IZEA Worldwide, Inc.
Q2 2022 Earnings Call Transcript

Published: 15 Aug 2022

[Operator:]

Greetings. Welcome to IZEA Worldwide, Inc., Second Quarter 2022 Earnings Call. [Operator Instructions]. Please note this call is being recorded. I will now turn the conference over to Ryan Schram, President and Chief Operating Officer. Thank you. You may begin.

[Ryan Schram:]

Good afternoon, everyone, and thanks for joining us for IZEA's earnings call covering the second quarter of 2022. I'm Ryan Schram, President and Chief Operating Officer at IZEA. And joining me on the call is IZEA Chief Financial Officer, Peter Biere; and IZEA Founder, Chairman and Chief Executive Officer, Ted Murphy. We're glad to have you with us today. Earlier this afternoon, the company issued a press release with details pertaining to our second quarter performance for the fiscal year 2022. 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 the company's financial results and be advised that during today's earnings call our management team will discuss IZEA's financial outlook and make forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause our actual results to differ materially from expectations and the assumptions we mention today. We encourage you to consider the disclosures contained in our SEC filings for a detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or further events, except as required by law. Our commentary today will also include the non-GAAP financial measure of adjusted EBITDA. Reconciliation between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued earlier today as well as in our publicly available filings. And with that, I'm pleased to turn things over to my colleague and IZEA's Chief Financial Officer, Peter Biere. Peter?

[Peter Biere:]

Thank you, Ryan, and good afternoon, everyone. I'd like to review operating results and highlight our financial accomplishments for the second quarter. Revenue for the second quarter of 2022 totaled $12.6 million, which was 96% higher than Q2 of 2021. Managed Services revenue totaled $12.2 million during the second quarter of 2022, a record for IZEA and 103% growth over the prior year quarter. We recorded $400,000 in net revenue from our SaaS offerings during the current quarter, down 5.6% from the prior year quarter. Managed Services revenue, which more than doubled in the second quarter from the prior year, included $5.3 million in 1 large customer contract, $2.3 million of which is catch-up from prior quarters production delays. The catch-up isn't run rate revenue and, as such, won't repeat in the following quarter. Strong sequential quarterly bookings also contributed to revenue growth in the second quarter. As we previously announced, Managed Services bookings, a key metric measuring sales orders net of cancellations and refunds during the period, totaled $9.3 million for the second quarter of 2022, off about 16% from Q2 of 2021. The bookings decline is partly related to large contract bookings which tend to be lumpy. We also experienced a bookings slowdown late in the second quarter due to a few delayed customer commitments over economic concerns. While some of these delayed opportunities closed after the end of the quarter and while economic uncertainties remain, we expect to have strong bookings in the third quarter. Our Managed Services backlog, which represents the total of unrecognized revenue for contracts that are underway as well as recent bookings that have yet to begun invoicing, totaled $25 million on June 30, 2022. We expect to record most of this backlog as revenue in the following 3 quarters. SaaS Services revenue, consisting of license fees, self-service marketplace spend fees and other fees, declined by $27,000 during the second quarter of 2022 from the prior year quarter. Total license counts on all platforms during the same time period declined by 7%, revenue from license fees declined by 3% from the comparative quarter, while gross marketplace spend fees fell 26%. Gross billings for SaaS Services were relatively flat from the prior year quarter, indicating that the marketplace fees decline was due to lower average fees. Our cost of revenue was $7.2 million in Q2 of 2022, or 57% of revenue. That compares to $3.2 million, or 50% of revenue, in the prior year quarter. Accordingly, gross margin in the second quarter averaged 43%, compared to 50% in the prior year quarter. The increase in the cost of revenue was primarily due to higher delivery costs on 1 large customer contract which made up 42% of total revenues during the second quarter of 2022. This significant contract aside, the cost of revenue for our other customer contracts was within recent historical range, between 55% and 60%. Expenses other than the cost of revenue totaled $5.8 million for the second quarter, compared to $5.3 million for the prior year quarter. Sales and marketing costs were comparatively flat, at $2.3 million in the second quarter of 2022. Increased headcount and related payroll costs associated with driving customer growth were offset by lower sales commissions that vary with bookings. General and administrative costs increased to $3.4 million during the current quarter, compared to $2.7 million in the prior year quarter, due primarily to higher compensation and contractor costs to support operations and product investment. Our net loss was $170,000 for the second quarter of 2022, or $0.00 per share, compared to a net loss of $158,000 in the prior year quarter, also $0.00 per share. In Q2 of '21, the net income included a $2 million onetime gain on the forgiveness of our COVID-related PPP loan. So without this onetime gain, our net loss narrowed by about $1.7 million quarter-over-quarter. Adjusted EBITDA was positive $254,000 for the second quarter of this year, compared to negative $1.5 million for the prior year quarter. As of June 30, 2022, we had $70.3 million in cash, including the portfolio investments we made during the quarter. That's down from $75.4 million at the beginning of the year, lower partly due to negative $1.9 million of adjusted EBITDA during the 6-month period, but also due to creator payments, in part, ahead of customer billings late in the quarter. I should add that we made $226,000 in interest income on our investments during the current quarter. Lastly, we do not have any debt on our balance sheet. In June of 2021, the company entered into an at-the-market sales agreement under which it may offer up to $100 million of its common stock from time to time. We've not sold any shares to date under that agreement. With cash on hand, any required liquidity from our investment portfolio, continued strong growth in our core business and a financing vehicle in place should we ever require it, we are in a solid position to execute on business growth and opportunities that may lay ahead. With that, I'll turn the call back over to Ryan.

