Earnings Call Transcript - ZETA Q4 2025

Operator, Operator

Greetings and welcome to the Zeta Q4 2025 Earnings Conference Call. Please note this conference is being recorded. I will now hand it over to your host, Matt Pfau. Thank you. You may begin.

Matthew Pfau, Host

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's Fourth Quarter 2025 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; 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 discussions 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.

David Steinberg, CEO

Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. We delivered our 18th consecutive beat and raise quarter. And I want to be clear about why this keeps happening. It is not a single product cycle or a favorable compare. It is the compounding effect of a system, proprietary data that improves with every customer interaction, intelligence that sharpens with every decision and now an interface in Athena that lowers the barriers to enterprise-wide adoption. The flywheel is what drives durable, predictable and profitable growth. Fourth quarter revenue was $395 million, up 28% year-over-year excluding acquisition and political candidate revenue, an acceleration from the third quarter. Adjusted EBITDA was $95.1 million, up 35% year-over-year, and we had positive GAAP earnings. With these multiyear rates of revenue growth, we are taking market share. This evidence supports Zeta as the AI disruptor in marketing. After providing initial 2026 outlook that was already ahead of consensus, we are once again raising the midpoint of our 2026 revenue guidance by $25 million to $1.755 billion, reflecting year-over-year growth of 35%. Our momentum is driven by the AI shift from feature to infrastructure across the enterprise, and Zeta is built for this transformation. Our AI investments, which began 8 years ago, are yielding better and better results. Marketers are recognizing the strong return on investment delivered by Zeta and increasingly view us as a revenue center for their business, not a cost center. A recent Total Economic Impact study by Forrester confirmed a 600% return on ad spend, which we believe is contributing to the wallet share gains from our competitors in an already quickly growing market segment. This is a reflection of what happens when proprietary data, intelligence, and activation work as one operating system, not three separate tools. Zeta is our client's marketing operating system, and we expect these returns to grow as our AI capabilities advance and Athena fully launches. The impact is already visible in our performance. Net revenue retention hit a record high of 120% in 2025, up from 114% in 2024. And RFP volume more than doubled year-over-year to a new record. Customers are spending more and new prospects are showing up faster, both signals of the same thing, the Zeta operating system is working, and working at scale. Building on this momentum, at Zeta Live last October, we introduced Athena, our super intelligent agent built specifically for enterprise marketing. And since then, the pace of interest, engagement and opportunity has continued to increase. At CES last month, Athena had a significant presence and customer engagement was exceptional. Feedback was overwhelmingly positive, with customers consistently recognizing that Athena represents a fundamentally new way of working. Early Athena users are reporting significant time savings in segmentation, production, analysis and substantially better return on investment. This is the kind of workflow transformation that drives deeper platform adoption and greater utilization. Athena enhances the Zeta Marketing Platform, which is an intelligent operating system for growth, one that can listen, reason and act on behalf of marketers in real time. We are very encouraged by this early customer feedback and remain on track to make Athena generally available by the end of the first quarter. At CES, we also announced our partnership with OpenAI. We view large language models much like cloud infrastructure, foundational technologies that enable innovation with real differentiation coming from the tools, workflows, data and operating systems built on top. Our partnership makes OpenAI's technology foundational to Athena, but powerful models are only part of the equation. AI is only as effective as the data that fuels it. As personalization moves to true one-to-one, identity and intent become critical. That's where Zeta SuperGraph comes in, a proprietary deterministic identity and relationship graph within our Data Cloud that unifies data across multiple sources. This SuperGraph creates a moat that widens with every improvement in AI models across the market. Built over the past decade, Zeta SuperGraph operates at scale across more than 245 million U.S. adults and 535 million globally, with more than 1 trillion signals, the vast majority of which are available only to Zeta. As AI demands higher quality deterministic data to deliver real personalization, this asset becomes more valuable, not less. Our AI and data advantage also helped to fuel One Zeta. One Zeta is no longer just a strategy. It is a repeatable sales model. In the fourth quarter, the number of scaled customers using more than one use case was up over 80% year-over-year, and the opportunity in front of us continues to expand. Today, we serve 51 of the Fortune 100, up from just 44 a year ago and over 120 of the Fortune 500. Collectively, these clients alone represent well over $100 billion in annual marketing spend, significantly expanding the long-term One Zeta opportunity. Athena further amplifies this strategy by removing the friction across the Zeta Marketing Platform, making it easier for customers to adopt, expand and scale multiple use cases. And as I will discuss in a moment, the Marigold acquisition adds another important accelerant to One Zeta by expanding the data, use cases and value we can deliver to customers. Taken together, the combination of our AI leadership, the continued maturation of One Zeta and the momentum coming out of Zeta Live and CES, these are reinforcing our powerful growth flywheel. This momentum pushed our pipeline to record levels coming out of Zeta Live, and we have already closed $39 million of business directly attributable to the event, putting us well on our way to our goal of $100 million total. I will close with an update on Marigold. The integration is progressing well, and we continue to anticipate Marigold being accretive to free cash flow and adjusted EBITDA in year 1. We are actively engaging with Marigold's enterprise clients through a One Zeta lens, identifying opportunities to add value, expand use cases and deepen those relationships over time. We are also seeing strong interest from Zeta customers in adopting Marigold's loyalty product. As I reflect on what Zeta accomplished in 2025, I am incredibly proud of this team. We exceeded our initial revenue guidance by 5% and our free cash flow guidance by 27%. We expanded existing partnerships and forged new ones, increasing our leadership in the marketing ecosystem. And we developed the most important product in our company's history with Athena. Together, we expect these achievements to extend Zeta's position as the defining AI disruptor in the marketing ecosystem. As always, I would sincerely like to thank our customers, our partners, team Zeta and all of our shareholders for the ongoing support of our vision. Now let me turn it over to Chris to discuss our results in greater detail.

