IZEA Worldwide Inc (IZEA) 2016 Q2 法說會逐字稿

Greetings and welcome to the IZEA, Inc., second-quarter 2016 earnings 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. Thank you. You may begin.

Good afternoon and welcome to IZEA's Q2 2016 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA, and joining me on the call this afternoon is IZEA Chief Financial Officer LeAnn Hitchcock and IZEA Founder, Chairman, and Chief Executive Officer Ted Murphy. On behalf of our entire team at IZEA, Ted, LeAnn, and I are pleased to have you with us today.

Earlier this afternoon, we issued a press release with additional information regarding IZEA's second-quarter performance. As a reminder, all of our investor relations information can be found on our corporate website at corp.izea.com.

Please note that during the course of today's call, our management team will discuss IZEA's business outlook and may make forward-looking statements regarding the Company that are pursuant to Safe Harbor provisions of the federal securities laws. These statements are predictions based on our 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 and its management assume no obligation to update any forward-looking statements made during this call.

With the appropriate disclosures out of the way, I will turn the call over to IZEA's Chief Financial Officer, LeAnn Hitchcock, to walk us through a summary of the Company's performance in the second quarter of 2016. LeAnn?

Thank you, Ryan, and good afternoon, everyone.

I am pleased to share that IZEA had another record quarter. IZEA reported all-time record quarterly revenue up 49% to $6.9 million, compared to $4.6 million in Q2 2015. This increase is primarily due to organic growth in all of the Company's revenue streams, including sponsored social revenue, content revenue, and, to a lesser extent, service fee revenue.

Sponsored social revenue was $4.5 million, accounting for 65% of total revenues in the quarter. Content revenue was $2.3 million, accounting for 34% of total revenues in the quarter. Net bookings increased 10% to $6.8 million, compared to $6.2 million in Q2 2015.

We are continuing to see larger deal sizes that extend over longer periods of time, which impact our near-term revenue recognition. In order to provide more clarity to our investors, we introduced revenue backlog as a key performance indicator last quarter. Revenue backlog consists of unbilled bookings for campaigns which have not yet started, as well as unearned revenue for campaigns that are not yet completed.

Revenue backlog at the end of the quarter was $8.9 million, including unbilled bookings of $5.1 million and unearned revenue of $3.8 million. The majority of the current-year revenue backlog is expected to be recognized as revenue within the 2016 fiscal year.

Gross profit for the quarter increased 104% to $3.5 million, as compared to $1.7 million in Q2 2015. The increase in gross profit is attributable to the increase in revenue during the quarter, along with improved margins on that revenue.

Gross margin for the quarter was 51%, up from 37% in the prior-year quarter. This gross margin improvement is primarily due to improved profit margins on our sponsored revenue and the doubling of our profit margins on content revenue, as we have shifted the focus to brands. We believe this margin improvement is a steady path of progress for sponsored social and content, but caution as we continue to add more IZEAx partners, it may have an impact on future margins.

That said, those reductions in margins should be offset by the operating margin improvement we gain from not servicing end marketers and increased service fees.

Our content gross margin increased 1,300 basis points to 24% versus 11% in the same quarter last year. We expect margins on content revenue will continue to improve over time, due to growth in brand-centric content creation. Sponsored social gross margin was 63%, up from 58% in Q2 2015.

Operating expenses in the second quarter of 2016 were $5.1 million, compared to $3.9 million in the same period last year. Operating expenses increased as a result of a $1.2 million increase in personnel costs and other variable expenses due to the increased number of personnel.

We increased the average number of personnel by more than 26% to 146 members by the end of June 2016. We also increased salaries for existing personnel and added senior team members after Q2 2015 that attributed to the large increase between quarters. Commission expense included in personnel costs also increased as a result of the increase in revenue.

