IZEA Worldwide Inc (IZEA) 2015 Q4 法說會逐字稿

Greetings and welcome to the IZEA, Inc., full-year 2015 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Ryan Schram, Chief Operating Officer. Thank you. You may begin.

Good afternoon and welcome to IZEA's fiscal 2015 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA, and joining me on the call this afternoon are my colleagues, IZEA's Chief Financial Officer, LeAnn Hitchcock, and IZEA Founder, Chairman, and CEO Ted Murphy. On behalf of the entire team here at IZEA, we are very pleased to have you with us today as we share updates and perspective on our business.

During the course of today's call, our management team will discuss IZEA's business outlook and in the process of doing so will make some forward-looking statements regarding the Company. These statements are predictions based on the team's expectations as of today. Actual events or results could differ due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. The Company assumes no obligation to update any forward-looking statements made during today's call.

Now with the appropriate disclosures out of the way, I would like to introduce IZEA's Chief Financial Officer, LeAnn Hitchcock, to walk us through results from the fourth quarter of 2015 and a summary of the year in whole. LeAnn?

Thank you, Ryan, and good afternoon, everyone.

I am pleased to share that IZEA had another record-breaking quarter. IZEA reported record quarterly revenue, up 154% to $6.3 million, compared to $2.5 million in Q4 2014. This also represents a 15% increase over Q3 2015 revenue of $5.4 million. This increase is primarily attributable to the creation of our content-only revenue stream through the acquisition of Ebyline and continued increases in our existing sponsored social revenue.

Content revenue was $2.3 million, accounting for 37% of total revenues in the quarter. Sponsored social revenue was $4 million, accounting for 63% of total revenues in the quarter.

Net bookings increased 167% to $7.3 million, compared to $2.7 million in Q4 2014. A significant amount of business booked in Q4, including one order in excess of $1 million, was weighted towards the back half of the quarter. We are continuing to see larger deal sizes that are beginning to extend over longer periods of time, up to one year. As a result, much of the bookings were not recognized as revenue within the quarter.

At the end of the quarter, the Company had unearned revenue of $3.6 million, with an additional $3.8 million of booked business not yet billed, for a total of $7.4 million that is expected to result in future revenue.

Gross profit for the quarter was $2.7 million, up from $1.6 million in Q4 2014, an increase of 65%. This also represents a 24% increase over Q3 2015 gross profit of $2.2 million. The gross profit increase is attributable to the increase in revenue during the quarter, along with improved margins on that revenue from 40% in Q3 2015 to 43% in Q4 2015. Gross profit margin for the quarter of 43% is down from 66% as compared to the prior-year quarter. This is largely due to substantially lower profit margins on content revenue, specifically with newspaper customers.

Gross profit margin for the quarter for sponsored social revenue was 60%, while gross profit for content revenue was 14%. We expect margins on content revenue will continue to improve over time, due to growth in our managed services over the content business.

Operating expenses for the fourth quarter of 2015 were $5.1 million, compared to $2.8 million during the same period in 2014. Operating expenses increased as a result of a $1 million increase in personnel cost. We increased the average number of personnel by over 18%. Commission and bonus expenses also increased as a result of the increase in revenue. Marketing expenses increased primarily as a result of our IZEAFest conference held in Q4 2015.

Depreciation and amortization expense also increased, by approximately $400,000, as a result of the amortization of our software development cost and intangibles acquired in the Ebyline acquisition.

Our cash-based OpEx to revenue ratio continues to improve as we gain efficiencies through better performance and technology. Cash-based operating expense as a percentage of revenues are trending 33% better than in prior years. However, we still expect that growth in expenses will outpace the growth in our gross profit near term as we expand our personnel to support our managed content business and as we increase our engineering expenses to improve and support our Web-based platforms and IZEA partners. These investments are being made in order to provide the infrastructure to create continued revenue growth at higher margins in coming years.

Adjusted EBITDA for the quarter was a loss of $1.8 million, compared to a loss of $1 million during the same period last year. The decrease in EBITDA is primarily due to continued investments in new hires and increased marketing spend in Q4 2015.

Net loss for the fourth quarter of 2015 was $2.4 million, compared to net income of approximately $1 million in the fourth quarter of 2014. Diluted loss per common share for the fourth quarter of 2015 was negative $0.47, compared to diluted income per common share of $0.34 in the prior-year quarter. This is primarily due to a $2.2 million difference in the change in fair value of the Company's derivatives and the increase in personnel costs between the periods.

