Zeta Global Holdings Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures compared with December 31, 2023. Unaudited, consolidated U.S. GAAP financial statements. All dollar amounts below are in millions except per-share amounts and customer metrics.
Business context
Zeta operates a marketing technology platform using proprietary data, AI and software to help enterprises acquire, retain and grow customer relationships across digital channels. It reports as one operating segment. U.S. revenue was $188.2 million, or about 96% of total revenue; international revenue was $6.8 million.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $194.9 | $157.6 | Up 23.7% |
| Cost of revenue, excluding D&A | $76.9 | $54.4 | Up 41.4% |
| Gross profit / gross margin, calculated | $118.1 / 60.6% | $103.3 / 65.5% | Margin down 4.9 percentage points |
| Operating loss / margin | $(35.9) / (18.4)% | $(52.4) / (33.3)% | Loss narrowed |
| Net loss / basic and diluted loss per share | $(39.6) / $(0.23) | $(57.0) / $(0.38) | Loss narrowed |
| Adjusted EBITDA / margin (non-GAAP) | $30.5 / 15.6% | $24.0 / 15.3% | Up 26.9%; margin up 0.3 points |
| Cash from operating activities | $24.7 | $20.1 | Up $4.6 |
Revenue growth reflected $28.5 million from new customers and $8.8 million from existing customers. Cost of revenue rose primarily with $22.5 million of incremental media costs, weighing on GAAP gross margin. Stock-based compensation was $52.6 million, down from $64.5 million a year earlier; it is a substantial expense and a major adjustment in the company’s non-GAAP EBITDA reconciliation.
Scaled customers increased 12% to 460, including 144 super-scaled customers versus 110 a year earlier. Scaled-customer quarterly ARPU rose 11% to $415,743; super-scaled customer ARPU was $1.1 million versus $1.2 million. Direct platform revenue was 67% of total, down from 71%, while integrated platform revenue rose to 33% from 29%.
Financial position, cash flow and debt
- Cash and cash equivalents were $141.6 million, versus $131.7 million at year-end. Current assets were $310.9 million and current liabilities $164.4 million; reported net working capital was $146.5 million.
- Long-term borrowings were $184.2 million net of financing costs; gross principal was $185.0 million. Cash exceeded gross debt by approximately $43.4 million. The secured, variable-rate facility matures February 3, 2026; its effective interest rate was 7.6%. A 1 percentage-point rate change would alter annual interest expense by about $1.9 million.
- The facility had $34.4 million undrawn, with a $1.2 million letter of credit outstanding. The company reported compliance with financial covenants at quarter-end. Required principal repayments are $16.9 million in 2025 and $168.1 million in 2026; management intends to use revolver availability to pay term-loan installments.
- Operating cash flow was $24.7 million; investing used $9.5 million, primarily for capital expenditures ($5.8 million) and software development ($3.6 million); financing used $5.2 million, including share repurchases and acquisition-liability payments. Cash increased $9.9 million during the quarter.
Changes, outlook and material matters
- Compared with Q1 2023, revenue grew strongly and net and operating losses narrowed. However, cost of revenue grew faster than revenue, and reported gross margin declined. Operating expenses included higher R&D and D&A, offset in part by lower G&A and selling and marketing expenses.
- Management said existing cash, expected operating cash flow and available credit should be sufficient for working-capital needs for at least 12 months and thereafter for the foreseeable future, while warning that weaker-than-expected operating performance could adversely affect liquidity. The filing provides no specific revenue, earnings or cash-flow guidance for 2024.
- Remaining performance obligations were approximately $87.4 million expected within 12 months and $108.4 million thereafter. These obligations are subject to economic, counterparty and other risks.
- The company repurchased 324,753 shares for $3.5 million during the quarter at an average $10.67 per share; approximately $21.5 million remained under the repurchase program. The program is authorized through December 31, 2024.
- Acquisition-related liabilities were $18.6 million, including contingent consideration; remeasurement increased expenses by $0.5 million. Management said ordinary-course litigation and administrative matters were not expected to have a material impact. Purchase commitments totaled $43.5 million.
- Key risks cited include retaining and expanding scaled customers, competition and execution of growth, privacy and data-protection requirements, changes to data collection by browsers and mobile systems, cybersecurity and third-party service disruptions, and evolving AI regulation. The company also has exposure to variable interest rates and foreign-currency movements.
- Management reported effective disclosure controls as of March 31, 2024 and no material change in internal control over financial reporting during the quarter. Subsequent to quarter-end, the company approved additional PSU, restricted-stock-unit and option awards.
Important facts for investors to verify
- Whether customer growth and higher scaled-customer usage can continue, and whether integrated-channel mix and media costs affect gross margin.
- How much of adjusted EBITDA reflects recurring operating performance versus exclusions, particularly stock-based compensation; compare the non-GAAP measure with GAAP losses and cash flow.
- Cash conversion and working-capital trends, including receivables, payables and the gap between operating cash flow and net loss.
- Ability to service and refinance the $185.0 million variable-rate debt, maintain covenant compliance and meet the 2026 maturity; monitor interest-rate exposure and available revolver capacity.
- Potential dilution from substantial unvested awards and subsequent grants, alongside continued share repurchases.
- Execution and collection of reported remaining performance obligations, and the eventual cash cost of acquisition-related liabilities and purchase commitments.