IZEA Worldwide Inc (IZEA) 2021 Q3 法說會逐字稿

Good day, and welcome to IZEA Worldwide Inc. Third Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ryan Schram. Please go ahead.

Good afternoon, everyone, and welcome to IZEA's Q3 2021 Earnings Call. I'm Ryan Schram, President and Chief Operating Officer at IZEA. And with me on today's call is IZEA's Chief Financial Officer, Peter Biere; and IZEA Chairman and Chief Executive Officer, Ted Murphy. Thanks for joining us.

Earlier this afternoon, the company issued a press release with details pertaining to our third quarter performance for 2021. If you'd like to review those details, all of our investor information can be found on our Investor Relations website at izea.com/investors.

Before we begin, please take note the safe harbor paragraph included in today's press release covering the company's financial results and be advised that during today's earnings call our management team will discuss IZEA's business outlook and make forward-looking statements. These statements are predictions based on our team's expectations as of today that are subject to inherent risks and uncertainties and should not be unduly relied upon. Actual events, results or trends could differ materially from our forecast due to a number of factors, including those mentioned in our most recently filed periodic reports with the SEC.

The company and our management team assume no obligations to update any forward-looking statements made in today's call. In addition, our update today will also refer to a non-GAAP financial measure, adjusted EBITDA and other business metrics such as gross billings and bookings. A detailed explanation of these measures is disclosed in our earnings release and in our most recent Form 10-Q.

With the appropriate disclosures taken care of, I'd now like to turn the call over to my colleague and IZEA's Chief Financial Officer, Peter Biere. Peter?

Thank you, Ryan, and good afternoon, everyone. I'd like to highlight our results for the quarter ended September 30, 2021. The total revenue for the third quarter of 2021 was $7.6 million or 88% higher when compared to Q3 of 2020, with $7.2 million coming from our Managed Services business and $454,000 of our [sales] offerings. Managed services revenue increased by $3.7 million or 104% while SaaS revenue declined by $68,000 or 13%, both compared to the prior year quarter.

As we previously announced, managed services bookings, a key metric, which measures sales orders received plus any cancellations or refunds given during the period, topped $11 million for the third quarter of 2021. This all-time record represents an increase of 181% compared to Q3 of 2020 and continues the growth trend that we've seen since late last year. The trend towards larger brands increasing their marketing spend with IZEA also continued during the quarter as we added several new Fortune 500 customers and repeat business from 3 Fortune 10 partners. These factors taken together with efforts put forth by our team to fulfill campaigns resulted in an increase in managed services revenue.

As a reminder, we recognize revenue on our managed services contracts over time based on the percentage of completion and delivery timing can vary greatly. Historically, bookings have converted to revenue over a 6- to 7-month period on average. However, since late last year, we've been receiving increasingly larger and more complex sales orders, which in turn has lengthened the average period for revenue recognition to approximately 9 months, with the largest contracts taking even longer to complete.

Planning for larger contracts takes more time upfront, which can also cause further delays. For these reasons, managed services bookings, while an overall indicator of the health of our business may not be used to predict quarterly revenues and could be subject to future adjustments.

SaaS revenue, which consists of license fees, self-service marketplace spend fees and other fees which comparatively $68,000 lower for the third quarter of 2021. Licensee counts continue to grow on all platforms. However, average license fees are lower primarily due to changes made a year ago to our pricing methodology namely in driving the improved price-to-value economics and being a first mover and transparent competitive pricing. We also lowered our pricing on select self-service offerings, which impacted our margins on marketplace spending during the current quarter.

Gross billings from marketplace spend in the third quarter were 31% lower than the prior year quarter, leading to lower fees revenue. Our cost of revenue, exclusive of amortization, was $4 million in Q3 of 2021 or 52% of revenue compared to $1.7 million or 42% in the prior year quarter. Cost of revenue was higher primarily due to a heavier mix of larger deals that carry lower overall margins. Accordingly, gross margin in the current quarter averaged 48% compared to 58% in the prior year quarter.

