Q3 2021 IZEA Worldwide Inc Earnings Call
Good day and welcome to <unk> worldwide incorporated third 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 anytime 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 Shrimp. Please go ahead.
Good afternoon, everyone and welcome to I Z S Q3, 2021 earnings tall.
I'm, Ryan Schramm, President and Chief operating officer at Ikea, and with me on today's call as I Z, a chief financial Officer, Peter Barry.
Z, a chairman and Chief Executive Officer, Ted Murphy.
For joining us.
Earlier this afternoon the company issued a press release with details pertaining to our third quarter performance for 2021 if.
If you'd like to review those details all of our Investor information can be found at our Investor Relations website.
At I Z, a 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 and be advised that during today's earnings call. Our management team will discuss as he is business outlook and made 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 are 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 S E C.
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 I Z as Chief Financial Officer, Peter Berry Peter.
Thank you Ryan and good afternoon, everyone I'd like to highlight a results for the quarter ended September 30th 2021.
Total revenue for the third quarter of 2021 was 7.6 million or 88% higher when compared to Q3 of 2020.
7.2 million coming from a managed services business and 454000 coming from our size offerings.
Managed services revenue increased by 3.7 million or 104%, while says revenue declined by 68000 or 13%.
Compared to the prior year quarter.
As we've previously announced managed services bookings are key metric, which measure sales orders received less any cancellations or refunds given during a period.
[noise] topped 11 million for the third quarter of 2021.
This all time record represents an increase of 181% compared to Q3 of 2020 and.
And continues to growth trend that we've seen since late last year.
The transports larger brands, increasing their marketing spend with Isaiah also continued during the 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 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 time it can vary greatly.
Historically bookings have converted to revenue while we're at six to seven month period on average how.
However, since late last year, we've been receiving an increasingly larger and more complex sales orders, which in turn has linked to the average period for revenue recognition to approximately nine months with the largest contracts taking even longer complete.
Planning for larger contracts takes more time upfront, which can also cause further delays for.
For these reasons managed services bookings wall and over overall indicator of the health of our business may not be used to predict quarterly revenues and could be subject to future adjustment.
<unk> revenue, which consists of license fees self service marketplace spent fees and other fees was comparatively $68000 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 name.
Namely and 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 is packed that our margins on marketplace spending during the current quarter.
Gross billings for marketplace kind of 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 for 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 administrative cost total 2.7 million during the quarter 844000, or 46% above the prior year quarter, due primarily to higher compensation as well as contractor costs to support operations in investments.
Our net loss for the third quarter of 2021, total approximately 1.5 million or negative two cents per share compared to a net loss of 1.3 million prior year quarter or negative three cents per share.
Adjusted EBITDA was approximately.
Negative 1 million for the third quarter compared to negative 725000 for the prior year quarter, a difference of about 275000.
Bookings growth over the last four quarters has outpaced our growing managed services revenue drew.
Driving or 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 ear and seasonal promotions.
As of September 30th 2021, we had $74.5 million of cash on hand down about 500000 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 two year at the market sales agreement, having which may offer up to 100 million of its comments talk from time to time.
That agreement provides ICA with financial flexibility moving forward to.
The company is not sold any shares in the open market under that agreement today.
With our cash on hand, and a potential additional financing vehicle in place. We're 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 set in your fries via on several fronts.
One of the Shining examples comes from a 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.
By leveraging ideas 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 sized commitments broader geographic access.
And more substantive relationships overall and.
And it's working since 2019, we have more than tripled the number of clients, who are trusting idea with million dollar plus budgets, while at the same time, increasing the absolute number of new managed service clients by more than two acts 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 bastions 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 toward 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 I Z as future thriving at the intersection of our talented team members.
Are 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 back solutions, adding more clients doesn't necessarily mean, having to add proportionately more cost.
While we made steadfastly committed to securing and consolidating the very best talent across the influencer market in the industry in both our sales and service organizations. We believe that idea will continue to enjoy an increase in revenue per fulltime employee overtime as we seek to enhance an <unk>.
<unk> lower value aspects of the campaign 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 and ideas performance year to date as well as commentary on the road ahead for the company I led to turn the call over to my colleague and ideas founder Chairman and C E O Ted Murphy Ted <unk>.
Thank you Ryan.
At the end of 2020, our team that fourth and goal to deliberately 30% annual revenue growth per year.
For each of the next three years or a 30% compound annual growth rate.
Revenues in 2020, where $18.3 million.
Based on that rate of 30% growth per year.
Our goal was to achieve revenues of approximately $23.8 million in 2021 and.
And $31 million in 2022.
We are on pace to significantly B R revenue goal in 2021.
Armenia services bookings in 2021 has far exceeded our initial targets.
Q3 to date is $28.8 million in bookings versus $10.7 million for the same period last year.
170% increase.
As a result of strong bookings this year.
We are going to materially exceed are 30% revenue growth target in 2021.
Year to date revenue through Q3 of this year already total's $19.5 million.
