Q3 2025 Zeta Global Holdings Corp Earnings Call
Speaker #1: Greetings and welcome to the Zeta three Q 25 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #1: A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press Star Zero on your telephone keypad.
Speaker #1: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Pfau, SVP of Investor Relations.
Speaker #1: You may begin .
Speaker #2: Thank you . Operator . Hello , everyone , and thank you for joining us for Zeta's third quarter 2020 earnings conference call . Today's presentation and earnings release are available on Zeta's investor Relations website at investors Zeta Global Holdings Corp.
Speaker #2: . Where you will also find links to our SEC filings , along with other information about Zeta . Joining me on the call today are David Zeta's co-founder , chairman and Chief Executive Officer , and Chris Greiner .
Speaker #2: 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 , contains 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 revenues of our products and our goals , and strategies .
Speaker #2: 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 .
Speaker #2: 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 our GAAP results.
Speaker #2: We use these non-GAAP measures in managing our business and believe they provide useful information for our investors . Reconciliations of the non-GAAP measures to the corresponding GAAP measures , where appropriate , can be found in the earnings presentation available on our website , as well as our earnings release and our other filings with the SEC .
Speaker #2: With that , I will now turn the call over to David .
Speaker #3: Thank you . Matt . Good afternoon , everyone , and thank you for joining us today for the 17th quarter in a row .
Speaker #3: We once again delivered a beat and raise quarter driven by our leadership in AI powered marketing in Q3 . Revenue was $337 million , up 28% year over year .
Speaker #3: Ex-political and live intent . This is an acceleration in growth from Q2 adjusted EBITDA was $78 million , up 46% year over year , and free cash flow was $47 million , up 83% year over year , representing a margin of 14% .
Speaker #3: This is the highest free cash flow margin we achieved , and we did it while accelerating our revenue growth . Ex-political and live intent .
Speaker #3: have ever This demonstrates our focus on driving growth and improved profitability . While investing to extend our AI leadership based on our year to date momentum and our record pipeline exiting Zeta Live , we are raising our 2025 revenue guidance by $11 million at the midpoint and providing an initial 2026 outlook .
Speaker #3: Well ahead of consensus in October , we hosted our fifth annual Zeta Live , our most successful event yet , with max capacity audience attendance was up 35% and unfortunately , we had to turn away a large number of people for next year .
Speaker #3: We are currently looking for a bigger venue . We had strong executive participation , representing more than $100 billion in annual marketing spend , decision makers in attendance at Zeta Live , we hosted 38 sessions , featured 95 speakers , delivered nearly 120 product demos and shockingly served 7600 coffees to the 1500 attendees .
Speaker #3: Customer feedback was overwhelmingly positive , with many attendees commenting that it was one of the best events they have ever attended . Our goal is to close over $100 million in incremental business coming out of Zeta .
Speaker #3: Lots at alive , we launched Athena , our next step in leading the AI revolution in marketing . Athena is our AI conversational , super intelligent agent that becomes the intelligent operating system for our clients , businesses , and ultimately for their lives .
Speaker #3: Athena marks a major breakthrough in human AI collaboration , removing the friction between the human and artificial intelligence and acting as a real time voice activated command center for the Zeta marketing platform .
Speaker #3: One workspace to plan , execute , analyze , and optimize in plain spoken English , AI is the new UI and Athena proves it .
Speaker #3: You speak your objectives . It builds the experience , launches the program , and delivers insights on one screen , making it easier to adopt more channels , more use cases , and ultimately drive greater ROI and spend on Zeta's platform .
Speaker #3: The business impact of using Zeta is already proven . Independent analysis shows Zeta stands up 50% faster than our peers and delivers a 6 to 1 return on investment .
Speaker #3: And with Athena making the platform radically easier and more intuitive, we believe these numbers will only get stronger. This is how AI becomes a habit, not a headline.
Speaker #3: Adoption scales usage deepens, and the platform becomes harder to leave. We believe Zeta is uniquely positioned to develop Athena for three key reasons.
Speaker #3: First , data advantage . Our zeta data cloud gives Athena rich real time signals for personalization and prediction that generic AI just cannot match .
Speaker #3: Second , native integration Athena is embedded in the Zeta marketing platform , connecting answers to actions and insights to activation and measurement . Unlike our competitors , who have legacy tech , debt and cannot natively embed AI into their marketing clouds , third , AI track record AI is foundational to what we do at Zeta .
Speaker #3: We have natively built AI into our platform since 2017 , and we believe this AI leadership is the reason we are winning today .
Speaker #3: At Zeta, artificial intelligence is foundational to our business, not an add-on like our competitors. Building the reception from customers, prospects, and partners has been incredible.
Speaker #3: At Zeta, artificial intelligence is foundational to our business, not an add-on like our competitors. There was standing room only for the Athena demo at Zeta Live. I encourage you to watch it in the Investor Relations section of Zeta's website.
Speaker #3: It is truly game changing . Athena is an internal beta now , and we expect it to be in client beta by the end of Q4 and fully production ready by the end of the first quarter of 2026 .
Speaker #3: One Zeta is a key growth engine for us and a growth flywheel for our customers as they consolidate more data and use cases into the Zeta marketing platform .
Speaker #3: Customers who adopt two or more use cases generate greater than three times the annual revenue of a single use case . Customer have our highest NPS score and see the highest return on marketing spend .
Speaker #3: We have accelerated this focus under our Chief Growth Officer and the results are meaningful . For example , a leading big box retailer , Consolidated Acquire , grow and retain onto the Zmp at the start of our relationship that agreement was greater than three and a half times the size of a standard deal with similarly sized enterprises .
Speaker #3: Second , one of the fastest growing specialty retailers started with the retained use case and recently added a grow use case as a result , the customer is expected to spend over $2 million with us in the fourth quarter , compared to only $700,000 in the first quarter .