Expenses other than the cost of revenue totaled $5.5 million for the current quarter compared to $3 million for the prior year quarter. Sales and marketing costs were $2.2 million during the quarter, $1.4 million or 60% above the comparative quarter due to sales compensation, which varies with higher bookings and increased marketing costs associated with driving customer growth. General and administrative costs totaled $2.7 million during the quarter, $844,000 or 46% above the prior year quarter due primarily to higher compensation as well as contractor costs to support operations and IT investments.

Our net loss for the third quarter of 2021 totaled approximately $1.5 million or negative $0.02 per share compared to a net loss of $1.3 million in the prior year quarter or negative $0.03 per share. Adjusted EBITDA was approximately negative $1 million for the third quarter compared to negative $725,000 for the prior year quarter, a difference of about $275,000.

Bookings growth over the last 4 quarters has outpaced our growing managed services revenue, driving our unearned revenue backlog to over $22 million at the end of Q3 and higher sequentially by 30%. We anticipate that revenues will increase during the fourth quarter of 2021 as we deliver end of year and seasonal promotions.

As of September 30, 2021, we had $74.5 million of cash on hand down about $500,000 from the end of Q2, and we have no debt on our balance sheet. As previously announced in June 2021, the company entered into a new 2-year at-the-market sales agreement on which it may offer up to $100 million of its common stock from time to time.

That agreement provides IZEA with financial flexibility moving forward. The company has not sold any shares in the open market under that agreement to date. With our cash on hand and a potential additional financing vehicle in place. We are in a strong position to execute on business growth, both in front of us and opportunities that may lie ahead.

With that, I'll turn the call back over to Ryan.

Thanks, Peter. It's wonderful to be delivering continued strong results for our shareholders and clients alike. While 2021 has been a record-setting year for IZEA on several fronts, one of the shining example comes from our Managed Service work group. For those of you not familiar, this unit of integrated marketing professionals works on behalf of brands and their agencies to concept, strategize and execute world-class influencer marketing programs.

By leveraging IZEA's technology platforms, it allows our team members to have a unique advantage in delivering both highly innovative and highly effective work with unparalleled efficiencies. Such an offering is a key element in our strategy to unlock incremental value for our clients, resulting in larger dollar-size commitments, broader geographic access and more substantive relationships overall, and it's working. Since 2019, we've more than tripled the number of clients who are trusting IZEA with million dollar plus budget, while at the same time, increasing the absolute number of new managed service clients by more than 2x over the last year.

Obviously, these are terrific numbers that our team is proud of, and they should be. But for our shareholders, it also underscores the continuing shift within the broader advertising and marketing investment trends that were exacerbated by the COVID-19 pandemic compared to old established fashions of media such as television, radio and print, influencer marketing not only is more cost effective, but it delivers a longer lifetime value through highly measurable results.

As we look towards 2022 and beyond, there's even more opportunity ahead of us from new types of client engagements to provide strategic planning pre-campaign to offering best-in-class data science personnel to provide insight and analytics on campaign performance in new and exciting ways. We see IZEA's future thriving at the intersection of our talented team members, our passionate creators and our proprietary technology. When paired with a healthy growth mindset entrenched across the company's personnel by having the advantage of technology-backed solution, adding more clients doesn't necessarily mean having to add proportionately more costs.

While we remain steadfastly committed to securing and consolidating the very best talent across the influencer marketing industry in both our sales and service organizations, we believe that IZEA will continue to enjoy an increase in revenue per full-time employee over time as we seek to enhance and automate lower value aspects of the [champion] fulfillment process. That way, our valued team members can spend more time surprising and delighting our clients, driving increased retention and larger investments in return. Doing so also unlocks greater opportunities for the broader creator economy as well with increased deal flow and higher diversity of brand collaboration opportunities to engage against.

Now for some additional perspective on IZEA's performance year-to-date as well as commentary on the road ahead for the company. I'd like to turn the call over to my colleague and IZEA's Founder, Chairman and CEO, Ted Murphy. Ted?

At the end of 2020, our team set forth a goal to deliver at least 30% annual revenue growth per year for each of the next 3 years or a 30% compound annual growth rate. Revenues in 2020 were $18.3 million. Based on that rate of 30% growth per year, our goal is to achieve revenues of approximately $23.8 million in 2021 and $31 million in 2022. We are on pace to significantly beat our revenue goal in 2021.

