Zeta Q2 2026 Earnings Call

Good day, and welcome to the Zeta Global Second Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Trey Campbell. Please go ahead, sir.

Thank you, Operator. Hello, everyone, and thank you for joining us for Zeta's Second Quarter 2026 Conference Call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com, where you'll 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, and Chris Greiner, 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, 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 other filings with the SEC. With that, I'll now turn the call over to David.

Thank you, Trey, and welcome to the team. We are very excited to have you. Good afternoon, everyone, and thank you for joining us today. I will start with the headline. We delivered our 20th consecutive beat and raise quarter, delivering the rule of 64 as a company and the rule of 49 excluding M&A. And in the second quarter, our year-over-year revenue growth accelerated to 44%, up from 35% in the second quarter of last year. This is the result of Zeta increasingly becoming the system of intelligence for our customers. The second quarter performance once again shows this strategy is working. Second quarter revenue was $443 million, representing year-over-year growth of 44%. That's up 28% year-over-year, excluding M&A revenue. Adjusted EBITDA was $92 million, up 56% year-over-year, with margin expanding 170 basis points year over year to 20.7%. And based upon this strength, we are once again raising the midpoint of our 2026 revenue guidance by $33 million. 20 consecutive beat and raise quarters reflects more than just strong execution. It is evidence of growing and durable demand for our platform that turns data into intelligence, intelligence into decisions, and decisions into measurable outcomes. Investors have historically viewed Zeta as a marketing technology company. Marketing is where our platform was first applied and where we built our leadership position, but that description no longer fully encapsulates who we are today. Zeta has evolved into an intelligent AI infrastructure platform. Marketing is our first application, not our limit. Our platform combines proprietary data, AI, workflow automation, and activation into a single operating system that helps enterprises make better real-time decisions and take action. The foundation is our data cloud, built on proprietary data covering more than 535 million individuals globally, trillions of signals, and 20 years of model tuning. And to be clear, this data is owned, not rented, because nothing you rent can be a moat around your business. Athena serves as the intelligence layer, allowing customers to interact with that foundation using natural language and embed AI directly into their everyday workflows. It truly allows customers to focus on outcomes versus navigating the platform. Our activation platform then turns those insights into actions across channels while continuously learning and getting smarter via the results. This has contributed to the strength of our net revenue retention. And with Zeta Business Intelligence, a.k.a. ZBI, we are also extending beyond helping enterprises to acquire, grow, and retain customers to a fourth use case, enabling organizations to transform business and customer data into intelligence, insights, and real-time actions. To be clear, this is not static dashboards or old-school business intelligence used to explain what happened. ZBI helps predict what happens next and acts on it in real time. A major sports and entertainment company uses ZBI today to understand its fans, share of entertainment spending, and engagement across live events and streaming. This helps quantify the value of current distribution partnerships, identify the most attractive future streaming relationships, and strengthen its negotiations at renewal. A leading energy drink brand uses ZBI to quantify the incremental value it drives for retail partners, including customer growth, spending, and long-term value. This helps demonstrate the brand's impact at retailers and identify opportunities to deepen distribution and partnership investment. Taken together, these capabilities position us as the intelligent AI infrastructure layer that sits at the center of enterprise decision making. This transformation has been accelerated by four strategic catalysts. First is our OpenAI partnership. Our collaboration with OpenAI validates the AI strategy we have been building for years, enhances Athena's capabilities, and creates new commercial opportunities. As foundation models continue to improve and become more widely available, we believe the durable advantage will come from what's built around them, proprietary data, governance, workflows, and decisioning systems that turn intelligence into outcomes. Those decisioning systems are our own inference models, smaller, purpose-built models that we have been training on the data cloud since 2017. OpenAI powers Athena's voice. The decisions run on our models, and no large language models ever touch the data in our data cloud. The second is Athena. Launched earlier this year, Athena is fundamentally changing how customers interact with the Zeta platform. Athena is true voice enablement and fully conversational. Instead of navigating dashboards or conducting manual analysis, customers can simply ask for outcomes. The platform knows their business, decides, acts, and learns from every single result. That dramatically lowers the barrier to adoption and expands use across teams, channels, and use cases. We have seen that users who interact with Athena through voice exemplify this rapid adoption. Over the last 60 days, Athena's voice users are interacting with the platform at a 500% higher level than non-Athena users. We are also realizing the benefits of AI within Zeta. In the second quarter, 90% of our new code generated was automated, helping our teams to innovate faster and continuously enhance the platform for our customers. The third is Snowflake. We deepened our existing partnership with Snowflake, and we now have over 100 shared customers. reinforcing Zeta's role in the enterprise data ecosystem, where customers increasingly want to connect data environments with intelligence and activation. Zeta is uniquely positioned not only to help customers store and analyze data, but to act on it. And the fourth is Palantir. Our partnership with Palantir significantly expands Zeta's enterprise opportunity. Palantir provides the oncology, governance, and enterprise AI infrastructure that large organizations require. Data contributes proprietary customer intelligence, proprietary data, identity, decisioning, and activation. And we have reached two important milestones in this partnership already. Our data cloud was fully integrated with Foundry as of July 31st, and we have already received multiple agreements for our initial combined sale with several other meaningful opportunities in flight. Together, these four catalysts are accelerating Zeta's transformation and strengthening our position as the intelligent AI infrastructure layer for the enterprise. We believe the defining characteristic of an infrastructure platform is not just innovative technology. It is a platform that becomes more valuable the more customers use it. Every decision it powers makes the next one better. And because those decisions run on our own inference models, not rented tokens, we make millions of them a day at infrastructure economics. That is the flywheel driving our results. And we're seeing it play out across our existing customer base. A leading telecommunications provider recently expanded its relationship with Zeta into real-time personalization, adding grow-and-retain use cases to its existing footprint. It is a powerful example of our land and expand model. Start with one use case, prove value, and expand across the customer lifecycle. Athena is beginning to accelerate that dynamic. To give investors greater visibility into its impact, Chris will provide more detail on our initial framework for measuring key metrics like revenue contribution, adoption, and usage later in this call. We'll continue to expand on our reporting around these metrics in the back half of this year. Gap is a powerful example of our platform evolution. As part of its broader AI-led transformation, Gap selected Zeta to help architect its next-generation marketing stack, with Athena at the center of how customer data, decisions, and execution come together. Our role extends well beyond powering individual campaigns. We are helping Gap to remove silos, unified decision-making across its iconic brands, and build a more intelligent marketing engine that learns, adapts, and acts in real time under a multi-year agreement as Gap's system of record. That is what it means for Zeta to become the transformation agent for the enterprise. This momentum was also evident at Cannes Lions, which served as an important proof point for the growing market interest in Zeta and Athena. We launched Athena for Agencies, hosted more than 115 executive meetings, and delivered 37 live Athena demonstrations, resulting in a record sales pipeline coming out of the event. The conversations we began in Cannes will continue at Zeta Live, where we will provide an even deeper look at the future of Zeta and intelligent AI infrastructure. Zeta Live will be in New York City on October 8th. I'm excited to announce we already have two incredible headline speakers, Olympic gold medalist, entrepreneur, and founder, Lindsay Vaughn, and entrepreneur and global superstar, Kevin Hart. Zeta Live has always been our opportunity to show customers, partners, and investors where we are going next. This year, we expect to introduce the next generation of Athena, continuing the extension of Athena as a super intelligent agent, answering questions, empowering workflows to a system of intelligence that knows, decides, acts, and learns. The opportunity in front of us is no longer just about modernizing marketing. It's about helping enterprises turn fragmented data into intelligence. intelligence into decisions, and decisions into measurable growth and cost savings in their businesses. The past year has been an inflection point for Zeta, bringing together capabilities and investments we have been building for years. Yet, we are still in the very early stages of this opportunity. AI is changing how enterprises operate, how software is consumed, and what businesses expect from their technology platforms. For Zeta, that creates an opportunity to expand our role from helping customers execute marketing programs to becoming the intelligence layer that enables them to move faster, make smarter decisions, and drive better outcomes across the enterprise. We continue to be the disruptor in this new ecosystem. As always, I want to thank our customers partners and shareholders for their continued support and to team zeta thank you for your hard work your commitment and belief in what we are building together now let me turn it over to chris to discuss our results in greater detail chris thank you david i'll echo by welcoming trey to the team as we announced last week trey is perfectly suited to help lead zeta's evolution into an intelligent AI infrastructure company.

