Zeta Global Holdings Corp. Q3 FY2021 earnings

Zeta Global Holdings reported total revenue of $115.1 million for FY2021 Q3, up 20.8% from the prior-year quarter. Year-to-date revenue was $323.5 million, up 27.5%. The press release notes revenue grew 21% as reported and 25% excluding $3 million of prior year Presidential cycle revenue. Direct platform revenue made up 74% of total revenue compared to 66% in the third quarter of 2020. Six of the ten largest industry verticals grew greater than 30%. The company booked six multi-year deals for $16 million in total contract value with over 90% recurring revenue. Scaled customer count was 347 compared to 343 in the second quarter of 2021. Scaled customer ARPU was over $320,000 compared to $299,000 in the second quarter of 2021. The cost of revenue percentage was 37.6% excluding stock based compensation, down 510 basis points from the third quarter of 2020 and down 160 basis points sequentially.

GAAP profitability moved sharply lower. Operating loss was $66.9 million for the quarter compared with operating income of $0.6 million in the prior-year quarter. Operating margin fell to -58.1% from 0.7%. Net loss was $69.1 million compared with a net loss of $13.0 million. Diluted loss per share was $0.53 compared with a loss per diluted share of $0.51. On a year-to-date basis, operating loss was $187.3 million compared with an operating loss of $14.7 million, and net loss was $188.4 million compared with a net loss of $44.4 million. Year-to-date diluted loss per share was $2.60 compared with $1.70. Year-to-date operating margin was -57.9% compared with -5.8%. The operating loss was driven primarily by stock-based compensation expense. Zeta estimates approximately $800 million of future stock-based compensation expense related to pre-IPO grants. The graded vesting attribution method will result in greater stock-based compensation expense in the first 1-2 years and lower expense in years 3-6.

Cash generation improved. Operating cash flow was $10.2 million for the quarter, up 45.8% from $7.0 million. Year-to-date operating cash flow was $23.4 million, up 40.4%. Capital expenditures were $2.5 million, up 184.6% from $0.9 million. Year-to-date capital expenditures were $6.9 million, up 261.7%. Deferred revenue, current portion, was $2.7 million at September 30, 2021. Adjusted EBITDA was $16.0 million, an increase of 30% compared to $12.3 million. Adjusted EBITDA margin was 13.9% compared to 12.9%. Year-to-date adjusted EBITDA was $40.4 million compared to $21.8 million, and year-to-date adjusted EBITDA margin was 12.5% compared to 8.6%.

Guidance reflects the growth momentum. For the fourth quarter of 2021, Zeta expects revenue of $121 million to $124 million, a year-over-year increase of 6% to 9%, or 19% to 21% excluding $12 million of non-recurring revenue from the U.S. presidential election in the fourth quarter of 2020. Adjusted EBITDA is guided to $20.6 million to $21.1 million, a year-over-year increase of 16% to 19%, with an adjusted EBITDA margin of 16.6% to 17.4%. For the full year 2021, revenue guidance increased to $445 million to $448 million from $432 million to $436 million, representing a year-over-year increase of 21% to 22%, or 26% to 27% excluding $15 million of non-recurring revenue from the U.S. presidential election in the second half of 2020. Full year adjusted EBITDA guidance increased to $61.0 million to $61.5 million from $55.5 million to $57.5 million, a year-over-year increase of 54% to 55%, with an adjusted EBITDA margin of 13.6% to 13.8%. The midpoint of full year revenue guidance increased by $12.5 million to $446.5 million, and the midpoint of adjusted EBITDA guidance increased by $4.8 million to $61.3 million.

Risks remain. COVID-19 has affected scaled customers in travel and hospitality and financial services. Total scaled customers decreased from 354 to 347. The company expects customers in those industries to return to spending levels comparable to or greater than historical levels, but pandemic-related growth may decrease. Other risks include data privacy, security breaches, reliance on third-party data centers, and email delivery standards. Zeta completed the acquisition of the digital survey platform of Apptness on October 4, 2021, which adds $2 million to revenue guidance. The company carries long-term borrowings under a Senior Secured Credit Facility. Covenants restrict additional debt, liens, investments, dividends, and other actions. Zeta states it is in compliance with its financial maintenance covenants.