Our Managed Services bookings in 2021 has far exceeded our initial targets. Q2 to date is $28.8 million in bookings versus $10.7 million for the same period last year. A 170% increase. As a result of strong bookings this year, we are going to materially exceed our 30% revenue growth target in 2021. Year-to-date revenue through Q3 of this year already totaled $19.5 million, and we are heading into a historically strong quarter for IZEA bookings and revenue recognition.

We saw a large year-over-year spike in bookings in Q1, Q2 and Q3, which makes it difficult for investors to anticipate what Q4 may look like from a revenue perspective. To assist investors, we have included a chart in our latest earnings press release that illustrates the historical correlation between managed services bookings and revenue. If you refer to the chart, you will see that there has been a divergence from the bookings and revenue trend lines over the past few quarters. The bookings trend line has far outpaced the revenue trend line in the past 3 quarters as IZEA has been awarded larger contracts that stand greater periods. That gap is best reflected in our unearned revenue backlog, which grew to $22 million in this quarter.

We expect the revenue line to catch up to bookings over time, and anticipate sequential revenue growth from Q3 to Q4 as bookings from prior quarters are recognized in the holiday season. However, it is important to note that the average revenue recognition period is still in the range of 9 months to some bookings in Q2, Q3 and in the current quarter, will cross over into 2022.

Team IZEA is off to a great start in Q4, continuing the momentum of previous quarters. October was the best October we have ever had for managed services bookings. Our team is focused on closing our 2021 on a strong note. We recognize that we remain amid a global pandemic with supply chain and labor shortages that has impacted many of our customers in a variety of ways. Some of those customers, particularly those in the travel industry are still far from pre-COVID operations. And it is unclear if or when they will fully recover. With that said, our overall outlook for 2022 today is incredibly positive. We are bullish on continued growth based on the early indications of renewals from some of our larger clients.

Let's move on from managed services and on to software. I am pleased to share that we saw record customer counts or software licenses once again this quarter, driven primarily by increases for IZEAx Discovery, our self-service offering. We also saw record new customer starts for Unity Suite as a result of increased demand generation investment, coupled with the new influencer discovery features we launched in May. The discovery features we launched are resonating with customers, both large and small. Finding and vetting influencers is a key step in any influencer campaign and our improvements are being rewarded with new customer wins and existing customer renewals.

We are already working on the next generation Discovery, and we will continue to iterate to make the experience even better. We are still absorbing the pricing and overall strategic change we made with Unity Suite last year when we lowered pricing on all tiers and introduced a starter tier to appeal to smaller brands and agencies. While the majority of our clients have been transitioned to the new pricing, there is still some that remain on the old pricing structure until their contract renews.

SaaS licensing revenue and overall SaaS revenue grew from Q2 to Q3, but we expect to see some fluctuation in Q4 as we get fully through that pricing adjustment with the last set of customers. We should see some normalization and revenue growth that reflects the steady decline in software customer counts on the other side of this year.

On our last call, I spoke about some of the challenges and opportunities associated with Shake, our newest platform. We continue to make platform changes to impact the success rates for our buyers and sellers.

On the positive front, we have seen a dramatic increase in first-time Shake approval rates. For context, in January of this year, only 22% of submitted Shakes were approved without change requests, after initial submission. In October, that number was 90.73%, a massive improvement in success rates and the testament to the effort our team has made to improve the process.

We've also seen a large increase in organic search traffic coming to Shake, a 16x increase in September of this year compared to September of last year. As we add more listings, we expect our organic search traffic to continue to increase alongside it. We still have far too few Shakes listed in the marketplace, and we know the buying process could be better. So these are opportunities we're focused on.

During our Q2 conference call, I shared that we had a 3-phased approach to address our inventory problem. Phase 2 rolled out in August, and we expect Phase III to roll out by the end of this year. Phase III had some technology integrations with IZEAx that will make the create shake process even faster, particularly for creators focused on Instagram and TikTok. We'll be able to create a Shake with 2 clicks from inside of IZEAx. The Shake team is working on a complete redesign of the Shake purchase process based on what we have learned since launch. The increase in traffic and Shake creation success rate is encouraging, but the bottom line is we need to make it easier to buy and sell on Shake.

