Zeta Global (ZETA) Q3 2024 Earnings Call Transcript – CryptoMonitor.In

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

More ZETA analysis

All earnings call transcripts

Zeta Global (ZETA 3.26%)
Q3 2024 Earnings Call
Nov 11, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zeta 3Q ’24 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Madison Serras, investor relations. Thank you, Madison. You may begin.

Madison Serras — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us for Zeta’s third quarter 2024 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 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. Reconciliation 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 will now turn the call over to David.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Madison. Good afternoon, everyone, and thank you for joining us today. The bets we made seven years ago on artificial intelligence, the investment in a one-of-one marketing platform, and our commitment to our customer’s success has resulted in record-setting third quarter financial results, above our previously raised guidance. In this quarter, we generated revenue of $268 million, up 42% year over year, with adjusted EBITDA of 54 million, up 59% year over year.

This translated into an adjusted EBITDA margin of 20%, up 210 basis points year over year. Once again, we are raising our full year 2024 revenue outlook by $61 million to $986 million at the midpoint, representing 35% year-over-year growth. Not only did we break the rule of 60 for the first time as a company, but we were above the rule of 50, excluding political candidate revenue. In addition to our financial achievements, we also strengthened our foundation.

In Q3, we raised over $900 million in capital, including the undrawn loan facility. We had record in-person attendance for our annual Zeta Live event. We announced our new intelligent mobile product and our next generation of generative AI, in addition to expanding our partnership with Snowflake and onboarding Yahoo as a major new customer. And on the heels of the third quarter, we announced and closed the acquisition of LiveIntent, with the integration already underway and synergy realization ahead of schedule.

Our momentum can be directly linked to the acceleration of the AI revolution, where marketing is at the forefront. This is creating unprecedented opportunity for disruptive technology, like the Zeta marketing platform, which is winning in the marketplace and winning big. Here is a snapshot of three transformative, seven- and eight-figure deals we closed in the third quarter. First, for an iconic global retail brand, Zeta was awarded an eight-figure deal over five years, beating out a legacy marketing cloud to create a true 360-degree view of their customers and to deliver better experiences at every touchpoint while lowering their total cost of ownership.

This requires powerful AI agents across productivity, personalization, and predictability, which only Zeta can do. Second, Zeta expanded its footprint in sports and entertainment by securing another major professional sports league, one of the fastest-growing properties globally in a multiyear seven figure deal. This organization had outgrown its previous vendors capabilities and needed sharper identity resolution for a 360-degree customer view, deeper insights into purchase intent and more sophisticated attribution. Among the enterprise grade platforms they evaluated, only Zeta delivered all of this in a single platform and met their stringent time-to-value requirements.

Third, Zeta showcased the strength of its One Zeta model by securing an all-in-one platform agreement with a leading e-commerce company. This agreement integrates acquisition, growth, and retention into a single platform powered by proprietary data and AI, reducing complexity, boosting productivity, and driving higher ROI, all core to Zeta’s value proposition. Only Zeta can meet all of these needs in one platform. During the third quarter, Zeta deepened its relationship with its five agency holdco customers to bring multiple new brands, including a global automotive brand into our direct channel.

Platform engagement like these are representative of customers utilizing the full breadth of Zeta’s data, AI, and direct channels for activation. In addition to key wins, Zeta is also building upon its existing assets through the acquisition of LiveIntent, which expands publisher monetization, elevates Zeta’s newly released mobile and retail solutions, and enhances Zeta’s data cloud. Our increasing capabilities are being recognized by industry analysts in the marketplace. We were named a leader in marketing automation software by Forrester and a strong performer in the CDP Wave also by Forrester, the only enterprise-grade platform to be cited at these levels for each category.

We also created and expanded partnerships this quarter with Yahoo and Snowflake. The Yahoo partnership announcement had multiple facets. First, we announced that Yahoo selected Zeta to deliver intelligent-powered marketing. This means they will migrate their email marketing, which includes hundreds of millions of people to the AI-powered Zeta marketing platform.

Second, the Zeta marketing platform will be integrated with the Yahoo ConnectID, which will allow Zeta to enhance the Yahoo DSP with Zeta’s advanced audience targeting capabilities. As a result, the new integration will position both of our companies to expand market share, streamline benefits, and drive higher return on investment for joint clients. And last, we announced the Zeta Data Cloud will be interoperable with the Yahoo Connect ID, which unlocks comprehensive insights and allows for the creation of unique intent-based audiences. The second announcement was our joint efforts with Snowflake.

We unveiled a new solution, the Zeta Media Engine powered by Snowflake. The Zeta Media Engine brings the power of the Zeta marketing platform to where Snowflake’s customer data resides, enabling marketers to enrich, expand. and activate their first party-data and deliver richer personalization across all paid media. This represents a significant milestone in our collaboration with Snowflake as we join efforts to bring an enhanced solution to marketers seeking to improve precision of their marketing programs without sacrificing scale.

The momentum we’ve had in 2024 was a catalyst for our most successful annual Zeta Live conference yet. More than 1,100 visionaries, business leaders, and practitioners from more than 400 enterprises attended in person, doubling attendance year over year. Most notably on display were Zeta’s launch of our AI-powered intelligent mobile solution and the expansion of the AI agent lineup. With Zeta’s new intelligent mobile solution, marketers will be able to leverage AI to better activate and coordinate personalized cross-channel campaigns that deliver enhanced customer experiences and persistent identity across all touch points, resulting in better consumer interactions and better business outcomes.

In addition, building on our earlier launch of intelligent agents this year, Zeta launched an expanded lineup of generative AI agents on the Zeta marketing platform, unleashing powerful, first-of-its-kind capabilities for marketers. While others are trying to roll out their first version of their AI agents, we are already on version three. This game-changing event further bolstered our business momentum as already evidenced by record pipeline demand and commitments from customers, a testament to Zeta’s roadmap and strategic vision resonating. And we are succeeding in our evolution from Zeta who, to why Zeta, to, ultimately, must have Zeta.

In closing, I’m excited about what the Zeta team has achieved and the opportunities ahead of us and our ability to execute in the marketplace so consistently. As always, I would like to sincerely thank our customers, our partners, Team Zeta, and all of our shareholders for the ongoing support of our vision. Now, let me turn the call over to Chris to discuss our results in greater detail. Chris?