And I'm thrilled to see Matt Foss step up to lead FP&A for Zeta. In my conversations with investors, one thing is clear. A new framework for investing in companies is emerging. Investors are prioritizing their time with companies gaining share and delivering durable, predictable growth. They're increasingly screening for companies generating free cash flow and positive gap earnings. And they're ultimately backing companies with defensible AI moats proven by results. Data embodies each of these characteristics, and the second quarter's results make this evident. Q2 was our 21st straight quarter of greater than 20% revenue growth excluding M&A and political candidate revenue. Our increased second-half revenue guidance continues that trend. Q2 was also our highest ever free cash flow, paired with positive GAAP net income, showcasing the quality of our earnings, and driving the largest four-year guidance raised to free cash flow and GAAP EPS in our history. And we're listening to shareholders. We're introducing an initial framework to measure adoption and monetization of Zeta's AI, one underpinned by revenue. because moats are ultimately proven by how long customers stay and how much more they spend over time. I'll cover all of this in detail, along with updates on our pipeline, sales productivity, and drivers behind our increased Q3 and full-year guidance. Let's start first with the top line, where Q2 revenue came in at $443 million, up 44% year-over-year, or 28% excluding M&A. That beat our guidance by 23 million, or 5%, driven by faster growth in both super-scaled customer count and ARPU, each exceeding the growth rates in our 2028 model. Super-scaled customers grew to 197, up 17% year-over-year, more than double, our 4% to 8% 2028 model growth rate driven by demand for Athena. Customer gains were especially strong in consumer and retail, telecom, and healthcare. Superscale quarterly ARPU expanded to 1.8 million, also up 17% year-to-year and above our 12% to 16% long-term 2028 model. And we're seeing some interesting usage dynamics unfold in ARPU. First, Athena engagement is increasingly voice-first. First, 83% of customer interactions are now spoken, reinforcing our thesis that natural language will become the primary interface for marketing and business intelligence use cases and has the propensity to drive higher utilization on the platform. Second, the OneZeta sales initiative is gaining speed. Customers using more than one use cases are up 90% year over year. Customers using five or more channels are up more than 50% year-over-year. Cross-sell and up-sell deals one in the quarter were up 43%. And we saw double-digit revenue growth across email, CTV, and social, as well as double-digit revenue growth across all three marketing use cases, retain, grow, and acquire. And third, demand for the platform was broad-based across industries. Eight of our top 10 grew more than 20% year-over-year on a trailing 12-month basis, with consumer and retail, financial services, automotive, and healthcare all accelerating from last quarter. Also notable in the quarter was the significant expansion of the sales pipeline and strength in seller productivity. At the end of Q2, the total sales pipeline was up more than 60% year-over-year and up over $100 million compared to just 90 days ago. On a per-seller basis, pipeline creation is up more than 100% year-over-year as 1Zeta and Marigold cross-selling take hold. This is driving higher average contract values on deals one in the quarter, up more than 40% compared to last year. And overall deal sizes in the pipeline increased more than 25% year-over-year, driven by higher attachment rates across channels and use cases, all while quota-carrying headcount increased by just one versus last quarter to 198, up 11% year-over-year. That gap between pipeline growth and headcount growth speaks to the strength of sales productivity. And importantly, this growth and revenue upside came with impressive operating leverage. Specifically, we generated $92 million of adjusted EBITDA, up 56% year-to-year, at a margin of 20.7%, an increase of 170 basis points versus last year, and $5 million better than the midpoint of our guidance. Marigold restructuring actions and integration savings drove total Zeta expense-to-revenue ratio efficiencies across R&D, G&A, and sales and marketing, improving 30, 180, and 250 basis points year-over-year, respectively. That cost of revenue came in at 41% as expected. This was 10 basis points better sequentially and 300 basis points higher year-over-year, reflecting strong social channel adoption by agencies. Cash grew even faster than adjusted EBITDA in Q2. Net cash provided by operating activities was $69 million, up 65% year-over-year, with free cash flow of $58 million, up 73% year-over-year, a margin of 13.1% and free cash flow conversion of 63%. We also generated positive gap net income in the second quarter of $8.2 million, compared to a net loss of $12.8 million in the same quarter last year, resulting in gap earnings per share of $0.03. In the second quarter, we prioritized using cash to repurchase shares, deploying $29.9 million to buy back 1.6 million shares. And year-to-date, as of July 