We aren't where I want us to be yet and continue to evaluate ways to improve and transform the platform to increase conversion rates and revenue. Over the past several months, our talent team has take their efforts into overdrive, recruiting new [IZEANS] help us scale our company and take it to the next level. We have added multiple director-level leadership personnel in both product and marketing as well as supporting engineers and specialists to focus on strategic implementation and execution.

The investment in product and marketing will continue into 2022 and beyond as we grow the company and the customer base we serve. Our demand generation efforts to paid media, paid sponsorship and our recently launched affiliate program will also benefit from more aggressive allocations in 2022, as we seek to capture more market share and grow at a rate that well exceeds industry averages.

IZEA will also make additional investments in marketing automation, content creation and social media. You likely have already noticed the increased cadence in publishing. Over the past several months, we've been building out our marketing team to ensure a steady stream of communication with our customers as well as our investors. We are making these strategic investments in the tailwind of robust growth in an industry that continues to expand double digits each year. With eMarketer predicting 12.2% growth in influencer marketing spend industry-wide in 2022.

Beyond 2022, I believe the industry is still in its nascency. The long-term opportunity for IZEA and the ecosystem we serve is growing as global adoption of digital lifestyles perpetuates. The industry we operate in will continue to evolve, and we intend to persistently pioneer new types of influencer collaborations on emerging platforms as it does. I'm particularly excited about the opportunities that will develop over the next 5 to 10 years with the Metaverse. While Facebook's announcement is certainly exciting, we believe that future potential for virtual worlds is as vast as the web itself.

One can argue that the worlds of TikTok and Instagram are already alternative universes of their own. But when interconnected virtual worlds become mainstream, it will fundamentally alter what a brand collaboration is and how it is executed. Sponsorship of the future will go far beyond the photos and videos we see today. I see a future where creators are paid to build virtual brand experiences within a virtual world.

Imagine a virtual spaceship in the shape of a Nike sneaker built by an influencer transporting the influencers followers to an exclusive virtual party. The technology is being built around us to allow those types of [activations] to happen in the future. Data, artificial intelligence, cryptocurrencies and a flexible workflow for brands and creators will become increasingly important in that world. And our strategy today is reflective of what we think tomorrow will become. The future is certainly exciting, but the present is as well.

In 2021, we captured more than our fair share of industry growth, and we intend to do the same in the coming year. 2021 was a pivotal year for us. We continue to see explosive growth in customer counts and bookings. We saw the addition of new Fortune 500 clients with plenty of room for growth, and the release of a whole new set of software tools for our customers, not to mention adding $35 million in fresh capital to our balance sheet to enable all the investments we've been making.

We will continue beating the growth drum in 2022 with aggressive customer acquisition efforts through sales and marketing and the development of new software and services to surprise and delight our customers.

Our leadership team remains committed to growth, and we have never seen a greater opportunity in our industry. As we enter into the final weeks of 2021, we are thankful for your support over the past year and look forward to reaching new heights in 2022 and beyond.

Thank you all for joining us today. I will now open up the call for Q&A.

(Operator Instructions)

Our first question is coming from the line of Jon Hickman from Landenberg.

Okay. So it appears from my look at your P&L over the last couple of quarters that you're not spending money on marketing and stuff quite as fast as you had anticipated. Can you talk about that?

Yes. That is really a result of onboarding the team to effectively manage that spend. We had anticipated being more aggressive with that marketing spend which is taking a longer time to actually get the right people in place. And many of these people have joined us, honestly, in the past 2-3 months. And we're still building out that team.

So I think that you're going to see that spend accelerate next year. You're definitely going to see that spend accelerate next year now that we have the people on board to effectively manage it and make sure that we're properly spending those dollars.

(Operator Instructions)

Our next question coming from the line of [Elliot Shaw] from Shaw.

A question for you on the share count. It shows that -- on the Internet there's 61-point-something million shares. What is the actual share count as of today?

I will hand that over to Peter to handle that.

I don't have the number at my fingertips, but I'll have it in 30 seconds, if you want to continue.

Yes, that's my question. I'd like to know the number.

One moment. 61,989,866.

Okay. I got a question for Mr. Murphy. Are you guys trying to glean any employees from the Fiverr company. They seem to be doing an outstanding job over there if you're trying to recruit anybody?