Chris Greiner — Chief Financial Officer

Thank you, David, and good afternoon, everyone. The third quarter can be best summed up by the momentum that began in the first quarter and accelerated in the second quarter, continued into the third quarter with even some notable improvements. Revenue growth accelerated to 42% and, excluding the benefit from political candidate, once again top 30% year to year. We set another scaled customer ARPU record with 33% year-over-year growth.

Direct revenue was up 41% year to year, reflecting agency adoption of direct channels. On the back of this positive mix shift operating leverage flowed solidly to the bottom line with adjusted EBITDA and free cash flow margins up 210 and 250 basis points, respectively, year to year. All told, it was our 13th consecutive beat-and-raise quarter. I’ll focus today on three topics.

I’ll dive into the KPIs driving third quarter performance. I’ll dig further into the agency opportunity by discussing how early we are in ramping with large and independent agencies, and sharing examples of the positive direct mix shift we’re starting to see. Finally, I’ll close with our increased fourth quarter and full year guidance, comment on 2025 consensus estimates, and preview the duration of our next long-term model. Let’s start with the drivers of the third quarter’s results.

Revenue of 268 million grew 42% year over year; or 31%, excluding $21 million of political candidate revenue. On both dimensions, our results exceeded recently updated guidance of at least 255 million; or $245 million, excluding political candidate revenue. Strength was broad-based. On a year-to-date basis, net revenue retention is at the high end of our 110% to 115% model.

We had another productive quarter of sales hiring. We’re up to 155 quota carriers, a 20% increase from last year. Reaccelerating sales headcount comes at an opportune time, with the RFP pipeline up 60% from just 90 days ago, which is attributable to Zeta Live and multiple industry analyst reports naming Zeta as a leader. Total scaled customer count grew to 475, up 8% year to year and 7% quarter to quarter, with scaled brand count up 25 versus 2Q.

Super-scaled customers of 144 was up 16% year to year and flat quarter to quarter, with super-scaled brand count up 9% quarter to quarter and 29% year to year. Scaled customer ARPU of 557,000 was a standout, growing 33% year to year, which compares to the previous high watermark of 22% growth achieved last quarter. The force is continuing to drive strong ARPU growth, our channel adoption, use case expansion, scaling with agencies and political candidate contribution. From an industry perspective, five of our top 10 industries grew faster than 35% year over year, with insurance, technology and media, and consumer retail leading the way.

On the back of 41% year-to-year growth, direct mix climbed to 70%, up from 67% the first six months of 2024 and on par with 3Q last year, reflecting positive mix shift from our agency customers. The improved mix resulted in lower GAAP cost of revenue quarter to quarter, coming in at 39.4%, or 60 basis points better than 2Q, and 50 basis points higher year to year. Strong leverage in operating expense resulted in our 15th straight quarter of expanding adjusted EBITDA margins year over year. We generated 53.6 million of adjusted EBITDA at a 20% margin, 210 basis points higher year over year and 3.4 million better than the midpoint of our recently updated guidance of 50.2 million.

Our third quarter GAAP net loss was 17.4 million, which includes 47 million of stock-based compensation. Excluding the accelerated expense recognition related to our IPO, stock-based compensation would have been 31 million. Finally, cash from operating activities was 34 million, up 51% year to year, with free cash flow of 26 million, up 93%. This translated to a free cash flow to adjusted EBITDA ratio of 48%.

It’s worth noting this includes a $10 million working capital headwind from our growth with agencies and the industry’s longer payment cycles. Absent this, cashflow conversion would have been 67%, which is a good segue to the broader agency opportunity ahead of us. The same forces driving Zeta’s growth with enterprises are propelling Zeta’s growth with agencies. Those being a shift to addressable marketing.

And this is the importance of people-based marketing and the ROI our customers realize from working with Zeta. Second, the emergence of first-party data as an enterprise or brand asset. This is the rise of customer data platforms as foundational to personalization. Only through Zeta’s data cloud and CDP can a brand see its existing customers and prospects in one platform.

And third, the replacement cycle. Zeta is enabling CMOs and CTOs to achieve their strategy of modernizing their tech stack and eliminating features and numerous point solutions. This is creating significant opportunity for Zeta with large agency holdcos and a newer segment of independent agencies. I’ll start with the five largest holdcos.

Today, Zeta is working with just shy of 100 scaled brands compared to the thousands in their combined portfolios. And this only considers the volume of brands as an opportunity set. On the value or wallet share side of the equation, the total spend Zeta is capturing with the five large agency holdcos today barely registers with the tens of billions each holdco deploys in digital media, the bulk of which is addressable by the Zeta marketing platform. Last year, we began prospecting a new segment of independent agencies, featuring one such customer at our investor day in September.

Since then, we’ve expanded our agency sales team to go after more of the independent agency market, encompassing well over a thousand stand-alone agencies who deploy billions in digital spend annually. We’re growing our footprint within the agency ecosystem and shifting mix to direct channels. Here’s a few examples just from the third quarter alone. In first quarter, a large agency holdco awarded Zeta one of the largest automotive service centers with 2,000 locations nationwide.

The engagement began with one integrated channel and scaled quickly to over 500,000 by 2Q. In the third quarter, we upsold two additional direct channels, increasing direct mix from zero to 30% while growing revenue by 6x to a super-scaled brand in just nine months. In a second example, an agency awarded Zeta one of the most recognizable office supply retailers in the U.S. This brand started omnichannel and has maintained a 70-30 direct versus integrated mix, while growing spend with Zeta more than three times in six months, also recently becoming a super-scale brand.

And lastly, Zeta was awarded a national pizza chain in the middle of 2023. For the first 12 months on the ZMP, this brand focused on social as their primary channel. During the third quarter, we added a direct channel, which increased revenues by 3x and increased direct mix to almost 50%. The punchlines are straightforward.

First, the same structural forces driving demand from enterprises are also influencing agencies to expand with Zeta. Second, we’re very, very early in penetrating this opportunity, both in terms of brand count and wallet share. And third, we have a repeatable and scalable model to land new brands and expand with higher ROI direct channels. I’ll wrap up with guidance, covering details for the remainder of 2024, while also touching upon 2025 and our next long-term model.