30th, we've spent $74.6 million on share repurchases, with approximately $89.4 million remaining on our authorization. Dilution in the quarter was just 0.1%, and we remain on track to hit our normal course net dilution target of 3% to 4% for 2026. Finally, we closed a new $1 billion credit facility, including a $250 million term loan A and a $750 million revolving credit facility that remains undrawn, giving us the capital flexibility for M&A, share repurchases, and disciplined investment. To that end, we've been investing in AI for nearly a decade. So today's introduction of metrics showing how AI adoption drives deeper platform usage, longer customer relationships, and higher net revenue retention is not new. It's just more visible than ever. Super-scaled customer adoption of AI is ramping nicely. Since Athena's launch for enterprise customers 130 days ago, more than 40% of our super-skilled customers are already monthly active users, and together, they've generated thousands of campaigns using Athena. And customers who comprehensively adopt our AI, using it for audience creation, activation, and other means, contribute a disproportionate share of revenue. This shows up in several ways. Across our total customer base, including pilots, proof of concepts, and scaled customers, the 20% of customers who have comprehensively adopted our AI tools account for roughly 70% of revenue. Among super-scaled customers, the 50% who have comprehensively adopted our AI tools drive 75% of super-scaled customer revenue. And these AI super users grew four times faster than the 80% of customers still early in their AI adoption journey. But it's not only AI adoption that's rampant. It's also leading to longer customer relationships. Super-scaled customer relationships now average 56 months, up from 48 months a couple of years ago, and that's based on data going back to 2018. In addition to longer customer relationships, we're also seeing them spend more, generating higher net revenue retention among AI adopters. Customers who have most comprehensively adopted our AI tools have a year-to-date net revenue retention that is 400 basis points above overall Zeta, and more than 20 percentage points above customers still ramping in their adoption of our AI, showing that adoption is translating into stronger, more durable expansion. With tailwinds from AI adoption, higher sales productivity, and strong operating leverage, we're once again raising our top and bottom line guidance for the third quarter and full year. In doing so, we're maintaining our typical conservatism, conservatism, building in a 2% to 5% cushion that assumes minimal go-get revenue from partnerships and uses 2028 model growth rates for customer and ARPU growth. To be clear, if new customer additions and ARPU growth exceed our 2028 model growth rates, driven by rapid Athena AI adoption or newly announced partnerships, that would push us towards the high end of that 2% to 5% range. For the full year 2026, we're increasing the midpoint of our revenue guidance by $33 million to $1.818 billion, representing growth of 39% or 25% year-over-year, excluding M&A and political candidate revenue. For the third quarter, we now expect revenue of $471 million at the midpoint, up $10 million from our prior guidance, representing growth of 40% or 23%, excluding M&A and political candidate revenue. You'll note we're continuing to maintain our original second-half guidance for political candidate revenue in Q3 and Q4 of $7 million and $8 million, respectively. For adjusted EBITDA, we're increasing the midpoint of our 2026 guidance to $405 million, up $8 million from our prior guidance, representing a year-over-year increase of 45% and a margin of 22.3%, up 90 basis points year-to-year. For the third quarter, we now expect adjusted EBITDA of $115 million at the midpoint, up $3 million versus our previous guidance. We are also increasing the midpoint of our 2026 free cash flow guidance to $255 million, $20 million higher than our previous full-year guidance, representing year-over-year growth of 55% and a margin of 14% and a conversion of 63%, tracking well towards our 2028 conversion target of 65%. Finally, we're raising our full-year GAAP EPS guidance to a midpoint of $0.10, well above our prior range of $0.02 to $0.04. It's worth noting this guidance increase excludes the impact of a potential one-time tax benefit from the release of a valuation allowance that has a reasonable probability of occurring later this year, which could represent additional material one-time upside. With that, I'll close where I began. Demand for Zeta is robust and durable, and we're expanding our platform organically and through partnerships to accelerate share gains. That durable demand and record pipeline improves our visibility, giving us the confidence to raise guidance across the board. That visibility supports disciplined investment, and our balance sheet is well-positioned to support our growth priorities. And focused execution drives greater profitability and cash generation, which has us pacing ahead of our long-term VETA 2028 model. With that, I'll hand the call back to the operator so David and I can take your questions. Operator?

