UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the act:
Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large-accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 28, 2022,
ZETA GLOBAL HOLDINGS CORP.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
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Item 1. |
3 |
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Condensed Unaudited Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
3 |
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4 |
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5 |
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8 |
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Notes to Condensed Unaudited Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
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Item 3. |
37 |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
40 |
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Item 4. |
40 |
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Item 5. |
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Item 6. |
41 |
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42 |
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i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. All statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations and regarding future events or our future results of operations, financial condition, business, strategies, financial needs, and the plans and objectives of management, are forward-looking statements and should be evaluated as such. These statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecast” and other similar expressions or the negative of those terms. We base these forward-looking statements on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances at such time. As you read this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of future performance or results. The forward-looking statements are subject to and involve risks, uncertainties and assumptions, and you should not place undue reliance on these forward-looking statements. Although we believe that these forward-looking statements are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our business, results of operations and financial condition and could cause actual results to differ materially from those expressed in the forward-looking statements. The following important factors, along with the factors discussed in “Risk Factors” in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, may materially affect such forward-looking statements:
You should not place undue reliance on our forward-looking statements and you should not rely on forward-looking statements as predictions of future events. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q should not be construed by you to be exhaustive and speak only as of the date of this report. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of
1
unanticipated events, except as required by law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Unless the context otherwise requires, references in this Form 10-Q to “Zeta,” “Zeta Global,” “we,” “us,” “our” or “the Company” refer to Zeta Global Holdings Corp.
WHERE YOU CAN FIND MORE INFORMATION
The Company maintains a website at the following address: https://zetaglobal.com. The information on the Company’s website is not incorporated by reference in, or otherwise to be regarded as part of, this Quarterly Report on Form 10-Q.
We make available on or through our website certain reports and amendments to those reports we file with or furnish to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.
Investors and others should note that we routinely announce material information to investors and the marketplace using SEC filings, press releases, public conference calls, webcasts, and the Zeta Global Investor Relations website at https://investors.zetaglobal.com. We use these channels as well as social media channels (e.g., the Zeta Facebook account (facebook.com/ZetaGlobal); the Zeta Instagram account (instagram.com/zetaglobal); the Zeta Twitter account (twitter.com/zetaglobal); and the Zeta LinkedIn account (linkedin.com/company/zetaglobal)) as a means of disclosing information about our business to our customers, colleagues, investors, and the public. While not all of the information that we post to the Zeta Global Investor Relations website or on our social media channels is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in Zeta to review the information that we share on the Zeta Global Investor Relations website and on our social media channels. The information on the Zeta Global Investor Relations website and the Company’s social media channels is not incorporated by reference in, or otherwise to be regarded as part of, this Quarterly Report on Form 10-Q.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Unaudited Consolidated Balance Sheets
(In thousands, except shares, per share and par values)
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As of |
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September 30, 2022 |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of $ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Non-current assets: |
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Property and equipment, net |
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Website and software development costs, net |
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Intangible assets, net |
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Goodwill |
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Deferred tax assets, net |
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Other non-current assets |
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Total non-current assets |
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$ |
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$ |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Acquisition related liabilities (current) |
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Deferred revenue |
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Other current liabilities |
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Total current liabilities |
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Non-current liabilities: |
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Long term borrowings |
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Acquisition related liabilities (non-current) |
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Other non-current liabilities |
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Total non-current liabilities |
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Total liabilities |
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$ |
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$ |
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Stockholders’ equity: |
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Class A common stock $ |
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Class B common stock $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to condensed unaudited consolidated financial statements.
3
Condensed Unaudited Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
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Three months ended September 30, |
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Nine months ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of revenues (excluding depreciation and amortization) |
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General and administrative expenses |
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Selling and marketing expenses |
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Research and development expenses |
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Depreciation and amortization |
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Acquisition related expenses |
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— |
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Restructuring expenses |
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— |
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- |
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Total operating expenses |
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$ |
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$ |
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$ |
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$ |
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Loss from operations |
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( |
) |
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( |
) |
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( |
) |
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( |
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Interest expense |
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Other expenses |
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Gain on extinguishment of debt |
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— |
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— |
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- |
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( |
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Change in fair value of warrants and derivative liabilities |
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( |
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— |
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Total other expenses |
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$ |
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$ |
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$ |
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$ |
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Loss before income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Income tax provision / (benefit) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive loss: |
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Foreign currency translation adjustment |
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Total comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Cumulative redeemable convertible preferred stock dividends |
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— |
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— |
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— |
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Net loss available to common stockholders |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Basic loss per share |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Diluted loss per share |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted average number of shares used to compute net loss per share |
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Basic |
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Diluted |
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The Company recorded following stock-based compensation under respective lines of the above unaudited consolidated statements of operations and comprehensive loss:
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Three months ended September 30, |
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Nine months ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Cost of revenues (excluding depreciation and amortization) |
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$ |
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$ |
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$ |
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$ |
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General and administrative expenses |
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Selling and marketing expenses |
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Research and development expenses |
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Total |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to condensed unaudited consolidated financial statements.
4
Condensed Unaudited Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity / (Deficit)
(In thousands, except shares)
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Class A common stock |
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Class B common stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional Paid-in Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Loss |
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Total |
Balance as of January 1, 20221 |
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$ |
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$ |
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$ |
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$( |
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$( |
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$ |
Shares issued in connection with certain agreements |
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— |
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— |
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— |
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— |
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Restricted stock grants |
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— |
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— |
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( |
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— |
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— |
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— |
Restricted stock forfeitures |
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( |
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( |
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— |
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— |
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— |
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— |
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— |
Class B common stock transferred to Class A common stock |
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( |
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( |
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— |
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— |
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— |
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— |
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Options exercised |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
Net loss |
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— |
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— |
|
— |
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— |
|
— |
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( |
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— |
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( |
Balance as of March 31, 20222 |
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$ |
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$ |
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$ |
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$( |
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$( |
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$ |
Shares issued in connection with certain agreements |
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— |
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— |
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— |
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— |
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— |
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Restricted stock grants |
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|
— |
|
— |
|
( |
|
— |
|
— |
|
— |
Restricted stock forfeitures |
|
( |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Class B common stock transferred to Class A common stock |
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|
|
|
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( |
|
( |
|
— |
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— |
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— |
|
— |
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Options exercised |
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— |
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— |
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— |
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— |
|
— |
|
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
( |
Restricted stock units vesting |
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Shares issued with connection with employee stock purchase plan |
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|
|
— |
|
— |
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— |
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— |
|
— |
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|
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
— |
|
( |
Balance as of June 30, 20223 |
|
|
|
$ |
|
|
|
$ |
|
$ |
|
$( |
|
$( |
|
$ |
Restricted stock grants |
|
|
|
|
|
— |
|
— |
|
( |
|
— |
|
— |
|
— |
Restricted stock forfeitures |
|
( |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Class B common stock transferred to Class A common stock |
|
|
|
|
|
( |
|
( |
|
— |
|
— |
|
— |
|
— |
Stock-based compensation |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
Options exercised |
|
|
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
( |
Restricted stock units vesting |
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|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
- |
Shares repurchased |
|
( |
|
( |
|
— |
|
— |
|
( |
|
— |
|
— |
|
( |
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
— |
|
( |
Balance as of September 30, 20224 |
|
|
|
$ |
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|
|
$ |
|
$ |
|
$( |
|
$( |
|
$ |
1.
2.
3.
4.
5
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Redeemable Convertible Preferred Stock |
|
Series A common stock |
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Series B common stock |
|
Class A common stock |
|
Class B common stock |
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Shares |
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Amount |
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Shares |
|
Amount |
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Shares |
|
Amount |
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Shares |
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Amount |
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Shares |
|
Amount |
Additional Paid-in Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Loss |
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Total |
Balance as of January 1, 2021 |
|
|
|
$ |
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|
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$ |
|
|
|
$ |
|
— |
|
— |
|
— |
|
— |
$ |
|
$( |
|
$( |
|
$( |
Restricted stock cancelation |
|
— |
|
— |
|
( |
|
( |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
Shares issued in connection with certain agreements |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
Restricted stock grants |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
( |
|
— |
|
— |
|
— |
Restricted stock forfeitures |
|
— |
|
— |
|
( |
|
( |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
— |
|
— |
|
|
|
|
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
— |
|
( |
|
— |
|
( |
Balance as of March 31, 2021 |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
— |
|
— |
|
— |
|
$— |
$ |
|
$( |
|
$( |
|
$( |
Conversion of Series A and Series B common shares into Class A and Class B common shares, respectively |
|
— |
|
— |
|
( |
|
( |
|
( |
|
( |
|
|
|
|
|
|
|
|
|
|
— |
|
— |
|
— |
Conversion of convertible preferred stock to Class A common stock |
|
( |
|
( |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
|
|
— |
|
— |
|
|
Warrant Exercise |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
|
|
— |
|
— |
|
|
Shares issued in connection with the Initial Public Offering |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
|
|
— |
|
— |
|
|
Equity issuance cost |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
( |
|
— |
|
— |
|
( |
Shares repurchased |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
( |
|
( |
|
( |
( |
|
— |
|
— |
|
( |
Restricted stock grants |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
( |
|
— |
|
— |
|
— |
Restricted stock forfeitures |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
( |
|
— |
|
— |
|
|
— |
|
— |
|
— |
Restricted stock units vesting |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
— |
— |
|
— |
|
— |
|
— |
Stock based compensation |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
— |
|
— |
|
( |
|
( |
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
— |
|
( |
|
— |
|
( |
Balance as of June 30, 2021 |
|
— |
|
$— |
|
— |
|
$— |
|
— |
|
$— |
|
|
|
$ |
|
|
|
$ |
$ |
|
$( |
|
$( |
|
$ |
Shares issued in connection with settlement of a dispute |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
Restricted stock grants |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
— |
|
— |
( |
|
— |
|
— |
|
— |
Restricted stock forfeitures |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
— |
|
— |
|
— |
— |
|
— |
|
— |
|
— |
Common Shares canceled |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
|
|
|
|
|
|
|
— |
|
— |
|
|
Options exercised |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
Stock based compensation |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
— |
|
— |
|
( |
|
( |
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
— |
|
( |
|
— |
|
( |
Balance as of September 30, 2021 |
|
— |
|
$— |
|
— |
|
$— |
|
— |
|
$— |
|
|
|
$ |
|
|
|
$ |
$ |
|
$( |
|
$( |
|
$ |
6
See accompanying notes to condensed unaudited consolidated financial statements.
