Q2 2021 IZEA Worldwide Inc Earnings Call
Thank you for your patience to conference will begin shortly once again. Thank you for your patience and please continue to standby.
[music].
Good day welcome to a see a worldwide incorporated second quarter 2021 earnings conference call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator. Please press star Zero 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 ideas Q2, 2001 earnings call I'm, Ryan Schram, President and Chief operating officer at Ics and joining me today is IZEA, Chief Financial Officer, Peter Barry and IZEA, Chairman and Chief Executive Officer, Ted Murphy.
For being with us.
Earlier this afternoon the company issued a press release with details pertaining to our second quarter performance for 2021.
Let's review those details all of our Investor information can be found on our investor relation website at <unk> Dot com forward slash investors.
Before we begin please take note of the Safe Harbor paragraph included in today's press release, covering the company's financial results.
Be advised that during today's earnings call our management team will discuss Ics 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.
Putting 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 refer to a non-GAAP financial measure adjusted EBITDA and other business metrics, such as gross billings and bookings.
Explanation of these measures as 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 Nics, Chief Financial Officer, Peter Barry Peter Thank.
Thank you Ryan and good afternoon, everyone.
I'd like to highlight our results for the quarter ended June 32021.
Total revenue for the second quarter of 2021 was $6.5 million or 109% higher when compared to quarter. Two of 2020 with $6.1 million coming from our managed service business and 425000 coming from our SaaS offerings.
Managed services revenue increased by $3.6 million or 146%, while SaaS revenue declined by 220000 or 34% both compared to the prior year quarter.
As we previously announced managed services bookings a key metric, which measures sales orders received less any cancellation of refunds given during a period topped 11 million for the second quarter of 2021.
This all time record represents an increase of 187% compared to Q2 of 2020 and continues the growth trend that we've seen since late last year.
The trend toward larger brands, increasing their marketing spend with ICR.
Also continued during the second quarter as we added several new fortune 500 customers and repeat business from three Fortune 10 partners.
These factors taken together with efforts put forth by our team to fulfill campaigns resulted in the increase in managed services revenue.
As a reminder, we recognize revenue on our managed services contracts over time on the percentage of completion and delivery timing can vary greatly.
Historically bookings converted to revenue over a six to seven 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 nine months with the largest contracts taken even longer to complete.
Planning for larger contracts. It takes more time upfront, which can also cause further delays.
For these reasons managed services bookings, while an overall important indicator of the health of our business may not be used to predict quarterly revenues could be subject to future adjustments.
Last year, our customers faced a number of challenges related to COVID-19.
As a result, we saw cancellations and refunds for managed services jumped in quarter two of 2020.
Since late last year, our managed services business has recovered quickly and continues to grow.
Total managed services bookings of $17.5 million through June have already exceeded bookings for all of last year.
Not only are we selling more but refund rates have fallen to the low single digits with quarter two seeing the lowest rate since we began measurement in 2018.
Yes.
SaaS revenue, which is comprised of license fees self service marketplace spend fees and other fees were comparatively 220000 lower for the second quarter of 2021.
License accounts continue to grow on all platforms. However, average license fees are lower primarily due to competitive changes we implemented during the summer last year in response to Covid related churn.
Okay.
We also lowered our pricing on selected self service offerings, which impacted our margins on marketplace spending during the current quarter.
Gross billings for marketplace spend in the second quarter were 48% lower than the prior year quarter, leading to lower fees revenue.
Our cost of revenue exclusive of amortization was $3.3 million in quarter, two of 2021 or 50% of revenue <unk>.
Compared to $1.4 million or 45% 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 50% compared to 55% in the prior year quarter.
Expenses other than the cost of revenue totaled $5.3 million for the current quarter compared to $3.5 million for the prior year quarter.
Sales and marketing costs were $2.3 million during the quarter, $1.1 million or 87% above last year due to sales compensation, which varies with higher bookings and marketing costs associated with driving customer growth.
General and administrative expense totaled $2.7 million during the quarter 739000, or 38% above the prior year quarter, due primarily to higher compensation and contractor costs to support operations and it investments.
Our net loss for the second quarter of 2021 totaled approximately 112000.
Or zero cents per share compared to a net loss of $1.8 million in the prior year quarter or negative <unk> <unk> per share.
In June of 2021, the company received notification of forgiveness of its PPP loan, which resulted in a onetime gain of $1.9 million during the quarter.
