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As filed with the Securities and Exchange Commission on May 20, 2021.

Registration No. 333-255499

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ZETA GLOBAL HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7372   80-0814458

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

3 Park Ave, 33rd Floor

New York, NY 10016

(212) 967-5055

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

David A. Steinberg

Chief Executive Officer

3 Park Ave, 33rd Floor

New York, NY 10016

(212) 967-5055

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Marc D. Jaffe

Joel H. Trotter

Latham & Watkins LLP

1271 Avenue of the Americas

New York, NY 10020

(202) 637-2200

 

Steven B. Vine

Chief Legal Officer

Zeta Global Holdings Corp.

3 Park Ave, 33rd Floor

New York, NY 10016

(212) 967-5055

 

Ryan J. Dzierniejko

David J. Goldschmidt

Skadden, Arps, Slate, Meagher & Flom LLP

One Manhattan West

New York, NY 10001

(212) 735-3000

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

    

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 to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities To Be Registered

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration  Fee(2)(3)

Class A common stock, $0.001 par value per share

  $100,000,000   $10,910

 

 

 

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

(2)

Includes the additional shares that the underwriters have the option to purchase from the Registrant.

(3)

Previously paid in connection with the initial filing of this registration statement.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission (the “SEC”), acting pursuant to said Section 8(a), may determine.

 

 

 


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LOGO

The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION. DATED MAY 20, 2021 Shares Class A common stock This is Zeta Global Holdings Corp.s initial public offering. We are selling shares of our Class A common stock. The selling stockholders identified in this prospectus, which include stockholders affiliated with certain members of our board of directors, are offering shares of our Class A common stock. We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders. We expect the public offering price to be between $ and $ per share. Currently, no public market exists for our Class A common stock. After pricing of the offering, we expect that the shares of our Class A common stock will trade on the New York Stock Exchange (NYSE) under the symbol ZETA. Following this offering, we will have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock will be entitled to one vote per share. Each share of Class B common stock will be entitled to ten votes per share and will be convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately % of the voting power of our outstanding capital stock immediately following the completion of this offering, with our Co-Founder and Chief Executive Officer and his affiliates holding approximately % of the voting power of our capital stock following this offering. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of the NYSE. See "Prospectus Summary-The Offering-Controlled Company" We are an emerging growth company as defined under the federal securities laws and, as such, have elected to avail ourselves of certain reduced public company reporting requirements for this prospectus and future filings. Investing in our Class A common stock involves risks. See the Risk Factors section beginning on page 18 of this prospectus for factors you should consider before investing in our Class A common stock. Per Share Total Public offering price $ $ Underwriting discounts and commissions(1$ $ Proceeds, before expenses, to us $ $ Proceeds, before expenses, to the selling stockholders $ $ (1) See Underwriters for additional disclosure regarding underwriting discounts and commissions and estimated offering expenses payable by us. At our request, the underwriters have reserved for sale, at the initial public offering price, up to 4% of the shares offered hereby for some of our directors, officers, employees, business associates and other persons who have expressed an interest in purchasing common stock in the offering. Such shares will be subject to the -day lock-up restriction described in the Underwriters section of this prospectus. To the extent that the underwriters sell more than shares of our Class A common stock, the underwriters have the option for a period of 30 days to purchase up to an additional shares of Class A common stock from us and an additional shares of our Class A common stock from the certain of the selling stockholders, including certain members of our board of directors and officers, at the initial public offering price less underwriting discounts and commissions. If the underwriters exercise their option to purchase additional shares only in part, option shares shall be taken first from the selling stockholders and second from us. We will not receive any proceeds from any sales of shares of our Class A common stock by the selling stockholders. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The underwriters expect to deliver shares of our Class A common stock against payment in New York, New York on , 2021. Morgan Stanley BofA Securities Credit Suisse Barclays William Blair Needham & Company Oppenheimer & Co. Canaccord Genuity Roth Capital Partners The date of this prospectus is , 2021.


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LOGO

ZETA'S PLATFORM AND DATA EMPOWER MANY OF THE WORLD'S LARGEST CONSUMER BRANDS TO ACQUIRE, GROW AND RETAIN THEIR CUSTOMERS AT A LOWER COST THAN THEY CAN WITHOUT US. OUR VISION FOR THE FUTURE To empower enterprises to thrive in a digital ecosystem with intelligence, individuality and integrity. OUR FOCUS FOR TODAY To be the preferred platform for enterprises to accelerate growth and enrich the connections they have with their customers.


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LOGO

THE ZETA MARKETING PLATFORM DRIVES BETTER OUTCOMES Proprietary Data ZETA IDENTITY GRAPH Email Address Physical Address Digital Identifiers ZETA INTENT GRAPH Behavioral Signals Interest Frequency Location Transactions Marketing Channels PRIVACY COMPLIANT & PERSONALIZED Connected TV Display Website App Search Call Center Direct Mail SMS Video Social ACQUIRE GROW RETAIN


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LOGO

LEVERAGING HIGH VOLUME & HIGH FREQUENCY PROPRIETARY DATA TO CREATE HIGH VALUE AUDIENCES 220M+ Opted-ln US Individuals 1.4B Global Zeta-Owned Digital Email IDs 3B Visits To Real World Locations per Month 1T+ Digital Signals per Month Identities Globally F1OB+ Transactions Annually 2500+ Data Elements Per Individual


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     19  

Cautionary Note Regarding Forward-Looking Statements

     45  

Use of Proceeds

     46  

Dividend Policy

     48  

Capitalization

     49  

Dilution

     51  

Selected Consolidated Financial and Operating Information

     53  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     55  

Business

     77  

Management

     97  

Executive and Director Compensation

     103  

Certain Relationships and Related Party Transactions

     118  

Principal and Selling Stockholders

     120  

Description of Capital Stock

     124  

Shares Eligible for Future Sale

     136  

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

     139  

Underwriters

     143  

Legal Matters

     153  

Experts

     153  

Where You Can Find More Information

     153  

Index to Consolidated Financial Statements

     F-1  

 

 

We, the selling stockholders and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared or that have been prepared on our behalf, or to which we have referred you. We, the selling stockholders and the underwriters take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Class A common stock offered by this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date of this prospectus. Our business, financial condition and results of operations may have changed since such date.

For investors outside the United States (“U.S.”): Neither we, the selling stockholders nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside of the U.S.

Through and including                 , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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Market and Industry Data

The market data and other statistical information used throughout this prospectus is based on independent industry publications, reports by market research firms or other published independent sources. Certain market, ranking and industry data included in this prospectus, including the size of certain markets, our size or position and the positions of our competitors within these markets and our products relative to our competitors, are based on the estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, trade and business organizations and other contacts in the markets in which we operate. Unless otherwise noted, all of our market share and market position information presented in this prospectus is an approximation based on management’s knowledge. References herein to our being a leader in a market refer to our belief that we have a leading market-share position in each such specified market, unless the context otherwise requires. In addition, the discussion herein regarding our various markets is based on how we define the markets for our solutions.

This prospectus includes industry data that we obtained from periodic industry publications. Such data includes materials published by eMarketer, Inc. (“eMarketer”), International Data Corporation (“IDC”), Forrester Research (“Forrester”), KPMG LLP (“KPMG”), Mordor Intelligence, Inc. (“Mordor Intelligence”), PricewaterhouseCoopers (“PWC”), Walker Information (“Walker”) and the U.S. Census Bureau, information from independent industry analysts and publications, as well as our own estimates and research. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Our estimates are derived from publicly available information released by third-party sources, as well as data from our internal research, which we believe to be reasonable. None of the independent industry publications used in this prospectus were prepared on our behalf.

Trademarks

We own or otherwise have rights to the trademarks, copyrights and service marks, including those mentioned in this prospectus, used in conjunction with the marketing and sale of our solutions. This prospectus includes trademarks, such as ZETA, DISQUS, Opportunity Explorer, ZMP, Zeta Identity Graph and Zeta Signals, which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, service marks, copyrights and trade names of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Solely for convenience, trademarks and tradenames referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and tradenames.

Basis of Presentation

Unless otherwise indicated or the context otherwise requires, references herein to “Zeta,” the “Company,” “Registrant,” “we,” “us,” “our” and “our company” refer to Zeta Global Holdings Corp., a Delaware corporation, and its consolidated subsidiaries. References to the “selling stockholders” refer to the selling stockholders named in this prospectus.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the numbers or percentages that precede them.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this entire prospectus including the sections titled “Risk Factors”, “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

Our Mission

Zeta’s mission is to enable enterprise businesses to accelerate growth by leveraging Zeta’s proprietary data and predictive artificial intelligence (“AI”) to acquire, grow and retain consumer relationships.

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, connected TV (“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 top-rated Zeta Marketing Platform (the “ZMP”) is the largest omnichannel marketing platform with identity data at its core. The ZMP analyzes 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 connects with consumers through native integration of marketing channels and application programming interface (“API”) integration with third parties. The ZMP’s data-driven algorithms and processes learn and optimize each customer’s marketing program 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 Consumer Data Platform (“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.

Over the past decade, we have built a set of technologies and tools that make our customers’ marketing operations easier and more productive through a unified marketing platform that seamlessly bridges consumer identity, personalization, deployment and deterministic measurement across digital marketing channels and devices. We built our business model around a frictionless user experience and have enhanced and extended the platform over time to serve the evolving needs of enterprise brands. We know that the modern consumer is ‘always-on’ and has an ever-expanding digital footprint across websites, apps and connected devices. Our marketing platform not only addresses today’s complex ecosystem, but is also sufficiently flexible and robust to expand into emerging technologies such as Internet of Things (“IoT”) and augmented reality.



 

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We have secured more than 100 patents and patent applications and employ over 500 data scientists, technologists and engineers who work on further advances to our platform.

Our business exhibits scale and growth. Revenue reached $368.1 million in 2020, a 20.3% increase from 2019, and reached $101.5 million for the three months ended March 31, 2021, a 24.9% increase from the same period in 2020. Our net loss was $53.2 million in 2020, a 38.4% increase from 2019, and $24.4 million for the three months ended March 31, 2021, a 48.8% increase from the same period in 2020. Adjusted EBITDA was $39.6 million in 2020, a 62.7% increase from 2019, and $13.0 million for the three months ended March 31, 2021, a 225.7% increase from the same period in 2020.

Industry Background & Challenges

Data-driven marketing is a critical element of the modern economy. Enterprises that focus on data-driven marketing can achieve significantly higher return on investment (“ROI”) as compared to traditional marketing, especially when delivered at scale and on a personalized basis. In recent years, digital marketing has become increasingly complex due to a variety of factors such as the proliferation of devices, fragmentation of media across platforms and an evolving regulatory framework. In response to these challenges, enterprises have experienced increased costs, reduced transparency and more onerous systems integration as they attempt to target, connect and engage modern consumers. To address these complexities, specialized software and more robust infrastructure are required.

Acceleration of Digital Transformation

In 2020, digital transformation accelerated as consumers moved online and their consumption of digital media grew. This change in consumer behavior has led to an expansion by enterprises in the rate of their investment in digital transformation. According to a KPMG survey, 79% of CEOs say that their companies are accelerating the creation of a seamless digital consumer experience as a result of the COVID-19 pandemic and 63% have increased their digital transformation budget.

IDC predicts that by 2024, spending on digital transformation technology will represent 57% of all IT spend as compared to 38% in 2019. The accelerated shift in investment towards digital is also evident in the composition of marketing budgets. In 2019, global digital marketing spending overtook spending on analog and traditional marketing for the first time. eMarketer predicts that by 2024 digital marketing will represent nearly two-thirds of all marketing spending.

As the bar to succeed in the digital ecosystem is raised, enterprises are discovering that they must evolve their assets and capabilities to improve how they acquire, grow and retain consumer relationships. Many enterprises struggle to identify the right consumers for their brand, deliver relevant experiences to such consumers and build the capability to do it over an ever-expanding number of digital channels. Legacy point solutions and data and analytics tools from the analog era were not designed to address this accelerating digital shift. Modern tools and technologies are required to personalize consumer experiences at scale and measure ROI with greater precision.

Demand for Personalized Experiences by Modern Consumers

Consumers are seeking more personalized experiences when interacting with a brand. According to PWC, 54% of all U.S. consumers say that brands need to improve their consumer experience to win or maintain their business. Walker predicts that, in 2021, consumer experience will overtake price and product as the key brand differentiator. Although enterprises are aware that more relevant consumer experiences tend to result in improved business outcomes, delivering better experiences is too complex for many enterprises to execute. They lack data assets, core capabilities and modern technologies to capitalize on this emerging development.



 

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Evolving & Fragmented Consumer Identity

As use of personal devices and digital media expands, audience fragmentation is accelerating. A growing roster of digital publishers and an explosion of digital content presents a challenge for marketers seeking to reach a large audience spread over multiple channels. In addition, the number of devices used by individual consumers has increased and is expected to continue to grow. This multiplies the complexity of targeting, connecting and engaging the modern consumer. Although enterprises attempt to target, connect and engage consumers across multiple devices, there is inadequate cross-functional coordination, a lack of data integration across channels and poor interoperability among systems. Enterprises are seeking new approaches to identify individual consumers rather than devices or digital identifiers. This presents opportunities for companies that have the data-driven assets and capabilities to present a unified view of the consumer, deliver more relevant experiences, enable real-time learning and, ultimately, generate higher ROI based on deeper understanding of the needs, attitudes and behaviors of individuals.

Legacy Point Solutions Are Unable to Serve All of the Evolving Needs of Enterprises

Advances in computing and communications technology have enabled businesses to automate and improve their core business processes. Many businesses have purchased, built and deployed a wide range of enterprise software applications in such areas as enterprise resource planning (“ERP”) and customer relationship management (“CRM”). While technology improvements have brought increased processing power and functionality to enterprise software applications, businesses have been challenged to realize the full benefits of these applications for a variety of reasons, including difficulties with deployment and high cost of ownership. Enterprises attempting to deliver more personalized consumer experiences at scale have had to purchase, implement, maintain, upgrade, integrate and use multiple vendors and technologies to execute plans. This piecemeal approach has increased cost of ownership due to lack of inter-operability and decreased effectiveness of their marketing programs as a result of functional and integration gaps. The complexity, cost and sub-optimal results from this legacy approach have created a need for a comprehensive technology platform that serves as a dynamic end-to-end solution for enterprises.

Significant Marketing Dollar Waste Exists

Even though marketing technology has become more sophisticated, many enterprises still lack the ability to accurately calculate the return on their marketing investments. According to eMarketer calculations, companies waste an average of 26% of their marketing budgets on ineffective digital strategies and channels. Many existing data-driven strategies and tactics have proven to be ineffective. Although data vendors are able to collect consumer information across a wide range of digital properties and connected devices, enterprises struggle to realize the value of this type of data because they are unable to coordinate insights and execute across disparate channels. In addition, significant challenges with enterprise data management persist, including data security, big data ingestion, choke points, extraction of meaningful insights and a shortage of professionals who can manage sophisticated unified data systems. This typically leads to an inefficient use of data and a gap between expectations and actual results. Robust, reliable and flexible data management combined with timely, accurate analysis are among the most valuable resources marketers can use to personalize consumer experiences at scale and improve marketing ROI.

Protecting Consumer Privacy and Regulatory Challenges

Increasing awareness about how Internet user data is gathered, processed and used by marketers to create targeted marketing messages has resulted in a growing number of privacy laws and regulations globally, including the California Consumer Privacy Act in California (“CCPA”), the Video Privacy Protection Act (“VPPA”) in the U.S. and the General Data Protection Regulation (“GDPR”) in the European Union (“EU”).



 

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We believe these developments will continue. In addition, there are a growing number of consumer-focused non-profit organizations and commercial entities advocating for privacy rights. These institutions are enabling digital consumers to assert their rights over the use of their online data in marketing transactions. Enterprises are demanding more transparent and easier to use solutions that enable them to remain in compliance with existing and emerging regulations.

Our Market Opportunity

We participate in the large, growing and rapidly evolving digital marketing industry. The sector is benefitting from an accelerated pace of consumer adoption and heightened innovation across the technology ecosystem. Increased Internet penetration, expanded use of mobile devices and modernization of legacy systems have driven digital transformation initiatives within enterprises and created new channels to target, connect and engage consumers. To utilize these digital channels more effectively and satisfy shifts in consumer preference, enterprises are increasingly employing marketing automation tools to manage their customer acquisition and retention programs. As marketers seek to maximize their digital transformation initiatives and minimize the friction of internal operations, they have increased their demand for easy-to-use, comprehensive third-party marketing technology platforms that deliver relevant communications to the right audiences, via the right channel and at the right time.

According to eMarketer, global marketing spend was approximately $647 billion in 2019 and is expected to grow to $841 billion by 2024, representing a compound annual growth rate of 5%. Within this broader global marketing spend, digital marketing spend was $325 billion in 2019 and is expected to grow to $526 billion by 2024, representing a compound annual growth rate of 10%. According to IDC, marketing software spend worldwide was approximately $19.2 billion in 2019 and was expected to grow to $35.5 billion by 2024, representing a compound annual growth rate of 13%. We believe these trends are driving the demand for marketing software solutions like ours.

The increased focus on digital marketing has also increased demand for marketing automation solutions. These solutions facilitate consumer acquisition, engagement and loyalty by leveraging data and analytics to optimize personalization of marketing programs. According to Mordor Intelligence, the marketing automation software market was estimated at approximately $6.9 billion in 2020 and is expected to grow to approximately $19.7 billion by 2026, representing a compound annual growth rate of 19%.

We believe we are well-positioned to capitalize on these market opportunities as a software and platform provider. In particular, we have one of the largest proprietary identity graphs that enhances enterprises’ targeting capabilities, patented AI that delivers personalized experiences to improve engagement and purpose-built technology that enables our customers to acquire, grow and retain consumer relationships more effectively than alternative solutions.



 

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We sized our market using a bottom-up approach. We believe the size of our total addressable market to be approximately $36 billion. We calculated this figure by first estimating the total number of U.S. Large Enterprises, derived from U.S. Census Bureau data and which we define as firms with over 1,500 employees. We then further segmented the U.S. Large Enterprises by industry verticals in which Zeta maintains most relevance, yielding 9,558 companies. We multiplied this number of relevant U.S. Large Enterprises by our scaled customer ($1M+) average revenue per user (“ARPU”) of $3,805,734, derived from internal Company data for the year ended December 31, 2020, to arrive at the TAM.

 

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Our Key Strengths

Omnichannel Engagement

Our omnichannel capabilities enable us to provide value to our customers by uncovering consumer insights tied to individuals’ purchase intent that can be used across digital marketing channels, thereby optimizing and measuring the effectiveness of our customers’ marketing programs. Through the ZMP, our customers can identify and target consumers across a wide range of digital channels. These channels can work independently, in parallel or in concert depending on the marketing strategies and tactics of our customers. Many of these channels, such as email and programmatic, are native to the ZMP, while others, such as social media, are accessed through API integrations with third party companies such as Facebook and Snap. The ZMP can respond quickly to technological advances and seamlessly connect with emerging digital platforms and new devices.

Actionable Insights

The ZMP monitors, aggregates and analyzes the behaviors of individuals globally across multiple points of interactions to predict interest and intent. Our customers can use the Opportunity Explorer module in the ZMP to identify, synthesize and act on consumer insights in real-time. For example, each month in the U.S. alone, our technology monitors and scores over 50 billion webpages and online discussion forum interactions, 3 billion visits to real-world locations, 1 billion purchase signals and up to 2,500 demographic and behavioral attributes to identify high value opportunities for our customers to optimize their digital marketing programs.

Recognized Leader in Marketing Automation

The ZMP was designed to enable marketing and IT professionals to integrate our platform with their existing tools and technologies quickly and seamlessly. We believe our customers choose our platform over others because of its powerful and easy to use applications, rapid integration with internal technologies and marketing channels and seamless onboarding of an enterprise’s consumer data. We have been recognized by various third-party research reports as a leading player in the marketing automation sector. For example, in 2020, we were recognized as a “Leader” by The Forrester Wave: Email Marketing Service Providers, Q2 2020 and received the highest possible scores for our campaign management data, analytics, artificial intelligence and campaign operations capabilities. In addition, we were recognized as a “Visionary” in a market research report by a major research and advisory firm in 2017.

Secure, Scalable and Reliable Platform

The ZMP has been designed to provide our customers with high levels of reliability, data integrity, performance and security. Our public cloud deployment and IT systems within our data center have multi-zone and multi-region fail-over redundancy. We have built a comprehensive security infrastructure, including firewalls, intrusion detection systems and encryption for transmissions over the Internet, which we monitor and test on a regular basis. We built and maintain a multi-tenant application architecture that has been designed to enable our service to scale securely, reliably and cost-effectively to tens of thousands of customers and millions of users. Our multi-tenant application architecture maintains the integrity and separation of customer data while still permitting all customers to use the same application functionality simultaneously. Our architecture also enables us to segment access privileges across our user base.

Management Team

Our management team is highly experienced, possesses deep industry knowledge and is operationally focused. We are led by our original founders, which gives us a combination of stability and a strong entrepreneurial corporate culture. Our co-founder and CEO, David A. Steinberg, has decades of relevant industry



 

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experience with a proven track record of entrepreneurship and innovation. Our co-founder, John Sculley, was the former CEO of Apple and President of PepsiCo. The rest of our management team has worked in top enterprises and tech-forward companies, including Microsoft, Oracle, IBM, Netscape, PayPal, Accenture and Nielsen.

Our Competitive Advantages

All in One Platform

The ZMP is an end-to-end platform that gives our customers a 360-degree view of their consumer relationships, provides proprietary and actionable insights that improve business productivity and has the ability to execute across all marketing channels to improve marketing program ROI. Some of the key capabilities of our end-to-end platform include: proprietary identity data, master data management, omnichannel engagement, native integration of marketing channels and customer acquisition capabilities. We believe this sets us apart from competitors’ legacy point solutions that neither provide a full suite of capabilities nor address all primary use cases of acquisition, growth and retention.

Reduces Complexity and Cost of Total Ownership

Our business model is driven by our comprehensive platform, owned infrastructure and continuous innovation resulting from consistent investment in research and development. We believe each new release of the ZMP has delivered significant improvements in performance, reliability, scale and scope to our customers and reduced our cost base. This enables us to price our platform more competitively, allowing our customers to exit legacy technology systems and eliminate ineffective marketing programs. We believe these improvements have helped us reduce our customers’ costs and improve their ROI, enabling us to attract and retain scaled customers and grow our market share.

Patented AI Engine with Custom Built Algorithms

The ZMP was purpose-built from the ground up by our seasoned team of product experts and engineers. It was designed with patented AI at its core to maximize utility and extensibility. As the digital landscape has evolved, we have enhanced and extended our AI capabilities to address the evolving needs and requirements of our customers. We believe that the accuracy and precision of the answers delivered by our AI engine enables our customers to make faster and more effective marketing decisions and allows marketing executives to oversee profitable marketing programs.

Opted-In Data

A number of countries and regions have enacted or are considering enacting legislation that could significantly restrict the marketing industry’s ability to collect, augment, analyze, use and share data. While we do not expect these requirements to become a universal standard for data collection, we have nonetheless prepared for the possibility of such laws being enacted in the future. Accordingly, we have implemented a framework to record and apply consumer consents that meet or exceed legal requirements in the U.S. and the EU. We capture much of our opted-in data through our publisher network, which includes our commenting platform, Disqus. We are embedded on more than 6.2 million websites and more than 15 billion webpages.

Enriched Data Embedded in Customers’ Marketing Operations

ZMP seamlessly connects Zeta’s proprietary data and third-party data with each customer’s consumer data via matching processes to create a 360-degree view of the consumer while keeping Zeta’s and each customer’s data technically separated. This provides enterprises with a single source of truth that improves their understanding of consumer needs, attitudes and behaviors. This understanding is translated into personalized marketing programs and marketing spend that is optimized for ROI. With role-based access, strict data separation and advanced security functionalities, the ZMP is built for enterprise-wide adoption and scalability.



 

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Our Growth Strategies

Our data and AI-powered platform enables our customers to personalize digital marketing experiences at scale, accelerate their revenue growth and enhance business returns. In turn, our customers’ success motivates them to increase their use of our platform, thereby accelerating our revenue and growth. Key elements of our long-term growth strategy include:

Further penetrate our existing customer base. As marketers continue to move a greater percentage of their budgets from analog to digital marketing, we believe we can rely on our extensive connections and customer base to capture a larger share of the overall marketing spend from our existing customers. Our customers span a wide spectrum of industry verticals and we believe we can achieve significant organic growth by cross-selling our existing solutions, making full use of our data capabilities and insights and by capturing increased share of our customers’ marketing spend by introducing new features and functionalities within the ZMP.

Acquire scaled customers. As traditional marketing software providers struggle to meet rapidly evolving customer demands, we believe we have a substantial opportunity to drive greater adoption of our platform through shifts in investments by enterprises. We intend to aggressively pursue new scaled customers by investing in our sales and customer service teams while driving increased efficiencies in our go-to-market approach. We also have extensive relationships with many marketing agencies and enterprises and believe we can extend our platform to provide business-to-business (“B2B”) marketing capabilities.

Continue to innovate and develop new products. We intend to continue to invest in our technology to improve our platform and enhance its features and functionalities. We designed our platform to easily accommodate new features and functions, as well as the release of entirely new solutions. With over 500 data scientists and engineers, we believe we are well positioned to quickly develop new products and take full advantage of the shift to digital marketing. Since we view data as one of our key competitive advantages, we will also continue to invest resources to expand our data offerings, both from third-party providers, as well as our proprietary data sources.

Expand into international markets. We are still early in our international expansion efforts and have a limited presence outside of the U.S., yet many of our existing customers have significant global reach, representing potential international demand for our products, which can be supported by our Zeta Identity Graph. As we expand relationships with our existing customers in the U.S., we are also investing in select regions in Europe. In addition, we believe that Asia may represent a substantial growth opportunity, and we are in the early stages of developing our business plan with respect to these markets.

Continue to strengthen our partnership ecosystem. We are in the process of building out our global network of consulting, delivery and technology partners that can enrich our offerings, scale our coverage and help us reach a broader audience than we would be able to reach on our own. We expect this network will also extend our sales reach and provide implementation leverage both domestically and internationally. We believe these new capabilities will allow us to further strengthen our relationships with our existing customers and gain global market share.

Summary Risk Factors

Investing in our Class A common stock involves substantial risk. Our ability to execute our strategy is also subject to certain risks. The risks described under the heading “Risk Factors” in this prospectus may cause us not



 

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to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the most significant challenges and risks we face include the following:

 

   

We may experience fluctuations in our operating results, which could make our future operating results difficult to predict.

 

   

If we fail to innovate and make the right investment decisions in our product offerings and platform, we may not attract and retain customers and our revenue and results of operations may decline.

 

   

Our success and revenue growth depends on our ability to add and retain scaled customers.

 

   

If we do not manage our growth effectively, the quality of our platform and solutions may suffer, and our business, results of operations and financial condition may be adversely affected.

 

   

Our business and the effectiveness of our platform depends on our ability to collect and use data online. New consumer tools, regulatory restrictions and potential changes to web browsers and mobile operating systems all threaten our ability to collect such data, which could harm our operating results and financial condition and adversely affect the demand for our products and solutions.

 

   

The standards that private entities and inbox service providers adopt in the future to regulate the use and delivery of email may interfere with the effectiveness of our platform and our ability to conduct business.

 

   

A significant inadvertent disclosure or breach of confidential and/or personal information we process, or a security breach of our or our customers’, suppliers’ or other partners’ computer systems could be detrimental to our business, reputation, financial performance and results of operations.

Our infrastructure depends on third-party data centers, systems and technologies to operate our business, the disruption of which could adversely affect our business, results of operations and financial condition.

Our Corporate Information

We were incorporated under the laws of the State of Delaware on May 9, 2012, and our operating company Zeta Global Corp. was incorporated under the laws of the State of Delaware on September 28, 2007. Our principal executive offices are located at 3 Park Ave, 33rd Floor, New York, NY, 10016, and our telephone number is 212-967-5055. Our corporate website address is www.zetaglobal.com. Information contained on, or accessible through, our website shall not be deemed incorporated into and is not a part of this prospectus or the registration statement of which it forms a part. We have included our website in this prospectus solely as an inactive textual reference.

Implications of Being an Emerging Growth Company

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year following the fifth anniversary of the consummation of this offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our Class A common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may avail itself of specified reduced reporting requirements and



 

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is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

   

We will present in this prospectus only two years of audited consolidated financial statements, plus any required unaudited financial statements, and related management discussion and analysis of financial condition and results of operations;

 

   

We will avail ourselves of the exemption from the requirement to obtain an attestation report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

   

We will provide less extensive disclosure about our executive compensation arrangements; and

 

   

We will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

Accordingly, the information contained herein may be different than the information you receive from our competitors that are public companies or other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.



 

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The Offering

 

Class A common stock offered by us

                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares).

 

Class A common stock offered by the selling stockholders

                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares).

 

Class A common stock to be outstanding after this offering

                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares).

 

Class B common stock to be outstanding after this offering

                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares).

 

Option to purchase additional shares of Class A common stock

The underwriters have an option to purchase up to an aggregate of                  additional shares of Class A common stock from us at the initial public offering price and up to an aggregate of                  additional shares of our Class A common stock from the selling stockholders, including certain members of our board of directors and officers, at the initial public offering price. The underwriters can exercise this option at any time within 30 days from the date of this prospectus. In the event the underwriters do not exercise their option to purchase additional shares in full, the underwriters will first purchase shares from the selling stockholders, with any remaining shares being sold by us.