Increases in other expense categories were offset by a $216,000 decrease in our Q2 legal fees as a result of the settlement of our patent lawsuit in the third quarter of 2015. We still expect that growth in expenses will be higher in comparison to prior years, but that this growth is beginning to stabilize and not grow at the same rate as the increase in our gross profit. This is the first step towards achieving profitability.

Adjusted EBITDA for the quarter was negative $1.1 million, compared to negative $1.7 million during the same period last year. The improvement in adjusted EBITDA is primarily due to the improved profit margin, but partially offset by continued investments in personnel.

Net loss for the second quarter of 2016 was $1.6 million, compared to a net loss of approximately $2 million in the second quarter of 2015. Loss per common share for the second quarter of 2016 was $0.30, compared to loss per common share of $0.69 in the prior-year quarter. This is primarily due to the improved margins, partially offset by a $224,000 difference in the change in the fair value of the Company's derivatives and the increase in personnel costs between the periods.

As of June 30, 2016, we had $8 million in cash on hand, a positive working capital balance, and stockholders' equity of $11.4 million. In addition to our cash on hand, we continued to have an untapped $5 million credit facility with Bridge Bank.

I will now pass it over to Ryan to provide a recap of the Company's operations during the second quarter.

Thanks, LeAnn.

As you might imagine, our teams across the US and Canada are very proud of the continued performance put forth during the second quarter, as well as the greater trajectory of the business overall.

However, the core part of IZEA's belief system is that today's success can breed tomorrow's failure if it makes us complacent about staying focused and continuing to do our mission, the things that other companies simply cannot.

It is one of the reasons our client development management philosophies are straightforward. Number one, be excellent; never average. Number two, act with urgency. Number three, make an impact. And number four, anticipate needs. These values are part of what makes the IZEA way an integral aspect of our business success, both now and into the future. I believe it truly differentiates us from those who are just entering our segment in a, quote, unquote, me-too fashion and trying to figure out an industry created 10 years ago.

One of the things we are proudest of this quarter was our team's ability to grow the business while continuing to be prudent stewards of Company capital. Not only were clients willing to pay a premium to work with IZEA because of the high level of service and thought leadership we've become known for in the industry, but because our internal team's continuous focus on optimizing our expense structure on items both big and small. This isn't just a one-time thing for us, but an important aspect of our operational culture that happens each and every day.

During the second quarter, the Company's average deal size increased more than 13% over Q2 2015 as budgets continue to increase and IZEA becomes a recurring aspect of brand marketing and advertising plans. And taking a look at the ratio of new versus existing clients during the quarter, it was almost a 50/50 split, with $3.4 million coming from existing clients, including American Family Insurance, Breyers, Chobani, Loblaw's, [Wylie], and Wendy's, amongst others, while at the same time our client development team was able to [tier] $3.4 million in Q2 from new members added to the IZEA family.

And we would like to extend a warm welcome to some incredible brands, including CORT Furniture, Fuji, Jockey, Mercedes-Benz, Red Robin, and Whirlpool, amongst others.

Turning attention to our team, at the end of Q2 IZEA reached 146 total full-time employees, with 50 [protiering] salespeople on staff, 19 of which have joined the Company in just the last six months, so they are still ramping up and not even consistently contributing yet. Those newer individuals, as well as those that we hire in addition to them down the road, are being put in place to support our stated growth plan for 2017 and beyond. As a means of helping maximize shareholder value, making sure we have the very best talent on our team and the highest quality workplace available to those employees is at the very top of our priority list.

That is why we were particularly proud to be acknowledged on June 6 by the Orlando Business Journal as one of 2016's best places to work. What makes the award even more special is that it's based on responses from the employees themselves, not just an editorial board looking at the Company from the outside in.

On the regulatory front, we furthered our commitment towards industry stewardship through our work our General Counsel, Sandra Carbone, has done in conjunction with partners at the ASC, the Advertising Standards Council, in Canada, drafting key amendments to the Canadian code of advertising standards related to influencer marketing. This is yet another effort the Company is focused intently on as we look beyond the borders of the United States to create new opportunity and lasting presence in various geographies around the world.