On a pro forma basis without the impact of the debt forgiveness, our net loss totaled $2 million for the second quarter or negative <unk> <unk> per share.
Adjusted EBITDA was approximately negative $1.4 million for the second quarter compared to negative $1.3 million last year, an increase of approximately 154000.
Even with recent strength and demand there is still a level of uncertainty around the duration and total economic impact of the COVID-19 pandemic on our industry.
Based on strong bookings during the first half of 2021, and an increasing revenue backlog, which was $16.5 million at the end of quarter two.
And up 40% sequentially.
We anticipate that revenues will continue to grow in future quarters.
We plan to continue to increase product investment by expanding our engineering team and to increase our marketing spend to drive new customer acquisition.
As of June 32021, we had $75 million of cash on hand, including $12.1 million of gross proceeds during the quarter from our $75 million at the market offering, which we began in June of 2020.
This original at the market offering was exhausted in quarter two.
As previously announced last month the company entered into a new two year at the market sales agreement under which it may offer up to $100 million of its common stock from time to time.
That agreement provides <unk> with financial flexibility moving forward.
The company has not sold any shares in the open market under this new 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.
Leadership team and I remain pleased with the progress we've made across all units in the business here in the front half of 2021.
As we guided towards when we last spoke with shareholders. There is been demonstrable improvement within IC and a variety of areas, including bookings revenue and operational efficiency.
None of which would have happened without the strong support from our clients and customers.
Only exceeded by that of the hard work invested by members of team is the in our creators themselves.
My personal gratitude goes out to all of you listening today.
Let's start with looking at our managed service unit in detail.
<unk> professional services offering continues to impress us with its ability to deliver both front end bookings growth and all time high in Q2 of 11.1 million.
<unk> with handsome revenue recognition up 146% year over year in the same period.
These metrics are driven by both new business wins.
Listing client expansion of light from a range of sectors, including consumer technology high frequency consumer packaged goods E Commerce and entertainment.
What's more we are also seeing substantially higher efficiency on both the bookings per sales person and revenue per FTE fronts as well.
A major contributor towards those areas.
He is focused investment in technology to automate aspects of our sales and service processes, leaving our talented team more quality cycles to grow client relationships and unlock new approaches to serve those beloved household brands.
What's the back half of the year and onto 2022, our intent for managed services remains for it to be a key contributor and growth catalyst.
As such we will made strategic incremental personnel investments driven by data in order to provide the same world class experience.
<unk> has become known for.
It will result in adding new team members across our clients service business operations and legal staff in the coming months, while we simultaneously plan to accommodate our broader compounding growth goals further ahead.
Another important dynamic to understand is that our managed service team seems to be both prudent and its growth strategy. While also opportunistic in conquesting new business doing.
Doing so can place downward pressure on the unit gross margin profile from time to time outside of our historical averages, which a range in the high <unk> to low <unk> on a percent basis.
And our new business wins in the front half of this year, we expect to feel that impact to some extent in the second half in particular that said given Ics stature and leverage in the broader creator economy, we believe that even in those circumstances. The company will have the opportunity to demonstrate improvement over time.
As we've signaled through press releases already in Q3, the trajectory of growth established in late 2020 into the front half of 2021 has continued.
July 2021 was the best July in company history for managed service bookings and managed service bookings have already exceeded all of Q3.2020.
That benchmark was driven by a variety of commitments from our clients, including a mid six figure influencer marketing contract from an existing fortune 100 clients to drive consumer adoption of streaming services.
A $1 million contract expansion to provide influencer marketing services to a fortune 500 consumer electronics manufacturer.
In the end momentum breeds momentum and gain respect game.
That's why we were honored to recently announce that ICF was awarded a new contract from a leading social media platform with our team providing end to end program execution.
Half of that platform and its brand clients.
Fortunately <unk> hundred apparel company.
The brightest and best and the creator economy have an opportunity to align in such a manner. We believe it validates our long term growth hypothesis with an exclamation point.
Now for a closer look at our software business is performance and further commentary on Ics plans for the second half of this year I'd like to turn the call over to our founder Chairman and Chief Executive Officer, Ted Murphy Ted.
Thank you Ryan on our last Investor call I shared that our goal was to deliver at least 30% annual revenue growth per year for each of the next three years or a 30% compound annual growth rate.
That remains our longer term goal.
However, based on the current bookings and revenue numbers for managed services in particular, we believe we are going to materially exceed that 30% goal this year.
As of July managed services bookings have already exceeded all of that of 2020.