[Ryan Schram:]

Thanks, Peter. The advertising industry continues to shift rapidly and is currently facing another cycle of unpredictability, given the macroeconomic climate of the last several months. To not just survive but thrive amidst change, our team has taken proactive steps to optimize our core operations, launch new products, sign new partnerships and align our resources internally accordingly. We're fortunate that our organization is filled with seasoned industry veterans who, for better or worse, have now navigated through numerous financial cycles across their careers. They understand the importance of being as in-tune as possible to the benefits change can bring to an industry if you're actually prepared to meet the moment. With regard to expenses, we continue to execute against a disciplined and prudent approach to cost management in light of the financial climate in the world around us. That's why we elected to implement proactive measures across the second quarter and into the present period, including, but not limited to, achieving OpEx savings by select personnel attrition, vendor and contractor expense reduction, pausing certain marketing efforts and lowering recurring software purchasing outlay. At the same time, the company also believes that the macroeconomic environment accentuates how important it is for us to continue to thoroughly invest in key growth platforms, as they serve to increase the absolute number of clients we interact with, differentiating IZEA from both an eminence and revenue standpoint. Over time, these effects can also stand to improve conversion rates and lower our customer acquisition cost holistically. Needless to say, this is an extremely important but also energizing time for IZEA. Our ability to constantly innovate to serve our clients better, particularly through challenging times, will allow us to capture market share across various lines of business. It's important to underscore that we have always taken a long-term view of our businesses, both philosophically and functionally. Through every cycle in our nearly 16-year history, from the Great Recession to the COVID pandemic to today, we have sought to adapt and emerge stronger as a result. And in uncertain times, history has shown that prudent investments into our own business are one of the best that we can make. Consequently, IZEA's flywheel is poised to spin faster than ever as we look ahead to the back half of this year and into 2023. As Ted will share in his remarks later, IZEA is well positioned to again revolutionize the modern influencer marketing industry we helped to create in more ways than ever before

[Edward Murphy:]

Thank you, Ryan. Before we look to the future, I would like to take a moment to reflect on the past. In 2016, when our company was the largest it has ever been, measured by employee count, our full year revenue was $21 million. Here in 2022, we are the largest we have ever been by a different measure

[Operator:]

[Operator Instructions]. Our first question is from Jon Hickman, with Ladenburg Thalmann.

[Jon Hickman:]

Okay. First of all, can I just go over this large customer and the $2 million that was kind of catch-up revenue? Theoretically, that revenue would have been recognized maybe in Q4 and Q1?

[Edward Murphy:]

Yes, spread over those quarters.

[Jon Hickman:]

Okay. But you got it all -- okay. And then -- and so that's not recurring. But are revenues from this large customer recurring in Q3?

[Edward Murphy:]

Yes, that customer continues to spend with us. It's just a question of how that revenue is recognized. So a lot of that is based on when influencers are actually activated, and that can change from time to time depending on the influencers and the initiatives of [indiscernible] customer.

[Jon Hickman:]

Okay. And the fact that you recognized this extra $2 million or this catch-up [indiscernible] money, that in and of itself did not affect the margins? It was just the campaign, in general?

[Edward Murphy:]

That does -- go ahead, Peter.

[Peter Biere:]

Sorry. Jon, the only thing that affected the margin was the concentration. So we had more lower-margin revenue from this customer then because of the catch-up adjustment, but that's the only reason.

[Jon Hickman:]

Okay. Then let's see. So from your comments, Ted, I'm trying to -- it sounds like your -- Ryan said you're going to be to judicious with your OpEx, but then you just indicated that you've recently hired some seasoned sales guys. Can you tell us how many?

[Edward Murphy:]

We're not giving specific numbers there. It's lower than 10. We're not talking about a huge increase necessarily in overall headcount, but where we are talking about is continuing to invest in sales personnel, in particular. So when we look at other parts of the organization, we're at a point now where we will likely be backfilling if there's attrition, but not really aggressively hiring too many more people in those roles.

[Jon Hickman:]

Okay. And then you've talked in the past about the new IZEAx platform, but you're not going to call it that. But what's the other status platform? What's that going to do for you [indiscernible]?

[Edward Murphy:]

Yes, there are two platforms that are going to be launching prior to year-end. You will have to wait and see for the announcement on those in terms of what they do, but we expect both of those to be launched here prior to the year-end.

[Operator:]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Ryan for closing remarks.

[Ryan Schram:]

Thanks, Sherry, and thank you, everyone, for joining us this afternoon. And as a friendly reminder, all of IZEA's investor information and related press releases and the company's latest news are available on our website, at izea.com/investors. Thanks again for joining us, and we'll talk to you soon.

[Operator:]

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.