Starting with 2024, we’re raising 4Q and full year revenue, adjusted EBITDA, and free cash flow guidance. Details can be found on Slide 16 in our earnings supplemental. For the full year 2024, we’re increasing the midpoint of our revenue guidance issued on July 31st by 61 million to 986 million, representing 35% growth year over year. We’ve outlined our increased guidance into three steps, given the moving parts associated with LiveIntent, political candidate revenue, and our equity raise.

You can refer to Slides 18 and 19 that are earning supplemental for ease of tracking. Step one is LiveIntent. Fourteen million of the 61 million raise is related to approximately two months of fourth quarter stub period revenue. Step two is political.

Twenty-six million of the 61 million raise is related to higher political candidate revenue. Our prior full year guidance of 15 million included 1.5 million in 2Q, 5 million in 3Q, and 8 million in 4Q. Our updated full year guidance now has a total of 41 million with 1.5 million in 2Q, 21 million in 3Q, and 18 million in 4Q. Step three is the rest of Zeta.

The remaining 21 million of the 61 million raise is related to flowing through Zeta’s third quarter overachievement of 13 million versus our original guidance of 239 million, plus our 8 million raise to fourth quarter guidance. You recall we were not able to flow through our increased third quarter revenue guidance through to the full year during our equity raise in September. From a full year growth rate perspective, excluding the contribution from LiveIntent and removing the benefit from political candidate spending, we expect revenue to be up 28%, better than our prior full year guide of 25%. The increase in fourth quarter revenue guidance of 32 million to 295 million at the midpoint is driven by 14 million from LiveIntent, 10 million in additional political candidate revenue, and 8 million from the rest of Zeta.

Fourth quarter year-over-year revenue growth, excluding LiveIntent and removing the benefit from political candidate revenue, is expected to be 25%. In terms of full year 2024 adjusted EBITDA, we’re raising the midpoint of 2024 guidance by 13 million to 188.5 million, representing a year-over-year increase of 46% or 19.1% margin, an increase of 140 basis points year to year. In a similar vein as revenue, half of the raise stems from flowing through third quarter upside versus our original guidance, while the other half is in connection with our fourth quarter raise. We’re increasing the midpoint of fourth quarter adjusted EBITDA by 6.5 million to 65.9 million, or 22.3% margin, up 105 basis points year over year.

We’re also raising the midpoint of full year 2024 free cashflow guidance to 90 million from 85 million in our prior outlook. This represents a cash conversion percentage of 48% versus 42% in 2023. Two items worth noting on this point. First, in connection with the third quarter’s equity raise and acquisition of LiveIntent, we incurred 6.2 million in one-time charges, the bulk of which is related to acquisition-related expenses, which will be paid in the fourth quarter, the savings being realized in higher free cashflow in 2025.

And second, we continue to be conservative in our assumptions for net working capital related to longer payment cycles agency customers adhere to. Selection risk with these customers remains extremely low. Before we take your questions, I’ll close by previewing our thoughts on 2025 in our next long-term model. We’ll provide full details on each during the fourth quarter conference call in February.

As we sit here today, we’re very comfortable with 2025 consensus revenue growth, adjusted EBITDA margin, and free cash flow estimates. As it relates to consensus revenue growth of 17%, this excludes the contribution from LiveIntent, but includes what is likely a 4 to 5 point growth headwind from 2024 political candidate revenue. So, on a pro forma basis, 2025 consensus revenue growth is effectively 21 to 22% next year. Once again, we’re very comfortable at these levels.

Second, we’re looking forward to sharing our 2025 guidance and the details of our next long-term model, Zeta 2028, in February. Along those lines, we plan to outline new growth opportunities in verticals, new products, new partnerships, and new geography, in addition to conveying drivers of continued operating leverage. Now, let me hand the call back over to the operator for David and me to take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from line of DJ Hynes with Canaccord Genuity. Please proceed.

DJ Hynes — Analyst

Hey, guys. Thanks for all the color on the guidance. I appreciate you breaking all that stuff out. And obviously, the agency color as well, super helpful.

David, I want to ask about a completely separate topic, which is publisher cloud. Right? It’s newer to the business. Can you talk a little bit about your vision there? How to think about? How do you think about sizing the potential for that opportunity? I just don’t have a good feel for how material that effort might be.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, DJ. I’d start by saying we see the publisher cloud as sort of our next really meaningful growth opportunity. We’ve got, obviously, CTV which is growing very, very rapidly at scale. And then we’ve added mobile which we’re very excited about.

Mobile, we expect to scale very, very quickly over the next few years. As you think about the publisher cloud, today, the vast majority of publishers are not able to build deterministic marketing capabilities to an individual that’s visiting their portal. Because you’ve got a third-party SSP, the third party SSP has to connect to a third party DSP, and the third party DSP has to come up with a deterministic data set. Most of the DSPs do not have that.

Our vision is to put everything into one set. Just like when we launched the ZMP, we put AI and data as native to the application layer, it eliminated latency and allowed us to disintermediate and continue to grow against legacy tech clouds. We believe by putting our SSP fully integrated into the DSP, fully integrated into the data cloud, fully integrated into the publisher, will allow us to massively drive up the yield of marketing dollars to the publisher that will flow to them through the publisher cloud, which will allow us to take a sizable exhaust rate off the top. So, I think it’s a big opportunity on platform with high gross margin that will scale quickly in the years to come.

DJ Hynes — Analyst

Yeah, super helpful color. Chris, maybe a follow-up for you. Can you just help us think about scaled customer ARPU growth if we were to exclude the political candidate revenue, if we were excluding the agency customers, or maybe looking at them at like a brand level? I mean, obviously the agencies knew that metric a bit, which is a good problem to have. But just trying to think about kind of underlying trends in customer spend on a cleaner basis, if that makes sense.

Chris Greiner — Chief Financial Officer

It does make sense, DJ. Thanks for the question. If you take the 33% ARPU growth and you were to exclude political candidate revenue contribution, the growth rate would still have been higher than the growth rate we saw in the second quarter, which was 22% ARPU growth in total. So, you know, take a growth rate that’s in the mid-20s ex-political candidate revenue contribution, and you then break that down between channel adoption, use case adoption, and agency customer mix, it’s actually very similar to what we saw in the second quarter, where about a third of the growth is attributable to each one of those drivers.

