Q1 2022 IZEA Worldwide Inc Earnings Call
Planning for larger contracts 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 jump 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.
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SAS 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 counts 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.
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 compared.
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 <unk>, 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.
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 Aegean 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 the 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 IZEA and 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. This 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 matched with handsome revenue recognition up.
146% year over year in the same period.
These metrics are driven by both new business wins and existing client expansion alike 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.
As it lifts 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 ICA has become known for.
It will result in added new team members across our client 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 teams 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 units gross margin profile from time to time outside of our historical averages, which a range in the high fifty's to low <unk> on a percent basis Bay.
Based on our new business wins from the front half of this year, we expect to feel that impact to some extent in the second half in particular that said given idea of 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 and <unk>.
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 idea was awarded a new contract from a leading social media platform with our team providing end to end program execution.
Behalf of that platform and its brand clients.
Fortune 100 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 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've 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 accounts for software licenses once again this quarter.
Driven by increases for Unity suite brand Graff, and most notably ICA ex 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 brand graff 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. There is still some that remain on the old pricing schedule until they're contracting news.
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.
Sheikh 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 shakes 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 I E. A team members are spending less time in review.
And a much higher percentage of creators are getting their shake published the first time the 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 shape process and make it even easier than.
The 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 shape purchase process based on what we've learned since launch.
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 will continue to iterate.
Software is never done it.
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 have 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 and <unk> X.
We 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 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 remains to be determined.
We do not have an immediate need for capital today.
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.