Zeta Global Holdings Corp.

Chris Kreiner, Zeta's Chief Financial Officer. Before we begin, I'd like to remind everyone that statements made on this call, as well as in the presentation and earnings release, contain forward-looking statements regarding our financial outlook, business plans and objectives, and other future events and developments, including statements about the market potential of our products, potential competition, and revenues of our products and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to and not as a substitute for GAAP results. We use these non-GAAP measures in managing the business and believe they provide useful information for our investors. Reconciliation of the non-GAAP measures to corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website, as well as the earnings release in our filings with the SEC. With that, I will now turn the call over to David. Thank you, Scott.

Good afternoon, everyone, and thank you for joining us today. I wanted to start with a quick look back 15 years ago when John Sculley and I co-founded Zeta. Our founding vision of using data and software to deliver a better and substantially more efficient marketing platform rings true more than ever in the current environment. And I'm incredibly proud of the business we have built. Approximately 600,000 companies were founded in 2007. when we started Zeta. Less than 10% of those businesses have survived. And less than one-tenth of 1% of those businesses have gone public. And of the public companies, fewer than 100 are generating more than 100 million a year in revenue. The opportunity in front of us is immense. And I could not be more excited about our position in the marketplace, which is manifesting itself in our results. Simply put, our second quarter was incredibly strong across the board as the efficiency of our platform continues to deliver a greater return on investment for marketers. In the second quarter, we generated revenue of $137 million with an adjusted EBITDA of $18.6 million, both well ahead of our guidance. Despite broader macro concerns in the market, our revenue growth accelerated to 28% year over year with significant margin expansion and strong cash flow generation. In the quarter, we generated $14.7 million of cash from operations, up 93% year over year. The strength of our business was driven by record new customer wins, progress against our go-to-market investments, and our proven ability to deliver a higher return on investment for marketers at a time when efficiency is at a premium. During periods of economic uncertainty, each marketing dollar becomes even more precious. As retail magnate John Watermaker said in the late 1800s, I know half my advertising spend is wasted The trouble is, I do not know which half resonates with the modern CMO. With uncertainty around macro forces such as inflation at a 40-year high, marketing spend that is not addressable nor accountable is simply no longer sustainable. And frankly, with the tools that we have available today, there is no excuse for that to continue. In short, marketing efficiency and efficacy has never been more important than it is today. And approving efficiency is one of the easiest and fastest ways for enterprises to capture savings. Marketers can drive efficiency by accelerating digital transformation, focusing on hyper-targeting, and allocating more investment to addressable channels. These are the reasons more marketers are choosing Zeta. Zeta's industry-leading marketing platform, powered by first-party data and artificial intelligence, delivers actionable intelligence, omnichannel technology, and deterministic measurement to enable more efficient and accountable marketing across the ecosystem. The best ways to prove this is through our recent customer wins. We recently signed a multi-year contract eight-figure deal with a premier U.S. financial services firm to help accelerate their digital transformation by unifying their disparate data assets, standardizing business intelligence, and adding more activation channels, bringing personalization and scale to their marketing efforts. We continue to beat large legacy incumbents, including Oracle and Salesforce in this case, by demonstrating a better value proposition through the depth and breadth of our capabilities in the Zeta marketing platform. As another example, we recently increased our share of wallet at a leading direct-to-consumer retailer, where efficiency of marketing investments was re-evaluated across vendors with return on investment, the most important parameter. While others lost budgets, Zetas was increased. As other vendors have lost the ability to measure with precision due to changes by large technology providers, marketers are looking for alternatives. And because we are not dependent on Apple's IDFA tracking mechanism or third-party cookies to identify individuals and measure business outcomes, we are able to leverage our data and software advantage to deliver a better return on investment for marketers today and in the future. As enterprises look to capture the value of their first-party data, they are seeking new ways of ingesting, synthesizing, storing, and activating data. This has made the Consumer Data Platform, or CDP, a transformational technology for marketers. Importantly, CDPs not only represent the next generation of technology, they are also substantially less expensive to operate than legacy solutions. At Zeta, we are investing to extend our CDP leadership position with the expansion of data utility tools such as agile intelligence, which elevates an enterprise's ability to not only make marketing decisions, but also answer mission-critical questions such as where to open a new location by moving from insights to intelligence. The CDP underpins all our channels, bringing addressability and accountability to areas that have not enabled precision targeting and measurement. Connected TV is the perfect example, an area where we continue to invest. In the second