If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Again, press star 1 to ask a question. And our first question comes from Jason Cryer with Craig Hallam.

Thank you, guys. Congratulations. Another great quarter. Chris, you talked about 1ZATA and how that's accelerating the adoption of multiple use cases. I think you said 90% growth in multi-use case customers in the quarter. What do you think that looks like over the next several quarters? How does Athena continue to optimize customers and maximize both channels and use cases?

Great question, and thanks, Jason. The short answer is I think we've got continued runway because of OneZeta and the Marigold cross-selling, continued driving both multi-use case adoption, which, as you said, was up 90% year to year, But also, five or more channel usage was up 50%, and cross-sell and up-sell deals within the quarter itself was up 43%. If you look at the trend for ARPU growth of the last couple of quarters, it's been nicely above our 12% to 16% long-term model, and I see that continuing.

And we're seeing Athena really just the tip of the spear. It's just getting started. It's one of the single most powerful tools we've ever had for cross-selling against use cases and channels, Jason.

Maybe a follow-up for you, David. On the ZBI, can you just talk about how you go to market with existing customers? What does that cross-sell conversation look like, and what are the key functions in ZBI that are really speaking to customers?

It's interesting because we've had customers that have been using the ZBI for a few months now before we announced it because we really wanted to get use cases in and tried it. So the use cases I gave in my prepared remarks are real-world use cases that they are paying us to develop and create with them. What we're seeing is that customers no longer want static business intelligence. They're not looking to have large numbers of people come in, put data into a user interface, spit out a static report. What they're looking for is how do they make real-time decisions? How do they better negotiate on contracts that they're in flux on, like broadcasting for sports networks? How do they figure out how to better invest marketing dollars and develop retail partnerships like with energy drink companies, and so on and so forth. So we're actually getting pulled into the ZBI use cases more than we've been selling them in, and we're now sort of doing a combination of both together.

Jason and investors in the call, we've included slides in the earnings supplemental to David's point to bring those existing customer BI use cases to life. It's actually slides 32 through 38, and David mentioned there's dozens of customers. spanning real estate intelligence, customer experience, market sizing, loyalty growth, business expansion, and business measurement, just to name a few.

Beautiful. Thank you, guys.

If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. We'll go next to Matt Swanson with RBC Capital Markets.

Great. Thank you so much. You know, David, we talk a lot about that transition from, you know, Zeta Who to Zeta Y to Zeta Now. Can you just talk a little bit about when you get names like OpenAI and Palantir and Snowflake, you know, it's probably about as good of a trio of partners in this day and age as you could find. How that helps you in your kind of go-to-market process of skip the evangelizing, but also what it can do for initial deal sizes.

Yeah, thanks, Matt. I would tell you that it has been game-changing for us. I mean, the two engagements that we signed with Palantir happened in real time. The Palantir guys walked us into two of the largest advertisers in the world, and literally we walked out with some of the largest test case and use cases we've ever had as a company based on the fact that they chose us to be their marketing platform partner. And if you listen to Alex's remarks yesterday, they are over-indexing on partnerships. One of the interesting things that I don't think people understand is that the Palantir relationship will be one of the biggest we've ever done because there isn't a boardroom today that doesn't know who they are and isn't interested in use cases that they can do with them. With us as their marketing partner, it's become an incredible entry point. And if you look at the number of customers they published just yesterday, that is the number of marketing opportunities we effectively have in partnership with them. Add into that the open AI relationship, which has been one of the biggest we've ever signed, and the snowflake evolution, we are seeing more at bats than ever. If you saw the 17% growth in super scaled customer count, that's not even the beginning of what we're going to be doing with these new partnerships. In the evolution from Zeta Who to Zeta Now, these are game changing, even when we're not in the room with the Palantir, OpenAI, and Snowflake people. When we're out there, we're coming into meetings now, and everybody is – the first thing I get is, wow, how did you get that deal done? And I have to say to them, which one? And we all laugh and sort of move on. But I think this is sort of, as they said in the movie Casablanca, the beginning of a beautiful friendship.

Yeah, but that's great. And then I think we touched on a little bit when you were talking about the ZBI and the different uses for data. But when you talked about how your platform is just currently being utilized for marketing, but it's not necessarily a marketing platform, how far do you think some of those adjacencies can go in terms of use cases? And have you seen within any of your larger customers any use cases that really made you think about product development?

Yeah, well, every day we're getting asked questions by our largest clients. Can you help us fix this problem or answer this question in a way that we've never thought of? And it's causing just an incredible amount of excitement. I think it's important to note that if you look at the first quarter of this year, we were super proud to announce that using our internal workflow management tool, Spade, we were able to literally automate 75% of all new code generated. If you look at the update, the actual number for Q2 was 89.6%. I think we rounded it to 90 in my prepared remarks. But this is changing the game for how we take interaction with clients and turn it into product development almost in real time. And if you look at this very large sports league that is using us, we were looking and we were in the room with them and their CMO and they're like, listen, how do we better negotiate our streaming rights with the two partnerships that are coming up for bid? And how can we equate viewership and mind share for their, they own multiple products, multiple leagues that are owned by one holding corporation. How do we help them to better show it's not just who's watching it in that moment, but it's the halo effect that comes for the broadcaster by having them on. And we were able to put together a solution in ours that came back and they believe will result in millions of dollars of incremental revenue to them on the renegotiation of those streaming contracts. So it then becomes a flywheel because then we get part of the marketing for those streaming rights. So it really becomes a major flywheel in and around the company, Matt. Thank you.

And we'll go to our next question from DJ Hines with Canaccord.

Hey, thank you, guys. Congrats on the nice quarter. David, maybe we can just follow up on the last point. I mean, ZBI and business intelligence is a massive category, right? I mean, you talk about getting pulled into this, and there's a lot of different directions you could take it. How do you think about formally productizing some of the use cases? How do you sequence which ones make sense first? Just high-level thoughts and kind of the multi-year playbook would be interesting as you think about building out that fourth use case.

Yeah, and obviously, as usual, great question, DJ. What we're seeing is that our data cloud is able to really help enterprises to make better decisions around certain things very, very quickly. We're seeing big examples inside of retail. What products should they be moving into retail? How do they use co-op dollars and marketing dollars to get better shelf space? And how to create deeper and more meaningful relationships with the end customer? So it starts with the business intelligence around a retail use case. you then end up identifying meaningful opportunities for them to move inventory around geographically, which retailers they should be doing more with, maybe which retailers they should invest less with. And then we end up being able to market to the end user to drive them into the retailer on behalf of the product and vice versa. So yes, we are seeing logical productization, much like we've talked about in the past, where, DJ, you've heard us say, yes, our platform can help almost any vertical, but the more industry expertise our salespeople have across the 15 verticals that we operate in, the better they can sell, the higher the sales productivity per rep, and so on and so forth. We're seeing multiple use cases by vertical that we're building into the ZBI, and every new request from every customer becomes productized immediately. And that goes back to the ability to do 90% of your new code on an automatically generated basis. So it's really building a very interesting flywheel as we're growing the ZBI, not just from a revenue perspective, because by definition, it's our fastest growing use case right now, because it was starting from a smaller number. but the reality is it's becoming products every moment of every day that we're adding them in from a client question perspective.

Yeah, very clear. And Chris, maybe a more tactical question for you. Look, obviously we're heading into U.S. midterm cycle. I'm just curious what you're seeing in terms of political advertising demand, how much visibility you have there today and kind of how that feeds into the guidance.