7
Condensed Unaudited Consolidated Statements of Cash Flows
(In thousands)
|
|
Nine months ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Gain on debt extinguishment |
|
|
- |
|
|
|
( |
) |
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Change in fair value of warrants and derivative liabilities |
|
|
|
|
|
|
||
Others, net |
|
|
|
|
|
|
||
Change in non-cash working capital (net of acquisitions): |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
Other current assets |
|
|
( |
) |
|
|
|
|
Other non-current assets |
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Other non-current liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Website and software development costs |
|
|
( |
) |
|
|
( |
) |
Business acquisitions, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Cash paid for acquisition-related liabilities |
|
|
( |
) |
|
|
( |
) |
Proceeds from credit facilities, net of issuance costs |
|
|
|
|
|
|
||
Proceeds from IPO, net of issuance cost |
|
|
- |
|
|
|
|
|
Repurchase of shares |
|
|
( |
) |
|
|
( |
) |
Issuance under employee stock purchase plan |
|
|
|
|
|
- |
|
|
Exercise of options |
|
|
|
|
|
|
||
Repayments against the credit facilities |
|
|
( |
) |
|
|
( |
) |
Net cash (used for) / provided by financing activities |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Net increase in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures including non-cash activities: |
|
|
|
|
|
|
||
Cash paid for interest, net |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes, net |
|
$ |
|
|
$ |
|
||
Liability established in connection with acquisitions |
|
$ |
|
|
$ |
|
||
Capitalized stock-based compensation as website and software development costs |
|
$ |
|
|
$ |
|
||
Shares issued in connection with acquisitions and other agreements |
|
$ |
|
|
$ |
|
||
Dividends on redeemable convertible preferred stock settled in Company’s equity |
|
$ |
- |
|
|
$ |
|
|
Non-cash settlement of warrants and derivative liabilities |
|
$ |
- |
|
|
$ |
|
|
Non-cash consideration for website and software development costs |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed unaudited consolidated financial statements.
8
Notes to Condensed Unaudited Consolidated Financial Statements
(In thousands, except share and per share amounts)
1. Organization and Background
(a) Nature of Business
Zeta Global Holdings Corp., a Delaware Corporation ("Zeta" or “Zeta Global Holdings”) and Zeta Global Corp., a Delaware Corporation and the operating company (“Zeta Global” individually, or collectively with Zeta Global Holdings Corp. and its consolidated entities, as context dictates, the “Company”), is a marketing technology company that uses proprietary data, artificial intelligence and software to create a technology platform that enables marketers to acquire, retain and grow customer relationships. The Company’s technology platform powers data-driven marketing programs for enterprises across a wide range of industries and utilizes all digital distribution channels including email, search, social, mobile, display and connected TV. Zeta Global was incorporated and began operations in October 2007.
(b) Initial Public Offering (“IPO”)
On June 9, 2021, the Company’s registration statement on Form S-1 relating to the initial public offering (“IPO”) of its Class A common stock was declared effective by the Securities and Exchange Commission (“SEC”). In connection with the IPO, on June 14, 2021, the Company issued and sold
(c) Reorganization Transactions
In connection with the IPO, the Company completed the following transactions (“Reorganization Transactions”):
The number of shares outstanding as of June 14, 2021 was
9
2. Basis of Presentation and Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying condensed unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the condensed unaudited consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2021 consolidated financial statements data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2022, the results of operations, comprehensive loss and stockholders’ equity for the three-month and nine-month periods ended September 30, 2022 and 2021, respectively, and cash flows for the nine-month period ended September 30, 2022 and 2021, respectively. The results of operations for the three-month and nine-month periods ended September 30, 2022 and 2021, respectively are not necessarily indicative of the results to be expected for the full year. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, and related disclosures, as of the date of the financial statements, and the amounts of revenues and expenses reported during the period. Actual results could differ from estimates. The accompanying condensed unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the accompanying notes for the year ended December 31, 2021, which was included in Form 10-K filed with the SEC on February 25, 2022.
The accompanying condensed unaudited consolidated financial statements include the accounts of Zeta and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company’s management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.
(b) Revenue Recognition
Revenue arises primarily from the Company’s technology platform via subscription fees, volume-based utilization fees and fees for professional services designed to maximize the customer usage of technology.
Revenues are recognized when control of these services is transferred to the customers, in an amount that reflects the consideration that is expected to be entitled to an exchange for the services. Sales and other taxes collected by the Company in concurrence with the revenue-producing activities are excluded from revenues.
The Company enters into certain contracts with its vendors that involve both the purchase and sale of services with a single counterparty. The Company assesses each contract to determine if the revenue and expense should be presented gross or net. The Company recognizes revenue for these contracts to the extent that a standalone selling price is established for distinct services provided.
Contract assets and liabilities
Contract assets represent revenue recognized for contracts that have not been invoiced to customers. Total contract assets were $
Contract liabilities consists of deferred revenues that represent amounts billed to the customers in excess of the revenue recognized. Deferred revenues are subsequently recorded as revenues when earned in accordance with the Company’s revenue recognition policies. During the nine months ended September 30, 2022 and 2021, the Company billed and collected $
10
Remaining Performance Obligations
Transaction price allocated to the remaining performance obligations represents contracted revenues that have not yet been recognized, which includes unearned revenues and unbilled amounts that will be recognized as revenues in future periods. Transaction price allocated to the remaining performance obligations is influenced by several factors, including seasonality, the timing of renewals, average contract terms and foreign currency exchange rates. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes and other market factors. Remaining performance obligations excludes amounts related to professional services contracts that are billed and recognized as the services are provided on a time-and-materials basis.
As of September 30, 2022, the Company's remaining performance obligations for the next and were approximately $
Disaggregation of revenues from contract with customers
The Company reports disaggregation of revenues based on primary geographical markets and delivery channels / platforms. Revenues by delivery channels / platforms are based on whether the customer requirements necessitate integration with platforms or delivery channels not owned by the Company. When the Company generates revenues entirely through the Company platform, the Company considers it to be Direct Platform Revenues. When the Company generates revenue by leveraging its platform’s integration with third parties, it is considered Integrated Platform Revenues.
The following table summarizes disaggregation for the three and nine months ended September 30, 2022 and 2021, respectively.
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Direct platform revenues |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Integrated platform revenues |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Refer to the Company’s accounting policy on “Segments” below for more information about disaggregation based on primary geographical markets.
(c) Stock-based compensation and other stock-based payments:
The measurement of stock-based compensation for all stock-based payment awards, including restricted stock, performance stock units (“PSUs”), shares purchased under its employee stock purchase plan and stock options granted to the employees, consultants or advisors and non-employee directors, is based on the estimated fair value of the awards on the date of grant or date of modification of such grants. The Company accounts for the modification to already issued awards as per guidance in ASC 718-20-35-3 (Refer to "Note 9. Stock-Based Compensation").
The Company accounts for all stock options and restricted shares granted prior to the IPO using a fair value-based method. The fair value of each stock option granted to employees is estimated on the date of the grant using the Black-Scholes-Merton option pricing model, and the related stock-based compensation is recognized over the expected life of the option. The fair value of the restricted shares granted post-IPO is based on the Company’s closing stock price as of the day prior to the date of the grants. The Company accounts for the forfeitures, as they occur. The Company uses the graded vesting attribution method to recognize the stock-based compensation.
The Company has issued PSUs to certain employees during the nine months ended September 30, 2022 and during the year ended December 31, 2021. The Company also adopted an ESPP plan during the year ended December 31, 2021 (Refer to "Note 9. Stock-Based Compensation"). The fair value of PSU awards was determined using the Monte Carlo simulation method and for the ESPP plan using the Black-Scholes-Merton model, by a third-party valuation firm engaged by the Company. The Company recognizes the stock-based compensation related to these plans on a straight-line basis over the vesting terms associated with these plans.
