Q3 2022 IZEA Worldwide Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the idea of worldwide, Inc. Third quarter 2022 earnings call. At this time all participants are in a listen only mode. A question answer session will follow the formal presentation.

At that time, if you have a question. Please press the one followed by the score on your telephone.

If at any time during the conference you need to reach an operator, Please press star and zero as a reminder, this conference is being recorded.

I will now turn the conference over to Ryan Schram, President and Chief operating officer. Thank you you may begin.

Good afternoon, everyone and thank you for joining that surprise. He his earnings call covering the third quarter of 2022, I'm, Ryan Schram, President and Chief operating officer at ICR and joining me on the call Alright, Chief Financial Officer, Peter Barry and I E. A founder Chairman and Chief Executive Officer, Ted Murphy word.

Good to have you with us today.

Earlier this afternoon the company issued a press release detailing our performance for the third quarter of 2022, if you'd like to review those details all of our Investor information can be found online on our Investor Relations 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 and be advised that some of the statements that we make today regarding our business operations and financial performance may be considered forward looking and such statements involve a number of risks and uncertain.

<unk> that could cause actual results to differ materially.

We encourage you to consider the disclosures contained in our SEC filings for a detailed discussion of these factors.

Our commentary today will also include the non-GAAP financial measure of adjusted EBITDA.

Reconciliations between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued earlier today as well as in our publicly available filings.

And with that I'm pleased to introduce <unk>, Chief Financial Officer, Peter Barry Peter.

Thank you Ryan and good afternoon, everyone I'll review, our operating results and provide additional context for the quarter.

Revenue for the third quarter of 2022 totaled $10 8 million, 40% higher than in Q3 of 2021.

Managed services revenue totaled $10 5 million during the quarter growing 44% over the prior year quarter.

We recorded 350000 in net revenue from our SaaS offerings during the current quarter down 23% from the prior year quarter.

Managed services revenue grew by $3 2 million quarter over quarter, primarily due to revenues on one large customer contract, which grew by $2 6 million.

Revenues from all other customers grew approximately 10% compared to Q3 of 2021.

As previously announced managed services bookings fell by 27% to $8 2 million in the third quarter of 2022, as we saw the contracting process slowed down over the summer months.

Bookings on our large customer contract represented 57% of the total quarter over quarter decline.

So bookings for all other customers declined to more moderate at 17% in Q3 over the prior year quarter.

September bookings were strong this year delivering our second best monthly bookings total and we ended the quarter with a solid pipeline of opportunities.

There is a lag between bookings and revenue recognition some of the slowness over the summer as reflected in the current quarter revenue total, but a higher percentage will manifest in Q4 2022 in early 2023 revenues.

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Our managed services backlog, which represents the total of unrecognized revenue for contracts that are underway as well as recent bookings that have yet to begin invoicing.

Totaled $19 2 million on September 30th 2022.

We expect to record most of this backlog as revenue in the following three quarters.

SAS services revenue consisting of license fees self service marketplace spend fees and other fees declined by 102000 in the current quarter or about 23% compared to the prior year quarter.

Total license fee counts on all platforms declined by 22% in the current period.

Revenue from license fees declined by 10% in the comparative quarter, while gross marketplace spend fees fell 82%.

Gross billings for SaaS services fell by 23% quarter over quarter, mostly due to a sharp decline in marketplace spend.

Including fewer marketers and lower average spending levels.

Our cost of revenue was $6 6 million in the third quarter of 2022, or 61% of revenue compared to $4 million or 52% of revenue in the prior year quarter.

Accordingly, our gross margin in the third quarter averaged 39% compared to 48% in the prior year quarter.

The increase in the cost of revenue was primarily due to a higher delivery costs on one large customer contract, which made up 31% of total revenues during the current quarter.

This significant contract aside the cost of revenue for our other customer contracts was within range of recent historical averages.

Expenses other than the cost of revenue totaled $5 6 million for the third quarter compared to $5 1 million for the prior year quarter.

Sales and marketing costs totaled $2 5 million during the third quarter, 261000, or 11, 7% higher quarter over quarter.

Additional head count and related payroll costs associated with driving customer growth were partly offset by lower sales commissions and that vary with bookings.

General and administrative costs totaled $2 9 million during the third quarter, 256000, or nine 7% higher quarter over quarter, due primarily to higher professional fees associated with changing our auditor.

Our net loss was 906000 for the third quarter of 2022, or one cents per share compared to a net loss of $1 4 million in the prior year quarter or <unk> <unk> per share.

Adjusted EBITDA was negative 591000 for the third quarter of this year compared to a negative 926000 for the prior year quarter.

As of September 30th 2022, we had 67 million in cash and investments down from $75 4 million at the beginning of the year.