In July and August 2015, we offered a 25% to 26% discount on warrants that we had issued to investors in 2013 and 2014. On August 14, 2015, investors exercised warrants for a total of 2.2 million shares of common stock at a post reversed average exercise price of $5.87 per share. As a result of the warrant exercise, we received cash of nearly $12.9 million; recorded a loss on exchange of $1.8 million, due to the reduced exercise prices; and eliminated the $6.5 million warrant liability in Q3 2015.

This transaction, combined with our current operations during Q4 2015, resulted in cash and cash equivalent balance of $11.6 million, a positive working capital balance, and stockholders' equity of $14.2 million at December 31, 2015. In addition to our cash on hand, we still have a $5 million credit facility with Bridge Bank, which is currently untapped.

On January 11, 2016, we affected a 1 for 20 reverse stock split in order to allow our stock price to be trading at a level sufficient for us to trade on a national exchange. All share and share price amounts disclosed on this call and in our annual report for 2015 are adjusted to account for the effects of this reverse split.

The tremendous improvement in our financial position throughout 2015 and the reverse stock split allowed us to accomplish our goal to trade on a national exchange. On February 26, 2016, we completed the successful up-listing to the NASDAQ stock market where we rang the opening bell on March 4.

I will now pass it over to Ryan to speak about the brands and agencies we partnered with during our fourth quarter.

Thanks, LeAnn.

2015 was a remarkable springboard year for IZEA, fueled by three key tenets of our client development strategy. Number one, up-selling and cross-selling both influencer and concept marketing campaigns to our client base, both new and existing. Number two, expanding our quota-carrying sales team both domestically and abroad with solution-minded personnel. And number three, to capitalize on our ability to grow existing client relationships through delivering highly measurable results with a world-class customer experience.

I am pleased to report that our success in Q4 and the year as a whole in 2015 was thanks in part to our team executing against this plan, setting IZEA up for further growth again in 2016. This is the key as we look forward and aim to grow our annual bookings to $100 million by the end of 2018.

With bookings up 167% year over year to a record $7.3 million in the fourth quarter, we believe the performance in Q4 is indicative of a broader industry trend, the acknowledgment that quality content drives a level of engagement and value unlike anything seen from other traditional media or marketing investment. That dynamic enables our client development team to not only benefit from the windfall of dollars beginning to shift in our direction, but for IZEA's unique position as a technology company to provide compelling efficiencies that aren't available from traditional media companies or advertising agencies.

Our teams continue to benefit from another interesting nuance related to influencer and concept marketing, our ability to access budgets from a very wide range of end customers, from brand managers seeking to drive awareness and engagement to shopper marketing practitioners carving a path to purchase to public relations and corporate communications specialists charged with telling storyies in compelling ways through influential content.

All of these aspects make IZEA's unmatched offering a natural part of a brand playbook, which directly correlates to the larger deal sizes, expanded pipeline, and industry recognition the Company enjoyed in 2015.

To that point, the Company booked its first individual customer contract in excess of $1 million during the fourth quarter and has several others already in the pipeline for fiscal 2016.

We were also very fortunate that even though the Company grew its total bookings substantially year over year, over 60% of those dollars came from our loyal existing clients. Many of these companies are brands you know and love, including Clorox, Disney, Hershey, Nationwide, Procter & Gamble, UPS, and Wendy's. Our client development organization was equally proud to welcome many new brands to the IZEA family during the quarter, including Cox Media, Hyatt, Marzetti's, and Viacom.

On the topic of recognition, on January 14 IZEA was named the recipient of Frost & Sullivan's 2015 North American Social Media Marketing Customer Value Leadership Award, underscoring the Company's investment in technological innovation and acknowledging our industry-leading focus on improving customer ROI. Ted and I were honored to accept the award on behalf of the Company at a black-tie function in San Diego, alongside many other global leaders.

Now, for some additional insight about the Company's performance in 2015 and a look at what's ahead for IZEA here in 2016, I will turn the call over to my colleague, our Chairman and Chief Executive Officer, Ted Murphy. Ted?

Thank you, Ryan.

In the beginning of 2015, the IZEA management team set out to achieve three core objectives. Our first objective was to grow IZEA's annual bookings to $25 million, a lofty target from just $9 million in bookings in 2014. We finished the year in line with that objective and, more importantly, have set the stage for continued growth this year.

Our second objective was to strengthen our overall financial position. To do that, we needed to bolster our balance sheet, reduce the warrant overhang, and address litigation. In August 2015, we both settled our patent dispute with Blue Calypso and closed on a $12.9 million warrant conversion. Not only did we receive 81.5% participation, it was accomplished by management without banking fees.