And we will likely exceed 30% year over year bookings growth again in Q3.
Our pipeline remains very strong and we've been building on the success and momentum with expansion of key accounts as well as new customer acquisition.
Idea recognizes managed services revenue on a percentage of completion basis, which is about nine months on average.
The bookings increases we saw in Q1 Q2 and now in Q3, we will take some time to be recognized.
The exact timing of revenue can be difficult to predict as it is based on actual execution of campaigns, which often move based on both marketers and creators.
Timing of revenue recognition has also been impacted by world events outside of our control over the past 18 months.
That said, we do believe that this significant increase in bookings will begin to be recognized as revenue in the back half.
Even with the delay to revenue recognition, we believe annual revenue will be well in excess of our 30% growth goal in 2021.
Given the spike in bookings it can be difficult for investors to anticipate what Q3 may look like from a revenue perspective.
In order 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.
Specifically, you will see that the bookings trend line has far outpaced the revenue trend line.
We expect the revenue trend line to catch up to bookings over time.
And indeed, you saw some of that in Q2.
Let's move on from managed services and on to software.
I am pleased to share that we saw record customer counts for software licenses once again this quarter.
Driven by increases for Unity suite brand Graff, and most notably via X discovery, our self service offering.
We're still in the midst of 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.
That change went into effect in Q3 of 2020.
Despite that change, we saw 130% bookings growth and combined unity suite and brain graph licensing year over year this quarter.
With nearly two thirds coming from new customers.
While the majority of our clients have transitioned to the new pricing.
Still some that remain on the old pricing schedule until their contract renews.
We will continue to see some lumpiness with licensing revenue until we get fully through that process, but expect to see some normalization in revenue growth that reflects the steady climb in software customer accounts on the other side of this year.
We made the decision to begin publicly publishing our pricing for all of our software in May of this year.
We did so with the objective of making influencer marketing accessible and affordable for brands and agencies of all sizes.
We are only a few months out from this change, but customer feedback to our transparent pricing price points and flexibility of software and service options has been positive.
Turning our attention to shake our newest software platform.
Shake is still in the very early phases of development and monetization.
We are making constant updates to refine the experience for both buyers and sellers.
At the moment the primary focus is on building more inventory to meet the needs of our buyers.
We want to make it easier for people to create shakes and get their listing approved by our team.
Put simply we need more inventory to sell more shakes.
We have been observing the issues that users have had in the process to create shake since launch and devised a three phase approach to dramatically improve the experience.
We rolled out the first phase of that new experience at the end of Q2.
And it has had a material impact on daily shake creation and shake approval rates.
For context in January of this year only 22% of submitted shakes were approved without change request after initial submission.
In July that number was 73% a massive improvement and success rates.
That means IZEA team members are spending less time in review.
And a much higher percentage of creators are getting their shake published the first time they submit.
That change impacted not only shake creation, but shake purchases.
While the number of purchases and overall dollar value remain a very small part of our business today.
We saw a 100% increase in spend from June to July since releasing phase one with.
With the highest count of transactions to date.
We still have two more phases of research and development to improve the create shake process and make it even easier than <unk>.
Second phase should rollout this month and the third phase should be in production in the next 90 to 120 days.
We are also working on a complete redesign of the shake purchase process based on what we've learned since launch we.
We will be streamlining that user experience to make it more mobile friendly and include additional checkout options such as Apple pay.
The bottom line is we want to make it easier to buy and sell on shake.
And we are making constant improvements to do so.
But we arent, yet where we want to be and we'll continue to iterate.
Software is never done.
It is constantly evolving to meet the needs of the user.
Which brings me to Resourcing and engineering.
We have identified our areas of opportunity and challenge on the software front.
As an organization, we want to move faster on each of our product lines in order to put more distance between us and our competitive set.
In order to do so we will need to recruit and onboard talented people throughout the product organization.
We've on boarded a dedicated technical recruiter as part of our talent team and.
<unk> expanded our relationship with engineering talent partners to speed this process moving forward.
Our goals are ambitious, but we are making steady progress on multiple fronts.
We are expecting to release a variety of new features and refinements in the back half of this year that.
That will touch shake brand Graff Nics X.
You will continue to see more integrations between these products with enhancements and other core services benefiting the greater IZEA ecosystem.
In our last ATM, we raised $75 million.
And we have an open ATM, which we haven't yet accessed for another $100 million.
Some investors have asked me, what we plan to do with it.