And we are heading into historically strong quarter fries bookings and revenue recognition.
We saw a large year over year spike in bookings in Q1, Q2 and two three.
Which can make it difficult for investors to anticipate what queue for me look like from a revenue perspective.
To assist investors, we even including a chart in our latest earnings press release that illustrate the historical correlation between managed services bookings and revenue.
If you refer to the chart you will see if there is gonna date virgins from the bookings in revenue trend lines over the past few quarters the.
The bookings timeline has far outpaced the revenue trend line for the past three quarters as idea has been awarded larger contracts that span 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 overtime and.
And anticipate sequential revenue growth from Q3 224 as.
As bookings from prior quarters are recognized and the holiday season.
However, it is important to note that the average revenue recognition period is still in the range of nine months.
There's some bookings in queue to do three and in the current quarter will cross over into 2022.
Team idea is off to a great start in queue for <unk>.
Continuing the momentum a previous quarters October.
October was the best October we had ever had for many services bookings and our team is focused on closing or 2021 on a strong note.
We recognize that we remain amid a global pandemic.
With supply chain and labor shortages it 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 coben operations.
It is unclear if or when they will fully recover.
With that said or.
Our overall outlook for 2022 today is incredibly positive.
We are bullish on continued growth based on the early indications of renewables from some of our larger clients.
Let's move on from managed services and onto software.
I am pleased to share that we saw record customer accounts for software licenses once again this quarter.
Driven primarily by increases fries via X discovery or self service offering.
We also saw record new customer starts for unity Sweet.
As a result of increased demand generation investment coupled with the new Influencer discovery features we've 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, an existing customer renewals.
We are already working on the next generation of 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 Sweet last year.
When we lowered pricing on all tears and introduced a starker tier to appeal to smaller brands and agencies.
Well the majority of our clients have been transition to the new pricing theirs.
There are still some that remain on the old pricing structure until their contract renews.
SAS licensing revenue and overall SaaS revenue grew from Q2 Q3, but.
But we expect to see some fluctuation in queue for as.
As we get fully through that pricing adjustment with the last set of customers.
We should see some normalization and revenue growth.
Reflects the steady climb and software customer accounts 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've seen a dramatic increase in first time shake approval rates.
For context in January of this year.
22% of submitted shakes were approved without change requests after initial submission.
In October that number was 90.73%.
A massive improvement and success rates and a 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.
16 X 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.
And we know the buying process could be better.
So these are opportunities we're focused on.
During our two two conference call I shared that we had a three stage approach to address our inventory problem.
Phase two rolled out in August and.
And we expect phase III to roll out by the end of this year.
<unk> three has some technology integrations with idea X that will make the creator shake process even faster.
Particularly for creators focused on Instagram and tick tock.
You'll be able to create a shake with two clicks from inside of Isaiah X.
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 rates 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 transformed the platform to increase conversion rates and revenue.
Over the past several months or talent team has kicked their efforts into overdrive.
Recruiting new <unk> 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.
As well as supporting engineers and specialists to focus on strategic implementation and execution.
The investment in product marketing will continue into 2022 and beyond as we grow the company and the customer base we serve.
Our demand generation efforts through 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 enterbrain well exceeds industry averages.
Isaiah will also make additional investments and marketing automation content creation and social media.
You likely have already noticed the increased cadence and 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 E marketer predicting 12, 2% growth in Influencer marketing spend industry wide in 2022 B.
Beyond 2022, I believe the industry is still in its nascency.
The long term opportunity for idea and the ecosystem. We serve is growing as global adoption of digital lifestyles perpetuates.
The industry, we operate and will continue to evolve.
And we intend to persistently pioneer new types of Influencer collaborations on emerging platforms as it does.
I am, particularly excited about the opportunities that will develop over the next five to 10 years with the murder versus.
While Facebooks announcement is certainly exciting we believed that future potential for virtual worlds is as vast as the web itself.
One could argue that the world's a tick tock and Instagram are already alternative universes of their own.
But when interconnected virtual worlds become mainstream it will fundamentally alter what 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 the virtual world.
Imagine a virtual space ship in the shape of the 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 crypto currencies, 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 continued to see explosive growth in customer accounts 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 of 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 had never seen a greater opportunity in our industry.
As we enter into the final weeks of 2021.
We are gainful 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.
Thank you and ladies and gentlemen, if you would like to register for a question you can do so by dialing the one four by four that's one four on your telephone keypad right now like I <unk>, you will hear three tones to acknowledge your request. If your question has been answered and you would like to withdraw.
Registration you can do so by dialing one three okay. Quick reminder, so that's one four by 414 on your telephone keypad to register for questions today.
That's 141, followed by the far to register for questions.
Alright, our first question coming from the lineup John Hickman from a London Burke you may not proceed.
Hello can you hear me.
Hello, Ted.
Yes.
Oh, okay.
Uhm so.
It appears from.
It appears from my.
Look at your P&L for 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.
Yeah.
That is really a result of uhm onboarding that the team to effectively manage that spend.