11
(d) Segments
The Company operates as
Revenues by geographical region consisted of the following;
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
US |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total long-lived assets by geographical region consisted of the following;
|
|
As of |
|
|||||
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
US |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total long-lived assets |
|
$ |
|
|
$ |
|
||
(e) Concentration of Credit Risk
No customer accounted for more than
Financial instruments that potentially subject the Company to concentration risk consist primarily of accounts receivable from customers. As of September 30, 2022 and December 31, 2021, respectively, there was no customer that represented more than
New accounting pronouncements
Recently adopted:
In May 2021, the FASB issued ASU No. 2021-04 Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation- Stock Compensation (Topic 718), and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40)- Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). This amendment provides that for an entity that presents earnings per share (EPS) in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic EPS calculation. These amendments also require that an entity apply the guidance in Subtopic 470-50 to a modification or an exchange of a freestanding equity-classified written call option that is a part of or directly related to a modification or an exchange of an existing debt. An entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option to compensate for goods or services in accordance with the guidance in Topic 718, Compensation—Stock Compensation. This update was effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company
Not yet adopted:
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). The standard establishes a ROU model that requires a lessee to recognize a right of use (“ROU”) asset and a lease liability on the balance sheet for all leases with a term longer than 12 months (based on the practical expedient provided in the ASU that allows 12 months or less not to be presented on the balance sheet) and requires the disclosure of key information about leasing arrangements. Leases are classified
12
as finance or operating, with classification affecting the subsequent expense pattern and presentation of expense recognition in the income statement. Subsequently, the FASB issued the following standards related to ASU 2016-02: ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), ASU 2018-20, “Narrow-Scope Improvements for Lessors” and ASU 2019-01, “Leases (Topic 842): Codification Improvements”, which provided additional guidance and clarity to ASU 2016-02 (collectively, the “Lease Standard”). In 2021, the FASB further released ASU No. 2021-05, Leases (Topic 842) – Lessors – Certain Leases with Variable Lease Payments (“ASU 2021-05”), ASU No. 2021-09, Leased (Topic 842)- Discount Rate for Lessees That Are Not Public Business Entities (“non-PBE”) (“ASU 2021-09”). As per ASU 2020-05, issued by FASB, the new guidance is applicable to a non-PBE from fiscal year beginning after December 15, 2021 and interim periods beginning after December 15, 2022. As of December 31, 2021, the Company holds emerging growth company status, as such it is permitted to use non-PBE adoption of ASC 842 and therefore will present the impact of the new guidance in its annual statement as of December 31, 2022 and interim statements thereafter. The adoption of new guidance is not expected to have a material impact on the Company’s condensed unaudited consolidated statements of operations. Based on its preliminary assessment the Company expects that most of its lease commitments will be recognized as operating leases with right-of-use assets and liabilities of approximately $
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which was subsequently amended in November 2018 through ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables, net investments in leases, financing receivables, debt securities and other instruments, which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. ASU No. 2018-19 further clarifies that receivables arising from operating leases are not within the scope of Topic 326. Instead, impairment from receivables of operating leases should be accounted for in accordance with Topic 842, Leases. As per the latest ASU 2020-02, FASB deferred the timelines for certain small public and private entities, thus the new guidance will be adopted by the Company for the annual reporting period beginning January 1, 2023, including interim periods within that annual reporting period. The standard will apply as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company does not expect adoption of this new guidance to have a material impact on its results of operations, financial condition, and financial statement disclosures.
In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01 Reference Rate Reform (Topic 848) (“ASU 2021-01)”. The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU may be applied through December 31, 2022. The Company does not expect adoption of this new guidance to have a material impact on its results of operations, financial condition, and financial statement disclosures.
In October 2021, the FASB released ASU No.2021-08, Business Combinations (Topic 805)- Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require that an entity (acquirer) recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and require application of the new accounting guidance at the beginning of the earliest comparative period presented in the year of adoption, however early adoption is permitted. The Company does not expect adoption of this new guidance to have a material impact on its results of operations, financial condition, and financial statement disclosures.
13
3. Intangible Assets
The details of intangible assets and related accumulated amortization are set forth below:
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||||
Data supply relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Tradenames |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Completed technologies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Amortization expense of intangibles for the three and nine months ended September 30, 2022 was $
Weighted average useful life of the unamortized intangibles as of September 30, 2022 was
|
|
As of September 30, 2022 |
|
|
Year ended December 31, |
|
|
|
|
Remaining three months of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total |
|
$ |
|
|
4. Goodwill
Following is a summary of the carrying value of goodwill:
Balance as of January 1, 2022 |
|
$ |
|
|
Acquisition of ArcaMax |
|
|
|
|
Foreign currency translation |
|
|
( |
) |
Balance as of September 30, 2022 |
|
$ |
|
There were no events during the three months ended September 30, 2022 to which an impairment analysis would be warranted.
5. Acquisitions
The Company uses the purchase method of accounting in accordance with ASC 805, Business Combinations. This standard requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based on the fair value of the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates and assumptions used in assessing fair value are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. Acquisition-related expenses are expensed when incurred.
The Company may also agree to pay a portion of the purchase price for certain acquisitions in the form of contingent consideration, the unpaid amounts of these liabilities are included in the acquisition-related liabilities on the condensed unaudited consolidated balance sheets as of September 30, 2022 and December 31, 2021.
14
(a) ArcaMax Publishing, Inc. (ArcaMax)
On
Prior to the acquisition, ArcaMax was a leader in the development and distribution of more than
Goodwill acquired by the Company in its ArcaMax acquisition is not deductible for tax purposes.
(b) Apptness Media Group, LLC (“Apptness”):
On
Prior to the acquisition, Apptness operated a digital survey platform that provides comprehensive capabilities to engage consumers on sites across the open web, deliver proprietary insights and audiences to marketers, and providing publishers with new monetization opportunities. Therefore, the Company paid a premium to acquire Apptness assets, which is represented as Goodwill in the above purchase price allocation. The Company incurred $
Goodwill acquired by the Company in its Apptness acquisition is deductible for tax purposes.
(c) Vital Digital, Corp (“Vital”):
On
Prior to the acquisition, Vital delivered data-driven marketing solutions that were complementary to the Company’s business, and therefore the Company paid a premium to acquire Vital assets, which is represented as Goodwill in the above purchase price allocation.
Goodwill acquired by the Company in its Vital acquisition is not deductible for tax purposes.
(d) Kinetic Data Solutions, LLC (“Kinetic”):
On
15
A common stock with a fair value of $
Prior to the acquisition, Kinetic was engaged in the business of marketing solutions focused on homeowners. Kinetic had homeowner data that the Company integrated with its proprietary data to enhance its business and therefore paid a premium to acquire Kinetic assets, which is represented as Goodwill in the above purchase price allocation.
Goodwill acquired by the Company in its Kinetic acquisition is not deductible for tax purposes.
The following is a summary of acquisition related liabilities:
|
|
eBay CRM |
|
|
Sizmek |
|
|
IgnitionOne |
|
|
Kinetic |
|
|
Vital |
|
|
Apptness |
|
|
ArcaMax |
|
|
Total |
|
||||||||
Balance as of January 1, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||||
Additions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Payments made during the period |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Change in fair value of earn-out |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance as of September 30, 2022 |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
During the three months and nine months ended September 30, 2022, the businesses acquired by the Company in its Kinetic, Apptness and ArcaMax acquisitions have performed better than the estimates used for the initial purchase price allocation, as such the Company recorded the changes in the fair value of the earn-outs, which are included in other expenses on the condensed unaudited consolidated statements of operations and comprehensive loss and others on the condensed unaudited consolidated statements of cash flows.
The Company is a party to a litigation matter in relation to certain acquisition related liabilities for its eBay CRM acquisition dated November 2, 2015. The Company has recorded a liability of $
On March 10, 2022, the Company entered into a settlement agreement with the sellers of Sizmek to resolve the dispute related to the contingent purchase consideration payable in connection with the Sizmek acquisition made during the year ended December 31, 2019. As such, the Company paid $
7. Credit Facilities
The Company’s long-term borrowings are as follows:
|
|
As of September 30, 2022 |
|
|
As of December 31, 2021 |
|
||
Credit facility |
|
$ |
|
|
$ |
|
||
Less: |
|
|
|
|
|
|
||
Unamortized deferred financing cost |
|
|
( |
) |
|
|
( |
) |
Long-term borrowings |
|
$ |
|
|
$ |
|
||
On February 3, 2021, the Company entered into a $
16
Interest on the current outstanding balances is payable quarterly and calculated using a LIBOR rate of no lower than
The Senior Secured Credit Facility contains certain financial maintenance covenants including consolidated net leverage ratio and consolidated fixed charge coverage ratio. In addition, this agreement contains restrictive covenants that may limit the Company’s ability to, among other things, acquire equity interests of the Company from its stockholders, repurchase / retire any of the Company’s securities, and pay dividends or distribute excess cash flow. Additionally, the Company is required to submit periodic financial covenant letters that would include current net leverage ratio and fixed charge coverage ratio, among others. As of September 30, 2022, the applicable total leverage ratio and fixed charge coverage ratio were
As of September 30, 2022, the repayment schedule for the long-term borrowings was as follows:
|
|
As of September 30, 2022 |
|
|
Year ended December 31, |
|
|
|
|
Remaining three months of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total* |
|
$ |
|
|
8. Commitments and Contingencies
(a) Purchase obligations
The Company entered into non-cancellable vendor agreements to purchase services. As of September 30, 2022, the Company was party to outstanding purchase contracts as follows:
|
|
As of September 30, 2022 |
|
|
Year Ended December 31, |
|
|
|
|
Remaining three months of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total |
|
$ |
|
|
(b) Lease commitments
The Company maintains leased offices in the United States of America, United Kingdom, India, Belgium and France. Deferred rent as of September 30, 2022 and December 31, 2021 was $
17
|
|
As of September 30, 2022 |
|
|
Year Ended December 31, |
|
|
|
|
Remaining three months of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total |
|
$ |
|
|
(c) Other contingencies
The Company is a party to various litigations and administrative proceedings related to claims arising from its operations in the ordinary course of business including in relation to certain contingent purchase price obligations noted above. The Company records provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of these matters cannot be predicted with certainty, the Company’s management believes that the resolution of the matters will not have a material effect on the Company’s business, results of operations, financial condition, or cash flows.