Speaker #3: A three fold increase . And we expect this customer to continue to grow into next year . We expect the strong pipeline generated from Zeta live , combined with the acquisition of Marigold Enterprise software business , which includes over 100 enterprises , 20 of the top 100 advertisers in North America , and more than 40 fortune 500 companies who are all currently only on one use case will further accelerate our one zeta momentum into 2026 and beyond .
Speaker #3: I'll close with an update on our agreement to acquire Marigold Enterprise Software business . We remain on track to complete the acquisition by the end of the year .
Speaker #3: After spending the past several weeks getting to know the business and the team better during the close process . I am even more enthusiastic about the opportunity this acquisition represents strategically , the data that we pick up , including the loyalty program , will be game changing to training our proprietary algorithms , including our Athena Answers and Generative Engine Optimization products and widens our data cloud moat .
Speaker #3: We hosted several of their employees and customers at Zeta live , and the one plus one equals four . Opportunity is more clear than ever .
Speaker #3: Great numbers are the output , the inputs are great execution products and people . The reason we are growing in an accelerated pace is simple .
Speaker #3: We have superior artificial intelligence and data to our competitors that we started developing eight years ago , not eight months ago . Our consistent execution over the past 17 quarters is a public company , is a credit to our artificial intelligence , our people and our data .
Speaker #3: Quarter after quarter , we have raised the bar as always , I would like to sincerely thank our customers , our partners , Team Zeta , and all of our shareholders for the ongoing support of our vision .
Speaker #3: Now , let me turn it over to Chris to discuss our results in greater detail . Chris . Thank you , David , and good .
Speaker #2: Afternoon , everyone . The theme of our Investor Day in October was durable , predictable and profitable . Growth . In our third quarter results are a perfect illustration of this .
Speaker #2: Our revenue growth , excluding political and live content , accelerated to 28% in Q3 , from 27% in Q2 and 26% in Q1 , showing the durability of our growth .
Speaker #2: Our third quarter results once again exceeded our guidance for both revenue and adjusted EBITDA , highlighting the predictability of our growth , and we achieved the highest free cash flow margin in our history , achieving the rule of 40 on a free cash flow margin basis , demonstrating the profitability of our growth .
Speaker #2: With that , let's dive into the details of the quarter in Q3 , we delivered revenue of 337 million , up 26% year over year , or 28% when excluding the contribution from live content and political candidate revenue in the year ago period .
Speaker #2: We exceeded the midpoint of our guidance by $9 million , or three percentage points higher than our forecast , solidly within the 2 to 5 points of cushion .
Speaker #2: We typically leave ourselves total scaled customer count grew to 572 , up 20% year over year . And in addition of five customer sequentially , we ended the quarter with 180 super scaled customers , up 25% year over year , and addition of 12 customers sequentially .
Speaker #2: The strong super scaled customer additions were broad based across industry verticals and driven by cross-sell of live intent customers and our One Zeta initiative scaled Customer quarterly Rpu of $579,000 increased 4% year over year , or 13% , when adjusting for political candidate revenue .
Speaker #2: Super scaled customer quarterly revenue of 1.6 million was up 1% year over year , or 12% excluding prior year . Political candidate revenue from an industry perspective , seven of our top ten verticals in the quarter grew faster than 20% year over year on a trailing 12 month basis , and improvement from six in the first and second quarters .
Speaker #2: The additional 20% plus growth industry was telecom , where we have had multiple significant wins over the past year and it's been a focus of ours this year .
Speaker #2: It's also worth noting growth in consumer discretionary verticals like retail , travel and hospitality and automotive remained strong in the quarter , and finally , all three of the non 20% growth industries were up year over year between seven and 17% .
Speaker #2: Our direct mix in the third quarter was 75% . Consistent with the second quarter . And an increase from 70% in the year ago quarter , demonstrating continued success of our agency .
Speaker #2: Direct channel adoption . Our GAAP cost of revenue in the quarter was 39.5% , a 13 basis point increase year over year and 160 basis points sequentially .
Speaker #2: The increase in cost of revenue was driven by strong sequential and year over year growth in display and video channels , where we continue to see customers investing and which remain highly effective channels for customer acquisition and growth .
Speaker #2: In the third quarter , we generated $78.1 million of adjusted EBITDA at a margin of 23.2% , 320 basis points higher year over year , and 7.4 million better than the midpoint of our guidance .
Speaker #2: This marks the 19th quarter of expanding adjusted EBITDA margins year over year . Our GAAP net loss for the third quarter was 3.6 million , an improvement from a loss of 17.4 million in the third quarter of 2020 .
Speaker #2: For there were $6.5 million of acquisition related expenses in the third quarter , which , absent these costs , we would have been GAAP profitable .
Speaker #2: Third quarter net cash provided by operating activities was 57.9 million , up 68% year over year , with free cash flow of 47.1 million , up 83% year over year and representing a margin of 14% .
Speaker #2: This represents a free cash flow conversion of 60% , a significant improvement from 48% in the third quarter of 2020 . Four and 57% in the second quarter of 2025 .
Speaker #2: This also includes a roughly 18 point working capital headwind , driven by longer agency payment cycles . The improvement in both adjusted EBITDA margin and free cash flow conversion in the third quarter exhibit the strong operating leverage of our model and put us firmly on track to achieve our Investor Day targets of a 30% plus adjusted EBITDA margin and greater than 70% free cash flow conversion in 2030 .
Speaker #2: During the third quarter , we repurchased 1.7 million shares for $28 million and have repurchased 6 million shares for $85 million year to date .
Speaker #2: We also continue to make significant progress in reducing dilution and stock based compensation expense . Just like the second quarter . In the third quarter , we had zero net dilution and year to date , our dilution is 1.6% .
