Zeta Global Holdings Corp.

Greetings and welcome to the Zeta Q1 26 earnings call. At this time, all participants are in a listen-only mode. 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Pfau. You may begin.

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's first quarter 2026 conference call. Today's presentation and earnings release are available on Zeta's investor relations website at investors.zetaglobal.com, where you will also find links to our SEC filings along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's co-founder, chairman, and chief executive officer at and Chris Greiner, SADA'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, 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 our GAAP results. 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. With that, I will now turn the call over to David.

Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. We delivered our 19th consecutive beat and raise quarter. This consistency is not driven by a single product cycle or a short-term tailwind. It is the result of a structural shift in the market. AI is no longer a feature. It is driving a replacement cycle where enterprises are demanding fewer systems and measurable results, and applied intelligence that works today. We are winning in this environment because of the system we have built. Proprietary data that improves with every interaction, intelligence that compounds with every decision, and a platform with AI at its core that allows customers to consolidate vendors into a single, unified operating system. This differentiated approach has been recognized by Forrester, where Zeta was once again named a leader and also reflected in our customer advocacy with an NPS score in line with market leaders up 23% from our assessment in the prior year. Both come on the heels of Forrester's study showing Zeta returns an average of 600% on marketing spend for its customers. Athena by Zeta is an accelerant. It is the user interface that brings AI directly into marketing workflows and removes the barriers to enterprise-wide adoption and impact. Signs of this were evident in Q1, with beta customers plus strong early adoption of Athena contributing to the revenue beat. Our first quarter performance once again shows we are the disruptor in the AI-driven marketing ecosystem. First quarter revenue of $396 million, representing year-over-year growth of 50%, and up 29% year-over-year ex-marigold. our fourth straight quarter of revenue growth acceleration, excluding acquisitions and political candidate revenue. And adjusted EBITDA was $66 million, up 42% year over year. 19 consecutive beat and raise quarters, combined with a four-year revenue kegger of 30%, reflect more than just consistency. They are evidence of sustained demand in a market consolidating around platforms that can deliver measurable outcomes at scale. And that visibility is reflected in our outlook. After raising the midpoint of our range for 2026 revenue guidance last quarter by $25 million, we are again raising it by $30 million, representing growth of 37%. These market share gains are evidence of a shift in the competitive landscape as AI moves from feature to a new way of doing business. Athena is designed to accelerate our share gains by bringing intelligence directly into workflows, turning answers into actions, and ultimately changing how marketing is planned, executed, and optimized. Athena is currently available to all of our enterprise customers, and its impact is already evident in sales pursuits and results. The number of Athena demos to potential new clients increased dramatically throughout the quarter. The promise of Athena is influencing decision makers and helping Zeta win deals as customers want to invest in applied AI, not roadmap AI. One new customer we closed in the quarter commented, leapfrogging to the future requires thinking differently today and committing to execution. Interacting with Athena made it clear that Zeta has already made this leap, bringing its vision to life and positioning us to accelerate into a fully agentic marketing future, end quote. Athena was a driver in one of the largest deals we have ever closed. The customer is a leading global apparel retailer operating across multiple brands, each with unique customers and over 3,000 locations worldwide. Zeta's platform was purpose-built to handle the complexity required by the largest enterprise companies, and this customer was able to consolidate down from four vendors to one, Zeta. As the legacy marketing cloud replacement cycle begins to accelerate, this particular client was a marquee win. We are also seeing rapid adoption among existing customers. Early feedback and usage shows that customers view Athena not as incremental functionality, but as transformational technology. As adoption increases, Athena learns from more data, Outcomes improve and usage deepens, driving ARPU expansion and ultimately reinforcing the same flywheel that has powered our growth. That flywheel is powered by more than just Zeta's AI models. It's driven by the data and infrastructure behind them. Zeta's supergraph, our proprietary identity and intelligence graph, unifies data across the enterprise and enables a complete deterministic view of the consumer that we believe is difficult to replicate at scale. Access to our data is a key driver for customer decisions. For example, our Supergraph was instrumental in a win with a leading online retailer of pet products in the United States that serves millions of active customers with a highly personalized e-commerce experience, a broad assortment of over 100,000 products, and a rapidly expanding ecosystem that includes auto-ship subscriptions, pharmacy services, and pet health offerings. In addition, our proprietary data and the intelligence it generates was a key component in the expansion of a Fortune 100 telco client. expected to drive an 18 times increase in spend with Zeta in 2026 versus 2025. As Athena brings that intelligence to our customers in real time, the impact of this data advantage only grows. This foundation of data plus AI continues to power one Zeta. we are consistently seeing that the land, expand, extend model takes hold as customers begin with a single use case and scale across the platform over time. That expansion is driven by the modern CMO mandate, do more with fewer partners, improve ROI, and simplify execution across the organization. The result is larger commitments, deeper adoption, and a growing role for Zeta as the marketing operating system and core infrastructure. That momentum is showing up in the data. Super scaled customer ARPU was up 21% year over year, well ahead of our target range. Net retention rate remained above our target range of 110 to 115%. And the number of super-scaled customers using more than one use case was up over 50% year-over-year at scale. It also creates a reinforcing cycle. Consolidation drives adoption, adoption drives results, and results drive further expansion. This is the one Zeta model, and it continues to be a powerful driver of durable growth. What stands out for me this quarter is the strength we are building across every part of the business. At the center of this is Athena, which is already beginning to change how our customers operate and how we compete. Together, our data, our platform, and our leadership in AI are positioning Zeta not just to participate in the shift, but to define it. As always, I want to sincerely thank our customers, our partners, and our shareholders for your continued support of our vision. And to Team Zeta, thank you for everything you do. It was an honor to be recognized as a Great Places to Work for the third year in a row. This is a reflection of your hard work and collaboration. Now let me turn it over to Chris to discuss our results in greater detail. Chris?