9. Stock-Based Compensation
Stock-based compensation plan
In 2008, the Company adopted its 2008 Stock Option/Stock Issuance Plan and, in 2017, the Company adopted the Zeta Global Holdings Corp. 2017 Incentive Plan (collectively, the “Plans”).
The Plans permitted the issuance of stock options, restricted stock and restricted stock units to employees, directors and officers, consultants or advisors and non-employee directors of the Company. Options granted under the Plans expire no later than ten years from the grant date. Prior to the IPO, the restricted stock and restricted stock units granted under the Plans generally did not vest until a change in control. Upon a change in control, restricted stock and restricted stock units vest as to
In the past, the Company has cancelled certain restricted stock and in connection with such cancellation has issued restricted stock units to the holders of that restricted stock, with the same vesting conditions as the cancelled restricted stock.
Restricted Stock and Restricted Stock Units
As noted above, the Company’s restricted stock and restricted stock units granted prior to the IPO did not vest until a change of control. On March 24, 2021, the Company’s board of directors approved a modification in the vesting terms of its restricted stock and restricted stock unit awards. This modification was accounted for under the guidance in ASC 718-20-35-3. Given the vesting of the modified awards contained a performance condition associated with the IPO, the Company had determined that the modification was considered improbable-to-improbable under ASC 718-20-55-118 through 119.
The restricted stock or restricted stock units that were tendered by the holders in the buy-back program for certain restricted stock and restricted stock units were liability classified and as such the expense related to these grants has been recognized based on the settlement price as of the date of IPO. In connection with the other holders, the Company will recognize compensation expense over the modified vesting terms, based on the fair value as of the date of modification. The portion of the awards subject to future service would remain classified as equity awards and expense would be recognized over the remaining future service period.
During the nine months ended September 30, 2022, the Company's board of directors approved the modification of the vesting schedule of certain awards granted prior to the IPO. The modification accelerated the vesting of those grants such that certain
18
grants that were scheduled to cliff vest in September and December of 2022, will now vest from July to December of 2022 in equal monthly instalments. Further, there were other modifications which were approved by the Company's board of directors during the nine months ended September 30, 2022, which accelerated the vesting of certain other grants. These modifications were accounted for in accordance with ASC 718-20-35-3 and did not have any material impact on the stock-based compensation during the nine months ended September 30, 2022.
The following is the activity of restricted stock and restricted stock units granted by the Company:
|
|
Shares |
|
|
Weighted Average |
|
||
Non-vested as of January 1, 2022 |
|
|
|
|
$ |
|
||
Granted (1) |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited (2) |
|
|
( |
) |
|
|
|
|
Non-vested as of September 30, 2022 (3) |
|
|
|
|
$ |
|
||
Stock options
Following is the summary of transactions under the Company’s stock option plan:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding options as of January 1, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Outstanding options as of December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding options as of September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|||
The Company engaged a third-party valuation firm to determine the estimated fair value of the options using the Black-Scholes-Merton method, which was determined as $
|
|
As of |
|
|
September 30, 2022 |
Dividend yield |
|
|
Volatility |
|
|
Risk-free rate of interest |
|
During the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $
Performance Stock Unit (“PSU”) Award
On February 23, 2022, the Compensation Committee of the Board of Directors approved the grant of
19
provides for the right to receive a dividend equivalent to the value of any ordinary cash dividends paid on substantially all the outstanding shares of Class A common stock if the PSUs are earned and vested. The PSUs may be earned at the end of each fiscal quarter beginning with the three-month period ending on December 31, 2022 and ending with, and including, the three month period ending on December 31, 2026. Such number of shares of Class A common stock shall be earned as a percentage of the PSUs granted, as set forth in the table below, based on the 20-day volume-weighted average closing price per share (“VWAP”) for such quarter. The number of PSUs earned for such quarter shall be reduced by the number of PSUs, if any, earned in any prior quarter.
20 Day VWAP of Class A common |
|
Below $ |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Percentage of target PSUs |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
||||||||||||
* The percentage of target PSUs earned at $
Earned PSUs vest in three equal annual installments, with the first installment vesting on the date the Company determines the number of PSUs that are eligible to vest for such quarter, and the second and third installments vesting on the first and second anniversaries of such determination date, subject to accelerated vesting in connection with certain qualifying terminations of employment or a change in control.
Following is the summary of PSUs under the Company’s 2021 Incentive Award Plan:
|
|
Number of |
|
|
Weighted Average |
|
||
Outstanding as of January 1, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Outstanding as of September 30, 2022 |
|
|
|
|
$ |
|
||
The Company engaged a third-party valuation firm to determine the estimated fair value of the PSUs using the Monte Carlo simulation method, which was determined as $
|
|
As of |
|
|
September 30, 2022 |
Dividend yield |
|
|
Volatility |
|
|
Risk-free rate of interest |
|
* |
* For each simulation trial, the risk-free rate of interest was estimated based on the treasury securities with a similar term. |
||
During the three and nine months ended September 30, 2022, the Company recognized an expense of $
2021 Employee Stock Purchase Plan (“ESPP”)
On July 28, 2021, the Compensation Committee of the Board of Directors approved the Company’s first offering period under the ESPP, which commenced on August 1, 2021 and ended November 30, 2021. Following the end of the first offering period, the ESPP shall have consecutive offering periods of approximately six months in length commencing each year on December 1 and June 1 and ending on each May 31 and November 30 occurring six months later, as applicable.
During the nine months ended September 30, 2022, the Company issued
During the three and nine months ended September 30, 2022, the Company recognized an expense of $
20
Unrecognized compensation expense
The Company has $
10. Stockholders’ Equity
Share repurchase plan
On August 3, 2022, the Company’s Board of Directors authorized a stock repurchase and withholding program of up to $
During the three months ended September 30, 2022, the Company repurchased
Conversion of Common Class B to Class A
During the three and nine months ended September 30, 2022, respectively,
Issuance of Class A common stock
During the nine months ended September 30, 2022, the Company issued
During the nine months ended September 30, 2022, the Company also issued
11. Fair Value Disclosures
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include Level 1, Level 2 and Level 3.
Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets;
Level 2 is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table represents the fair value of the financial instruments measured at fair value on a recurring basis:
|
|
As of September 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents* |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total assets measured at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition-related liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
21
|
|
As of December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents* |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total assets measured at fair value |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition-related liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
* Includes cash invested by the Company in certain money market accounts with a financial institution.
The following table reconciles the changes in the fair value of the liabilities categorized within Level 3 of the fair value hierarchy for the nine months ended September 30, 2022:
|
|
Acquisition |
|
|
Balance as of January 1, 2022 |
|
$ |
|
|
Additions, net of payments |
|
|
|
|
Change in fair value |
|
|
|
|
Balance as of September 30, 2022 |
|
$ |
|
|
In connection with certain business combinations, the Company may owe additional purchase consideration (contingent consideration included in the acquisition-related liabilities) based on the financial performance of the acquired entities after their acquisition. The fair value of the contingent consideration was determined using an unobservable input such as projected revenues, collections of accounts receivables, etc. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the contingent consideration.
12. Related Party Transactions
Casting Made Simple Corp. (“CMS”) is an entity owned by the Caivis Group (the Company's Chief Executive Officer owns a controlling interest in the Caivis Group) and the Chief Executive Officer’s spouse. On December 28, 2018, the Company entered into an agreement with CMS to monetize traffic generated through websites owned by CMS and give a profit share to CMS. The profit shared by the Company with CMS, amounted to $
Prior to the acquisition, Kinetic Data Solutions, LLC (“Kinetic”) was an entity in which Caivis Group was the majority shareholder. On September 9, 2020, the Company entered into an agreement with Kinetic, wherein the Company appointed Kinetic as a reseller of its email marketing services to Kinetic’s customers. The Company recognized revenues of $
13. Income Taxes
The Company’s income tax provision consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.