So, over 30% of our total scaled customers are now still using over three or more channels. Use case growth was again consistent across the acquired, grown, retained level. And as we mentioned and highlighted, brand adoption within the agencies continue to scale rapidly even at that super-scaled level. So, brands that meet that greater-than-a-million-plus threshold, that was up 29% year over year.

DJ Hynes — Analyst

Yeah. OK, got it. That’s helpful. Thank you, guys.

Congrats.

Chris Greiner — Chief Financial Officer

Thanks, DJ.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, DJ. Thank you.

Operator

Thank you. Our next question comes in the line of Arjun Bhatia with William Blair. Please proceed.

Arjun Bhatia — Analyst

Perfect. Thank you, guys, and congrats on a very strong quarter here. Maybe if I can start with the agencies again. It sounded like the mix shift in terms of the channels agencies are using is starting to move a little bit more toward direct, which certainly is a big benefit.

Can you just talk a little bit about which channels on the digital side that you’re seeing early adoption from and, you know, where kind of we are in that overall journey of agencies moving more and more of their spend onto the Zeta platform? And then, for Chris, maybe you can talk a little bit about where we should think about gross margins going just from that impact.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Arjun. I appreciate the congratulations. What I would say is as our favorite tag line of “We are just getting started,” it is perfectly encapsulated in the migration of our agency clients from integrated platform to direct. What I would say is the three biggest wins we’re seeing right now are connected television, online video, and mobile.

We’re seeing the mobile adoption rate happen, perhaps, a little bit faster than we originally expected. It’s been exciting because not only have we been migrating some of the existing customers over. But as new brands have come on, as I think Chris did a really good job of outlining in his prepared remarks, we’re seeing them start on direct. And I think that’s a trend that will continue.

If you look at our most mature agency client, who by the way is still growing nicely, but our most mature, I’ll remind you, the first year they worked with us, they were approximately 93% integrated and 7% direct. In their third year, that was over 50-50 for direct versus indirect. We don’t need to move from, you know, 10% to 90% to continue to move the mean up, which continues to move on platform versus integrated, which continues to drive gross margins, which I’ll let Chris talk about.

Chris Greiner — Chief Financial Officer

Yes, starting, Arjun, with the 41% direct revenue mix, if you’re to break down which channels drove that and then why we saw a benefit of mix, you had email growing almost 30% at 29%, display video growing 46%, and CTV growing north of a 150% year to year. And by the way, that still has social growing over 50%. So, when you have that type of positive mix shift like we saw a quarter over quarter, we effectively moved the gross — you know, the implied gross margin of the business, up around 100 bits. As I think about what it could look like going forward, obviously, direct mix shift, as David mentioned, is now beginning to happen more consistently across our enterprise brands, which should begin to chip away.

It’s not going to be moving 200 to 300 basis points at a time quarter to quarter, but we should be able to continue to, in a very moderated way, move the cost of revenues of the company down or the gross margins up.

Arjun Bhatia — Analyst

Wonderful. That’s great to hear. Thank you for that. And, Chris, if I can follow up one for you.

I saw the guidance for political contribution in Q4 had implied that it might be down from where Q3 shook out. Can you just maybe give a little color on what we should expect in political on the fourth quarter? And, you know, is that just — is that conservatism, or is there kind of anything else that we should be aware of given the last few election cycles of playing out for political revenue? Thank you.

Chris Greiner — Chief Financial Officer

Yup. Thanks, Arjun. Look, I think it’s nothing really more than you’ve got three full months of political candidate revenue contribution across the duration of the third quarter and effectively one month in a week in the fourth quarter. I do think that there’s upside to the 18.

I don’t think it’s going to be as significant as what we saw when we updated the third quarter. But I do think we’ve left some room as there’s still some political and advocacy spending trickling in.

Arjun Bhatia — Analyst

All right. Understood. Thank you. Congrats again, guys.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you.

Chris Greiner — Chief Financial Officer

Thanks, Arjun.

Operator

Thank you. Our next question comes from the line of Richard Baldry with ROTH. Please proceed.

Richard Baldry — Analyst

Thanks. Can you talk about any early feedback you’ve gotten sort of in the open market, post the LiveIntent acquisition? And then, maybe with that as a backdrop, your cash stepped up, you know, significantly, even once you paid the cash component of LiveIntent. So, how’s your appetite, you know, looking forward for acquisitions, or how does that play into your back now, history of doing sort of buybacks on an ongoing basis? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Well, so let me start with your first question first, Rich. We are seeing a faster-than-expected synergy recognition between the two organizations. Now, a lot of that was Steve Gerber and his team really had been working on what we call quick wins. And we’re seeing a number of them really flow through.

And quite frankly, we’re also seeing, in addition to cost savings, we have executed already a number of cross-selling relationships between the organizations. So, we’re very excited about that. And we should have it fully integrated by the end of this month into the data cloud from a signal recognition perspective. So, really puts a belt and suspenders, and suspenders on the data cloud by adding all of those signals and all of that data.

What was the second question?

Chris Greiner — Chief Financial Officer

Acquisition —

David Steinberg — Co-Founder and Chief Executive Officer

Oh, yeah, we were even surprised. We’re generating meaningful free cash flow as a company. Yes, we will be up even after paying the cash portion of LiveIntent. And we will continue to look for very opportunistic acquisitions with great teams, great technology, great data, where we believe that we can implement our four main pillars of M&A.

We’re going to stay disciplined to that. But what I would tell you in the current environment, I believe we’ll be able to continue to add great companies to Zeta in the coming months and quarters.

Richard Baldry — Analyst

Thanks. Congrats on a great quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Rich.

Chris Greiner — Chief Financial Officer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald — Analyst

Hi. Thanks for taking my question, and congrats on a great quarter. Maybe to start on the independent agency channel opportunity that you talked about. Obviously, going after about a thousand of these opportunities and have expanded the sales force.

Can you just talk about, one, have you won any of these independent agencies thus far? And if so, you know, what does the size potentially or revenue mix of those customers look like when you initially land them? And then, just anything you could comment on sort of sales cycles of these types of opportunities relative to, say, the direct business or maybe the top five agency holdcos. Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

So, thank you, Ryan. Let me start by saying we have a number of executed contracts in the independent agency space and have more than one customer generating meaningful revenue. The beauty of these relationships is they are all, for the most part, I would say the vast majority are on platform. It’s a platformization of the ZMP to the independent agency that allows them to be hands on keyboard for their customers.

