Zeta Global Holdings Corp. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited financial amounts below are in millions of dollars, except per-share data. Zeta is a marketing technology company offering an omnichannel, data-driven marketing platform.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $106.9 | $77.1 | $208.4 | $158.4 |
| Net loss | $(94.9) | $(15.1) | $(119.3) | $(31.4) |
| Adjusted EBITDA and margin | $11.4; 10.7% | $5.5; 7.2% | $24.4; 11.7% | $9.5; 6.0% |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $13.2 | $9.7 |
- Q2 revenue grew 38.6% year over year; first-half revenue grew 31.5%. Management attributed first-half growth to $24.6 million from existing customers and $25.3 million from new customers.
- Q2 operating loss was $122.3 million. Stock-based compensation was $119.3 million for both Q2 and the first half, following IPO-related vesting and award modifications; it accounted for much of the reported expense increase.
- At June 30, cash and cash equivalents were $113.6 million, current assets $194.4 million, current liabilities $97.0 million, and working capital $97.4 million. Long-term borrowings were $183.4 million; reported cash less borrowings was approximately $(69.9) million.
- First-half investing cash outflow was $16.1 million, including $9.5 million in website and software development, $4.4 million in capital expenditures, and $2.2 million for acquisitions. Financing cash inflow was $65.8 million.
Material changes and significant transactions
- The June IPO issued 14.8 million shares at $10 per share and generated approximately $132.7 million in net proceeds after underwriting discounts and commissions. Proceeds were used partly for employee tax withholding and share repurchases; the company also reported use for general corporate purposes. A secondary offering generated proceeds for selling stockholders, not Zeta.
- February refinancing replaced prior facilities with a $222.5 million senior secured credit facility. $185.0 million was drawn at June 30; it matures February 3, 2026, bears floating LIBOR-based interest, and includes financial and restrictive covenants. Zeta reported covenant compliance.
- The SBA forgave the $10 million PPP loan in June; Zeta recorded a $10 million gain on debt extinguishment.
- Zeta acquired Kinetic Data Solutions and Vital Digital in March. Kinetic was controlled by Zeta’s CEO; Vital had a 5% interest held by a related party. The filing says the acquisitions’ revenue and earnings were not material.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management said cash, expected operating cash generation, and available facility borrowings should fund working capital needs for at least 12 months, while cautioning that below-expectation performance could impair liquidity.
- Management reported fewer scaled customers, 343 versus 357 a year earlier, as some travel, hospitality, and financial-services customers reduced or paused spending during the pandemic. Higher scaled-customer average revenue per user and spending in sectors including insurance, automotive, and telecom supported growth. Management expects affected sectors to recover and its revised sales model to support new business, but noted pandemic-related growth may moderate.
- Material risks highlighted include customer and operating-result volatility; dependence on data collection and evolving privacy, browser, mobile-platform, and email rules; cybersecurity and third-party infrastructure; and the effects of COVID-19.
- Three previously identified material weaknesses in internal control over financial reporting remained under remediation: segregation of duties, formal risk assessment, and contemporaneous documentation/accounting analysis. Management intended to complete remediation during 2021 but said additional time may be needed. Disclosure controls were judged effective as of June 30.
- An eBay CRM acquisition-liability dispute remains in litigation. Zeta accrued the amount it expects to pay and provided a $6.0 million letter of credit; the company says a lower settlement is possible. Management stated ordinary-course litigation was not expected to have a material impact.
Important facts for investors to verify
- How recurring stock-based compensation and remaining unrecognized compensation expense affect future GAAP results, dilution, and adjusted EBITDA comparability.
- Whether customer count, scaled-customer spending, and revenue growth remain resilient as pandemic effects and customer mix change.
- Debt-facility interest costs, covenant headroom, refinancing terms, and the company’s ability to generate sustainable operating cash flow.
- Progress and independent evidence of remediation of the reported material weaknesses.
- Final acquisition purchase-price allocations, related-party transaction terms, contingent earn-outs, and the outcome of the eBay CRM liability litigation.