For the interim period ended September 30, 2022, the Company utilized the annual effective tax rate methodology to determine its income tax provision. For the interim period ended September 30, 2021, the Company departed from the annual effective tax rate methodology and computed its income tax provision using a discrete method. The use of the discrete method was made in accordance with authoritative accounting guidance, which allows for the use of a discrete method when there are significant changes to the projected annual effective tax rate as a result of minor adjustments to projected pre-tax earnings.
For the three and nine months ended September 30, 2022, the Company recorded an income tax provision of $
22
For the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $
The effective tax rate differs from the U.S. statutory rate primarily related to limited tax benefit recorded for U.S. operating losses as the Company maintains a full valuation allowance against its U.S. deferred tax assets.
Basic net loss per share is computed using the two-class method, by dividing the net loss by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock of the Company, including redeemable convertible preferred stock, outstanding stock options, warrants, to the extent dilutive, and reduced by the amount of cumulative dividends earned on the preferred shares. However, the unvested restricted stock, restricted stock units and performance stock units as of September 30, 2022 and 2021 of
The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented:
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
||||
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Numerator: |
|
|
|
|
|
|
|
|
Net loss |
|
$( |
|
$( |
|
$( |
|
$( |
Cumulative redeemable convertible preferred stock dividends |
|
— |
|
— |
|
— |
|
|
Numerator for Basic and Dilutive loss per share - loss available to common stockholders |
|
$( |
|
$( |
|
$( |
|
$( |
Denominator: |
|
|
|
|
|
|
|
|
Class A common stock |
|
|
|
|
|
|
|
|
Class B common stock |
|
|
|
|
|
|
|
|
Series A common stock |
|
— |
|
|
|
— |
|
|
Series B common stock |
|
— |
|
|
|
— |
|
|
Warrants |
|
— |
|
|
|
— |
|
|
Denominator for Basic and Dilutive loss per share-weighted-average common stock |
|
|
|
|
|
|
|
|
Basic loss per share |
|
$( |
|
$( |
|
$( |
|
$( |
Dilutive loss per share |
|
$( |
|
$( |
|
$( |
|
$( |
Since the Company was in a net loss position for all periods presented, basic loss per share calculation excludes redeemable convertible preferred stock as it does not participate in net losses of the Company. Additionally, net loss per share attributable to common stockholders was the same on a basic and diluted basis, as the inclusion of all potential common equivalent shares outstanding would have been anti-dilutive.
Anti-dilutive weighted-average common equivalent shares were as follows:
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those anticipated and discussed in the forward-looking statements as a result of various factors, including those set forth in Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, in Part II, Item IA “Risk Factors” included in the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2022 (the “Q2 2022 Form 10-Q”) and in this Quarterly Report on Form 10-Q.
Overview
Zeta is a leading omnichannel data-driven cloud platform that provides enterprises with consumer intelligence and marketing automation software. We empower our customers to target, connect and engage consumers through software that delivers personalized marketing across all addressable channels, including email, social media, web, chat, CTV and video, among others. We believe our actionable insights derived from consumer intent enable our customers to acquire, grow and retain consumer relationships more efficiently and effectively than the alternative solutions available in the market.
Our Zeta Marketing Platform (the "ZMP") is the largest omnichannel marketing platform with identity data at its core. The ZMP can analyze billions of structured and unstructured data points to predict consumer intent by leveraging sophisticated machine learning algorithms and the industry’s largest opted-in data set for omnichannel marketing. The ZMP acts on these insights by connecting with consumers through native integration of marketing channels and API integration with third parties. The ZMP’s data-driven algorithms and processes learn and optimize each customer’s marketing program in real time, producing a ‘flywheel effect’ that enables our customers to test, learn and improve their marketing programs in real time. This continuous learning loop provides greater efficiency and effectiveness for our customers and creates a competitive advantage for Zeta.
The ZMP empowers our customers to personalize consumer experiences at scale across multiple touchpoints. Marketing programs are created and orchestrated by our customers through automated workflows and sophisticated dashboards. Our CDP+ ingests, analyzes and distills disparate data points to generate a single view of a consumer, encompassing identity, profile characteristics, behaviors and purchase intent, which is then made accessible through a single console. Our Opportunity Explorer synthesizes Zeta’s proprietary data and data generated by our customers to uncover consumer insights that are translated into marketing programs designed for highly targeted audiences across digital channels, including email, SMS, websites, applications, social media, CTV and chat.
Factors Affecting Results of Operations
For a discussion of the factors affecting our results of operations, please see “Factors Affecting Results of Operations” in the Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 as well as in Part II, Item 1A “Risk Factors” included in this Quarterly Report on Form 10-Q and the Q2 2022 Form 10-Q.
Key Business Metrics
We review several key performance metrics, discussed below, to evaluate our business, track performance, identify trends, formulate plans and make strategic decisions. We believe that the presentation of such metrics provides investors with effective ways to measure and model the performance companies such as ours, with recurring revenue streams.
24
Scaled customers increased 12%, from 347 as of September 30, 2021 to 389 as of September 30, 2022. Scaled customer ARPU increased 19%, from $319,945 for the three months ended September 30, 2021 to $381,734 for the three months ended September 30, 2022, primarily due to higher usage of our platform among scaled customers.
Description of Certain Components of Financial Data
Revenues
Our revenue primarily arises from use of our technology platform via subscription fees, volume-based utilization fees and fees for professional services. Our platform revenue comprises of a mix of direct platform revenue and integrated platform revenue, which leverages application programming interface (“API”) integrations with third parties. For the nine months ended September 30, 2022 and 2021, we derived 78% and 75% of our revenues from direct platforms, respectively, and 22% and 25% of our revenues from integrated platforms, respectively. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Sales and other taxes collected by us are excluded from revenue. Our revenue recognition policies are discussed in more detail below under “Critical Accounting Policies and Estimates.”
Cost of revenues (excluding depreciation and amortization)
Cost of revenue excludes depreciation and amortization and consists primarily of media and marketing costs and certain employee-related costs. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, and strategic partners that are directly related to a revenue-generating event. We pay these third-party publishers, media owners or managers and strategic partners on a revenue-share, a cost-per-lead, cost-per-click, or cost-per-thousand-impressions basis. Expenses related to “internet traffic” associated with the viewing of available impressions or queries per second and costs of providing support to our customers are also included in the cost of revenues. Employee-related costs included in cost of revenues include salaries, bonuses, commissions, stock-based compensation and employee benefit costs primarily related to individuals directly associated with providing services to our customers. We expect costs of revenues will generally decrease in the future as a percentage of revenue over the long term.
General and administrative expenses
General and administrative expenses primarily consist of computer and telecom expenses, employee-related costs, including salaries, bonuses, stock-based compensation and employee benefits costs associated with our executive, finance, legal, human resources and other administrative personnel, as well as accounting and legal professional services fees and platform and related infrastructure costs. We expect general and administrative expenses to increase in absolute dollars in future periods. We expect that general and administrative expenses, excluding the impact of stock-based compensation which is being recognized on an accelerated basis as discussed below, will stay consistent as a percentage of revenue over the long term.
Selling and marketing expenses
Selling and marketing expenses primarily consist of employee-related costs, including salaries, bonuses, employee benefits costs, stock-based compensation and commission costs for our sales and marketing personnel. Selling and marketing expenses also include costs for market development programs, advertising, promotional and other marketing activities. We intend to continue to invest in marketing initiatives and as a result we expect selling and marketing expenses to increase in absolute dollars in future periods. Selling and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels and the timing of our investments in these functions over the long term.
Research and development expenses
Research and development expenses primarily consist of employee-related costs, including salaries, bonuses and employee benefit costs, stock-based compensation associated with engineering and IT services associated with the ongoing research and maintenance of internal use software. We expect to continue to invest in research and development in order to develop our technology platform to drive incremental value and growth and as a result we expect that research and development expenses will increase as a percentage of revenue in the long term.
25
Depreciation and amortization
Depreciation and amortization relate to property and equipment, website and software development costs as well as acquisition-related and other acquired intangible assets. We record depreciation and amortization when appropriate using straight-line method over the estimated useful life of the assets.
Acquisition related expenses
Acquisition related expenses primarily consist of legal fees associated with certain business combinations and addressing disputes related to those transactions. It also includes retention bonuses agreed to be paid to employees related to one-time events such as an acquisition or a significant transaction. We expect that acquisition related expenses will be correlated with future acquisitions (if any), which could be greater than or less than our historic levels.
Restructuring expenses
Restructuring expenses consists primarily of employee termination costs due to internal restructuring. We expect that restructuring expenses will be correlated with future restructuring activities (if any), which could be greater than or less than our historic levels.
Interest expense
Interest expense primarily consists of interest payable on our long-term borrowings. We anticipate that interest expense could be impacted by changes in variable interest rates.
Other expenses
Other expense primarily consists of changes in fair value of acquisition related liabilities, gains and losses on sale of assets and foreign exchange gains and losses. We expect that the magnitude of other income and expenses will depend on external factors such as foreign exchange rate and the remeasurement of acquisition related liabilities, which could be greater than or less than our historic levels.