Now, for additional commentary on the Company's performance and some perspective on recent news related to our growth strategy, please welcome my colleague, IZEA's Chairman and Chief Executive Officer, Ted Murphy. Ted?

Thank you, Ryan.

As we began 2016, one of our top objectives of our leadership team was to optimize and streamline operations throughout the organization. Specifically, we wanted to improve gross margin, revenue per employee, and OpEx to revenue ratios.

While topline growth remains our primary objective, we are mindful and respectful of the bottom-line impact. We continue to gain operating leverage as we scale our organization. The improvements in the bottom line are being achieved through the continued refinement of processes, technology automation, and a watchful eye on expenses.

I am pleased with the progress we made in Q2 in particular. Gross margin for the quarter exceeded 50%, up from 37% in the same year-ago quarter. Annualized average revenue per team member grew to $588,000, up from $463,000 in Q2 of 2015. Cash-based OpEx to revenue decreased to 66% in Q2 of 2016, down from 74% in Q2 of 2015. While OpEx has increased 32% versus Q2 last year, gross profit has increased 104% during the same period and EBITDA loss decreased 36% year over year.

When we acquired Ebyline in January of last year, one of our core assumptions was that we would be able to dramatically change the percentage of dollars that flowed to the bottom line. In the 18 months since the acquisition, we have more than doubled our gross margin on content, from 10% in Q1 of 2015 to 24% in Q2 of 2016. We are proud of what we've accomplished here and believe there is still plenty of room for improvement.

Our technology is another key component of expense optimization. In Q2, our engineering team deployed 51 releases of IZEAx, creating a constant stream of feature enhancements, bug fixes, and user-experience improvements that affect both end users and internal users. We are relentlessly improving our system and some of the biggest new features have yet to be unveiled.

I hope you can join us at IZEAFest in February of next year to see what we have been working on. To register for tickets, please go to izeafest.com.

At the beginning of this month, we announced the acquisition of ZenContent, a technology platform optimized for high-volume content production, with a concentration of clients in the e-commerce and publishing spaces. We are very excited to have joined forces with the ZenContent team and believe that this acquisition will create a variety of new opportunities for IZEA.

I have received many inbound inquiries about the acquisition and would like to provide some clarity for our investors. ZenContent was based in Mountain View, California, and IZEA will now maintain a small sales office in Silicon Valley. The revenue run rate for ZenContent was approximately $2 million. ZenContent had a gross margin profile of approximately 50% and was breakeven.

We discovered ZenContent as a result of a shared customer, but have overlap with multiple customers. While we will maintain the ZenContent website for now, we will go to market under the IZEA name moving forward.

The acquisition of ZenContent has led us to expand and change our overall content offering. We will be moving away from the term virtual newsroom in favor of a larger service umbrella called custom content. Under custom content, we now offer a large variety of content types at different price points, from metadata and copy blocks to feature stories and video.

We believe that Zen Content's focus on e-commerce and publishing will be synergistic to other areas of our business as we look to the future. For instance, publishers are a natural fit for some of our flywheel initiatives currently in development, and e-commerce clients using SocialLinks are the same types of customers we want to sell content to.

The structure of the ZenContent deal calls for up to $4.5 million in total payouts, with the majority of those payouts coming in the form of an earnout. While variations in annual revenue could impact the ultimate number, we estimate that the ZenContent acquisition will need to deliver approximately $16.5 million in high-margin revenue over the next three years in order to receive the full payout.

We are executing today, but we are building or buying the pieces we need to continue to be the premier marketplace for creators in the future. Our assets are more defensible and valuable as part of a holistic offering to our clients and create more liquidity and opportunity for our creators.

Looking ahead, we will continue to actively pursue accretive acquisition opportunities that can both grow revenue and increase our penetration in niche markets. In addition, we will continue to invest in growing our sales and engineering organization to support continued growth.