quarter, our CTV business once again grew greater than 200%. Switching gears, we also want to acknowledge the feedback we have received from investors regarding potential stock sales to cover required tax withholdings due upon vesting of restricted stock awards. In response to that feedback, the Board of Directors has authorized the withholding of shares from executive officers as an alternative to sell to cover for taxes upon these vesting events. With this program, the company may pay the withholding taxes in exchange for the cancellation of such executive shares. On a side note, Chris Greiner, Steve Gerber, and I have no intentions for the foreseeable future of selling any shares into the open market. Secondly, Our board of directors has authorized a stock repurchase program for up to $50 million of Zeta's Class A common shares through December 31st, 2024. We plan to fund both programs out of the company's free cash flow. The $50 million will be a total between the RSA retirement and the share repurchase program. We are highly confident in the strength of our business and outside of our people and our products, We believe the best use of our free cash flow is to buy back shares at these levels. More details can be found on slide 29 of our earnings supplemental. Lastly, I want to invite you to hear directly from our customers, partners, and industry experts in person or through the webcast of our Zeta Live conference on September 28th and 29th. As our world changes at lightning speed with disruption across every industry, from the post-pandemic economy to the advancements in technology, including the expansion of Web3, the evolution of customer identity, the maturation of artificial intelligence, we have designed our annual conference to bring together the industry's most forward-thinking leaders to discuss the most critical topics impacting businesses, and marketing today. I hope you will be able to join us. In conclusion, we believe Zeta is incredibly well positioned in the current uncertain macro environment as the efficiency of our marketing platform continues to deliver a greater return on investment for marketers. Our revenue growth accelerated in Q2 and we have strong momentum heading into Q3 on the back of our growing mix of multi-year recurring revenue deals. And while we are very cognizant of the macro environment, we are not seeing an impact to our pipeline, sales cycle, or deal size. However, to be prudent, we are taking an appropriately cautious view with our projections, which Chris will expand upon shortly. We believe our share price represents an extremely attractive opportunity and we intend to use the strong cash generation capabilities of the business to repurchase shares at these levels. We feel incredibly confident in our Zeta 2025 plan, and we are pacing ahead of our targets to get to at least a billion dollars in revenue and greater than 20% adjusted EBITDA margin. The need for data-driven, identity-based marketing has never been stronger, and we are just beginning to scratch the surface of the huge opportunity in front of us. I would like to thank our 1,400 Zeta employees for the great work they do every day to deliver better experiences for consumers and better outcome for our customers, the world's leading marketers. I would also like to thank our customers, partners, and all our shareholders for the ongoing support of our vision. Now let me hand it off to Chris to discuss our results in greater detail. Chris?

Thank you, David, and good afternoon, everyone. I want to cover four main points on today's call. First, our results. On every dimension, our performance and KPIs once again are demonstrating how the value proposition of the Zeta marketing platform is resonating with our customers. This rings true even more in the current macro environment. Second, our guidance. We're raising the midpoint of full year 2022 revenue guidance by $5 million to the high end of the previous range of $563 million. We are guiding third quarter revenue and profit that is higher than consensus, which is a clear sign of our confidence and the strong visibility into our business. At the same time, we're purposefully embedding conservatism into our full year guidance. This should be received as Zeta recognizing current investor sentiment around an uncertain macro backdrop, even though we are not seeing negative impact in our results or a slowing of pipeline demand or a change in our sales cycles or metrics at this time. We want this to be very clearly understood. With these top line details, we're also increasing full year 2022 adjusted EBITDA by more than we beat in the second quarter. Third, the bigger picture. Any way you slice it, be it revenue, scaled customer count, margin expansion, adjusted EBITDA, or even cash generation, we're pacing ahead of our Zeta 2025 long-term plan of greater than $1 billion in revenue and at least 20% adjusted EBITDA margins. And finally, with these factors in mind, we're announcing a $50 million share repurchase program, believing that in addition to investing for profitable growth, Repurchasing Zeta shares at current price levels is the next best investment of the company's capital. We plan to fund this from our quarterly free cash flow generation. Now, let's dive into each of these more deeply to understand what is driving our results, confidence, long-term trajectory, and capital allocation decisions. In terms of second quarter results, we generated $137 million of revenue, up 28% year-to-year, up 9% quarter to quarter, and 6% better than the midpoint of our guidance, a very strong wraparound on last year's second quarter growth rate of 39%. We set a record by adding 14 new scaled customers quarter to quarter, reaching 373 scaled customers and 100 super scaled customers. The addition of new scaled customers was diverse, coming from advertising and marketing, healthcare, consumer retail, and financial services industries. Scaled customers now represent 97% of total Zeta revenue. The