Our third objective was to get up-listed to NASDAQ. This goal was based in our desire to attract a broader and more diverse shareholder base and fulfill our contractual obligations to holders of our 2014 private placement. We started that process in July 2015. In January 2016, we effected a reverse split of our stock during one of the most tumultuous times in the market in recent history. But we were able to maintain the stock price and we began trading on NASDAQ in February 2016.

In addition to our execution against our core objectives, we also made significant progress in other areas of the Company. In January, we acquired Ebyline and began offering content marketing solutions. In August, we began initial sales operations in Canada. In October, we launched the IZEA Score Suite Beta content profiles, IZEA for iOS, and SocialLinks Beta with a eBay partnership and technology integration. In December, we licensed IZEAx to a global top 10 media company, as well as a large multinational advertising agency. In December, we also signed our first individual customer contract in excess of $1 million.

We grew the IZEA staff from 94 to 121 full-time team members, adding senior team members in sales and leadership, including Chris Staymates, VP of Engineering, and Sandra Carbone, General Counsel. We also grew the IZEAx network to 629,000 user connections, reaching 3.5 billion aggregate fans and followers.

Together, these milestones have dramatically altered our corporate profile with both our clients and our investors. I am proud of what we accomplished in 2015 and I commend our team for their hard work, dedication, and grit.

As I have communicated over the past year, our primary focus as an organization is on topline growth. That said, I want to reiterate that we remain respectful of the bottom line and are in a process of continual improvement and expense optimization. We are achieving efficiency by refining our technology to automate processes and investing in the betterment of our existing team members.

Nowhere is that more directly measurable than in the performance of our sales team. Our sales team is selling bigger deals, driving more repeat business, and capitalizing on the growing interest in both sponsored social and content marketing. Our average bookings per sales person in 2015 increased 117% over 2014 and our average bookings per all employees increased 84%, as well. Our average deal size grew 92% last year, reflecting our team's ability to command larger budgets and navigate increasingly complex sales opportunities.

While revenue increased 146% year over year, our cash-based OpEx only increased 67% and cash-based OpEx as a percentage of revenue decreased from 111% in 2014 to 75% in 2015. This includes $714,000 related to our legal fees and settlement agreement with Blue Calypso.

Moving forward, our legal fees will decrease significantly, allowing us to invest in areas of the business that are additive to our growth.

We believe the market opportunity for IZEA solutions is real and growing, as evidenced by both startup funding and acquisitions in the space. In order to maintain our leadership, we will need to put more distance between IZEA and a growing field of competitors seeking to secure a piece of the market we created.

As we look to 2016, we intend to continue our strategic investment in sales and technology ahead of revenue growth. This will result in losses throughout the year as we continue to scale our team.

From a spend perspective, we are comfortable with these investments resulting in a negative EBITDA of approximately $6.5 million in 2016. The majority of this cost is related to our significant investment in engineering and sales team members. Our goal is to grow our sales organization to approximately 65 people by the end of Q4 2016, up from an annualized average of 37 sales people in 2015. The cost of these new hires is absorbed for approximately 7 months ahead of their contribution to revenue growth.

We believe we have developed a comprehensive sales program that continues to improve in its ability to deliver returns for the Company. For every dollar we spent on sales salaries, commissions, and related payroll taxes in 2015, we generated $6.38 in revenue and $7.39 in bookings. The return on sales spend for bookings has increased 76% from $4.21 in 2014.

The majority of sales and technology investments we make this year will not have a significant impact on bookings or revenue in 2016. We're making investments this year with our eye on our goal of $100 million in bookings by 2018. Over the next three years, we expect organic bookings growth of 35% to 50% each year, resulting in organic bookings of $75 million to $85 million in 2018.

We expect to make two to five strategic acquisitions over the next three years, resulting in additional revenue of $15 million to $25 million. In 2016, we expect our organic bookings to be in the range of $33 million to $35 million.

As we continue to see larger deal sizes, we expect that the timeline from bookings to revenue recognition will expand. In 2016, we believe the weighted average will be approximately 120 days. As a result, we expect that revenue in 2016 will be in the range of $27 million to $30 million. This outlook is largely dependent on the timing of sales and length of the campaigns, which may range from one day to one year.