Well, from a guidance perspective, DJ, we've held to that consistent political candidate guide of 7 million in the third quarter and 8 million in the fourth quarter purposely because we wanted what to come through in the numbers was as the strength of the business unfolds in the actuals the raise is all tied to the strength of the core business as well the visibility is good in terms of we expect it to be very robust it comes into the pipeline pretty late because these can be programs that spin up quickly and we execute even more quickly we get paid ahead, which is nice. So it's good for free cash flow. But we're optimistic that the number we have in there is conservative. And we've got for the full year guide is maintaining our normal level of conservatism. So despite this being the largest raise of the year, 33 million revenue, it still maintains our normal two to 5% cushion.

I think it's also important to note, we raised revenue by 33 million, we raised free cash flow by 20 million. So you're seeing a disproportionate percentage of incremental revenue into this business at this point dropped to the bottom line. You saw 170 basis point increase in operating margin, and you saw a meaningful increase in free cash flow at 73% growth.

Yeah. Thank you, guys. Thanks, DJ.

And we'll move next to Ron Josie with Citi.

Hi, this is Jake Halleck on for Ron. Congrats on the gray quarter and thanks for taking my questions so my my first is on the open ai partnership so curious how how deeply is open ai integrated into athena and zeta's broader platform could you help us better understand the capabilities zeta brings to open ai's adsops and is there is there a direct revenue opportunity associated with either either side of that partnership?

Yeah, so that's three big questions, Jay. But let's start with OpenAI powers the voice component of Athena. No large language models ever see the data in our data cloud or our client's data. We keep all of that totally and completely safe. And now the data cloud is built on Foundry with Palantir's anthology. So you're looking at a really interesting use case. What does OpenAI bring to Athena? It personalizes Athena. So now Athena gets to know the user at the enterprise better and can begin to understand what questions they have before they even ask them and help them better navigate to outcomes instead of having to navigate a platform the entire way. As it relates to the integration to their ad platform, we are actively serving ads and it is a meaningful revenue opportunity. It is also scaling very, very quickly. I think it's also, as Chris pointed out, part of the conservatism we've put in going into the year where we really haven't included pretty much anything from either Palantir or OpenAI as it relates to our forward guidance. And, you know, next week we have a follow-up meeting with OpenAI. We've got 20 people in a room literally brainstorming what else can we do together. I think they consider us one of their most important enterprise partnerships, and we certainly look at them in the same way.

Thanks. That's so helpful. And I know it's a three-parter, but can I just sneak in one more here? You did appreciate the update on the 90% of new code generated through AI and Athena operating largely on in-house inference. Could you just touch on how those capabilities and that AI code is changing your product development speed?

It's just, I mean, accelerating it at a pace that I never thought humanly possible, Jay. When you look at the fact that, yes, we increased operating margin by 170 basis points, we added engineers in the quarter. We did not eliminate engineers in the quarter. So the fact that we're even able to add horsepower to that while simultaneously having 90% of all new code being auto-generated is pushing sales cycles, I'm sorry, pushing development cycles, I should say, to what would have been years at one point to what is now months and new products inside of the ZBI as we productize it to hours versus what could have been months in the past. I think when we get to Zeta Live on October 8th, we're going to have a massive unveiling that I'm incredibly excited about. That's a product offering that will continue to evolve Zeta as a company in a very meaningful way. And it's something that would have taken years that we're now going to be able to have done in months.

Thanks a lot, David. Appreciate the callers.

And our next question comes from Elizabeth Porter with Morgan Stanley. great thank you so much so i just want to do another follow-up on on zbi and how that's changing some of the market opportunity you know we used to talk about zeta having one percent of the marketing wallet but an opportunity to be closer to ten percent just as you're going kind of beyond marketing to the broader business intelligence how should we think about the wallet share that's up for grabs and that changes the zbi and just as a follow-up how should we think about the sales cycles as you expand from more of a CMO-focused product to just broader touch points across the organization?

Elizabeth, let me start by saying welcome back. We've missed you. You're welcome. From a ZBI perspective, and I want to be clear, we're still looking to get to 7% to 10% of our clients' marketing wallet share. That's not changing. We believe that we are on our path to building a $10 billion business with a 30% operating margin with the vast majority of that dropping to free cash flow on the marketing component of our business alone. When you look at the ZBI and the opportunity that it's opening, what we're seeing and what really happened, Elizabeth, is we started getting pulled in that direction by our clients at first. That then accelerated massively with the Palantir partnership, whereby putting our data cloud on top of Foundry and the ability to onboard seamlessly our clients' data in ways that we couldn't before and using their anthology in a way that we couldn't have done without Palantir as a partner, that's opened up this entire new use case from a productization perspective. I think we're going to look at two different sales cycles. I think we're going to have existing clients that are going to adapt or adopt the ZBI very quickly. Then I think we're going to have new clients that we're going to go out and get where you're going to start with the CIO or the CTO, and that could take a little longer. As you know, our normal product cycle is anywhere from 90 to 180 days. I think this will be very, you know, maybe start out on the longer end of that for new customers, but we'll start on the shorter end of that for existing customers. And quite frankly, we've seen much, much faster than that from an adoption perspective from existing customers who are adding ZBI as their third or fourth use case.

Does that make sense? that does thank you very much and I wanted to do a quick follow-up on Athena for agencies it sounds like you had a lot of high interest in France this summer so when we think about the base of agencies you know is there a certain proportion a proportion that's a good client base for Athena for agencies is there any sort of specific sub-segment or do you real think that most agencies could adopt Athena over time and what are you learning about the onboarding cycle that could potentially drive some faster penetration?

So to answer your question, I was shocked because I thought it would really start at the midsize agencies from an entry point perspective. We're actually seeing the larger agencies adopt it faster and at scale very, very quickly. It really changes the game for them from a navigation perspective and the ability to showcase for their customers our data cloud, and the ability to drive substantially higher return on marketing spend. As you know, Elizabeth, we always talk about sort of we deliver, according to Forrester, 600 to 700% return on marketing spend. We're seeing clients who are adopting Athena at substantially higher rates than that in partnership with a very large agency that adopted Athena and a very large airline, we're seeing that airline today at a 1,400% return on marketing spend post the agency bringing Athena in and us putting together the project together. So I actually thought it would be small to midsize. It's starting very, very large, and it's scaling, quite frankly, a little faster than we expected.