You're referring to Fiverr?

Yes.

Yes. We are openly looking at all applicants. We're not targeting any particular company, but certainly looking for people that have background and experience in our space.

Okay. And then do you plan any more of the pot and pans?

I can't really comment on what type of events we're going to have moving forward, but we're certainly continuing to have a high level of excitement here.

Okay. Yes. And then maybe like the purple boomers or something, maybe a pair of Nikes, kind of, put a little bit of a better foot forward. Put a pair of Nikes on maybe?

I run in Nikes. I like Nikes too.

We have a question coming from the line of Bill Musser from New Frontier Capital.

I have a question. Can we expect you to grow 30% a year for the next 3 years from the base of earnings and revenues or base of revenues this year?

We are not giving any guidance to next year quite yet and updating those numbers. We want to finish out 2021, and we will be revisiting that come next year.

But you will be providing some guidance?

Yes, we'll be updating those goals, and that will be reflective of our budgeting process as we finish it this year.

And then my second question is sort of, my observation is that something has, sort of, really changed in influencer marketing business as it relates to brands' willingness to do this kind of advertising relative to where their heads were at prior to the pandemic. And there was the growth you're seeing, I know you've [improved] the product, but the growth you're seeing is so extraordinary that it seems to me that really for the first time influencer marketing is really taking off in a major way. Could you just, sort of, comment on and give some color on that observation?

Yes, I think that you're right. We are just seeing increased investment from the customers that we have across the board, and we are certainly seeing customers that have not previously invested heavily in influencer marketing, jump on board with larger allocations than we've historically seen. So we're seeing those initial investments materially larger than a couple of years ago in 2019 pre-pandemic. And on the higher end, we are seeing more customers that are spending large sums with us, and Brian spoke to that a little bit with our account of customers that are now million-dollar customers of ours.

And would you attribute that to sort of an environmental shift? Or do the factors improve the product a lot?

I think it's a combination of those things. I don't think that we can ignore the fact that influencer marketing itself has really started to hit its stride and is becoming a line item in our clients' budgets and something that is being taken very seriously. At the same time, I give credit to our team that has been working for the past 15 years to not only create this space but really establish us as leaders, both on technology and strategy. So it feels like all this is happening very quickly, but it's the result of a 1.5 decades of hard work on behalf of Team IZEA.

Do you have a sense that the competition is growing as fast as we are or are we gaining share of market in a general sense?

I believe we're gaining share of market in a general sense. I think that you're seeing some companies in the space that are also growing, and we've seen a lot that have fizzled out and are on life support. I would say that we are seeing more inbound deal flow and people looking to sell than we have in the past. And frankly, a lot of that is because they don't have the ability to compete moving forward in terms of capital resources.

And just finally, in terms of hiring people, salespeople are available or not or how about technical people?

I mean, it is definitely a tight labor market, and there's 2 parts of that. One is that we are now able to look outward outside of Orlando in a way that we never had pre-pandemic, and we are now truly a global workforce. But at the same time, so is everybody else. And so it's, kind of, blurred the lines for us as an employer as well as people that are job seekers. It's opened up a lot of opportunity for them as well.

I will say that it's taken us a lot longer to get our engineering team and our product team to a point where we're happy. We're still hiring on both of those teams. And realistically, it's probably going to continue to be tough for the foreseeable future in terms of onboarding new talent.

Just another final question. In terms of getting shaped up to the level of performance that you want, how long do you think that's going to take?

Yes. Part of that actually dovetails into what we were just talking about is getting the team members on board to really get that moving as fast as we would like. That is still a very small team of people and that impacts our ability to move at a clip that we would want to. That is getting better, but it's certainly going to be into next year before we get some of the major things done that we would like to get accomplished.

All right. There are no further questions in queue. I'll turn the call back over to Ryan Schram for closing remarks.

Thanks, Dave, and thank you, everyone, for joining us this afternoon for our Q3 earnings call. As a friendly reminder, all of IZEA's investor information can be found online on our Investor Relations website and it's at izea.com/investors.

Thanks for joining us. Have a safe evening, and we'll talk to you again soon.

And ladies and gentlemen, that will conclude the conference call for today. Thank you very much for your participation. You may now disconnect your lines.