As IZEA continues to grow organically, we believe there is opportunity for us to consolidate synergistic companies, optimize them for efficiency, plug them into our sales force, and grow our footprint. We are in various stages of active due diligence with a handful of companies at the moment and have moved through the process without a transaction on many more. We are seeking companies that are aligned with our core business and complement our people and culture. Acquisitions must be accretive for our shareholders and make sense for IZEA within the construct of our own balance sheet and market cap.

As I shared in Q3, we believe that there will be limited growth of the newspaper-related editorial content business that represented the vast majority of Ebyline's historical revenue. However, we are seeing strong growth of content sales from our brand customers and expect the trend to continue for the foreseeable future.

We believe that the Ebyline acquisition was very positive for our Company in terms of revenue, creator network, and team members we added. Our total expected payment for the Ebyline acquisition will be $3.3 million for a business that has already generated $8 million in revenue and $10.2 million in bookings in only 11 months during 2015 alone.

IZEA has transformed this business by increasing margin, targeting new customers, and driving sales through our team. In the first quarter of 2015, the gross profit margin on content sales was 10% and we ended Q4 2015 with a gross profit margin on content sales of 14%, and we believe there is still significant room for growth as we build the business within the IZEA model.

As a result of our changing revenue mix, we believe we will continue to see total gross profit margins that are between 38% and 41% in 2016.

Not only are we making progress with clients, we're also making progress with partners. In Q4 2015, we signed two significant new IZEAx partnerships, both paying a monthly license fee to use our platform. We have already received significant commitments from these partners and expect that partner revenue will exceed $1 million for the first time in 2016.

While still a very small part of our business, revenue from partner licensing and user subscriptions grew 711% year over year and we expect triple-digit growth in 2016 as well.

We made significant progress in 2015 and expect that 2016 will be no different. I have high expectations for our team members to continue delivering growth, while optimizing our operations. We have never been in such a positive position in terms of our team, our capital structure, our customer base, and technology.

Speaking of technology, we have some big things we're working on in the IZEA lab. The mantra for this year is better, faster, stronger. And the innovations we are developing are designed to broaden our client base, make our team more efficient, and open up new recurring revenue streams.

Mark your calendar now for IZEAFest 2017, scheduled for February 10 and 11 in sunny Orlando, Florida. We will be unveiling our latest technology and have opportunities for our investors and analysts to meet with the IZEA management team in person.

Given our recent up-listing to the NASDAQ Capital Market, we intend to be more aggressive in our investor awareness efforts. In March 2016, we engaged Liolios Group as our new investor relations firm. We have been working with their team to develop a comprehensive approach to the capital market. Near term, we are primarily focused on increasing the liquidity of our stock by sharing the IZEA story with a broader audience. While we are still early in our plan, we have already seen signs of interest from new institutions and analysts.

Trading on NASDAQ, combined with the higher share price, has helped open the door to new relationships and opportunities which were previously out of reach. Earlier this week, we announced that we have been invited to present at the Oppenheimer conference in May. During that same month, we will also be presenting at the Needham conference, B. Riley conference, and Marcum MicroCap Conference.

In addition to these financial conferences, I will be traveling to meet with investors in major markets around the country over the coming months. If you would like to arrange a meeting with me while I'm in your city, please reach out to Ron Both at Liolios.

Thank you for spending your time with us this afternoon. I would now like to open up the call for Q&A.

(Operator Instructions). Jon Hickman -- I'm sorry, Bo Shi, Primus Capital.

I'm sorry. Next question comes from [Dennis Dolan], Private Investor.

Thanks for taking my question. Can you first address the bookings for the fourth quarter? It was $36.2 million in Q3, $24.8 million in Q4. What accounted -- what caused the significant drop?

Are you speaking of the pipeline?

Yes, the pipeline, sorry.

The pipeline, okay, sure. Hi, there, it's Ryan, Dennis. There is really a couple of factors we want people to know about as it relates to the pipeline. One is seasonal; the other is operational.

Seasonally for us, in Q4 you basically have three weeks of solid holidays between the Thanksgiving, Christmas, and Jewish holidays that happen in November and December. We lose a lot of not only our own team members' time, but certainly client availability. So, that comes as no surprise to us.

The other thing we would say is that we have really been trying to work with our team to increase the operational rigor of what really is considered qualified pipeline. So, most of the proposals that we put in front of our clients often have multiple price points, which they are considering. So we're trying to get more and more efficient and effective at being able to look at that and be as conservative as possible when we report that number to the public.

However, on the positive side, I would say I think the real story in Q4 is the extremely high close rate we had with that pipeline. It has not only given us a tremendous amount of success stories to talk about in Q4, but certainly it is at the table for us here in 2016.

