Zeta Global Holdings Corp. Q2 FY2022 earnings

Zeta Global posted second quarter fiscal 2022 revenue of $137.3 million, up 28.4% from $106.9 million in the prior-year quarter. Year-to-date revenue of $263.57 million rose 26.5% from $208.36 million. Customer metrics back up the top line. The company added a record 14 new scaled customers during the quarter and ended with 373 scaled customers, up 9% from 343 at June 30, 2021 and ahead of 359 at the end of the first quarter. Scaled customer ARPU of $355,411 for the three months ended June 30, 2022 was up 19% from $299,315.

The quarterly profit picture improved a lot. The operating loss of $77.09 million narrowed from $122.28 million in the prior-year quarter. Net loss of $86.01 million narrowed from $94.92 million, and diluted loss per share of $0.63 improved from $1.92. Operating margin moved to -56.1% from -114.4%. Mix helped. Direct platform revenue accounted for 81% of total revenue versus 77% in the second quarter of 2021, and cost of revenue fell 290 basis points year over year to 36.6%, or 390 basis points to 35.3% when stock-based compensation is excluded.

The six-month numbers are less flattering. Operating loss for the first half of fiscal 2022 was $145.15 million, wider than the $120.39 million loss a year earlier. Net loss for the six months widened to $158.05 million from $119.30 million. Diluted loss per share was $1.17, better than $3.01, mostly because the share count is far larger following the June 2021 IPO. Stock-based compensation remains the biggest swing factor in GAAP results, and management says the expense will stay elevated as the remaining unrecognized awards are recognized over the next several years.

Cash generation stands out. Operating cash flow of $14.67 million in the quarter rose 93.2% from $7.59 million. Year-to-date operating cash flow of $35.85 million was up 171.5% from $13.20 million. Free cash flow, a non-GAAP measure defined as cash from operating activities less capital expenditures and website and software development costs, was $6.2 million against negative $1.8 million a year earlier. Adjusted EBITDA, also non-GAAP, came in at $18.6 million, up 63% from $11.4 million, with margin of 13.5% versus 10.7%. Capital expenditures were $4.77 million in the quarter versus $4.18 million, and $11.51 million year to date versus $4.38 million, including a $10.3 million investment in data and partnership agreements in the first half. Deferred revenue was $5.86 million, up 62.3% from $3.61 million.

Guidance points higher. For the third quarter of 2022, Zeta expects revenue of $139 million to $143 million, up 21% to 24% year over year, and Adjusted EBITDA of $19.8 million to $20.3 million, up 24% to 27%, for a margin of 13.9% to 14.6%. For the full fiscal year 2022, revenue guidance was raised and narrowed to $560 million to $566 million from a prior range of $553 million to $563 million, representing a year-over-year increase of 22% to 24%, and Adjusted EBITDA guidance moved up to $85.8 million to $87.3 million, up 36% to 38%, for a margin of 15.2% to 15.6%.

Capital allocation shifted. The board authorized a $50 million stock repurchase program for Class A shares running through December 31, 2024, plus withholding of shares from certain executives to cover taxes when restricted stock awards vest. Zeta plans to fund both with roughly $50 million of aggregate free cash flow through the end of 2024 if market conditions cooperate. The balance sheet carries $110.8 million of cash and cash equivalents at June 30, 2022. Risks in the filings include the war in Ukraine and geopolitical tension, supply chain disruption, adverse conditions in the debt, consumer credit and financial services markets, a breach of personal or confidential data, new inbox provider rules that could interfere with email delivery, and dependence on third-party data centers. The credit agreement also limits additional debt, investments, dividends and purchases of company securities.