Great. And we'll move next to Arjun Bhatia with William Blair.

Perfect. Thank you. And I'll add my congrats on a great quarter. David, I'm going to start with you just on Palantir. It sounds like, obviously, you did the tech migration and you're on board on Palantir, but it also sounded like you're closing some deals already on the cross-sell. So, would be curious to hear just what that pipeline looks like into Palantir's commercial customers? And, you know, just as you look across different verticals, are there any inside that commercial base that get you more excited than others from an opportunity perspective?

Yeah, I'll be honest. I publicly said that I plan on doing the first 20 deals in partnership with Elias Davis, who's become a very good friend of mine, who's one of the top guys at Palantir, reports directly into Alex's office. And we've been going out. And I would tell you that if I put the numbers of the deals we're working to into our pipeline, it would artificially skew our pipeline up too much at this point. It is that big an opportunity. So I'm sort of working on it on an internal pipeline that I'm running in my own office at this point. I'm embarrassed to say I'm doing it inside of Claude. But the reality is that this is maybe the biggest opportunity we've ever had in front of us, certainly the biggest opportunity we've ever had from a partnership perspective. And as you know, we have 15 different verticals that we operate against. Not one of them is a massive concentration. So when I look at their client base, I started by saying, why don't we just start with the, you know, 20 customers who spend a billion dollars a year on marketing to consumers? And the list was so much longer than 20, we had to pare it back to start going out there and getting into it. The two deals we closed were at 100% hit rate, met with two, closed two. We've got some other very large ones in flight. And, you know, we see this as a meaningful and very large opportunity that, as Chris said, is not baked into the numbers just yet.

All right. That's great to hear. And then, Chris, maybe one for you, or I guess maybe for David also, but we'd love to hear sort of your updated thoughts on capital deployment with the new credit facility. And, you know, I think you pointed out M&A is obviously a potential use case, which you've been sort of consistent on, but I'm curious if there's any sort of change in the type of acquisitions or assets you're looking at in the market?

Chris pointed to me, so I'll answer it. What I would tell you is we are going to continue to focus on our five pillars of M&A. That is not going to change, although you can look at the fact that for us at this point, we have to continue to evolve the type of deals we've done or will do because some of the smaller deals we've done over the years just wouldn't move the needle for us at this point. I will tell you Arjun, you've heard me say this many times over years. I believe transformative M&A transforms both companies for the worse. So we are not looking to go do one like huge transformative deal. We will continue to do small to mid-sized deals where we're adding great human capital, great data sources, incredible products that our clients want to buy and clients that want to buy our products and so on and so forth. This does give us optionality around the buyback. It could cause us to accelerate it in the short run, depending on how the stock trades. But the reality is it puts us in a position that we have a lot of flexibility as a company. I mean, you can see the cash position is also very, very strong at the close of the quarter. And we're projecting, I'm pretty sure this will be a record free cash flow quarter for us, right? Yeah. So, you know, last quarter, you can do the math, we bought more than 50%, I think closer to 75 plus percent of our free cash flow and share repurchasing last quarter. We're going to continue to buy the stock back at these prices because we think we continue to be the best investment we can make with our free cash flow is purchasing back our existing your shares.

Right. Very helpful. Appreciate it, Carl. Thank you.

And we'll move next to Callie Valente with Goldman Sachs.

Hey, team. Thank you so much for taking the question. So, new AI products have generally taken a while to ramp in usage for many software companies. Are there a couple of key things you would point out that you think have made your customers adopt new AI tools faster than what we're seeing in the rest of the market?

First of all, Kelly, congratulations. Callie, I'm sorry, congratulations. We're super happy to have you covering us. Return on investment. I think one of the things you see in our business strategy is our ability to show a return on investment is second to none. Most AI products where you're making a large investment into whether it's infrastructure, software, or technology take years for enterprises to show return on investment. Our four use cases show massive return on investment. As we've talked about, our marketing use cases show a 6% to 700% return on marketing spend effectively day one. And if you look at the ZBI, we can't quantify it just yet, but we're giving real-time business decisioning that drives massive incremental profits into our clients in real time. So I think that's been one of the big differentiators for us versus companies that are out there selling, you know, very expensive technology that will take years to pay off.

Yes, that makes a lot of sense. Thank you. And then just one more from me. We're hearing more companies talk about headless architectures as Agenta kind of potentially disrupts the UI or traditional UI. How do you think about this in the context of Zeta? Like what makes sense for you? What wouldn't make sense for you?

I mean, listen, we've been no code for many years around here. So when you look at what they're talking about as it relates to headless, that's not something that I think we end up dealing with on either side. I don't think it becomes a competitive force for us, and I don't think it's something that we would move into quickly from our front. What we're really focused on is what percentage of our new code can we generate and make generally available to our clients. And we've gone from what was 75% to 90% in the first quarter of this year to the second quarter of this year. That puts us in a massive competitive advantage. As our competitors are trying to catch up to where we were a year, two years ago, we're already moving to where they won't be able to get for many, many years. And I think our no-code architecture has allowed us to do that.

Awesome. Thank you so much. And we'll take our next question from Terry Tillman with Truist Securities.

Hi, this is Luke Gradeson for Terry. Thanks for taking my questions. To start, considering the big strategic win with GATT, how is RFP activity? And what are you seeing in terms of large MarTech replacement cycles, potentially aiding revenue and business in the second half? We're helping enhance visibility into 2027.

Hey, thanks for the question. Just real quick, RFP activity is very strong. You heard about the pipeline stats that we shared. That's built into the greater than 60% year-over-year pipeline growth. I think it also speaks to how the average contract value in the pipeline is up because more of it is RFPs. I'll turn it quickly to David to talk about broadly what's driving that environment.