So, they are very high gross margin, they are on platform, and they can scale very quickly. From a sales cycle perspective, I would say it’s sort of in the middle. If we can generally close an enterprise client in a faster period of time and a very large agency holdco, these are sort of in the middle. But I would tell you, in particular, coming out of Zeta Live, the pipeline for these independent agencies is up multiples.

I expect we will have very good news on more than one of these to grow that this quarter.

Ryan MacDonald — Analyst

Super helpful. Maybe just then on a — second question on the LiveIntent business, as you start to get that integrated and go to market there, is there any difference in sort of how the go-to-market motion or the seasonality of that business operates? Or is that more of a ratable revenue stream that we should expect as we move forward? And then, any differences on the margin profile relative to core Zeta? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

To answer your last part first, yes, it’s an exhaust rate business where you’re taking a percentage on both sides of the transaction. So, you take a percentage from the advertiser, and you then take a percentage of that net from the publisher. So, it’s a very high gross margin business, all of which is on platform. So, I think that that should be additive as we’re able to really scale that business in the years to come.

As it relates to cycle, you know, it’ll have a slightly higher Q4 only because add dollars tend to come in at a slightly higher growth rate in the fourth quarter, just across the ecosystem. But I expect it to continue to be a very solid, very steady channel for us in the years to come. And, you know, quite frankly, one of the things I love about the business is that we’re going to is they have a bunch of blue-chip clients that don’t buy our products and we have a bunch of blue-chip clients that don’t buy their products. The ability to cross sell here is very unique.

And i will tell you, we’ve already executed a number of contracts to cross-sell and are generating revenue from their customers in. So, it’s an exciting deal for us.

Chris Greiner — Chief Financial Officer

Ryan, they also have a consistent go-to-market sales model like Zeta does, meaning a hunter-farmer. So, it really kind of folds in very nicely.

Ryan MacDonald — Analyst

Excellent. Thanks for the color.

Chris Greiner — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.

Terry Tillman — Analyst

Yeah, I’ll echo congratulations as well. Hi, David, Chris, and Madison. Some of my questions have been answered. But one of the statistics that I think, David, you had discussed was 60% plus RFP or RFP pipeline growth.

I hope I got that right, but from 90 days ago. That seems pretty dramatic. I’m curious if you could kind of double-click on that in terms of, is this the replacement cycle that’s accelerating, or was it some of the sales reps that Chris was talking about that you added and they’re just having an effect and becoming productive? Maybe the timing of Zeta Live. I just want to unpack that a little bit more because it sounds like that was a standout.

And then, I had a follow-up for Chris.

David Steinberg — Co-Founder and Chief Executive Officer

Well, thank you, Terry. Actually, Chris said it, but I’ll take the question. Yes, the pipeline is up —

Terry Tillman — Analyst

OK.

David Steinberg — Co-Founder and Chief Executive Officer

The pipeline is up 60% that — we’re very excited. It’s probably the biggest pipeline increase we’ve ever seen, and we’re already at scale. I think it was a combination of all of the above, right? But what is the goal? The goal for Zeta is to go from Zeta who, to why Zeta, to must have Zeta. And as we bring in substantially more senior sales reps than we ever have before, they bring books of business that help us evolve with that process.

Zeta Live was a 100% grand slam this year. Even I was happy with our performance, and I joke I generally tend to be our biggest critic. And that was a massive growth to pipeline. As we publicly disclosed, over 400 enterprises came and were represented at Zeta Live this year.

That was a big part of it. In fact, we’ve already executed a multiple of the cost of Zeta Live in contracts from a lifetime value perspective. So, really excited about that. And, of course, we’re continuing to evolve the brand with Forrester and IDC and others rating us a leader or one of the leaders in categories across the board.

That drives incremental pipeline.

Terry Tillman — Analyst

It’s great to hear it. And I guess, yeah, sorry for my confusion earlier. I guess it’s been a long earnings season.

David Steinberg — Co-Founder and Chief Executive Officer

Oh, I was just making —

Terry Tillman — Analyst

I mean — yeah, I know, I know.

David Steinberg — Co-Founder and Chief Executive Officer

I was just making a joke.

Terry Tillman — Analyst

Yeah. Well, on the sales reps, one of the questions, I think, people are going to ask you all, it seems like you’re at an inflection point here. What about maybe stepping on the gas more in hiring? And I know you’re looking for the best of the best, but I think Chris had said about 150 or 155 reps and like up 20% or up 25%. I’m just curious how you’re thinking about as you go into the new year, kind of steady growth potentially if you can find it, pick up the pace of growth.

And this long-winded question, I’ll end it with, does that include the 25 to 30 folks from LiveIntent? Thank you.

Chris Greiner — Chief Financial Officer

Hey, Terry. No, it does not. That’s still core Zeta. We’ll add probably around 25 to 30 LiveIntent reps when we reproduce the results next quarter when we blend the two businesses together.

Look, it continues to be, as you said, really measured by quality over quantity. We continue to be very nicely diversified. In fact, half of our top 10 verticals grew over 35%. That’s the first we’ve had that type of balance at that growth rate.

And we do try to hire industry vertical expertise. We’re still trying to maintain the right ratio of hunters versus farmers. The hiring approvals are in full form. I mean, there is no — there’s no holding back in that area with our sale leaders.

But it is very much a focus on quality over quantity.

David Steinberg — Co-Founder and Chief Executive Officer

And, Terry, those 25 LiveIntent salespeople are going to be selling core Zeta. So, this is — it’s going to be a meaningful step-up in salespeople right there. And as Chris said, we will hire every good salesperson we can get our hands on.

Chris Greiner — Chief Financial Officer

Thanks, Terry.

Terry Tillman — Analyst

That’s great color. Thanks.

Operator

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed.

Jackson Ader — Analyst

Great. Thanks for taking our questions, guys. Good evening. Can we actually follow up really quickly, David, on what you just said about the LiveIntent sales reps? Would the expectation be — or I guess, has it been, you know, your experience that when you make an acquisition, bring on some salespeople, do they ramp as quickly or as consistently as net new hires that come from, you know, other competitors or other areas of software? Or does it take them a little bit longer to get used to selling core data? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

So, the answer is it depends on the business. It depends on the product line they’re used to selling. In this case, Jackson, there are tremendous similarities between the products they’re selling and many of the products we sell at Zeta. So, there are products that are on platform, high gross margin that I would expect them to hit the ground really running.