Speaker #2: As of September 30th , we remain on track to achieve both our 4 to 6% normal course dilution target in 2025 , and our 190 million equity compensation expense target even when factoring in the equity , we anticipate issuing for the Marigold acquisition before diving into our updated fourth quarter and 2025 guidance , I want to reiterate what I said on the recent Marigold acquisition call regarding forward looking estimates , given there could be variability in the close date , which we continue to anticipate will happen in the fourth quarter of 2025 .
Speaker #2: We have not included any Marigold related contributions in our 2025 guidance , and continue to guide analysts to not yet include Marigold in their 2025 or 2026 estimates .
Speaker #2: Until the transaction closes . Upon closing , we will provide guidance on Marigold contribution for 2025 and 2026 . We want to make sure that consensus estimates do not become a mixed bag of organic and acquisition related revenue , as we have done with prior acquisitions .
Speaker #2: We plan to clearly break out the organic versus acquired revenue for the first year post upon announcement of closing . With that in mind , we're raising fourth quarter and full year revenue , adjusted EBITDA and free cash flow guidance .
Speaker #2: Details can be found starting on slide 16 of our earnings supplemental for the full year 2025 . We are increasing the midpoint of our revenue guidance by 11 million to 1.275 billion , representing a 26% year over year growth when excluding political and live intent , which is five points higher than our starting point for the year at 21% .
Speaker #2: For the fourth quarter , we now expect revenue of 364.5 million at the midpoint , 2 million higher than our previous guidance . And representing year over year growth of 16% or 23% .
Speaker #2: When excluding political candidate and live intent revenue , which is consistent with our Zeta 2028 plan to grow 20% or greater organically for adjusted EBITDA , we're increasing the midpoint of our 2025 guidance to 273.7 million , up 9 million from our prior guidance and representing a year over year increase of 42% at a margin of 21.5% , an improvement of 230 basis points over 2024 .
Speaker #2: For the fourth quarter of 2025 , we now expect adjusted EBITDA of 90 million at the midpoint , up from our previous expectation of 88.4 million and representing growth of 28% at a margin of 24.7% .
Speaker #2: We are also increasing the midpoint of our 2025 free cash flow guidance to 157.4 million , up 15 million from the midpoint of our previous guidance .
Speaker #2: And representing year over year growth of 71% and a conversion of 57% of adjusted EBITDA . This conversion is up ten points from 2024 .
Speaker #2: For context, since our initial 2025 guidance back in February, we have increased revenue by $35 million and free cash flow by $28 million.
Speaker #2: Now , let me transition to looking beyond 2025 and setting our initial organic guidance for 2026 . While providing outyear guidance in Q3 is not intended to become standard practice .
Speaker #2: We're doing so this year because we want to establish a clean , organic baseline for 2026 before Marigold is incorporated into our guidance .
Speaker #2: At a recent Investor Day , we spent time demonstrating our track record of five straight years of at least 20% revenue growth and free cash flow margin expansion .
Speaker #2: The punchline is we see another year ahead of us with each at substantially higher scale in terms of revenue . Regarding 2026 to be 1.54 billion , or 21% growth on 2025 .
Speaker #2: Guidance of 1.275 billion . Importantly , this is an organic only view and does not include Marigold . Our guidance assumes 15 million of political candidate revenue , which we would expect to evolve and is two times what the midterms were in 2022 .
Speaker #2: We expect $350 million of adjusted EBITDA in 2026 , or a 23% margin , up 150 basis points year to year . We see an initial view of 59% free cash flow conversion , yielding $209 million in free cash flow at a margin of 14% , and lastly , we continue to plan for a guidance model with 2% to 5% top line buffer from a seasonality perspective , we expect revenue in the first quarter to be 314.5 million , up 19% year to year , and accounting for roughly the same percentage of full year revenue in the first quarter as 2025 .
Speaker #2: And with an adjusted EBITDA margin of 17.8% , I'll conclude where I began our third quarter results . Updated 2025 guidance and initial outlook for 2026 underscore the durability , predictability , and profitability of our growth and reflect the confidence and momentum we have in the business .
Speaker #2: Now , let me hand the call back over to the operator for David and myself to take your questions . Operator .
Speaker #1: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
Speaker #1: A confirmation tone will indicate your line is in the question queue . You may press star two . If you'd like to remove your question from the queue , we ask to please limit to one question and one follow up for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys .
Speaker #1: One moment while we pull for questions . Our first question comes from the line of Arjun Bhatia with William Blair and Company .
Speaker #4: Perfect . Thank you so much and congrats on another great quarter guys . Very nicely done . One , one question for you , David .
Speaker #4: Just at a high level , I'm curious as you look at the next kind of pocket of spend that's out there , I imagine a lot of it's going to come from media budgets .
Speaker #4: How do you think kind of Zeta's ROI or Roas compares to that of the of the walled gardens ? Are you hearing more customers come to you and say you're getting to parody , or are you already there because , you know , how do you go after that kind of large pool of budget dollars on spend ?
Speaker #4: Thank you .
Speaker #3: Thank you Arjun , I'm obviously very proud of the team for the quarter . Let me start by saying that if you look at our collective clients , you've got 572 clients that spend over $100 billion a year in marketing today , if you look at the global marketing spend , it's about 75% media and about 25% , you know , CRM revenues .
Speaker #3: When we look at the breakdown of those two , we continue to be substantially more profitable than anybody else in the media space .
Speaker #3: In fact , a number of our clients use our platform , which allows our data to inform the way they market into the walled gardens today .
Speaker #3: And we already partner with most all of the walled gardens . So when you think about it , every dollar that is spent through the Zeta marketing platform returns a six x return in revenue to our clients .
Speaker #3: That puts us on par with pretty much any walled garden . And what we're starting to see in a post . Gemini and Post OpenAI world marketers are looking for new methodologies to create customers and maintain the customers they have .