Lower partly due to negative $2 5 million of adjusted EBITDA for the year to date period with the rest of the change tied up in working capital, mostly due to timing differences of payments and receipts related to our large customer contracts.

We made 447000 in interest income on our investments during the quarter.

As previously announced we terminated our at the market equity offering during the quarter, we had not raised any capital through the ATM and believe that we are well capitalized for our current growth strategy.

Lastly, we did not have any debt on our balance sheet.

With cash on hand, and liquidity from our investment portfolio as required.

We are in a solid position to execute on business growth and opportunities that may lie ahead.

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

Thanks, Peter and Hello again, everyone.

There's no question, we're operating in an uncertain environment and that business is across all sectors continue to get tested in new and different ways.

When it comes to how <unk> is helping brands and agencies navigate the sweeping changes in the advertising industry. While also further embracing the creator economy, our mission remains unchanged.

As I mentioned in our Q2 call. We are continuing to sharpen our focus a clear set of product and business priorities.

The product expansion announcements we've made in just the last quarter alone have demonstrated that very clearly.

Including significant improvements to our creator marketplace and Zia dot com by.

By launching our next generation enterprise software solution flex.

And the continued growth of geographic markets around the world, where we can serve managed service clients in a differentiated and compelling manner.

These will all drive value for marketers and creators and our business simultaneously.

We have also worked throughout the year to drive efficiency by realigning internal resources to invest in our biggest growth opportunities for 2023 and beyond.

Shareholders can expect as we plan for the fiscal year ahead idea is committed to making important trade offs, where needed and will moderate operating losses prudently due to the current macroeconomic climate.

For those of you who turned into a live streaming event on September 21st use.

You saw the result of many quarters of investment and hard work finally unveiled to the public.

The all new treater marketplace Zia dot com is geared towards bespoke influencer marketing initiatives and transactional engagements.

It's quick easy and simple to use and is perfect for small campaigns and projects that need fast turnarounds and upfront pricing.

Best of all it builds off of all of the marketplace findings our team learned from the launch of shake in 2020 and expands upon it with bilateral interactions, including creator casting calls that are designed to encompass all things Influencer marketing.

But a re imagined marketplace was just the beginning.

Our team also announced the introduction of an entirely new way of working within enterprise software is the flex.

Modern influencer marketing spans the gamut of complexity process and measurement. Some brands that are quick post and what content at a modest budget, while others are executing complex multiyear ambassadorships across multiple platforms with everything from nano influencers.

To celebrities.

Our legacy enterprise solution, <unk> unity suite excels at structure, workflows, and bringing buyers and sellers through a clearly defined process.

But as the industry has expanded so too have the needs of our customers.

There is a gap in the addressable market to provide software designed to accommodate the needs of brands and agencies, both big and small built from the ground up to be as flexible as it is powerful.

There is so much more to share about flexes benefits for both IC as current and future customers.

But central to its business strategy is providing the best price to value in the Influencer marketing industry.

Lower the barrier to entry for enterprise software across the board competitively.

From our completely free tier that allows new users to come in and did a feeling for how flexes power tools would work for their organization.

The extremely affordable price points of our annual starter and power plans at 130 and $500 per month, respectively. We want as many marketers to be able to try this new platform as possible and made the switch at Theyre currently using inferior more expense.

<unk> solutions.

If you'd like to learn more about the new idea dot com or is there a flex an archive of our Super chain streaming event is linked on the company's online Press center.

Last but not least on October 18th we announced the company's official launch into the United Kingdom.

Having built a reputation as a trusted strategic partner in the North American and Chinese markets.

Idea has brought our flexible managed services model underpinned by our powerful technology platforms to one of the worlds upper centers of advertising itself.

As part of our broader emerging market strategy, we conducted extensive competitive and client due diligence, which underscored that the UK like many corners of the world has tremendous growth potential.

But lacks the experience and innovation required by top brands.

As a battle tested best in class partner ICL will be filling a significant gap in the market by working both directly with brands or alongside partner agencies, while dispensing the mandatory long term retainers and hourly billing that currently dominate the sector.

Thinking about these initiatives holistically when faced with an uncertain economy or other unexpected volatility clients and customers tend to double down spending with the companies that they believe have the best customer experience and focus on delivering lasting value.

And that is where our efforts remain focused.

Cross all of our lines of business team is there remains heads down concentrated on driving a fantastic experience across all of our services and products.

We believe putting clients and customers first.

Is the only reliable way to create lasting value for shareholders.

For additional thoughts on our third quarter and how we are looking at the road ahead for idea.

I'd now like to turn the call over to my colleague and our chairman and CEO Ted Murphy Ted.

Thank you Ryan we have seen a tremendous amount of market change over the past two quarters with businesses of all sizes in all sectors impacted by the slowing in the global economy.