 

Use of proceeds

We estimate that the net proceeds to us from the sale of the shares of our Class A common stock in this offering will be approximately $             million, based upon an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in this offering in full, we estimate that our net proceeds will be approximately $             million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our Class A common stock in this offering by the selling stockholders. We will, however, bear the costs associated with the sale of shares of Class A common stock by the selling stockholders, which will be $             million (or $             million if the underwriters exercise in full their option to purchase additional shares). The selling stockholders will not deduct any underwriting discounts or commissions from the proceeds of their sale of our Class A common stock. We will deduct all underwriting discounts and commissions and pay all offering expenses in connection with this offering. See “Use of Proceeds.”



 

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The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our Class A common stock.

Based on the assumed initial public offering price per share of $            , which is the midpoint of the price range set forth on the cover page of this prospectus, we intend to use the net proceeds of this offering as follows:

 

   

$             million to satisfy the anticipated tax withholding and remittance obligations of holders of our outstanding restricted stock and restricted stock units that will vest in connection with this offering by repurchasing                  shares of Class A restricted stock and              shares of Class B restricted stock and cancelling              restricted stock units (the “Tax Withholding Repurchase”), based on an assumed 33% tax withholding rate. See “Executive and Director Compensation—Treatment of Equity Awards in Connection with this Offering” for additional information regarding the vesting of these awards in connection with this offering.

 

   

$             million to repurchase                  shares of Class A restricted stock and cancel              restricted stock units at the election of certain holders of our restricted stock and restricted stock units for a cash purchase price equal to the public offering price in this offering (the “Class A Stock Repurchase”).

 

   

$             million to repurchase                  shares of Class B common stock and              shares of restricted Class B common stock for a cash purchase price equal to the public offering price in this offering (the “Class B Stock Repurchase” and, together with the Class A Stock Repurchase, the “Stock Repurchase”).

 

   

$             million (or $             million if the underwriters exercise their option to purchase additional shares in this offering in full) for general corporate purposes, including working capital, operating expenses and capital expenditures, although we have not designated any specific uses. We may also use a portion of the net proceeds to fund possible investments in, or acquisitions of, complementary businesses, services or technologies. We have no current agreements or commitments with respect to any investment or acquisition, and we currently are not engaged in negotiations with respect to any investment or acquisition.

 

 

As a result of the Tax Withholding Repurchase and the Stock Repurchase, we will repurchase an aggregate of                  shares of Class A restricted stock and                  shares of Class B common stock and cancel an aggregate of                  restricted stock units. Certain officers and members of our board of directors will have a portion of their shares repurchased pursuant to the Tax Withholding Repurchase and the Stock Repurchase. See “Certain Relationships and Related Party Transactions—Stock Repurchase.”

 

 

Each $1.00 increase or decrease in the assumed initial public offering price per share of $        , which is the midpoint of the price range set



 

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forth on the cover page of this prospectus, would increase or decrease the amount we would be required to pay in connection with the Tax Withholding Repurchase and the Stock Repurchase by approximately $             million. See the section titled “Use of Proceeds” for additional information.

 

Voting Rights

Shares of our Class A common stock will be entitled to one vote per share. Shares of our Class B common stock will be entitled to ten votes per share.

 

 

The holders of our Class A common stock and Class B common stock will generally vote together as a single class on all matters submitted to a vote of our stockholders unless otherwise required by Delaware law or our amended and restated certificate of incorporation. See “Description of Capital Stock.”

 

 

Directed Shares

At our request, the underwriters have reserved up to 4% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to some of our directors, officers, employees, business associates and other persons who have expressed an interest in purchasing common stock in the offering.

 

Controlled Company

Following this offering, we expect that we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Risk Factors—Risks Related to This Offering and Ownership of Our Class A Common Stock—As a result of this offering, we will become a “controlled company” within the meaning of the NYSE rules and, as a result, expect to qualify for, and may rely on, exemptions from certain corporate governance requirements.”

 

Proposed Stock Exchange Symbol

“ZETA”

 

Risk Factors

See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

 

 

The number of shares of our Class A and Class B common stock to be outstanding after completion of this offering is based on                  shares of our Class A common stock and                  shares of our Class B stock outstanding as of March 31 2021, after giving effect to:

 

   

the conversion of                  outstanding shares of our Series A preferred stock, Series B-1 preferred stock, Series B-2 preferred stock, Series C preferred stock, Series E preferred stock, Series E-1 preferred stock, Series F preferred stock, Series F-1 preferred stock, Series F-2 preferred stock, Series F-3 preferred stock and Series F-4 preferred stock into                  shares of our Class A common stock immediately prior to the completion of this offering (the “Preferred Conversion”) assuming an initial public offering price per share of $            , which is the midpoint of the price range set forth on the cover page of this prospectus (if the initial public offering price is $11.58 or below, the Preferred Conversion would result in                  shares of our Class A common stock being issued);

 

   

8,360,513 shares of our Class A common stock issued in connection with the exercise of outstanding warrants (the “Warrant Exercise”);



 

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the reclassification of                  shares of our existing Series B common stock and                  shares of Series A common stock into shares of Class A common stock (the “Reclassification”);

 

   

the exchange of                  shares of Class A common stock (after giving effect to the Preferred Conversion and the Reclassification) held by our Co-Founder and Chief Executive Officer and his affiliates for an equivalent number of shares of Class B common stock, which will be effective upon the filing and effectiveness of our amended and restated certificate of incorporation pursuant to the terms of the exchange agreement entered into between our Co-Founder and Chief Executive Officer and his affiliates and us (the “Class B Exchange”); and

 

   

the repurchase of an aggregate of                  shares of restricted Class A common stock and                  shares of Class B common stock (of which              is restricted Class B common stock) as a result of the Stock Repurchase and the Tax Withholding Repurchase.

The number of shares of our Class A and Class B common stock to be outstanding after completion of this offering is inclusive of                  shares of restricted Class A common stock (or                  shares of restricted Class A common stock if the underwriters exercise their option to purchase additional shares in this offering in full) shares of restricted Class A common stock and                  shares of restricted Class B common stock issuable upon settlement. The terms of these restricted shares provide that they will not vest for at least one year following the date of the final prospectus in respect of this offering.

The number of shares of Class A common stock issued in the Preferred Conversion will be based on the closing date of this offering. A change in the closing date from the assumed closing date of                 , 2021 will affect the number of shares of Class A common stock issued in the Preferred Conversion and will result in a corresponding change to the number of shares of Class A common stock outstanding after the completion of this offering. Each day by which the actual closing date precedes or follows the assumed closing date of                 , 2021 will result in the issuance of              fewer or additional shares of Class A common stock, respectively.

The shares of Class A and Class B common stock outstanding as of March 31, 2021 excludes:

 

   

912,198 shares of our Class A common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $3.19 per share;

 

   

                 shares of Class A common stock issuable upon settlement of restricted stock units outstanding as of March 31, 2021 after giving effect to the Class A Stock Repurchase and the Tax Withholding Repurchase;

 

   

6,000,000 shares of our common stock (700,000 of which will be shares of our Class B common stock) reserved for future issuance under our 2021 Incentive Award Plan (the “2021 Plan”); and

 

   

2,007,100 shares of our Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan (“ESPP”)

Unless otherwise stated, information in this prospectus (except for the historical financial statements and the related discussion of such financial information) assumes:

 

   

the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering;

 

   

the Preferred Conversion;

 

   

the Warrant Exercise;

 

   

the Reclassification;



 

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the Class B Exchange;

 

   

the Stock Repurchase and the Tax Withholding Repurchase;

 

   

no exercise of the outstanding options or settlement of the outstanding restricted stock units subsequent to March 31, 2021 (after giving effect to the Class A Stock Repurchase and the Tax Withholding Repurchase); and

 

   

no exercise by the underwriters of their option to purchase up to              additional shares of Class A common stock from us and                  additional shares of our Class A common stock from certain of the selling stockholders.



 

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Summary Consolidated Financial and Operating Information

 

The following table sets forth our summary historical consolidated financial and operating information for the periods and dates indicated. The consolidated statement of operations and comprehensive loss for the years ended December 31, 2020 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of March 31, 2021 and the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2021 and 2020 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for the fair statement of the financial information set forth in those statements.

This data should be read in conjunction with, and is qualified in its entirety by reference to, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Capitalization” sections of this prospectus and our consolidated financial statements and notes thereto for the periods and dates indicated included elsewhere in this prospectus.

Consolidated Statements of Operations and Comprehensive Loss

 

     Three months ended
March 31,
    Year ended
December 31,
 
(in thousands, except share and per share amounts)    2021     2020     2020     2019  

Revenues

   $ 101,463     $ 81,260     $
368,120
 
  $ 306,051  

Operating expenses

        

Cost of revenues (excluding depreciation and amortization)

     38,972       30,529       148,878       110,385  

General and administrative expenses

     19,132       18,793       70,849       73,344  

Selling and marketing expenses

     20,570       19,248       77,140       69,519  

Research and development expenses

     9,784       8,723       31,772       28,685  

Depreciation and amortization

     10,117       9,541       40,064       34,340  

Acquisition related expenses

     707       1,935       5,402       5,916  

Restructuring expenses

     287       1,193       2,090       1,388  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 99,569     $
89,962
 
  $ 376,195     $ 323,577  

Operating income / (loss)

     1,894      
(8,702

    (8,075     (17,526

Interest expense

     2,961       4,343       16,257       15,491  

Other (income) / expense

     1,284       113       (126     239  

Change in fair value of warrants and derivative liabilities

     23,600       2,600       28,100       4,200  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

   $ 27,845     $ 7,056     $ 44,231     $ 19,930  

Loss before income taxes

     (25,951     (15,758     (52,306     (37,456

Income tax (benefit) / provision

     (1,577     622       919       1,009  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (24,374   $ (16,380   $ (53,225   $ (38,465
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income / (loss):

        

Foreign currency translation adjustment

     54       (741     (190     (76
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (24,320   $ (17,121   $ (53,415   $ (38,541
  

 

 

   

 

 

   

 

 

   

 

 

 


 

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     Three months ended
March 31,
    Year ended
December 31,
 
(in thousands, except share and per share amounts)    2021     2020     2020     2019  

Net loss per share

        

Net loss

   $ (24,374   $ (16,380   $ (53,225   $ (38,465

Cumulative redeemable convertible preferred stock dividends

     3,894       3,660       19,571       17,278  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

   $ (28,268   $ (20,040   $ (72,796   $ (55,743

Basic loss per share

   $ (0.86   $ (0.61   $ (2.23   $ (1.77

Diluted loss per share

   $ (0.86   $ (0.61   $ (2.23   $ (1.77

Weighted average number of shares used to compute net loss per share(1)

        

Basic

     32,846,991       32,607,406       32,589,409       31,579,301  

Diluted

     32,846,991       32,607,406       32,589,409       31,579,301  

Pro forma net loss per share (unaudited)(2)

        

Basic

                    N/A                      N/A  

Diluted

                    N/A                      N/A  

Pro forma weighted average number of shares used to compute net loss per share (unaudited)(2)

        

Basic

  

 


                    


 
    N/A    
 

                    

 
    N/A  

Diluted

  
 

                    

 
    N/A    
 

                    

 
    N/A  

 

(1)

See Note 20 to our consolidated financial statements for the years ended December 31, 2020 and 2019 included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share and the weighted-average number of shares used in the computation of the per share amounts.

(2)

The unaudited pro forma basic and diluted net loss per share attributable to common stockholders has been computed using the weighted-average number of common shares outstanding after giving pro forma effect to (a) the filing and effectiveness of our amended and restated certificate of incorporation upon the closing of this offering, (b) the Preferred Conversion, (c) the Warrant Exercise, (d) the Reclassification and (e) the Class B Exchange.

 

     Three months ended
March 31, 2021
     Year ended
December 31, 2020
 

Numerator:

     

Net loss

                                                       

Less: Stock compensation expense

  

 


                    


 
  

 


                    


 

Add: Write down of warrants and derivative liabilities

                                                       
  

 

 

    

 

 

 

Pro forma net loss attributable to common stockholders

                                                       
  

 

 

    

 

 

 

Denominator:

     

Weighted average Series A Common

                                                       

Weighted average Series B Common

                                                       

As converted redeemable convertible preferred shares

                                                       

Warrants exercised

                                                       

Restricted stock and restricted stock units vesting

                              
 

                    

 
  

 

 

    

 

 

 

Pro forma weighted average number of shares of common stock, basic and diluted

  
 

                    

 
                           
  

 

 

    

 

 

 


 

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Consolidated Balance Sheet Data

 

     As of March 31, 2021  
($ in thousands)    Actual     Pro Forma(1)      Pro Forma
as Adjusted(2)
 

Cash and cash equivalents

   $ 52,103     $                        $                    

Total assets

     286,427                            

 


                


 

Total liabilities

     390,303                                                 

Redeemable convertible preferred stock

     154,210                                                 

Additional paid-in capital

     33,894                                                 

Accumulated deficit

     (266,628                          
 

                

 

Total stockholders’ deficit

     (258,086                                               

 

(1)

The pro forma column gives effect to (a) the filing and effectiveness of our amended and restated certificate of incorporation upon the closing of this offering, (b) the Preferred Conversion, (c) the Warrant Exercise, (d) the Reclassification and (e) the Class B Exchange.

(2)

The pro forma as adjusted column gives effect to the pro forma adjustments described in footnote (1) above and gives further effect to (i) the sale of                  shares of Class A common stock by us in this offering at an assumed initial public offering price of $                 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the Stock Repurchase and the Tax Withholding Repurchase. The pro forma as adjusted information set forth in the table above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.



 

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RISK FACTORS

An investment in our Class A common stock involves a high degree of risk. You should consider carefully the following risks, together with our financial statements and the related notes and the other information contained in this prospectus before you decide whether to buy our Class A common stock. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations and financial condition could be materially and adversely affected. As a result, the market price of our Class A common stock could decline, and you may lose all or part of the money you paid to buy our Class A common stock. The risks described below are those that we believe are the material risks that we face but other risks may arise from time to time. See “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this prospectus.

Risks Related to Our Business and Our Industry

We may experience fluctuations in our operating results, which could make our future operating results difficult to predict.

Our quarterly and annual operating results have fluctuated in the past, and we expect our future operating results to fluctuate due to a variety of factors, many of which are beyond our control. Our liquidity and revenue can fluctuate quarter to quarter as certain of our customers have seasonal marketing spend. The varying nature of our pricing mix between periods, customers and products may also make it more difficult for us to forecast our future operating results. Further, these factors may make it more difficult to make comparisons between prior, current and future periods. As a result, period-to-period comparisons of our operating results should not be relied upon as an indication of our future performance.

In addition, the following factors may cause our operating results to fluctuate:

 

   

our ability to attract scaled customers and retain and increase sales to existing customers;

 

   

changes in our pricing policies, the pricing policies of our competitors and the pricing or availability of data or other third-party services;

 

   

the seasonal budgeting cycles and internal marketing budgeting and strategic purchasing priorities of our customers;

 

   

our ability to continue to develop and offer products and solutions that are superior to those of our competitors;

 

   

our ability to develop our existing platform and introduce new solutions on our platform;

 

   

our ability to retain and attract top talent;

 

   

our ability to anticipate or respond to changes in the competitive landscape, or improvements in the functionality of competing solutions that reduce or eliminate one or more of our competitive advantages;

 

   

our ability to maintain and expand our relationships with data centers and strategic third-party technology vendors, who provide floor space, bandwidth, cooling and physical security services on which our platform operates;

 

   

our ability to successfully expand our business internationally;

 

   

the emergence of significant privacy, data protection, security or other threats, regulations or requirements applicable to our business and shifting views and behaviors of consumers concerning use of data and data privacy;

 

   

extraordinary expenses, such as litigation or other dispute-related settlement payments; and

 

   

future accounting pronouncements or changes in our accounting policies.

 

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Any one of the factors referred to above or the cumulative effect of any combination of factors referred to above may result in our operating results being below our expectations and the expectations of securities analysts and investors, or may result in significant fluctuations in our quarterly and annual operating results, including fluctuations in our key performance indicators (“KPIs”). This variability and unpredictability could result in our failure to meet our business plan or the expectations of securities analysts or investors for any period. In addition, a significant percentage of our operating expenses are fixed in nature in the short term and based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on our results of operations in the short term.

If we fail to innovate and make the right investment decisions in our product offerings and platform, we may not attract and retain customers and our revenue and results of operations may decline.

Our industry is subject to rapid and frequent changes in technology, evolving customer needs and the frequent introduction by our competitors of new and enhanced offerings. We must regularly make investment decisions regarding offerings and technology to maintain the technological competitiveness of our products and platform and meet customer demand and evolving industry standards. As we continue to grow and attract a broader customer base, we will have to invest more time and effort to maintain a certain level of performance in our products and platform.

The complexity and uncertainty regarding the development of new technologies and the extent and timing of market acceptance of innovative products and solutions create difficulties in maintaining this competitiveness. The success of any enhancement or new solution depends on many factors, including timely completion, adequate quality testing, appropriate introduction and market acceptance. If our competitors are able to orientate their product to meet the specific needs of a particular industry better than us, they may be able to amass market share faster than us and by consequence, reduce our current and future revenues. Without the timely introduction of new products, solutions and enhancements, our offerings could become technologically or commercially obsolete over time, in which case our revenue and operating results would suffer. New customer demands, superior competitive offerings or new industry standards could require us to make unanticipated and costly changes to our platform or business model. If we fail to enhance our current products and solutions or fail to develop new products to adapt to our rapidly changing industry or to evolving customers’ needs, demand for our platform could decrease and our business, operating results and financial condition may be adversely affected.

Our success and revenue growth depends on our ability to add and retain scaled customers.

Our success is dependent on regularly adding new customers, in particular new scaled customers, and increasing our existing customers’ usage of our platform. We also continually work on converting our non-scaled customers into scaled customers, which represented 95%, 96% and 95% of our revenue as of March 31, 2021 and December 31, 2020 and 2019, respectively. Many of our contracts and relationships with customers do not include automatic renewal or exclusive obligations requiring them to use our platform or maintain or increase their use of our platform. Our customers, in particular our scaled customers, typically have relationships with numerous providers and can use both our platform and those of our competitors without incurring significant costs or disruption. Our customers may also choose to decrease their overall marketing spend for any reason, including if they do not believe they are generating a sufficient return on their marketing spend. Accordingly, we must continually work to win new scaled customers and retain existing scaled customers, increase their usage of our platform and capture a larger share of their marketing spend. We may not be successful at educating and training our new and existing customers on how to use our platform, in particular our advanced reporting tools, in order for them to benefit from it and generate revenues.

In 2020, our top ten customers accounted for less than 35% of our total revenue and no customer accounted for more than 10% of our total revenue. Occasionally, we enter into separate contracts and billing relationships with individual marketing agencies that are owned by the same holding company and account for them as

 

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separate customers. However, if a holding company of multiple marketing agencies chooses to exert control over the individual agencies in the future and terminate their relationship with us, it could result in a disproportionate loss of revenue.

If our customers, in particular our scaled customers, decide not to continue to use our platform or decrease their usage of our platform for any reason, or if we fail to attract new customers and turn them into scaled customers, our revenue could decline, which would materially and adversely harm our business, operating results and financial condition. We cannot assure you that our scaled customers will continue to use and increase their spend on our platform or that we will be able to attract a sufficient number of new scaled customers to continue to grow our revenue. If scaled customers representing a significant portion of our business decide to materially reduce their use of our platform or cease using our platform altogether, our revenue could be significantly reduced, which could have a material adverse effect on our business, operating results and financial condition. We may not be able to replace scaled customers who decrease or cease their usage of our platform with new scaled customers that will use our platform to the same extent.

If we do not manage our growth effectively, the quality of our platform and solutions may suffer, and our business, results of operations and financial condition may be adversely affected.

The continued growth in our business may place demands on our infrastructure and our operational, managerial, administrative and financial resources. Our success will depend on the ability of our management to manage growth effectively. Among other things, this will require us at various times to:

 

   

strategically invest in the development and enhancement of our platform and data center infrastructure;

 

   

improve coordination among our engineering, product, operations and other support organizations;

 

   

manage multiple relationships with various partners, customers and other third parties;

 

   

manage international operations;

 

   

develop our operating, administrative, legal, financial and accounting systems and controls; and

 

   

recruit, hire, train and retain personnel, especially those possessing extensive engineering skills and experience in complex technologies and data sciences, of which there is limited supply and increasing demand.

If we do not manage our growth well, the efficacy and performance of our platform may suffer, which could harm our reputation and reduce demand for our platform and solutions. Failure to manage future growth effectively could have an adverse effect on our business, results of operations and financial condition.

We often have long sales cycles, which can result in significant time between initial contact with a potential customer and execution of a customer agreement, making it difficult to project when, if at all, we will obtain new customers and when we will generate revenue from those customers.

As part of our sales efforts, we invest considerable time and expense evaluating the specific organizational needs of our potential customers and educating these potential customers about the technical capabilities and value of our platforms and solutions. We may spend substantial time and resources prospecting for new business or responding to requests for proposals from potential customers, and these efforts may not result in us ultimately generating any revenue from a potential customer. It is possible that we will be unable to recover any of these expenses.

Our results of operations also depend on sales to enterprise customers, which make product purchasing decisions based in part or entirely on factors, or perceived factors, not directly related to the features of our platform, including, among others, a customer’s projections of business growth, uncertainty about economic conditions (including as a result of the recent COVID-19 pandemic), capital budgets, anticipated cost savings from the implementation of our platform, potential preference for such customer’s internally-developed software solutions, perceptions about our business and platform, more favorable terms offered by potential competitors,

 

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and previous technology investments. As a result of these and other factors, there can be no assurance that we will be successful in making a sale to a potential customer. If our sales efforts to a potential customer do not result in sufficient revenue to justify our investments, our business, financial condition and results of operations could be adversely affected.

Our industry is intensely competitive, and if we do not effectively compete against current and future competitors, our business, results of operations and financial condition could be harmed.

Our industry is intensely competitive. To sustain and grow our revenue, we must continuously respond to the different trends driving our industry. We generally have flexible master services agreements in place with our customers. Such agreements allow our customers to change the amount of spend through our platform or terminate our services with limited notice. As a result, the introduction of new entrants or technology that are superior to or that achieve greater market acceptance than our products and solutions could negatively impact our revenue. In such an event, we may experience a reduction in market share and may have to respond by reducing our prices, resulting in lower profit margins for us.

There has also been rapid evolution and consolidation in the marketing technology industry, and we expect this trend to continue. Larger companies typically have more assets to purchase emerging companies or technologies, which gives them a competitive edge. If we are not able to effectively compete with these consolidated companies, we may not be able to maintain our market share and may experience a reduction in our revenue. Our success depends on our ability to retain key members of our management team, and on our ability to hire, train, retain and motivate new employees.

Our success depends upon the continued service of members of our senior management team and other key employees. Our Co-Founder and Chief Executive Officer, David Steinberg, is critical to our overall management, as well as the continued development of our platform, relationships with our customers and vendors and our overall strategic direction. We do not maintain “key person” insurance for any member of our senior management team or any of our other key employees. Our senior management and key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason and without notice. In addition, some of our key employees may receive significant proceeds from sales of our Class A common stock after this offering, which may reduce their motivation to continue to work for us. As a result, we may be unable to retain them, which could make it difficult to operate our business, cause us to lose expertise or know-how and increase our recruitment and training costs.

Our success also depends on our ability to hire, train, retain and motivate new employees. Competition for employees in our industry can be intense, and we compete for experienced personnel with many companies that have greater resources than we have. The market for engineering talent is particularly intense in New York, where we are headquartered and in the San Francisco Bay Area, the EU and India where we have offices. Our future growth will also depend in part on our ability to establish sales teams that effectively solve problems and efficiently execute our objectives. We will need to establish teams that are well versed in complex and varied systems of distribution across national, regional and international markets. We believe that there is significant competition for sales personnel with the sales skills and technical knowledge that we require. Our ability to achieve growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel with relevant industry knowledge and strong selling skills.

We believe our corporate culture has been critical to our success and we plan to invest substantial time and resources to continue building it. In particular, Diversity, Equality and Inclusion (“DEI”) is a strategic imperative at Zeta. Our DEI team is focused on driving inclusiveness, innovation and stronger business results by attracting a more diverse talent pool and creating a more inclusive work environment for all our employees around the world. Although we have adopted policies to promote compliance with laws and regulations as well as to foster a respectful workplace for all employees, our employees may fail to abide by these policies. In addition to damaging our reputation, actual or alleged misconduct could affect the confidence of our shareholders, regulators and other parties and could have a material adverse effect on our business, financial condition and operating results.

 

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We are subject to payment-related risks if customers dispute or do not pay their invoices, and any decreases or significant delays in payments could have a material adverse effect on our business, results of operations and financial condition. These risks may be heightened as a result of the COVID-19 pandemic and resulting economic downturn.

We may become involved in disputes with our customers over the operation of our platform, the terms of our agreements or our billings for purchases made by them through our platform. In the past, certain customers have sought to slow their payments to us or been forced into filing for bankruptcy protection, resulting in delay or cancelation of their pending payments to us. These challenges have been exacerbated by the COVID-19 pandemic and resulting economic impact, and a number of our customers are experiencing financial difficulties and liquidity constraints. In certain cases, customers have been unable to timely make payments, and we have suffered losses. Certain of our contracts with marketing agencies state that if their customer does not pay the agency, the agency is not liable to us, and we must seek payment solely from their customer, a type of arrangement called sequential liability. Contracting with these agencies, which in some cases have or may develop higher-risk credit profiles, may subject us to greater credit risk than if we were to contract directly with the customer.

If we are unable to collect customers’ fees on a timely basis or at all, we could incur write-offs for bad debt, which could have a material adverse effect on our results of operations for the periods in which the write-offs occur. In the future, bad debt may exceed reserves for such contingencies, and our bad debt exposure may increase over time. Any increase in write-offs for bad debt could have a materially negative effect on our business, financial condition and operating results. Even if we are not paid by our customers on time or at all, we may still be obligated to pay for the inventory we have purchased for our customers’ marketing campaigns, and consequently, our results of operations and financial condition would be adversely impacted.

Future acquisitions or strategic investments could be difficult to identify and integrate, divert the attention of management and could disrupt our business, dilute stockholder value and adversely affect our business, results of operations and financial condition.

As part of our growth strategy, we may acquire or invest in other businesses, assets or technologies that are complementary to and fit within our strategic goals. Acquisitions are inherently risky and if they fail, they can result in necessary costly remediating steps such as litigation and divesture. Any acquisition or investment may divert the attention of management and require us to use significant amounts of cash, issue dilutive equity securities or incur debt. The anticipated benefits of any acquisition or investment may not be realized, and we may be exposed to unknown risks, any of which could adversely affect our business, results of operations and financial condition, including risks arising from:

 

   

difficulties in integrating the operations, technologies, product or service offerings, administrative systems and personnel of acquired businesses, especially if those businesses operate outside of our core competency or geographies in which we currently operate;

 

   

ineffectiveness or incompatibility of acquired technologies or solutions;

 

   

potential loss of key employees of the acquired businesses;

 

   

inability to maintain key business relationships and reputations of the acquired businesses;

 

   

diversion of management attention from other business concerns;

 

   

litigation arising from the acquisition or the activities of the acquired businesses, including claims from terminated employees, customers, former stockholders or other third parties and intellectual property disputes;

 

   

assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights, or increase our risk of liability;

 

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complications in the integration of acquired businesses or diminished prospects;

 

   

failure to generate the expected financial results related to an acquisition on a timely manner or at all;

 

   

weak, ineffective, or incomplete data privacy compliance strategies by the acquired company resulting in our inability to use acquired data assets;

 

   

failure to accurately forecast the financial or other business impacts of an acquisition; and

 

   

implementation or remediation of effective controls, procedures and policies for acquired businesses.

To fund future acquisitions, we may pay cash, which would diminish our cash reserves, or issue additional shares of our Class A common stock, which could dilute your investment in our company. Borrowing to fund an acquisition would result in increased fixed obligations and could also subject us to covenants or other restrictions that could limit our ability to effectively run our business.

Our international operations subject us to additional costs and risks, and may not yield returns, and our continued international expansion may not be successful.

We have entered into several international markets and expect to enter into additional markets in the future. For the years ended December 31, 2020 and December 31, 2019, we generated approximately 7% and 5% of our revenue, respectively, from outside the U.S. For the three months ended March 31, 2021 and March 31, 2020, we generated approximately 8% of our revenue from outside the U.S. We expect to continue to expand our international operations, which may require significant management attention and financial resources and may place burdens on our management, administrative, operational, legal and financial infrastructure. The costs and risks inherent in conducting business internationally include:

 

   

difficulty and costs associated with maintaining effective controls at foreign locations;

 

   

adapting our platform and solutions to non-U.S. customer preferences and customs;

 

   

difficulties in staffing and managing foreign operations;

 

   

difficulties in enforcing our intellectual property rights;

 

   

new and different sources of competition;

 

   

regulatory and other delays and difficulties in setting up foreign operations;

 

   

compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and the United Kingdom (“UK”) Anti-Bribery Act 2010, by us, our employees and our business partners;

 

   

compliance with export and import control and economic sanctions, laws and regulations, such as those administered by the U.S. Office of Foreign Assets Control;

 

   

compliance with foreign data privacy laws, such as the EU ePrivacy Directive, GDPR and United Kingdom General Protection Regulation (“UK-GDPR”), which could materially diminish our ability to collect data and/or the effectiveness of our platform;

 

   

restrictions on the transfers of funds;

 

   

currency exchange rate fluctuations and foreign exchange controls;

 

   

economic and political instability in some countries;

 

   

compliance with the laws of numerous taxing jurisdictions where we conduct business, potential double taxation of our international earnings, and potentially adverse tax consequences due to changes in applicable U.S. and foreign tax laws; and

 

   

the complexity and potential adverse consequences of U.S. tax laws as they relate to our international operations.