And then, there’ll be products that it might take them a little longer to scale up on. But we’re very excited and very bullish on this group of salespeople because there’s so many similarities between their current products and what we sell.

Jackson Ader — Analyst

OK. All right, great. Got it. And then a quick follow-up on the agencies.

I guess, I totally understand the leverage and the benefit from those top five agency holdcos. But I am curious, you know, what kind of multiplier effect do the independent agencies have? And is there — like, does that multiplier effect in terms of brands that you can attack per agency? Does that dwindle as you go out to the long tail of like the thousand that you’re trying to target? Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. I mean, yes, if you get out from number one in scale to number thousand in scale, it will dwindle just, you know, statistically. But what I would tell you is there are hundreds of independent agencies that represent billions of dollars in spend per year each. This is a meaningful opportunity.

And we would expect each one of these independent agencies to be on platform, and we expect each one of them to be a super-scaled customer at launch.

Jackson Ader — Analyst

OK. All right, great. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Jackson.

Operator

Thank you. Our next question comes from the line of Matt Swanson with RBC. Please proceed.

Matt Swanson — Analyst

All right. Thank you, guys, for taking my question. And my congratulations on the quarter. In a rule of 60 quarter, it feels weird to be asking about a potential headwind.

But across the lobby advertising ecosystem, we’ve heard about kind of this political crowding effect for nonpolitical spend, just brands kind of pulling back because the CPMs got high around political. Do you think there was any headwinds, I guess, to any of the holdcos or your nonpolitical spend from the ramp-up of political?

David Steinberg — Co-Founder and Chief Executive Officer

If there is, we are not seeing it, Matt.

Matt Swanson — Analyst

All right. Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

And then second was just on the data cloud and really kind of that 360 view of the customer that you talked about, specifically with LiveIntent. Can you just talk about kind of the compounding value of bringing differentiated data sets and how that kind of brings a more holistic view, kind of that one plus one equals three dynamic?

Yeah, so one of the great things about LiveIntent is number of emails — hashed emails they see every month. You’re talking over 240 million deterministic individuals that they’re seeing across the entire Internet. We’re able to see that across a very large number of publishers. They’re able to see it across the 2,000 top and most premium publishers in the country.

So, by adding those incremental data sets, it’s going to be a very, very additive signal to the data cloud. What I would also say is I do expect us to increase the number of individuals we see in the data cloud from, you know, call it around 240 million to as many as 245 million. Might not sound like a humongous jump, but it is when you look at the additional signals and the additional people who are added into the data cloud. As I earlier said, too, it also puts a belt and suspenders, and suspenders on the data cloud.

It’s another massive importation of opted-in first-party data in addition to the other data sets we’re already ingesting. In some cases, it’s duplicative, but it’s nice to know you have a belt and suspenders on that.

Matt Swanson — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from the line of Jason Kreyer with Craig Hallum. Please proceed.

Jason Kreyer — Analyst

Great. Thank you, guys. And congrats again. I’ll echo, you know, great quarter.

Just the success you saw in political in this season, wondering if you think you can translate that into other verticals or maybe like the broader advocacy spend over time.

David Steinberg — Co-Founder and Chief Executive Officer

You know there’s always a halo effect Jason, first of all thank you. You know, you interact with these campaigns. When campaigns win, those individuals go into government and they join other PACs and they join other ecosystems. And when those campaigns we work with lose, they go to other enterprises and agencies where we can work with them.

So, there is a nice halo effect that comes out of that component of the business.

Jason Kreyer — Analyst

OK. And then, maybe I’ll just follow up for Chris. Appreciate the color on agencies and how that has impacted that EBITDA to free cash flow conversion. Do you think we’re primarily — like do you think that’s trough by now? Do you think we’re through, you know, kind of the majority, the headwind there? Because it sounds like you’ve penetrated the big five agencies reasonably well, and as you go after that mid-market or independent agencies, probably less of that free cash flow conversion or less of that gets trapped in, in that conversion there.

Chris Greiner — Chief Financial Officer

You know, Jason, it was a 20-point headwind annualized all of last year, and that translated to like a $25 million deficit between working capital, so cash taken in versus cash paid out. It was about the same percentage point headwind in the third quarter, right? We reported 48% conversion from EBITDA, but it would have been 67 if not for a $10 million working capital headwind. The growth with the five large agencies, as we said in the script, is still in its very, very early days. And then, when you add on top of it the new opportunity we see with an even bigger by count independent agency marketplace, I still expect us to have those headwinds, again, based purely on our growth rates and the industry’s payment cycles.

These are — you know, we have no bad debt with any of these accounts, not even on the fringe of having to explore such a scenario. So, it’s just pure timing of when we get paid.

Jason Kreyer — Analyst

All right, got it. Thank you.

Operator

Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed.

Elizabeth Porter — Analyst

Great, thank you so much. I first wanted to ask about the mobile product where you highlighted some faster-than-expected traction. And I believe LiveIntent also has a mobile product. So, I’d just love to better understand the capability of Zeta’s mobile product versus LiveIntent and what the go-to-market strategy is between the two products and how we could think about mobile adoption scaling into next year.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Elizabeth. Yeah, no, we are seeing mobile scale faster than expected. We have multiple enterprise clients and agency clients already on it. The real breakthrough for us was the ability to put AI at the heart of the mobile product as well, which allows us to target deterministic individuals wherever they are.

That’s a big differentiator from others who are not able to see the the deterministic level inside of that mobile environment LiveIntent has a number of identifiers into that mobile environment, including mobile ID number on, you know, millions and millions of people. So, the ability to put their capabilities together with our best-of-breed AI intelligent mobile product is scaling faster than expected. I think it’ll be our next meaningful product line after connected television

Elizabeth Porter — Analyst

Great. And then just as a follow up, I wanted to ask about the collective contribution between political and advocacy. I believe last quarter it was referenced that it was less than 10 million collectively between political and advocacy. So, is there an update that you could provide for Q3? And then, looking ahead, the color on the halo effect was super helpful.

And I just wanted to know if there’s any cyclicality to keep in mind for the advocacy group as we think about next year.

