Zeta Global Holdings Corp. Q1 FY2023 earnings

Zeta Global's first quarter of fiscal 2023 delivered strong top-line growth and better customer metrics. Revenue was $157.6 million, up 24.8% from the prior-year quarter. Scaled customers reached 411, up from 403 in the fourth quarter of 2022 and 359 in the first quarter of 2022. Super-scaled customers, a subset of scaled customers, rose to 110 from 103 and 99. Scaled customer ARPU was $374,000, up 10% year over year. Super-scaled customer ARPU was $1.16 million, up 18% year over year. Direct platform revenue made up 71% of total revenue, compared with 81% in the first quarter of 2022. The mix shift is notable because management ties cost of revenue to revenue mix.

GAAP profitability remained negative, but the losses narrowed. Operating loss improved by 22.9% to $52.4 million. Net loss narrowed to $56.96 million. Diluted loss per share narrowed to -$0.38. Operating margin improved by 20.6 percentage points to -33.3%. The non-GAAP picture was profitable: Adjusted EBITDA was $24 million, up 28% from $18.8 million a year earlier. Adjusted EBITDA margin was 15.3%, compared with 14.9%. Free Cash Flow was $10 million, compared with $9.7 million. Operating cash flow was $20.1 million, down 5.1%. Capital expenditures were $5.16 million, down 23.4%. Deferred revenue, current portion only, was $3.71 million, down 34.9%. The gap between GAAP losses and non-GAAP profits remains wide, and stock-based compensation is a major reason for that gap.

Cost controls showed progress. Zeta said selling and marketing, general and administrative, and research and development expense to revenue ratios all improved year over year. The company also increased its credit facility to $247.5 million in March 2023. It repurchased $6.5 million of shares under its repurchase program. Those actions suggest management is balancing growth investment with capital returns, though the GAAP loss and the use of cash for buybacks will draw scrutiny.

Guidance points to continued growth. For the second quarter of 2023, Zeta expects revenue of $160 million to $164 million, a year-over-year increase of 17% to 19%. The range is up $2 million at the midpoint from prior guidance of $160 million. Second quarter Adjusted EBITDA guidance is $24.2 million to $24.7 million, a year-over-year increase of 30% to 33%, with an Adjusted EBITDA margin of 14.8% to 15.4%. That Adjusted EBITDA range is up $0.9 million at the midpoint from prior guidance of $23.6 million. For the full fiscal year 2023, revenue guidance is $696 million to $706 million, a year-over-year increase of 18% to 19%, and up $10 million from the midpoint of prior guidance of $686 million to $696 million. Full year Adjusted EBITDA guidance is $118.8 million to $120.6 million, a year-over-year increase of 29% to 31%, with a margin of 16.8% to 17.3%. That full year Adjusted EBITDA range is up $2.3 million from the midpoint of prior guidance of $116.5 million to $118.3 million. The Zeta 2025 plan targets more than $1 billion in annual revenue, at least 20% Adjusted EBITDA margins by 2025, and at least $110 million in Free Cash Flow by 2025.

Risks remain significant. Management described a challenging macro backdrop. The filing flags macroeconomic conditions, interest rates, inflation, the war in Ukraine, and supply chain disruptions. It also points to the need to attract and retain customers, the impact of new generative AI capabilities, and the possibility of data privacy or security breaches. Reliance on third-party data centers is another operational risk. The quarter showed improving customer counts and non-GAAP profitability, but the GAAP net loss, the mix shift away from direct platform revenue, and the uncertain macro environment keep the story balanced.