I remain confident that we are on track, based on the guidance we provided at the beginning of the year. For the trailing 12 months ended June 30, 2016, revenue was up 83% to $24.1 million, as compared to $13.2 million in the same year-ago period. IZEA expects 2016 bookings to range between $33 million to $35 million, which would represent growth of 35% to 43% versus 2015. The Company expects 2016 revenue to range between $27 million to $30 million, which would represent a growth of 61% to 71% versus the prior year.

I will continue my travels 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 am in your city, please reach out to [Ron Booth] at [Loyola]. Thank you for your time this afternoon. I would now like to open up the call for Q&A.

(Operator Instructions). Darren Aftahi, ROTH Capital Partners.

First, can you talk about how the larger deal sizes are impacting transaction complexity and lead times?

It's Ryan. They definitely do. That's one of the things that's working for us, and also I guess working against us, depending on how you see the timing. And that is to be expected as we continue to get access to larger and larger budgets.

That being said, one of the things that's helpful is that we are moving in the direction as the category grows and the budgets that are at those particular clients and the access to them is also increasing. So our hope is that as content marketing continues to gain share from other forms of traditional marketing and advertising, that process could become shorter over time. But this is a fast-moving, fast-growing segment.

Great, and a couple more, if I may. Can you talk about what the relative growth in content revenue between news versus brand was in the quarter?

Yes, we can do that. Actually, we are seeing a change in the news to be increasing -- or the brand is increasing now. And that is putting a lot higher contribution compared to Q1, so that is basically contributing more to the bottom line because we've doubled the margins on the brand revenue to that.

So just so I am clear, if I look at the revenue growth, it was up 9%, 10% in content year over year. Is it fair to assume you guys are de-emphasizing news and hence emphasizing brand, so we are probably seeing a faster sort of focused growth profile in content, rather than maybe the revenue not growing as fast as it looks optically?

Yes, we are not really focusing any sales efforts right now in terms of the newspaper side of the business. That is something that we look at as we are maintaining that the best we can, but the world of newspaper publishers is very challenged right now.

And frankly, that business, due to its margin profile, doesn't make sense for us to put a lot of sales resources towards. So as our team goes out, they are really focused on selling content to brands, rather than newspapers.

Great, then one more and I will hop back in the queue. So can you talk about the customer split in the quarter between managed and self-service? And how has that kind of continued into the third quarter in terms of positive impact you're seeing on gross margin?

Yes, the majority of the business is still managed and we see that that is going to -- that is going to be something that continues well into the near-term future.

But that is also what's helping to drive up those margins for us. The managed customers are very high -- they are high margin. We are able to charge management fees on top of the exchange fees, and that is one of the reasons that the margin profile was so strong this quarter.

Great, thank you.

Matt Campbell, Craig-Hallum.

Congratulations on really an excellent quarter. If I could drill down on one of the last questions just for a second, in terms of the content business, what's the magnitude of newsroom versus the brand? Is it sort of like 50/50? And then, what's the difference? I'm guessing the newsroom margins are close to last year's margin, which was around 10%, 11%. But what's the gross margin contribution from the brand side?

From the brand side, we are actually seeing that increase. It was in the -- around the 20% range and now that is coming up into the 40% range, which is getting closer to our other margins on our managed business, and that's really where we are going out in pricing that. So a lot of the -- the average margin is being pulled down by the new clients that are still ranging between 7% and 10%.

Great. And then, maybe quickly you guys could just give us a little bit of color on average deal size. I think we are starting to lap some big increases that occurred a year ago, but what are the factors driving the continued increases in deal size? How much farther do you think that can go?

It's Ryan. Ultimately, this is sometimes an issue of more timing than anything else. We continue to remain very bullish that we are getting access, as I mentioned to Darren, to larger budgets overall.

And if you have one very high six-digit or low seven-digit commitment in a singular quarter that can fall in by a day or two, depending on how that calendar reach sorts out, it can dramatically change that math.

