IZEA Worldwide, Inc.
Q3 2020 Earnings Call Transcript

Published: 12 Nov 2020

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the IZEA Worldwide, Inc., Third Quarter 2020 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. I would now like to turn the conference over to Ryan Schram, Chief Operating Officer. Please go ahead.

[Ryan Schram:]

Good afternoon and welcome to IZEA’s Q3 2020 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA. And joining me today is IZEA Interim Chief Financial Officer, LeAnn Hitchcock and IZEA Chairman and Chief Executive Officer, Ted Murphy. Thanks for being with us.

[LeAnn Hitchcock:]

Thank you, Ryan. Good afternoon, everyone. Let’s begin with a summary of our results for the third quarter ended September 30. For the 3 months ended September 30, 2020, IZEA reported total revenues of $4 million compared with $3.5 million coming from our managed service business and $522,000 coming from our SaaS offerings. We saw a $44,000 or 1% decrease in our managed service revenue and a $331,000 decline in our SaaS service revenue in Q3 2020 as compared to Q3 2019. Although there was a slight $44,000 decline in the Q3 2020 managed service revenue compared to Q3 2019, we were pleased to see revenue from managed services increase by $1 million or nearly 41% compared to our second quarter of 2020, which was greatly affected by the initial uncertainty surrounding COVID-19. Larger concentrated marketers are beginning to spend again, but there is still hesitancy to spend amounts of typical annual events that may change as a result of COVID-19 uncertainties such as back-to-school campaigns. Despite the delay in the execution of existing orders from our customers, we have seen a slight increase in net sales orders in the third quarter of 2020 compared to the second quarter of 2020 as marketers who are still advertising shifted more of their spend to influence their marketing campaigns.

[Ryan Schram:]

Thanks, LeAnn. Don’t let the urgent drive out the important. These are wise words our industry contemporary, Marissa Mayer once said, and it particularly resonated with me and our team given the extraordinary events we are living through and navigating as a business. With the constant macroeconomic and public health funnels, at times, each business day of 2020 has felt like a week, each week a month. And yet by focusing on the things we can control, Team IZEA has demonstrably been able to hone in on those important factors, driving meaningful results, particularly during this third quarter. A benchmark of successful businesses is not just the new customers that you secure, but how well you retain and roll them over time. At the center of the COVID crisis, cognizant of the broader market landscape could be unpredictable and inconsistent for new business efforts. Our experienced professionals focused on extending our existing client relationships, especially those in key sectors, such as home entertainment, high frequency consumer packaged goods, and direct-to-consumer e-commerce that were bolstered by the pandemic and related to that home dynamics. Those factors, combined with brands needs to redirect their market expenditures, allowed IZEA to enjoy the benefits of having high impact campaigns within a medium such as influencer marketing that reached consumers outside of conventional approaches. We believe that post-pandemic these changes in strategy could be one felt, especially given how value is created and a well rounded strategic investment placed into the greater economy compared to the old extensive quarters of media such as television or out of home, influencer marketing not only is more cost effective, it delivers a longer lifetime value through highly measurable results. So, what happens when you pair a world class client service from IZEA’s team of professionals with brands who want to take full advantage of the changing climate and the hottest social platforms? Well, for starters, unprecedented scale and consumer engagement. Recently, NPR’s Morning Edition, studied that the popular children’s YouTube video and brainwashing airborne Baby Shark had become the platform’s most viewed clip of all time, with 7.05 billion views, not too shabby. But here is the other part of the story. Highly snackable and sharable content on platforms such as TikTok are rewriting the rules of what is considered normal and shattering previous measurement records as a result. Our clients realize this may work with our team for the direct-to-home release of Scoob, it’s addictive TikTok dance, choreographed by famed Renegade influencer, Jalaiah Harmon has racked up 7.2 billion global views and counting since its campaign’s launch earlier this year.

