the architects we bring into this company. And we have a large number of open job racks currently. So we are quite frankly in a position right now that we're able to deliver on the innovation and quite frankly sales rep goals that we are looking to deliver on while simultaneously retiring shares. I think the buyback goes back to sort of our M&A thesis around our five pillars of M&A. And as I look out onto the landscape at the multiples that we've been trading at, with the profitability we have, I don't think I could buy any company at that rate. So by retiring our own stock, it benefits all of our existing shareholders who we want to reward as a part of sticking with us.

Okay, understood. Thank you very much.

Our next question comes from Koji Ikeda with Bank of America. Please proceed with your question.

Yes. Hey guys. Thanks so much for taking the questions. I wanted to go back to the commentary on the demand environment and the guidance on the conservatism in the guidance. And so, loud and clear, you guys aren't seeing any change in the demand environment. And it sounds like the conversations you're having with customers are really good. And I totally get the conservatism. I really do appreciate all the color that you gave on the call and the prepared remarks about the guidance. But I'm just curious. It feels like something outside of just the high-level macro uncertainty is informing the more conservative second half. And so if you could share what are you seeing? Or maybe the better question is, what are you not seeing out there that is tilting you more conservative in the second half?

Koji, thank you for your question. Let me be 100% clear. This is conservatism. That's it. We are not seeing any change to our business. I'll remind you, 90 plus percent of our customers have been with us for greater than one year. We have seen no pullbacks. We've seen no pauses. In this environment, we thought that it spoke volumes to the quality of our business to raise the second quarter and quite frankly to raise the year at all in an environment where most companies are lucky to be reaffirming. So we want to very clearly send a message. The business is executing as we would hope it would, and we are seeing nothing in the back half, but at the same time, we want to show we're being conservative and thoughtful as it relates to the uncertainty of the environment.

Yes. And Koji, just this week we signed two very, very large contracts. So -- and I was very specific in my comments to say, every metric we're looking at right now, just as consistent with what David said, would say that we would do our normal much bigger race. We just, as David noted, what is happening by other public companies right now is, we wanted to kind of follow suit.

Yes. I mean, listen, we listened to or read the transcripts of call it a 100 different earning calls before getting to ours. And we wanted to make sure that we were showing shareholders and potential shareholders, not just that the business is executing incredibly well, but that we were meaningfully de-risking our back half in a situation where we could then show that we would be able to continue to beat and raise as a company and continue to execute.

Got it. No, thank you for that. And maybe just a quick follow-up here. On the ARPU front, we did notice that sequential decline. I heard you on the prepared remarks, LiveIntent is playing a factor there. Presumably, there's some political -- post-political cycle deflation in ARPU happening there, but just wanted to be sure there isn't anything else to call out in that ARPU number for the first quarter?

No, that ARPU sequential decline is pretty typical from a fourth quarter to a first quarter, Koji. If you look at it on a year-over-year basis, whether it's in total, up 12% or even the Super Scaled ARPU, which is up almost 25% year-over-year. Yes, we're -- and by the way, we added 11 Super Scaled customers sequentially quarter-to-quarter. It's one of our bigger jumps we've had. So now, ARPU looked great to us and I mentioned the fastest growing cohort are those scaled customers using now three or more channels is up 42% year-over-year.

We were particularly proud, Koji, to get to 159 Super Scaled customers And that doesn't include a number of Super Scaled clients we've signed in the last 30 days.

Got it. Thanks guys. Thanks for taking the questions.

Thanks, Koji.

Our next question comes from Brian Schwartz with Oppenheimer & Co. Please proceed with your question.

Yes. Hi, thanks for taking my questions this afternoon. David, I wanted to circle back on the AI agentic studio product. Just wanted to ask you what you're seeing in terms of consumption trends. Are the early customer adapters, are they fully scaled in production with agentic AI and they're coming back to buy more from you, or is it still early and most are testing and piloting the deployments?

Oh no, Brian, We have a meaningful percentage of our customers who have adopted the agentic AI. And I believe the number is -- customers who have adopted it are growing at greater than 40% from a consumption revenue perspective year-over-year. So you're seeing meaningfully faster growth from organizations that adopt the agentic AI. The big leap, which is in beta, is stringing them together, which is in agentic workflow. And I want to be clear, when you have four agents strung together, each agent that you add to the equation is a step function better than having just one. So one agent would be regular, two would be a step function better, three would be two step functions better, and four would be three step functions better. So we're seeing massive, massive opportunities around that beta that I think will really bear fruit in the back half of the year.

Thank you, David. And then the follow-up I have for Chris, what can you share with us from what you're seeing in the [indiscernible] in terms of the leading indicators? Just thinking about your pipeline, maybe the rate of RFPs, the cadence of conversions, the size of your lands. How have they been trending in Q1 and year to date? Thanks.