Christopher Greiner, CFO

Thank you, David, and good afternoon, everyone. Our results once again demonstrate the durability, predictability and profitability of Zeta's growth, which we expect to continue as seen in our increased 2026 guidance. Revenue growth, excluding LiveIntent, Marigold and political candidate revenue was 28.2% in the fourth quarter, up from 28.0% in Q3 and up from 27.4% in Q2 and 25.9% in Q1. And 2025 was the sixth straight year in which revenue grew greater than 20%, underscoring the durability of our growth and the sustained market share gains we are taking. Results once again exceeded guidance. And just 2 months into the year, we are raising our 2026 outlook, reflecting the visibility and predictability of our business. For the full year 2025, we expanded adjusted EBITDA margins by over 200 basis points, achieved the highest free cash flow margin in our history, generated $199 million in net cash provided by operating activities and turned GAAP net income positive in Q4, demonstrating the profitability of our growth. Now I'll discuss our results in more detail. In Q4, we delivered revenue of $395 million, exceeding the midpoint of guidance by $14 million or 4 percentage points higher than our forecast, solidly within the 2 to 5 points of cushion we typically leave ourselves. The full year's revenue was $1.305 billion, up 30% year-over-year or 27% when excluding LiveIntent, Marigold and prior year political candidate revenue. This exceeded the midpoint of our initial 2025 guidance by $65 million or 5%. Our platform is relied upon across virtually all industry verticals. For the first time as a public company, 9 out of our top 10 verticals in 2025 grew over 20% year-to-year, quite a testament to our broad-based leadership. Some of our fastest-growing verticals in 2025 were travel and hospitality up 105%, advertising and marketing up 70%, automotive up 60% and consumer retail up 46%. And worth noting, health care, an area of new investment, grew over 20% and is showing strong momentum. Total scale of customer count grew to 602, up 14% year-over-year and an addition of 30 customers sequentially. We ended the quarter with 184 super-scaled customers, up 24% year-over-year, well above our target of 4% to 8%. Super-scaled customer additions were broad-based across industry verticals, including travel and hospitality, services, technology, media, and consumer retail and were driven by continued momentum from our One Zeta initiative. Scaled customer quarterly ARPU of $625,000 increased 8% year-over-year and over 15% when normalizing for political candidate revenue in the year-ago period. Super-scaled customer quarterly ARPU of $1.8 million was up 5% year-over-year and also up mid-teens when normalizing for political candidate revenue last year. Both growth rates are in line with our ARPU target of 12% to 16%. Now I want to turn the focus on the importance of super-scaled customers for a moment. Since our IPO, Zeta's growth has been fueled by super-scaled customers whose spend has grown to represent a larger and larger portion of total revenue. Back in 2020, customers spending at least $1 million annually represented approximately 70% of total revenue. By 2025, that figure is now approaching 90%. And over that same period, more than 90% of total revenue growth has come from the at least $1 million super-scaled customer cohort. This dynamic is leading to a natural evolution in the reporting of KPIs. In 2026, we will exclusively focus quarterly reporting on super-scaled customer count and ARPU. In many ways, today's $1 million-plus customer is 2020's $100,000 customer. In fact, one could imagine a new cohort of $10 million-plus customers emerging down the road. The growth and prominence of super-scaled customers is by design. It reflects how we manage the business internally, shows the efficacy of our land, expand, extend, hunter-farmer sales motion, along with the power of One Zeta working in unison. Our customer-centric flywheel propels the progression from pilot to broad-based platform adoption, powering our very strong net revenue retention rates. First, we allow customers to start small with pilots and proof of concepts ranging from $50,000 to $150,000, which can begin with Zeta Data usage, a CDP or channel activation. Second, we provide these pilot customers with transparency into measurement and ROI. Third, our software and AI learn from past programs and form recommendations to continuously improve return on ad spend, which all leads to creating new audiences, adding more channels and branching into new use cases, each incremental to ARPU. This is best brought to life by Slide 10 in our earnings supplemental. Customers on the platform in their first year quickly scaled to $709,000 in 2025, representing 111 scaled customers or 6% of total revenue. These customers often start with 1 channel and 1 use case. Customers on the platform in years 1 to 3 spent an average of $1.1 million in 2025, representing 217 scaled customers or 19% of revenue. These customers begin to scale beyond 1 channel but remain generally on 1 use case. Customers in years 3 through 5 spent an average of $2.1 million in 2025, representing 65 scaled customers or 11% of revenue. Customers in this cohort are moving into omnichannel experiences. And lastly, customers on the platform 5 or more years, the earliest adopters of the ZMP spent an average of $3.9 million in 2025, representing 209 customers or 64% of total revenue. This cohort makes up the largest percentage of revenue and the fastest-growing ARPU, up 39% year-to-year. Shifting to revenue mix, direct revenue in the fourth quarter was 74%, in line with the year-ago quarter and our target of 70% to 75%. Our GAAP cost of revenue in the quarter was 40.4%, a 50-basis point increase year-over-year and 100 basis points