Speaker #3: It's been challenging as the vast majority of the questions that are now asked on the Google platform , and certainly all that are asked on the open AI platform ChatGPT are answered on platform .
Speaker #3: So what used to be sent to our clients or to other publishers is now being consumed there . So clients are very much looking for new methodologies .
Speaker #3: We continue to be at the forefront of that , and I think that was a big part of what you saw us talk about at Zeta Live .
Speaker #3: And I think it's a big part of what you're seeing in the tailwind that we're currently experiencing .
Speaker #4: All right . Perfect . Very helpful . And then maybe one just on on customer count and we nitpicking a little bit here .
Speaker #4: But it seems like in Q3 I think you added five scaled customers . And if I look at just the last two quarters , it's been hovering around 20 .
Speaker #4: Is there anything sort of one off that we need to consider there , just maybe agencies and us not having brand count visibility and just how should we think about that metric sort of evolving over the next couple of quarters ?
Speaker #5: Yeah , I'm glad you asked , Arjun . Three data points for you . First , on a year over year basis , that 20% growth in total scaled customer count is a consistent with where we've been this year .
Speaker #5: And obviously north of our model of 4 to 5% . But to your point , around sequentially , we had a really strong progression from scale to super scaled customers .
Speaker #5: We increased by 12 sequentially , which is if you look back at our history , certainly at the higher end , and then to your point around agencies , what's also being masked in the total scaled customer count is we were up 23 brands quarter to quarter .
Speaker #5: As we continue to have success scaling within and adding new agencies, that doesn't necessarily add to the scaled customer count. But in this case, it translates to higher brand expansion.
Speaker #5: So we're really happy with the scaled customer account expansion this quarter .
Speaker #4: All right. That makes sense. Thank you.
Speaker #1: Our next question comes from the line of Elizabeth Porter with Morgan Stanley . Please go ahead .
Speaker #6: Great . Thank you so much for the question . I wanted to follow up , David , on your target for the 100 million incremental business after Zeta Live .
Speaker #6: So could you provide some context around how that target compares to what you've achieved in prior years , and how do you characterize the momentum coming out of Zeta live relative to prior years ?
Speaker #6: And then just lastly , how should we think about the conversion timeline from that event into bookings and revenue ? And is that already included in fiscal 26 guidance ?
Speaker #6: Thank you .
Speaker #3: Thank you , Elizabeth . So first of all , last year we closed about $57 million in business coming out of Zeta Live , which I think is one of the reasons we were able to grow 500 basis points greater through the year than we gave original guidance for .
Speaker #3: Thus far this year . We're trying to get that to 100 million . I would tell you that as of today , the pipeline is already full enough to get us to that number , and we might see even more meaningful numbers than that .
Speaker #3: So , as you know , we try to be consistent with our beat and raise methodology . We don't usually give guidance for the next year .
Speaker #3: At the end of the third quarter , we felt because of the Marigold deal , it was important to make it clear that we were going to grow organically .
Speaker #3: 20% again into next year . From a top line perspective , I do think that Zeta Live will be a part of that , but I also think it's a part of the buffer that we continue to leave ourselves where we think we can continue to do better than that , to answer the momentum question , I would tell you my biggest challenge today , Elizabeth , is how do I top Zeta live next year ?
Speaker #3: It was just so incredibly well received . We had multiple clients just going crazy for Athena , and I just continue to see the most momentum I've ever seen coming out of any event we have ever hosted , ever .
Speaker #3: It's a very exciting time for Zeta right now .
Speaker #6: Great . And then just as a quick follow up on the live Intent piece , understanding , it's a smaller portion of the business , but it looked like it was a little bit weaker in Q3 and in Q4 guidance .
Speaker #6: So I wonder if there's any trends to kind of call out there on how that integration is going . Thank you .
Speaker #5: Yeah , thanks , Elizabeth . I'll take that and look , in short , we're really happy with how live intent is performing .
Speaker #5: We are accruing at 100% of their earnout . I think if we were to do things over again , remember we set that initial guidance for every quarter of 2025 , about a month after we owned the asset .
Speaker #5: We've learned a lot since . I think we're also realizing a substantial amount of new product synergies that is flowing organically to the business .
Speaker #5: But overall couldn't be happier with how the integration has gone and the execution of the team .
Speaker #3: And what you're not seeing in the numbers is all of the cross sales from Zeta clients into their products and their products into ours .
Speaker #3: So we're I would tell you , Elizabeth , we think the live intent deal was a grand slam home run . And we're looking forward to having a similar experience with Marigold .
Speaker #6: Great . Sounds good . Thank you .
Speaker #1: Our next question comes from the line of Matt Swanson with RBC .
Speaker #7: Yeah , great . Thank you guys for taking my questions . David , we've seen the compounding value from an rpu perspective . When customers take multiple products .
Speaker #7: You talked about Athena and AI being the new UI . Could you just talk a little bit about how maybe that will help with cross-sell ?
Speaker #7: And for people see the full value of your platform ?
Speaker #3: So thank you , Matt . I would tell you that I think Athena will be amongst the single biggest drivers to the one Zeta methodology we've ever had to out .
Speaker #3: It is , of course , fully voice activated and fully conversational . So any client by the end of the first quarter should have this fully embedded into their platform , not only will they be able to work through the existing use case , they have , a Athena will already be programmed to help them with secondary use case expansion from production level .
Speaker #3: Launch by way of example , if a client is using us actively for acquisition , they'll literally be able to say to Athena , tell me which of my clients are most likely to churn and how do you recommend that we save them that removal of the friction between the human and the platform is going to point allow ?
Speaker #3: I think , for an accelerated growth of one zeta .
Speaker #5: One point where that Matt shows up also in the metrics is one of the areas that , as we were preparing post that stood out to me is not only did each of our use cases grow double digits year over year , which has been consistent , but are two or more use case count grew over 100% year over year .