So, I wouldn't characterize the average deal size as slowing down. It's just we are starting to reach a place where a certain number of critical deals have an implied impact on everything.

Okay, great, and then I think one last one for me. I think you noted that you integrated a top 10 US retailer into your SocialLinks program. Any color on maybe what type of retailer that is or any additional color at all, actually, you could give us would be helpful. Thanks.

Yes, actually if you were to log into the platform, you would see that you can now access both eBay and Target under the SocialLinks platform, so now we have access to the inventory on both of those systems. We are going to continue to bring on additional retailers over time and I would look to see what some of those additional retailers are in Q1 of next year.

Great. Thank you.

[George Cathcaru], Private Investor.

Congratulations on another great quarter. It sounds like a broken record. Every quarter is a great quarter.

(laughter). We like that problem, George.

I have a few questions, but one thing I want to ask again; I want to make sure I understood it properly. One of the things that strikes me about the revenue split between new and existing, last quarter it was very similar to this quarter, 50/50. This quarter it was 50/50 I thought I heard, 50% new business, new customers; 50% repeat, existing customers, right?

Right, and last quarter it was approximately 60/40.

Right, okay. So that is perhaps a lead indicator to say there is just a lot of headroom still, right?

That's our thought process, George. I mean, ultimately as we are growing all these figures, whether it's bookings, revenue, margin, pipeline, the fact that we are seeing it come from both silos of the business is a really strong indicator. We would be very concerned if the tables tipped to where we weren't able to see any new business benefit from the investment that we are making in human (multiple speakers)

Okay, okay. So let's move onto the qualified opportunity pipeline. This is a pipeline, for clarification, whereby you guys have issued formalized proposals to prospects and this is now the biggest ever it's been again, right, 37 or whatever the number was, right? We can spend a lot of time on this. How many seven-figure deals are in that? How many big deals? What does bread-and-butter deals look like to you? How do you think about that, guys?

The pipeline continues to grow with larger and larger deals, but at the same time, we are constantly adjusting the -- and looking at the opportunity size in that pipeline.

So when we -- when we are evaluating what people are putting in as new opportunities, we are also kind of handicapping against that to say, how likely do we think this is? That could be a wide range from $0.5 million to $2 million. We tend to be a little bit conservative in terms of what we actually put in the pipeline and count towards that pipeline. So until we have more seven-figure deals closed, I would say that we are handicapping those pretty significantly in terms of what we count and report in the raw pipe.

So I am assuming there are some seven-figure deals. I don't want to focus on that. It's a given that there are deals getting bigger, they are getting more complex, and that's great. But you also measure it -- there's a metric, I assume, of volume, frequency, the number of deals. So it's not just that there are many more bigger deals, which is wonderful to hear, of course. But my question is, in addition, is there an increase in the volume of deals?

There's really two things happening. The overall pipeline is growing; the overall size of those deals are growing. We have more sales people creating more opportunities.

But at the same time, we are also making bigger asks than we have in the past. So, instead of asking for a small campaign that may run over a month or two or three months, we are asking for annual commitments, because a lot of these clients are coming back their second or third time. So that may actually impact the raw count of opportunities, but we believe those are higher-quality opportunities and ultimately for larger dollar amounts.

Okay, okay. Let's move onto the IZEA platform. You mentioned -- someone mentioned in the prepared remarks -- I think it was you, Ted, there have been 51 new features implemented.

So as I see -- as I have seen the IZEAx platform develop over the years, it now compromises of social sponsorship, content, I guess now with ZenContent acquisition e-commerce content, and now more and more traditional performance marketing stuff as well, right? So IZEAx did not begin in that image, right? Can you talk to the evolution of this? And, for example, these 51 new features, some of them rounded off to encompass all of those four segments, I appreciate that ZenContent has not been integrated yet, but you get the essence of my question, right?

Yes, so there has been 51 releases. I wouldn't necessarily call all those features.