Chris Greiner — Chief Financial Officer

Yeah, it’s interesting. If you compare the — let’s kind of take them in piece parts. Compare what we’re seeing in 2024 to the 2022 cycle, the growth in political candidate revenue is substantial. It was about back in — looking at notes here, back in 2022.

we’re up over 440% in political candidate revenue, and it represents 56% of the total. Back in 2022, like 90% of the combined revenue is advocacy. In fact, advocacy on a third quarter basis versus the 2022 cycle is only up 3%. So, it just so happened that this cycle, again, working across both sides of the aisle, political name, political candidate contribution was much higher.

I think advocacy not only will it be a good contributor this year, but we’re building a practice around it so it can sustain itself in 2025 as well, building people in addition to building capabilities into that ecosystem. But overall, political candidate contribution was a heavier part of our overall total advocacy and political candidate revenue this year. But as a mix, advocacy was actually down pretty substantially.

Elizabeth Porter — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Elizabeth.

Operator

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed.

Koji Ikeda — Analyst

Yeah, thanks for taking the question, guys. Two for me. And the first one, it’s about the 2025 commentary, Chris. You know, I totally understand this year is gonna be great from a growth perspective, exit rate 40%.

You know, but then, excluding political and inorganic contributions, more like 25%, and when we look at the organic side of the performance over the past two quarters, you know, 30% plus. But when I think about the commentary that you have for 2025 on the organic standpoint, it looks like it’s, you know, low 20s. And so just, is there anything we should be aware of in the business or the way you’re thinking about the business in 2025 or organic growth wouldn’t reach a similar type of performance that we’ve been seeing here?

Chris Greiner — Chief Financial Officer

Koji, I think what you’re hearing from us directly is just Zeta wanting to continue to be conservative. And we have a cadence where we provide a significant amount of detail on the February call, which we’ll do again, talk about not only the updated model for next year, but what’s included in the new long-term model. We continue to see ourselves as being a 20%-plus organic grower. You know, my commentary would obviously imply that would be the case next year when you normalize for political candidate revenue, but we believe we have a great sales pipeline.

We’re building the sales force, many new products to bring to the market, which, again, 2025 is about setting a — you know, understanding of what we’re comfortable with but continuing to be conservative. And we plan to update that in February.

David Steinberg — Co-Founder and Chief Executive Officer

And remember, Koji, we came into this year below 20%. And here we are, right? So, we’re not suggesting we’re going to continue to do it in that way, but there’s nothing we’re seeing in the business that’s problematic. We’re just trying to level set expectations. At the same time, a lot of people have said, “Oh, are they going to hit next year?” So, we want to make it clear.

We see next year as a starting point, and we’d have beat and raised 13 quarters in a row. Our goal is to be sitting here a year from now and, you know, saying it 17 quarters in a row. I guess that would be 16 statistically, but you understand my point.

Koji Ikeda — Analyst

Yup, totally get it. And just one follow-up here. On LiveIntent, you know, when I look at the acquisition deck, it did mention pro forma revenue of around 76 million for this 2024. Any sort of update into the growth rates or growth rates you’re seeing there, you know, post close? And any sort of purchasing accounting assumptions that we should be thinking about with this acquisition? Thanks, guys.

Chris Greiner — Chief Financial Officer

Hey, Koji. Just in terms of growth rates, what we said back when we acquired is as similar growth rate as Zeta’s historically had. So, call it right around, you know, 20%, a bit over that. And it’s — you know, we’re still in that kind of integration phase.

We’re excited about the synergies we’re seeing. We’ll give very specific guidance on the February call and what we’re presuming for that business. But it’s — you know, it’s got a very healthy growth rate out of the gate.

Koji Ikeda — Analyst

Thank you.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Koji.

Operator

Thank you. Our next question comes in line of Zach Cummins with B. Riley Securities. Please proceed.

Zach Cummins — Analyst

Hi. Good afternoon, David and Chris. Congrats on another strong quarter. David, I just wanted to ask about your expanded lineup of gen AI agents that you rolled out at Zeta Live.

I mean, can you give us a sense of the interest you’ve been seeing from both agencies and enterprise clients? And any sort of update on adoption trends as you think about expanding out that lineup?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, so when we rolled out — I don’t know if you were there, Zach, but when we rolled out the new AI agent studios, we did it on the innovation stage, which was a smaller stage. It was opposite like a rock star panel on the main stage. And the innovation stage was standing room only. We couldn’t get people to go back to the main stage from the innovation stage because people were so excited about the rollout of the AI agent.

So, what I would tell you is. The adoption rate of our AI agents is bigger than anything I’ve seen us do as a company yet. Clients are in the studio. They are building their own agents, they are using the collected agents that are available there.

I think it’s one of the reasons you heard Chris say that we are now at the top of our 110 to 115 net retention rate as a company and, you know, could conceivably continue to go higher. We’re seeing clients use these agents at an unparalleled pace, both agencies and enterprises.

Zach Cummins — Analyst

Understood. And my one follow-up is really around partnership channel. Great to see expanded relationships with Snowflake, also a new relationship with Yahoo. But any update you can give us on the system integrator channel? I know you had plans of building out a practice on that side, so just curious of how you’re thinking about that as a lever for growth moving forward.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, I mean, interestingly enough, we’ve already got two up and running. So, we’re just — we’re just trying to make sure that we really crack the code before we start really talking about it again. You know, it was always meant to be a growth channel. And we’ve been pretty clear, it’s not even in the numbers for 2025.

But at the same time, it’s working. So, it’s interesting to see the adoption rate. You know, it’s something that — it’s a very long sales cycle to get these guys up. So, we’re happy to have two.

Our goal is to get two or three more in the coming quarters. And that’s when I think it’ll become a meaningful driver to the business.

Zach Cummins — Analyst

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Clark Wright with D.A. Davidson. Please proceed.

Clark Wright — Analyst

Awesome, thank you. Can you talk about the LiveIntent deal and how this will impact some of the KPIs like the scaled customer count? And then, additionally, do you believe that the 17 times uplift in ARPU from scaled customers to super-scaled can be applied to the customers who started with LiveIntent and adopted other data offers?

Chris Greiner — Chief Financial Officer

Hey, Clark. We’re still — we’ll give the LiveIntent figures. You know, obviously, you know, having acquired it post the end of third quarter, we’ll do all the inclusion of their metrics at the end of this year, so in the February call. But broadly speaking, from an ARPU perspective, their combined ARPU as a company is closer to what ours is for the 100k to a million category.

