IZEA Worldwide Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 6 speakers on the call.

Operator

Good afternoon and welcome to IZEA's earnings call covering the Q3 of 2023. I'm Ryan Schram, President and Chief Operating Officer at IZEA. And joining me on the call are IZEA Chief Financial Officer, Peter Biri and IZEA Founder Chief Executive Officer, Ted Murphy. Thanks for being with us today. Earlier this afternoon, the company issued and press release detailing our performance for the Q3 of 2023.

Operator

If you'd like to review those details, all of our investor information can be found online on our Investor Relations website at izea.com/investors. Before we begin, please take note of the Safe Harbor paragraph included in today's press release covering IZEA's financial results. And be advised that some of the statements that we made today regarding our business, operations and financial performance may be considered forward looking and such statements may involve a number of risks and uncertainties that could cause actual results to differ materially. We encourage you to consider these disclosures contained in our SEC filings for a detailed discussion of these factors. Our commentary today will also include the non GAAP financial measure of adjusted EBITDA.

Operator

Reconciliations between GAAP and non GAAP metrics for our reported results can also be found in our earnings release issued earlier today and in our publicly available filings. With that, I'm pleased to introduce IZEA's Chief Financial Officer, Peter Biry. Peter?

Speaker 1

Thank you, Ryan, and good afternoon, everyone. I'll review operating results for the quarter ended September 30, 2023 compared to the prior year's quarter and discuss our balance sheet highlights. Total revenue for the Q3 of 2023 was 7,900,000 27.1 percent or $2,900,000 lower than the prior year quarter. Our net cash loss or EBITDA was negative 1 point $5,000,000 for the quarter compared to negative $600,000 for the prior year quarter. Our net loss in the current quarter totaled 2,000,000 or $0.13 per share on 15,500,000 shares compared to a loss of $900,000 or $0.06 per share On 15,600,000 shares.

Speaker 1

These share counts are adjusted for our June 2023 4 for 1 reverse split. Managed services bookings for the 3rd quarter totaled $7,100,000 compared to $8,200,000 for the prior year's 3rd quarter, a 14.1% decline. Early this year, we announced that we are parting ways with 1 large customer, which I'll refer to as our Net bookings from this non recurring customer were a negative $281,000 for the current quarter As we completed remaining contract obligations and totaled $2,000,000 in the prior year's Q3. Stripping out bookings from this non recurring customer, ongoing customer bookings, including existing and new customers, totaled $7,300,000 in the current quarter, 18.2% above the prior year's 3rd quarter total of 6,200,000 Our order count from ongoing customers in the current quarter was 7% below the prior year quarter. However, the average order size increased 28% resulting in our quarterly bookings growth.

Speaker 1

Managed services revenue totaled $7,800,000 during the Q3 of 2023, which was $2,600,000 or 25.2 percent below the Q3 of 2022. Revenue from our non recurring customer totaled $900,000 in the current quarter and $3,300,000 in the prior year's Q3, declining 71.8% and explaining most of the comparative revenue decline in the current quarter. Managed services revenue from our ongoing customers totaled $6,900,000 during the current quarter, 3.9% lower than the Previous year's Q3 which totaled $7,200,000 The delivery time between bookings and revenues has improved to about 7.5 months from approximately 9 months through the Q2 of this year. Our managed services backlog, which Represents the total of unrecognized revenue for contracts that are underway as well as recent bookings that we haven't started to invoice Total $12,000,000 on September 30, 2023. Backlog associated with our non recurring customer is now less than 500,000 and will be recognized in the Q4.

Speaker 1

SaaS service revenues totaled $100,000 for the Q3 of 2023, down 83.7 percent from $400,000 in the prior year Q3. We previously announced that our IZEAx platform would be sunset during the Q2 of 2023 in favor of a new Feature rich platform we call Flex, which together with the creator marketplace launched in October of 2022, we expect to provide IZEA with license and transaction fee revenue growth opportunity. The cost of license access is considerably cheaper than our previous enterprise license fees for IZEAx, which means that as our subscriber base grows, related revenues will grow at a slower pace. Our total cost of revenue was $4,700,000 in Q3 or 59.3 percent of revenue compared to 6.6 or 60.9 percent of revenue in the prior year quarter. Our blended gross margin, excluding labor costs, Showed improvement in the current quarter as revenues from our non recurring customer wind down.

Speaker 1

The mix of revenues from this non recurring customer has Our overall gross margin by about 20% on average for approximately 6 quarters through mid-twenty 23. Expenses other than the cost of revenue totaled $5,900,000 for the Q3 of 2023, up 5.3 percent from $5,600,000 in the prior year quarter. Sales and marketing costs totaled $2,700,000 during the 3rd quarter, Up 7.9% to the prior year quarter, primarily due to higher spending And awareness and demand generation activities to drive bookings growth. General and administrative costs totaled $3,000,000 during the 3rd quarter, up 3.6% from the prior year quarter due primarily to higher web hosting fees offset by lower accounting and professional fees. Our net loss was $2,000,000 for the Q3 of 2023 or negative $0.13 per share compared to a net loss of $900,000 in the prior year quarter or negative $0.06 per share.