Thank you, David, and good afternoon, everyone. Our results once again demonstrated the durability, predictability, and profitability of Zeta's growth. Revenue growth excluding acquisitions and political candidate revenue accelerated for the fourth consecutive quarter to 29% in Q1. further cementing the durability of our growth and market share gains. Broad-based strength across the business is resulting in improved visibility, leading us to once again raise our 2026 outlook, underscoring the predictability of our growth. Even in doing so, we're maintaining our typical conservatism. And we also saw free cash flow conversion improve to 63%, generating $42 million in free cash flow, demonstrating the increase in profitability of our growth. These results surpassed even our internal stretch goals, coming in 26 million or seven points above the midpoint of our revenue guidance for the quarter. As I analyzed the strength of our quarter, what stood out was how balanced the upside contribution was. It was not one or two isolated benefits. Instead, in baseball parlance, it was a lot of singles and doubles, which in my opinion is healthier. Here are some examples. In terms of revenue growth excluding Marigold's contribution, approximately 14 points of growth came from existing customers and 15 points from new customers. From an industry lens, 9 out of our top 10 industries grew faster than 20%, with more discretionary industries continuing to be at the upper end, demonstrating why in tougher macro times, data-driven, lower marketing funnel, high ROI attributable marketing is paramount. And finally, As it relates to how customers use our platform, email, connected TV, mobile, and social all grew double digits, all while each use case, acquire, grow, and retain, also grew double digits. Now let me dive deeper into our KPIs, income statement, and balance sheet. Total super-scaled customer count grew to 189, up 19% year-over-year, and an addition of five customers sequentially. This exceeds our Zeta 2028 model of 4% to 8% super-scaled customer account growth. Super-scaled customer additions were especially strong in advertising, marketing, travel, and hospitality. Super-scaled customer ARPU was $1.7 million, up 21% year-over-year. This also exceeded our Zeta 2028 model of 12% to 16% ARPU growth. Strong ARPU growth in the quarter was driven by an increase in the number of customers using multiple use cases, which was up over 50% year-over-year, as well as customers using more than three channels, which increased 40% year-over-year. Both are great examples of the one Zeta sales motion working and how Athena can unlock more of the platform's capabilities for our customers to use. The forward-looking sales pipeline is also robust. going into a season when Athena will be front and center at multiple industry conferences. In fact, Athena demos were a crucial differentiator versus incumbents and RFP competitors in each of our marquee enterprise and agency wins in Q1. And we expect Athena to play an even bigger role in adding to the sales pipeline, which is already up 40% year over year, with a subset of discretionary industries up even more, those like retail, advertising, travel, restaurants, furniture, and resorts, to name a few. This outsized sales pipeline growth in discretionary industries is consistent with what we've seen in previous periods of macro volatility and is another proof point that in times of uncertainty, customers consolidate onto fewer platforms that can drive measurable ROI with AI-driven efficiency. Now moving on to revenue mix, direct revenue in the first quarter was 75%, above the 73% last year and in line with our target of 70 to 75%. Our gap cost of revenue in the quarter was 41%, a 190 basis point increase year over year and 50 basis points sequentially. The increase in cost of revenue was driven by new agency wins, driving a higher initial mix of social as a channel. This is consistent with the pattern of business we've seen and spoken to previously when new agencies platform onto Zeta. This is because we offer a substantially more efficient and effective solution for social and has become the first of many channels adopted by new agencies as they migrate. As new agencies scale over time, not only does their aggregate spend increase, but they do so by adding Zeta-owned channels like email, display, video, mobile, CTV, and others. It also bears repeating. While social has a higher cost of revenue, it is still accretive to both adjusted EBITDA and free cash flow margins. Further, social drives high customer stickiness as well. In the first quarter, adjusted EBITDA was 66.1 million at a margin of 16.7%, 100 basis points lower year over year, and $5 million better than the midpoint of our guidance. Marigold integration is progressing rapidly and tracking ahead of our expectations. We took aggressive steps in the quarter to execute operating synergies, which should begin to benefit our adjusted EBITDA margin in Q2 and into the back half of the year. At the same time, Marigold's revenue came in better than we anticipated, and we're seeing encouraging traction from a one-zeta approach of cross-selling Marigold's loyalty product along with Zetas grow and acquire use cases to the combined customer base. Another area we