sequentially. The increase in cost of revenue was driven by strong sequential and year-over-year growth in social and connected TV. In the fourth quarter, we generated $95.1 million of adjusted EBITDA at a margin of 24.1%, 174 basis points higher year-over-year and $4 million better than the midpoint of our guidance. This marks the 20th straight quarter of expanding adjusted EBITDA margins year-over-year. For 2025, adjusted EBITDA was $279 million, representing a margin of 21.4% and a 44% year-over-year increase. We also generated positive GAAP net income. For the fourth quarter, our GAAP net income was $6.5 million, an improvement from a net loss of $3.6 million last quarter. Fourth quarter net cash provided by operating activities was $64.1 million, up 47% year-over-year, with free cash flow of $55.8 million, up 76% year-over-year and representing a margin of 14%. This represents a free cash flow conversion of 59%, a significant improvement from 45% in the fourth quarter of 2024. The improvement in both adjusted EBITDA margin and free cash flow margin conversion in the fourth quarter exhibits the strong operating leverage of our model, which we believe puts us firmly on track to achieve our Investor Day target of a 30% plus adjusted EBITDA margin and greater than 70% free cash flow conversion in 2030. For 2025, our free cash flow was $165 million, a margin of 12.6% and up 78% year-over-year. During the fourth quarter, we repurchased 1.9 million shares for $35 million. For the full year 2025, we repurchased 7.9 million shares for $120 million. Since January 1, 2026, and up until mid-February, we have repurchased an additional 1.5 million shares for $25 million and have roughly $139 million remaining on our share repurchase authorization. We expect to remain active buyers of our stock, especially at these levels. We continue to make significant progress in reducing dilution and stock-based compensation expense, just as we said we would. We ended 2025 at the low end of our guidance range with total net dilution of 4.3% or 2.2% excluding Marigold. Additionally, we improved the ratio of stock-based compensation to revenue from 19% in 2024 to 14% in 2025. We remain on track to achieve our normal course 3% to 4% net dilution target in 2026. Now on to guidance. We are raising first quarter and full-year revenue, adjusted EBITDA and free cash flow guidance. Details can be found starting on Slide 19 in our earnings supplemental. But before discussing the numbers, I'd like to highlight a few key aspects of our business model. First, our revenue is tied to the volume of decisions made, not seats, whether those decisions are made by a human or an agent. This foundation and flexibility to adapt to the rapid pace of AI innovation provide durability to Zeta's growth. Second, strong pipeline visibility and sales productivity support our confidence in the year ahead, and we continue to guide with planned conservatism of 2% to 5%. Lastly, as we integrate Marigold, we expect to realize further operating leverage. For the full year 2026, we are increasing the midpoint of revenue guidance by $25 million to $1.755 billion, representing a 35% growth rate or 21% year-over-year when excluding Marigold and political candidate revenue. None of our guidance raise 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 at least $190 million in 2026 revenue. Our revenue guidance includes minimal contribution from Athena-driven revenue with its broad-based adoption representing incremental consumption revenue upside. For the first quarter, we now expect revenue of $370 million at the midpoint, $8 million higher than our previous guidance and representing year-over-year growth of 40% or 22% when excluding political candidate and Marigold revenue. The linearity of revenue spans each quarter of the year aligns with historical averages, so there is no front or back-end loading of revenues or growth rates. For adjusted EBITDA, we are increasing the midpoint of our 2026 guidance to $391 million, up $6 million from our prior guidance and representing a year-over-year increase of 40% at a margin of 22.3% and an improvement of 92 basis points over 2025. For the first quarter of 2026, we now expect adjusted EBITDA of $61.5 million at the midpoint, up from our previous expectation of $60 million and representing growth of 32% and a margin of 16.6%. We are also increasing the midpoint of our 2026 free cash flow guidance to $231 million, up $7 million from our previous guidance and representing year-over-year growth of 40% at a conversion of 59% of adjusted EBITDA, which likely has upside. Additionally, we believe our fourth quarter positive net income on a GAAP basis represents an inflection point, and we expect to generate positive GAAP net income for the full year of 2026, a significant milestone for the company. Today, we would also like to provide updated Zeta 2028 targets to account for the acquisition of Marigold. We're raising our revenue target from $2.1 billion to $2.3 billion, representing a CAGR of 23%. We are also increasing adjusted EBITDA target to $573 million, which implies a margin of 25% and a free cash flow target of $371 million, which implies an adjusted EBITDA conversion of 65%. I'll conclude with this. In environments like today, it is more important than ever to control the controllable. For us, this boils down to hiring and retaining the industry's best talent. This is how you continue to lead. Delivering customer outcomes with unmatched industry ROIs. This is how you garner loyalty, generate best-in-class retention rates and win market share while doing what we say we're going to do for investors. This is how you earn trust and show durable, predictable and profitable growth. Now let me hand the call back over to the operator for David and me to take your questions.