Speaker 1

Adjusted EBITDA was negative $1,500,000 for the Q3 of 2023 compared to negative $600,000 for the prior year quarter. The change in EBITDA was primarily due to lower gross margin dollars. As of September 30, 2023, we had $2,700,000 in cash and investments. That's $2,400,000 lower than the beginning of the quarter, primarily due to negative EBITDA, Our share buyback and additions to working capital. We earned $700,000 in interest on our investments during the Q3.

Speaker 1

And lastly, we do not have any debt on our balance sheet. With cash on hand and liquidity from our investment portfolio as required, we believe that we're in a solid position Our business growth and opportunities that may lay ahead. With that, I'll turn the call back over to Ryan.

Operator

Thanks, Peter, and hello again, everyone. I want to provide a series of updates covering innovation, marketing, sales and industry honors pertaining to the Q3. First, let's start with highlighting the industry innovation brought forward by our continued investments in technology. This is best represented outward through IZEA's differentiated portfolio of enterprise software and marketplace products, IZEA Flex, the Creator Marketplace and Form AI for creators. For brands and agencies who have an in house team of influencer marketing experts, IZEA Flex provides those power users with best in class price to value and a flexible toolset that makes their workdays more efficient by reducing manual tasks.

Operator

During the Q3, we added multiple new features requested by customers, including verified Google Mail integration, comprehensive influencer marketing expense management and end to end creator offer negotiation to make the manual back and forth less stressful for everyone involved. Within our industry first Form AI offering, IZEA launched free access to OpenAI's Chat GPT 4 for all creators. This enables influencers and creators alike, a broad set of added benefits to expedite the way they imagine their outputs. From photos and videos to developing better copy, bringing together the best of Form AI with OpenAI just made sense. Giving it an affordable price point and universal access only bolsters its long term potential as an added growth vehicle for our software unit by continuing to diversify IZEA's customer base and increased overall stickiness to IZEA products and services.

Operator

Our product engineering team delivered all of these initiatives while simultaneously reducing its overall expenditure through a combination of organizational design efficiency, decreasing infrastructure costs and gaining new forms of operational leverage. As we look ahead, there is conviction that there are further ways this Business Unit can continue to deliver increased savings while maintaining the level of quality and innovation our customers are used to. Let's turn our attention to our IZEA everywhere marketing strategy, which we've referred to in previous earnings updates. We have been very pleased with the work our team has done across the course of 2023. IZEA has no doubt elevated its top of mind awareness with new and existing customers alike, thanks to these important investments paired with strong execution.

Operator

Across the board, the metrics that matter have all materially improved this year. Inbound opportunity leads, record site traffic to izea.com and record new user sign ups for our various software offerings. Best of all, the industry is also taking note. In August, IZEA was named Best Influencer Marketing Company in the 2023 Martech Breakthrough Awards on top of multiple honors for individual campaign work across the course of the year, some as recent as last month. Not surprisingly, Given that performance at the top of the funnel, we are seeing meaningful evidence of positive impact across the organization.

Operator

Within our managed services business unit, September was our highest new opportunity pipeline generation month in company history, followed by our 2nd biggest month just last month in October. Bookings are up outside of 1 outsized customer and we even expect to see our gross margins increase over the course of the coming quarters. In addition, we believe there is additional approaches via economic models to serve clients while unlocking other sources of added revenue for managed services on a go forward basis. These new ways of working are rooted in forming longer term relationships with brands and agencies, while also making the process of buying from IZEA easier than ever before. There is more to come in future calls, but But our team is actively trialing these efforts with clients to set ourselves up for a strong 2024 with a return to growth.

Operator

For his commentary on the Q3, I'd now like to turn the call over to IZEA's Founder, Chairman and CEO, Ted Murphy. Ted?

Speaker 2

Thank you, Ryan. I would like to take this opportunity to reflect on the strategic vision we set forth back in December of 2019. Before the world encountered the unprecedented challenges brought about by COVID-nineteen. Our objective was ambitious yet clear to achieve an average annual revenue growth of 30%, aiming for a milestone of $38,000,000 in revenue by the year 2023. Although 2019 seems like it was just yesterday, the world has experienced a myriad of significant events since then.

Speaker 2

We have navigated through a global health crisis, economic instability and a series of geopolitical conflicts that have collectively impacted the global economic landscape. Despite these macro challenges, The most significant direct impacts on our company in 2023 have come from more tangible and immediate factors. As Ryan highlighted earlier, one of the major events for us this year was the conclusion of our partnership with a major customer. This client had a disproportionate influence on our bookings and revenue streams, albeit contributing lower margins and a slower cash flow compared to our broader customer base. While this separation had an immediate effect on our financials, It was a move towards fostering a healthier, more sustainable business model focused on customers that are better aligned with IZEA's objectives.