But IZEAx is really focused on two things, and that is sponsored social and content, and the types of sponsored social campaigns that people can participate in has grown over time, as has the type of different content opportunities.

As we look to the future, we believe that brands and creators will interact in many different ways through different types of compensation models. And while we have most of our transactions today that are based on a cost per asset basis, we believe that there's an opportunity to blend compensation models, and that's why you see things like SocialLinks and other flywheel opportunities that we've talked about. When you think about e-commerce content, that's really just -- it's a subset of content. It's a different asset type, much like you could go through and have a Tweet or an Instagram post or a YouTube video.

So all of these things, really they -- if you go back and you were to look at the original patent we filed for, these are all actually included in that umbrella, and what we're doing is just continuing to chip away at that grand plan and implement features as we see that there is opportunity and as we see that there is a market for that feature.

Very good. So how -- for example, some of the flywheel stuff, like SocialLinks and other things that are coming, do you view that as part of the requirements for IZEAx? Or do you view that as additional revenue opportunities, perhaps lower margin, but it really helps increase the visibility, the horizontal visibility, as it were? Do you think (multiple speakers) at all?

We think of this as all of these create different opportunities for creators to interact with brands. It creates more liquidity in the marketplace and that's really important to maintain those relationships with the creators.

We also recognize that different marketers value different things. The majority of our marketers today are very brand-centric and they are comfortable paying on a per-asset basis. But we also recognize that the majority of online ad spending right now is going to things on a cost per click basis or a cost per action basis or a cost per engagement basis, and so we want to open up our platform to those types of marketers.

And it is also important to understand that those marketers exist inside of the same organization, so we can be selling into a brand, but just tapping one aspect of their dollars, just the brand spend, while we could be tapping into their counterpart's budget over on the performance marketing side. And so if you look at that and you step back even further, it's like -- look, we want their SEO dollars, we want their content dollars, we want their brand dollars, we want their performance dollars. And that makes us a much more efficient sales team once we've established that relationship with the customer.

Okay. Can you give me an example of the top two or three new capabilities that you've implemented as part of the 51 releases in IZEAx? What comes to mind as the top two or three?

Some of the ones I am most excited about, obviously we had a big release of SocialLinks in the last quarter and the integration of Target, so that's a big one. Actually what happened behind the scenes there is even more exciting, with some of the capabilities that gave us to integrate with Rakuten and then the expansion that we've made inside our video offerings to further streamline that and to gain access to new platforms. Video seems to be of very high interest right now to marketers. We wanted to expand our capabilities to make that even easier.

You mentioned the biggest new features have yet to be unveiled. Can you elaborate on any of those or give us some indication?

(laughter). You always want more, you always want more. (laughter). We -- I really can't going into further details on that right now. I can tell you that the team has been working hard on those new features really since the last IZEAFest and we plan on showing what we've been working on in February.

Okay, all right, and okay, super. Just one last question, if I could. Are we still on track to be cash flow positive towards the end of 2017?

Yes, I believe that we've already made some pretty significant progress this year in terms of getting to that point and that we remain on track to be breakeven by the end of next year.

The one thing I will say is I want to caution that if we have acquisitions, that could extend that timeline, depending on the company and the structure of the deal.

All right, guys, great quarter again; well done. Congratulations. Thank you.

Alex Silverman, Special Situations Fund.

So this is the smallest sequential increase in SG&A that we've seen, I think, since we've been investors, really slowing down. Obviously, you guys added a bunch of sales and marketing folks in there, and commissions can have obviously a big influence. But, LeAnn, how should we think through OpEx going forward or growth in OpEx?

As a total dollar number, we are still expecting to see that increase over the next few quarters. But as you said, the commissions are growing and the salaries related to the additional personnel are growing. But as a percentage of revenue and the gross margin, it definitely will be decreasing.

Okay. So (multiple speakers)

A lot of that will depend on the timing of when the revenue is increasing or when those dollars hit.

