Zeta Global Holdings Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; the filing also reports fourth-quarter results. Financial amounts below are in U.S. dollars. Annual statement amounts are shown in millions unless otherwise noted.
Business context
Zeta provides an omnichannel marketing and consumer-intelligence platform, combining proprietary data, artificial intelligence and marketing automation. Revenue comes mainly from platform subscriptions, usage-based fees and professional services. The company reported one operating segment. It completed its IPO in June 2021, raising approximately $132.7 million net of underwriting discounts and commissions, before other offering expenses.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $458.3 million | $368.1 million |
| Operating loss | $(248.4) million | $(8.1) million |
| Net loss | $(249.6) million | $(53.2) million |
| Adjusted EBITDA (non-GAAP) | $63.3 million | $39.6 million |
| Adjusted EBITDA margin (non-GAAP) | 13.8% | 10.8% |
| Cash from operating activities | $44.3 million | $35.5 million |
| Cash used in investing activities | $(46.8) million | $(25.2) million |
| Cash from financing activities | $55.7 million | $2.8 million |
Revenue increased 24.5%, with approximately $39.0 million from existing customers, $40.2 million from new customers and $11.0 million from 2021 acquisitions. GAAP operating and net losses widened substantially, primarily reflecting $259.2 million of stock-based compensation recognized in 2021, compared with $0.1 million in 2020. The reported net loss margin was 54.4% negative, versus 14.5% negative in 2020. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock-based compensation.
Fourth quarter: Revenue was $134.8 million, compared with $114.4 million in Q4 2020. Net loss was $61.1 million, compared with $8.8 million. Q4 2021 operating loss was $61.2 million; substantial stock-based compensation contributed to the loss.
Liquidity and debt: At December 31, 2021, cash and cash equivalents were $103.9 million and net working capital was $90.3 million. Long-term borrowings were $183.6 million on the balance sheet; gross facility borrowings were $185.0 million. The senior secured facility matures February 2026, bears variable LIBOR-based interest and is secured by substantially all assets. The company reported covenant compliance and said available cash, expected operating cash flow and facility availability should cover working capital needs for at least 12 months. The filing reports $286.3 million of contractual obligations, including borrowings, leases and purchase obligations.
Material changes versus the prior year
- Scaled customers increased to 355 from 336; they generated 96% of revenue in both years. Scaled customer average revenue per user rose 18% to $1.24 million.
- Annual net revenue retention increased to 113.3% from 104.4%. Channels per scaled customer rose to 1.9 from 1.4.
- Direct platform revenue rose to 76% of revenue from 68%; integrated platform revenue fell to 24% from 32%.
- Operating expenses rose to $706.7 million from $376.2 million, driven especially by stock compensation following the IPO and changes to award vesting. The company had $540.4 million of unrecognized stock-based compensation at year-end, expected to be expensed over a weighted average 1.28 years, subject to forfeitures.
- Cash increased to $103.9 million from $50.7 million. Operating cash flow increased, while investing outflows included $20.1 million for acquisitions, $17.3 million for software development and $9.5 million in capital expenditures.
- Debt was refinanced in February 2021; reported interest expense declined to $7.0 million from $16.3 million. The $10 million PPP loan was forgiven, producing a $10 million gain on extinguishment of debt.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided. Management expects to continue investing in sales, research and development, marketing, international expansion and B2B opportunities; it expects some operating expenses to increase in absolute dollars.
- Management expects seasonal marketing patterns to continue, typically with stronger fourth-quarter activity and weaker first-quarter activity. It described long-term prospects as strong but noted uncertainty from COVID-19, inflation, interest rates and customer spending patterns.
- Key risks include privacy and data-use regulation, changes to browser and mobile tracking, cybersecurity and third-party infrastructure, email deliverability, intense competition, reliance on scaled customers and usage-based revenue, and customer payment or credit risk. GDPR-related proceedings in Norway included a notice of intent to impose a fine; the company disputed the allegation and said the potential penalty was not reasonably estimable.
- An $8.0 million eBay CRM acquisition-related liability remained contested at year-end. In January 2022, the company agreed to settle a separate Sizmek dispute for $1.085 million in cash and 100,000 Class A shares.
- The company said material weaknesses in internal controls identified for 2019 and 2020 were remediated during 2021. Management concluded disclosure controls were effective at year-end; the filing includes no auditor attestation on internal control over financial reporting due to the transition period for newly public companies.
- The dual-class structure gives Class B shares ten votes per share; the CEO and affiliates held 70.8% of voting power at year-end. The company does not intend to pay cash dividends currently.
Important facts for investors to verify
- How much of future GAAP losses and dilution will result from the large unrecognized stock-based compensation balance, and how does underlying performance compare with adjusted EBITDA?
- Whether customer expansion, retention and usage growth persist, particularly given the usage-based revenue mix and customer flexibility to reduce spend.
- Cash generation, acquisition spending and the company’s ability to service variable-rate secured debt while meeting facility covenants and contractual commitments.
- Developments in the Norwegian GDPR matter and other privacy rules, data access and platform security that could affect the company’s data assets and operations.
- Progress in sustaining effective financial controls after remediation, and the effect of concentrated voting control on shareholder governance.