Speaker #5: So we're going into capabilities like Athena with really interesting go to market momentum .
Speaker #3: Yeah . And you know , once again with 100 global enterprises in Marigold that are all on one use case , we see that as a very unique opportunity for the specialty team .
Speaker #3: We've set up under Etsy to get in there and focus on it . But I think that the integration and production capabilities of Athena are going to be really an accelerant to platform utilization .
Speaker #7: That's that's really helpful . And then I'm sure the pipeline has a big a lot to do with this . But David , you mentioned that the 26 guide was , you know , a quarter early .
Speaker #7: So Chris , could you kind of talk us through being one of the first people to give us an outlook into 2026 ? Just what's what's kind of building all the confidence and the visibility that you have ?
Speaker #5: Yeah , we talked about at an Investor Day , Matt , you'll recall that , you know , so much of our installed base , not only has been with us , you know , three plus years , you know , almost 60% , five or more years .
Speaker #5: But there's now a demonstrated history of there , on average , expanding their spend with us . 15 points a year . So , you by starting our guide at 21% year over year , which , by the way , is consistent with really the last two years of where we started our .
Speaker #5: We feel like , you know , we've left even some conservatism there . The pipeline says a lot . And then , you know , with more and more of our revenue under the curve from really strong signings throughout the year , it just it felt like today was the right time again .
Speaker #5: Wanted to be clean with our organic baseline before we added Marigold . And you know , I wouldn't want to overlook the really strong additions , not just to revenue , but how much of that revenue for 2026 out of the gate is flowing towards increasing adjusted EBITDA and free cash flow .
Speaker #5: In fact , this year from our initial guide of revenue , which was around 21% . So we've obviously added to that since .
Speaker #5: In fact , this year from our initial guide of revenue , which was around 21% . So we've obviously guidance translates to 35 million in revenue .
Speaker #5: And 28 million of free cash flow . That's been added to the guide since the beginning of the year as well .
Speaker #7: Thank you .
Speaker #1: Our next question comes from the line of DJ Hynes with Canaccord Genuity . Please go ahead .
Speaker #8: Hey , thank you guys . Congrats on the really nice quarter here . David . Chris , I want to ask how you thinking about sales and marketing investment and capacity build out there .
Speaker #8: I mean , obviously the operating leverage is great to see . But , you know , sales and marketing actually went down sequentially and , you've shared some really powerful pipeline statistics around the growth there and the strength coming out of data live .
Speaker #8: So I'm wondering how you're thinking about whether it's time to lean in on growth . I mean , obviously , I guess you're going to get some sales reps with Marigold , but any any thoughts there as you kind of plan for 2026 would be helpful ?
Speaker #3: Yeah , I mean , it went down a little bit by accident . We didn't mean it to quite frankly . We're trying to hire every great salesperson we can possibly get .
Speaker #3: DJ, the challenge is that our existing sales reps have been so incredibly productive that we've been able to continue to grow at a much faster pace than we expected.
Speaker #3: While simultaneously trying to find more salespeople . We will pick up an incredible sales team with Marigold , both in the United States and Europe , and EMEA .
Speaker #3: So feels like we're sort of very well positioned for where we want to go . Although , you know , once again , we did grow 28% top line , 43% EBITDA line .
Speaker #3: I'm sorry , 46% going to , you know , screw us out of that last 3% . But 46% growth on EBITDA and 83% free cash flow growth , while simultaneously DJ making some of the largest investments we have ever made into our artificial intelligence and innovation .
Speaker #3: So feeling very good about where we are organizationally .
Speaker #5: You'll see a you'll see a pretty material tick up 3 to 4 Q with Zeta live occurring in October versus September . Like last year .
Speaker #8: Yeah , yeah , okay . Makes sense . And then , Chris , while I have you , maybe can you talk about gross margins in the quarter ?
Speaker #8: I mean , you know , direct revenue mix held pretty stable at that 75% . It's a little bit of degradation , gross margin , just anything we should be thinking about there .
Speaker #8: As we model the numbers going forward .
Speaker #5: Yeah . Mix was up nicely year over year . But to your point , it was stated that higher end of our range , 75% quarter to quarter , what we wrestle with on occasion is mix within the mix .
Speaker #5: And frankly , this quarter we had really strong display video channel usage that display video channel usage is lower than what we average on our total direct revenue mix profile .
Speaker #5: But to give you a sense of just how much channel usage we're seeing are greater than four cohorts , so those scaled customers using four or more channels was up 44% year over year and are greater than five , five or more channels , was up over 60% year to year .
Speaker #5: So mix within the mix . But consistent with our model , our long term model that each year we want to get between 100 basis points and 300 basis points of efficiency on the cost of revenue line .
Speaker #8: Yep . Makes sense . Okay great . Thank you guys .
Speaker #1: Our next question comes from the line of Clark Wright with .
Speaker #9: Awesome . Thank you . It was great to see a strong quarter of organic growth . I was wondering if you could talk a little bit more about the contributions from the agency .
Speaker #9: Talk about 23 brands being added , how should we think about the growth of the agency business and independent agencies relative to the direct enterprise relationships ?
Speaker #9: As we head into 2026 ?
Speaker #5: Yeah , I mean , we we break out our business in a lot of different ways and give you a lot of metrics .
Speaker #5: One of them , we're going to keep to is , you know , keep the disaggregation revenue down to direct and integrated . But what I will point to is as a proxy for how healthy our agencies are growing , you would see the direct mix or , you know , was up over 30% on a year over year revenue growth basis .
Speaker #5: And then mix within the agencies . Let me just look at my notes here . You know , was up pretty substantially as well from a direct perspective .