 

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As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these risks. These factors and others could harm our ability to increase international revenues and, consequently, could adversely affect our business, results of operations and financial condition. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to manage these risks successfully could adversely affect our business, results of operations and financial condition.

Our use and reliance upon technology and development resources in India may expose us to unanticipated costs and liabilities, which could affect our ability to realize cost savings from our technology operations in India and other non-U.S. locations.

We conduct a significant amount of our technology and product development work in India and other global locations. We cannot assure you that our reliance upon development resources in India and other non-U.S. locations will enable us to achieve meaningful cost reductions or greater resource efficiency. Further, our operations in India involve significant risks, including:

 

   

difficulty hiring and retaining engineering and management resources due to intense competition for such resources and resulting wage inflation;

 

   

heightened exposure to changes in economic, security and political conditions;

 

   

different standards of protection for intellectual property rights and confidentiality protection;

 

   

the effects of the COVID-19 pandemic on general health and economic conditions; and

 

   

fluctuations in currency exchange rates and tax compliance.

The enforcement of intellectual property rights and confidentiality protections in India may not be as effective as in the U.S. or other countries. Policing unauthorized use of proprietary technology is difficult and expensive and we might need to resort to litigation to protect our trade secrets and confidential information. The experience and capabilities of Indian courts in handling intellectual property litigation vary, and outcomes are unpredictable. Further, such litigation may require significant expenditure of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, results of operations and financial condition.

We expect to continue to rely on significant cost savings obtained by concentrating our technology and development and engineering work in India and other non-U.S. locations, but difficulties resulting from the factors noted above and other risks related to our operations in India or such other non-U.S. locations could increase our expenses and harm our competitive position. The historical rate of wage inflation has been higher in India than in the U.S. In addition, if the Rupee strengthens against the U.S. Dollar, our costs would increase. If the cost of technology and development work in India significantly increases or the labor environment in India changes unfavorably, our cost savings may be diminished. Any such developments could adversely affect our business, results of operations and financial condition.

Our business is subject to the risk of catastrophic events such as pandemics, earthquakes, flooding, fire and power outages, and to interruption by man-made problems such as terrorism.

Our business is vulnerable to damage or interruption from pandemics, earthquakes, extreme weather events, flooding, fire, power outages, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events. A significant natural disaster could have a material adverse effect on our business, results of operations and financial condition, and our insurance coverage may be insufficient to compensate us for losses that we may incur. As we rely heavily on our data center facilities, computer and communications systems and the Internet to conduct our business and provide high-quality customer service, these disruptions could

 

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negatively impact our ability to run our business and either directly or indirectly disrupt publishers’ and partners’ businesses, which could have an adverse effect on our business, results of operations and financial condition. In particular, the COVID-19 pandemic, including the reactions of governments, markets and the general public, has resulted in a number of adverse consequences for our business, results of operations and financial condition, many of which are beyond our control. These impacts to our business, in addition to the impacts felt by the global economy, have yet to be fully realized. Future actions taken by governmental bodies, regulatory authorities and other third parties as a result of the COVID-19 pandemic are highly uncertain in both scope and impact, and the negative effects of such actions may exacerbate the other risks mentioned in this section.

We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.

We may need to raise additional capital to fund operations in the future or to finance acquisitions or other business objectives. Such additional capital may not be available on favorable terms or at all. Lack of sufficient capital resources could significantly limit our ability to meet our financial obligations or to take advantage of business and strategic opportunities. Any additional capital raised through the sale of equity or convertible debt securities would dilute your stock ownership, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may be required to delay, reduce the scope of, or eliminate material parts of our business strategy, including potential additional acquisitions or development of new technologies and geographic expansion.

Our loan agreement contains operating and financial covenants that may restrict our business and financing activities.

As of the date hereof, we had $185.0 million outstanding under our loan and security agreement (“Senior Secured Credit Facility”) with Bank of America, N.A., dated February 3, 2021. Borrowings under this agreement are secured by substantially all of our assets. For more information on our outstanding long-term borrowing, see Note 22 to our consolidated financial statements. This Senior Secured Credit Facility also restricts our ability, without the lender’s written consent, to, among other things:

 

   

dispose of or sell our assets;

 

   

make material changes in our business or management;

 

   

consolidate or merge with other entities;

 

   

incur additional indebtedness;

 

   

create liens on our assets;

 

   

pay dividends;

 

   

make investments;

 

   

enter into transactions with affiliates; and

 

   

pay off or redeem subordinated indebtedness.

In addition, our Senior Secured Credit Facility contains customary minimum quarterly financial maintenance covenants.

 

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The operating and financial restrictions and covenants in the Senior Secured Credit Facility, as well as any future financing arrangements that we may enter into, may restrict our ability to finance our operations, engage in, expand, or otherwise pursue our business activities and strategies. Our ability to comply with these or other covenants may be affected by events beyond our control, and future breaches of these or other covenants could result in a default under the Senior Secured Credit Facility. If not waived, future defaults could cause all of the outstanding indebtedness under the Senior Secured Credit Facility to become immediately due and payable and our access to further credit under the Senior Secured Credit Facility may terminate. If we do not have or are unable to generate sufficient cash to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, we would be required to obtain additional debt or equity financing, which may not be available on favorable terms, or at all, which may negatively impact our ability to operate and continue our business as a going concern.

Our tax liabilities may be greater than anticipated.

The U.S. and non-U.S. tax laws applicable to our business activities are subject to interpretation and are changing. We are subject to audit by the Internal Revenue Service and by taxing authorities of the state, local and foreign jurisdictions in which we operate. Our tax obligations are based in part on our corporate operating structure, including the manner in which we develop, value, use and hold our intellectual property, the jurisdictions in which we operate, how tax authorities assess revenue-based taxes such as sales and use taxes, the scope of our international operations, and the value we ascribe to our intercompany transactions. Taxing authorities may challenge, our tax positions and methodologies for valuing developed technology or intercompany arrangements, positions regarding the collection of sales and use taxes, and the jurisdictions in which we are subject to taxes, which could expose us to additional taxes. Any adverse outcomes of such challenges to our tax positions could result in additional taxes for prior periods, interest and penalties, as well as higher future taxes. In addition, our future tax expense could increase as a result of changes in tax laws, regulations or accounting principles, or as a result of earning income in jurisdictions that have higher tax rates. Moreover, the determination of our provision for income taxes and other tax liabilities requires significant estimates and judgment by management, and the tax treatment of certain transactions is uncertain. Any changes, ambiguity, or uncertainty in taxing jurisdictions’ administrative interpretations, decisions, policies and positions, including the position of taxing authorities with respect to revenue generated by reference to certain digital services, could also materially impact our income tax liabilities. Although we believe we will make reasonable estimates and judgments, the ultimate outcome of any particular issue may differ from the amounts previously recorded in our financial statements and any such occurrence could adversely affect our business, results of operations and financial condition.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial net operating losses (“NOLs”) during our history. Under the rules of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change taxable income may be limited. The applicable rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a corporation, as well as changes in ownership arising from new issuances of stock by the corporation. If finalized, Treasury Regulations currently proposed under Section 382 of the Code may further limit our ability to utilize our pre-change NOLs or other pre-change tax attributes if we undergo a future ownership change. We may have experienced ownership changes in the past and could experience one or more ownership changes in the future, including in connection with this offering and as a result of future changes in our stock ownership, some of which changes may be outside our control. Similar provisions of state tax law may also apply to our state NOLs. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset post-change taxable income may be subject to limitations. For these reasons, we may not be able to utilize a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

 

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Changes in the method pursuant to which the London Interbank Offered Rate (“LIBOR”), is determined and the transition to other benchmarks may adversely affect our results of operations.

LIBOR and certain other “benchmarks” have been the subject of continuing national, international and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S. based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC is comprised of a diverse set of private sector entities and a wide array of official-sector entities, banking regulators, and other financial sector regulators. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”), as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Financial regulators in the UK, the EU, Japan and Switzerland have also formed working groups with the aim of recommending alternatives to LIBOR denominated in their local currencies. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the United States.

Borrowings under certain of our funding arrangements bear an interest rate based on certain tenors of LIBOR. Uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adversely affect the performance of LIBOR relative to its historic values. Even if financial instruments are transitioned to alternative benchmarks, such as SOFR, successfully, the new benchmarks are likely to differ from LIBOR, and our interest expense associated with our outstanding indebtedness or any future indebtedness we incur may increase. Further, transitioning to an alternative benchmark rate, such as SOFR, may result in us incurring significant expense and legal risks, as renegotiation and changes to documentation may be required in effecting the transition. Any alternative benchmark rate may be calculated differently than LIBOR and may increase the interest expense associated with our existing or future indebtedness.

Any of these occurrences could materially and adversely affect our borrowing costs, financial condition, and results of operations.

Risks Related to Data Security and Intellectual Property

Our business and the effectiveness of our platform depends on our ability to collect and use online data. New tools used by consumers to limit data collection, regulatory restrictions and potential changes to web browsers and mobile operating systems affect our ability to collect such data, which could harm our operating results and financial condition.

We have one of the largest compilations of personal data relating to U.S. and international consumers in the world. The ability of our platform to deliver high quality solutions to our customers is based on our technology’s capability to derive relevant, actionable insights from the data that we ingest into our systems and our ability to execute marketing programs across digital channels such as email, social media, website and other touchpoints to engage consumers. The principal way that we collect individual opted-in data is directly from the consumers when they register with our platform, such as the Disqus commenting system, or partners’ services. We also use various tracking technologies, both proprietary and those provided through third-party suppliers in order to connect to individuals across marketing channels for the purpose of targeting consumers and delivering campaigns. The future of these and other digital data collection practices is evolving, with some prominent companies in the industry recently announcing that they will implement their own individual data collection tools and phase out others. This approach may or may not be compatible with our current operations in those channels and platforms. It is yet to be determined if there will be an industry-wide framework for targeting consumers in a digital environment. Furthermore, regulatory and legislative actions may influence which data collection tools

 

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are permitted in various jurisdictions and may further restrict our data collection efforts. Without this incremental data, we may not have sufficient insight into the consumer’s activity to provide some of our current tools, which may impact our capacity to execute our customers’ programs efficiently and effectively.

Consumers can, with increasing ease, implement technologies that limit our ability to collect and use data to track and deliver our solutions across different marketing channels and platforms. Various digital tracking tools may be deleted or blocked by consumers. The most commonly used internet browsers also allow consumers to modify their browser settings to block first-party cookies (placed directly by the publisher or website owner that the consumer intends to interact with), which are not affected by changes from web browsers and operating systems, or third-party cookies (placed by parties that do not have direct relationship with the consumer), which some browsers may block by default. Mobile devices using Android and iOS operating systems limit the ability of cookies, or similar technology, to track consumers while they are using applications other than their web browser on the device. Even if cookies and ad blockers do not ultimately have an adverse effect on our business, investor concerns about the utility and robustness of these tracking technologies could limit demand for our stock and cause its price to decline.

We also partner with third-party data suppliers and publishers. When we purchase or license from third-party data suppliers, we are dependent upon our ability to obtain such data on commercially reasonable terms and in compliance with applicable regulations. If a substantial number of data suppliers were to withdraw or withhold their data from us, or if we had to terminate our ties with data suppliers either due to commercial or regulatory reasons, our ability to provide products to our customers could be materially adversely impacted, which could result in decreased revenues and operating results. We cannot provide assurance that we will be successful in maintaining our relationships with these external data source providers or that we will be able to continue to obtain data from them on acceptable terms or at all. Furthermore, we cannot provide assurance that we will be able to obtain data from alternative sources if our current sources become unavailable.

The standards that private entities and inbox service providers adopt in the future to regulate the use and delivery of email may interfere with the effectiveness of our platform and our ability to conduct business.

Our business is dependent on email services for promoting our customers’ brands, products and services. Other private entities often advocate standards of conduct or practices that significantly exceed current legal requirements and classify certain solicitations that comply with current legal requirements as impermissible “spam.” Some of these entities maintain “blacklists” of companies and individuals, and the websites, inbox service providers and IP addresses associated with those entities or individuals that do not adhere to those standards of conduct or practices for commercial solicitations that the blacklisting entity believes are appropriate. If a company’s IP addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any internet domain or internet address that subscribes to the blacklisting entity’s service or uses its blacklist.

From time to time, some of our IP addresses have become, and we expect will continue to be, listed with one or more blacklisting entities due to the messaging practices of our customers and other users. We may be at an increased risk of having our IP addresses blacklisted due to our scale and volume of emails processed, compared to our smaller competitors. While the overall percentage of such email solicitations that our individual customers send may be at or below reasonable standards, the total aggregate number of all emails that we process on behalf of our customers may trigger increased scrutiny from these blacklisting entities. There can be no guarantee that we will be able to successfully remove ourselves from those lists. Because we fulfill email delivery on behalf of our customers, blacklisting of this type could undermine the effectiveness of our customers’ transactional email, email marketing programs and other email communications, all of which could have a material negative impact on our business, financial condition and results of operations.

Inbox service providers can also block emails from reaching their users. While we continually improve our own technology and work closely with inbox service providers to maintain our deliverability rates, the

 

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implementation of new or more restrictive policies by inbox service providers may make it more difficult to deliver our customers’ emails, particularly if we are not given adequate notice of a change in policy or struggle to update our platform to comply with the changed policy in a reasonable amount of time. In addition, some inbox service providers categorize as “promotional” emails that originate from email service providers and, as a result, direct them to an alternate or “tabbed” section of the recipient’s inbox. If inbox service providers materially limit or halt the delivery of our customers’ emails, or if we fail to deliver our customers’ emails in a manner compatible with inbox service providers’ email handling or authentication technologies or other policies, or if the open rates of our customers’ emails are negatively impacted by the actions of inbox service providers to categorize emails, then customers may question the effectiveness of our platform and cancel their accounts.

Additionally, changes in the laws or regulations that limit our ability to send such communications or impose additional requirements upon us in connection with sending such communications would also materially adversely impact our business. For example, electronic marketing and privacy requirements in the EU are highly restrictive and differ greatly from those currently in force in the U.S. which could cause fewer individuals in the EU to subscribe to our marketing messages and drive up our costs and risk of regulatory oversight and fines if we are found to be non-compliant. These restrictions could prevent us from obtaining enough data to produce effective marketing results for our customers in these markets. Our use of email and other messaging services to send communications to consumers may also result in legal claims against us, for which we may incur increased expenses, and if successful might result in fines and orders with costly reporting and compliance obligations or might limit or prohibit our ability to send emails or other messages. We also rely on social networking messaging services to send communications and to encourage consumers to send communications. Changes to the terms of these social networking services to limit promotional communications, any restrictions that would limit our ability or our customers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by our customers’ end consumers could materially and adversely affect our business, financial condition and operating results.

If we fail to detect or prevent fraud or malware intrusion on our platform, devices, or systems, or into the systems or devices of our customers and their consumers, publishers could lose confidence in our platform, and we could face legal claims, any of which could adversely affect our business, results of operations and financial condition.

We may be the target of fraudulent or malicious activities undertaken by persons seeking to use our platform for improper purposes. For example, someone may attempt to divert or artificially inflate customer purchases through our platform, or to disrupt or divert the operation of the systems, and devices of our publishers, and their consumers in order to misappropriate information, generate fraudulent billings or stage cyberattacks, or for other unauthorized or illicit purposes. Those activities could also introduce malware through our platform in order to commandeer or gain access to confidential information or personal information. We use third-party tools and proprietary technology to identify non-human traffic and malware, and we may reduce or terminate relationships with customers that we find to be engaging in such activities. Perpetrators of fraudulent impressions and malware frequently change their tactics and may become more sophisticated over time, requiring both us and third parties to improve processes for assessing the quality of publisher inventory and controlling fraudulent activity. In the meantime, new or changing data privacy laws (in particular outside the U.S.) could potentially interfere with the data collection required in order to detect fraud. If we fail to detect or prevent fraudulent or malicious activity of this sort, our reputation could be damaged, customers may contest payment, demand refunds or fail to give us future business, or we could face legal claims from customers. Even if we are not directly involved in fraud or malicious activity, any sustained failures of others in our industry to adequately detect and prevent fraud could generate the perception that digital marketing is unsafe and lead our customers to avoid digital marketing products like ours.

 

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A significant inadvertent disclosure or breach of confidential and/or personal information we process, or a security breach of our or our customers’, suppliers’, or other partners’ computer systems could be detrimental to our business, reputation, financial performance and results of operations.

The nature of our business means that we process large databases of personal information, including maintaining and storing large databases of such information, not only on our own behalf, but also on our customers’ and others’ behalf. As a result, we face heightened risk of suffering cyber-related harm such as a data breach or data being misappropriated by a malicious insider or unauthorized party. Such parties could attempt to gain entry to our systems (including by gaining employment at Zeta) for the purpose of stealing data, including confidential information or personal information, or breaching our security systems. In particular, we, like other organizations, especially in the digital marketing industry and marketing technology industry, are routinely subject to attempts by such third parties (e.g., cybersecurity threats, attempted data privacy breaches, or other incidents), which if successful, may result in either threatened or actual exposure leading to unauthorized access, disclosure and misuse of confidential information, personal information or other information regarding customers, suppliers, partners, vendors, employees, or our company and business. Even where we have invested in industry standard security, a breach may be due to employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of our customers, vendors, suppliers, their products, or otherwise. Third parties may also attempt to fraudulently induce employees to disclose sensitive information through a process known as social engineering. This includes disclosing data such as usernames, passwords or other information to gain access to our customers’ data or our data, including intellectual property and other confidential information. Techniques used to obtain unauthorized access to, or sabotage IT systems, change frequently, grow more complex over time, and often are not recognized until launched against a target Given the unpredictability of the timing, nature and scope of cybersecurity attacks and other security-related incidents, our technology may fail to adequately secure the data, including confidential information and personal information we maintain, and we cannot entirely eliminate the risk of improper or unauthorized access to or disclosure of such data, other security events that impact the integrity or availability of such data, or our systems and operations and any data contained in such systems and operations. We may incur significant costs in protecting against or remediating such events, including cyber-attacks. Any security breach could result in operational disruptions that impair our ability to meet our customer’s requirements, which could result in decreased revenue. We carry insurance comparable to our industry. However, we cannot guarantee that our insurance coverage will be sufficient to cover all losses.

Whether there is an actual or a perceived breach of our security, our reputation could suffer irreparable harm, causing our current and prospective customers to reject our products in the future, deterring data suppliers from supplying us data or customers from uploading their data on our platform, or changing customers’ behaviors and use of our technology. Further, we could be forced to expend significant resources in response to a security breach, including those expended in notifying individuals and providing mitigating solutions, repairing system damage, increasing cyber security protection costs by deploying additional personnel and protection technologies, and litigating and resolving legal claims or governmental inquiries and investigations, all of which could divert the attention of our management and key personnel away from our business operations.

We depend on third-party data centers, systems and technologies to operate our business, the disruption of which could adversely affect our business, results of operations and financial condition.

We rely on data centers and third-party technology vendors in order to operate our business. Any damage to or failure of our systems generally would prevent us from operating our business. We host our company-owned infrastructure at third-party data centers. We are also dependent on third-party providers to provide industry standard protection against potential damages such as cyber intrusions, natural disasters, criminal acts and technical maintenance. In the event of damage or interruption, it is unlikely that we would be appropriately compensated for the reputational harm that such an interruption would create regardless of any damages we may recover from such third parties or any insurance policy in place. This would in turn reduce our revenue, subject us to liability and may cause us to lose customers, any of which could materially adversely affect our business.

 

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Additionally, improving our platform’s infrastructure and expanding its capacity in anticipation of growth in new channels and formats, as well as implementing technological enhancements to our platform to improve its efficiency and cost-effectiveness are key components of our business strategy, and if our third-party data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. Any changes in the service levels at our third-party data centers or any errors, service interruptions, defects, disruptions, or other performance problems could adversely affect our reputation, expose us to liability, cause us to lose customers, or otherwise adversely affect our business, results of operations and financial condition.

We also rely on computer hardware purchased or leased from, software licensed from, content licensed from and services provided by a variety of third parties, which include databases, operating systems, virtualization software, tax requirement content and geolocation content and services. Any errors, bugs or defects in such third-party hardware, software, content or services could result in errors or a failure of our solutions, which could harm our business. Additionally, we cannot assure you that these third-party leases or licenses, or support for such leased or licensed products and technologies, will continue to be available to us on commercially reasonable terms, if at all. We cannot be certain that our suppliers or licensors are not infringing the intellectual property rights of others or that our suppliers and licensors have sufficient rights to the technology in all jurisdictions in which we may operate. In the future, we might need to license other hardware, software, content or services to enhance our products and meet evolving customer requirements. Any inability to license or otherwise obtain such hardware or software could result in a reduction in functionality, or errors or failures of our products, until equivalent technology is either developed by us or, if available, is identified, obtained through purchase or license, and integrated into our solutions, any of which may reduce demand for our solutions and increase our expenses. In addition, third-party licenses may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary technology, and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs, all of which may increase our expenses and harm our results of operations.

Our intellectual property rights may be difficult to enforce and protect, which could enable others to copy or use aspects of our technology without compensating us, thereby eroding our competitive advantage and having an adverse effect on our business, results of operations and financial condition.

Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our technology without compensating us, thereby eroding our competitive advantage and harming our business. Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop or otherwise acquire, so that we can prevent others from using our inventions and proprietary information. If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology and our business might be adversely affected.

Policing unauthorized use of our technology is difficult. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those of the U.S., and mechanisms for enforcement of our proprietary rights in such countries may be inadequate. If we are unable to protect our proprietary rights (including in particular, the proprietary aspects of our platform) we may find ourselves at a competitive disadvantage to others who have not incurred the same level of expense, time and effort to create and protect their intellectual property.

We rely upon a combination of trade secrets, third-party confidentiality and non-disclosure agreements, additional contractual restrictions on disclosure and use, and trademark, copyright, patent and other intellectual property laws to establish and protect our proprietary technology and intellectual property rights. Establishing trade secret, copyright, trademark, domain name and patent protection can be difficult and expensive, and the laws, procedures and restrictions may provide only limited protection. It may be possible for unauthorized third parties to copy or reverse engineer aspects of our technology or otherwise obtain and use information that we regard as proprietary, or to develop technologies similar or superior to our technology or design around our proprietary rights, despite the steps we have taken to protect our proprietary rights. Our contracts with our

 

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employees and contractors that relate to intellectual property issues generally restrict the use of our confidential information solely in connection with our products. However, theft or misuse of our proprietary information could occur by employees or contractors who have access to our technology.

While we have issued patents and have patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications or such patent protection may not be obtained quickly enough to meet our business needs. Furthermore, the patent prosecution process is expensive, time-consuming and complex, and we may not be able to prepare, file, prosecute, maintain and enforce all necessary or desirable patent applications at a reasonable cost or in a timely manner. The scope of patent protection also can be reinterpreted after issuance and issued patents may be invalidated. Even if our patent applications do issue as patents, they may not issue in a form that is sufficiently broad to protect our technology, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage.

We currently own trademark registrations and applications for the ZETA and DISQUS names and variants thereof and other product-related marks in the United States and certain foreign countries. We have also registered numerous internet domain names related to our business. We also rely on copyright laws to protect computer programs related to our platform and our proprietary technologies.

We may be subject to intellectual property rights claims by third parties, which are costly to defend, could require us to pay significant damages and could limit our ability to use technology or intellectual property.

We operate in an industry with an extensive history of intellectual property litigation. There is a risk that our business, platform and solutions may infringe or be alleged to infringe the trademarks, copyrights, patents and other intellectual property rights of third parties, including patents held by our competitors or by non-practicing entities. We may also face allegations that our employees have misappropriated or divulged the intellectual property of their former employers or other third parties. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, evaluating and defending these claims is costly, time consuming, and diverts management attention and financial resources. Some of our competitors have substantially greater resources than we do and are able to sustain the cost of complex intellectual property litigation to a greater extent and for longer periods of time than we could. Results of these litigation matters are difficult to predict and we may not be successful in defending ourselves in such matters which may require us to stop offering some features, purchase licenses, which may not be available on favorable terms or at all, or modify our technology or our platform while we develop non-infringing substitutes, or incur significant settlement costs. Additionally, we may be obligated to indemnify our customers or inventory and data suppliers in connection with any such litigation. Any of these events could have an adverse effect on our business, results of operations and financial condition.

Our failure to meet content and inventory standards and provide products that our customers and third-party suppliers trust, could harm our brand and reputation and negatively impact our business, operating results and financial condition.

We do not provide or control either the content of the advertisements we serve or that of the websites providing the inventory. Our customers provide the content and third-party suppliers provide the inventory. Both marketers and third-party suppliers are concerned about being associated with content they consider inappropriate, competitive or inconsistent with their brands, or illegal and they are hesitant to spend money without guaranteed brand security. Additionally, our customers may seek to display marketing campaigns in jurisdictions that do not permit such campaigns. Our customers and third-party suppliers will often include provisions in their contracts that marketing campaigns cannot run certain content. Inadvertently, we may serve such ad content, or the advertisements may contain malware, which could harm our or our customers’ brand and reputation, harm our relationships with our inventory suppliers and negatively impact our business, financial condition and operating results. Accordingly, a part of our business strategy is our ability to convince our customers that their brand and image are safe within our ecosystem. While we have established rules and

 

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guidance on how our software is to be used, including prohibiting displaying content that is illegal, and also run third party software that looks for malware in all of our marketing campaigns, we cannot guarantee that we will be able to capture all violating media before it is posted. It is therefore possible that our customer may run a campaign that does not conform to our standards. If this were to happen, we would be liable to the customer and would likely have to invest in remediating the issue. Further, if this were to happen it would harm our or our customers’ brand and reputation, and negatively impact our business, financial condition and operating results.

Additionally, marketing may result in litigation relating to copyright or trademark infringement, public performance royalties or other claims based on the nature and content of advertising that is distributed through our platform. Though we contractually require our customers to represent to us that they have the rights necessary to serve advertisements through our platform, we do not independently verify whether we are permitted to deliver, or review the content of, such advertisements. If any of these representations are untrue, we may be exposed to potential liability and our reputation may be damaged. While our customers are typically obligated to indemnify us, such indemnification may not fully cover us, or we may not be able to collect. In addition to settlement costs, we may be responsible for our own litigation costs, which can be extensive.

Our platform relies on third-party open source software components. Failure to comply with the terms of the underlying open source software licenses could expose us to liabilities, and the combination of open source software with code that we develop could compromise the proprietary nature of our platform.

Our platform utilizes software licensed to us by third-party authors under “open source” licenses and we expect to continue to utilize open source software in the future. The use of open source software may entail greater risks than the use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. To the extent that our platform depends upon the successful operation of the open source software we use, any undetected errors or defects in this open source software could prevent the deployment or impair the functionality of our platform, delay new solution introductions, result in a failure of our platform and injure our reputation. For example, undetected errors or defects in open source software could render it vulnerable to breaches or security attacks, and, in conjunction, make our systems more vulnerable to data breaches.

Furthermore, some open source licenses require the release of proprietary source code combined with, linked to or distributed with such open source software to be released to the public. If we combine, link or distribute our proprietary software with open source software in a specific manner, we could, under some open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar solutions with lower development effort and time and ultimately put us at a competitive disadvantage.

Although we monitor our use of open source software to avoid subjecting our platform to conditions we do not intend, we cannot assure you that our processes for controlling our use of open source software in our platform will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue operating using our solution on terms that are not economically feasible, to re-engineer our solution or the supporting computational infrastructure to discontinue use of code, or to make generally available, in source code form, portions of our proprietary code.

Any unfavorable publicity or negative public perception of current data collection practices could result in additional regulations which may impact the effectiveness of our data cloud and platform.

The growth of the digital marketing industry has led to increased scrutiny from consumer groups, government agencies and news organizations. Any future negative publicity about the digital marketing industry as a whole or about an individual actor could result in government agencies playing a more active role in regulating and enforcing rules that relate to the collection, use, sharing and disclosure of data.

 

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For example, in recent years, consumer advocates, mainstream media and elected officials have increasingly and publicly criticized the digital marketing industry for its collection, storage and use of data.

As we process transactions through our platform, we collect large amounts of data about consumers and advertisements that we place. We collect data on ad specifications (such as placement, size and format) pricing and auction activity (such as price floors, bid response behavior and clearing prices). Further, we collect data on consumers that does not directly identify the individual (although considered personal information under the CCPA, California Privacy Rights Act (“CPRA”), GDPR, and other laws), including browser, device location and characteristics, online browsing behavior, exposure to and interaction with advertisements, and inferential data about purchase intentions and preferences. Data providers also send us proprietary data, including data about consumers. We aggregate this data and analyze it in order to enhance our product, including the pricing, placement and scheduling of advertisements. Evolving regulatory standards could place restrictions on the collection, management, aggregation and use of the types of data we collect, which could result in a material increase in the cost of collecting or otherwise obtaining certain kinds of data and could limit the ways in which we may use or disclose data. In addition, regulations such as the GDPR permit data protection authorities to impose penalties for violations. For example, we recently received a notice from Norwegian authorities of an intent to impose a fine for our alleged failure to adhere to the GDPR in their country. While we are disputing the allegation, if the Norwegian authorities determine we violated the GDPR, we may be subject to penalties and litigation and our business and reputation may be harmed. Any new and unforeseen regulatory limitations on our operations could impair our ability to deliver effective solutions to our customers, which could adversely affect our business, results of operations and financial condition.

