Zeta Global Holdings Corp. Q2 FY2021 earnings

Zeta Global's first quarter as a newly public company delivered accelerating growth alongside a much wider GAAP loss. Total revenue reached $106.9 million, up 38.6% from $77.13 million in the prior-year quarter. First-half revenue of $208.36 million rose 31.5% from $158.39 million. Management described the growth contribution as balanced between new and existing customers and pointed to its shift toward a hunter/farmer sales model as a driver. Direct platform revenue climbed to 77% of the total from 74% in the previous quarter, a mix shift the company ties to stronger operating leverage. Double-digit growth appeared in 12 of 15 verticals, with US revenue up 39% and international up 33%.

The profitability picture worsened sharply on a reported basis. The operating loss widened to $122.3 million from $6.6 million, and operating margin dropped to -114.4% from -8.6%. Stock-based compensation tied to the June IPO drove most of the swing, along with IPO related expenses. Net loss widened to $94.9 million from $15.1 million, and diluted loss per share widened to $1.92 from $0.58. For the six months, the net loss was $119.30 million and diluted loss per share was $3.01. Adjusted EBITDA, a non-GAAP measure that excludes that compensation and other items, was $11.4 million compared with $5.5 million, up 106% year over year.

Operationally, Zeta added 30 new logos during the quarter. Scaled customers, those billed more than $100,000 over the trailing twelve months, rose to 343 from 333 in the previous quarter, though the MD&A notes a decline from 357 a year earlier as travel, hospitality and financial services clients trimmed spending during the pandemic. Scaled customer ARPU reached $299,000, up from $289,000 sequentially and up 44% year over year. Net revenue retention was 122% as of year end 2020. The company grew its identity graph to more than 515 million individuals globally and more than 225 million in the US, and connected TV revenue grew nearly 500%. Key wins included displacing a competitor at a top retailer and standing up a customer data platform in days for a travel and hospitality company. A multi-year partnership with Dun & Bradstreet adds a B2B channel and another scaled customer.

Cash generation improved modestly. Operating cash flow for the first half was $13.20 million, up 36.5% from $9.67 million, while capital expenditures for the same period rose to $4.38 million from $1.02 million. The June IPO brought net proceeds of about $132.7 million, lifting cash and cash equivalents to $113.6 million. Long-term borrowings stood at $183.4 million after a February refinancing, and the accumulated deficit reached $361.6 million. The current portion of deferred revenue slipped 10.9% to $3.61 million from $4.05 million.

Guidance points to continued growth, though the comparables get harder. For the third quarter, management guides revenue of $108 million to $111 million, a year-over-year increase of 13% to 16%, or 17% to 20% after excluding $3 million of non-recurring US presidential election revenue from the third quarter of 2020, with adjusted EBITDA of $13.0 million to $13.5 million. For the full year 2021, revenue guidance is $432 million to $436 million, up 17% to 19%, or 22% to 24% excluding $15 million of presidential cycle revenue from the second half of 2020, with adjusted EBITDA of $55.5 million to $57.5 million. Risks include lingering COVID-19 effects on travel, hospitality and financial services customers, dependence on collecting and using consumer data, possible changes to email delivery standards, security breaches, disruption at third-party data centers, restrictive covenants on the senior secured facility, and a full valuation allowance against US deferred tax assets.