Speaker 2

This year marked a strategic pivot for our company as we decided to sunset IZEAx and introduced IZEA Flex. Flex represents our next generation, lower cost enterprise influencer software platform, which we believe is the foundation of our future. This rapid platform transition was executed with the foresight of its short term implications on our SaaS revenue and customer metrics. Our revenue shortfall versus 2022 is not insignificant and we are actively pursuing strategies to mitigate this year over year decrease. However, I'm pleased to report that despite these challenges, We are poised to closely approach the $38,000,000 revenue target set back in 2019.

Speaker 2

Beyond 2023, we are confident that the proactive measures we have put in place will not only offset the current deficit, but will also propel us into an accelerated bookings growth trajectory in 2024. Our team has been relentlessly working throughout 2023 to expand our core business and strengthen our competitive position in the market. We've been laying the groundwork for what we anticipate to be a materially transformative phase for our company and have identified both organic and inorganic catalysts to propel us forward. This year, we brought on board a new Head of Growth whose primary focus is to drive organic revenue. We have restructured our product organization to enhance agility in software development and simultaneously reduced operational costs.

Speaker 2

We have strategically expanded our sales footprint, establishing a presence in Korea and building upon our market entries into China and the UK from the previous year. In addition to these growth initiatives, we have fortified our finance and legal teams to provide superior service to our clients and to navigate the evolving landscape with agility and foresight. And in a significant move to signal our commitment to growth through consolidation, We have appointed our 1st team member dedicated to mergers and acquisitions. As the year has unfolded, we have observed a growing trend in M and A activity within our industry sector. With a solid cash reserve and a public market currency, We are uniquely positioned to act as a consolidator, integrating creator economy centric companies of varying sizes.

Speaker 2

Our M and A philosophy is to engage in accretive transactions. We are not interested in ventures that are hemorrhaging cash or present untenable risks. Our targets are companies with stable operations that are near a breakeven point or EBITDA positive today with the prospect of growth and consolidating expenses to achieve synergies post acquisition. Maintaining our strong balance sheet is a priority. We intend to structure transactions in a manner that aligns the interest of the acquired company's management with sustained growth, tying the majority of their compensation to performance milestones reached in the 2nd 3rd years following the close of the deal.

Speaker 2

Our strategy for growth is twofold, encompassing both organic expansion and strategic acquisitions. By cultivating organic growth, We are focusing on enhancing our product offerings, improving customer experience and entering new markets, enabling us to execute larger global campaigns with increased efficiency and creativity. Concurrently, our acquisition strategy is designed to integrate companies that not only complement IZEA's existing services, but also bring new customer segments and specialized expertise from across the broader creator economy to our portfolio. This dual approach ensures that we can service niche categories effectively, catering to specific market needs, while also expanding our overall market reach. Both strategies are aligned with our goal of customer diversification.

Speaker 2

We are committed to avoiding over reliance on any single customer or sector, aiming instead for a broad and varied clientele that spans different sizes, sectors and geographic regions. This breadth will not only mitigate risk, but will also solidify our presence as a versatile and resilient global player in the market capable of weathering industry fluctuations and capitalizing on emerging opportunities. Thank you all for joining us today. I would like to open the floor to questions from the analyst community.

Speaker 3

Thank you. Ladies and gentlemen, Our first question is from Jon Hickman with Ladenburg. Please go

Speaker 4

ahead. Hello. Hey, Can you elaborate on these comments about the new opportunity pipeline? How does that work into actual bookings?

Speaker 5

John, the new opportunity pipeline is the opportunities that we've identified with customers where we have active proposals and dollars associated to those proposals. So it's the very top of the funnel. We have a customer that comes in as A lead, we began working with them to put a proposal in front of them. That's the new The pipeline that Brian was speaking about. So theoretically, those should translate into bookings?

Speaker 5

Yes. The way that that funnel works is that the new opportunity pipeline then goes into bookings, which Then translates ultimately to revenue. So the question is the close rate On the new opportunity pipeline that we have, but the past 2 months were records for us.

Speaker 4

On the record for the close rate?

Speaker 5

Records for the gross Amount of the pipeline, and then it takes some time to work through the pipeline itself and figure out whether those deals close or not.

Speaker 4

So, can you tell us now that that unnamed big customer is out of the picture, What's the percentage of bookings that actually get done in the quarter? And once upon a time, it was around, I don't know, 60% and then it dropped a lot with that big customer. What is it now?

Speaker 5

Are you talking about the amount of time for a booking to turn into revenue? Yes. Peter mentioned that I believe it's about 7.5 months now.

Speaker 4

Okay. And Yes. Okay. And then, so From your comments, you've actually brought somebody on as a business development person. That's their only function?

Speaker 5

Yes, we have a team member now who is squarely focused on M and A activity.

Speaker 4

Okay. Thanks. That's it for me.

Speaker 2

Thank you, John.

Speaker 3

As there are no further questions, I would now hand the conference over to Ryan Schramm for any closing comments. Ryan?

Operator

We'd like to thank everyone for joining us this afternoon. And as a reminder, you can follow all of IZEA's investor information, including all press releases at izea.com/investors. Thanks again for joining us. We'll talk to you soon.

Speaker 3

Thank you. The conference of IZEA Inc. Has now concluded. Thank you for your participation. You may now

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IZEA Worldwide Q3 2023
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