Risks Related to Regulatory Compliance

We are subject to anti-bribery, anti-corruption and similar laws and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.

We are subject to anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the USA PATRIOT Act, U.S. Travel Act, the U.K. Bribery Act 2010 and Proceeds of Crime Act 2002, and possibly other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws have been enforced with great rigor in recent years and are interpreted broadly in prohibiting companies and their employees and their agents from making or offering improper payments or other benefits to government officials and others in the private sector. The FCPA or other applicable anti-corruption laws may also hold us liable for acts of corruption or bribery committed by our third-party business partners, representatives and agents, even if we do not authorize such activities. As we increase our international sales and business, and increase our use of third parties, our risks under these laws will increase. As a public company, the FCPA separately requires that we keep accurate books and records and maintain internal accounting controls sufficient to assure management’s control, authority and responsibility over our assets. We have adopted policies and procedures and conduct training designed to prevent improper payments and other corrupt practices prohibited by applicable laws, but cannot guarantee that improprieties will not occur. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with specified persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. Any investigations, actions and/or sanctions could have an adverse effect on our business, results of operations and financial condition.

 

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Changes in legislative, judicial, regulatory or cultural environments relating to information collection, use and processing may limit our ability to collect, use and process data, including personal information. Such developments could cause revenue to decline, increase the cost of data, reduce the availability of data and adversely affect the demand for our products and solutions.

We receive, store and process personal information from and about consumers in addition to personal information and other data from and about our customers, employees and service providers. Our processing of such data is subject to a wide variety of federal, state and foreign laws and regulations and is subject to regulation by various U.S. and other government authorities and consumer actions. Our data processing is also subject to contractual obligations and we participate in private self-regulatory programs in the U.S., Canada and Europe. The U.S. and international jurisdictions continue to establish new legislation, legal and compliance requirements and frameworks regarding the collection, use, and disclosure of data, including personal information (including establishing new and more comprehensive rights for individuals); additional U.S. state laws are likely, as well as U.S. federal legislation. Additionally, the U.S. Federal Trade Commission, many state attorneys general, and many courts are interpreting existing federal and state consumer protection laws as imposing standards for the collection, disclosure, process, use, storage and security of data, including personal information. The regulatory framework for data privacy issues therefore domestically and worldwide is complex, continually evolving and sometimes conflicting and is likely to remain unsettled for the foreseeable future. Unanticipated events could drive the rapid adoption of legislation (e.g. by ballot initiative) or regulation affecting the use, collection or other processing of data and manner in which we conduct our business. Further restrictions could be placed upon the collection, disclosure, processing, use, storage and security of data, which could result in increases in costs or even make it impossible to obtain certain kinds of data, and could limit the ways in which we may collect, disclose, process, use, store or secure information.

The technology industry is subject to increasing scrutiny that could result in U.S. government actions that would negatively affect our business.

We may face claims relating to the information or content that is made available through our products. Though we contractually require our customers to represent that they will follow our policies with respect to all information or content they upload to our systems, we may be exposed to potential liability if our customers do not enforce such policies. In particular, the nature of our business may expose us to claims related to defamation, dissemination of misinformation or news hoaxes, discrimination, harassment, intellectual property rights, rights of publicity and privacy, personal injury torts, laws regulating hate speech or other types of content, and breach of contract, among others. The technology industry is subject to intense media, political and regulatory scrutiny, including on issues related to antitrust and AI, which exposes us to government investigations, legal actions and penalties. For instance, various regulatory agencies, including competition and consumer protection authorities, have active proceedings and investigations concerning multiple technology companies on antitrust and other issues. If we become subject to such investigations, we could be liable for substantial fines and penalties, be required to change our products or alter our business operations, receive negative publicity, or be subject to civil litigation, all of which could harm our business. Lawmakers also have proposed new laws and regulations, and modifications to existing laws and regulations, that affect the activities of technology companies such as the recent efforts to eliminate or modify Section 230 of the Communications Decency Act. If such laws and regulations are enacted or modified, they could negatively impact us, even if they are not specifically intended to affect our company. In addition, the introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations and other scrutiny. The increased scrutiny of certain acquisitions in the technology industry also could affect our ability to enter into strategic transactions or to acquire other businesses.

Compliance with new or modified laws and regulations could increase the cost of conducting our business, limit the opportunities to increase our revenues, or prevent us from offering products. While we have adopted policies and procedures designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors or agents will not violate such laws and regulations. If we are found to have violated laws and regulations, it could materially adversely affect our reputation, financial condition and

 

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operating results. We also could be harmed by government investigations, litigation, or changes in laws and regulations directed at our customers, business partners, or suppliers in the technology industry that would have the effect of limiting our ability to do business with those entities. There can be no assurance that our business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation or changes to laws and regulations in the future.

Failure to comply with industry self-regulation could adversely affect our business, results of operations and financial condition.

In addition to complying with government regulations, we participate in trade associations and industry self-regulatory groups that promote best practices or codes of conduct addressing data privacy. We also have agreed to follow certain practices as contractual obligations to customers (e.g. marketing agencies). We are a member of the Digital Advertising Alliance’s (“DAA”) Self-Regulatory Principles for Online Behavioral Advertising in the U.S., as well as the Digital Advertising Alliance of Canada (“DAAC”) in Canada and the European Interactive Digital Advertising Alliance (“EDAA”) in Europe. Under the rules of these bodies, in addition to other compliance obligations, we are required to participate in the AdChoices program (and other similar programs), which provides consumers a single online interface to obtain information about and manage data collection by online third parties such as us. These bodies investigate non-compliance and report significant instances of non-compliance to regulatory authorities such as the Federal Trade Commission (“FTC”) or data protection authorities in Europe. As new legislation comes into effect, such as the California Privacy Rights Act, self-regulatory programs may change their requirements based on such new legislation, which adds complexity and costs for companies to maintain compliance. If we fail to keep up with or to properly implement such changes, we could become subject to regulatory investigations, fines and legally-mandated corrective actions.

Risks Related to Being a Public Company

We are an emerging growth company subject to reduced disclosure requirements, and there is a risk that availing ourselves of such reduced disclosure requirements will make our Class A common stock less attractive to investors.

We are an emerging growth company, and for as long as we continue to be an emerging growth company, we intend to avail ourselves of exemptions from various reporting requirements such as, but not limited to, not being required to obtain auditor attestation of our reporting on internal control over financial reporting, having reduced disclosure obligations about our executive compensation in this prospectus and in our periodic reports and proxy statements, and not being required to hold advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the last day of the year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the year following the fifth anniversary of the date of the consummation of this offering; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. The rapid growth of our operations and the planned initial public offering has created a

 

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need for additional resources within the accounting and finance functions due to the increasing need to produce timely financial information and to ensure the level of segregation of duties customary for a U.S. public company. We continue to reassess the sufficiency of finance personnel in response to these increasing demands and expectations.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

We have identified material weaknesses in our internal control over financial reporting and may experience additional material weaknesses in the future. Our failure to remediate these material weaknesses and maintain effective internal control over financial reporting could result in material misstatements in our financial statements, the inability to timely report our financial condition or results of operations, investors losing confidence in our reported financial information and our stock price being adversely affected.

Management and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting that affected our financial statements for the years ended December 31, 2020 and 2019. The material weaknesses that have been identified relate to lack of segregation of duties, lack of a risk assessment process and lack of contemporaneous documentation and accounting analysis. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting.”

We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. The failure to maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to meet our periodic reporting obligations and cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

Our management team has limited experience managing a public company and we will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws, rules and regulations that govern public companies. As a public company, we are subject to significant obligations relating to reporting, procedures and internal controls, and our management team may not successfully or efficiently manage such obligations. These obligations and scrutiny will require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations and financial condition. We expect that compliance with these requirements will increase our compliance costs. We will need to hire additional accounting, financial and legal staff with appropriate public company experience and technical accounting knowledge and will need to establish an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of these costs.

The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street

 

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Reform and Consumer Protection Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal controls over financial reporting. Significant resources and management oversight will be required to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee and qualified executive officers.

We have broad discretion in the use of net proceeds that we receive in this offering and we may not use them effectively.

We currently intend to use a significant portion of the net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the net proceeds to fund possible investments in, or acquisitions of, complementary businesses, services or technologies. We have no current agreements or commitments with respect to any investment or acquisition and we currently are not engaged in negotiations with respect to any investment or acquisition. Our management will have broad discretion in the application of the net proceeds, including possible acquisitions of, or investments in, businesses or technologies. The failure by our management to apply these funds effectively could adversely affect our business, financial condition and operating results and impair our ability to raise additional capital in the future on favorable terms or at all.

Risks Related to This Offering and Ownership of Our Class A Common Stock

There is no existing market for our Class A common stock and we do not know if one will develop to provide you with adequate liquidity to sell our Class A common stock at prices equal to or greater than the price you paid in this offering.

Prior to this offering, there has been no public market for our Class A common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how liquid that market may become. If an active trading market does not develop for our Class A common stock, you may have difficulty selling any shares that you purchase. The initial public offering price of our Class A common stock was determined by negotiations between us, the selling stockholders and the underwriters and may not be indicative of prices that will prevail after the completion of this offering. The market price of our Class A common stock may decline below the initial public offering price, and you may not be able to resell your shares at, or above, the initial public offering price.

Substantial future sales of shares of our Class A common stock could cause the market price of our Class A common stock to decline.

Sales of a substantial number of shares of our Class A common stock following the closing of this offering, particularly sales by our directors, executive officers and significant stockholders, or the perception that these

 

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sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock.

All of our executive officers, directors, the selling stockholders and the holders of substantially all of our capital stock are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 365 days after the date of this prospectus; provided that for certain holders of                  shares of Class A common stock, these restriction only apply for 180 days after the date of this prospectus as apposed to 365 days after the date of this prospectus. Subject to certain exceptions and certain early release provisions, the lock-up agreements limit the number of shares of capital stock that may be sold immediately following this offering unless Morgan Stanley & Co. LLC permits our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements. See “Underwriters” for a description of these agreements.

Upon the closing of this offering, we will have                  outstanding shares of our Class B common stock (all of which are convertible into Class A common stock on a one-for-one basis) and                  outstanding shares of our Class A common stock, based on the number of shares outstanding as of March 31, 2021. This includes the shares included in this offering, which may be sold in the public market immediately without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.

The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our Co-Founder and Chief Executive Officer and his affiliates, who will hold in the aggregate         % of the voting power of our capital stock following the completion of this offering. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments to our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.

Our Class B common stock is entitled to ten votes per share and our Class A common stock, which is the stock we are offering in this initial public offering, is entitled to one vote per share. The dual class structure of our common stock has the effect of concentrating voting control with our Co-Founder and Chief Executive Officer and his affiliates, which will limit your ability to influence the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction.

Upon the completion of this offering, our current founder and chief executive officer and his affiliates will hold, in aggregate         % of the voting power of our outstanding capital stock. For more information, see “Principal Stockholders.” As a result, these stockholders, acting together, will have control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control or other liquidity event of our company, could deprive our stockholders of an opportunity to receive a premium for their shares of common stock as part of a sale or other liquidity event and might ultimately affect the market price of our common stock.

We cannot predict the impact our capital structure may have on our stock price.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock, in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices. In July 2017, the FTSE Russell announced that it plans to require new constituents of its indices to have greater than 5% of the company’s voting rights in the hands of public stockholders, and S&P Dow Jones announced that it will no longer admit companies with multiple-class share structures to certain of its indices.

 

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Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Also in 2017, Morgan Stanley Capital International (“MSCI”), a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. Under such announced policies, the dual class structure of our common stock would make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices would not invest in our Class A common stock. It is unclear what effect, if any, these policies will have on the valuations of publicly traded companies excluded from such indices, but it is possible that they may depress valuations, as compared to similar companies that are included. As a result, the market price of our Class A common stock could be adversely affected.

The price of our Class A common stock may fluctuate significantly, and you could lose all or part of your investment.

The market price of our Class A common stock is likely to be volatile and could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

   

the COVID-19 pandemic and its impact on our customers and their demand for our products;

 

   

actual or anticipated fluctuations in our results of operations and financial condition;

 

   

variance in our financial performance from expectations of securities analysts;

 

   

changes in our projected operating and financial results;

 

   

changes in tax laws or regulations;

 

   

announcements by us or our competitors of significant business developments, acquisitions or new offerings;

 

   

our involvement in any litigation;

 

   

our sale of additional shares of our Class A common stock or other securities in the future;

 

   

changes in senior management or key personnel;

 

   

the trading volume of our Class A common stock;

 

   

changes in the anticipated future size and growth rate of our market; and

 

   

general economic, regulatory and market conditions.

Recently, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively impact the market price of our Class A common stock. If the market price of our Class A common stock after this offering does not exceed the public offering price, you may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention.

We do not intend to pay dividends on our Class A common stock for the foreseeable future and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our Class A common stock in the foreseeable future. Any

 

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determination to pay dividends in the future will be at the discretion of our board of directors. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our Class A common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our Class A common stock that will prevail in the market will ever exceed the price that you paid.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Class A common stock adversely, the trading price of our Class A common stock and trading volume could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not control these analysts. If any of the analysts who cover us downgrade our Class A common stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our Class A common stock may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our Class A common stock to decline and our Class A common stock to be less liquid.

Purchasers in this offering will experience immediate and substantial dilution in the net tangible book value of their investment.

The offering price of our Class A common stock is substantially higher than the pro forma as adjusted net tangible book value per share of our Class A common stock, which after giving effect to this offering was $                 per share of our Class A common stock as of March 31, 2021. As a result, you will incur immediate and substantial dilution in net tangible book value when you buy our Class A common stock in this offering. This means that you will pay a higher price per share than the amount of our total tangible assets, less our total liabilities, divided by the number of shares of all of our common stock outstanding. In addition, you may also experience additional dilution if rights to purchase our common stock that are outstanding or that we may issue in the future are exercised or converted or we issue additional shares of our common stock at prices lower than our net tangible book value at such time. See “Dilution.”

Anti-takeover provisions contained in our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.

Our amended and restated certificate of incorporation will contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions will:

 

   

permit our board of directors to issue up to 200,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in control;

 

   

provide that the authorized number of directors may be changed only by resolution of our board of directors;

 

   

provide that our board of directors will be classified into three classes of directors, divided as nearly as equal in number as possible;

 

   

provide that if the holders of Class B common stock no longer hold at least a majority of the voting power of the outstanding shares of our common stock, any director or our entire board of directors may be removed from office at any time, but only for cause by the holders of a majority in voting power of the shares of our capital stock then entitled to vote at an election of directors;

 

   

provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

 

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provide that, subject to the terms of any series of preferred stock, if the holders of shares of Class B common stock no longer hold at least a majority of the voting power of the outstanding shares of our common stock, any action required or permitted to be taken by our stockholders must be effected at an annual or special meeting of the stockholders and may not be effected by consent in lieu of a meeting;

 

   

provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder’s notice;

 

   

provide that special meetings of our stockholders may be called only by (i) our board of directors (ii) the Chairman of the our board of directors, (iii) our Chief Executive Officer or (iv) for so long as any shares of Class B common stock remain outstanding, the holders of a majority of the outstanding shares of Class B common stock;

 

   

so long as any shares of Class B common stock remain outstanding, require the prior affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a separate class to consummate a Change of Control Transaction (as defined in our amended and restated certificate of incorporation);

 

   

require the consent of the holders of Class B common stock and/or Class A common stock to effectuate certain amendments to our amended and restated certificate of incorporation or our amended and restated bylaws;

 

   

provide that the restrictions set forth in Section 203 of the Delaware General Corporation (“DGCL”) shall be applicable to us in the event that no holder of Class B common stock owns shares of our capital stock representing at least fifteen (15%) of the voting power of all the then outstanding shares of our capital stock; and

 

   

not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose.

These and other provisions in our amended and restated certificate of incorporation and under Delaware law could discourage potential takeover attempts, reduce the price investors might be willing to pay in the future for shares of our Class A common stock and result in the market price of our Class A common stock being lower than it would be without these provisions. For more information, see the section of this prospectus captioned “Description of Capital Stock—Anti-Takeover Provisions.”

Our amended and restated certificate of incorporation will provide, subject to certain exceptions, that (i) the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matter and (ii) the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our amended and restated certificate of incorporation that will become effective immediately prior to the closing of this offering provides that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our current or former directors, officers, employees or our stockholders;

 

   

any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws (as either may be amended from time to time) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; and

 

   

any action asserting a claim against us that is governed by the internal-affairs doctrine.

 

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By becoming a stockholder in our Company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Although our amended and restated certificate of incorporation will contain the choice of forum provision described above, it is possible that a court could find that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable. If a court were to find the exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

Unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act and the rules and regulations promulgated thereunder.

There is uncertainty whether a court would enforce an exclusive federal forum provision for Securities Act claims. Our decision to adopt such a federal forum provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that our federal forum provision should be enforced in a particular case, application of our federal forum provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. We note that stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Under our amended and restated certificate of incorporation, the exclusive forum provision described above does not apply to claims arising under the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. For more information, see the section of this prospectus captioned “Description of Capital Stock—Choice of Forum.”

As a result of this offering, we will become a “controlled company” within the meaning of the NYSE rules and, as a result, expect to qualify for, and may rely on, exemptions from certain corporate governance requirements.

After this offering, our Co-Founder and Chief Executive Officer, David Steinberg, will beneficially own a majority of the combined voting power of all classes of our outstanding voting stock. As a result, we will be a controlled company within the meaning of the applicable stock exchange corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that:

 

   

a majority of the board of directors consist of independent directors as defined under the rules of the NYSE;

 

   

the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

These requirements will not apply to us as long as we remain a controlled company. We have not elected to take advantage of the exemption from these requirements, but may elect to do so in the future so long as we remain a “controlled company.” If we choose to rely on these exemption, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Any statements made in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. 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. These forward-looking statements are contained throughout this prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” 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 and consider this prospectus, 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. Factors that may materially affect such forward-looking statements include:

 

   

We may experience fluctuations in our operating results, which could make our future operating results difficult to predict.

 

   

If we fail to innovate and make the right investment decisions in our product offerings and platform, we may not attract and retain customers and our revenue and results of operations may decline.

 

   

Our success and revenue growth depends on our ability to add and retain scaled customers.

 

   

If we do not manage our growth effectively, the quality of our platform and solutions may suffer and our business, results of operations and financial condition may be adversely affected.

 

   

Our business and the effectiveness of our platform depends on our ability to collect and use data online. New consumer tools, regulatory restrictions and potential changes to web browsers and mobile operating systems all threaten our ability to collect such data, which could harm our operating results and financial condition and adversely affect the demand for our products and solutions.

 

   

The standards that private entities and inbox service providers adopt in the future to regulate the use and delivery of email may interfere with the effectiveness of our platform and our ability to conduct business.

 

   

A significant inadvertent disclosure or breach of confidential and/or personal information we process, or a security breach of our or our customers’, suppliers’ or other partners’ computer systems could be detrimental to our business, reputation, financial performance and results of operations.

 

   

Our infrastructure depends on third-party data centers, systems and technologies to operate our business, the disruption of which could adversely affect our business, results of operations and financial condition.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the shares of our common stock in this offering will be approximately $         million, based upon an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in this offering in full, we estimate that our net proceeds will be approximately $         million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our Class A common stock in this offering by the selling stockholders. We will, however, bear the costs associated with the sale of shares of Class A common stock by the selling stockholders, which will be $         million (or $         million if the underwriters exercise in full their option to purchase additional shares) The selling stockholders will not deduct any underwriting discounts or commissions from the proceeds of their sale of our Class A common stock. We will deduct all underwriting discounts and commissions and pay all offering expenses in connection with this offering. For more information, see “Principal and Selling Stockholders” and “Underwriters.”

Each $1.00 increase (decrease) in the assumed initial public offering price of $1.00 per share would increase (decrease) the net proceeds that we receive from this offering by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds that we receive from this offering by approximately $         million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility and to create a public market for our common stock.

Based on the assumed initial public offering price per share of $        , which is the midpoint of the price range set forth on the cover page of this prospectus, we intend to use the net proceeds of this offering as follows:

 

   

$         million to satisfy the anticipated tax withholding and remittance obligations of holders of our outstanding restricted stock and restricted stock units that will vest in connection with this offering by repurchasing                  shares of Class A restricted stock and                  shares of Class B restricted stock and cancelling                  restricted stock units (the “Tax Withholding Repurchase”), based on an assumed 33% tax withholding rate. See “Executive and Director Compensation—Treatment of Equity Awards in Connection with this Offering” for additional information regarding the vesting of these awards in connection with this offering.

 

   

$         million to repurchase                  shares of Class A restricted stock and cancel                  restricted stock units at the election of certain holders of our restricted stock and restricted stock units for a cash purchase price equal to the public offering price in this offering (the “Class A Stock Repurchase”).

 

   

$         million to repurchase                  shares of Class B common stock and                  shares of restricted Class B common stock for a cash purchase price equal to the public offering price in this offering (the “Class B Stock Repurchase” and, together with the Class A Stock Repurchase, the “Stock Repurchase”).

 

   

$         million (or $         million underwriters exercise their option to purchase additional shares in this offering in full) for general corporate purposes, including working capital, operating expenses and capital expenditures, although we have not designated any specific uses. We may also use a portion of the net proceeds to fund possible investments in, or acquisitions of, complementary businesses, services or technologies. We have no current agreements or commitments with respect to any investment or acquisition, and we currently are not engaged in negotiations with respect to any investment or acquisition.

 

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As a result of the Tax Withholding Repurchase and the Stock Repurchase, we will repurchase an aggregate of 3,854,968 shares of Class A restricted stock and 2,307,692 shares of Class B common stock and cancel an aggregate of 173,481 restricted stock units. Assuming an initial public offering price of $        , which is the midpoint of the price range set forth on the cover page of this prospectus, the total benefit to our officers and directors in connection with the Stock Repurchase is $         million (inclusive of approximately $         million for tax withholding). See “Certain Relationships and Related Party Transactions—Stock Repurchase.”

Each $1.00 increase or decrease in the assumed initial public offering price per share of $        , which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the amount we would be required to pay in connection with the Tax Withholding Repurchase and the Stock Repurchase by approximately $         million. See the section titled “Use of Proceeds” for additional information.

The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have broad discretion in applying the net proceeds of this offering. In addition, the amount and timing of what we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described in “Risk Factors.” Pending these uses, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term investments, interest-bearing investments, investment-grade securities, government securities and money market funds.

 

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DIVIDEND POLICY

We do not currently intend to pay any cash dividends on our Class A or Class B common stock. Any declaration and payment of future dividends to holders of our Class A common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2021 on:

 

   

an actual basis;

 

   

a pro forma basis, to reflect: (i) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering; (ii) the Preferred Conversion, (iii) the Warrant Exercise, (iv) the Reclassification and (v) the Class B Exchange; and

 

   

a pro forma as adjusted basis, giving effect to the pro forma adjustments discussed above, and giving further effect to (i) the sale by us of                  shares of our Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the Stock Repurchase and the Tax Withholding Repurchase. As a result, additional paid-in capital will increase by the stock compensation expense of $107.7 million recognized as a result of vesting our restricted common stock and restricted stock units in connection with the offering. If the underwriters’ option to purchase additional shares of our Class A common stock from us were exercised in full, our stock based compensation expense is expected to be $        . Further, our additional paid-in capital will decrease by $         million, which is the proceeds used for the Stock Repurchase and the Tax Withholding Repurchase. See Note 11 to our condensed unaudited consolidated financial statements as of and for the three months ended March 31, 2021 located elsewhere in this prospectus for a description of the modified vesting terms.

You should read this table together with the sections titled “Use of Proceeds,” “Selected Consolidated Financial and Operating Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The pro forma as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

     As of March 31, 2021  
(in thousands, except share and per share amounts)    Actual      Pro Forma      Pro Forma
as Adjusted  (1)(2)
 

Cash and cash equivalents

   $ 52,103      $                    $                
  

 

 

    

 

 

    

 

 

 

Long term borrowings

     193,367        

Redeemable convertible preferred stock, par value $0.001 per share; 60,137,979 shares authorized, 39,223,194 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     154,210        

Stockholders’ equity (deficit):

        

Preferred stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual; 200,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

     —          

Class A common stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual; 3,750,000,000 shares authorized and                  shares issued and outstanding, pro forma; 3,750,000,000 shares authorized and                  shares issued and outstanding, pro forma as adjusted

     —          

 

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     As of March 31, 2021  
(in thousands, except share and per share amounts)    Actual     Pro Forma      Pro Forma
as Adjusted  (1)(2)
 

Class B common stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual; 50,000,000 shares authorized and                  shares issued and outstanding, pro forma; 50,000,000 shares authorized and                  shares issued and outstanding, pro forma as adjusted

   $ —         

Series A common stock, par value $ 0.001 per share; 204,220,800 shares authorized, 96,830,836 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     97       

Treasury common stock

     (23,469     

Series B common stock, par value $ 0.001 per share; 3,400,000 shares authorized, 3,054,318 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     3       

Additional paid-in capital

     33,894       

Accumulated deficit

     (266,628     

Accumulated other comprehensive loss

     (1,983     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ (deficit) / equity

     (258,086     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 89,491     $                    $                
  

 

 

   

 

 

    

 

 

 

 

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $         million, assuming that the number of shares of our common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares of our common stock offered by us would increase or decrease, as applicable, each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) / equity and total capitalization by approximately $         million, assuming that the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(2)

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the proceeds used by us for the Stock Repurchase and Tax Withholding Repurchase by approximately $         million.

If the underwriters’ option to purchase additional shares of our Class A common stock was exercised in full, as adjusted cash and cash equivalents and total stockholders’ (deficit) / equity would be $         million and $         million, respectively. See “Use of Proceeds.”

 

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DILUTION

If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock after this offering. Dilution results from the fact that the per share public offering price of the Class A common stock is substantially in excess of the book value per share of our Class A common stock after this offering. Our net tangible book value as of March 31, 2021, was $         million, or $         per share of our Class A common stock. Net tangible book value per share represents our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of our Class A common stock outstanding.

Our pro forma net tangible book value as of March 31, 2021, was $         million, or $         per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the Preferred Conversion, the Warrant Exercise, the Reclassification and the Class B Exchange. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2021, after giving effect to the Preferred Conversion, the Warrant Exercise, the Reclassification and the Class B Exchange.

After giving effect to (a) the sale of                  shares of Class A common stock by us in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus, and (b) the application of the proceeds from this offering as described in “Use of Proceeds,” including the Stock Repurchase and the Tax Withholding Repurchase, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, as if each had occurred on March 31, 2021, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been $         million, or $         per share of Class A common stock. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $         per share of Class A common stock to our existing stockholders before this offering and an immediate and substantial dilution in pro forma as adjusted net tangible book value of $         per share of Class A common stock to new investors purchasing shares of Class A common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share of Class A common stock after this offering from the amount of cash that a new investor paid for a share of Class A common stock in this offering. The following table illustrates this dilution, assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock:

 

Assumed initial public offering price per share of Class A common stock

      $              

Pro forma net tangible book value per share of Class A common stock as of March 31, 2021

   $                   

Increase in net tangible book value per share of Class A common stock attributable to new investors in this offering

                      
  

 

 

    

Pro forma as adjusted net tangible book value per share of Class A common stock immediately after this offering

                      
     

 

 

 

Dilution in pro forma as adjusted net tangible book value per share of Class A common stock to new investors in this offering

      $              
     

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value per share of Class A common stock after this offering by approximately $         million, and the dilution in pro forma as adjusted net tangible book value per share of Class A common stock to new investors by approximately $        , assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares of Class A common stock in the number of shares offered by us would increase or decrease, as applicable, the as adjusted net tangible book value by $         per share of Class A

 

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common stock and increase or decrease, as applicable, the dilution in pro forma as adjusted net tangible book value to new investors by $         per share of Class A common stock, assuming the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ option to purchase additional shares of Class A common stock is exercised in full, the pro forma as adjusted net tangible book value per share of Class A common stock would be $         per share, and the dilution in pro forma as adjusted net tangible book value per share of Class A common stock to new investors in this offering would be $         per share.

The following table summarizes, on an as adjusted basis as of March 31, 2021, the differences between the number of shares of Class A common stock purchased from us, the total consideration paid to us in cash and the average price per share that existing investors and new investors paid. The calculation below is based on an assumed initial public offering price of $         per share of Class A common stock, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares of Class A Common
Stock Purchased
    Total Consideration     Average Price
Per Share
of Class A
Common Stock
 
($ in millions, except per share amounts)    Number      Percent     Amount      Percent  
                     

Existing stockholders

  
 

                    

 
                    $                                     $                

New investors

                                                                                                         
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

                                                $                                     $                
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

A $1.00 increase (decrease) in the assumed initial offering price would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $         million, $         million and $         per share, respectively. An increase (decrease) of 1.0 million in the number of shares of Class A common stock offered by us in this offering would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $         million, $         million and $         per share, respectively.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our Class A common stock from us. If the underwriters’ option to purchase additional shares of our Class A common stock were exercised in full, our existing stockholders would own         % and our new investors would own         % of the total number of shares of our Class A common stock outstanding upon completion of this offering.

We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders in this offering. Accordingly, there will be no dilutive impact as a result of such sales.