Speaker #5: Let me just get the exact data point here for you , Matt . If you have it , let's say direct agency , direct mix was up from 52% direct to almost 60% this quarter .
Speaker #3: I mean , direct to enterprise . Yeah . I'm sorry , I was just going to say direct to enterprise continues to be the vast majority of our business .
Speaker #3: And I think will be for many years to come . But we love our agency clients . And , you know , we continue to expand with them very nicely .
Speaker #3: So it's been a really good blend to have both .
Speaker #9: Awesome . Thank you . Appreciate that .
Speaker #1: Our next question comes from the line of Jason Kramer .
Speaker #10: All right . Great . Thank you guys . So first on Athena , when you think about your 572 scale , customers , are there specific groups or segments of that where you think Athena resonates better than others ?
Speaker #3: So Jason , I would start by saying , I think our direct enterprise clients will probably adopt it in a more meaningful way first , which is not to say we don't think it really plays very well with the agency clients from a vertical perspective , I don't really think it's going to be that differentiated .
Speaker #3: I think , you know , if if you have not seen the demo yet , which was standing room only , I say standing room only , there were people sitting on the floor who physically asked me to move .
Speaker #3: So they could see the demo . We have a recording of it on our investor Relations site , but I would tell you that when you put that type of power in the hands of a client , they're going to really adopt it very , very quickly .
Speaker #3: And we're we're excited about that .
Speaker #10: Thank you . And just going back to the momentum topic , at the Investor Day , you talked about about 80% faster onboarding .
Speaker #10: There's some operational streamlining you've been doing . So you know , you just hosted data live . Biggest event for building the pipeline .
Speaker #10: I'm just curious is there a scenario where that pipeline of potentially 100 million can transition to revenue at a faster pace than we've seen in the past ?
Speaker #3: Let me start by saying our goal is to close 100 million in business , not just get the pipeline to 100 million . Jason .
Speaker #3: So we're on the same page . You know , when you look at the fact that we've given guidance early to next year , we've now raised our , you know , the fourth quarter this year , it's our 17th quarter of raising in a row .
Speaker #3: We feel like we've got the the wind at our back or we wouldn't be in a position to do both of those things .
Speaker #3: So I think that our confidence level is very , very high based on where the record pipeline is , what's coming out of Zeta live .
Speaker #3: And yes , we are closing deals faster than we have in the past , and we are onboarding them substantially faster than we have in the past .
Speaker #3: By automation and AI internally .
Speaker #10: Great . Thanks guys .
Speaker #1: Our next question comes from the line of Terry Tillman with Truist.
Speaker #11: Yeah . Thanks , David . Chris , Matt and Madison for taking my questions . The first question is I was just hoping to double click on the replacement cycle opportunity .
Speaker #11: I think there was a stat that was provided at the Analyst Day about the last couple quarters . The RFP activity had been up quite a bit , and I don't know if that's independent of the Zeta live and the pipeline that you built out of that .
Speaker #11: But just maybe you could comment a little bit more about where we are in this replacement cycle opportunity, and maybe Athena helps with that.
Speaker #11: And kind of related to that . And hopefully this doesn't become a five part question is like maybe there's pricing and packaging and other things you could drive to kind of minimize the inertia for those folks to move to your platform .
Speaker #11: And then I had a follow up .
Speaker #3: Yeah . So let me start by saying that the replacement cycle continues to be at full scale . And we are not just seeing more than our company's history .
Speaker #3: We are seeing the largest RFPs we have ever seen . And if you look at the legacy marketing clouds , the guys like Salesforce , Oracle , Adobe , one of them is leaving the industry .
Speaker #3: The other two are legacy . They're great companies with legacy technology . We are the next generation of marketing , cloud and we're really focused on how do we continue to win in what is an even faster accelerating replacement cycle as it relates to Zeta live , we came we went in with a record pipeline .
Speaker #3: We came out with a meaningfully larger record pipeline . It's just right now we are firing on , 11 of 12 cylinders . I don't say 12 of 12 because I don't want to jinx us , but we're feeling very , very good about it .
Speaker #11: That's great to hear . And I guess I won't ask for more cylinders past 12 . Maybe that's for another conversation . But in terms of the independence , I think you all had three last quarter .
Speaker #11: I was impressed at the Analyst Day . One of the your folks that was on stage was an independent , and it was pretty impressive .
Speaker #11: Their kind of passion for the platform . Maybe you could just give us an update on the independence side in terms of agencies .
Speaker #11: Thank you .
Speaker #3: Yeah . So it's it's growing very rapidly . And you know , when you look at the different agencies that we're now platforming , even though we call them independent agencies , each one of them is representing between one and two plus billion dollars a year in marketing revenue .
Speaker #3: So very excited about what's happening there . You know , Terry , we've built out a sales force that's now solely focusing on independent agencies .
Speaker #3: And they are really , really rocking . I would tell you , we had I can't give you the count , but so many independent agencies attended Zeta Live .
Speaker #3: We had a separate breakout to spend time with them . And it's it's it seems to be going very , very well .
Speaker #12: Okay .
Speaker #1: Our next question comes from the line of Gabriela Borges with Goldman .
Speaker #13: Hey . Good afternoon . Thank you . David , my question is on Athena and more specifically on the process for implementation and deployment within customer environments .
Speaker #3: Yeah . So , Gabrielle , I don't know if I lost you . I'm sorry . I lost you for a second there .
Speaker #3: I heard the the Athena , and then you got into deployment .
Speaker #13: Yes . The process of deployment and the learning curve on deterministic versus non-deterministic outcomes . When you work with customers to deploy Athena .
Speaker #3: So , first of all , great question . As usual , all of our deterministic , all of our actions at Zeta are deterministic .
Speaker #3: So if you think about the data cloud , you've got the 242 million deterministic individuals in the United States , over 550 million globally .
