Zeta Global Holdings Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated financial statements; amounts below are in millions unless noted.
Business context
Zeta is a marketing technology company whose platform uses proprietary data, artificial intelligence and software to help enterprises acquire, retain and grow customer relationships across digital channels. The company reports as one operating segment.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $137.3 | $106.9 | $263.6 | $208.4 |
| Revenue growth | 28.4% | 26.5% | ||
| Operating loss | $(77.1) | $(122.3) | $(145.2) | $(120.4) |
| Net loss | $(86.0) | $(94.9) | $(158.0) | $(119.3) |
| Adjusted EBITDA (non-GAAP) | $18.6 | $11.4 | $37.3 | $24.4 |
| Adjusted EBITDA margin (non-GAAP) | 13.5% | 10.7% | 14.2% | 11.7% |
| Operating cash flow | $35.9 | $13.2 |
Q2 basic and diluted loss per share was $0.63, compared with $1.92 a year earlier. For the first half, loss per share was $1.17 versus $3.01. The company reported substantial stock-based compensation: $82.3 million in Q2 and $156.1 million in the first half. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, stock-based compensation.
Cost of revenue excluding depreciation and amortization was $50.2 million in Q2 and $92.0 million for the first half. Approximate gross margin on that basis was 63.4% and 65.1%, respectively; these are calculated from reported revenue and cost of revenue and are not company-presented GAAP metrics.
Material changes versus comparable periods
- Q2 revenue increased $30.4 million year over year, attributed to $23.3 million from new customers and $7.1 million from existing customers. First-half growth was $55.2 million: $36.2 million from new customers and $19.0 million from existing customers.
- Scaled customers rose 9% to 373 from 343. Q2 scaled-customer ARPU increased 19% to $355,411 from $299,315.
- Q2 net loss narrowed year over year, while first-half net loss widened. First-half selling and marketing expense rose 41.2% and G&A rose 28.2%, driven partly by stock compensation and higher employee-related costs; revenue growth and higher operating cash flow did not eliminate GAAP losses.
- Direct platform revenue represented 81% of first-half revenue, up from 76%; integrated platform revenue fell to 19% from 24%.
Cash, debt and liquidity
- Cash and cash equivalents were $110.8 million at June 30, up from $103.9 million at year-end. Working capital was $84.2 million.
- First-half cash flow: $35.9 million provided by operations, $29.3 million used in investing and $0.2 million provided by financing. Investing included $9.2 million for acquisitions, $11.5 million in capital expenditures and $8.6 million in software development.
- Long-term borrowings were $185.0 million principal, or $183.8 million net of financing costs. The secured facility matures February 2026, bears variable LIBOR-based interest, and had a 3.0% effective rate for the first half. $31.9 million remained undrawn, subject to a $1.2 million letter of credit. The company reported compliance with its financial covenants.
- Management said cash, anticipated operating cash flow and available borrowing capacity should cover working-capital needs for at least 12 months, while cautioning that underperformance could adversely affect liquidity.
Outlook, risks and unusual items
- The filing provides no numerical revenue or earnings guidance. Management expects to continue investing in marketing and R&D and expects G&A to rise in absolute dollars; it anticipates cost of revenue may decline as a percentage of revenue over the long term.
- ArcaMax was acquired in March 2022 for estimated consideration of $26.9 million, including cash, shares and contingent earn-outs. The preliminary allocation included $18.5 million of goodwill. Acquisition-related liabilities rose to $38.8 million, including a $10.8 million first-half fair-value expense. An $8.0 million eBay CRM-related liability remains contested; ultimate settlement could be higher or lower than accrued.
- Key disclosed risks include data collection and privacy/regulatory changes, cybersecurity and third-party infrastructure disruptions, customer retention and growth, operating-result variability, and COVID-19 impacts. A 1 percentage-point interest-rate change would affect annual interest expense by about $1.9 million, based on reported debt.
- After quarter-end, the board authorized a share repurchase program of up to $50 million through December 31, 2024, and an executive restricted-stock tax-withholding alternative. Neither requires a specific amount of repurchases; both may reduce cash. The filing also warns that post-lockup share sales and tax withholding could pressure the share price or liquidity.
- Management reported effective disclosure controls at June 30, 2022 and no material change in internal control over financial reporting during the quarter. The company reported no litigation expected to have a material adverse effect, while noting ordinary-course proceedings and the contested acquisition liability.
Investor verification priorities
- Check the reconciliation and persistence of non-GAAP adjusted EBITDA against GAAP losses, especially the scale and expected recognition of stock-based compensation.
- Assess whether customer additions, scaled-customer growth and ARPU can be sustained, and verify customer retention and revenue concentration trends.
- Review cash conversion, working-capital movements and the size and timing of planned investment and acquisition spending.
- Confirm debt covenant headroom, floating-rate exposure, available revolver capacity and the settlement range for acquisition-related liabilities.
- Track dilution, share sales after lockup expiration, executive tax-withholding cash requirements and any actual repurchases under the newly authorized program.