spoke about last quarter was becoming GAAP net income and EPS positive for the full year of 2026, specifically generating between two and four cents of GAAP earnings per share. Our first quarter results have us pacing toward the high end of that range. In Q1, our GAAP net loss was 13.2 million, and improvement from a net loss of $21.6 million in the first quarter of last year. Gap loss per share was $0.06, coming in ahead of our expectations for the quarter, with forecasted costs related to the integration of Marigold being the primary driver and not seen as recurring over the rest of the year. First quarter net cash provided by operating activities was $49.7 million, up 43% year-over-year, with free cash flow of $41.7 million up 48% year-over-year and representing a margin of 10.5%. This represents a free cash flow conversion of 63%, a 270 basis point improvement from the first quarter of 2025. This also includes a roughly 13-point working capital headwind driven by longer agency payment cycles standard for their industry. During the first quarter, we repurchased 1.5 million shares for $25.7 million and have approximately $138 million remaining on our share repurchase authorization. We expect to remain active buyers of our stock, especially at these price levels, subject to market conditions and other priorities. And we continue to make significant progress in reducing dilution and stock-based compensation expense, excluding marigold, Our dilution in the first quarter was 0.1%, and we remain on track to achieve our normal course net dilution target of 3% to 4% in 2026. Relatedly, with most of management's previously issued equity now fully vested post-IPO, Zeta's Board of Directors and Compensation Committee, in consultation with an independent compensation consultant, approved a new long-term equity incentive plan for management. This performance-based plan secures continuity of Zeta's named executive officers and management for six years and incentivizes management to achieve its long-term revenue and adjusted EBITDA margin objectives while adhering to its principles of lowering dilution, reducing stock-based compensation as a percentage of revenue, and achieving GAAP-positive earnings. Furthermore, Named executive officers who receive these incentives will not be rewarded any further equity for the next six years. Now on to our increased guidance. For the full year 2026, we're increasing the midpoint of our revenue guidance by $30 million to $1,785,000,000, representing a 37% growth rate or 22% year-over-year growth when excluding marigold and political candidate revenue. None of our guidance increase is related to political candidate revenue, which we continue to assume will be $15 million in 2026, with $7 million in the third quarter and $8 million in the fourth quarter. Additionally, we continue to take a conservative view of Marigold, contributing $47.5 million per quarter to 2026 revenue for the remainder of the year. Our revenue guidance also includes minimal contribution from Athena, and as shared earlier, we have taken into account our typical conservatism of 2% to 5% in setting our outlook. For the second quarter, we now expect revenue of $420 million at the midpoint, $4 million higher than our previous guidance, and representing year-over-year growth of 36% or 21% when excluding political candidate and marigold revenue. For adjusted EBITDA, we're increasing the midpoint of our 2026 guidance to $397 million. up 6 million from our prior guidance, and representing a year-over-year increase of 43% at a margin of 22.3%, an improvement of 90 basis points over 2025. For the second quarter of 2026, we now expect adjusted EBITDA of 86.6 million at the midpoint, up from our previous expectation of 84.9 million, and representing growth of 47%, and a margin of 20.6%, up 155 basis points year-to-year. We are also increasing our 2026 free cash flow guidance to $235 million at the midpoint, up from $231 million, representing year-over-year growth of 43%, and a conversion of 59% of adjusted EBITDA, which likely has upside. And here's the broader point. A 19-quarter beat-and-raise track record is obviously something we're proud of and continues to demonstrate our consistency and strong execution. We also recognize the times we're in, specifically the need to underwrite investments in companies with strong free cash flow generation, durable revenue growth and share gains, and demonstrable moats. Q1 was an excellent jumping-off point for these emerging investor frameworks. Not only did free cash flow set a record in the first quarter, but we are also tracking to the high end of our 2026 GAAP EPS range of two cents to four cents and long-term 2028 targets. As it relates to durable growth, this was the fourth quarter in a row we accelerated revenue growth, excluding acquisitions and political candidate revenue. And in terms of exhibiting our moats, our marquee wins with enterprises and agencies this quarter came at the expense of legacy marketing clouds and legacy DSPs, where Zeta's proprietary data and Astina operating system were capabilities our competition could not match. With that, I'll hand the call over to the operator for David and me to take your questions. Operator?

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