 

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

The following table sets forth our selected historical consolidated financial and operating information and other data for the periods and dates indicated. The consolidated statements of operations and comprehensive loss for the years ended December 31, 2020 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of March 31, 2021 and the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2021 and 2020 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for the fair statement of the financial information set forth in those statements.

This data should be read in conjunction with, and is qualified in its entirety by reference to, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Capitalization” sections of this prospectus and our consolidated financial statements and notes thereto for the periods and dates indicated included elsewhere in this prospectus.

Consolidated Statements of Operations and Comprehensive Loss

 

     Three months ended
March 31,
    Year ended
December 31,
 
(in thousands, except share and per share amounts)    2021     2020     2020     2019  

Revenues

   $ 101,463     $ 81,260     $
368,120
 
  $ 306,051  

Operating expenses

        

Cost of revenues (excluding depreciation and amortization)

     38,972       30,529       148,878       110,385  

General and administrative expenses

     19,132       18,793       70,849       73,344  

Selling and marketing expenses

     20,570       19,248       77,140       69,519  

Research and development expenses

     9,784       8,723       31,772       28,685  

Depreciation and amortization

     10,117       9,541       40,064       34,340  

Acquisition related expenses

     707       1,935       5,402       5,916  

Restructuring expenses

     287       1,193       2,090       1,388  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 99,569     $ 89,962     $ 376,195     $ 323,577  

Operating income / (loss)

     1,894       (8,702     (8,075     (17,526

Interest expense

     2,961       4,343       16,257       15,491  

Other (income) / expense

     1,284       113       (126     239  

Change in fair value of warrants and derivative liabilities

     23,600       2,600       28,100       4,200  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

   $ 27,845     $ 7,056     $ 44,231     $ 19,930  

Loss before income taxes

     (25,951     (15,758     (52,306     (37,456

Income tax (benefit) / provision

     (1,577     622       919       1,009  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (24,374   $ (16,380   $ (53,225   $ (38,465
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income / (loss):

        

Foreign currency translation adjustment

     54       (741     (190     (76
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (24,320   $ (17,121   $ (53,415   $ (38,541
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share

        

Net loss

   $ (24,374   $ (16,380   $ (53,225   $ (38,465

Cumulative redeemable convertible preferred stock dividends

     3,894       3,660       19,571       17,278  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

   $ (28,268   $ (20,040   $ (72,796   $ (55,743

 

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     Three months ended
March 31,
    Year ended
December 31,
 
(in thousands, except share and per share amounts)    2021     2020     2020     2019  

Basic loss per share

   $ (0.86   $ (0.61   $ (2.23   $ (1.77

Diluted loss per share

   $ (0.86   $ (0.61   $ (2.23   $ (1.77

Weighted average number of shares used to compute net loss per share(1)

        

Basic

     32,846,991       32,607,406       32,589,409       31,579,301  

Diluted

     32,846,991       32,607,406       32,589,409       31,579,301  

 

(1)

See Note 20 to our consolidated financial statements for the years ended December 31, 2020 and 2019 included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share and the weighted-average number of shares used in the computation of the per share amounts.

Consolidated Balance Sheet Data

 

     As of March 31,
2021
 
($ in thousands)

Cash and cash equivalents

   $ 52,103  

Total assets

     286,427  

Total liabilities

     390,303  

Redeemable convertible preferred stock

     154,210  

Accumulated deficit

     (266,628

Total stockholders’ deficit

     (258,086

The following table reconciles adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

 

     Three Months Ended
March 31,
    Year Ended December 31,  
     2021     2020     2020      2019  

Net loss

   $ (24,374   $ (16,380   $ (53,225    $ (38,465

Net income (loss) margin

     (24.0%     (20.2%     (14.5%      (12.6%

Add back:

         

Interest expense

     2,961       4,343       16,257        15,491  

Depreciation and amortization

     10,117       9,541       40,064        34,340  

Stock-based compensation

     —         26       105        216  

Income tax (benefit) / provision

     (1,577     622       919        1,009  

Acquisition related expenses

     707       1,935       5,402        5,916  

Restructuring expenses

     287       1,193       2,090        1,388  

Change in fair value of warrants and derivative liabilities

     23,600       2,600       28,100        4,200  

Other expense / (income)

     1,284       113       (126      239  
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA(1)

   $ 13,005     $ 3,993     $ 39,586    $  24,334
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA margin(1)

     12.8%       4.9%       10.7%        7.9%  

 

(1)

Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures and should not be considered an alternative to GAAP net loss or GAAP net income (loss) margin as a measure of operating performance or as a measure of liquidity. We define adjusted EBITDA as net loss adjusted for interest expense, depreciation and amortization, stock-based compensation, income tax (benefit) / provision, acquisition related legal expenses restructuring expenses, change in fair value of derivative and warrant liabilities and other (income) / expense. We define adjusted EBITDA margin as adjusted EBITDA divided by total revenues for the same period. We believe adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. For additional information regarding adjusted EBITDA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

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 top-rated ZMP is the largest omnichannel marketing platform with identity data at its core. The ZMP analyzes 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 connects 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 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.

Revenue is derived primarily from our technology platform via subscription fees, volume-based utilization fees and fees for professional services designed to increase our customers’ usage of our technology platform. For the three months ended March 31, 2021, our revenue was $101.5 million, representing an increase of 24.9% as compared to three months ended March 31, 2020. For the three months ended March 31, 2021, our net loss was $24.4 million, representing an increase of 48.8% as compared to three months ended March 31, 2020. Our adjusted EBITDA for the three months ended March 31, 2021 and 2020 was $13.0 million and $4.0 million, respectively. For the year ended December 31, 2020, our revenue was $368.1 million, representing an increase of 20.3% as compared to the year ended December 31, 2019. For the year ended December 31, 2020, our net loss was $53.2 million, representing an increase of 38.4% as compared to the year ended December 31, 2019. Our adjusted EBITDA for the years ended December 31, 2020 and 2019 was $39.6 million and $24.3 million, respectively. See the section titled “Non-GAAP Financial Measures” for information regarding our use of adjusted EBITDA and its reconciliation to net loss determined in accordance with GAAP.

 

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In March 2021, we modified the vesting terms of our outstanding restricted stock awards and restricted stock units. After giving effect to the modification, our stock based compensation expense will have a material impact on our results of operations, including operating expenses and net income / loss during current and future periods. Such modification resulted in an incremental increase of $581.2 million in our total unrecognized stock based compensation expense. See “—Stock based compensation expense” for a breakdown of our expected stock based compensation expense for the next five years.

Effects of the COVID-19 Pandemic on our Business

During the first half of 2020, some of our scaled customers in industries that the COVID-19 pandemic has negatively affected, such as travel and hospitality and financial services, reduced or paused their levels of business with us. This resulted in a reduction of total scaled customers that has continued through the three months ended March 31, 2021 relative to the prior-year period, as we saw a decrease in our total scaled customers, from 361 customers to 333 customers. However, during the three months ended March 31, 2021, we experienced an increase in scaled customer ARPU, which resulted in our revenue increasing for the three months ended March 31, 2021 compared to the prior period. See “—Key Performance Metrics.” Our scaled customer ARPU growth resulted primarily from the initial effects of transitioning our sales team model to use a dedicated team for new business development and a separate team for training users on our platform and educating users on our platform capabilities. Our transition to this hunter/farmer sales model has included focusing more of our sales team on growth of existing scaled customers and aligning scaled customers with sellers that have specific industry expertise. See “Business—Sales & Marketing.” In addition, scaled customer ARPU also benefitted from increased levels of business from customers in industries that the COVID-19 pandemic has positively affected, such as insurance, automotive and telecom.

In future periods, we expect that our customers in industries such as travel and hospitality and financial services will return to historical levels of spending as the recovery takes hold and as pandemic-related restrictions subside. Although the pandemic-related growth levels we have experienced may decrease in the future, we expect that the success of our new sales team model will continue to drive new business from customers. As a result, we expect customer spending in industries where we saw strength during the COVID-19 pandemic to continue to increase even as the growth effects of the COVID-19 pandemic on some industries may tend to diminish.

Factors Affecting Results of Operations

The following factors have been important to our business and we expect them to impact our results of operations and financial condition in future periods:

New Scaled Customer Acquisition

We are focused on increasing the number of scaled customers that adopt the ZMP in their enterprises. Our long-term growth and operating results will depend on our ability to attract more scaled customers as we address their most pressing marketing automation needs. We will continue to focus on enterprises across multiple geographies. Between January 1, 2020 and March 31, 2021, our sales team increased by 22 sales employees, and we expect to continue to invest in our go-to-market efforts in 2021. We have significantly enhanced our sales techniques in order to build a collaborative environment that encourages cross-selling and implemented a new learning and development program for our sales team. Our sales team productivity ramps as tenure increases and our current management system gives us confidence that we are well positioned for sustainable growth. Our Opportunity Explorer is a module that provides actionable insights to our customers and serves as an entry point into the ZMP. Opportunity Explorer has been a proven way to land scaled customers, with minimal cost of implementation and high value adoption.

 

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Expand Sales to Existing Scaled Customers

We adhere to a “land, expand, extend” sales model. After prospecting and landing new scaled customers, we focus on expanding sales to such scaled customers. This includes increasing their use of one product and/or embedding multiple products within an enterprise with our Opportunity Explorer serving as the connective tissue across multiple products. We have scaled customers both in the U.S. and internationally and we believe we can achieve growth by cross-selling our existing solutions and introducing new features and functionalities within the platform. We expect that our ability to increase adoption of our products within existing scaled customers increases our future opportunities through additional sales.

We use an annual net revenue retention (“NRR”) rate as a measure of our ability to retain and expand business generated from our existing scaled customers. We define scaled customers as customers from which we generated more than $100,000 in revenue per year. We believe that many companies frequently use NRR as an indicator for determining customer loyalty. We calculate our NRR rate by dividing current year revenue earned from customers from which we also earned revenue in the prior year, by the prior year revenue from those same customers. We exclude political and advocacy customers, which represented 4.9% and 1.0% of revenue for 2020 and 2019, respectively, from our calculation of NRR rate because of the biennial nature of these customers. Our annual NRR rate for scaled customers was 122.3% and 103.6% for the years ended December 31, 2020 and 2019, respectively.

Our customer loyalty is also reflected in the tables below, which breakdown the tenure of our scaled customers for the year ended December 31, 2020.

Tenure for All Scaled Customers for Year Ended December 31, 2020

 

Customer Tenure

   Number of
Scaled
Customers
     % of
Scaled
Customers
    % of
Scaled
Customer
Revenue
 

3+ Years

     143        42.6     65.0

2-3 Years

     59        17.6     14.9

1-2 Years

     93        27.7     16.7

Under 1 Year

     41        12.1     3.4

Total

     336        100.0     100.0

Additionally, of our 68 scaled customers who generate over $1.0 million in revenue, 41 have a tenure of over 3 years.

Adoption of Marketing Automation Products

Our ability to drive adoption of the ZMP will depend on the overall demand for marketing automation solutions. IDC predicts that by 2024, spending on digital transformation technology will represent 57% of all IT spending as compared to 38% in 2019. We expect investment in marketing technology by enterprise companies to grow faster than the IT market overall. Additionally, as enterprise marketing spend rapidly shifts towards digital from offline channels, we expect marketing automation technology will benefit. As a result, we expect our enterprise customer base to grow and propel greater platform deployment and usage. While we do not believe our competitors offer a comparable all-in-one platform solution for marketing automation, certain competitors offer point solutions that compete with specific tools and products we offer as part of the ZMP. Potential customers may also elect to build in-house solutions for marketing automation. While it is difficult to predict adoption rates and future product demand, we are focused on continuing to innovate and create marketing automation products that address the business requirements of our customers better than alternative solutions.

 

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Investment in Innovation

We intend to invest in our business in order to drive long term growth in an expanding market and capture economies of scale derived from a larger business base. For example, we plan to invest in our research and development activities to ensure we remain at the forefront of data management, AI development and marketing automation. We will also continue to invest in our sales and marketing capabilities. Lastly, we expect to invest in the expansion of markets including international and the B2B sector. We plan to incur additional general and administrative expenses to support our growth. Even as cost of revenue and other expenses fluctuate over time and may be negatively impacted by factors beyond our control, we plan to remain focused on making necessary investments to drive long-term growth.

Seasonality

In general, the marketing industry experiences seasonal trends that affect the vast majority of participants in the digital marketing ecosystem. Historically, marketing spend is higher in the fourth quarter of the calendar year to coincide with the holiday shopping season as compared to the first quarter. As a result, the subsequent first quarter tends to reflect lower activity levels and lower performance. We generally expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect our operating results.

Key Performance 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 of companies such as ours, with recurring revenue streams.

Scaled customers

We measure and track the number of scaled customers on an annual basis because our ability to attract new scaled customers, grow our scaled customer base and retain or expand our business with existing scaled customers is both an important contributor to our revenue growth and an indicator to investors of our measurable success. We define scaled customers as customers from which we generated more than $100,000 in revenue per year. We calculate the number of scaled customers at the end of each quarter and on an annual basis as the number of customers billed during each applicable period. In 2020, we had 336 scaled customers that represented 96% of total revenue, compared to 330 scaled customers representing 95% of total revenue in 2019.

 

     Three Months Ended March 31,      Year Ended December 31,  
     2021      2020      2020      2019  

Scaled customers

     333        361        336        330  

Scaled customers increased 1.8% for the year ended December 31, 2020, as compared to 2019, primarily due to growth in our customer base in the U.S. We had 68 and 55 scaled customers from which we generated more than $1.0 million in revenue for the year ended December 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2021 and 2020, we had 70 and 59 scaled customers from which we generated more than $1.0 million in revenue, respectively. Our number of scaled customers decreased by 28 for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease is primarily attributable to a significant majority of these scaled customers being involved in industries, particularly travel and hospitality and financial services, which were negatively impacted by COVID-19. See “—Overview—Effects of the COVID-19 Pandemic on our Business.”

Scaled customer ARPU

We believe that our ability to increase scaled customer ARPU is an indicator of our ability to grow the long-term value of existing customer relationships. We calculate the scaled customer ARPU as revenue for the

 

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corresponding period divided by the average number of scaled customers during that period. We believe that scaled customer ARPU is useful for investors because it is an indicator of our ability to increase revenue and scale our business.

 

     Three Months Ended March 31,      Year Ended December 31,  
     2021      2020      2020      2019  

Scaled customer ARPU

   $ 289,275      $ 212,124      $ 1,054,194      $ 877,226  

Scaled customer ARPU increased 20.2% for the year ended December 31, 2020, as compared to 2019, primarily due to higher usage of our platform among scaled customers. Scaled customer ARPU for our scaled customers from which we generated more than $1.0 million in revenue was $3.8 million and $3.5 million for the year ended December 31, 2020 and December 31, 2019 and $1.0 and $0.9 million for the three months ended March 31, 2021 and 2020, respectively. Our scaled customer ARPU increased by $0.08 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was primarily caused by changes in our sales model to increase number of and productivity of sales team focused on existing scaled customer growth as well as increased levels of business from customers in industries that the COVID-19 pandemic has positively affected. See “Business—Sales & Marketing” and “—Overview—Effects of the COVID-19 Pandemic on our Business.”

Description of Certain Components of Financial Data

Revenues

Our revenue is primarily derived from use of our platform via subscription fees, volume-based utilization fees and fees for professional services. Our platform revenue is comprised from a mix of direct platform revenue and integrated platform revenue, which leverages API integrations with third parties. For 2020 and 2019, we derived 68% and 69% of our revenues from direct platform revenue, and 32% and 31% of our revenues from integrated platform revenue, respectively. Revenues are recognized when control of these products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products and services. Sales and other taxes collected by us are excluded from revenue. Our revenue recognition policies are discussed in more detail 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 personnel costs. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, or to 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 hosting our platform, which includes “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 cost of revenues. Personnel costs included in cost of revenues include salaries, bonuses, commissions 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, personnel costs, including salaries, bonuses 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. We expect general and administrative expenses to increase in absolute dollars in future periods. We expect that general and administrative expenses will stay consistent as a percentage of revenue over the long term.

 

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Selling and marketing expenses

Selling and marketing expenses primarily consist of personnel costs, including salaries, bonuses, employee benefits costs 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 consists of personnel costs, including salaries, bonuses and employee benefit costs, engineering and IT services associated with the ongoing research and maintenance of internal use software, including platform and related infrastructure. 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.

Depreciation and amortization

Depreciation and amortization relate to property and equipment, website and software development costs as well as acquisition related 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 consists 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 primarily consist 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 paid on long-term borrowings.

Other (income) / expense

Other (income) / expense primarily consist of changes in fair value of acquisition related liabilities, gains and losses on sale of assets, gains and losses on extinguishment of acquisition related liabilities 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, 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 relate to warrants to purchase shares of our common stock that we issued in connection with previous financing rounds. We expect that the change in fair value of warrants and derivative liabilities will depend on external valuation-related factors, which could be greater than or less than our historic levels.

 

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Income tax provision

We account for income taxes in accordance with ASC 740, Income Taxes, which requires an asset and liability approach for the financial accounting and reporting of income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the consolidated statements of operations in the period that includes the enactment date. A valuation allowance is established when we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have concluded that the deferred tax assets are not realizable on a more-likely-than-not basis and that a full valuation allowance is required, with the exception of AMT credits that are refundable as a result of U.S. Tax Cuts and Jobs Act and certain deferred tax assets in the Czech Republic, India and the U.K.

Stock based compensation expense

After giving effect to the modification of the vesting terms of our restricted stock awards and restricted stock units, our stock based compensation expense will have a material impact on our results of operations, including operating expenses and net income / loss during current and future periods. Pursuant to the modified vesting terms, we will not recognize any stock based compensation expense until the initial public offering. Upon the closing of this offering, we will recognize approximately $107.7 million in stock based compensation expense. See Note 11 to our condensed unaudited consolidated financial statements as of and for the three months ended March 31, 2021 included elsewhere in this prospectus for a description of the modified vesting terms.

Assuming that the offering is completed in fiscal year 2021, we will expense the unrecognized stock based compensation (which includes $581.2 million related to modification to our existing restricted stock and restricted stock units) as follows, subject to future forfeitures:

 

Year Ended December 31,

2021   2022   2023   2024   2025   2026   Total

$203,653

  $152,704   $148,059   $134,764   $117,433   $41,592   $798,205

Results of Operations

We operate as a single reportable segment to reflect the way our Chief Operating Decision Maker (“CODM”) reviews and assesses the performance of the business. The Company’s CODM is the Chief Executive Officer.

 

     Three Months Ended March 31,     Year Ended December 31,  
     2021      2020      %
Change
    2020      2019      %
Change
 

Revenues

   $ 101,463      $  81,260        24.9   $ 368,120      $ 306,051        20.3

Operating expenses:

                

Cost of revenues (excluding depreciation and amortization)

     38,972        30,529        27.7     148,878        110,385        34.9

General and administrative expenses

     19,132        18,793        1.8     70,849        73,344        (3.4 )% 

Selling and marketing expenses

     20,570        19,248        6.9     77,140        69,519        11.0

Research and development expenses

     9,784        8,723        12.2     31,772        28,685        10.8

Depreciation and amortization

     10,117        9,541        6.0     40,064        34,340        16.7

Acquisition related expenses

     707        1,935        (63.5 )%      5,402        5,916        (8.7 )% 

Restructuring expenses

     287        1,193        (75.9 )%      2,090        1,388        50.6
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

   $ 99,569      $ 89,962        10.7   $ 376,195      $ 323,577        16.3
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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     Three Months Ended March 31,     Year Ended December 31,  
     2021     2020     %
Change
    2020     2019     %
Change
 

Operating income / (loss)

   $ 1,894     $ (8,702     (121.8 )%    $ (8,075   $ (17,526     (53.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     2,961       4,343       (31.8 )%      16,257       15,491       4.9

Other (income) / expense

     1,284       113       1,036.3     (126     239       (152.7 )% 

Change in fair value of warrants and derivative liabilities

     23,600       2,600       807.7     28,100       4,200       569.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

   $ 27,845     $ 7,056       294.6   $ 44,231     $ 19,930       121.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     ( 25,951     (15,758     64.7     (52,306     (37,456     39.6

Income tax (benefit) / provision

     (1,577     622       (353.5 )%      919       1,009       (8.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (24,374   $ (16,380     48.8   $ (53,225   $ (38,465     38.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three Months Ended March 31, 2021 and 2020

Revenues

 

     Three Months ended
March 31,
     Change  
     2021      2020      Amount      %  

Revenues

   $ 101,463      $ 81,260      $ 20,203        24.9

Revenues increased by $20.2 million, or 24.9%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase in revenues is attributable to revenues of $10.4 million from existing customers and $9.8 million from new customers.

Cost of revenues (excluding depreciation and amortization)

 

     Three Months ended March 31,      Change  
     2021      2020      Amount      %  

Cost of revenues (excluding depreciation and amortization)

   $ 38,972      $ 30,529      $ 8,443        27.7

Cost of revenues (excluding depreciation and amortization) increased by $8.4 million, or 27.7%, for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. This increase was primarily driven by $8.7 million in incremental media costs.

General and administrative expenses

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

General and administrative expenses

   $ 19,132      $ 18,793      $ 339        1.8

General and administrative expenses increased by $0.3 million, or 1.8%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was driven by higher employee related costs of $2.1 million, partially offset by lower travel-related expenses of $0.6 million, and lower facility-related expenses such as rent, utilities and office supplies of $1.0 million.

 

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Selling and marketing expenses

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Selling and marketing expenses

   $ 20,570      $ 19,248      $ 1,322        6.9

Selling and marketing expenses increased by $1.3 million, or 6.9%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was primarily driven by higher employee related costs of $1.9 million, partially offset by lower trade show and travel-related costs of $0.5 million primarily due to reduced travel as a result of COVID-19 pandemic.

Research and development expenses

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Research and development expenses

   $ 9,784      $ 8,723      $ 1,061        12.2

Research and development expenses increased by $1.1 million, or 12.2%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was primarily driven by higher payroll cost of $1.0 million.

Depreciation and amortization

 

     Three Months ended
March 31,
     Change  
     2021      2020      Amount      %  

Depreciation and amortization

   $ 10,117      $ 9,541      $ 576        6.0

Depreciation and amortization increased by $0.6 million, or 6.0%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was primarily driven by an increase in website and software development cost amortization of $0.5 million.

Acquisition related expenses

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Acquisition related expenses

   $ 707      $ 1,935      $ (1,228      (63.5 )% 

Acquisition related expenses decreased by $1.2 million, or 63.5%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease was primarily driven by the fact that we had higher retention bonuses and earnouts payable for acquisitions we completed in 2019.

Restructuring expenses

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Restructuring expenses

   $ 287      $ 1,193      $ (906      (75.9 )% 

Restructuring expenses decreased by $0.9 million, or 75.9%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease was primarily driven by lower employee termination cost.

 

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Interest expense

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Interest expense

   $ 2,961      $ 4,343      $ (1,382      (31.8 )% 

Interest expense decreased by $1.4 million, or 31.8%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This decrease was primarily driven by lower interest on the new debt facility entered by us during the three months ended March 31, 2021.

Other (income) / expense

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Other (income) / expense

   $ 1,284      $ 113      $ 1,171        1036.3

Other expense increased by $1.2 million for the three month ended March 31, 2021 compared to the three month ended March 31, 2020. This increase was primarily driven by a change in the fair value of acquisition related liabilities of $0.8 million, and an increase in foreign currency loss of $0.4 million.

Change in fair value of warrants and derivative liabilities

 

     Three Months ended
March 31,
     Change  
     2021      2020      Amount      %  

Change in fair value of warrants and derivative liabilities

   $ 23,600      $ 2,600      $ 21,000        807.7

Change in fair value of warrants and derivative liabilities expense increased by $21.0 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This was primarily driven by a change in our estimates and assumptions specifically as it relates to the price of our underlying stock used to calculate the fair value of our warrants and derivatives. See the section titled “ —Critical Accounting Policies and Significant Judgments and Estimates” for information regarding estimates and assumptions involved in calculating the fair value of our warrants and derivatives.

Income tax (benefit) / provision

 

     Three Months
ended March 31,
     Change  
     2021      2020      Amount      %  

Income tax (benefit) / provision

   $ (1,577    $ 622      $ (2,199      (353.5 )% 

Income tax provision decreased by $2.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. For the three months ended March 31, 2021, the Company recorded an income tax benefit of $1.6 million. The income tax benefit relates primarily to a partial reversal of the Company’s U.S. valuation allowance as acquisitions consummated during the interim period ended March 31, 2021 created a source of future taxable income. For the three months ended March 31, 2020, the Company recorded an income tax provision of $0.6 million related primarily to foreign taxes.

The effective tax rate for the three months ended March 31, 2021 was 6.08%. The effective tax rate for the three months ended March 31, 2020 was (3.95)%. The effective tax rate both interim periods was different than the U.S. statutory rate primarily related to limited tax benefit being recording for U.S. operating losses as the Company maintains a full valuation allowance against its U.S. deferred tax assets.

 

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Comparison of the Years Ended December 31, 2020 and 2019

Revenues

 

     Year Ended December 31,      Change  
     2020      2019      Amount      %  

Revenues

   $ 368,120      $ 306,051      $ 62,069        20.3

Revenues increased by $62.1 million, or 20.3%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase in revenues is attributable to $31.3 million from existing customers (which includes customers acquired as part of 2019 acquisitions) and $30.8 million from new customers. This was also driven by increased revenue of $51.5 million from U.S. customers and $10.6 million from international customers.

Cost of revenues (excluding depreciation and amortization)

 

     Year Ended December 31,      Change  
     2020      2019      Amount      %  

Cost of revenues (excluding depreciation and amortization)

   $ 148,878      $ 110,385      $ 38,493        34.9

Cost of revenues (excluding depreciation and amortization) increased by $38.5 million, or 34.9%, for the year ended December 31, 2020, compared to the year ended December 31, 2019. This increase was primarily driven by $38.0 million in incremental media costs.

General and administrative expenses

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

General and administrative expenses

   $ 70,849      $ 73,344      $ (2,495      (3.4 )% 

General and administrative expenses decreased by $2.5 million, or 3.4%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was driven by lower travel-related expenses of $2.4 million, lower employee related costs of $1.6 million and lower facility-related expenses such as rent, utilities and office supplies of $1.0 million, partially offset by increased software and telecommunication expenses of $2.9 million.

Selling and marketing expenses

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Selling and marketing expenses

   $ 77,140      $ 69,519      $ 7,621        11.0

Selling and marketing expenses increased by $7.6 million, or 11.0%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by higher employee payroll costs of $10.7 million, partially offset by lower trade show and travel-related costs of $2.7 million primarily due to reduced travel as a result of COVID-19 pandemic.

 

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Research and development expenses

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Research and development expenses

   $ 31,772      $ 28,685      $ 3,087        10.8

Research and development expenses increased by $3.1 million, or 10.8%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by higher payroll costs and professional service costs of $3.0 million.

Depreciation and amortization

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Depreciation and amortization

   $ 40,064      $ 34,340      $ 5,724        16.7

Depreciation and amortization increased by $5.7 million, or 16.7%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by amortization of acquisition related intangible assets of $3.8 million and an increase in website and software development cost amortization of $2.6 million, partially offset by a $0.4 million decrease in depreciation of property and equipment.

Acquisition related expenses

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Acquisition related expenses

   $ 5,402      $ 5,916      $ (514      (8.7 )% 

Acquisition related expenses decreased by $0.5 million, or 8.7%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily driven by legal expenses related to earnouts payable for acquisitions.

Restructuring expenses

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Restructuring expenses

   $ 2,090      $ 1,388      $ 702        50.6

Restructuring expenses increased by $0.7 million, or 50.6%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by an increase in employee termination costs.

Interest expense

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Interest expense

   $ 16,257      $ 15,491      $ 766        4.9

 

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Interest expense increased by $0.8 million, or 4.9%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by an increase in our average long-term borrowings outstanding during the year ended December 31, 2020 compared to the prior year.

Other (income) / expense

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Other (income) / expense

   $ (126    $ 239      $ (365      NM  

Other income increased by $0.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was primarily driven by a change in the fair value of acquisition related liabilities of $1.4 million, a gain on sale of assets of $0.4 million and a foreign currency gain of $0.4 million, partially offset by a loss on extinguishment of acquisition related liabilities of $1.8 million.

Change in fair value of warrants and derivative liabilities

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Change in fair value of warrants and derivative liabilities

   $ 28,100      $ 4,200      $ 23,900        569.0

Change in fair value of warrants and derivative liabilities increased by $23.9 million, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This was primarily driven by a change in our estimates and assumptions specifically as it relates to the price of our underlying stock used to calculate the fair value of our warrants and derivatives. See the section titled “—Critical Accounting Policies and Significant Judgments and Estimates” for information regarding estimates and assumptions involved in calculating the fair value of our warrants and derivatives.

Income tax provision

 

     Year Ended
December 31,
     Change  
     2020      2019      Amount      %  

Income tax provision

   $ 919      $ 1,009      $ (90      (8.9 )% 

Income tax provision decreased by $0.1 million, or 8.9%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. For the years ended December 31, 2020 and 2019, we recorded an income tax provision primarily related to foreign income taxes and state and local taxes. This decrease was primarily driven by a decrease in the corporate tax rates in India that impacted the tax provisions for certain subsidiaries in India. The effective tax rates for the years ended December 31, 2020 and 2019 were (1.7)% and (2.7)%, respectively. The change in effective tax rate was primarily related to changes in permanent differences and a change in the valuation allowance. During 2020, our valuation allowance increased by $7.4 million primarily as a result of current year operating losses for which no tax benefit was received because we maintain a full valuation allowance against our U.S. net deferred tax assets.