Understood. And then SocialLinks, you said you added Target. I know it's expensive; I know it's time consuming to add new partners. I know there's a bunch of partners that would like to be added. How do you triage and how do you decide who to add next?

That really is based on what we think is a good fit for our network and our creators. We have no shortage of people who want to be part of that program, but we are also still looking at how do we make sure that our creators are able to monetize in a way that has it make sense for them.

So looking at those conversion rates, looking at the product catalog, how well it's organized, what the imagery is like from that particular e-commerce provider, those are all things that we take into account.

Okay, and does the partners somehow -- is their commitment to this come into -- as a factor at all?

One of the beauties of that program is that once we -- once we are able to get the API access, they don't really have to do too much. The system kind of takes over, and we don't really have to do too much, either.

So you have some heavy lifting upfront to just make sure that everything comes in properly and is indexed and is updating. But beyond that, no ongoing effort for the partner and really no ongoing effort for us, unless they make changes to their API.

Have you been able to get them to share in the cost of the set-up at all?

That has not been something that we have pursued to date. We feel like we want to get some more data before we get to a point where we are charging the partners.

That said, we have been able to dramatically impact the time it takes for us to get a partner signed up and so our cost of doing that is a relatively minimum amount.

Okay, and then my last question, content margin at 24%. Was there anything in there that resulted in the, call it, 500 basis-point improvement sequentially?

The biggest change was really just the increase in the brand orders as the decrease in the newsroom orders.

So just mix?

Yes, it's really just -- it's all about the mix.

And, admittedly, ZenContent is going to get mixed in there with a much, much higher gross margin. But putting that aside, is there any reason to believe that this legacy content business should slip below where it is today?

Below that 24%?

Correct, excluding ZenContent.

No, we believe that that is going to continue to grow and we are very, very encouraged by the margins that we are getting from the brands now. For many of the projects now, they are in line with what we are doing on the sponsored social side. So we think (multiple speakers)

Really?

Yes, we are going to continue to have some steady progress there, and it should only improve over time.

Great. Thanks, guys.

Jon Hickman, Ladenburg Thalmann.

Ted, I'm sorry I missed the early part of the call, but could you maybe characterize how the early Target SocialLinks is going versus what you experienced with eBay?

Yes, there's actually been a lot more interest in sharing those Target products than there were in eBay. We still actually haven't released that to everybody in the network, so it's still on a limited basis and we are still tweaking things.

One of the things we've noticed in some of the feedback we've gotten is that the searching capabilities of that library still need to be tweaked a bit, and so we are continuing to work on that so that the creators are able to find exactly the right products that they are looking for.

But overall in terms of engagement on Target versus eBay, we've seen a much higher engagement on Target than we did on eBay when we released that. (multiple speakers)

Can you say why? Do you know why it's better?

I think that the -- I think a part of it actually has to do with imagery. If you do a search on eBay, some of the images that are returned back are -- they're consumer generated. They're not necessarily high quality, whereas the things that are returned back from Target tend to be more uniform and of higher quality and larger images. So when people are making a decision on what they want to share and those images are showing up in their social feed, I think they just may feel more comfortable with those higher-quality images.

Okay, and can you give us any sense -- I don't know if you did this earlier, and if you did, I'm sorry, but is there some kind of percentage of your influencers that are actually dabbling in SocialLinks? What's the usage kind of thing?

It's not even available to everybody right now, so it's not something that I even know off the top of my head.

That's even meaningful? Okay.

Yes, yes.

Okay, thank you. That's it for me.

Darren Aftahi, ROTH Capital Partners.

Hey, guys, just one follow-up. Just given what you talked about on the brand side with the content piece of the revenue, excluding anything from ZenContent, what is sort of a rough quarterly run rate you guys need to get to to be breakeven on an adjusted EBITDA basis? Thanks.

On a content side or on the entire organization are you referring to?

Consolidated.

We believe that is somewhere in the $10 million quarterly run rate.

Got you. Thank you.

We have reached the end of our question-and-answer session. This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.