Zeta Global Holdings Corp. Q1 FY2022 earnings

Zeta Global entered fiscal 2022 with top-line growth and a wider GAAP loss. Revenue was $126.3 million for the first quarter ended March 31, 2022, up 24.4% from $101.5 million in the prior-year quarter. Direct platform revenue made up 81% of total revenue, compared with 74% in the first quarter of 2021 and 77% in the fourth quarter of 2021. Integrated platform revenue was 19% of total revenue, compared with 26% in the prior-year quarter. The company added 4 new scaled customers and ended the quarter with 359 scaled customers, compared with 355 at the end of the fourth quarter of 2021. Scaled customer ARPU rose 18% to $341,265 from $289,275 in the prior-year quarter. Management said sales pipelines are expanding and win rates are robust.

Profitability swung sharply on a GAAP basis. Zeta reported an operating loss of $68.1 million in the first quarter, compared with operating income of $1.9 million in the prior-year quarter. Operating margin was negative 53.9%, down from positive 1.9%. The net loss widened to $72.0 million from $24.4 million in the prior-year quarter. Diluted loss per share was $0.54, compared with a diluted loss per share of $0.86 in the first quarter of 2021. The company said the GAAP net loss was driven primarily by stock-based compensation. On a non-GAAP basis, adjusted EBITDA was $18.8 million, up 44% from $13.0 million in the prior-year quarter. Adjusted EBITDA margin was 14.9%, compared with 12.8%. Cost of revenue excluding stock-based compensation improved by 630 basis points year over year to 32.1%.

Cash flow was a bright spot. Cash from operating activities was $21.2 million, up 277% from $5.6 million in the prior-year quarter. Free cash flow, a non-GAAP measure that deducts capital expenditures and website and software development costs, was $9.7 million, compared with $1.0 million in the prior-year quarter. Capital expenditures were $6.7 million, up from $0.2 million in the prior-year quarter. Deferred revenue, current portion, stood at $5.7 million. The company continued to invest in acquisitions, data and partnership agreements, and platform development. Zeta said existing cash and anticipated net cash provided by operating activities, together with available borrowings under its credit facility, should be sufficient to meet working capital requirements for at least the next 12 months.

Guidance points to continued growth. For the second quarter of 2022, management guided to a year-over-year increase of 20% to 23% and adjusted EBITDA of $16.9 million to $17.4 million, up 48% to 52%, with an adjusted EBITDA margin of 12.8% to 13.6%. For full year 2022, the company raised revenue guidance to $553 million to $563 million from $540 million to $550 million, which represents a year-over-year increase of 21% to 23%. It also raised adjusted EBITDA guidance to $83.4 million to $86.4 million from $80 million to $83 million, representing a year-over-year increase of 32% to 37%, with an adjusted EBITDA margin of 14.8% to 15.6%. Management tied the outlook to its Zeta 2025 plan.

Risks remain substantial. The company cited a tough macro economy, large technology companies eliminating tracking tools, and its own lack of dependence on IDFA or third-party cookies. It also flagged the war in Ukraine, supply chain disruptions, debt covenants, data privacy and security concerns, and potential disruption to third-party data centers. Other named risks include potential fluctuations in operating results, the ability to attract and retain customers, the ability to manage growth, and standards that private entities and inbox service providers adopt for email. If operating performance weakens, liquidity and the ability to operate the business could be adversely affected. The quarter showed strong demand for the platform and better cash generation, but the GAAP bottom line remains deeply negative.