Operator, Operator

And our first question will come from Terry Tillman with Truist Securities.

Terrell Tillman, Analyst

I had a question and a follow-up. I must ask about Athena. And again, I know that it's not generally available yet, but when you all put out a press release a while back, it did actually have a customer already quoted in there, which I thought was interesting. But you talked about a couple of agents at that point, Insights and Adviser. Can you remind us, is there going to be kind of a whole slew of agents that you will release? Or are these going to be the 2 primary ones and is there a monetization structure around that? And the last part of this Athena long-winded question is, with the business that you've signed year-to-date, has it had an influence in some of these deals getting across the line, even if you're not monetizing? And then I had a follow-up.

David Steinberg, CEO

So thank you, Terry. Let me start by saying that those 2 agents are first because they will drive probably the greatest benefit to our customers. So when you think about Athena and large language models and how we are using them to win in the marketplace, today, the Zeta Marketing Platform is like a 747. Most of our clients know how to fly a Cessna. The beauty of Athena is the ability to fly the entire 747 just by narrating and speaking to Athena, who can automatically do it. So to answer your question, these will be the first 2 agents. We will have it generally available by the end of this quarter. We have a number of clients as early users today. The initial feedback has been, it is game-changing from a workflow management perspective, and it is driving substantially higher return on investment than the existing 600% return on ad spend that the platform is generating. As we roll out additional agent functionality built into Athena, she will be one agent, but with different feature sets, if you know what I'm saying. It won't be different agents sitting under her. Everything will be driven by Athena. We're going to continue to drive out functionality based on things that we believe will drive the highest utilization rates, and the highest move to One Zeta. I think you'll see that really start very quickly out of the gate soon.

Terrell Tillman, Analyst

It's great to hear. Chris, as a follow-up, you presented the idea of maintaining that 2 to 5-point cushion well. However, I think for the year, you've mentioned your top 5 spending categories. Could you share your assumptions for the rest of the year regarding these top 5 categories, especially in terms of conservatism with sectors like consumer retail and travel and hospitality?

Christopher Greiner, CFO

Yes, Terry. What we discovered is that the verticals closest to consumer discretionary have consistently been our top performers throughout the year. This is notable because it's the first time in our history that 9 out of our top 10 verticals, based on the trailing 12 months and not just cherry-picking a specific quarter, have grown over 20%. Our guidance does not account for that level of growth; we are projecting closer to half of that, which is below our historical averages. Additionally, I encourage you to consider our conservative approach in our guidance, which includes a 2 to 5 point cushion. We also maintain a conservative estimate for political candidate revenue at $15 million in our guidance, and none of the increase we announced reflects a change in this assumption. We remain cautious about Marigold as well. As David mentioned, if we see strong continued adoption of Athena, which has shown to drive increased ARPUs and usage, we're currently estimating minimal contribution in our guidance. Therefore, that could provide additional upside. Overall, I believe we have a well-managed and de-risked outlook as we begin the year.

Operator, Operator

We'll go next to Zach Cummins with B. Riley Securities.

Zach Cummins, Analyst

Congrats on the strong end of the year. David, I just wanted to ask about the deals that you've already closed coming out of Zeta Live, I think almost nearly $40 million in business. I mean any particular trend that you can highlight, whether it's customers in a particular vertical or a particular solution set that's driving the early momentum. And then just curious on how you're thinking about that continued progression through those pipeline opportunities in the coming quarters?

David Steinberg, CEO

The one consistent thing, Zach, is they all really love The Chainsmokers. No, in all seriousness, it was across multiple verticals. We saw a very big win in telecom, which I think will continue to get bigger. But I would tell you that the $39 million is sort of a just getting started number, and it was really amplified by the Consumer Electronics Show. I've been running this company now for just over 18 years, and I have never experienced the type of experience we had at the Consumer Electronics Show this year. It was everybody knew who we were, the move from Zeta who to why Zeta to Zeta now has really begun to take shape. And when you look at a 600% return on investment, you're really seeing us as the AI disruptor in the marketing space. As I say, we are the disruptor, not the disruptee in this space. And I think that first $40 million against what I think will be over $100 million. Now of course, I've got to make sure I get Chris comfortable with that as we look at what we're going to spend on this year's Zeta Live, which might be a bit more than last year, we have some really cool stuff planned. But the company is really re-architecting to make the vast majority of our annual time, energy and capital investment as it relates to events, not all, but the vast majority around the Consumer Electronics Show, the possible conference, Cannes Lion, and Zeta Live. I think that if you look at our record pipeline in addition to what is at this point, a bit conservative, I think you're going to see us continue to win in the marketplace.