Thank you. Just two more quick questions. Are you experiencing for the first -- did you experience for the first quarter roughly the same cash burn rate as you did in the fourth quarter, which would give you about $9 million or so in cash left at the end of this quarter? Approximately?

We're not really going to discuss Q1 yet. That will be something that we will handle on our next earnings call.

Very good, and my last question really talks about the valuation. You were talking about looking at acquisitions that were accretive to shareholders. Given the extremely low valuation of the enterprise value right now, which is roughly about 1 times sales, are you suggesting that you can be buying companies out there for less than 1 time sales?

I believe that those types of opportunities are available if we are able to be creative in the structures that we are putting together. If you look at the Ebyline acquisition that we did last year, you will see that we were able to do that in a way that was below 1 times sales, and those opportunities are certainly out there with other companies.

I guess what I was really hoping you could answer was that you thought the valuation was way too low and you were expecting that valuation to get up higher than 1 times sales, which would give you many more opportunities?

We certainly do agree with that. We do believe that the Company is undervalued and that the market cap is nowhere near what it should be. At the same time, we are trying to operate within the constraints that we have of our own capital structure. So, we are trying to balance those two things the best that we possibly can, realizing that the market is lagging behind our performance.

Thank you very much.

Jon Hickman, Ladenburg Thalmann.

I am sorry. I got kicked off for a few minutes, so I hope these aren't repeat questions. Can you hear me?

Yes.

Okay, so just to go back over your guidance, you were saying that you thought bookings would be $35 million to $33 million in 2016. Did I get that right?

Bookings for next year, let me -- yes, that is correct.

And then, you said revenues from $27 million to $30 million?

That is correct.

And gross margins from 38% to 41%?

That's correct.

Okay, and then there was a number that LeAnn gave that I didn't get to write down. She said something about unearned bookings were $3.6 million and unbooked was how much?

We have $3.6 million in unearned revenue on our books and we still have additional $3.8 million of orders that we have yet to begin and start billing, for a total of $7.4 million.

$7.4 million, okay. So, can you talk a little bit about -- you said something about a growing book of competition. Can you elaborate on that?

Jon, it's Ryan. I will speak to that. Yes, what we are seeing is really a trifecta situation going on right now. One, we are seeing -- we are tracking over 200 different competitors in the influencer and content marketing space. That's a global number and those would be ones of what we call material size, meaning actually doing revenue, not incubated or very early stage.

And I believe also that's an opportunity for us and what Ted was alluding to in his comments. We are seeing a large portion of those that are companies that may have gotten early-stage or even Series A funding that just haven't been run very well, but have built a market position that could be accretive to IZEA. So those are the types of companies that we are looking at to be able to bring into our operational system and take advantage of bringing some things together potentially.

I would add to that that one of the things we are seeing is that while many of these companies have a good-looking website and a great outward appearance, many of them are just simply very small. So we have set a minimal threshold internally for us to look at companies that are above $3 million in annual revenue as our minimum, and what we are finding through this process is that the overwhelming majority of those companies fall far below that threshold.

Okay, so going back to your guidance, you indicated that for the year there would be total negative EBITDA, but you also said you were aware of the bottom line. Do you have some target in mind like when you might go profitable on the bottom line or a positive EBITDA? Are you targeting mid next year or late this year or can you give us any kind of time frame on that?

What we are really looking at, Jon, is a revenue -- or a bookings run rate of somewhere around $50 million. In terms of the exact timing, it is really going to be based on the mix between our products, and only 11 months into this with Ebyline, we are still trying to determine how that revenue is going to be recognized and how that is going to ultimately affect the bottom line.

So $50 million in bookings because you (multiple speakers) you will get EBITDA positive?

I'm sorry, revenue. Revenue.

$50 million in revenue.

Yes.

Okay, so (multiple speakers)

Now, I do want to caveat that that there are a number of things that impact our gross profit margin, and depending on what the mix is, it will affect that.

So $50 million in revenue, that's like $12 million a quarter or something like that?

Approximately.

Yes.

A little more.

(multiple speakers) $13 million a quarter. Okay, thank you. I will let someone else ask questions. Thanks.

Matt Tiampo, Craig-Hallum.

Good morning, guys, and congrats on a solid 2015. I mean, afternoon, sorry.

In terms of as we look out at 2016, maybe you can give us a sense for how you expect the business to trend seasonally throughout the year. Should we expect continued sequential quarter-over-quarter growth? And then, also as we think about the timing and layering in of additional expenses, how you expect that to progress through the year? Any color you can give would be helpful.