Speaker #3: Athena is going to be built right into the Zeta marketing platform . So literally anybody who's using the Zmp , which , as you know , has a common user interface for setup and a common user interface for reporting will be able to use Athena seamlessly to activate and learn .
Speaker #3: It's almost like a data scientist . And then an execution capability in one voice enabled conversational platform . So everything that Athena does will be fully deterministic and will allow for deterministic attribution capabilities .
Speaker #13: Very good . Thank you .
Speaker #1: Our next question comes from the line of Richard Baldry with Roth Capital .
Speaker #8: Thanks .
Speaker #5: Can you talk about sort of the architecture around .
Speaker #14: Athena and when thinking about is how easy or challenging would it be to extend that to cover new platforms ? Obviously something like Marigold would be , you know , a place to look at .
Speaker #3: Yeah . So , I mean , Athena's architecture is fully internally built . We are partnering with open AI as it relates to the voice interface , and we're excited about that as it relates to what we can layer it on top of .
Speaker #3: We can easily layer it on top of any platform that has an open AI API . And when you think about where we're trying to go .
Speaker #3: Long term , yes , Athena is native to the application layer at the Zeta marketing platform . But as we integrate other platforms , it can easily be layered on top initially through an API integration and then as we fully integrate them into the platform long term , it'll become native to their application layer as well .
Speaker #14: So last two for me . Does having Athena make you likely to be more positive ? Maybe of tuck ins ? Because you can bring it under that umbrella kind of easier .
Speaker #14: And then maybe for Chris , you think long term or even short term about the buybacks as a percent of free cash flow .
Speaker #14: Where's your thinking lately on that ? Thanks .
Speaker #3: So as it relates to , you know , being acquisitive as you've heard me joke , Rich , we've been in business now for 17 years .
Speaker #3: We've bought 17 companies . It's highly probable there'll be an 18th at some point . I don't know if Athena makes us more acquisitive , but it certainly becomes a bridge into anything we do going forward .
Speaker #3: And as we think about today being the number one marketing cloud , using artificial intelligence and data native to the application layer , Athena gives us the opportunity to expand and increase our Tam and our addressable market by moving into other business intelligence and other opportunities .
Speaker #3: Chris . Yep . As it relates to the buyback , Chris was sort of jumping on something for a second . We continue to focus on using greater than half of our free cash flow for retiring shares , and repurchasing shares .
Speaker #3: Quite frankly , the only reason we didn't buy more over the last quarter was because once we signed the agreement to do Marigold before we announced it , we were an internal quiet period .
Speaker #3: We weren't able to buy stock back , so I believe we were in the mid 70s as a percentage of free cash flow for share repurchasing year to date .
Speaker #3: I could see us continuing at those .
Speaker #5: Rates about 85 year to date . We have a lot of dry powder in the next 200 program .
Speaker #14: Sounds good . Thanks and congrats on a great quarter .
Speaker #3: Thanks , Rich .
Speaker #1: Our next question comes from the line of Zach Cummins with B Riley Securities .
Speaker #15: Hi . Good afternoon . Thanks for taking my questions . David and Chris . Congrats on the strong quarter David . I thought it was notable .
Speaker #15: Call out that you've seen some strong momentum in the Telecom vertical . So just curious what's going so well on that front in terms of building that momentum with Telecom customers .
Speaker #15: And is a lot of that success really coming as a displacement for for other solutions with , with these major customers ?
Speaker #3: Yeah , I mean , you've got a lot of different telecom players out there , really , really struggling for growth . And our platform allows them to grow at an accelerated pace , at a lower cost than our competitors platform .
Speaker #3: So what I would tell you in almost all cases , we're displacing one of the major marketing clouds at this point . There's very few companies that are sort of doing this stuff internally .
Speaker #3: So , you know , we're we're very excited about telecom . It's growing at an accelerated pace . And it's something we think will continue .
Speaker #3: Chris .
Speaker #5: A couple other points . I think , Zach , that are relevant on the industry verticals is your you know , we report the industry verticals on a trailing 12 month basis .
Speaker #5: And this was the first quarter that telecom made it to the over 20% . But it's actually been growing really strongly the last two quarters .
Speaker #5: So that was good to see . The seven out of ten growing over 20 is a is a marked improvement from the what's traditionally been six for us .
Speaker #5: Obviously, telecom being that new entrant. But even those not growing at 20% were growing between 7% and 17%, which is great.
Speaker #5: But with so much focus in the investor community on what's happening in the macro , I think it's also worth highlighting that verticals that we've seen to be the most consumer discretionary retail , travel and hospitality , even automotive , have continued at their very strong growth rates .
Speaker #3: What we're seeing is even when there's difficult times out there , clients are moving to us in an accelerated pace because of our substantially better return on investment than most of our competitors .
Speaker #15: Understood . And follow up for Chris , just around the free cash flow conversion , it's nice to see the strong execution here in Q3 , even despite the working capital headwinds .
Speaker #15: As we think about modeling out into future years , do you assume those working capital headwinds regarding collections with agencies ? We'll start to ease or how are you thinking about that as as we move forward from here ?
Speaker #5: If you adjust , Zach , for the pure timing of the agency's longer payment cycles , we would have been again at 80% .
Speaker #5: And better free cash flow conversion . And if I then go backwards to , I should say forwards to the Zeta 2030 conversion target of at least 70% , you could argue we've even built in for a continued headwind from the agencies and not needing that to be fully neutral for us to get to that , at least 70% .
Speaker #15: Understood . Well , thanks for taking my questions and best of luck with the rest of the quarter .
Speaker #3: Thanks , Zach .
Speaker #1: Our next question comes from the line of Jackson Ader with KeyBanc .
Speaker #16: Oh , great . Thanks for taking our questions , guys . First one is on the I guess , visibility into 2026 . David , you mentioned , you know , normally we don't get this kind of kind of forward guidance .