 

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Non-GAAP Financial Measures

In order to assist readers of our consolidated financial statements in understanding the core operating results that our management uses to evaluate the business and for financial planning purposes, we describe our non-GAAP measures below. The following non-GAAP financial measures provide an additional tool for investors to use in comparing our financial performance over multiple periods. We present the following non-GAAP measures and their most directly comparable U.S. GAAP measure:

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 and other (income) / expense. Acquisition related expenses and restructuring expenses are acquisition related expenses and primarily consist of severance and other personnel-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) / expense consist of non-cash expenses such as changes in fair value of acquisition related liabilities, gains and losses on extinguishment of acquisition related liabilities, gains and losses on sales of assets and foreign exchange gains and losses. We exclude these charges because these expenses are not reflective of ongoing business and operating results. 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 are 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 U.S. 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, the most directly comparable financial measure calculated and presented in accordance with GAAP.

 

     Three Months Ended March 31,     Year Ended December 31,  
     2021     2020     2020     2019  

Net loss

   $  (24,374)     $  (16,380)     $ (53,225)     $ (38,465)  

Net income (loss) margin

     (24.0%)       (20.2%)       (14.5%)       (12.6%)  

Add back:

        

Interest expense

     2,961       4,343       16,257       15,491  

Depreciation and amortization

     10,117       9,541       40,064       34,340  

Stock-based compensation

     —         26       105       216  

Income tax (benefit) / provision

     (1,577     622       919       1,009  

Acquisition related expenses

     707       1,935       5,402       5,916  

Restructuring expenses

     287       1,193       2,090       1,388  

Change in fair value of warrants and derivative liabilities

     23,600       2,600       28,100       4,200  

Other expense / (income)

     1,284       113       (126     239  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 13,005     $ 3,993     $ 39,586   $  24,334
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

     12.8     4.9     10.7     7.9
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 March 31, 2021, we had cash and cash equivalents of $52.1 million and net working capital, consisting of current assets less current liabilities, of $40.1 million. As of March 31, 2021, we had an accumulated deficit of $266.7 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. 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 the future, we may attempt to raise additional capital through the sale 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 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:

 

    Three Months
Ended March 31,
    Year Ended
December 31,
 
    2021     2020     2020     2019  

Net cash provided by (used for):

       

Net cash provided by operating activities

  $ 5,612     $ 3,372     $ 35,539     $ 30,599  

Net cash used for investing activities

    (6,804     (7,134     (25,207     (61,660

Net cash provided by / (used for) financing activities

    2,502       (3,628     2,783       28,028  

Effect of exchange rate changes on cash and cash equivalents

    68       (20     (208     (75
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase / (decrease) in cash and cash equivalents, including restricted cash

  $ 1,378     $ (7,410   $ 12,907     $ (3,108
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

For the three months ended March 31, 2021, net cash provided by operating activities of $5.6 million resulted primarily from net loss of $24.4 million, adjusted for non-cash items of $33.6 million resulting in a net cash income of $9.2 million. Changes in working capital were primarily driven by a decrease in accounts receivable of $11.1 million offset by a decrease in accounts payable of $9.8 million and a decrease in accrued expenses and other current liabilities of $3.7 million, for net changes in working capital of $3.6 million.

For the three months ended March 31, 2020, net cash provided by operating activities of $3.4 million resulted primarily from adjusted non-cash items of $13.0 million largely offsetting our net loss of $16.4 million, resulting in a net cash loss of $3.4 million. Changes in working capital were primarily driven by a decrease in accounts receivable of $32.6 million partially offset by a decrease in accrued expenses and other current liabilities of $27.8 million, for net changes in working capital of $6.8 million.

During the year ended December 31, 2020, net cash provided by operating activities of $35.5 million resulted primarily from adjusted non-cash items of $72.4 million largely offsetting our net loss of $53.2 million. Non-cash items included $40.1 million for depreciation and amortization and a change in fair value of warrants and derivative liabilities of $28.1 million. Changes in working capital were primarily driven by a decrease in accounts receivable of $24.3 million and an increase in accounts payable of $4.4 million partially offset by a decrease in accrued expenses and other current liabilities of $15.5 million.

 

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During the year ended December 31, 2019, net cash provided by operating activities of $30.6 million resulted primarily from adjusted non-cash items of $41.1 million largely offsetting our net loss of $38.5 million. Non-cash items included $34.3 million for depreciation and amortization, unpaid interest of $2.2 million and $4.2 million for change in the fair value of warrants and derivative liabilities. Changes in working capital were primarily driven by a decrease in accounts receivable of $18.9 million and an increase in accounts payable of $22.2 million partially offset by a decrease in accrued expense and other current liabilities of $6.5 million.

Net cash used in investing activities

For the three months ended March 31, 2021, we used $6.8 million of cash in investing activities, primarily consisting of website and software development costs of $4.4 million and business and asset acquisitions, net of cash acquired, of $2.2 million.

For the three months ended March 31, 2020, we used $7.1 million of cash in investing activities, primarily consisting of website and software development costs of $6.2 million.

During the year ended December 31, 2020, we used $25.2 million of cash in investing activities, primarily consisting of investments in website and software development costs of $23.0 million.

During the year ended December 31, 2019, we used $61.7 million of cash in investing activities, primarily consisting of investments in website and software development costs of $19.4 million, and business and asset acquisitions, net of cash acquired of $39.0 million.

Net cash provided by financing activities

For the three months ended March 31, 2021, net cash provided by financing activities of $2.5 million was primarily due to proceeds from a new credit facility of $183.3 million, net of financing cost, partially offset by repayments against credit lines of $42.8 million and term loan of $138 million.

For the three months ended March 31, 2020, net cash used for financing activities of $3.6 million was primarily due to repayments against the credit lines of $3.5 million.

During the year ended December 31, 2020, net cash provided by financing activities of $2.8 million was primarily due to $10.0 million in proceeds from the PPP loan, partially offset by repayments of $6.5 million under our credit facilities.

During the year ended December 31, 2019, net cash provided by financing activities of $28.0 million was primarily due to $24.5 million in proceeds from the issuance of term loans and $7.0 million from drawings under our line of credit.

Debt

As of March 31, 2021, we have $193.4 million of outstanding long-term borrowings.

On February 3, 2021 we completed our debt refinancing and as a result of such debt refinancing, we entered into a $222.5 million Senior Secured Credit Facility. The Senior Secured Credit Facility was used to fully repay and terminate our existing Credit Agreement. Borrowings under the debt are expected to be in an amount of $185.0 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. As a result of the debt refinancing, we expect that our interest expense will decrease in the future. We do not expect any other significant changes in liquidity as a result of this refinancing.

 

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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.

On April 23, 2020, we entered into a promissory note evidencing an unsecured $10.0 million loan under the Paycheck Protection Program (“PPP loan”) of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The loan was made through Radius Bank. We accounted for the loan as a financial liability in accordance with ASC Topic 470, Debt. Accordingly, the loan was recognized within long-term debt and current portion of long-term debt in the consolidated balance sheet. In addition, related accrued interest is included within accrued liabilities in the consolidated balance sheet. We used the proceeds from the loan for payroll, rent and utilities and certain other approved expenses during the eight-week period commencing on the loan effective date. We believe our borrowings under the PPP loan are eligible for full loan forgiveness and have filed the forgiveness application with the SBA. In the event that any amounts are not forgiven by the SBA, such unforgiven amounts shall be payable in equal monthly installments over the remaining term of the loan.

Contractual obligations

As of December 31, 2020, our material contractual obligations were as follows:

 

            Payments by period  
(in thousands)    Total      < 1 Year      1-3 Years      3-5 Years      > 5 Years  

Long-term borrowings

     208,924        11,725        197,199        —          —    

Operating leases

     16,184        3,666        3,875        3,581        5,062  

Purchase obligations

     15,114        11,029        4,085        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

     240,222        26,420        205,159        3,581        5,062  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquisition related contingent consideration payables and holdback payables are contractual obligations for which the timing of cash out flow cannot be estimated. Contingent consideration estimates may change based on actual results and may differ from management’s current expectations. For more information refer to Notes 7 and Notes 8 to our consolidated financial statements and notes thereto included elsewhere in this prospectus.

As of March 31, 2021, purchase obligations totaled $11.1 million, with $7.0 million payable over the remaining nine months of 2021 and $4.1 million payable in 2022. During the three months ending on March 31, 2021, we refinanced our debt and as a result, our long-term borrowings payments will be as follows:

 

            Payments by period  

(in thousands)

   Total      During the
remaining
9 months
of 2021
     1-3 Years      3-5 Years      >5 Years  

Long-term borrowings

     218,526        3,759        36,851        36,915        141,000  

Internal Control Over Financial Reporting

During the audits of our financial statements for the years ended December 31, 2020 and 2019, three material weaknesses were identified in our internal control over financial reporting. Under standards established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or

 

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interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that have been identified relate to lack of segregation of duties, lack of a risk assessment process and lack of contemporaneous documentation and accounting analysis.

We are in the process of implementing a number of measures to address the material weaknesses and deficiencies that have been identified including: (i) hiring additional accounting and financial reporting personnel with generally accepted accounting principles in the U.S. GAAP and SEC reporting experience, (ii) developing, communicating and implementing an accounting policy manual for our accounting and financial reporting personnel for recurring transactions and period-end closing processes and (iii) establishing effective monitoring and oversight controls for non-recurring and complex transactions to ensure the accuracy and completeness of our consolidated financial statements and related disclosures.

These additional resources and procedures are designed to enable us to broaden the scope and quality of our internal review of underlying information related to financial reporting and to formalize and enhance our internal control procedures. With the oversight of senior management and our audit committee, we have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weaknesses.

We intend to complete the implementation of our remediation plan during fiscal year 2021. Although we believe that our remediation plan will improve our internal control over financial reporting, additional time may be required to fully implement it and to make conclusions regarding the effectiveness of our internal controls over financial reporting. Our management will closely monitor and modify, as appropriate, the remediation plan to eliminate the identified material weaknesses.

If our remediation of the material weaknesses is not effective, or if we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.

We, and our independent registered public accounting firm, were not required to evaluate and report on the our internal controls over financial reporting during their audits and therefore, our independent registered public accounting firm has not issued an opinion on the our internal controls over financial reporting as of December 31, 2020 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404 of the Sarbanes-Oxley Act after the completion of this offering.

Critical Accounting Policies and Significant Judgments 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 judgment and the best available information, and as such actual results could differ from those estimates.

While our significant accounting policies are described in more detail in Note 2 in our audited consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

 

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Revenue recognition

Revenue arises primarily from our technology platform via subscription fees, volume-based utilization fees and fees for professional services designed to increase our customers’ usage of our technology platform. Sales and other taxes collected by us concurrent with revenue-producing activities are excluded from revenues.

Principal versus agent revenue recognition

We may incur third-party costs on behalf of customers, including direct costs and incidental costs. Third-party direct costs incurred in connection with the delivery of advertising or marketing services include, among others: purchased media, data, cost of physical mailers, and procurement cost of Internet Protocol Addresses (“IPs”) used in the emailing services. The inclusion of billings related to third-party direct costs in revenues depends on whether we act as a principal or as an agent in the customer arrangement. In certain contracts, we contract with customers to provide access to our software platform available through different pricing options to tailor to multiple customer types and customer needs. These options include fixed or minimum monthly subscription fees, fixed cost per mille and percentage of spend on third party costs. We generate revenue when the software platform is used on a self-service basis by charging a platform fee that is either a percentage of spend or a flat monthly subscription fee as well as fees for additional features such as data and advanced reporting. As we do not obtain control of the ad spots prior to transfer to the customer in these arrangements, revenue is recognized on a net basis. We may also act as principal when contracting for third-party services on behalf of our customers, because we control the specified goods or services before they are transferred to the customer and we are responsible for providing the specified goods or services, or we are responsible for directing and integrating third-party vendors to fulfill our performance obligation at the agreed upon contractual price. In such arrangements, we also take pricing risk under the terms of the customer contract. In certain media buying businesses, we act as principal when we control the buying process for the purchase of the media and contract directly with the media vendor. In these arrangements, we assume the pricing risk under the terms of the customer contract. In such cases, we include billable amounts related to third-party costs in the transaction price and record revenues at the gross amount billed, consistent with the manner that revenues are recognized for the underlying services contract.

Website and software development costs

We capitalize the cost of internally developed software that has a useful life in excess of one year. These costs consist of the salaries and benefits of employees working on such software development to customize it to our needs. Capitalization begins during the application development stage, once the preliminary project stage has been completed. We assess whether an enhancement creates additional functionality to the software, and qualifies the costs incurred for capitalization. Once a project is available for general release, capitalization ceases and we estimate the useful life of the asset and begin amortization using the straight-line method. We annually assess whether triggering events are present to review internal-use software for impairment. The estimated useful life of our capitalized software development costs is three years.

We determine the amount of internal software costs to be capitalized based on the amount of time spent by our developers on projects in the application stage of development. There is judgment involved in estimating the time allocated to a particular project in the application stage. A significant change in the time spent on each project could have a material impact on the amount capitalized and the related amortization expense in subsequent periods.

Fair value

We use a third-party valuation firm to determine the fair value of warrants and derivative liabilities periodically and such valuations are calculated using a variety of methods including market multiples, comparable market transactions and discounted cash flows.

 

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The fair values of warrants and derivative liabilities have been estimated using a Monte Carlo simulation and the estimated market price of our common stock. Key assumptions were as follows:

 

   

Stock price: See the subsection entitled “Determination of Fair Value of Common Stock” below.

 

   

Exercise price: We determined the exercise price to be $0.01 for years ended December 31, 2020 and 2019.

 

   

Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury rates at the time of grant that approximate the expected term of the option.

 

   

Expected volatility: We determined expected annual equity volatility to be 64.0% and 41.0% for years ended December 31, 2020 and 2019, respectively. Expected volatility is estimated by considering the historical volatility of similar publicly-traded companies for which share price information is available.

 

   

Time to maturity: We determined the time to maturity to be 0.63 years and 1.30 years for years ended December 31, 2020 and 2019, respectively.

We account for all stock options 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 expense is recognized over the expected life of the option.

Key assumptions used to value stock options were as follows:

 

   

Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury rates at the time of grant that approximate the expected term of the option.

 

   

Expected dividend yield: We have never declared or paid any dividends and do not expect to pay any dividends in the foreseeable future.

 

   

Expected term: We estimate the expected term using the “simplified method” as we do not have sufficient historical exercise data.

 

   

Expected volatility: Expected volatility is estimated by considering the historical volatility of similar publicly-traded companies for which share price information is available.

Determination of Fair Value of Common Stock

Prior to this offering, given the absence of a public trading market for our common stock, the Board of Directors in conjunction with an independent third-party valuation firm determined the fair value per share of the common stock by considering valuations calculated using a variety of methods including market multiples, comparable market transactions and discounted cash flows. We also utilize these fair values to value other equity-based financial instruments. Such valuations are performed on a quarterly basis, by considering various factors such as:

 

   

relevant precedent transactions involving our capital stock;

 

   

the liquidation preferences, rights and privileges of our redeemable convertible preferred stock relative to the common stock;

 

   

our actual operating and financial performance;

 

   

current business conditions and projections;

 

   

the likelihood and timing of achieving a liquidity event for the shares of common stock underlying the stock options, such as an initial public offering, given prevailing market conditions;

 

   

any adjustment necessary to recognize a lack of marketability of the common stock underlying the granted options;

 

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the market performance of comparable publicly traded companies; and

 

   

U.S. and global capital market conditions.

To determine the fair value of our common stock, we first determined our enterprise value and then allocated the value among the various classes of our equity securities to derive a per share value of our common stock. Our enterprise value was most recently estimated using both the income and market approach valuation methods, in addition to giving consideration to recent secondary sales of our common stock.

The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on our weighted-average cost of capital and is adjusted to reflect the risks inherent in our cash flows. The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial forecasts to estimate the value of our Company.

Business Combination and Goodwill

We utilize 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. Our 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, we 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. The fair value of contingent consideration is recalculated each reporting period with any resulting gains or losses recorded on the Consolidated Statements of Operations and Comprehensive Loss.

We perform an annual goodwill impairment test on October 1 every year. Goodwill impairment is assessed based on a comparison of the fair value of our reporting units to the underlying carrying value of the reporting unit’s net assets, including goodwill. As of December 31, 2020, we have four reporting units. If the carrying value of the reporting unit exceeds its fair value, an impairment loss shall be recognized, in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. For the years ended December 31, 2020 and 2019, annual goodwill impairment test, we elected to bypass the qualitative assessment for the four reporting units and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate the fair value of the reporting units. As a result of this assessment, it was concluded that there was no impairment loss because the fair value of the reporting units significantly exceeded the respective carrying value of each reporting unit.

Off-Balance Sheet Arrangements

We do not engage in off-balance sheet financing arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial condition and results of operations is disclosed in Note 2 to our audited consolidated financial statements and notes thereto included elsewhere in this prospectus.

Emerging Growth Company Status

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

 

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JOBS Act until those standards apply to private companies. We 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 that 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 consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards. We expect to use the extended transition period for any new or revised accounting standards during the period we remain an emerging growth company.

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. Based upon the principal balance owed on our long term borrowings as of December 31, 2020, a hypothetical one percentage point increase or decrease in the interest would not result in a significant impact on interest expense as a result of an interest rate floor. This impact on interest rates is subject to change as a result of debt refinancing. There was no material changes in market risk exposures as of March 31, 2021. For more information, see Note 22 to our audited consolidated financial statements and notes thereto included elsewhere in this prospectus.

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

We do not believe that inflation had a material effect on our business, financial condition or results of operations.

 

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A LETTER FROM ZETA'S CO-FOUNDERS David A. Steinberg (former CEO of Sterling Cellular and InPhonic) John Sculley (former Apple Inc. CEO and PepsiCo President) A VISION FOR MARKETING EXCELLENCE When we co-founded Zeta In 2007, we did so with the future in mind. Ours was a vision for marketing excellence powered by the exponential growth of data, the rise of artificial intelligence and the unification of smarter software technology. As former public company CEOs, we had both experienced the complexity of managing multiple software vendors with different point solutions across multiple channels. This resulted in greater costs and lost opportunities to engage each consumer as a person. each with unique experiences. So together, we set out to create an Intelligent marketing software platform to empower enterprises to acquire, grow and retain consumers. Throughout our 13+ year journey of building Zeta into a data driven marketing technology pioneer, there have been challenges along the way. But we have been steadfast in building the assets and capabilities to realize our founding vision, fueled by e passion for growth, innovation end most importantly, an unwavering commitment to our customers. investors and employees. Today, Zeta is a Leading data-driven marketing technology company serving more than 1,000 enterprise customers across multiple industries. Powered by an immense proprietary data set and patented artificial intelligence, our marketing platform improves ROI and drives better outcomes across the consumer lifecycle. But the success Zeta enjoys today is modest compared to what we hope to achieve. Our vision for the future is to empower enterprises to thrive in a digital ecosystem with intelligence, individuality and integrity. Our focus for today is to be the preferred software platform tor enterprises to accelerate growth and enrich the connections they have with consumers. We believe we are on the precipice of big things. THE FUTURE OF MARKETING Last year was a perfect storm. The combined events of 2020 forever changed how Individuals live as consumers and how businesses operate as digital-first. This new digital economy requires enterprises to evolve their tools and technology to identify, engage with and derive desired behaviors from the modern consumer. It requires sharper insights end more timely business intelligence to acquire new consumers and retain existing ones. However,. most enterprises lack the comprehensive data, sophisticated artificial intelligence and rnarketing automation technology to do this effectively. It is here where Zeta thriveswe help many of the worlds largest brands reduce the cost of growing their consumer base.


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THE KEY TO ACCELERATED GROWTH: DATA + Al = INTENT While data is abundant, actionable insights are scarce. Few enterprises have assembled the capabilities to ingest, synthesize and act on data to make their marketing programs more relevant for consumers and deliver a better return on investment for their bottom lines. Doing this repeatedly and at scale requires deeper insights. At Zeta, this is at the core of our business. Our proprietary data cloud manages more than 220 million opted-ln, active U.S. individuals and is enriched by more than I trillion signals derived from online and offline behaviors. These signals, when combined with our proprietary software and Al, predict consumer intent at an individual level. Our customers access this Al-powered data through the Zeta Marketing Platform (ZMP). our next generation marketing technology platform. ZMP empowers enterprises to better understand consumer behavior and translate that knowledge into better experiences across all marketing channels and devices. By knowing when and where consumers intend to engage, purchase or churn, enterprises using the ZMP can deliver the right message, at the right time and within the right channel. The result is more predictable and profitable return on investment. BEING ACCOUNTABLE TO ALL STAKEHOLDERS Our commitment to being a leader in our industry and our singular focus on the needs of our customers has driven our success, and we are not slowing down. We plan to build upon our existing marketing technology platform, introduce new products and accelerate the growth of our customers both domestically and Internationally Together with our talented employees, our executive team will continue to be accountable to all our stakeholders and deliver results that our customers, investors and community can be proud of in the coming years. Most importantly, honesty and transparency will remain at the core of everything we do as a company. ONE FINAL NOTE... In closing this letter, we would like to thank our incredible employees. We have the privilege of leading a committed team who is pushing the boundaries of marketing technology and making it happen every day for our customers. Zeta would not be the company It Is today without you Thank you for your tremendous work, passion and commitment to excellence. On behalf of everyone at Zeta, we look forward to beginning this next phase of our journey as a public company, continuing our legacy of innovation, delivering on our growth potential and maximizing value for our stockholders. Sincerely. DAVIO A. STEINBERG JOHN SCULLEY <ZETA


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BUSINESS

Our Mission

Zeta’s mission is to enable enterprise businesses to accelerate growth by leveraging Zeta’s proprietary data and predictive AI to acquire, grow and retain consumer relationships.

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 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 algorithm 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.

 

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Over the past decade, we have built a set of technologies and tools that make our customers’ marketing operations easier and more productive through a unified marketing platform that seamlessly bridges consumer identity, personalization, deployment and deterministic measurement across digital marketing channels and devices. We built our business model around a frictionless user experience and have enhanced and extended the platform over time to serve the evolving needs of enterprise brands. We know that the modern consumer is ‘always-on’ and has an ever-expanding digital footprint across websites, apps and connected devices. Our marketing platform not only addresses today’s complex ecosystem but is also sufficiently flexible and robust to expand into emerging technologies such as IoT and augmented reality.

We have secured more than 100 patents and patent applications and employ over 500 data scientists, technologists and engineers who work on further advances to our platform. We serve customers encompassing some of the largest and most well-known enterprises across industry verticals, including 34%, 33% and 31% of the Fortune 100 as of March 31, 2021, December 31, 2020 and 2019, respectively. Of our Fortune 100 customers, 24, 27 and 25 were scaled customers as of March 31, 2021, December 31, 2020 and 2019, respectively. For the periods ended March 31, 2021, December 31, 2020 and December 31, 2019, 15, 20 and 16, respectively, were scaled customers from which we generated between $100,000 and $1.0 million in revenue. For the periods ended March 31, 2021, December 31, 2020 and December 31, 2019, nine, seven and nine, respectively, were scaled customers from which we generated over $1.0 million in revenue. We generated 15%, 15% and 17% of our revenue from our Fortune 100 customers as of March 31, 2021, December 31, 2020 and 2019, respectively.

Our business exhibits scale and growth. Revenue reached $368.1 million in 2020, a 20.3% increase from 2019, and reached $101.5 million for the three months ended March 31, 2021, a 24.9% increase from the same period in 2020. Our net loss was $53.2 million in 2020, a 38.4% increase from 2019, and $24.4 million for the three months ended March 31, 2021, a 48.8% increase from the same period in 2020. Adjusted EBITDA was $39.6 million in 2020, a 62.7% increase from 2019, and $13.0 million for the three months ended March 31, 2021, a 225.7% increase from the same period in 2020.

Industry Background & Challenges

Data-driven marketing is a critical element of the modern economy. Enterprises that focus on data-driven marketing can achieve significantly higher ROI as compared to traditional marketing, especially when delivered at scale and on a personalized basis. In recent years, digital marketing has become increasingly complex due to a variety of factors such as the proliferation of devices, fragmentation of media across platforms and an evolving regulatory framework. In response to these challenges, enterprises have experienced increased costs, reduced transparency and more onerous systems integration as they attempt to target, connect and engage modern consumers. To address these complexities, specialized software and more robust infrastructure are required.

Acceleration of Digital Transformation

In 2020, digital transformation accelerated as consumers moved online and their consumption of digital media grew. This change in consumer behavior has led to an expansion by enterprises in the rate of their investment in digital transformation. According to a KPMG survey, 79% of CEOs say that their companies are accelerating the creation of a seamless digital consumer experience as a result of the COVID-19 pandemic and 63% have increased their digital transformation budget.

IDC predicts that by 2024, spending on digital transformation technology will represent 57% of all IT spend as compared to 38% in 2019. The accelerated shift in investment towards digital is also evident in the composition of marketing budgets. In 2019, global digital marketing spending overtook spending on analog and traditional marketing for the first time. eMarketer predicts that by 2024 digital marketing will represent nearly two-thirds of all marketing spending.

 

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As the bar to succeed in the digital ecosystem is raised, enterprises are discovering that they must evolve their assets and capabilities to improve how they acquire, grow and retain consumer relationships. Many enterprises struggle to identify the right consumers for their brand, deliver relevant experiences to such consumers and build the capability to do it over an ever-expanding number of digital channels. Legacy point solutions and data and analytics tools from the analog era were not designed to address this accelerating digital shift. Modern tools and technologies are required to personalize consumer experiences at scale and measure ROI with greater precision.

Demand for Personalized Experiences by Modern Consumers

Consumers are seeking more personalized experiences when interacting with a brand. According to PWC, 54% of all U.S. consumers say that brands need to improve their consumer experience to win or maintain their business. Walker predicts that in 2021, consumer experience will overtake price and product as the key brand differentiator. Although enterprises are aware that more relevant consumer experiences tend to result in improved business outcomes, delivering better experiences is too complex for many enterprises to execute, They lack the data assets, core capabilities and modern technologies to capitalize on this emerging development.

Evolving & Fragmented Consumer Identity

As use of personal devices and digital media expands, audience fragmentation is accelerating. A growing roster of digital publishers and an explosion of digital content presents a challenge for marketers seeking to reach a large audience spread over multiple channels. In addition, the number of devices used by individual consumers has increased and is expected to continue to grow. This multiplies the complexity of targeting, connecting and engaging the modern consumer. Although enterprises attempt to target, connect and engage consumers across multiple devices, there is inadequate cross-functional coordination, a lack of data integration across channels and poor inter-operability among systems. Enterprises are seeking new approaches to identify individual consumers rather than devices or digital identifiers. This presents opportunities for companies that have the data-driven assets and capabilities to present a unified view of the consumer, deliver more relevant experiences, enable real-time learning and, ultimately, generate higher ROI based on deeper understanding of the needs, attitudes and behaviors of individuals.

 

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Legacy Point Solutions Are Unable to Serve All of the Evolving Needs of Enterprises

Advances in computing and communications technology have enabled businesses to automate and improve their core business processes. Many businesses have purchased, built and deployed a wide range of enterprise software applications in such areas as ERP and CRM. While technology improvements have brought increased processing power and functionality to enterprise software applications, businesses have been challenged to realize the full benefits of these applications for a variety of reasons, including difficulties with deployment and high cost of ownership. Enterprises attempting to deliver more personalized consumer experiences at scale have had to purchase, implement, maintain, upgrade, integrate and use multiple vendors and technologies to execute their plans. This piecemeal approach has increased cost of ownership due to lack of inter-operability and decreased effectiveness of their marketing programs as a result of functional and integration gaps. The complexity, cost and sub-optimal results from this legacy approach have created a need for a comprehensive technology platform that serves as a dynamic end-to-end solution for enterprises.

Significant Marketing Dollar Waste Exists

Even though marketing technology has become more sophisticated, many enterprises still lack the ability to accurately calculate the return on their marketing investments. According to eMarketer calculations, companies waste an average of 26% of their marketing budgets on ineffective digital strategies and channels. Many existing data-driven strategies and tactics have proven to be ineffective. Although data vendors are able to collect consumer information across a wide range of digital properties and connected devices, enterprises struggle to realize the value of this type of data because they are unable to coordinate insights and execute across disparate channels. In addition, significant challenges with enterprise data management persist, including data security, big data ingestion choke points, extraction of meaningful insights and a shortage of professionals who can manage sophisticated unified data systems. This typically leads to an inefficient use of data and a gap between expectations and actual results. Robust, reliable and flexible data management combined with timely, accurate analysis are among the most valuable resources marketers can use to personalize consumer experiences at scale and improve marketing ROI.

Protecting Consumer Privacy and Regulatory Challenges

Increasing awareness about how Internet user data is gathered, processed and used by marketers to create targeted marketing messages has resulted in a growing number of privacy laws and regulations globally, including the CCPA and VPPA in the U.S. and the GDPR in the EU. We believe these developments will continue. In addition, there are a growing number of consumer-focused non-profit organizations and commercial entities advocating for privacy rights. These institutions are enabling digital consumers to assert their rights over the use of their online data in marketing transactions. Enterprises are demanding more transparent and easier to use solutions that enable them to remain in compliance with existing and emerging regulations.