Yeah, I mean, we are right in the middle of what looks to be a marketing cloud replacement cycle. And Gap was a perfect example. Gap had been with one vendor, Salesforce, for quite some time. There were three other vendors that we displaced in addition to Salesforce to become the system of record inside of Gap. And when you look at these very large organizations, they don't want to use four, five, six different vendors, including a software provider, a professional services firm, activation platforms, data, CDP, all separate. These very large enterprises want next generation technology. And today, we are the only marketing cloud that has data and AI as native foundational to the application layer. So as other entities have to step out of their platform through API integration to use AI and then to get to the data sources and then back to the AI and then back to the platform, that latency destroys return on marketing spend. And our foundational platform can answer in a millisecond what other platforms can't answer at all, to be quite frank. So we're actually seeing RFP velocity go up, and we're seeing closing go up, as we saw in this quarter. And we have a record pipeline right now. It's by far the largest we've ever had. So I think we're very well positioned for where the market is and where it's going.

Great to hear. And if I could sneak one more in. Given the increased adoption with Sina and AI-enabled workflows, can you help us think about the puts and takes on gross margin performance in the back half of 2026?

Thank you.

The gross margin performance in the back half of the year is largely dependent upon mix. So we talked about how the second quarter came in where we expected, given where the direct mix was in the quarter of 72%. Where that efficiency plays in, by the way, not just in R&D, but also across G&A and in sales and marketing as well, is we saw in the second quarter, and we expect to continue to see very strong unit economics on our expense-to-revenue ratios. That showed up in very strong adjusted EBIT margin. We're continuing to see efficiencies in CapEx, which then obviously flowed through the higher free cash flow. And then the good work on dilution and on stock-based compensation generated the very positive gap net income.

Awesome. Great to hear. Thank you.

And we'll go next to Jack Nichols with KeyBank Capital Markets.

Hey, guys. Thank you for taking the question. David, maybe to start with you, how are you thinking about the opportunity for Athena's heavy users today, post-Foundary infrastructure pivot? And what does that mean for these heavy users on the new platform? And what's the biggest risk in the coming months during the transition to lift the move to Foundry?

Well, so to be clear, the transition's done. It's seamless to our clients. We re-architected the data cloud on top of it and adopted their anthology. So it is a massive benefit to answer your question. So when you look at Athena, at the top of our tech stack is now going to be Athena powered by OpenAI. She will then interact with the Zeta platform in addition to the data cloud. Every time the Zeta platform and the data cloud access data, it'll now be inside of Palantir's architecture, which moves extremely faster than the architecture we were working on before. So we'll be able to answer more questions smarter and faster. We'll be able to onboard new client data faster and with better orientation, which will allow for higher levels of intelligence faster. As you know, the longer a client has worked with us traditionally, the smarter the platform has gotten, the faster the return on investment. With Athena and Foundry, we're seeing that happen faster. Instead of taking years of managing questions, it can now take days to get to the same level of return on marketing spend and the same intelligence that used to take us years. And that, I think, is going to drive much faster adoption. And once again, heavy users had a 400 basis point higher net retention rate than our other clients for Athena today. I think you're going to see that number continue to evolve.

That makes a ton of sense. And maybe for Chris, what kind of usage trends of Athena are baked into the super-scaled ARPU growth to achieve the organic guide?

What we have line of sight to. So, and that, by the way, same is said for the partnership agreements. We talk about the multiple layers of conservatism. What we built in the guidance is what we signed already. So we're not leaning into anything on a go-get perspective on either AI adoption or newly signed partner agreements that are still yet to be closed in the pipeline.

Thank you.

And up next is Matt Bullock with Bank of America.

Great. Thanks. I appreciate you taking the question. I was hoping you could maybe put a finer point on what's working well in terms of driving improvements in sales rep productivity. And then can you help us think about the outlook for quota-carrying rep headcount for the remainder of the year to address the pipeline you talked about?

Yeah. So first off, OneZeta continues to be gaining speed. So we launched OneZeta, you know, call it 15-ish plus months ago. And we're starting to really see the benefit of our sellers attach more channels and more meaningfully more use cases into their deals. We talked about pipeline creation per rep being up around 100%. That's a big source of it. Also, you know, we're called six months now from acquiring Marigold. All the hard work on the integration has been done both within the, you know, within the GNA sales and marketing R&D structure. Now we're starting to see the benefits of the cross-sell and the up-sell activity, namely really around their loyalty products and selling Zetas, acquire and grow use cases in. So I feel like, you know, we're at a place where we've got the right tenure of reps, meaning the right balance between those are in their first 12 months, 12 to 24 months, and greater than 24 months, where the type of productivity we're seeing now can really continue to go throughout the year.

I also think our hyper-focusing by vertical, by salesperson, has really unlocked a massive opportunity. That was sort of an aha moment for us, Matt, where we start to see when we bring in people who have industry expertise in a vertical and they sell, their productivity goes through the roof.

Got it.

Thank you very much. and we'll go next to richard baldry with roth capital partners thanks you talk about in the generative engine optimization side do you think that's helping you win client wallet share or or is that dollar really sort of moving from one channel to another you know because we never did search engine optimization it's 100 upside to us rich so the the other thing we're finding is that new clients are really excited about that. And we're one of the very few companies that has an API integration into Claude, ChatGPT, and Gemini. So we're able to help across all of those platforms in real time through one GEO user interface. And then we're able to serve the marketing, obviously into Gemini and into OpenAI as a subset of that. So you're able to really move the flywheel in a way that I don't think others are able to do. I think new customers see that as a, quote, shiny new thing and think it's very exciting. And we're seeing existing customers adopt it as a part of their marketing strategy.

Actually, maybe you think about how fast moving those generative engine corporations are that you're partnering with and Palantir, you know, itself is a different use case, how fast that company is moving. You've really grown without adding a lot of headcount in recent years. Do you think there's a point at which to try to keep up to those opportunities, you need to, you know, add a bit more to the headcount to support the fast growth in those areas?

We're just not seeing that right now, Rich. We're seeing productivity in the company go up at a rate that I didn't think possible. Not only are we seeing, you know, as I said, 89.6, call it 90 percent of our new code generated. We did a really interesting deal this quarter where we signed one of the first sort of ubiquitous enterprise agreements with OpenAI, where all of our global employees now have access to all of OpenAI's products. And not only are we doing that, we're doing it in a way where the use cost for everybody is baked in. So we've got a use cost for everybody. If power users go over a certain amount of token usage, the platform actually refers to their manager to approve additional token utilization. I think as we're building productivity tools like that, we're seeing sales productivity explode. At the same time, we're seeing total AI cost for the company internally well under 1% of revenue, and we think that's something that's going to continue. So I spend a lot of time on this, as you know. I mean, I think we'll add headcount, but I think we'll add headcount at a slower pace than we grow revenue, and we'll continue to grow EBITDA and free cash flow at a much faster rate than we're growing revenue, if that makes sense.