We hadn't anticipated be more aggressive.
That marketing spend but it's just taken a a longer time to actually get the right people in place.
And many of those people have joined us honestly in the past.
Two to three months.
And we are still building out that team. So I think that you're going to see that spend mm.
Accelerate next year, you're definitely going to see that's that's been 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.
Okay. Thanks, that's it for me.
Thank you.
Okay, I haven't bummed out some there are yeah, yeah, they love it up here.
[laughter] quick reminder, for everybody. That's 141, followed by the four on your telephone Keypads Register for questions. Okay. Our next question coming from the line of Elliot Shaw from Shaw you May now proceed.
Got a question for you on the share count.
Shows it under the Internet is 61 point something million chairs letters the actor sure go as of today.
I will hand that over to Peter to answer that.
[noise] [noise] unfortunate I don't have the number at my fingertips, but I'll have at 130 seconds. If you want to continue.
Yeah. That's my question I'd like to know the amount of it.
Okay, one moment.
61.
989 866.
Okay I've got a question for Mister Murphy.
Are you guys trying to glean any employees from the favorite company.
Seem to be.
Are you in an outstanding job over there.
Trying to recruit anybody.
You're referring to fighter.
Yeah.
Yes.
We are openly.
Openly looking at at all applicants were not targeting any particular company but.
Certainly looking for people that has.
Background and experience in our space.
Okay, and then do you plan any more of the pots and pans.
[laughter].
I can't really comment on what type of events, we're gonna have moving forward.
But but.
Certainly continue to have a high level of excitement here.
Okay, Yeah, and then you know maybe like instead.
Date of the purple boomers or something maybe a pair of nikes.
You know kind of put a little bit of a better better foot forward.
A pair of Nike wrong, maybe.
Yeah, I am running nikes.
Negative.
Okay. Thank.
Thank you.
Alright, everybody we have a question coming from the line of Bill Motser from New Frontier Capital you May now proceed.
H Ed how are Ya.
How are you I have a question I have a question can we expect you to grow 30% a year for the next three years from the base of earnings and revenues basic revenues this year.
We are not giving any guidance to next year quite yet.
And updating those numbers I'm gonna finish out uhm.
2021, and we will be revisiting that come next year.
Yeah.
But you will be provided some guidance.
Yeah, well, we'll we'll be updating those goals and and that.
That would be reflective of our budgeting process as we finish it this year.
And then my second question and sort of my observation is that something is sort of really changed in the 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 in other words, the grow to you're seeing I know your group the product with the growth you're saying, it's so extraordinary that it seems to me that really for the first sign Influencer marketing is really taking off in a major way could.
Could you just sort of come in and get some color on that observation.
Yeah, I think that you're right.
We're just seeing increased investment from the customers that we have across the board and we are certainly seeing customers that has not previously invested heavily an influencer marketing John.
Jump on board with larger allocations then.
Then we have historically C. So we're seeing those initial investments <unk>.
<unk> materially larger than a couple of years ago in 2019, Prepandemic and on the higher end, we're seeing more customers that are spending large sums with us and Brian spoke to that a little bit with our account of of customers that are now million dollar customers of ours.
And would you attribute that to sort of a environmental shift or to the fact, you can improve the product a lot.
I think it's a combination of of those things I don't think that we can ignore the fact that influencer marketing itself is really started to hit his stride and is <unk>.
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 has been working for the past 15 years to not only create the space, but really established that says as leaders both on technology and.
And strategy so.
Feels like all this is happening very set.
Very quickly, but it's it's the result of a decade and a half of hard work on behalf of <unk>.
Do you have a sense that the competition is wrong as fast as we are we gaining share of market in a general Sir.
[noise] I believe we're we're gaining share market in the general sense, I think that you're seeing some.
Some companies in the space that are also growing and we've seen a lot that had.
Fizzled out Uhm and are on life support I would say that we are seeing more in down.
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 two parts of that.
One is that.
We are we are now able to.
Look outward outside of Orlando in a way that we never had prepandemic.
And we are now truly a global workforce.
But at the same time, so is everybody else [laughter] 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 for them as well.
I will say that it has taken us a lot longer to get.
Our engineering team in our product team.
To a point, where where we're happy we're still hiring.
On on both of those teams.
And realistically it's.
It's probably going to continue to be tough for the foreseeable future in terms of Onboarding new talent.
It just it just another final question in terms of getting shake up to the level of performance that you want how long do you think that's gonna take.
Yeah part part of that actually dovetails into to what we were just talking about us.
Getting the getting the team members on board to really get that moving as fast as we would.
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 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.
Okay. Thank you.
Thank you.
Alright, there are no further questions in queue I'll turn the call back over to Orion shrimp 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 ideas investor information can be found online on our Investor Relations website, and that's at <unk> Dot com forward slash investors.
That's it for joining us have a safe evening and we'll talk to you again soon.
And like the gentleman that will conclude the conference call for today. Thank you very much for your participation you may now disconnect your lines.
[music].