ARPU of our scaled customers grew by 19%, once again ahead of our long-term model of mid-teens growth, driven by new customers getting bigger and our longest tenured customers also growing their spend with Zeta. This is now a multi-quarter trend. Direct revenue mix, which represents our customers' reliance on Zeta's marketing platform and digital channels, once again exceeded 80%, resulting in a 290 basis point year-over-year improvement in our cost of revenue percentage to 36.6%, or 390 basis points improvement, excluding stock-based compensation, to 35.3%. We're tracking ahead of our target to reduce cost of revenue by 200 basis points for the year. On a GAAP basis, our net loss was $86 million, which includes $82 million of stock-based compensation and $5.7 million of other expenses mostly related to the equity component of prior M&A deals. From an industry perspective, we remain balanced across verticals. This quarter, no industry represented more than 14% of revenue, and on a trailing 12-month measure, six out of our 10 largest industries grew over 25%. Our U.S. business, which accounts for 96% of revenue, grew 32% year over year. We continue to execute our plan to increase quota carriers, reaching 115 at the end of 2Q, on pace with our estimate to have between 120 to 130 quota carriers by year end. At the same time, from an expense-to-revenue perspective, we're getting operating leverage from R&D and G&A, both decreasing by 100 basis points and 240 basis points year-over-year respectively, excluding stock-based compensation. Revenue growth continues to be increasingly profitable. We generated $18.6 million of adjusted EBITDA, up 63% year-over-year, with 13.5% adjusted EBITDA margin, up 290 basis points year-over-year. And finally, cash from operations was $14.7 million, with free cash flow of $6.2 million. We ended the quarter with $110.8 million of cash on our balance sheet. Now I'll transition to our increased guidance. Our visibility continues to improve with the addition of more recurring revenue and multi-year customers, a trend that has continued over the past several quarters. For the third quarter of 2022, we're projecting the midpoint of third quarter revenue to be $141 million, up 22% year-over-year, with a range of $139 to $143 million. This is an increase of $2 million from where consensus estimates are today. We expect to generate third-quarter adjusted EBITDA of $20.1 million at the midpoint of guidance, which would be up 26% year-over-year and represents 14.2% margin. Our range of adjusted EBITDA is $19.8 to $20.3 million. At the same time, we recognize there's uncertainty in the current macro backdrop. For this reason, we wanted to be purposely conservative, setting full year and implied 4Q guidance. For the full year 2022, we're raising the midpoint of revenue guidance to $563 million from $558 million, representing growth of 23%. Our new range is $560 to $566 million, or growth of 22 to 24%. This implies the midpoint of 4Q guidance is 158 million or 17.5% growth. I want to be clear. Our business is performing extremely well. Our pipelines are growing much faster than revenue. We're seeing record RFP volumes. Win rates remain robust. And sales cycles are not changing. We do not currently see anything that suggests the business is slowing down. But we want to be appropriately cautious in our outlook nevertheless. On an adjusted EBITDA basis, we're increasing the midpoint of full-year 2022 guidance from 83.4 to 86.4, with a new range of 85.8 to 87.3 million. This updated range represents a year-over-year increase of 36 to 38%. At the midpoint of our increased full-year guidance, adjusted EBITDA margins would expand by 160 basis points year-over-year. Which brings me to my third point, our pacing to the Zeta 2025 long-term plan. With very strong first half results, including 26% revenue growth and 250 basis points of adjusted EBITDA margin expansion, we're pacing ahead of our Zeta 2025 targets of at least $1 billion in revenue and at least 20% adjusted EBITDA margin. All the KPIs included in our Zeta 2025 plan, which include sales headcount, Scaled customer count, scaled customer ARPU, net revenue retention, and direct platform mix are tracking at or ahead of plan. These are the result of the investment we've made in our products, people, and go-to-market initiatives over the last two years and a byproduct of our execution culture and adding to the track record we're establishing as a public company. As our business continues to perform and we generate even more free cash flow, we believe the next best use of our cash is to repurchase shares at current price levels. As David mentioned, the Board of Directors has authorized a $50 million share repurchase program and a share withholding program to remove shares that would otherwise have come to market for tax purposes. To be clear, we do not intend to draw down our cash balance, but instead we plan to fund the buyback using our positive free cash flow generation. Now, I'll close out with key takeaways from today's call. First, demand for our platform is resilient. Our sales pipelines and deal metrics reflect this. We have record RFP volume, and pipelines are growing faster than revenue in value and opportunity count. We do not see an elongation of sales cycles, and like last quarter, deal sizes continue to get bigger while contract durations continue to get longer. we've purposely set third quarter and fourth quarter guidance conservatively in recognition of investor sentiment and broader macro uncertainty, despite not seeing signs of softness in our results or demand pipeline. And finally, adjusted EBITDA and cash generation is growing significantly faster than revenue, and we're taking a disciplined approach to deploying capital. As I've stated before, we're building a culture of high performance, and a track record of consistent and predictable execution. With that, let me hand the call back to the operator for David and me to take your questions. Operator?