Yes, we think that it will largely be quarter-over-quarter sequential growth, just based on the way that we are layering in sales people. That said, there is some seasonality in marketing spend in general. Q1 tends to be the lightest and Q4 tends to be the biggest.

But that will, I think, largely be affected by the way that we have done our sales hiring. So, if anything, I expect that the variance between those quarters would be pretty minimal.

Okay, great. And then, I think, Ted, you mentioned that you expect to do your first year of over $1 million in partner revenue this year, and just wondering if that is captured within the total revenue guidance, first, and then, second, what we should expect in terms of a contribution margin on that revenue and how that affects the overall gross margin?

Yes, so it is captured in the overall revenue number. The margins on that are going to be lower in that the partners are offered discounts. So, that can be what actually brings down the sponsored social revenue a bit -- or, I am sorry, the contribution on sponsored social. But it is also offset by licensing fees.

So, I don't know that we have quite enough information to know what the ultimate balance between those licensing fees and the discounts are going to be, but we have already received enough commitments early this year to feel comfortable in that $1 million number.

Maybe just one more for me. But can you give us an update on how your partnership with eBay is progressing? Thanks.

So I assume that you're talking about SocialLinks?

Yes.

So, we released a new version of that platform two weeks ago and just rolled out the analytics component of that for the first time. It is now available to all the users who meet the minimum quality requirements, and we're going to be messaging those people as to the availability of that and driving them back in within the next two weeks. So we are in a phase right now of just making sure that all the analytics are correct and that we are happy with how that system is working.

On the topic of SocialLinks, one of the things that we are really excited about is that we currently have a backlog of online retailers who want to participate in that program. So, what we are doing right now is making sure that we have stabilized the technology and the core features before we on-board the other major retailers who want to participate.

So we see that as a long-term play for us. We are definitely excited about what the opportunities are. We think that performance marketing is going to be a big part of the influencer space moving forward, and we think that the big opportunity with that platform actually gets unlocked when we roll it out on the IZEA mobile devices.

Great, thank you.

Bo Shi, Primus Capital.

I wanted to ask a little bit about, I guess, the budgets that you're getting. So you mentioned that you are spanning across a number of different budgets -- brand budgets, PR budgets, shopper budgets. Do you have a rough percentage allocation across the different types of budgets?

It does fluctuate from quarter to quarter. What I would say directionally is that we are seeing growth the most in PR, brand, and shopper budgets directionally. And it is interesting because those are traditionally areas that aren't necessarily always as above the line, if you will, from an advertising perspective as people think. That is not to say that the media sector isn't also growing. Thankfully, it is. It is just that in a world that is highly fractionalized in that space or highly fragmented, our ability to be able to go in and get comprehensive access to budget can come from some more nontraditional areas as well.

Got it. And between the PR brand and shopper, do you have a rough split of where your bookings are coming from?

I don't have it offhand for Q4 or the year. I can go back and look at that for you. What I would say anecdotally is that different key times of the year relate to where those monies may come from. For example, PR dollars tend to come during launches of products, which in, say, automotive or even retail happen earlier on in a Q4, and whereas shopper tends to be more holiday specific, so you're looking basically at Black Friday and beyond.

Got it. Great. And then, I had one more question. In terms of the competition, wanted to get your perspective on who you see as the top competitors. Is it the agencies trying to do what you do and develop their own networks? Is it VC-funded companies like TapInfluence or Collective Bias? Or is it the social platforms, like Facebook or Twitter recently acquiring Niche, a Vine influencer network. So, would like your perspective on that.

Sure. I think it can actually come from all three of those audiences. The largest, though, in terms of set and size are privately backed or venture backed companies themselves. The agencies for us are a client source and in most cases what we do complements what they do. They bring in the strategy and the account resources to really ideate and oversee how sponsored social or Virtual Newsroom fits into a broader client strategy.

We are not looking to go down the path of an agency model whatsoever. That's why we've stayed very focused with the technology firm to be able to provide better solutions to them. That's what we think is our sweet spot.

To that extent, the platforms themselves as it relates to a Niche with Twitter, I think that's great. It happens to be one or two of what is 10 different platforms that IZEAx supports, and they're really trying to superserve the very high-end celebrity or Web celebrity audience, which, while important, is only one portion of the spectrum that we are trying to solve the problem for here at IZEA.

Got it. Makes sense. And are any of these VC-backed competitors -- I guess, are they all doing the self-serve tech model that you guys are or are there ones that are doing more of a managed services, and do you see benefits in either methodology?

