Zeta Global Holdings Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; the filing was signed February 28, 2024. Unless noted, amounts below are in U.S. dollars and millions. This is an annual report, not a standalone Q4 filing.
Business context
Zeta provides enterprise marketing automation and consumer-intelligence software through its Zeta Marketing Platform, combining data management, messaging, paid-media activation and analytics. Revenue comes primarily from platform subscriptions, usage-based fees and professional services. The company reports one operating segment. It had 1,242 customers, including 452 scaled customers and 131 super-scaled customers, at year-end; scaled customers generated 97% of FY2023 revenue.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $728.7 | $591.0 | +23.3% |
| Cost of revenue, excluding depreciation and amortization | $274.5 | $215.5 | +27.4% |
| Operating loss | $(167.7) | $(259.0) | Loss narrowed |
| Net loss | $(187.5) | $(279.2) | Loss narrowed |
| Adjusted EBITDA, non-GAAP | $129.4 | $92.2 | +40.4% |
| Adjusted EBITDA margin, non-GAAP | 17.8% | 15.6% | +2.2 percentage points |
| Operating cash flow | $90.5 | $78.5 | +15.3% |
Revenue less the reported cost-of-revenue line was 62.3% of revenue in 2023, compared with 63.5% in 2022; this calculation excludes depreciation and amortization and is not a fully stated GAAP gross margin. GAAP net loss margin improved to 25.7% negative from 47.3% negative. Basic and diluted loss per share was $(1.20), versus $(2.01).
FY2023 revenue growth included $102.2 million from new customers (including approximately $5.5 million from acquisitions) and $35.6 million from existing customers. Scaled-customer count rose 12%; scaled-customer average revenue per customer increased 10% to $1.572 million. Annual net revenue retention was 110.9%, versus 111.5% in 2022. Fourth-quarter 2023 revenue was $210.3 million and net loss was $35.3 million; the supplied filing text does not provide a clear comparable Q4 2022 result.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $131.7 million, versus $121.1 million; net working capital was $133.4 million. Accounts receivable rose to $170.1 million from $106.3 million.
- Operating cash flow was $90.5 million; investing cash outflow was $54.2 million and financing cash outflow was $25.7 million. Cash flow from operations was supported by $242.9 million of non-cash stock-based compensation, while receivables growth used $64.1 million of cash.
- Debt principal was $185.0 million, or $184.1 million net of unamortized financing costs, compared with $185.0 million principal at the end of 2022. The secured, variable-rate facility matures February 3, 2026; its effective interest rate was 7.3%. A 1 percentage-point rate change would affect annual interest expense by approximately $1.9 million.
- The facility had $45.6 million undrawn at year-end, subject to a $1.2 million letter of credit. The company reported covenant compliance and expects available cash, operating cash flow and borrowing availability to cover needs for at least 12 months.
- Contractual obligations totaled $243.5 million, including $185.0 million of borrowings, $48.5 million of purchase obligations and $10.1 million of operating leases.
Changes, outlook and material risks
- Cost of revenue grew faster than revenue, primarily due to $61.2 million of incremental media costs. Lower stock-based compensation helped reduce general and administrative and selling and marketing expenses; stock-based compensation remained substantial at $242.9 million.
- Interest expense rose 49.8% to $10.9 million amid higher rates. The company recorded $2.8 million of restructuring expense and $7.1 million of gains/losses from changes in acquisition-related liability fair values within other expenses.
- Management plans continued investment in sales capacity, research and development, AI, international expansion and B2B opportunities. It expects seasonal marketing patterns to continue, with activity generally higher in Q4 and lower in Q1. The filing provides no specific numerical revenue or earnings guidance.
- Key business risks include customer retention and expansion, usage-based revenue variability, long sales cycles, customer concentration (top ten customers generated about one-third of revenue), customer credit and collections, competition, and dependence on third-party data and technology providers.
- Privacy, data-protection and cybersecurity risks are significant given reliance on consumer data and marketing channels. The company reported no known cybersecurity threats or prior incidents that materially affected, or were reasonably likely to materially affect, it. It disclosed a 2021 Norwegian data-protection authority notice of intent to impose a fine concerning cookie data collection; Zeta contests the allegation and reported no correspondence since July 2022.
- Zeta and senior executives received SEC subpoenas in an investigation concerning Kubient, Inc., with a parallel U.S. Attorney’s Office investigation. Zeta says its Kubient business was quantitatively insignificant, ended in 2020, and that it is cooperating. Management said it was not party to other litigation expected to have a material adverse effect.
- Other investor considerations include $20.3 million of acquisition-related liabilities, a full valuation allowance against U.S. deferred tax assets, and founder control: the CEO and affiliates held 65.4% of voting power at year-end through the dual-class structure.
Investor facts to verify
- Track whether customer additions, scaled-customer expansion and retention sustain revenue growth, and whether usage-based demand and customer collections convert into cash.
- Assess the quality of operating cash flow in light of the large stock-based compensation add-back and sharp increase in accounts receivable.
- Monitor the effect of media costs, stock-based compensation and share issuance on GAAP losses, margins and dilution.
- Review variable-rate debt, covenant headroom, required repayments and liquidity relative to purchase obligations and acquisition-related payments.
- Follow developments in the Kubient investigations, the Norwegian privacy matter and changing privacy, email-delivery and AI regulations.
- Note that Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; the reported critical audit matter involved revenue accounting for contracts where Zeta is both vendor and customer.