Their million plus-customers are closer to like a million and a half. Compared to ours, it’s almost 5 million. So, we’ve got some early reads into it, but we’ll get the rest of the details in February. It will obviously result in a substantial number of incremental scale customers.

David Steinberg — Co-Founder and Chief Executive Officer

Yeah. And I do want to point out, Clark, I think this is important note, we did close that deal in Q4. So, none of that deal, none of the KPIs, none of the revenue is in the numbers we just reported for Q3.

Clark Wright — Analyst

Got it. Thank you. All my other questions have been answered.

Chris Greiner — Chief Financial Officer

Thanks, Clark. We’ll talk to you later.

David Steinberg — Co-Founder and Chief Executive Officer

Thanks, Clark.

Operator

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz — Analyst

Yeah. Hi. Thanks for taking my question. I’ll just ask one for the sake of time.

David, I wanted to ask you where the spending is coming for these new — your new agent studio product that you released. I know you talked to a lot of C-level executives. So, as we think about the spending for these types of products and these agent products next year, is it coming out of IT budgets? Or are customers, you know, building a second budget for these AI products? And then, you know, talk to us how you can make sure that you can continue to gain share in that one. What is that dynamic? What are you seeing in terms of conversation in regards to the budgeting process for these new agent products? Thanks.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you. Thank you, Brian. So, what I would say is like any new product, you’re seeing it come out of multiple buckets, right? It’s coming out of the IT budget, it’s coming out of the software budget. And some of it, it’s coming out of the marketing budget.

But truthfully, I do believe, going into next year, enterprises we’re talking to — yes, we talked to a lot of CEOs, are setting up stand-alone AI budgets around innovation. And we believe with our proprietary data — because as we’ve said multiple times, AI is only as good as the data you feed into it. So, when you put the CDP in place, you take their data, all of our data, that’s where the magic happens. You’ve got all of their first-party proprietary data, all of our first-party proprietary data, and you begin to look at how the algorithms get smarter and smarter.

The beauty and the thing I love most about this component of the enterprise budget, Brian, is its cost savings to the enterprise. So, we’re able to put out an AI agent that can eliminate 10 $250,000 a year data science jobs, to put it in perspective. And in exchange for that $2.5 million in savings, they might be spending $200,000 or $300,000 with us. So, it’s a really, really good return on investment.

And then, from a growth perspective, what we find is our enterprise clients who use our CDPs, use our AI agents are substantially stickier. They scale faster.

Brian Schwartz — Analyst

Thanks for that color. Congratulations on the results.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Brian. I really appreciate you.

Operator

Thank you. Our last question comes from the line of Ryan MacWilliams with Barclays. Please proceed.

Ryan MacWilliams — Analyst

Hey, guys. Thanks for the question. Was curious just how the macro impacted data in the quarter. And I know it’s early, but have you noticed any changes from customers post the election in terms of unlocking marketing spend? And any thoughts into your customers’ plans for holiday season messaging at this point for the fourth quarter?

David Steinberg — Co-Founder and Chief Executive Officer

Yeah, Ryan. So, yes, we’re — the certainty of the election with a winner without a long drawn-out process has led not just the markets to react positively but you — we’re also seeing advertisers unlock dollars that we might not have expected. That’s it.

Ryan MacWilliams — Analyst

Appreciate that. And anything on the holiday season at this point?

David Steinberg — Co-Founder and Chief Executive Officer

You know, we put out our guidance. You know, we obviously feel good about it. We raised the year’s guidance by $61 million, which is, you know, quite a bit against our current budget. And, you know, listen, our goal is to be sitting with you in February, talking about 2025 guidance, talking about our new 2028 long-term plan and announcing our 14th consecutive quarter of beating and raising guidance.

So, right now, we’re feeling very very good about the business. We’re firing on 10 of 12 cylinders. And we really feel like the engine is doing well, and we’re very bullish on Q4.

Ryan MacWilliams — Analyst

Appreciate that. And just on the guidance for next year, have the top five agency holdco customers talked about their plans for Zeta next year? And would you expect your agency business to be a stronger contributor to your revenue growth next year compared to this year?

David Steinberg — Co-Founder and Chief Executive Officer

I don’t know about the last part. I think we’ll have to see about that. The agencies have scaled very nicely. And we’re very pleased, as I’m sure you heard in our prepared remarks, at how fast some of our new agency clients are migrating to direct, which showed a step-up in our direct versus integrated platform revenue.

I think that’s a trend that will continue as we move forward. What I would say is that our largest agency client just renewed for another two, three years. We’re seeing very bullish signs out of them, and we’re working on the plan for next year. But their minimum agreement is already in most of our plans in.

And as i said, we’re feeling very solid and having next year, be — I forget if it’s our fifth or sixth year in a row — sixth year in a row — thank you, Chris — of 20-plus percent growth organic.

Ryan MacWilliams — Analyst

Thanks for the color.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, Ryan.

Ryan MacWilliams — Analyst

Thanks, Dave.

David Steinberg — Co-Founder and Chief Executive Officer

Yup.

Operator

Thank you. There are no further questions at this time. I would like to pass the call back over to David for closing comments.

David Steinberg — Co-Founder and Chief Executive Officer

Thank you, operator. I will end on, I have never been more proud or more excited to be running this business. We are executing exceptionally well. We’re working in lockstep with our clients and our strategic partners, and I think that has been evidenced by the organic growth in this business that we expect to continue for many years to come.

So, thank you for attending the call, and we look forward to interacting with many of you again soon. Bye.

Operator

This concludes today’s teleconference. [Operator signoff]

Duration: 0 minutes

Call participants:

Madison Serras — Investor Relations

David Steinberg — Co-Founder and Chief Executive Officer

Chris Greiner — Chief Financial Officer

DJ Hynes — Analyst

Arjun Bhatia — Analyst

Richard Baldry — Analyst

Rich Baldry — Analyst

Ryan MacDonald — Analyst

Terry Tillman — Analyst

Jackson Ader — Analyst

Matt Swanson — Analyst

Jason Kreyer — Analyst

Elizabeth Porter — Analyst

Koji Ikeda — Analyst

Zach Cummins — Analyst

Clark Wright — Analyst

Brian Schwartz — Analyst

Ryan MacWilliams — Analyst

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