So to be clear, we're actually approaching it three ways, right? We have our managed business, which would be working with our sales team and their support resources to execute campaigns. We have our self-service model where you can go in and plug in a credit card and do it yourself if you are a small business. And then, we have our partnership ecosystem, which is more of a white-label ecosystem for large media companies and agencies.

So what we are seeing, though, on the competitive landscape are largely people trying to play in the managed space with some kind of technology, maybe. To Ted's point earlier, what we are seeing as we go through the exploration process of acquisitions is that there are a multitude of false claims being made out there about the sophistication of some of these companies, and when you really peel back the layers, sometimes it is just four guys or girls in a garage with a great WordPress instance.

So, it has been an interesting exercise for us alone not only to understand the market better, but the ability to understand how IZEAx stands up to some of those solutions.

Great, thank you.

[George Kaffgrove], Private Investor.

Solid quarter, very good year, congratulations. I've got a few questions. The more I hear you guys, the more it is pretty obvious that influence-based marketing is a growth area of advertising. That's very obvious. How do you think some of the traditional advertisers think about this?

It seems the only competitors we have, while you mentioned the number 200, they are either incredibly small, they've just started, and any serious ones are VC backed. So, it seems as though we have good head room to grow. Clearly, you are growing very reliably. You are increasing sales staff. So, I am just wondering, how do the traditional AOLs or Verizons or Google, how do they think about this space?

One of the things that we are seeing is that these traditional media companies are seeing the opportunity in the influencer space, and in many cases, we are working with them.

So as Ryan had mentioned, Viacom and work with NBC Universal and Disney, even though Disney has their own solution in the influencer space, we're still doing work with them. So I think that speaks to the solution that we've built and the sophistication of the network and the technology.

All of that said, there is no doubt that people's ears are perking up and that they see opportunity here. And we think that long term for us that puts us in a very good position to be a target that one of these larger companies may want to look at, and if that opportunity comes, that will be one that we will evaluate.

Yes, of course. It is very hard -- it is very difficult to imagine companies growing in banner advertising. That's very dated at this point. So, hence my question. Okay.

Can I just ask about the average deal size? It increased significantly, most impressively, this year. This may sound a crazy question. Is your goal to continue to increase the average size of the deals because you could look at it in a number of ways, right? If we place a heavy emphasis and come up with seven or eight seven-figure deals, it takes a year, two years to recognize it. I mean, is there a sweet spot? How do you guys think of what is the optimal size of deal? Am I explaining that okay?

I can speak to it, George. I actually think there is a handful of factors in the way that we look at it. The first one is we are enjoying organic deal size growth on the individual offerings themselves. So we're selling larger sponsored social campaigns, larger individual Virtual Newsroom campaigns.

The area of opportunity and really where we are having the biggest conversations today with clients is actually commitments that involve both of the two tenets of the Company, and that by nature increases the overall deal size because now you are talking about perhaps a multi-quarter or annual content management effort married with great sponsored social to help with the amplification of that content across those different periods of time.

So, I don't think we have even begun to see the surface of what that can do for us in the whole, but I also think on the individual offering sizes, it is all tied back to results. You just said it a second ago. Not only are banner ads ineffective, we as a society are banner blind, right? The real stat is you have a better chance of surviving a plane crash than intentionally clicking on one of those things this year, right?

Yes.

So, it is no wonder that an 8 or a 9 digit business category, that those dollars are shifting towards things that actually deliver measurable results, which I think is why we are starting to see the consistency that we've been able to demonstrate.

Yes, okay. All right, great stuff. Last question, just a very small thing. I noticed in the press release we now use the term user connections, whereas before I think it was registered users. Is that just my imagination or did I pick up on something?

No, we actually address that in the K. We're in the process of making some changes in our backend technology to split apart the way that we look at user accounts, because what we are finding is that we could have, say, 10 or 20 celebrities registered as creators, but tied back to a single manager. So moving forward, what we are going to report are those user connections, as well as accounts, and those accounts have multiple user connections tied to them.

Okay. But then, obviously, the historic comparisons have to be addressed as well, right, because to do the comps -- okay, I get it. Okay, that's useful. Thank you. Okay, guys, listen, great quarter, great year. Thank you very much and more of the same, please, and hopefully we get (multiple speakers)

Thanks for the questions, George.

All right.

Bill Musser, New Frontier Capital.

I have a question that follows on a little bit from the prior one. Could you talk about your $1 million deal? Was it social? Was it content? Who brought it in? How long did it take to negotiate it and how will it flow through the revenues?