And the answer is invest.
Invest in our people invest in technology invest in marketing all in an effort to fuel growth and capture more market share in the industry that we created.
This is not the idea of 2019 or 2018.
This company was reborn in 2020 and.
And we are going for the jugular of the competition.
We will meet the customer where they are and offer solutions to meet their needs no matter their size or industry.
In June of this year E marketer predicted that Influencer marketing spend would grow 33% in 2021 and 12, 2% in 2022.
So far this year, our managed services bookings in both Q1 and Q2 had been triple that of the 2021 projected growth rates for our industry. The number of customers. The licensing software has more than doubled from this time last year.
Our growth strategy is working.
The investments across the board are yielding more customer conversions across customers of all sizes and our biggest customers are rapidly expanding their relationships with us.
And remember this is all organic growth.
We haven't made an acquisition in three years, we don't want to just keep pace with the growth in advertiser spend in our industry.
We want more than our fair share.
And we are going to spend to establish those customer relationships and aggressively conquest when appropriate.
In terms of timing for the additional $100 million that.
To be determined.
We do not have an immediate need for capital today, but.
But could access the line at any time under favorable conditions to our company.
Our team is steadfast in our commitment to grow Ics.
And we have never seen a greater opportunity in our industry.
The first half of 2021 is off to a phenomenal start.
And we are optimistic about the balance of this year.
With back to school and holiday season, right around the corner.
Thank you all for joining us today.
I will now open up the call for Q&A.
Thank you if you'd like to register for a question you can press. The one followed by the four on your telephone and Youll hear three tone prompt technology request.
For your question gets answered or you wish to withdraw you can press one three.
Again, Thats 140, <unk> give us just a moment for the first question.
No question, so far again, if you'd like to queue up press one four.
We have a question from the line of Jon Hickman from Ladenburg. Please go ahead Sir.
Hi, Ted.
Ted.
I was wondering you.
You made a comment about our somebody made a comment about.
Can you hear me okay.
Hello.
Yes, John we can hear you.
Someone made a comment about marketplace spend.
Being lower.
Even though customer counts are up can you talk about that.
Yes, we have.
The customer counts have continued to increase their app.
100% year over year.
You have customers that are.
Either in our <unk> product that does not have that does not have the marketplace component.
You have typically smaller customers, who are just spending less.
And those platforms.
So that's kind of the opposite of what's going on in managed services.
So is there a reason why people are doing their own.
But giving you the work.
It is.
Theyre basically having us manage that work for them.
And some of those customers that were previously.
Software customers have moved over to managed services.
As they have made changes in their marketing organization. So we've been able to retain those customer relationships that they have.
They've switched from from SaaS or managed services.
And do you like is there a reason for that.
Is that puzzling you or.
Two.
Can you comment on why that's happening.
Yes, I mean, there is a.
A larger trend.
And housing.
For many brands, but it really comes down to resources and expertise so even though we.
We use the same software that our customers would use.
There is a human component of that.
Like if you were going to have somebody right.
Campaign with Google Adwords.
Everybody is using the same software but.
There is there is absolutely.
Human aspect of.
The strategy and the execution that goes into the success of the campaign.
So how like.
So you don't you need to add people there too.
Besides marketing and engineering.
I mean, we.
We.
Have you been getting.
We have been adding some staff there.
Though.
Our software really allows us to.
Scale pretty well so R R.
Our team is able to handle a much larger load than they have historically.
Ryan I don't know if you want to comment a little more on that.
Hey, John Yeah, I mean, your thoughts here really one is is that we are seeing the.
The capacity of our staff be able to be.
Supplemented by the technological innovation of our engineering investments, meaning that it just takes less human cycles to deliver a campaign on average than it did a year.
There are two ago or certainly three or four years ago, which is promising and then really.
Lines to our entire business hypothesis secondarily, okay to answer your other question.
Other question related to software.
Software and what we think could happen down the road is as markets mature, we think that there will be ample opportunity for both lines of this business there is inevitably going to be.
Larger brands and agencies, but also mid and smaller size brands and agencies that we'll want to do execution for themselves, especially as those investments increase but I also think there is real value to the duality of our business like Ted was saying to be able to support that.
Those clients and customers.
If there are circumstances change and then idea doesn't lose out.
Either regard.
Okay. So.
And then my last question.
It seems to me that you were indicating.
Without using numbers that gross margins were probably going to be.
Lower in the near term, but then improving maybe in the back or late this late this year early next year.