Change in fair value of warrants and derivative liabilities
Change in fair value of warrants and derivative liabilities primarily relates to warrants to purchase shares of our common stock that we issued in connection with previous financing rounds. The change in fair value of warrants and derivative liabilities depends on external valuation-related factors. As of September 30, 2022, the Company does not have any warrants and derivative liabilities on its condensed unaudited consolidated balance sheets.
Income tax provision
The Company’s income tax provision consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. For the interim period ended September 30, 2022, the Company utilized the annual effective tax rate methodology to determine its income tax provision. For the interim period ended September 30, 2021, the Company departed from the annual effective tax rate methodology and computed its income tax provision using a discrete method. The use of the discrete method was made in accordance with authoritative accounting guidance, which allows for the use of a discrete method when there are significant changes to the projected annual effective tax rate as a result of minor adjustments to projected pre-tax earnings.
Stock-based compensation
The measurement of stock-based compensation for all stock-based payment awards, including restricted stock and restricted stock units, employee stock purchase plan (“ESPP”), performance stock units (“PSUs”) and stock options granted to employees, consultants or advisors and non-employee directors, is based on the estimated fair value of the awards on the date of grant or date of modification of such grants.
26
We will expense the unrecognized stock-based compensation as follows, subject to future forfeitures:
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
||||||||||
Remaining period of 2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
Total |
|
||||||
$ |
68,443 |
|
|
$ |
182,610 |
|
|
$ |
95,260 |
|
|
$ |
41,255 |
|
|
$ |
8,798 |
|
|
$ |
396,366 |
|
See "Note 9. Stock-Based Compensation" to our condensed unaudited consolidated financial statements for further details.
Results of Operations
We operate as a single reportable segment to reflect the way our Chief Operating Decision Officer (“CODM”) reviews and assesses the performance of the business. The Company’s CODM is the Chief Executive Officer.
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
|
$ |
152,252 |
|
|
$ |
115,133 |
|
|
$ |
415,821 |
|
|
$ |
323,492 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenues (excluding depreciation and amortization) |
|
|
57,529 |
|
|
|
44,525 |
|
|
|
149,487 |
|
|
|
125,709 |
|
General and administrative expenses |
|
|
53,584 |
|
|
|
50,643 |
|
|
|
162,598 |
|
|
|
135,682 |
|
Selling and marketing expenses |
|
|
76,987 |
|
|
|
60,537 |
|
|
|
223,044 |
|
|
|
163,952 |
|
Research and development expenses |
|
|
16,954 |
|
|
|
13,998 |
|
|
|
52,223 |
|
|
|
50,285 |
|
Depreciation and amortization |
|
|
13,367 |
|
|
|
11,783 |
|
|
|
39,448 |
|
|
|
33,135 |
|
Acquisition - related expenses |
|
|
— |
|
|
|
480 |
|
|
|
344 |
|
|
|
1,516 |
|
Restructuring expenses |
|
|
— |
|
|
|
30 |
|
|
|
— |
|
|
|
467 |
|
Total operating expenses |
|
$ |
218,421 |
|
|
$ |
181,996 |
|
|
$ |
627,144 |
|
|
$ |
510,746 |
|
Loss from operations |
|
|
(66,169 |
) |
|
|
(66,863 |
) |
|
|
(211,323 |
) |
|
|
(187,254 |
) |
Interest expense |
|
|
2,038 |
|
|
|
1,342 |
|
|
|
5,002 |
|
|
|
5,705 |
|
Other expenses |
|
|
1,142 |
|
|
|
496 |
|
|
|
12,111 |
|
|
|
1,031 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,000 |
) |
Change in fair value of warrants and derivative liabilities |
|
|
(805 |
) |
|
|
— |
|
|
|
410 |
|
|
|
5,000 |
|
Total other expenses |
|
$ |
2,375 |
|
|
$ |
1,838 |
|
|
$ |
17,523 |
|
|
$ |
1,736 |
|
Loss before income taxes |
|
|
(68,544 |
) |
|
|
(68,701 |
) |
|
|
(228,846 |
) |
|
|
(188,990 |
) |
Income tax provision / (benefit) |
|
|
896 |
|
|
|
428 |
|
|
|
(1,360 |
) |
|
|
(565 |
) |
Net loss |
|
$ |
(69,440 |
) |
|
$ |
(69,129 |
) |
|
$ |
(227,486 |
) |
|
$ |
(188,425 |
) |
Comparison of the Three Months Ended September 30, 2022 and 2021
Revenues
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Revenues |
|
$ |
152,252 |
|
|
$ |
115,133 |
|
|
$ |
37,119 |
|
|
|
32.2 |
% |
Revenues increased by $37.1 million, or 32.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase in revenues is attributable to incremental revenues of $17.9 million from existing customers and $19.4 million from new customers.
Cost of revenues (excluding depreciation and amortization)
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Cost of revenues (excluding depreciation and amortization) |
|
$ |
57,529 |
|
|
$ |
44,525 |
|
|
$ |
13,004 |
|
|
|
29.2 |
% |
27
Cost of revenues (excluding depreciation and amortization) increased by $13.0 million, or 29.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase was primarily driven by $12.8 million in incremental media costs and higher stock-based compensation of $0.4 million.
General and administrative expenses
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
General and administrative expenses |
|
$ |
53,584 |
|
|
$ |
50,643 |
|
|
$ |
2,941 |
|
|
|
5.8 |
% |
General and administrative expenses increased by $2.9 million, or 5.8%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase was primarily driven by higher computer and telecom related expenses of $2.7 million and professional services fees of $0.1 million.
Selling and marketing expenses
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Selling and marketing expenses |
|
$ |
76,987 |
|
|
$ |
60,537 |
|
|
$ |
16,450 |
|
|
|
27.2 |
% |
Selling and marketing expenses increased by $16.5 million, or 27.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase was primarily driven by higher employee related costs of $9.2 million, stock based compensation of $3.8 million, and other marketing-related expenses of $3.5 million
Research and development expenses
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Research and development expenses |
|
$ |
16,954 |
|
|
$ |
13,998 |
|
|
$ |
2,956 |
|
|
|
21.1 |
% |
Research and development expenses increased by $3.0 million, or 21.1%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase was primarily driven by higher stock-based compensation of $1.8 million, an increase in consulting expenses of $0.8 million and employee related costs of $0.2 million.
Depreciation and amortization
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Depreciation and amortization |
|
$ |
13,367 |
|
|
$ |
11,783 |
|
|
$ |
1,584 |
|
|
|
13.4 |
% |
Depreciation and amortization increased by $1.6 million, or 13.4%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. This increase was driven by an increase in amortization of intangible assets of $1.3 million. Further, there was an increase in depreciation expense of $0.3 million primarily due to incremental website and software development-related capitalization over the recent periods.
Acquisition related expenses
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Acquisition related expenses |
|
$ |
— |
|
|
$ |
480 |
|
|
$ |
(480 |
) |
|
|
(100.0 |
)% |
28
Acquisition related expenses decreased by $0.5 million, or 100%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily driven by lower professional fees.
Interest expense
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Interest expense |
|
$ |
2,038 |
|
|
$ |
1,342 |
|
|
$ |
696 |
|
|
|
51.9 |
% |
Interest expense increased by $0.7 million, or 51.9%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, due to increases in interest rates.
Other expenses
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Other expenses |
|
$ |
1,142 |
|
|
$ |
496 |
|
|
$ |
646 |
|
|
|
130.2 |
% |
Other expenses increased by $0.6 million, 130.2%, for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily driven by an incremental change of $1.3 million in the fair value of acquisition related liabilities, related to the Company's prior acquisitions, partially offset by foreign exchange gain of $0.6 million due to appreciation of USD against other currencies.
Change in fair value of warrants and derivative liabilities
|
|
Three months ended September 30, |
|
|
Change |
|||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|||
Change in fair value of warrants and derivative liabilities |
|
$ |
(805 |
) |
|
$ |
— |
|
|
$ |
(805 |
) |
|
NA |
We recorded a change in fair value of warrants and derivative liabilities of $0.8 million during the three months ended September 30, 2022 primarily due to a decrease in fair value of derivative liability as of September 30, 2022 as compared to the fair value of the derivative liability as of June 30, 2022. We settled our derivative liability as of September 30, 2022.
Income tax provision
|
|
Three months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Income tax provision |
|
$ |
896 |
|
|
$ |
428 |
|
|
$ |
468 |
|
|
|
109.3 |
% |
For the three months ended September 30, 2022 and 2021, the Company recorded an income tax provision of $0.9 million and $0.4 million, respectively, yielding an effective tax rate of negative 1.31% and 0.62%, respectively. The effective tax rate for both interim periods was different than the U.S. statutory rate primarily related to limited tax benefit being recorded for U.S. operating losses as the Company maintains a full valuation allowance against its U.S. deferred tax assets.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Revenues
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Revenues |
|
$ |
415,821 |
|
|
$ |
323,492 |
|
|
$ |
92,329 |
|
|
|
28.5 |
% |
29
Revenues increased by $92.3 million, or 28.5%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This increase in revenues is attributable to incremental revenues of $48.2 million from existing customers and $45.9 million from new customers.