Our Market Opportunity

We participate in the large, growing and rapidly evolving digital marketing industry. The sector is benefitting from an accelerated pace of consumer adoption and heightened innovation across the technology ecosystem. Increased Internet penetration, expanded use of mobile devices and modernization of legacy systems have driven digital transformation initiatives within enterprises and created new channels to target, connect and engage consumers. To utilize these digital channels more effectively and satisfy shifts in consumer preference, enterprises are increasingly employing marketing automation tools to manage their customer acquisition and retention programs. As marketers seek to maximize their digital transformation initiatives and minimize the friction of internal operations, they have increased their demand for easy-to-use, comprehensive third-party marketing technology platforms that deliver relevant communications to the right audiences via the right channel and at the right time.

 

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According to eMarketer, global marketing spend was approximately $647 billion in 2019 and is expected to grow to $841 billion by 2024, representing a compound annual growth rate of 5%. Within this broader global marketing spend, digital marketing spend was $325 billion in 2019 and is expected to grow to $526 billion by 2024, representing a compound annual growth rate of 10%. According to IDC, marketing software spend worldwide was approximately $19.2 billion in 2019 and was expected to grow to $35.5 billion by 2024, representing a compound annual growth rate of 13%. We believe these trends are driving the demand for marketing software solutions like ours.

The increased focus on digital marketing has also increased demand for marketing automation solutions. These solutions facilitate consumer acquisition, engagement and loyalty by leveraging data and analytics to optimize personalization of marketing programs. According to Mordor Intelligence, the marketing automation software market was estimated at approximately $6.9 billion in 2020 and is expected to grow to approximately $19.7 billion by 2026, representing a compound annual growth rate of 19%.

We believe we are well-positioned to capitalize on these market opportunities as a software and platform provider. In particular, we have one of the largest proprietary identity graphs that enhances enterprises’ targeting capabilities, patented AI that delivers personalized experiences to improve engagement, and purpose-built technology that enables our customers to acquire, grow and retain consumer relationships more effectively than alternative solutions.

We sized our market using a bottom-up approach. We believe the size of our total addressable market to be approximately $36 billion. We calculated this figure by first estimating the total number of U.S. Large Enterprises, derived from U.S. Census Bureau data and which we define as firms with over 1,500 employees. We then further segmented the U.S. Large Enterprises by industry verticals in which Zeta maintains most relevance, yielding 9,558 companies. We multiplied this number of relevant U.S. Large Enterprises by our scaled customer ($1M+) ARPU of $3,805,734, derived from internal Company data for the year ended December 31, 2020, to arrive at the TAM.

 

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The Zeta Marketing Platform

 

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We believe the ZMP is the largest omnichannel marketing platform with identity data at its core. The ZMP makes use of proprietary data and predictive AI to enable enterprises to accelerate their growth by acquiring, growing and retaining consumer relationships. Our platform was designed with our customers’ needs in mind and can efficiently and effectively deliver on all digital marketing objectives and across all channels. We serve customers across various industry verticals. In 2020, we reached approximately 500 million individuals globally.

We designed our platform using a flexible, service-oriented architecture in order to facilitate rapid development of new solutions, to meet evolving industry demands and to support new use cases and marketing requirements. The ZMP is hosted in the Zeta Hybrid Cloud, which is a unique pairing of a public cloud (AWS/Google) deployment and self-hosted private cloud (VMware/Docker/Kubernetes) resources designed to facilitate workload management in a cost-effective, performant and efficient manner.

We have also dedicated significant resources to the goal of building customer trust by developing and implementing programs designed to protect data privacy and to promote a secure technical environment. The resources we dedicated to this goal include engineers, analysts, lawyers, policy experts and operations specialists, as well as hardware and software from leading vendors and solutions we have designed and built. In particular, we have implemented a number of technical innovations, process enhancements and industry solutions in response to our increased obligations with respect to our data. For example, we can identify and implement user consent parameters and opt-in or opt-out as applicable and can evaluate whether such consents apply to our various data sources, products or customers.

 

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The ZMP is built on the following four pillars:

1. Opted-in Data Set

We believe we have the largest opted-in consumer data set for omnichannel marketing. Our data set is an amalgamation of our private proprietary data, publicly available data and data provided by our partner ecosystem.

Our data set contains more than 200 million opted-in individuals in the U.S. with an average of more than 2,500 demographic and behavioral attributes per individual. On average, we ingest more than 1 trillion content consumption signals per month on a global basis and synthesize this information into hundreds of intent-based audiences, which can then be used to create marketing programs. All this data is managed through a proprietary database structure that has patented flexibility, speed and scalability.

2. Patented AI Engine

The ZMP is supported by more than 90 patents and patent applications, including 12 granted patents and 23 pending patent applications on AI, automation for predictive personalization and consumer identity resolution and over 500 data scientists, technologists and engineers continuously working on further advances. We believe our proprietary data is key to our AI engine. We analyze this data through extensive application of AI technologies, including machine learning and natural language processing. We leverage our AI technologies and data within the ZMP to:

 

   

Seamlessly collect and ingest structured and unstructured data into the ZMP;

 

   

Quickly and reliably analyze key consumer attributes and signals;

 

   

Identify consumer intent by running sophisticated algorithms to analyze data;

 

   

Cluster related concepts and prioritize actionable insights to create intent-based graphs;

 

   

Create audiences comprised of individuals or affinity-driven clusters scored based on intent;

 

   

Personalize content to make experiences more relevant for the consumer and profitable for the enterprises; and

 

   

Create channel and content recommendations to optimize marketing performance.

 

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3. Omnichannel Engagement

We offer our customers the ability to manage their campaigns across all addressable and digital channels. Insights gleaned from our consumer behavior in one channel may be used to make decisions with respect to other channels. Our platform provides integrated access to a wide range of omnichannel inventory and data sources, as well as third-party services and platforms. The ZMP seamlessly integrates these 3rd party sources and services to enable our customers to deploy their targeted marketing programs through a wider range of channels, devices and formats, all within a single platform. This enables our customers to improve how they identify and engage the modern consumer who is using multiple devices and platforms (e.g., mobile, website, applications, social media, CTV and email).

We believe that empowering our customers to utilize data and AI across multiple channels and use cases drives higher utilization We have demonstrated the ability to increase scale to address the growing demand from enterprises. For example, in 2020, we were a top three email service provider (“ESP”) and deployed an average of over six billion emails per month. We were also a top 10 programmatic platform in 2020 and delivered an average of three billion monthly impressions to consumers. CTV, our fastest growing channel, delivered approximately 500 million ad impressions and we personalized over 200 million website experiences in 2020. In addition, we use our proprietary technology to provide a direct identity sync with Facebook and other social media platforms. In 2020, our Facebook impressions averaged over 750 million per quarter.

4. Performance Optimization

Every year, enterprises spend millions of dollars on marketing programs, yet many strategies and tactics prove ineffective. At Zeta, we have spent more than a decade developing intelligence, tooling, analytics and dashboards that enable our customers to design, plan and execute effective and personalized marketing programs at scale. Our platform provides real-time results to our customers through a graphical dashboard and makes recommendations for improvement through the same graphical interface. Our AI engineers continuously update the machine learning algorithms to improve the overall ROI for our customers.

Our Key Strengths

Omnichannel Engagement

Our omnichannel capabilities enable us to provide value to our customers by uncovering consumer insights tied to individuals’ purchase intent that can be used across digital marketing channels, thereby increasing the effectiveness of our customers’ marketing programs. With a focus on return on marketing investment, our customers can be confident that our algorithmic software decisions and our guidance are independent and designed to be in their best interests. Through the ZMP, our customers are able to identify and target consumers across a wide range of digital channels. These channels can work independently, in parallel or in concert depending on the marketing strategies and tactics of our customers. Many of these channels, such as email and programmatic, are native to the ZMP, while others, such as social media, are accessed through API integrations with companies, such as Facebook and Snap. The ZMP can respond quickly to technological advances and seamlessly connect with emerging digital platforms and new devices.

Actionable Insights

Our customers can use the Opportunity Explorer module in the ZMP to obtain and take action on high-value consumer insights in real-time. The ZMP monitors, aggregates and synthesizes the behaviors of individuals globally across multiple points of interactions to predict interest and intent. For example, each month in the U.S. alone, our artificial intelligence systems monitor and scores over 50 billion webpages and online discussion forum interactions, 3 billion visits to real-world locations, 1 billion purchase signals and up to 2,500 demographic and behavioral attributes to identify high value opportunities for our customers to optimize their digital marketing programs based on this data and insights.

 

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Recognized Leader in Marketing Automation

The ZMP was designed to enable marketing and IT professionals to integrate our service with their existing applications quickly and seamlessly. We believe our customers choose our platform over others because of its powerful, integrated and easy to use applications, rapid integration with various channels and technologies, and seamless onboarding of customer’s and third-party data. We have been recognized by various third-party research reports as a leader in the marketing automation sector. For example, in 2020, we were recognized as a “Leader” by The Forrester Wave: Email Marketing Service Providers, Q2 2020 and received the highest possible scores for our campaign management data, analytics, artificial intelligence and campaign operations capabilities. In addition, we were recognized as a “Visionary” in a market research report by a major research and advisory firm in 2017.

Secure, Scalable and Reliable Platform

The ZMP has been designed to provide our customers with high levels of reliability, data integrity, performance and security. Our public cloud deployment and IT systems within our data center have multi-zone and multi-region fail-over redundancy. We have built a comprehensive security infrastructure, including firewalls, intrusion detection systems and encryption for transmissions over the Internet, which we monitor and test on a regular basis. We built and maintain a multi-tenant application architecture that has been designed to enable our service to scale securely, reliably and cost-effectively to tens of thousands of customers and millions of users. Our multi-tenant application architecture maintains the integrity and separation of customer data while still permitting all customers to use the same application functionality simultaneously. Our architecture also enables us to segment access privileges across our user base.

Management Team

Our management team is highly experienced, possesses deep industry knowledge and is operationally focused. We are led by our original founders, which gives us a combination of stability and a strong entrepreneurial corporate culture. Our co-founder and CEO, David A. Steinberg, has decades of relevant industry experience with a proven track record of entrepreneurship and innovation. Our co-founder, John Sculley, was the former CEO of Apple and President of PepsiCo. The rest of our management team has worked in top enterprises and tech-forward companies, including Microsoft, Oracle, IBM, Netscape, PayPal, Accenture and Nielsen.

Our Competitive Advantages

All in One Platform

The ZMP is an end-to-end platform that gives our customers a 360-degree view of their consumer relationships, provides proprietary and actionable insights that improve business productivity and has the ability to execute across all channels to improve marketing program ROI. Some of the key capabilities of our end-to-end platform include: proprietary identity data, master data management, omnichannel engagement, native integration of marketing channels and customer acquisition capabilities. We believe this sets us apart from competitors’ legacy point solutions that neither provide a full suite of capabilities nor address all primary use cases of acquisition, growth and retention.

Reduces Complexity and Cost of Total Ownership

Our business model is driven by our comprehensive platform, owned infrastructure and continuous innovation resulting from consistent investment in research and development. We believe each new release of the ZMP has delivered significant improvements in performance, reliability, scale and scope to our customers and reduced our cost base. This enables us to price our platform competitively allowing our customers to exit legacy technology systems and eliminate ineffective marketing programs. We believe these improvements reduce our customers’ costs and improve their ROI, enabling us to attract and retain customers and grow our market share.

 

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Patented AI Engine with Custom Built Algorithms

The ZMP was purpose-built from the ground up by our seasoned team of product experts and engineers. It was designed with patented AI at its core to maximize extensibility. As the digital landscape has evolved over the years, we have been able to enhance and extended our AI capabilities to address the evolving needs and requirements of our customers. We believe that the accuracy and precision of the answers delivered by our AI engine enables our customers to make faster and better marketing decisions and allows marketing executives to oversee effective marketing programs.

Opted-In Data

A number of countries and regions have enacted or are considering enacting legislation that could significantly restrict the marketing industry’s ability to collect, augment, analyze, use and share data. While we do not expect these requirements to become a universal standard for data collection, we have nonetheless prepared for the possibility of such laws being enacted in the foreseeable future. Accordingly, we have implemented a framework to record and apply consumer consents that meet or exceed legal requirements in the U.S. and the EU. We capture much of our opted-in data through our publisher network, which includes our commenting platform, Disqus. We are embedded on more than 6.2 million websites and more than 15 billion webpages.

Enriched Data Embedded in Customers’ Marketing Operations

ZMP seamlessly connects Zeta’s proprietary data and third-party data with each customer’s consumer data via matching processes to create a 360-degree view of the consumer while keeping Zeta’s and each customer’s data technically separated. This provides enterprises with a single source of truth that improves their understanding of consumer needs, attitudes and behaviors. This understanding is translated into personalized marketing programs and marketing spend that is optimized for ROI. With role-based access, strict data separation and advanced security functionalities, the ZMP is purpose-built for enterprise-wide adoption and scalability.

Our Growth Strategies

Our data and AI-powered platform enables our customers to transform their digital marketing strategy, accelerate their revenue growth and enhance business returns. In turn, our customers’ success motivates them to increase their use of our platform, thereby accelerating our revenue and growth. Key elements of our long-term growth strategy include:

Further penetrate our existing customer base. As marketers continue to move a greater percentage of their budgets from analog to digital marketing, we believe we can rely on our extensive connections and customer base to capture a larger share of the overall marketing spend from our existing customers, in particular our scaled customers. We have customers spanning a wide spectrum of industry verticals and we believe we can achieve significant organic growth by cross-selling our existing solutions, making full use of our data capabilities and insights and by capturing increased share of our scaled customers’ marketing spend by introducing new features and functionalities within the ZMP.

Acquire new scaled customers. As traditional marketing software providers struggle to meet rapidly evolving customer demands, we believe we have a substantial opportunity to drive greater adoption of our platform. We intend to aggressively pursue new scaled customers by investing in our sales and customer service teams while driving increased efficiencies in our go-to-market approach. We also have extensive relationships with many marketing agencies and enterprises and believe we can extend our platform to provide B2B marketing capabilities.

Continue to innovate and develop new products. We intend to continue to invest in our technology to improve our platform and enhance its features and functionalities. We designed our platform to easily accommodate new features and functions, as well as the release of entirely new solutions. With over 500 data scientists and engineers, we believe we are well positioned to quickly develop new products and take full

 

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advantage of the shift to digital marketing. Since we view data as one of our key competitive advantages, we will also continue to invest resources to expand our data offerings, both from third-party providers, as well as our proprietary data sources.

Expand into international markets. We are still early in our international expansion efforts and have a limited presence outside of the U.S., yet many of our existing customers have significant global reach, representing potential international demand for our products, which can be supported by our Zeta Identity Graph. As we expand relationships with our existing customers in the U.S., we are also investing in select regions in Europe. In addition, we believe that Asia may represent a substantial growth opportunity and we are in the early stages of developing our business plan with respect to these markets.

Continue to strengthen our partnership ecosystem and expand sales capacity. We are in the process of building out our global network of consulting, delivery and technology partners that can enrich our offerings, scale our coverage and help us reach a broader audience than we would be able to reach on our own. We expect this network will extend our sales reach and provide implementation leverage both domestically and internationally. With a focus on growing our sales capacity, we are building a sophisticated sales operation to focus on opportunity creation and progression. We believe these new capabilities will allow us to further strengthen our relationships with our existing customers and gain global market share.

Our Products

Our product suites are powered by the ZMP and are designed to enable enterprises to acquire, grow and retain consumer relationships more efficiently and effectively than alternative solutions available in the market. In order to achieve this goal, we offer four principal types of product suites, each targeted at a different marketing objective: Opportunity Explorer, Consumer Experiences, Omnichannel Acquisition and Identity & Data Management. Our customers can purchase our products individually or in combination to obtain a 360-degree view of the consumer and our products can scale based on the needs of the customer. We also offer various technical upgrades, consulting services, additional integrations and access to ad-hoc data sources, services or channels. As a result, our customers are incentivized to allocate an increasing percentage of their marketing budgets to our platform and to enter into long-term contractual commitments with us.

 

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Opportunity Explorer

As our keystone product suite, the Opportunity Explorer detects and surfaces new marketing opportunities for our customers to achieve their business goals. Based on our proprietary data and uniquely modeled intender scores, the Opportunity Explorer can present immediate and actionable opportunities within the ZMP that our customers can then use to generate growth. A closed-loop cycle from insight to activation ensures that our AI engine can quickly learn from the available data, identify the best data signals and create accurate and up-to-date Zeta Identity Graphs. The Opportunity Explorer is woven into the fabric of the ZMP and is accessible through five product modules: MarketPulse, CustomerPulse, DMAPulse, Audience Pulse and CompetitorPulse.

 

   

MarketPulse. MarketPulse provides marketers with real-time notifications and longitudinal visualizations representing changes in consumer sentiment and interest.

 

   

CustomerPulse. CustomerPulse provides marketers with real-time, actionable insights across acquisition, retention and growth opportunities derived by enriching a customer’s data with Zeta data.

 

   

DMAPulse. DMAPulse provides marketers with real-time, actionable insights on designated market areas that should receive increased or decreased investments to optimize market share and customer acquisition efficiency.

 

   

AudiencePulse. AudiencePulse provides marketers with real-time, actionable insights on more than 850 Zeta Audiences predicting consumer intent and interest.

 

   

CompetitorPulse. CompetitorPulse providers marketers with actionable insights on the business’s competitive set and opportunities to capture market share and prevent customer attrition.

Our customers can use all four of the modules or choose any individual module to obtain data-cloud based insights on their existing consumers and prospects. Customers pay Zeta a licensing fee for use of the Opportunity Explorer and an incremental fee based on their utilization of the ZMP. The terms of our subscription agreements are typically monthly or annual.

Consumer Experiences

As part of this product suite our customers can upload their existing consumer data into the ZMP, which is then matched to Zeta’s proprietary database, thereby enriching identity and intent, to create a 360-degree view of their consumers. Each marketing campaign is then personalized and optimized by Zeta’s patented AI engine based on the customer’s KPIs, market dynamics and consumers’ signals and behaviors. As part of this enrichment process, the Opportunity Explorer can also recommend optimal engagement tactics based our customer’s stated requirements. This product suite enables are customers to increase the lifetime value of their consumer relationships. Customers pay Zeta a licensing fee for access to the ZMP and an incremental fee based on their utilization of the ZMP. The terms of our subscription agreements are typically annual or multi-year.

Omnichannel Acquisition

As part of this product suite our customers are able use the Opportunity Explorer to identify new consumers who are most likely to engage with a marketing message and ultimately become consumers of the brand. Our customers can choose to generate intent-based audiences using our existing profiles or automatically generated look-a-like audiences based on their ideal customer profile. Based on these audiences, Zeta’s proprietary and patented real-time AI engine can quickly design an efficient and effective marketing program to achieve our customers’ acquisition goals. For example, a decisioning node placed in the experience builder can quickly identify which marketing channels are most likely to be effective for an individual consumer, which types of messages are most likely to resonate and what time of day the consumer is most likely to be receptive to the marketing message. Based on the suggestions produced by the ZMP, customers can choose to execute their marketing programs through the ZMP’s native marketing channels or use third-party integrations. Customers pay Zeta a licensing fee for access to the ZMP and an incremental fee based on their utilization of the ZMP. The terms of our subscription agreements are typically monthly or annual.

 

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Identity & Data Management

As part of this product suite our customers can use the CDP+ as their system of record for all consumer information. Customers can consolidate multiple databases and internal and external data feeds and organize their data based on their unique needs and performance metrics. The CDP+ has extensive technical flexibility and can adjust to our customers’ custom data schemas with limited or no pre-configuration required. If necessary, we can also engineer a deeper level of data integration between the CDP+ and our customers’ marketing infrastructure. Once our customer’s data has been ingested, screened, unified and normalized within the CDP+, the Opportunity Explorer, Customer Experiences and Omnichannel Acquisition product suites can be immediately turned on to individually engage consumers. As part of our standard offering, we provide our customers with service-level agreements (“SLAs”) that guarantee high-levels of reliability, performance and security. Customers pay Zeta a design and development fee and a licensing fee for the CDP+. The terms of our subscription agreements are typically annual or multi-year.

Our Technology and Architecture

We have organically built a leading platform that supports our business and corporate strategy. The ZMP is an efficient and integrated high-throughput and low-latency system that collects data, identifies individuals, predicts intent, suggests next best action, engages through digital channels and provides a high level of measurement. To create and maintain the ZMP, we use an integrated global team of tightly aligned product and engineering teams. Each layer in our stack has a distributed team that works across all of the products in our platform. This approach maintains re-usable services with a focus on clean abstractions and consistency.

 

LOGO

The ZMP is an enterprise-grade platform that can pass enterprise-grade requirements of scale, reliability and security. The design, deployment and management of the ZMP is centered on the following areas:

Innovation. We foster an innovative, fast-paced culture that enabled the release of over 150 features in 2020. Our core product and engineering teams timely and consistently deliver new features by preparing for escalations and by maintaining a rigorous planning process. We maintain a “tip-of-the-spear” team that operates

 

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outside of the enterprise constraints of the platform and is focused on rapid iteration and investigation of new products. As we discover new innovations that have market potential, we swiftly move the initiative into the core engineering team to integrate with the broader platform solutions.

Scalability. By leveraging cloud infrastructure from Amazon and the Zeta technology stack, we are able to horizontally scale workloads of different sizes at any time. Our scalable system provides deep insight into the performance of our applications, allowing us to rapidly address potential issues. This scalability allows us to process billions of data points from millions of data sources each day.

Reliability. Our applications are deployed redundantly across availability zones with disaster relief supported by our data centers. Most of our software runs on a cloud infrastructure platform that provides automatic recovery from failures and auto-scaling to handle load spikes. Employing these and other strategies we have been able to achieve 99.9+% uptime for the ZMP.

Security. All our traffic and data at rest is encrypted, we utilize authentication for all data access patterns and consistently scan our code and dependencies for vulnerabilities and undergo regular pen-testing. Additionally, all user passwords and permissions are centrally managed per industry regulations.

The Authenticated Web. Zeta has its own first party cookie to drive engagement for its enterprise customers. It also creates people-based deterministic audiences and identities that can extend into probabilistic audiences, both of which rely on Zeta Identity Graphs. The information we collect through our cookie helps marketers customize, target and report on their marketing campaigns we place on their behalf. While we produce reports and analytics for our customers, we do not share consumers online profiles or any associated personal identifiable information (“PII”) data. As a result, Zeta’s permissioned people-based audiences and identities have continued to grow in scale and precision amidst a more stringent regulatory environment.

Consistency is a key goal of our technology approach. Consumers and data services are engineered to automatically scale horizontally. There are several key differentiators of Zeta’s approach:

Identity at the Core. We maintain a centralized identity service that enables us to quickly onboard identity graphs from our customers and partners while improving the data through our proprietary Zeta Identity Graph and Zeta Signals. The ZMP’s data foundation ensures that all customers have a consistent understanding of their respective consumers. Consistency of services, architecture and programming languages also reduces engineering overhead, regressions and time to market.

Data Integrity. We have over a decade of experience working in enterprise data management. Our platform enables enterprises to perform critical functions such as hygiene, integration, enrichment and storage to create a 360-degree view of the consumer. This modern architecture provides for a flexible process to manage and adapt to any type of data in an automated fashion. Our platform can reach into data sources “where they reside” to ingest, synthesize and act on data inputs without storing the data within our system.

Patented AI. We have capacity to observe billions of daily page views and selectively derive understanding of psychographics, sentiment and intent. This has consistently led to improved performance of our customers’ audience-based campaigns.

Single View of the Consumer. Zeta’s data foundation has a unique ability to maintain PII and non-PII data. Based on intricate roles and permission, we are able to enrich data across multiple channels as well as produce intent scores for over 700 categories.

Real Time. Our data foundation is designed for real-time data-streaming and has been adapted for batch processing. All data products are accessible via API and maintained to strict SLA expectations.

 

 

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The ZMP is built on a modern infrastructure. For example, the ZMP architecture abstracts away complicated and time-consuming manual database pre-configuration by interfacing through high-throughput, low-latency data services. By reducing or removing the upfront complex configurations required by traditional databases, Zeta’s customers are able to integrate their data sources in minutes, hours or days rather than in weeks or months. Strict monitoring and alerting protocol along with thousands of automated QA tests ensure that our platform meets or exceeds our publicly stated SLAs. We also regularly eliminate tech-debt and upgrade our systems to maintain security compliance and high performance. Moreover, our technology is built with a multi-year vision, helping to ensure longevity of our tools and architecture and ability to meet the current and future demands of our customers.

Our Customers

We work with some of the largest and most well-known enterprises across a wide spectrum of industry verticals including insurance, consumer & retail and telecommunications, which contributed 14%, 11% and 11% of our revenues for the year ended December 31, 2020, and 16%, 13% and 12% of our revenues for the three months ended March 31, 2021, respectively. We served 1,017 customers, 1,081 customers and 1,162 customers as of March 31, 2021, December 31, 2020 and 2019, respectively. We had 333 scaled customers, 336 scaled customers and 330 scaled customers as of March 31, 2021, December 31, 2020 and 2019. In addition, we worked with 34%, 33% and 31% of the Fortune 100 as of March 31, 2021, December 31, 2020 and 2019, respectively. Of our Fortune 100 Customers, 24, 27 and 25 were scaled customers as of March 31, 2021, December 31, 2020 and 2019, respectively. For the periods ended March 31, 2021, December 31, 2020 and December 31, 2019, 15, 20 and 16, respectively, were scaled customers from which we generated between $100,000 and $1.0 million in revenue. For the periods ended March 31, 2021, December 31, 2020 and December 31, 2019, nine, seven and nine, respectively, were scaled customers from which we generated over $1.0 million in revenue. We generated 15%, 15% and 17% of our revenue from our Fortune 100 customers as of March 31, 2021, December 31, 2020 and 2019, respectively. No customer contributed more than 10% of our revenue in the year ended December 31, 2020 or the three months ended March 31, 2021.

Sales & Marketing

Our marketing efforts are focused on promoting our brand, generating awareness of our platform, creating sales leads and building thought leadership on relevant topics for our customers and prospects. We focus our go-to-market efforts on leveraging an advanced, data-driven sales management system to identify, nurture and close new customers and provide our existing customers with new solutions to grow their businesses. To obtain new customers, we create comprehensive demand generation programs, participate in industry and partner conferences, host webinars and utilize digital marketing, search engine optimization, case studies and customer testimonials. In addition, as our existing customers are trained on our platform by our team, they often grow their usage of our platform from their initial use cases to incorporate additional products. These sales and marketing efforts allow us to engage and retain a diversified customer base across a wide spectrum of verticals and allow us to engage decision makers and individual contributors at every level of our customers’ organizations.

We have an experienced global sales team of more than 70 sellers who we believe have a balanced mix of tenure and strong sales productivity to build and nurture relationships with our best prospects and scaled customers. We are currently transitioning to a “hunter/farmer” sales model, under which a dedicated team (“hunters”) is responsible for new business development and a separate team (“farmers”) is focused on training users on our platform and educating existing customers on our platform capabilities. Approximately 48% of Zeta’s sales team is currently focused on new business development and approximately 52% is focused on expanding the scope and increasing platform usage from existing customers, particularly scaled customers.

We believe there is a substantial opportunity to further grow our existing scaled customers and obtain new ones by continuing to make significant investments in our sales and marketing pipeline. We intend to expand our marketing capacity to increase awareness of our platform, harness demand for our products and accelerate growth. Our efforts have already created significant pipeline of opportunities for our sales organization, and we

 

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are currently focused on building a sophisticated sales operation to help achieve growth. In particular, we intend to expand our sales team domestically and internationally, and to fully transition to the hunter/farmer sales model by the end of 2021. While our platform is built for organizations of all sizes and industries, our expanded sales team will primarily focus their selling efforts on large enterprise customers, which we believe will lead to scale and operating leverage in our business model. Our new sales pipeline will also track and measure our marketing costs and results closely across all channels and business units to support our efforts to optimize our sales pipeline. We believe these changes will further reduce our sales cycle and lower customer acquisition costs. Overall, we believe our new sales and go-to-market models will allow us to better serve the nuanced demands of new and existing customers across all industry verticals.

Competition

The markets for our products are characterized by intense competition, new industry standards, evolving distribution models, disruptive technology developments, frequent product introductions, short product life cycles, price cutting with resulting downward pressure on gross margins and price sensitivity on the part of customers. Our future success will depend on our ability to enhance and better integrate our existing products, introduce new products on a timely and cost-effective basis, meet changing customer needs, provide best-in-class data security to maintain customer confidence and combat cyber-attacks, extend our core technology into new applications and anticipate emerging standards, business models, software delivery methods and other technological changes.

We believe no single company has offerings that match the comprehensive capabilities of the ZMP and CDP+, but we face collective competition from a variety of companies. Our competitive market is highly fragmented with most competitors focused on specific use cases, end markets and/or types of data sets and point solutions. We believe the principal factors that drive competition between vendors in our market include:

 

   

Quality of insights and analytics;

 

   

Omnichannel automation;

 

   

Real-time scoring and decisioning of data sets;

 

   

Utility of data management tools;

 

   

Comprehensive systems integration;

 

   

Ease and speed of data ingestion and data onboarding; and

 

   

Scale and scope of identity and audience data.

We believe we compete favorably across these factors. In particular, we believe the ZMP’s competitive advantages include:

 

   

Intuitiveness and ease of use;

 

   

Comprehensive feature set;

 

   

Present workflows and automation;

 

   

Rapid deployment;

 

   

Flexibility and scalability;

 

   

Seamless integration with a customer’s existing technologies; and

 

   

Favorable customer ROI and total cost of ownership.