So is that what you were saying.
Comment, yes, as we conquest new business John.
Fine.
He says we have to lower our margins in order to secure that business.
Initially that you have depending on the size of the business implications. We do think that will have an impact on us here in the back half.
We also as we look to the future statements that there's real opportunity for us too.
That margin back up, particularly as we're able to use our pricing leverage and buying power and the broader creator economy.
So if I was to use numbers Yuri.
You would.
Do you expect margins in Q3 to be lower than Q2.
So what are you trying to tell them.
We would.
And then later on it gets better.
That would be the intent although right now we're still in the process of having clients that we're winning given all of the growth. So it's hard to necessarily have a direct line of sight over time, depending on what things we win between now and then and the timing of those campaign wins as.
Peter was saying.
Larger campaign commitment and sometimes have shorter timetables or larger timetables, which is why we're trying to provide.
Average guidance on duration for revenue recognition and that would that have.
Implication to your gross margin timing as well.
So who are you competing with in house people.
I mean I don't know.
No anybody else.
Publicly that doing what you do.
But there are to our knowledge no other publicly traded companies that are pure play Influencer marketing organizations John.
The competition for us ranges from venture back companies to even departments.
In large AD agency holding companies to try to do some form of Influencer marketing.
But what we see as the opportunity is that even in those circumstances, perhaps that there is a professional services offering somewhere else chances are they'll need world class software in order to be able to execute their campaigns at some point.
It presents an opportunity for us is a different type of customer.
Okay.
Thanks, that's it for me.
Thanks, John Thank you John.
Yes.
And at this time I would like to turn it over to Ted Murphy to review any questions that were submitted on the Investor Relations website.
Okay.
Thank you we opened up a form on that on our website to retail investors to ask some questions and I'm going to answer a few of those questions. Now. The first one is from Shawn and he asked if there will be a shake app at some point.
The answer is yes, we do intend to create a shake mobile app, we will likely start with an iPhone app, but as I said earlier on today's call. We're still working through some of the user flows and we want to perfect that on the web before we bring them to our mobile app.
The next question I'm going to answer it from <unk>.
Yes, what if one of the big tier ones mimic what Isaiah has done or achieved so far how well ICF protect its tech and its position.
Commented on this a little bit during our last call. We believe that ICF position as an agnostic provider is really one of the reasons that brands continue to choose us even when the social networks have offered their own influencer marketing solutions in the past.
As Ryan spoke.
About <unk>.
Then awarded an Influencer marketing con.
Contract from one of the social media platforms themselves to execute campaigns on behalf of their clients and I think that that's a testament to the value that we provide.
No doubt going to be continued competition in our space from providers that are both big and small, but we believe that there is.
Our unique combination of proprietary software.
And data across multiple platforms that really sets us apart, which is why these.
Large CPG companies and retailers continue to choose Ics.
Edward asked.
Is the growth of managed services bookings since December the result of specific activity or is it purely organic what is being done to ensure continued growth.
I would say that it's not just one activity, but the confluence of many efforts across the organization a big part of that effort has been the expansion of our team with new and existing leaders stepping up to take on more and more responsibilities and to grow the customer base.
We're continuing to invest there in order to fuel the continued growth of the company, we're going to be adding head count throughout the organization in the back half of this year and we.
We believe that we're going to continue to see growth from existing customers, who put trust in our services and software.
And the last question here is from Jai.
Sure.
What is the outlook for ICF in the next three years.
We believe that the outlook for the company is very positive.
Based on where the industry is heading and the investments that we're making to not just keep pace, but to lead the industry.
Software licensing is going to play an increasingly important role in our future and we're creating the foundation.
For software to be a much larger line of our business for the company.
At the same time, I would say that our managed services offerings.
Showing unprecedented growth and the demand that we've seen with the world's biggest brands has been amazing. The first part of this year and we intend to aggressively pursue the business by expanding our sales and marketing efforts even further.
And that is it for questions I'm going to turn things back over to Ryan.
And so much Ted and we'd like to thank everyone for joining us. This afternoon for our Q2 earnings call and as a reminder, youre welcome to view all of our Investor information on our Investor Relations website.
<unk> Dot com forward Slash investors you are also welcome to submit other questions to us for future earnings calls on that site as well.
Until next time on behalf of all of US here at <unk>.
Stay safe be well.
Joining us.
That does conclude the conference call for today, we thank you for your participation and you can now disconnect your lines.
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