Cost of revenues (excluding depreciation and amortization)
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Cost of revenues (excluding depreciation and amortization) |
|
$ |
149,487 |
|
|
$ |
125,709 |
|
|
$ |
23,778 |
|
|
|
18.9 |
% |
Cost of revenues (excluding depreciation and amortization) increased by $23.8 million, or 18.9%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This increase was primarily driven by $20.8 million in incremental media costs and higher stock-based compensation of $3.0 million.
General and administrative expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
General and administrative expenses |
|
$ |
162,598 |
|
|
$ |
135,682 |
|
|
$ |
26,916 |
|
|
|
19.8 |
% |
General and administrative expenses increased by $26.9 million, or 19.8%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This increase was primarily driven by higher stock-based compensation of $18.0 million, computer and telecom-related expenses of $4.6 million and professional services fees of $4.1 million.
Selling and marketing expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Selling and marketing expenses |
|
$ |
223,044 |
|
|
$ |
163,952 |
|
|
$ |
59,092 |
|
|
|
36.0 |
% |
Selling and marketing expenses increased by $59.1 million, or 36.0%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This increase was primarily driven by higher stock-based compensation of $23.1 million, employee-related costs of $28.6 million and other marketing-related expenses of $7.5 million.
Research and development expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Research and development expenses |
|
$ |
52,223 |
|
|
$ |
50,285 |
|
|
$ |
1,938 |
|
|
|
3.9 |
% |
Research and development expenses increased by $1.9 million, or 3.9%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily driven by higher consulting expenses of $2.3 million and employee related costs of $1.0 million. This increase was partially offset by lower stock-based compensation of $1.5 million.
Depreciation and amortization
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Depreciation and amortization |
|
$ |
39,448 |
|
|
$ |
33,135 |
|
|
$ |
6,313 |
|
|
|
19.1 |
% |
Depreciation and amortization increased by $6.3 million, or 19.1%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This increase was driven by an increase in amortization of intangible assets of $4.5 million and an increase in depreciation expense of $1.8 million primarily due to incremental website and software development-related capitalization over the recent periods.
30
Acquisition related expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Acquisition related expenses |
|
$ |
344 |
|
|
$ |
1,516 |
|
|
$ |
(1,172 |
) |
|
|
(77.3 |
)% |
Acquisition related expenses decreased by $1.2 million, or 77.3%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This decrease was primarily driven by lower professional fees incurred during the nine months ended September 30, 2022.
Restructuring expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Restructuring expenses |
|
$ |
— |
|
|
$ |
467 |
|
|
$ |
(467 |
) |
|
|
(100.0 |
)% |
Restructuring expenses decreased by $0.5 million, or 100%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, due to the reorganization expenses incurred by the Company during the nine months ended September 30, 2021.
Interest expense
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Interest expense |
|
$ |
5,002 |
|
|
$ |
5,705 |
|
|
$ |
(703 |
) |
|
|
(12.3 |
)% |
Interest expense decreased by $0.7 million, or 12.3%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. This decrease was primarily driven by a lower interest rate on the new debt facility entered into during February 2021, partially offset by higher interest rates in 2022.
Other expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Other expenses |
|
$ |
12,111 |
|
|
$ |
1,031 |
|
|
$ |
11,080 |
|
|
|
1,074.7 |
% |
Other expenses increased by $11.1 million, or 1074.7%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily driven by an incremental change of $12.3 million in the fair value of acquisition related liabilities, related to the Company's prior acquisitions, partially offset by foreign exchange gain of $0.9 million due to appreciation of USD against other currencies.
Change in fair value of warrants and derivative liabilities
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Change in fair value of warrants and derivative liabilities |
|
$ |
410 |
|
|
$ |
5,000 |
|
|
$ |
(4,590 |
) |
|
|
(91.8 |
)% |
Change in fair value of warrants and derivative liabilities expense decreased by $4.6 million, or 91.8%, for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, this is primarily due to the extinguishment of warrants and derivative liabilities upon our initial public offering ("IPO") on June 14, 2021. We did not have any derivative liability as of September 30, 2022 and December 31, 2021.
Income tax benefit
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
||||
Income tax benefit |
|
$ |
(1,360 |
) |
|
$ |
(565 |
) |
|
$ |
(795 |
) |
|
|
140.7 |
% |
31
For the nine months ended September 30, 2022 and 2021, the Company recorded an income tax benefit of $1.4 million and $0.6 million, respectively, yielding an effective tax rate of 0.59% and 0.30%, respectively. The effective tax rate for both interim periods was different than the U.S. statutory rate primarily related to limited tax benefit being recorded for U.S. operating losses as the Company maintains a full valuation allowance against its U.S. deferred tax assets.
32
Non-GAAP Financial Measures
We use the following non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. Non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from similarly titled non-GAAP measures used by other companies. Whenever we use a non-GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with generally accepted accounting principles.
Adjusted EBITDA and adjusted EBITDA margin
Adjusted EBITDA is a non-GAAP financial measure defined as net loss adjusted for interest expense, depreciation and amortization, stock-based compensation, income tax (benefit) / provision, acquisition-related expenses, restructuring expenses, change in fair value of warrants and derivative liabilities, certain dispute settlement expenses, gain on extinguishment of debt, certain non-recurring IPO related expenses, including the payroll taxes related to vesting of restricted stock and restricted stock units upon the completion of our IPO, and other expenses. Acquisition-related expenses and restructuring expenses primarily consist of severance and other employee-related costs which we do not expect to incur in the future as acquisitions of businesses may distort the comparability of the results of operations. Change in fair value of warrants and derivative liabilities is a non-cash expense related to periodically recording “mark-to-market” changes in the valuation of derivatives and warrants. Other (income) / expenses consists of non-cash expenses such as changes in fair value of acquisition-related liabilities, gains and losses on sales of assets and foreign exchange gains and losses. In particular, we believe that the exclusion of stock-based compensation, certain dispute settlement expenses and non-recurring IPO related expenses that are not related to our core operations provides measures for period-to-period comparisons of our business and provides additional insight into our core controllable costs. Adjusted EBITDA margin is a non-GAAP metric defined as adjusted EBITDA divided by the total revenues for the same period. Adjusted EBITDA and adjusted EBITDA margin provide us with a useful measure for period-to-period comparisons of our business as well as comparison to our peers. We believe that these non-GAAP financial measures may be useful to investors in analyzing our financial and operational performance. Our use of adjusted EBITDA and adjusted EBITDA margin has limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our financial results as reported under GAAP. Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial performance measures, including revenues and net loss.
The following table reconciles adjusted EBITDA and adjusted EBITDA margin to net loss and net loss margin, the most directly comparable financial measure calculated and presented in accordance with GAAP.
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss |
|
$ |
(69,440 |
) |
|
$ |
(69,129 |
) |
|
$ |
(227,486 |
) |
|
$ |
(188,425 |
) |
Net loss margin |
|
|
45.6 |
% |
|
|
60.0 |
% |
|
|
54.7 |
% |
|
|
58.2 |
% |
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
13,367 |
|
|
|
11,783 |
|
|
|
39,448 |
|
|
|
33,135 |
|
Restructuring expenses |
|
|
- |
|
|
|
30 |
|
|
|
- |
|
|
|
467 |
|
Acquisition related expenses |
|
|
- |
|
|
|
480 |
|
|
|
344 |
|
|
|
1,516 |
|
Stock-based compensation |
|
|
75,218 |
|
|
|
69,343 |
|
|
|
231,289 |
|
|
|
188,613 |
|
Other expenses |
|
|
1,142 |
|
|
|
496 |
|
|
|
12,111 |
|
|
|
1,031 |
|
Gain on extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,000 |
) |
IPO related expenses |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,705 |
|
Change in fair value of warrants and derivative liabilities |
|
|
(805 |
) |
|
|
- |
|
|
|
410 |
|
|
|
5,000 |
|
Dispute settlement expense |
|
|
- |
|
|
|
1,196 |
|
|
|
- |
|
|
|
1,196 |
|
Interest expense |
|
|
2,038 |
|
|
|
1,342 |
|
|
|
5,002 |
|
|
|
5,705 |
|
Income tax provision / (benefit) |
|
|
896 |
|
|
|
428 |
|
|
|
(1,360 |
) |
|
|
(565 |
) |
Adjusted EBITDA |
|
$ |
22,416 |
|
|
$ |
15,969 |
|
|
$ |
59,758 |
|
|
$ |
40,378 |
|
Adjusted EBITDA margin |
|
|
14.7 |
% |
|
|
13.9 |
% |
|
|
14.4 |
% |
|
|
12.5 |
% |
33
Liquidity and Capital Resources
We have financed our operations and capital expenditures primarily through utilization of cash generated from operations, as well as borrowings under our credit facilities. As of September 30, 2022, we had cash and cash equivalents of $114.8 million and net working capital, consisting of current assets less current liabilities, of $92.2 million. As of September 30, 2022, we had an accumulated deficit of $719.3 million.