Christopher Greiner, CFO

Exactly. What's interesting about that Zeta Live pipeline, with the $40 million that's already been closed, there's still another 200 distinct opportunities tied just to Zeta Live valued at over $130 million in the pipeline to get that extra $60 million from. So as David said, that's looking like a very achievable number.

Zach Cummins, Analyst

Understood. And my one follow-up, Chris, is just around the gross margin numbers that we saw in Q4. Any one-time impacts here in the fourth quarter? And now with Marigold in place, how should we think about the right gross margin expectation through 2026?

Christopher Greiner, CFO

Yes. Look, I even zoom out a little bit more, Zach. When you look at our 2028 model, each year, we should be getting between 100 and 300 basis points of gross margin improvement. Marigold is a tailwind to that. When you look at the fourth quarter's gross margin profile, you had our integrated platform revenue growing 25% as well as our direct revenue mix growing 25% year-over-year. We had very strong channel quarters in social and very strong channel quarter in connected TV, both of those below the overall corporate average, but good indications for multichannel, omnichannel usage.

Zach Cummins, Analyst

Understood. Best of luck with the rest of the quarter.

Christopher Greiner, CFO

Thanks, Zach.

Operator, Operator

Our next question comes from Jason Kreyer with Craig-Hallum Capital Group.

Jason Kreyer, Analyst

Congrats on 18%. I'm excited to hear about 19% next quarter. Wanted to just ask the evolution on One Zeta. I think you're integrating some of that sales functionality into Athena. So what does that mean for customers? Or what does that mean for the cross-sell experience when you combine One Zeta with Athena?

David Steinberg, CEO

Let me start by saying thank you, Jason. Appreciate it. Our goal, as always, when we start a year is to finish the year with 4 additional beat-and-raise quarters by the end of the year. So we're at 18%. Our hope is to be sitting here with you guys next year talking about 22%. The number of enterprise clients that use more than one use case in the fourth quarter of 2025 was up 80%. That's 80%. And that is a massive testament to One Zeta. You're seeing the team headed by Ed See and of course, Steve Gerber, that are really, really getting traction here. Now that's before the next level of uplift, which will come from Athena. So I think that as you see customers moving from one use case to multiple use cases around the One Zeta strategy, to remind you, we see an average of a 200% to 300% revenue uplift from those clients from the past. Now I don't know if every client is going to do that going forward, but we do continue to see a meaningfully higher spend from customers who are moving from one use case to two. I think also one of the things I was most proud of last year. And this was not a cherry-picked quarter. For 2025, our net retention rate was 120%, and I was always happy at the 110% to 115%. So when you look at 120%, that means that One Zeta is really working, and our clients are scaling very, very quickly. Chris?

Christopher Greiner, CFO

Yes, David, you said it perfectly. If you look at the total percentage of scaled customers, Jason, that are now on more than one use case, we're almost at 25% compared to, call it, 13% a year ago. So just really exciting progress made this year.

Jason Kreyer, Analyst

Awesome. Appreciate that. One follow-up for me on Marigold. So now that you got that closed, curious what the international expansion plan looks like and how you go after international from kind of a pull versus push mentality?

David Steinberg, CEO

Yes. I mean what we're seeing now, Jason, is international is really happening very naturally, as our clients are mostly multinational enterprises. The addition of the Marigold international assets should accelerate that, but at the same time, I want to point out, the vast majority of our revenue is in the United States. This is the largest advertising market in the world by dollars and we are taking meaningful market share. Last year, the average growth rate of the marketing ecosystem was about 10%. We grew 30%. So as we are disrupting the marketplace, we're taking greater market share in the United States, and we're seeing a natural progression and a very nice growth rate internationally, which is a reverse from prior years where we had struggled there. So I'm hopeful for international, but I would tell you that we certainly are not projecting it to be a massive component of this business for many years to come.

Operator, Operator

We'll go next to Arjun Bhatia with William Blair.

Arjun Bhatia, Analyst

Congrats on a strong Q4 here. Maybe I'll continue on the kind of Athena line of questioning. David, you're clearly having success already with One Zeta, right? The rise in multi-use case customers is increasing. I'm curious, just as you think about '26, is it possible that Athena can have a meaningful impact this year? Or does it take customers some time to kind of use it and ramp up on additional use cases? Like how are you thinking about the timing of when the sort of indirect revenue impact of Athena might come through?