Yeah, David, we've actually had a headcount just grown revenue much faster. And even though that AI-based usage is up across the company, unit costs for that AI are down almost 40%.

And that's because of the relationships we've been able to negotiate.

That's been a great quarter. Thanks, Rich. And I'm so proud of the team.

And we'll move next to Scott Berg with Needham.

Hi, everyone. Sure. I'll skip the 17 Palantir questions, move to something a little different, I guess. You're kidding, Scott. You don't want to talk about Palantir? Oh, I do. We'll speak on a plate coming up pretty soon, I'm sure, David. But my question is on your expansion opportunity, especially within your super-scaled customers. You know, the slide in your deck, in your presentation deck in the quarter, I thought was kind of interesting that you've been kind of range-bound on the ARPU for your super-scaled customers. over the last seven quarters. It's kind of bounced around from $1.6 million to $1.8 million, just kind of back and forth. We know you guys are doing a good job of expanding with some of your customers and trying to better understand that dynamic, I guess. Some of your new customers may be coming in with a slightly lower ARPU on that super scale level to just kind of balance that out, or is maybe the metrics not reflecting some maybe numbers or some expansion deals that we're maybe expecting in the back half of the year?

It's more the latter. And I'll go quick just so we can get other questions in. But there's a slide eight in our earnings supplemental. What's masking that, Scott, is that as new pilots and proof of concepts become super skilled, so they cross that one million threshold, they are still a distance from where are more mature, those super skilled customers that have been platform, call it two, three, four years, that have a ARPU that is four, five, six times greater than those that are in their kind of early part of the journey. So what you'll see on the slide is the average size in terms of ARPU of a customer that's been on the platform less than 12 months is $700K, as opposed to those that have been on the platform four more years, that's now approaching $4 million per. So we're actually seeing those super-skilled customers get bigger, become a bigger and bigger part of our overall revenue, and have a greater and greater share of our net revenue Any question?

I'll jump in the queue.

And we'll go next to Clark Wright with DA Davidson.

Awesome. Thank you. It was great to see better than expected organic growth results this quarter. How much of this growth is coming from continued success with agencies versus your direct enterprise sales motion?

I think it's really well spread out, Clark. We continue to see the agency business at approximately 20% of revenue, and we continue to see direct-to-wit enterprise at approximately 80% of revenue. So we haven't seen that skew meaningfully, but we're seeing meaningful and organic growth across both those components.

Awesome. Helpful. And then there was a sequential step down in direct platform revenue from 75% to 72%. What caused that this quarter, and is that something we should expect going forward to be at that level?

I was just about to add to David's answer. What drove that was new sales and expansions with agencies. In fact, just within this quarter, since we closed and within the timing of this earnings call, we closed and expanded with another very large holdco. And as you probably know, Clark, those newer agency signings tend to begin with social. And social as a channel grew very rapidly in the quarter again and drove the integrated platform revenue mix to be higher. And then as a byproduct of that, the direct platform mix to be at 72%. But it was where we expected based upon how we saw the pipeline. But it's driven by very strong agency adoption of social as the initial channel. Got it.

Thank you.

And we'll go next to Naved Khan with B. Riley Securities. Your line is open.

This is Ethan Wydell calling in for Naved. Thanks for taking my questions. To start, it's great to see that you've had a really strong uptake with Xena since making it generally available. But it sounds kind of like the costs haven't scaled at the same pace as usage. As usage does continue to scale, how should we maybe think about the way that cost scales Are token costs passed directly on to customers, or does usage become a cost of revenue consideration?

No, so I would tell you that we've done an agreement with OpenAI where we have a tremendous amount of visibility into our cost. And in this particular product, it's not focused on token utilization. So it's focused on a sort of a license for the product that is fully embedded into Athena. I feel very comfortable that we will be able to continue to keep our total AI cost well under 1% of our revenue while simultaneously growing revenues at obviously substantially faster paces than that, Ethan.

Understood. That's really helpful to hear. And then separately, so eight of your top 10 industries for over 20%. Can you maybe speak to how those areas are pacing so far in June and July?

I don't want to get first of all the performance within our quarter in Tukey was pretty linear and I would expect third quarter to be the same way I don't want to get into projecting third quarter but what I can tell you is the momentum that they have we talked about within eight of the ten and by the way one of those two that didn't grow over 20 was advocacy and and that obviously has a lot of tailwinds going into the second half of the year so I'd expect that to be one of those greater than 20s next quarter. But there were several of our industries that actually accelerated in their growth from a trailing 12-month basis ending the first quarter to where we ended in June. Those were consumer retail, financial services, automotive, and healthcare, all industries with, you know, obviously a lot of marketing spend behind them.

Obviously, we wouldn't have raised the quarter by $10 million if we didn't think we had a lot visibility into the quarter Ethan so I as Chris said we don't want to comment on one month but nothing that happened in July would lead us to believe that we shouldn't have raised the quarter in the year as much as we did or we would not have done that if that makes sense understood yeah that's helpful thank you for the color and congrats on the strong results thank you so much and that concludes our Q&A session today I'll turn the conference back to David Steinberg for closing remarks. I just wanted to close on how incredibly proud I am of the Zeta team. To be able to continue to execute 20 for 20, 20 quarters as a public company, 20 quarters beating and raising, to continue to execute over that period of time with that level of excellence, to continue to see accelerated sales growth, to be able to do partnerships with three of the world's most important companies within just a few months. If you had told me a few years ago that we would be in a position to announce partnerships like OpenAI, Palantir, and Snowflake, I would have been blown away by that alone. That shows what's happened to Zeta as a brand because none of them would have trusted us if they didn't trust our brand and they didn't trust our business. So thank you again to all of our Zeta people, to all of our clients, and especially to our partners. We appreciate everything that you guys are doing for us and with us as a company. Have a nice day, everybody.

And that concludes today's call. Thank you for your participation. You may now disconnect.