[Ted Murphy:]

Thank you, Ryan. I appreciate the hard work that you, LeAnn and the rest of team IZEA, have put forward to continually evolve our company in these unprecedented times. I am excited about the progress and changes we have made and the positive impacts that they have had on the bottom line. On our last call, I spoke about the headwinds that we are seeing for enterprise SaaS and caution that this line of our business would likely continue to face challenges over the coming quarters. While we have started to collect some enterprise wins again, the macro climate for enterprise MarTech software is dramatically different than it was at the beginning of this year. Marketing budgets have shrunk, teams have been consolidated and many are taking a wait and see approach before making new long-term commitments. Fortunately, IZEA has been focused on a much broader strategic vision for sometime now and we are starting to capitalize on some of the investments we have made to diversify and scale our customer base with a variety of revenue streams. IZEA’s vision has always been to connect the buyers and sellers who drive the creator economy forward. Our goal is for both parties to financially benefit by transacting and collaborating with each other. During our Shake streaming event last month, I outlined the pillars of that vision and our intent to make IZEA technology platforms available and affordable for the broadest base of customers possible. I am excited to share that we are making progress. We continue to see growth with IZEAx discovery, our self service offering. At the end of Q2, we shared that we had hit an all-time record number of customers licensing our software. Due to this credit card driven platform, this trend has continued in Q3. IZEAx Discovery has seen remarkable resilience since COVID. As a result, we ended Q3 with the highest number of active software customers we have ever had.

[Operator:]

The first question comes from Graham Hickman with Ladenburg Thalmann. Please go ahead.

[Graham Hickman:]

Yes, hi, guys. Thanks for taking my questions. Just a few here. If you could maybe talk about the dynamic of new SaaS customers like there has been the decline in SaaS revenue, but you have picked up new SaaS customers as you have broadened your scope into the self-service platform. If you could maybe talk about kind of how you see that evolving over the next call it year or what we see as the vision for that? Should we expect those customers to kind of a land-and-expand approach or how are you thinking about that?

[Ted Murphy:]

Yes. The customers that we are talking about, that we have been adding are primarily customers that are using IZEAx Discovery, that platform retails for $149 a month versus our enterprise suite, which averages in the mid-2000s. So, you need many more customers that are licensing the Discovery offering versus the Unity Suite offering. Right now, the enterprise customers are much more difficult sale for us. It is a much slower process, you are talking about longer commitments and larger spends that really need to be made in order to warrant the license for that. So we think that that’s going to likely be challenged here for the next couple of quarters, where we are seeing the growth is the lower price point and it’s frankly much easier for us to market that product and add additional customers, because people are able to come in, use a credit card without any sort of long-term commitments or spending tens of thousands of dollars on licensing.

[Graham Hickman:]

Got it. Yes, that makes sense. And then maybe follow-up as you are talking with these customers and you have developed product, can you maybe talk about some of the lessons we have learned along the way in terms of what customers are looking for to the extent you can? So what have you learned as these developed new products kind of for a broader base?

[Ted Murphy:]

Yes. One of the things that we are seeing right now is that marketers have very different workflows and ways that they are using influencers as part of their overall marketing. Content has certainly become a big part of that strategy, where brands are looking to use influencer content to power their own social handles or produce content for their website, but every marketer is different in the way that they are utilizing influencers. And one of the things that we are really focused on is providing as much flexibility in our platform as possible, so that brands can really transact and manage their workflow in a way that makes sense for them and in many cases that requires us to kind of rethink the way that we have built out processes to allow customers to kind of jump in and jump out wherever they want.

[Graham Hickman:]

Got it. That’s helpful. Thanks. I would jump back.

[Ted Murphy:]

Thank you.

[Operator:]

The next question comes from Mike Jeffrey, a Private Investor. Please go ahead.

[Mike Jeffrey:]

Hello, everyone. My question is for Mr. Murphy. I have a few questions. The first one is that the reason that I call today is because I am really very, very much concerned about IZEA revenue decline quarter after quarter and then also IZEA’s stock price? And I think that the IZEA has been in business at least for 8 years or maybe longer and the price of the IZEA stock has come down from $500 in 2012 to less than $1 today and that really concerned me very much. And I wonder that what the management, including yourself Mr. Murphy, you have done to bring up the price of the IZEA stock? Because I think that the investors are very unhappy with the stock price and I know that you are working hard, the management is working hard, I understand that. But the thing is that if it’s not working, then maybe it should add some business to your business, such as hot businesses, such as cryptocurrency, blockchain. I know that in January of 2018, your intention was to get into that business and you announced it and I remember that, that day, the price of IZEA stock went from $4.50 to close to almost $8, almost doubled. So it seems that Wall Street really likes the idea of you getting into cryptocurrency, blockchain? So what was the reason that you changed your mind shortly after? And at that time, I remember that the Bitcoin prices, was about $10,000, $11,000. So what was the reason that at that time you wanted to get into that business and now, do you feel that it is better time to get into that business now that the price of the Bitcoin is over $16,000, which is much more than 3 years ago? And some experts are predicting that the prices of the Bitcoin, it might reach $250,000 in the next 2, 3 years? So, do you think that you might get into cryptocurrency blockchain business in the near future and if not, why not and why did you wanted to get into that business 3 years ago? And then I have another question.