And then, my second question is in terms of talking about the increase in engineering spending. You said that there were some potential important technology breakthroughs that could be available to us and I would like to understand in general what those might be.

Sure, Bill. I will handle the client one first and then hand it over to Ted to talk about engineering.

That $1 million deal is actually characteristic of what we hope to see across the course of 2016 and actually off of what I mentioned to George just a minute ago, which is it was a combination of Virtual Newsroom and sponsored social. And that is actually going to be spread across the majority of 2016 to support a wide variety of different efforts at that brand.

And how did that -- in other words, was there a sales guy that got that or how did that -- is that through an agency? How does a deal like that come in?

Good question. That was actually brand direct and it was actually an existing customer we were already working with on the sponsored social side for a period of several campaigns.

And shortly after the Ebyline acquisition, we had a series of discussions talking about what we believed Virtual Newsroom could do for that brand, and it aligned to a bigger opportunity and frankly increased the gravitas of how even sponsored social could be aligned to that in ways that it hadn't before.

So, not only are we now creating really great compelling content that is on the brand's blogs or different portions of their website, but we're using influencers then to help drive awareness and engagement to that content and then other brand initiatives, unrelated to that content, throughout the course of the year.

So to the extent that's a novel or brand new way to do things, could this $1 million client be a multiple million-dollar client over a period of time?

You can imagine that's our goal.

What?

You can imagine that is our goal.

And in terms of how long it took to close that, was that a year or more, or how long?

No, like I said, the conversation really started shortly after the Ebyline acquisition and in earnest really started coming into fruition from a planning perspective in the second half of the year, culminating in us receiving that contract in the fourth quarter.

Thank you. And the (multiple speakers)

And then on the technology side, one of the things that we are very aware of is that we are not able to source enough opportunities for our network to keep them happy at the end of the day. They're always looking for more opportunities, more ways to monetize, and it is not realistic to think, at least in today's current scenario, that we can bring a sponsorship opportunity for them for a fixed fee to them every single day.

So, what we are looking at on the technology side are ways that we can offer performance-based marketing solutions to our customers that open up opportunities to more individuals on an ongoing basis, whether that be cost per action based, cost per click based, or more of the affiliate model. We believe that all of those will open up new revenue streams for us, new advertiser bases for us, and give the broader base of creators more opportunity to monetize on a daily basis.

So those are -- that's really where we are focusing our effort. We call that internally our flywheel opportunities that are really outside of what we are going to be doing on our managed side of the business and that's really what the core focus is this year.

Thank you.

Neal Goldman, Goldman Capital Management.

Just a quick one on the numbers. What is your CapEx schedule for 2016 and what is your D&A running?

We couldn't really hear the second part of that. The CapEx schedule for 2016 and --

The CapEx schedule for 2016 and the depreciation and amortization.

Got you.

Give us one moment here.

Okay, we are looking at the amortization and depreciation somewhere in the range of $1 million for next year.

Right.

And then -- and not really looking to add too much in the way of CapEx from general equipment, but we will be capitalizing several hundred thousand dollars in the software development costs and then just normal increases in equipment for the additional sales staff that we are updating.

So maybe $400,000 or something, combined?

Yes, that's correct.

Okay, so there is a swing of $600,000 in terms of positive cash flow from the EBITDA. So maybe it is $5.5 million of net cash burn for the year?

That would be correct.

Good, thank you.

Jim Goss, Barrington Research.

I was wondering if you could discuss the cost of content creation, and also what the -- what enticements you offer to the influencers to participate. Are they compensated in any way or is it an ego-driven aspect or what that element is?

So everything that we do on both the content side and the influencer side of the business, we are directly compensating the creators for the production of the content and distribution of the content.

That is primarily done on a cost per post basis or a cost per asset basis if we're talking about content production. So, nothing is being shared for free. Nothing is being created for free. And our cost of goods is the payment to the creators or influencers for that content.

And is that something that is very leverageable and that is part of the story, that you are able to get a certain amount of information in place and then as you are able to get additional users, that's where the margin improvement could be?

The margin improvement is really in, yes, being able to leverage the marketplace to drive price and drive efficiency for our customers.

Okay, thanks. That's all.

Thank you. I would like to turn the floor back over to management for any closing remarks.

Thank you all for joining us today. We appreciate you spending the time. If you have any further questions, I would be happy to answer those on a one-on-one basis, and you can reach out to Ron at Liolios to schedule a follow-up call. Thank you very much.

Thank you. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.