David Steinberg, CEO

I think it could be 2026. We're not counting on it, and we have not put that into our projections. And certainly, you don't know. But what I can tell you is if you look at the early access clients, they are spending materially more with Athena than they were without her. They are telling us that they're seeing a game-changing workflow environment, which is great, and they are seeing a substantially higher return on investment, which at the end of the day, when you think of our biggest moats as a company, data is number one. Number two is our ability to drive superior return on investment, call it, right now, 600% return on ad spend. The ability to work with very large enterprises through their data security group, their data privacy groups, their legal groups, procurement groups, so on and so forth. I think Athena helps us continue to drive greater return on investment both from a workflow management perspective and from a return on ad spend, which will cause our clients to drive even more of their existing marketing dollars to us.

Arjun Bhatia, Analyst

All right. Perfect. That's helpful. And then Chris, one for you. In the back half of '25, you kind of ended the year on a strong note in terms of profitability GAAP profitability, GAAP net income and in Q4 you had kind of net income positive as well. How are you thinking about how that shapes up in 2026? And what does that sort of imply for stock comp outlook next year and beyond?

Christopher Greiner, CFO

Yes. Thanks, Arjun. It was an area that we had just very constructive investor feedback that was important for the company to make strides towards that goal, turning the corner this year in 2025 towards positive and then seeing ourselves kind of this being now an inflection point. I think it from a GAAP EPS perspective, call it $0.02 to $0.04 in that range. There's upside to that and obviously depends on a number of factors. But when you think about the ingredients that went into that inflection point and turning positive, it was progress on dilution, it was progress on stock-based compensation and then more and more yield off of adjusted EBITDA dropping to free cash flow. So we're really excited about that being a turning point, and it's onward and upward from here.

David Steinberg, CEO

And we expect to be net income positive this calendar year forward.

Operator, Operator

Our next question comes from DJ Hynes with Canaccord Genuity.

David Hynes, Analyst

Congrats on the excellent quarter. David, I want to ask about the OpenAI partnership. I think you quoted saying, this is going to be the most instrumental partnership we've ever embarked upon. As you look out over multiple years, like can you see the potential for how that relationship may evolve over time? Like what excites you the most about that opportunity?

David Steinberg, CEO

Well, first of all, they're an incredible team. I'm sorry, I'm getting feedback. Can you hear me, DJ?

David Hynes, Analyst

I can hear you, yes.

David Steinberg, CEO

Right. So what I would say is, first of all, OpenAI is an unbelievable organization. When we think about the large language models, we think about them much like we would think about AWS or Snowflake, where they are all at some point going to be a part of our stack. In fact, we work with most all of them, if not all, already. The partnership with OpenAI is different because it's foundational to Athena. We're also working with them on other components of their business where we are actively talking about doing things to help them with their business while we are talking about them doing more things to help us with our business. So I was really referring to sort of the organizational partnership when I was talking about how I think this will be one of the most important partnerships we've ever made. As we're looking at Athena, so once again, this whole narrative that large language models are going to disintermediate enterprise software, in our opinion, is silly. We think that large language models are going to be a component of what we do. Of course, we will pay them for their products and services. At the same time, they'll drive efficiency and accelerated revenue growth into our business, which will more than make up for that. And when you think about what we're doing here, the whole goal is to get our clients to be able to more seamlessly use our platform, drive higher return on investment and make easier workflows for them around flying a 747, which is our platform versus the Cessna they currently know how to fly. OpenAI being foundational to Athena is helping us do that, and helping us do that in a very impactful and very meaningful way. Does that make sense, DJ?

David Hynes, Analyst

It does make sense, yes. Maybe a follow-up on the data side. I'm curious, does the ability for Disqus to collect data or intent signals change in any way with the emergence of AI answer engines? I'm just feeling like people are landing less on owned media and now just reading more summaries. Have you seen any change in the volume of comments or authenticated site visits? And does that impact your ability to collect data at all?

David Steinberg, CEO

So it's a great question. The answer is no. We have not seen any of that. In fact, because right now, the publishers, a lot of them have a challenge, right? If you look at Google, by way of example, it used to be that 90-plus percent of all queries were directed off to a publisher, a brand or an e-commerce platform. Today, according to them, greater than 60% of all queries are being answered on their platform. That's creating a massive tailwind for Zeta. First, it is massively driving up the cost per click, which is driving advertisers to look for new methodologies for cost-efficient management of their marketing. Second, we're seeing that publishers are more anxious for traffic than ever before. If you look at our e-mail platform around LiveIntent and other things we're doing, we are one of the biggest drivers of traffic and then you put Sailthru in, which was one of the assets we acquired through Marigold, which is one of the larger ESPs for publishers, our Publisher Cloud is driving massive volume of traffic back to publishers at a time when they need it, and we're helping to monetize them as a part of it. So even though they're seeing less traffic today, DJ, from Google directly, we're actually helping them to drive incremental traffic. I'll also remind you that Disqus is one of, call it, 20 different platforms we now control that are generating real-time signals on a day-by-day, moment-by-moment basis. To date, we have not seen any fall off there.

