Zeta Global Holdings Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited financial statements; amounts below are in millions of U.S. dollars unless otherwise stated. Zeta provides an omnichannel marketing technology platform using proprietary data, AI and software.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $126.3 | $101.5 | Up 24.4% |
| Cost of revenue, excluding D&A | $41.7 | $39.0 | Up 7.1% |
| Gross profit, calculated | $84.5 | $62.5 | Gross margin: 66.9% vs. 61.6% |
| Operating loss / income | ($68.1) | $1.9 | Operating margin: (53.9)% vs. 1.9% |
| Net loss | ($72.0) | ($24.4) | Net loss margin: (57.1)% vs. (24.0)% |
| Adjusted EBITDA (non-GAAP) | $18.8 | $13.0 | Margin: 14.9% vs. 12.8% |
| Cash from operating activities | $21.2 | $5.6 | Cash generation improved despite larger GAAP loss |
| Cash used in investing activities | ($20.4) | ($6.8) | Included acquisition spending and higher capital expenditures |
Cash and cash equivalents were $103.9 million at quarter-end, nearly unchanged from December 31, 2021. Working capital was $78.8 million. Current assets were $188.0 million and current liabilities $109.2 million. Long-term borrowings were $185.0 million gross, or $183.7 million net of unamortized financing costs. The $222.5 million senior secured facility matures February 3, 2026; $36.1 million of capacity remained undrawn, before a $1.2 million letter of credit. The company reported compliance with its financial covenants.
Material changes versus the prior comparable period
- Revenue increased by $24.8 million: management attributed $19.3 million to new customers and $5.5 million to existing customers. Scaled customers rose 8% to 359, and scaled-customer ARPU rose 18% to $341,265.
- Direct-platform revenue increased to 81% of revenue from 74%; integrated-platform revenue declined to 19% from 26%.
- GAAP operating results deteriorated substantially, with operating expenses rising to $194.3 million from $99.6 million. Stock-based compensation was $73.7 million, compared with none reported in Q1 2021, and was the principal driver of the increase in general and administrative, selling and marketing, and research and development expenses.
- Interest expense fell to $1.3 million from $3.0 million. Q1 2021 included a $23.6 million charge for changes in fair value of warrants and derivative liabilities; those liabilities had been extinguished in the 2021 IPO, so there was no comparable Q1 2022 charge.
- Operating cash flow improved to $21.2 million, with non-cash adjustments—including stock-based compensation—substantially offsetting the net loss. Investing outflows increased, including $9.2 million for acquisitions, $6.7 million of capital expenditures and $4.5 million of software development costs.
Outlook, management commentary, risks and unusual items
- No quantified revenue, earnings or cash-flow guidance is provided. Management said existing cash, expected operating cash flow and available credit should cover working-capital needs for at least the next 12 months, while cautioning that weaker-than-expected operating performance could adversely affect liquidity.
- Management expects continued investment in selling and marketing and research and development. It expects cost of revenue to decline as a percentage of revenue over the long term; general and administrative expense, excluding accelerated stock compensation, to remain broadly consistent as a percentage of revenue over the long term; and research and development expense to increase as a percentage of revenue over the long term.
- In March, Zeta acquired ArcaMax for reported aggregate consideration of $26.9 million, comprising cash, 926,785 shares, and contingent consideration and other amounts. The preliminary allocation included $18.5 million of goodwill. The acquisition added a newsletter business with an opted-in audience of four million readers.
- Acquisition-related liabilities totaled $34.1 million, including a contested $8.0 million liability associated with the eBay CRM acquisition. The company said the final resolution could be higher or lower than the accrual. Changes in fair value of acquisition-related liabilities contributed to Q1 other expenses.
- The $185.0 million credit facility carries a variable LIBOR-based rate. The filing estimates that a one-percentage-point rate move would change annual interest expense by approximately $1.9 million. Covenants restrict, among other matters, additional debt, share repurchases and dividends.
- Other stated risks include customer and partner exposure to COVID-19, operating-result volatility, competition and product investment, dependence on online data collection and changing privacy rules or platform policies, email-delivery standards, cybersecurity and third-party infrastructure. Management reported no material change to previously disclosed risk factors and no material effect from inflation.
- Management said disclosure controls were effective at the reasonable-assurance level as of March 31, 2022; it reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue growth and customer expansion continue, and whether the shift toward direct-platform revenue is sustained.
- The scale, timing and potential dilution of stock-based compensation: $73.7 million was recognized in Q1, with $518.4 million of unrecognized compensation expense reported.
- Progress toward improving GAAP operating profitability, alongside adjusted EBITDA; review the company’s non-GAAP reconciliation and excluded items.
- Operating cash flow quality and cash needs, including the effects of working capital, capital expenditures, software investment and further acquisitions.
- Debt-service capacity under variable interest rates, continued covenant compliance and available revolver capacity.
- Final ArcaMax purchase accounting and earn-outs, other acquisition-related obligations, and the outcome or revised estimate of the contested $8.0 million eBay CRM liability.