[Ted Murphy:]

I appreciate your question. We have already addressed our concerns with cryptocurrency. There are still a lot of unanswered questions about crypto. And ultimately, we made the decision to focus on our core software and it’s not something that we are going to revisit at this time. Thank you.

[Operator:]

The next question comes from Andrew Hanna, a Private Investor. Please go ahead.

[Andrew Hanna:]

How are you guys doing? How are you doing, Ted? Hopefully, if it’s okay with you, we will just focus on right now and into the future, I don’t know about that last guy. But I had a quick question is in regards to Shake, I believe it’s unique and I think it has unlimited potential. My question is what are the team’s plans now and in the future obviously we want to get as many high profile people on to the platform as possible. I know that’s obviously the goal. But what plans does the team have to acquire more people and get them on to the Shake platform, getting more eyeballs on it and get – and get that movement of course as fast as possible, which I am sure we would all like? That’s it. Thank you.

[Ted Murphy:]

Thank you. That is a great question. I appreciate that. That is really what the marketing initiatives that we are kicking off today are all about. We are starting with an influencer marketing campaign that we are managing through IZEAx, we are supporting that with paid media, paid search and our intent is to really focus our marketing resources on both Shake and IZEAx Discovery for the foreseeable future. We are really trying to drive as much self-service revenue as we can, but I do want to address one of the things that you brought up and that our focus for Shake is not necessarily bringing on the highest profile people or the biggest influencers, who may command tens of thousands or in some cases, hundreds of thousands of dollars for a single post. We love working with those influencers in our managed services business, but those are not the types of – or these are not the types of influencers that are going to provide a lot of value to the platform in terms of actual revenue. It’s pretty unlikely that someone is going to come in and spend $50,000 through their credit card to hire one of these influencers. So, really the sweet spot that we see is somewhere in the $1,500 to $2,000 range, that’s really where we are going to focus on adding the most influencers that we can. And then recognizing to that, there are lot of nano influencers and micro influencers that can also transact on the platform and provide us a lot of volume as well.

[Andrew Hanna:]

Okay. And if you can still hear me also, as far as what about a brand ambassador, I mean, have you ever considered something like that, I understand exactly what you are saying makes perfect sense. We are trying to get the common man and woman on to the platform and obviously we all know social influencing is on the rise. It’s just tipping the scale. So I mean, we understand that there is a whole generation of young men and women that are just coming up. And that’s who we are trying to get on to the platform and build and they are going to grow themselves and maybe God knows how much they are going to grow. But what about as far as – has there ever been any thought by the team on maybe getting somebody just with a little bit high profile, just to attract attention to the platform itself and just kind of put out the word that you know what this is what it is, it’s social influencing. This is the new way to market, which we all know. This is, in the advertising business, this is the sector to be in and to try to grow? Has there been any thoughts on possibly getting somebody like that, like just somebody who can yes, disrupt the brand and say you know what this is what social influencing is and for people that aren’t doing it, to make them aware that this does have potential in this, you can actually make a living, whether it’s a side hustle, whether you are growing into something that is just this is your career, is just to kind of ask somebody like Shake and set it aside and put Shake on a pedestal. And that’s it. I will leave it at that.

[Ted Murphy:]

Thank you so much. That is certainly something that we have discussed and is potentially on the table, but I will tell you that our primary focus is really on a larger group of ambassadors that we can engage in an ongoing way. And what we have found for our customers in doing these transactions over the past 14 years that power middle really drives the value. The largest influencers are certainly exciting to work with and those deals get a lot of attention, but when you look at the cost per engagement, the cost per click and the value that is driven by an individual influencer, the campaigns that utilize large groups of people tend to drive the most success for the brands that we are working with. So, that has really been our strategy. That’s not to say that we might not mix it up like we do for many of our customers. But right now we are starting with a larger group of ambassadors.

[Andrew Hanna:]

Fair enough. Thank you. I appreciate your time.

[Ted Murphy:]

Thank you.

[Operator:]

There are no questioners in queue. This concludes the question-and-answer session. I would like to turn the conference back over to Ryan Schram for any closing remarks.

[Ryan Schram:]

I would like to thank everyone for joining us this afternoon. And as a reminder, all of IZEA’s Investor Relations information can be found online on our website at izea.com/investors. Thank you again for joining us. Please stay safe and stay healthy. We will talk to you soon.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.