Operator, Operator

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

Richard Baldry, Analyst

It looks like quota carriers are up about 10% sequentially. I assume some of that has to do with the Marigold acquisition. Can you talk about any cross-training efforts that are needed and how we should think about more additions to the quota carriers throughout the year ahead?

Christopher Greiner, CFO

Yes, Rich, we added, call it, 15-ish in that range from Marigold in terms of quota carriers sequentially. So you're right, that was a driver there. I'll let David take the next one.

David Steinberg, CEO

Yes. What we're doing, Rich, is we're sort of teaming their salespeople up with ours. So rather than taking all of the time to train them on everything we're doing, for their clients, we've sort of segmented it to the top 30, which are, I'm pretty sure, all Fortune 500 companies. The reality is that we're going in and seeing really interesting cross-sell opportunities already because of that.

Richard Baldry, Analyst

Got it. And lastly maybe sort of will be gentle and call it an unusual environment for software valuations. So I'm sort of curious, your own internal preferences to allocate capital between either M&A because you've done some meaningful strategic M&A versus buybacks over sort of the near term, intermediate term?

David Steinberg, CEO

Yes. We are rapidly buying back stock, with approximately $130 million remaining in our current buyback program. Once that is completed, we will likely announce a new one. Historically, each buyback we have announced has been more than 100% larger than the previous one. At present, we believe the best use of our capital is to repurchase shares. We've been in business for 18 years, having completed 18 acquisitions and achieved positive growth for 18 consecutive quarters. We are considering a 19th acquisition, as this is a favorable time to acquire high-quality assets at lower prices. Our balance sheet is strong, we have ample cash, and we are generating significant free cash flow at nearly a 60% conversion rate from cash to EBITDA. We expect this to continue increasing. Our debt is minimal, with a debt ratio sitting at zero. While nothing specific is currently planned, we are focused on operating our business. We have provided guidance for a 40% growth rate in the first quarter and a 35% growth rate for the year, and we feel we are in a strong position.

Christopher Greiner, CFO

Rich, we've really stepped up the repurchase program in '25. And as David said, especially at these levels, I would expect it to sustain. As a percentage of free cash flow, we did 45% repurchase to free cash flow ratio in 2024. We did 73% in 2025. So our model has always been at least 50% of the free cash flow we generate. But as David said, we're going to be aggressive in this environment.

David Steinberg, CEO

And Rich, I don't know if you've been able to dig out of the snow but just to show the nimbleness of our organization, I woke up in Los Angeles yesterday with a 50% probability of going to New York to do our earnings, a 50% probability of the team coming to L.A. to do earnings, and we are now all in Miami doing our earnings because it was the only place we could all get to. So we tend to be on the more nimble side as it relates to this stuff.

Richard Baldry, Analyst

Got it. Maybe one last one for me. The net retention number of $120 million was a pretty strong number. To keep it a little bit apart, was it more driven by volume usage or the number of use cases sort of climbing? And a little struck that it's that strong ahead of Athena being GA because it seems like that lowers the friction to usage. So is there anything we should think about on that number and its sort of one-time orientedness or sustainability or extensibility?

Christopher Greiner, CFO

If you examine each quarter, you can get a good sense throughout the year of the net revenue retention rate, though it won't be exact since that's measured annually. We are entering 2026 with momentum, having had a strong finish to the year. There are a few factors to consider: we gained several new customers late in 2024, which helped us scale nicely throughout 2025. The results also reflect not only the growing number of use cases and channels but also the increase in brands within the agency ecosystem. Year-over-year, brands within the holding companies have risen by 80%, which significantly impacts growth for just one large customer, potentially leading to substantial increases in average revenue per user.

David Steinberg, CEO

Yes. I don't see it as an anomaly, Rich. I mean we're not going to guide to that. But the reality is that what we're seeing is we're seeing, bringing Ed See last year and building the systems around One Zeta has been game-changing for moving from one use case to multiple. As we've mentioned before, when a client moves from one use case to two use cases, their spend goes up materially as evidenced by the 80% growth in multi-use case customers for Q4 over Q4 of the prior year. So I think that Athena will help us with that number, and I think we're going to continue to run hot there.

Operator, Operator

Moving next to Elizabeth Porter with Morgan Stanley.

Kathleen Alexis Keyser, Analyst

Awesome. This is Katie Keyser on for Elizabeth. I just had a quick one, hoping for an update on the political and advocacy side of the business, really just in the context of what you've seen during previous elections. You guys clearly expanded the size and scale of the platform since prior midterm election cycle. So wondering what you're seeing early in '26 as it relates to advocacy. And then maybe just for Chris, if you could comment on how that spend is expected to phase through your guidance, kind of what scenario would cause that to prove conservative. Any thoughts there would be great.

Christopher Greiner, CFO

Sure, I think, Katie, and please give our best to Elizabeth. From 2020 to 2022, the revenue from political candidates decreased significantly. It was about $15 million in 2020 and dropped to $7.5 million in 2022. For 2024, total political candidate revenue was approximately $40 million. So starting this year's guidance at $15 million seems cautious. We anticipate realizing that spending to be around $7 million in the third quarter and $8 million in the fourth quarter. Advocacy is now a continuous part of our business. It's obviously more significant during political candidate cycles, but we've made some exciting new hires in 2025 to build momentum for 2026. I expect advocacy to remain a constant focus for us. It will benefit us in the candidate year, but it isn't significantly impacting our current guidance.