We believe our existing cash and anticipated net cash provided by operating activities, together with available borrowings under our credit facility, will be sufficient to meet our working capital requirements for at least the next 12 months and for the foreseeable future. However, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors" in our Annual Report on Form 10 K for the year ended December 31, 2021. In the future, we may attempt to raise additional capital through sales of equity securities or through equity-linked or debt financing arrangements. Any future indebtedness we incur may result in terms that could be unfavorable to our equity investors. We cannot guarantee that we will be able to raise additional capital in the future on favorable terms, or at all. Any inability to raise capital could adversely affect our ability to achieve our business objectives.
Cash flows
The following table summarizes our cash flows for the periods presented:
|
|
Nine months ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash provided by / (used for): |
|
|
|
|
|
|
||
Cash provided by operating activities |
|
$ |
55,389 |
|
|
$ |
23,366 |
|
Cash used for investing activities |
|
|
(39,194 |
) |
|
|
(22,463 |
) |
Cash (used for) / provided by financing activities |
|
|
(5,117 |
) |
|
|
64,682 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(129 |
) |
|
|
(130 |
) |
Net increase in cash and cash equivalents |
|
$ |
10,949 |
|
|
$ |
65,455 |
|
Cash Flows from Operating Activities
For the nine months ended September 30, 2022, net cash provided by operating activities of $55.4 million resulted primarily from adjusted non-cash items of $280.1 million, more than offsetting our net loss of $227.5 million. Changes in working capital were primarily driven by an increase in accounts payable of $7.3 million and increase in accrued expenses and other current liabilities of $1.8 million, partially offset by an increase in accounts receivable of $4.6 million, prepaid and other current assets of $0.7 million and a decrease in deferred revenues of $0.8 million.
For the nine months ended September 30, 2021, net cash provided by operating activities of $23.4 million resulted primarily from adjusted non-cash items of $217.6 million, more than offsetting our net loss of $188.4 million. Changes in working capital were primarily driven by a decrease in accounts receivable of $7.4 million, decrease in prepaid and other current assets of $2.4 million and increase in accrued expenses and other current liabilities of $2.8 million, partially offset by a decrease in accounts payable of $18.0 million and deferred revenues of $1.3 million.
Cash Flows from Investing Activities
For the nine months ended September, 2022, we used $39.2 million of cash in investing activities, primarily consisting of capital expenditures of $17.2 million (including a $14.4 million investment in data and partnership agreements), business and asset acquisitions of $9.2 million and website and software development costs of $12.8 million.
For the nine months ended September 30, 2021, we used $22.5 million of cash in investing activities, primarily consisting of website and software development costs of $13.4 million, capital expenditure of $6.9 million and business and asset acquisitions, net of cash acquired, of $2.2 million.
Cash Flows used for / provided by Financing Activities
For the nine months ended September 30, 2022, we used $5.1 million of cash in financing activities, primarily due to the repurchase of $4.3 million of common stock under our repurchase and RSA withholdings program and payment of acquisition related
34
liabilities of $2.3 million, partially offset by $1.3 million paid by certain employees under the Company's employee stock purchase plan.
For the nine months ended September 30, 2021, net cash provided by financing activities of $64.7 million was primarily due to IPO proceeds (net of issuance cost) of $126.5 million, new credit facility of $183.3 million (net of financing cost), partially offset by repayments against credit lines of $180.7 million. Further, in connection with our IPO, we repurchased and canceled certain stock from our employees, including restricted stock and restricted stock units with a total repurchase amount of $64.5 million.
Debt
As of September 30, 2022, we have $183.9 million (net of $1.1 million of unamortized debt acquisition costs) of outstanding long-term borrowings.
On February 3, 2021, we entered into a $222.5 million Senior Secured Credit Facility which was used to fully repay and terminate our previous credit agreement. Borrowings under the debt are $185 million and bear interest payable quarterly ranging from LIBOR plus 2.125% to LIBOR plus 2.625% based on our consolidated net leverage ratio stated in the credit agreement. We are required to repay the principal balance and any unpaid accrued interest on the Senior Secured Credit Facility on February 3, 2026.
We are currently in compliance with our financial maintenance covenants under the Senior Secured Credit Facility and, based upon our current expectations, believe that we will continue to comply with our financial maintenance covenants for the next 12 months. The Senior Secured Credit Facility contains restrictive covenants that place restrictions on us and may limit our ability to, among other things, incur additional debt and liens, purchase our securities, undertake transactions with affiliates, make other investments, pay dividends or distribute excess cash flow.
During the nine months ended September 30, 2022, we borrowed $5.6 million against the revolver facility and repaid the same amount against the term loan under the credit facility.
Contractual obligations
There have been no material changes to our contractual obligations as compared to the contractual obligations described in our "Management’s Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates are based on management’s judgment and the best available information, and as such actual results could differ from those estimates.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our "Management’s Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
35
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
36
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact our financial condition due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange risks. We do not hold or issue financial instruments for speculative or trading purposes.
Interest Rate Risk
We are exposed to market risk from changes in interest rates on our loan term borrowings, which accrue interest at a variable rate. As of September 30, 2022, we had not fixed the interest rate on $185 million of our debt through derivative financial instruments, and as a result, we are subject to the potential impact of rising interest rates, which could negatively impact our profitability and cash flows. Based upon the principal balance owed on our long-term borrowings as of September 30, 2022, a hypothetical one percentage point increase or decrease in the interest would increase or decrease our annual interest expenses by $1.9 million. There were no material changes in market risk exposures as of September 30, 2022.
Foreign Currency Risk
We have foreign currency risks related to a certain number of our foreign subsidiaries in the UK, France, Belgium and India. We do not believe that a 10% change in the relative value of the U.S. dollar to other foreign currencies would have a material effect on our cash flows and operating results in currencies other than the U.S. dollar.
Inflation Risk
In recent months, inflation has continued to increase significantly in the United States and overseas resulting in rising wages and other costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset higher costs through price increases and our inability or failure to do so could potentially harm our business, financial condition, and results of operations.
37
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.
Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not currently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition. Defending any such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Except to the extent updated below or previously updated or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q related to such risk factors (including, without limitation, the matters discussed in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operation”), there have been no material changes to the risk factors previously disclosed in Part 1, Item 1A “Risk Factors” in the Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022 and in Part II, Item IA “Risk Factors” in the Q2 2022 Form 10-Q filed with the SEC on August 4, 2022.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased costs of labor, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.
Interest rate fluctuations may affect our results of operations and financial condition.
Because a substantial portion of our debt is variable-rate debt, fluctuations in interest rates could have a material effect on our business. We incur higher interest costs if interest rates increase. Interest rates were at historic lows during 2020 and 2021, when the United States Federal Reserve took several steps to protect the economy from the impact of the COVID-19 pandemic, including reducing interest rates to new historic lows. Thus far in 2022, the United States Federal Reserve has raised interest rates by more than 100 basis points and has signaled that further increases are expected in the near future. Any such increase in interest costs could have a material adverse impact on our financial condition and the levels of cash we maintain for working capital.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Company and Affiliated Purchasers
Common stock repurchases during the quarter ended September 30, 2022 were as follows.:
Period |
|
(a) |
|
(b) |
|
|
(c) |
|
|
(d) |
|
||||
July 1, 2022 – July 31, 2022 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
August 1, 2022 – August 31, 2022 |
|
|
214,897 |
|
$ |
7.52 |
|
|
|
214,897 |
|
|
$ |
48.4 |
|
September 1, 2022 – September 30, 2022 |
|
|
355,056 |
|
$ |
7.59 |
|
|
|
355,056 |
|
|
$ |
45.7 |
|
Total |
|
|
569,953 |
|
|
|
|
|
569,953 |
|
|
|
|
||
(1) On August 3, 2022, the Company’s Board of Directors authorized a stock repurchase and withholding program of up to $50 million in the aggregate for (i) repurchases of the Company’s outstanding Class A common stock through December 31, 2024 and (ii) the withholding of shares as an alternative to market sales by certain executives to satisfy tax withholding requirements upon vesting of restricted stock awards.
39
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
40
Item 6. Exhibits
|
|
Incorporated by Reference
|
|
|
|||
Exhibit Number
|
Exhibit Description
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
Filed Herewith
|
Furnished Herewith
|
|
|
|
|
|
|
|
|
3.1 |
Amended and Restated Certificate of Incorporation of Zeta Global Holdings Corp. |
8-K |
001-40464 |
3.1 |
6/15/2021 |
|
|
|
|
|
|
|
|
|
|
3.2 |
8-K |
001-40464 |
3.2 |
6/15/2021 |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
32.2* |
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
101.INS |
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL And contained in Exhibit 101) |
|
|
|
|
|
|
* The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Zeta Global Holdings Corp. |
|
|
|
|
|
Date: November 2, 2022 |
|
By: |
/s/ David A. Steinberg
|
|
|
|
David A. Steinberg |
|
|
|
President, Chief Executive Officer and Chairperson (Principal Executive Officer) |
|
|
|
|
Date: November 2, 2022 |
|
By: |
/s/ Christopher Greiner
|
|
|
|
Christopher Greiner |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
42