For additional information, see the section titled “Risk Factors—Risks Related to Our Business and Industry—Our industry is intensely competitive, and if we do not effectively compete against current and future

 

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competitors, our business, results of operations and financial condition could be harmed” and “Risk Factors—Risks Related to Our Business and Industry— Our intellectual property rights may be difficult to enforce and protect, which could enable others to copy or use aspects of our technology without compensating us, thereby eroding our competitive advantages and having an adverse effect on our business, results of operations and financial condition.”

Research & Development

Rapid and continuing innovation is a core driver of our business success and our corporate culture. We are committed to continuous innovation and rapid introduction of new technologies, features and functionality that bring value to our customers. Our proprietary software is built and maintained by more than 500 engineers, data scientists and product managers located in San Francisco, Silicon Valley, New York, India and the EU.

Our efforts are focused on improving and enhancing the features, functionality, performance, availability and security of our existing product offerings as well as developing new features, functionalities and tools. From time to time, we supplement our internal research and development activities with outside development resources and acquired technology. As part of our business strategy, we periodically acquire companies or technologies, and we incorporate the acquired technologies into our solutions. Performance, functional depth, security and the usability of our solutions influence our technology decisions and product direction.

We have an innovative technology roadmap to introduce new product capabilities and functionalities. In particular, we are investing in AI content management, expansion of CDP+ capabilities, enhancement of our CTV offering, expansion of AI based decision and orchestration.

We have implemented a multi-tenancy architectural approach that allows us to operate a single application instance for multiple customers, treating all customers as separate tenants who run in virtual isolation from each other. Customers can use and customize an application as though they each have a separate instance, yet their data and customizations remain secure and insulated from the activities of all other customers. Our multi-tenant platform runs on a single stack of hardware and software, which is comprised of commercially available hardware and a combination of proprietary and commercially available software. As a result, we are able to spread the cost of delivering our services across our user base. In addition, because we do not have to manage thousands of distinct applications with their own business logic and database structures, we believe that we can scale our business faster than traditional software vendors. Moreover, we can focus our resources on building new functionality to deliver to our customer base as a whole rather than on maintaining an infrastructure to support each of their distinct applications. Multi-tenancy also allows for faster bug and security fixes, automatic software updates and the ability to deploy major releases and frequent, incremental improvements to our products, benefiting our entire user community. Our customers access our products from any geography over the internet via all of the major Internet browsers and on most major mobile device operating systems.

We provide the majority of our products to our customers from infrastructure operated by us but secured within third-party data center hosting facilities located in the U.S. and the EU. These third-party data center providers provide space, physical security, continuous power and cooling. The remainder of our products operate from cloud computing platform providers who offer infrastructure as a service, including servers, storage, databases and networking.

We expect technology and development expense and capitalized software development costs to increase in absolute dollars as we continue to invest in the development of additional features and functions of the ZMP. We believe this investment will add to our ability to generate revenues by appealing to new customers and providing new opportunities for current customers, in particular scaled customers. Our research and development expenses were $9.8 million for the three months ended March 31, 2021, and $27.8 million and $28.7 million, for the years ended December 31, 2020 and 2019, respectively.

 

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Customer Services & Technical Support

We offer expert consulting, customer success management, technical support and learning services to our customers across all our products. We have global services teams dedicated to designing and implementing custom solutions for our customers. Our teams use a comprehensive, customer-focused delivery methodology that has been refined over years of capturing and analyzing best practices from numerous customer engagements across a diverse mix of solutions, industries and customer segments. Our services teams work with customers on an ongoing basis to understand their current and future business needs, promote faster solution adoption and align product capabilities to customers’ business objectives to maximize the return on their investment. We engage customers to share innovative best practices, relevant industry and vertical knowledge and proven success strategies based on our extensive engagements with leading marketers and brands.

Our global technical customer support group responds to both business and technical inquiries about the use of all products within the Zeta portfolio via the web, telephone, email, social networks and other channels. We provide technical customer support, including access to technical resources, developer support and system administration, 24 hours a day, 365 days a year at no charge to customers who purchase any of our products.

Data Privacy & Regulations

Contemporary consumers use multiple platforms to learn about and purchase products, and have come to expect a seamless experience across all channels. This challenges marketing organizations to balance the demands of the consumer for a seamless experience with privacy-compliant methods of managing data and using such data to create these experiences.

In the U.S., both Congress and state legislatures, along with federal regulatory authorities, have continued to increase their attention on the collection and use of consumer data, including as it relates to internet-based marketing. Data privacy legislation has been introduced in the U.S. Congress, and California has enacted broad-based privacy legislation, the CCPA, as supplemented by the subsequent CPRA, which comes into force in 2023. State legislatures outside of California have proposed dozens of data privacy bills similar to, but distinct from, the CCPA/CPRA. We anticipate that, as with the CCPA/CPRA, new laws in the U.S. at either the state or federal level will allow personal data collection by businesses as the default, so long as data use practices are made transparent to consumers and consumer rights are honored when requested (opt-out model). To date, despite significant legislative activity around privacy in the states and at the federal level, there have been no significant or credible efforts at legislation that would require prior consent before data is used (opt-in model). Zeta believes that a continued emphasis on an opt-out regime in the U.S. will mean a continued ability to collect and use personal data at scale.

Outside the U.S., the GDPR (and the UK equivalent) remain in force in Europe, and, overlaid with country-level laws implementing the ePrivacy Directive, continues to raise questions about the application of these laws to third party marketing technology companies such as Zeta. Many non-U.S., non-EU. jurisdictions have also enacted or are developing laws and regulations governing the collection and use of personal data, including Brazil, Canada, Japan, Singapore, India, South Africa and others. These laws represent a spectrum of opt-in vs. opt-out models, with the GDPR establishing the most stringent set of requirements for obtaining consumer consent. These requirements have served as barriers to the expansion of Zeta’s business in these markets; Zeta has created compliant solutions, but has not been able in some cases to achieve sufficient scale of data collection to create compelling business cases for customers in these markets.

We have a dedicated privacy team within the legal team led by a Chief Privacy Officer who oversees our compliance with data protection laws. Our privacy team and the entire legal team are highly focused on applicable privacy laws and regulations and constantly monitor changes to such laws and regulations with a view to implementing what we believe are best practices in the industry. Our sales and customer support teams are also well versed in helping customers and prospective customers navigate relevant privacy concerns and

 

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requirements with respect to Zeta’s solutions. Zeta’s privacy compliance program includes: dedicated, experienced staff with authority to execute the program; written policies and procedures; mandatory training for employees; documentation of data practices and their privacy implications; publicly-facing user interfaces to accept, respond to and track consumer requests to exercise privacy rights; provisions in commercial agreements with partners, customers, and vendors; privacy team review of third-party data sharing relationships; collaborative relationships between the privacy team and product, technology and sales teams to ensure “Privacy by Design;” participation in the Digital Advertising Alliance’s AdChoices Program (as well as similar programs in Canada and Europe); participation in the IAB Europe’s “TCF 2.0” program; and, participation in multi-stakeholder, cross-industry initiatives including the Worldwide Web Consortium (“W3C”), Future of Privacy Forum, Email Senders and Providers Coalition and The Internet Coalition.

Employees & Culture

Zeta’s culture is defined by six core virtues, focused on creating growth for customers and our employees. These virtues are execution, critical thinking, collaboration, continuous innovation, customer success and citizenship.

 

   

Commitment to Execution. Leaders and teammates are held accountable to deliver exceptional results.

 

   

Critical Thinking. Our employees collaborate to identify root causes of issues and work with our partners to design and implement meaningful solutions.

 

   

Collaboration. We realize that working together leads to better outcomes.

 

   

Continuous Innovation. We creatively think about new ways to develop and implement new products.

 

   

Customer Success. We go above and beyond to deliver exceptional customer results.

 

   

Citizenship. We hold ourselves accountable to be responsible for the greater good.

Our virtues foster a culture that enables professional growth through learning and development, as well as career progression. We believe our corporate culture has been critical to our success and we plan to invest substantial time and resources to continue building it. In particular, Diversity, Equality and Inclusion (DEI) is a strategic imperative at Zeta. Our DEI team is focused on driving inclusiveness, innovation and stronger business results by attracting a more diverse talent pool and creating a more inclusive work environment for all our employees around the world.

We believe that our employees love working at Zeta because they believe that they are working towards a larger mission. We pride ourselves in hiring the best global talent with employees across the U.S. (including New York and Silicon Valley), the EU and India. As of March 31, 2021, we had 1,296 employees, including (i) 634 employees in data sciences, technology and engineering, (ii) 228 employees in sales and marketing and (iii) 434 employees in various other internal, customer facing and management roles.

Intellectual Property

We have a patent portfolio of more than 100 U.S. and international patents and applications which include 12 granted patents and 23 pending patent applications covering artificial intelligence, automation for predictive personalization and consumer identity resolution. Our key patents also include secure data encryption technology enabling us to leverage our CDP+ to enhance our customer’s proprietary data while maintaining separation between the data sets. We also have a portfolio of registered domain names and U.S. and international trademark applications and registrations, including ZETA and DISQUS. In addition, we enter into confidentiality agreements and invention or work product assignment agreements with employees and contractors involved in the development of our proprietary intellectual property. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective.

 

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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. For a description of our legal proceedings, see Note 8 to our audited consolidated financial statements included elsewhere in this prospectus.

Facilities & Operations

Our corporate headquarters is located in New York City, New York. It consists of two floors with approximately 28,000 square feet under a lease agreement that expires in March, 2029. We have several offices in the U.S. and have operations in the UK, the EU and India, as well as other locations. Our New York office focuses on our go-to-market strategy, customer success, shared services and infrastructure. Our San Francisco and Silicon Valley offices serve as our innovation hubs. The European offices focus on go-to-market and customer success. The India offices concentrate on innovation, infrastructure and shared services.

All our offices are leased and we do not own any real property. We believe that our current facilities are sufficient to meet our present needs. As we grow, we expect that suitable additional space will be available to either expand existing offices or open new office locations.

 

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MANAGEMENT

The following table provides information regarding our executive officers and our board of directors:

 

Name

   Age     

Position

David Steinberg

     51      Chairman and Chief Executive Officer

Steven Gerber

     51      President and Chief Operating Officer

Christopher Greiner

     45      Chief Financial Officer

William Landman

     68      Director

Robert H. Niehaus

     65      Director

William Royan

     53      Director

John Sculley

     82      Director

Executive Officers

David Steinberg has been a member of our board of directors since 2007 and is the Co-founder, Chairman and Chief Executive Officer of Zeta. Mr. Steinberg is also Chairman of CAIVIS Investment Company, Kica Investments and On Demand Pharmaceuticals. Previously, he was the founder and Chief Executive Officer of InPhonic, a seller of wireless phones and communications products and services. Prior to that he was the Chairman and Chief Executive Officer of Sterling Cellular. He holds a BA in Economics from Washington & Jefferson College. We believe that Mr. Steinberg will make a valued member of our board of directors due to his marketing and entrepreneurial background.

Steven Gerber has been the President and Chief Operating Officer of Zeta since 2009. Mr. Gerber oversees the day-to-day management of the Company, including product development, business development, customer success and operations. He has more than 20 years of experience in data-driven digital technology. Previously, Mr. Gerber was a Senior Vice President at Tranzact LLC and held management positions at Bain & Company and Digitas LLC. He holds a BA from Northwestern University and an MBA from Columbia University.

Christopher Greiner has been the Chief Financial Officer of Zeta since 2020. He has over 20 years of proven success in the technology industry. Prior to joining Zeta, Mr. Greiner served as Chief Financial Officer of LivePerson Inc., an AI-powered conversational cloud provider, from 2018 through March 2020 and before that spent five years at Inovalon, a cloud-based healthcare and life sciences analytics company, first as Chief Product and Operations Officer and then as Chief Financial Officer. Mr. Greiner also held roles of increasing executive responsibility at IBM from 1999 until 2012 and Computer Sciences Corporation (“CSC”) from 2012 to 2013. He holds a BBA in Finance and Economics from Baylor University.

Directors

William Landman has served on our board of directors since 2008. Mr. Landman is the Co-founder and Managing Principal of MainLine Investment Partners, LLC, where he directs the investment activities, management and strategic initiatives of the company and its affiliates, MainLine Private Wealth and Merion Realty Partners. Since 1987, Mr. Landman has also been a Principal and Senior Managing Director of CMS Companies, an alternative investments firm. Further, he is a Senior Advisor at Renovus Capital, an education-oriented small business investment company, and is a Principal and Manager of Merion Residential, a real estate management company. He holds a BA from the University of Pittsburgh and a JD from the University of Pittsburgh School of Law. We believe that Mr. Landman is qualified to sit on our board of directors due to his longstanding experience in investments and company management.

Robert H. Niehaus has served on our of our board of directors since 2012 and has over 30 years of experience in investment and private equity. Mr. Niehaus is the Chairman and Founder of GCP Capital Partners LLC (“GCP”) and has served as Chairman of GCP and its predecessor business Greenhill Capital Partners and

 

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their respective Investment Committees since 2000. In addition, Mr. Niehaus is Chairman of Iridium Communications Inc., a satellite communications company, and previously served as a Director for Heartland Payment Systems, a payments technology business. He holds a BA in international affairs from Princeton University and an MBA from Harvard Business School. We believe Mr. Niehaus is qualified to serve on our board of directors due to his extensive corporate governance and investment strategy experience.

William Royan has served on our board of directors since 2017. He is the Managing Partner and Chair of the Investment Committee of GPI Capital, an alternative investment firm. Previously, he was a member of the Global Management Committee and Chief Investment Officer of a predecessor fund of BTG Pactual, a global financial services firm. Mr. Royan has been a director of numerous public and private companies, including the TMX Group, a Canadian financial services company that operates various market exchanges, where he chaired its Governance Committee, and BTG Pactual, a financial company offering investment banking, as well as wealth and asset management services. He holds a Bachelor of Commerce from the University of Calgary and an MBA from the University of Chicago. We believe Mr. Royan is qualified to serve on our board of directors because of his background in financial services.

John Sculley has served on our board of directors since 2008 and is the Co-founder and Vice Chairman of Zeta. Since leaving his role of CEO at Apple Computer, Inc. in 1993, Mr. Sculley has focused on investing in early-stage companies as a venture capitalist and co-founder of several companies. He holds a BA from Brown University and an MBA from the Wharton School at the University of Pennsylvania. We believe Mr. Sculley is well-suited to sit on our board of directors due to the expertise he brings in marketing and company leadership.

Family Relationships

There are no family relationships among any of our directors or executive officers.

Board of Directors, Committees and Executive Officers

Our board of directors currently consists of 5 members. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that the authorized number of directors shall be fixed from time to time by a resolution of the majority of our board of directors.

Director Independence

Our board of directors has determined that all of our directors, other than two, qualify as “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing rules of the NYSE (the “Listing Rules”). In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has had with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence.

Term and Class of Directors

Upon the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will be divided into three staggered classes of directors of the same or nearly the same number. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the directors will expire upon election and qualification of successor directors at the annual meeting of stockholders to be held during the years 2022 for the Class I directors, 2023 for the Class II directors and 2024 for the Class III directors.

Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.

 

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Term of Executive Officers

Each executive officer is appointed and serves at the discretion of the board of directors and holds office until his or her successor is elected and qualified, or until his or her earlier resignation or removal.

Board Committees

In connection with the consummation of this offering, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below. Our board of directors may establish other committees to facilitate the management of our business. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee intends to adopt a written charter that satisfies the applicable rules and regulations of the SEC and the Listing Rules, which we will post on our website at www.zetaglobal.com upon the completion of this offering.

Audit Committee

Our audit committee oversees our accounting and financial reporting process. Among other matters, the audit committee:

 

   

appoints our independent registered public accounting firm;

 

   

evaluates the independent registered public accounting firm’s qualifications, independence and performance;

 

   

determines the engagement of the independent registered public accounting firm;

 

   

reviews and approves the scope of the annual audit and pre-approves the audit and non-audit fees and services;

 

   

reviews and approves all related party transactions on an ongoing basis;

 

   

establishes procedures for the receipt, retention and treatment of any complaints received by the Company regarding accounting, internal accounting controls or auditing matters;

 

   

discusses with management and the independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements;

 

   

approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services;

 

   

discusses on a periodic basis, and as appropriate, with management, the Company’s policies and procedures with respect to risk assessment and risk management;

 

   

is responsible for reviewing our financial statements and our management’s discussion and analysis of financial condition and results of operations to be included in our annual and quarterly reports to be filed with the SEC;

 

   

investigates any reports received through the ethics helpline and reports to the board of directors periodically with respect to any information received through the ethics helpline and any related investigations; and

 

   

reviews the audit committee charter and the audit committee’s performance on an annual basis.

Our audit committee consists of Robert H. Niehaus, William Royan and William Landman. Our board of directors has determined that all members are independent under the Listing Rules and Rule 10A-3(b)(1) of the Exchange Act. The chair of our audit committee is Robert H. Niehaus. Our board of directors has determined that each member is an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of

 

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Regulation S-K. Our board of directors has also determined that each member of our audit committee can read and understand fundamental consolidated financial statements, in accordance with applicable requirements.

Compensation Committee

Our compensation committee oversees policies relating to compensation and benefits of our officers and employees. The compensation committee reviews and approves or recommends corporate goals and objectives relevant to compensation of our executive officers (other than our Chief Executive Officer), evaluates the performance of these officers in light of those goals and objectives and approves the compensation of these officers based on such evaluations. The compensation committee also reviews and approves or makes recommendations to our board of directors regarding the issuance of stock options and other awards under our stock plans to our executive officers (other than our Chief Executive Officer). The compensation committee reviews the performance of our Chief Executive Officer and makes recommendations to our board of directors with respect to his compensation, and our board of directors retains the authority to make compensation decisions relative to our Chief Executive Officer. The compensation committee will review and evaluate, on an annual basis, the compensation committee charter and the compensation committee’s performance. Our compensation committee consists of Robert H. Niehaus and William Landman. Our board of directors has determined that all members are independent under the Listing Rules. The chair of our compensation committee is Robert H. Niehaus.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee is responsible for making recommendations to our board of directors regarding candidates for directorships and the size and composition of our board of directors. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance policies and making recommendations to our board of directors concerning governance matters. Our nominating and corporate governance committee consists of Robert H. Niehaus, William Royan and William Landman. Our board of directors has determined that all members are independent under the Listing Rules. The chair of our nominating and corporate governance committee is Robert H. Niehaus.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is, or has at any time during the past year, been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Leadership Structure of the Board

Our amended and restated bylaws and corporate governance guidelines to be in place immediately prior to the consummation of this offering will provide our board of directors with flexibility to combine or separate the positions of Chairperson of the board of directors and Chief Executive Officer and to implement a lead director in accordance with its determination regarding which structure would be in the best interests of our company.

Our board of directors has concluded that our current leadership structure is appropriate at this time. However, our board of directors will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.

Role of Board in Risk Oversight Process

Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review sessions during the year that include

 

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a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.

Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. While our board of directors is responsible for monitoring and assessing strategic risk exposure, our audit committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The audit committee also approves or disapproves any related person transactions. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.

Code of Business Conduct and Ethics

In connection with this offering, our board of directors intends to adopt a written code of business conduct and ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions, and agents and representatives. The full text of our code of business conduct and ethics will be posted on our website at www.zetaglobal.com upon the completion of this offering. The nominating and corporate governance committee of our board of directors will be responsible for overseeing our code of business conduct and ethics and any waivers applicable to any director, executive officer or employee. We intend to disclose any future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions applicable to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and agents and representatives, on our website identified above or in public filings.

Limitation on Liability and Indemnification Matters

Our amended and restated certificate of incorporation and our amended and restated bylaws, both of which will become effective immediately prior to the completion of this offering, limit our directors’ liability, and provide that we may indemnify our directors and officers to the fullest extent permitted under the DGCL. The DGCL provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any:

 

   

transaction from which the director derives an improper personal benefit;

 

   

act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

   

unlawful payment of dividends or redemption of shares; or

 

   

breach of a director’s duty of loyalty to the corporation or its stockholders.

These limitations of liability do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies such as injunctive relief or recession.

The DGCL and our amended and restated bylaws provide that we will, in certain situations, indemnify our directors and officers and may indemnify other employees and other agents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding.

In addition, we have entered, and intend to continue to enter, into separate indemnification agreements with our directors and officers. These indemnification agreements, among other things, require us to indemnify our

 

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directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of their services as a director or officer, or any other company or enterprise to which the person provides services at our request.

We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe that these provisions in our amended and restated certificate of incorporation and amended and restated bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or control persons, in the opinion of the SEC, such indemnification is against public policy, as expressed in the Securities Act and is therefore unenforceable.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

This section discusses the material components of the executive compensation program for our executive officers who are named in the “2020 Summary Compensation Table” below. In 2020, our “named executive officers” and their positions were as follows:

 

   

David Steinberg, Chairman and Chief Executive Officer;

 

   

Steven Gerber, President and Chief Operating Officer; and

 

   

Christopher Greiner, Chief Financial Officer.

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.

2020 Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the year ended December 31, 2020.

 

Name and Principal

Position

   Salary ($)      Stock
Awards ($)(1)
     Non-Equity
Incentive Plan
Compensation ($)(2)
     All Other
Compensation ($)(3)
     Total  

David Steinberg

   $ 693,750      $ 7,145,417      $ 578,125      $ 311,075      $ 8,728,367  

Chairman and Chief
Executive Officer

              

Steven Gerber

   $ 495,000      $ 2,327,160      $ 291,205      $ 4,275      $ 3,117,640  

President and Chief
Operating Officer

              

Christopher Greiner(4)

   $ 400,000      $ 7,656,667      $ 450,000      $ 4,275      $ 8,510,942  

Chief Financial Officer

              

 

(1)

Amounts reflect the full grant-date fair value of restricted stock awards granted during 2020 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all restricted stock awards made to executive officers in Note 13 to the consolidated financial statements included in this prospectus.

 

(2)

Amounts reflect cash bonuses earned under our annual performance-based bonus programs for 2020. See “2020 Bonuses” below for additional information.

 

(3)

Amount shown for Mr. Steinberg includes (i) the cost of maintaining an apartment for corporate purposes and Mr. Steinberg’s use while on company business ($305,500), and (ii) the cost of maintaining a temporary remote office for Mr. Steinberg. Amounts shown for Mr. Gerber and Mr. Greiner reflect matching contributions under our 401(k) plan.

 

(4)

Mr. Greiner’s employment commenced on February 17, 2020.

2020 Salaries

The named executive officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. The 2020 annual base salaries for our named executives officers were:

 

Name

   2020 Annual Base Salary  

David Steinberg

   $ 750,000  

Steven Gerber

   $ 550,000  

Christopher Greiner

   $ 500,000  

 

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In April 2020, the board of directors determined to reduce the annual base salaries of certain senior employees, including our named executive officers, due to the economic effects of the COVID-19 pandemic on our business. The base salaries of our executives and other members of senior management were voluntarily reduced by approximately 10% and the base salaries and bonus of our other impacted employees were reduced by 5%. On April 1, 2020, our employees, other than Mr. Steinberg and Mr. Gerber, were granted restricted stock awards as additional compensation for reduced base salaries in 2020. See “Equity Compensation” below for a description of these awards granted to our named executive officers. Effective January 1, 2021 the annual base salaries of our employees were reinstated. The above table reflects the 2020 base salary prior to the 10% reduction.

2020 Bonuses

We provide annual bonuses designed to motivate and reward our executives, including our named executive officers, for achievements relative to certain company performance metrics for the year. For 2020, the target bonus opportunity for Mr. Steinberg, Mr. Gerber and Mr. Greiner was $750,000, $500,000, and $500,000, respectively.

Our board determines the bonus amounts for our executives, including our named executive officers, based on company performance against pre-established objectives and retains discretion to allow for individual adjustments based on such factors as it deems appropriate. Our corporate performance objectives for 2020 generally related to certain financial and operational performance metrics and the company’s actual performance as compared against 2020 budget. In assessing our named executive officers’ 2020 bonuses, the board also considered the company’s performance in light of the COVID-19 pandemic.

The annual bonuses awarded to our named executive officers for 2020 performance are set forth above in the 2020 Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”

Equity Compensation

The following table sets forth the restricted stock awards granted to our named executive officers during 2020 as the long-term incentive component of our compensation program. These restricted stock awards do not vest until the occurrence of a change in control, with 25% of the shares immediately vesting upon a change in control and the remaining 75% of the shares vesting in equal quarterly installments over the remaining portion of a five (5) year period measured from the original date of grant. The restricted stock will fully vest upon a change in control to the extent five years has passed from the original date of grant of the restricted stock. This offering is not a change of control event as defined in the 2017 Plan and 2008 Plan. The following table sets forth the restricted stock awards granted to our named executive officers during 2020.

 

Named Executive Officer

   2020 Restricted Stock Awards Granted
     February 2020   April 2020   September
2020

David Steinberg

   —     —     1,510,659(1)

Steven Gerber

   —     —     492,000

Christopher Greiner

   2,216,724 (2)   13,420 (3)   328,000

 

(1)

Amounts for Mr. Steinberg, as shown in the tables above and below, represent a reduction from the original grants we made to Mr. Steinberg. This reduction is the result of a determination by our board of directors that certain shares of our Class A common stock were granted to Mr. Steinberg in lieu of adjustments to the conversion price of preferred shares held by Mr. Steinberg. Our board of directors determined that these shares were issued in error and approved their cancellation. Mr. Steinberg agreed to such cancellation.

(2)

Represents a sign-on grant made to Mr. Greiner in connection with commencement of his employment.

(3)

Represents the restricted stock award granted as additional compensation for the general reduction in annual base salary that occurred during 2020.

 

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Treatment of Equity Awards in Connection with this Offering. In connection with this offering, certain holders of outstanding restricted stock and restricted stock units were offered the opportunity to vest in a portion of their outstanding restricted stock and restricted stock units and to sell such vested shares back to us in connection with the offering. For additional information regarding the treatment of outstanding equity awards in connection with this offering, please see the section titled “Incentive Compensation Plans—Treatment of Equity Awards in Connection with this Offering” below.

The outstanding restricted stock awards held by our named executive officers were amended in connection with this offering so that the named executive officers will vest in a portion of such awards in connection with this offering in the following amounts: approximately 3% for Mr. Steinberg, approximately 6% for Mr. Gerber (12% if overallotment is exercised) and approximately 7% for Mr. Greiner (11% if overallotment is exercised). Certain shares resulting from the vesting of such restricted stock awards will be purchased by us in connection with this offering and may also be sold by the named executive officers in the event the underwriters exercise their option to purchase additional shares in this offering. For additional information, see “Certain Relationships and Related Party Transactions – Stock Repurchase” and “Underwriters” below. For additional information regarding the vesting of outstanding restricted stock awards held by our named executive officers following this offering see “New Employment Agreement with Mr. Steinberg” and “New Employment Agreements with Mr. Gerber and Mr. Greiner” below.

Future Equity Compensation Programs. We intend to adopt a 2021 Incentive Award Plan, referred to below as the 2021 Plan, in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success. We expect that the 2021 Plan will be effective on the day prior to the first public trading date of our Class A common stock. For additional information about the 2021 Plan, please see the section titled “—Incentive Compensation Plans” below. In connection with this offering, we intend to grant shares of restricted stock to Mr. Steinberg (700,000 shares of our Class B common stock), Mr. Gerber (100,000 shares of our Class A common stock) and Mr. Greiner (100,000 shares of our Class A common stock), which shares of restricted stock will vest as to 25% of the shares on the 12-month anniversary of the grant date and the remaining 75% of the shares will vest quarterly thereafter over three years.

Other Elements of Compensation

Retirement Plans

We currently maintain a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Currently, we match 25% of contributions made by participants in the 401(k) plan up to 6% of the employee contributions, and these matching contributions vest over a period of four years. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan, and making matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.

Employee Benefits and Perquisites

All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including medical, dental and vision benefits; medical and dependent care flexible spending accounts; short-term and long-term disability insurance; and life insurance.

In addition, we provide Mr. Steinberg with certain limited executive perquisites, which for 2020 included expenses associated with a company-provided corporate apartment and a temporary remote office used primarily

 

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for business purposes. The amounts paid pursuant to these arrangements for 2020 are included in the “All Other Compensation” column of the 2020 Summary Compensation Table above.

We believe the perquisites and other benefits described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the number of shares of Class A common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2020.

 

            Stock Awards  

Name

   Grant Date      Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other Rights
That Have Not
Vested (#)(1)(2)
     Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other Rights
That Have Not
Vested ($)(3)
 

David Steinberg

     12/30/2011        119,737        905,212  
     2/9/2012        5,190,960        39,243,658  
     11/6/2013        4,212,319        31,845,132  
     12/11/2014        3,885,477        29,374,206  
     3/15/2016        1,967,214        14,872,138  
     4/20/2017        2,010,572        15,199,924  
     2/12/2018        2,008,387        15,183,406  
     6/30/2019        2,120,670        16,032,265  
     9/1/2020        1,510,659        11,420,582  

Steven Gerber

     8/18/2009        100,000        756,000  
     2/09/2012        365,945        2,766,544  
     2/12/2013        200,000        1,512,000  
     9/8/2014        501,000        3,787,560  
     12/11/2014        500,000        3,780,000  
     3/15/2016        455,981        3,447,216  
     4/20/2017        500,000        3,780,000  
     2/12/2018        500,000        3,780,000  
     6/30/2019        550,000        4,158,000  
     9/1/2020        492,000        3,719,520  

Christopher Greiner

     2/17/2020        2,216,724        16,758,433  
     4/1/2020        13,420        101,455  
     9/1/2020        328,000        2,479,680  

 

 

(1)