David Steinberg, CEO

Yes. And it could be upside, Katie.

Operator, Operator

Moving next to Matt Swanson with RBC.

Matthew Swanson, Analyst

Great. A really impressive number when you're talking about the 600% ROI from the Forrester study. Can you just talk a little bit about kind of the macro resiliency that that gives you a business just as we're dealing with all the headlines around tariffs and everything else?

David Steinberg, CEO

So thank you, Matt. We actually think it doesn't just insulate us from the macro environment. We think it accelerates in this macro environment. What we see is, as clients are dealing with different sort of variables in their businesses, they want to maximize their return on investment in every component of their business, with marketing being one of their largest expenses as organizations. So I think it's helped us over the last year, and I think it will help us over the next few years.

Matthew Swanson, Analyst

And then if I could just double-click on one aspect of Marigold, I know Loyalty was something that we talked a lot about when the acquisition was first announced. I think in the prepared remarks, you mentioned that you're seeing some early interest from customers. I was wondering if you could just expand on that a bit.

David Steinberg, CEO

Yes. We're very excited to transition their customers into the One Zeta solution. When we acquired Marigold, they had a strong retention-focused model, but lacked new customer acquisition strategies and had limited monetization potential. We're eager to explore various use cases for their customers, especially in customer acquisition. Additionally, we are witnessing substantial interest from many of our existing clients in our new Loyalty solution, and we're beginning to gain significant traction there. We're also working on an interesting initiative, planning a series of Athena releases over the next few years, with the first one expected to be available this quarter. We're on track for that integration, and we will also incorporate Athena into the Loyalty program, which I believe will enhance its seamless integration with our established scaled customers.

Operator, Operator

And we'll go next to Scott Berg with Needham & Company.

Unknown Analyst, Analyst

This is Lucas Metcalf on for Scott Berg. I wanted to ask on the strength you're seeing in terms of Fortune 100 and Fortune 500, these large enterprises and the new customers coming online from those areas. What are conversations like with these large enterprise customers that presumably have a lot more room to grow with the platform over time? What are they excited about when it comes to the Zeta platform?

David Steinberg, CEO

Thank you for the question. We have recently announced that we are collaborating with 51% of the Fortune 100 and 24% of the Fortune 500. However, we currently have a very small share of their budgets, indicating significant potential for growth. The discussions we are having with Fortune 500 companies revolve around maximizing their return on investment. They are focused on achieving the best possible return on their marketing expenditures to enhance their business efficiency, particularly for consumer-facing companies where marketing often ranks as their second or third largest global expense. They are now considering how to invest their budgets to maximize returns. Historically, five years ago, these companies were more concerned with the percentage of revenue allocated to sales and marketing. For instance, if they generated $100 in revenue, they aimed to spend $20 or $22 on marketing. Today, the focus has shifted to how to invest $1 to achieve returns of 500%, 700%, or even 1,000%. Our attribution capabilities, combined with our proprietary data and activation capabilities, are enabling a comprehensive return on investment analysis that has not previously been available to Fortune 500 companies.

Operator, Operator

And we'll go on to our next question, Callie Valenti with Goldman Sachs.

Carolyn Valenti, Analyst

I have one question. I know that part of your strategy has involved acquiring assets to enhance your Data Cloud. As consumers increasingly engage with LLMs and this ecosystem evolves, how do you view the opportunity to gather data from these new channels through mergers and acquisitions or other approaches?

David Steinberg, CEO

It's a great question. We, Callie, have always looked at how do we build on our Data Cloud. What I would tell you is, you hate to plant a flag and say you're done, but I would tell you that today, our Data Cloud is really the best data cloud in the world. We've got better access to information than at any point ever. We're ingesting trillions of signals. By the way, we've rolled out our own generative optimization platform, the GEO platform where we are helping our clients to better get their information and their businesses fed into the large language models. It's something that allows us to learn a tremendous amount about how the LLMs are acting by building that GEO product. In many cases, we bought businesses, in many cases, we've built different platforms. In this case, we see GEO as strategic, not just helping our clients get to the next generation of marketing, which we're doing, but also the ability to learn how those models are thinking, how they're ingesting information and how we get information back from them.

Operator, Operator

This now concludes our question-and-answer session. I would like to turn the floor back over to David Steinberg for closing comments.

David Steinberg, CEO

I will close simply by saying I have never been prouder of running this company. We have the right people at the right time with the right technology, not just to win today, but to win for many, many years to come. We're incredibly excited about the innovations around artificial intelligence and how they are willing to fit into our platform and how we are going to be the disruptor of marketing over the next generation, not the disruptee. I hope everybody has an incredible day and an incredible week. Thank you for listening.

Operator, Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.