Thanks, Brian. The trending -- similar to how they ended last year, sales pipeline growing faster than the overall revenue of the company, which has always been our model, and that continues to be the case. Very healthy RFP backdrop and then sales productivity where it all really rubber hits the road. We're seeing very strong sales productivity from all of our cohorts. Those sellers that are in their first year kind of that 12 to 24 month period are then our most experienced sellers continue to be our most productive.

Yes. I mean, Brian, I'll just make an off the cuff comment that I've never seen our pipeline RFPs or conversions at a better place than they are right now. We've signed three of the biggest deals we've ever done in the last 90 days.

Thanks.

Thanks, Brian.

Our next question comes from

Hi, good afternoon, David and Chris. Thanks for taking my questions. Chris, I wanted to start off, I don't think I saw it in your script or within the presentation, but in terms of all the new scaled customers added here in Q1, is it fair to assume essentially all of those are from the organic business rather than from any sort of LiveIntent customers?

It's all fully integrated now. There are some LiveIntent customers that are contributing to it, but it's all fully blended now. That obviously has the -- if it's helping skilled customer count it's a drag on skilled customer ARPU, because they tend to have smaller ARPUs to begin with. But really, I mean, could not be happier with how skilled customer count in total started the year.

And by the way, they didn't have many large customers,

Incidentally, we talked about earlier, but it just came to mind. One of the verticals that contributed the most scaled customers quarter-over-quarter was actually consumer retail.

Got it. That's great to hear. And my one follow up question, maybe geared towards David. I know most of the major holding companies, at least on their commentary in May-April. With the macro uncertainty, we're talking about leaning into their more durable businesses, which tend to be these data-driven marketing initiatives. So just curious if that's potentially accelerating any opportunity that you see with these agencies or just any sort of update around trends in those conversations with major holding companies?

No, it's meaningfully accelerate there. We've had -- we sort of open, we talk about the fact that we've had one agency holdco that we've worked for a long time that continues to grow nicely. We had one agency holdco that continues to scale at rates that we've not seen before. We now have a third one who is scaling at the same rates as the second. And I think a lot of it goes back to our ability to provide them with data-driven marketing. I think it's also really important to note that even the three of the -- we've got five of the eight large agency holdcos, you're starting to see number two, three, and four scale meaningfully right now. And I think part of that goes back to two things. One, we are often their most profitable partner. So, as they're looking at uncertainty, they're looking to drive greater margin opportunity for themselves by using the

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

Thanks.

Thanks,

Our next question comes from Gabriela Borges with Goldman Sachs. Please proceed with your question.

Hi, good afternoon. Thank you. David, I wanted to ask you a little bit about what you're seeing with replacement cycles for some of the marketing cloud competitors that have talked about having their own agent strategies. Just curious if you're seeing a continuation in the acceleration trend that you've talked about previously, and if there's any other color you would add here.

Yes, thank you, Gabriela. That is a great question. And the answer is yes. We continue to see the replacement cycle, which we believe is still in early innings, accelerating. And it's interesting, because when you think about our platform, because we re-architected and relaunched in 2021 by putting AI agents and data as native to the application layer, there's no latency in the processing inside of our marketing cloud. Whereas all of our competitors currently are operating with AI outside of the core cloud. So you leave the cloud to the algorithm to do a query. The algorithm then has to do a data dip to go back to the algorithm to make an answer and then go back and tell the marketing cloud what to do. That tech debt is destroying return on investment for enterprises. And we are seeing as a part of that marketing cloud replacement cycles are continuing to grow and we expect that trend to continue.

Thank you very much.

Our next question comes from Clark Wright with D.A. Davidson. Please proceed with your question.

Awesome. Thank you. There's been some recent events within the [walled gardens] (ph) and I was wondering if you could talk about maybe the opportunity that a fragmented ecosystem might have for data, especially with global agencies since they typically start with social media as their first use case.

Yes, I mean, I wouldn't -- I mean, I think people are still talking about how Microsoft was supposed to be getting broken up. What I will caveat, Clark, is that, if there is a meaningful breakup in the ecosystem of the large walled gardens, that would be a massive opportunity for

Got it. And then as a follow-up here, you talked about multiple-year deals. Can you talk about maybe the change in duration of contracts that you've seen over the last few years and kind of what you expect, which is implied by the guide?

[Multiple Speakers] Okay. So interestingly enough, I would say most of our early agency holdco deals had no contract. It was a monthly agreement that we would just agree to operate together and go from there. And we now have multi-year deals on the three largest and scaling the fastest, and at least one year deals with everybody else. So it's really giving us a lot of long-term visibility. Our largest agency holdco client, we're quite frankly, we're working across dozens of brands and we're working across multiple agencies that are a subset of it, it rolls up to one enterprise. But in that case, they just signed a meaningful multi-year deal, which we were very pleased about.

Awesome. Thank you.