Even our largest clients are now showing signs that they are not immune to the economic fallout and there had been negative implications for izea's overall momentum as a result.

Bookings in Q3 were not as strong as we had projected they would be based on the robust performance. We delivered in the front half of this year.

Customer contracting throughout the quarter was slower than we expected, particularly for net new clients.

As the quarter progressed, we concluded with a strong September .

The second best month that we've had so far this year.

But that did not make up for the slower preceding months.

We saw our new opportunity pipeline for managed services hitting all time high in Q3 of 2022.

Up 40% from the new opportunity pipeline that we delivered a year ago in Q3 of 2021.

We've also seen this trend continue in October .

Which was our best month ever for new opportunity pipeline generated.

New opportunity pipeline for managed services is the strongest it has ever been.

But we remain cautious on the forward projection of close rates as we look to Q4 and beyond.

Our opportunities continue to progress at a slower pace than we would wait.

And we believe that this is the result of a more of a in your economic outlook adopted by current and prospective clients.

This is negatively impacted close rates in the back half of this year.

So they are still well above our historical averages.

We have made great strides improving our average close rates.

But we are expecting a bit of a pullback in the coming year.

Which means we will need to generate more pipeline than ever.

While many aspects of the global economic picture remains hazy.

It's clear that we are entering a more challenging macro environment.

Sales will be harder competition more fierce.

And customer expectations elevated.

IGN will navigate the year ahead through a combination of efficiency and growth efforts.

Our single biggest expense is talent.

Over the past two years, we have been expanding our team and sterling needed roles throughout the organization.

While we are larger than we were at the onset of 2020, we still have about 15% less full time employees compared to our peak in 2016.

We did not go on an all out hiring spree when the markets were relentlessly climbing.

We chose to be more pragmatic and reserved in our approach.

Markets have changed quickly.

And we are now benefiting from that decision.

In Q3, we have further slowed the pace of hiring.

Selling on critical roles, our central back sales and hiring new sales team members directly tied to revenue generation.

Despite our plan to keep head count relatively flat near term we.

We do expect costs related to labor to continue to rise in 2023.

No not at the rate that they have over the past two years.

There is no escape from the rising cost of inflation.

Impacting everything from salaries to insurance costs.

To help counteract those rising costs, we have already implemented some staffing adjustments and reorganized departments in this quarter to optimize for efficiency moving forward.

Throughout 2022, we've been streamlining our product team to deliver more innovative products faster.

And we intend to keep a lean mentality moving forward.

We have seen that small teams smart people can be incredibly effective.

And our globalization of the product organization has resulted in lower cost per team member.

The streamlining of the product organization goes hand in hand, with the consolidation of the software products under the ICF umbrella.

In late October we shuttered shake in favor of the ICM marketplace.

And we will shatter Ics X in late 2023, along with a multitude of legacy services associated with that platform that are expensive to run and maintain.

Brian grass customer facing experience will be rolled into ICF flex in 2023.

And we will eventually market under the <unk> brand for all software services.

This decision will help us consolidate marketing spend and create a more cohesive user ecosystem in the years to come.

We expect IC, a flex to reach MVP in this quarter and we will begin the transition of ICL X customers. After the holidays in Q1.

On the growth side of the equation, we have been working to position ourselves to benefit from a number of catalysts in 2023.

We will enter this year with two new software platforms, along with a sales presence in China as well as the U K.

<unk> has a strong pipeline of managed services opportunities, but we must continue to build that pipeline given the longer close cycles and impact on close rates, we have seen in the back half of this year.

The macro environment will require us to support sales efforts with increased marketing include.

Including an aggressive event schedule content production and demand generation efforts.

We're excited by some of the early indications from these initiatives and intend to capitalize on these opportunities in the quarters ahead.

While there is no denying that some choppy economic waters line, our path, we earn a position of financial strength.

And this team experienced and well equipped to navigate them.

Thank you all for joining us today.

We'll now open up the call for Q&A from the analyst community.

If you'd like to register a question. Please press the one followed by the four and your telephone and you'll hear a threefold prompt to acknowledge your request. If your question has been answered and you would like to withdraw your Registrational. Please press the one followed by the Street.

If you are using a speaker phone lift your handset before entering your request once again, that's one four to register for a question one brief moment for the first question.

There's no questions at this time I'll turn the call back to Ryan Schram.

Thanks, So much Scott and thank you to everyone. Joining us. This afternoon as a reminder, all of IC as Investor information can be found online at <unk> Dot com forward slash investors to our team members investors analysts affected by the Hurricane in Florida today, Please stay safe and.

Thank you again for joining us this afternoon take care.

That concludes the call for today, we thank you for your participation and ask you. Please disconnect your lines.

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