Speaker #16: A quarter early . But I'm curious like is it is it more than just the pipeline . Do the large customers you're doing business with actually , you know , do they have commitments that give you more confidence or , you know , that the spend level is going to go up in the future that might not have existed in years past ?
Speaker #3: Yes. Yeah. We're seeing much larger contracts from our larger clients, and it's giving us far more visibility and comfort in the numbers.
Speaker #16: Right . So it's okay . Pipeline bigger , but also , you know , visibility also bigger clients .
Speaker #3: Large to be specific . Yeah . Jackson to be specific . Large clients are giving us larger contracts than we've ever had before .
Speaker #3: And far more visibility into our forward numbers than we've had in the past.
Speaker #5: And tactically , Jackson , this time of year . Frankly , August , September , we're in our kind of next year planning process anyway , not just internally , but with our customers .
Speaker #5: So even though historically and what we would normally expect under absent a marigold type transaction , giving guidance in February , a lot of that work is effectively already done .
Speaker #16: Got it . Okay , okay . And then quick follow up . You mentioned the political candidate revenue expectations for last year , but curious whether you have any initial expectations for advocacy and how that works .
Speaker #16: You know , in that in the call it like the off cycle election years .
Speaker #5: It's followed Jackson a similar pattern as candidate spend . Meaning if you go back to the midterms in 2022 , where we had political candidate revenue of around 7.5 million , this year , we're planning for for effectively double that .
Speaker #5: I would think , along similar lines for advocacy from kind of midterm to midterm . The tricky part for that for us and why specifically said in the prepared remarks , I think this number will evolve is those deals can come into the pipeline very rapidly , much faster , or I should say later in the process than what a typical enterprise or an agency deal would come in .
Speaker #5: So it's it tends to be something that happens on a quicker timeline for us . So hence why I think that number is going to continue to evolve .
Speaker #16: Yeah . Okay . All right . Awesome . Thank you guys .
Speaker #5: Thank you Jackson .
Speaker #1: Our last question comes from the line of Koji Ikeda with Bank of America .
Speaker #17: Yeah . Oh hey guys . Thanks so much for taking the question . I wanted to ask a question on on Marigold for 2026 , and I know it hasn't closed yet , but really wanted to ask around , you know , because you've had such success in the past with acquisitions .
Speaker #17: I think about acquisitions where you guys were before you guys with like more around one plus one equals more than two . And so , you know , with your guys given out a 26 guide out there , you know , thank you very much for that .
Speaker #17: And previously you've kind of given a guide for I think 190 million for Marigold for 2026 . I mean , I guess where I'm going with this , with this , is that it sounds like it's just stacking 190 on the 1.54 billion guide for 2026 .
Speaker #17: Could be understating the opportunity , you know , with Marigold , of course , I don't want to get over my skis here , but just given your track record with acquisitions , it doesn't seem like that's out of the realm .
Speaker #3: Yeah . So let me start by saying we do not want to have the guidance combined for the two . Yet the reason we put the organic guidance out was because the last time we did this with live intent , half of the analysts added it .
Speaker #3: Half did not . And it created a tremendous amount of confusion . So when we do close that deal , Koji , which we expect to do this year , we will 100% update what we believe it will do on top of the 1.54 .
Speaker #3: And I just wanted to get that out there . Second , we started this year at a 21% guide , and we're going to you know , we're already at 26% .
Speaker #3: So we've added 500 basis points from where we expected to be at the beginning of the year . As you know , you've we've known you now for a very long time for 17 quarters in a row .
Speaker #3: We've beaten our guidance and raised our guidance , our goal is to be sitting here at the end of next year and saying , we've done that 22 times , right ?
Speaker #3: So we are very good at M&A . We have our pillars . We believe that Marigold fits every one of our pillars , and we believe that it's going to create a really nice tailwind to the growth of the combined company , specifically around taking their 100 global enterprise clients and making them from one use case to multiple use cases .
Speaker #3: As you point out , we always want one plus one to equal for when you look at moving from a single use case to multiple use cases around the one zeta opportunity , those clients generate between three and three and a half times more revenue than clients that are just using one use case .
Speaker #3: So I do think that the Marigold acquisition will lead to a really nice tailwind into next year . If that makes sense .
Speaker #17: Yep . Totally does . And looking forward to that press release on the closing of Marigold . Absolutely . And maybe just a follow up for you , David .
Speaker #17: I did want to , you know , now that on the back of Zeta live , I did want to ask how Zeta's brand image is evolving with your customer base .
Speaker #17: You know , maybe compare and contrast how customers are looking at Zeta today versus how they looked at you three years ago ?
Speaker #3: Well, I'm not even sure you could put the way they looked at us three years ago today in the same conversation. It is so advanced coaching.
Speaker #3: What I would tell you is we started this journey in three years ago . We were at Zeta , whoo ! Which really meant when we walked into a sales call , we would have to spend 50 minutes of the first hour explaining who we were and why we were in the room .
Speaker #3: Our goal was to get to why Zeta , meaning we know you're here . We know why you're here . Why should we pick you over your competitors ?
Speaker #3: The next evolution really is Zeta . Now I need Zeta . How do I get you into my stack ? And the final is must have Zeta .
Speaker #3: We're still a ways off from that . That's sort of like Microsoft . But what I would say is we are very solidly in the why Zeta .
Speaker #3: We get into the room; people know who we are. We are the advanced players in our space. We are looked at as cutting edge.
Speaker #3: We are looked at by marketers as a very important component of their tech stack . And they're really looking at us as a sort of game changing company as it relates to AI data and their ability to deploy it organizationally .
Speaker #17: Thanks so much .
Speaker #1: Ladies and gentlemen . There are no additional questions at this time . Thank you for your participation . This does conclude today's teleconference .