Q4 2022 IZEA Worldwide Inc Earnings Call
Greetings and welcome to ICL worldwide incorporated fourth quarter 2022 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded and I'll now turn the conference over to Ryan Schram, President and Chief operating officer. Thank you you may begin good afternoon, and thank you for joining US fries. He is earnings call covering the fourth quarter of 2022, I'm, Ryan Schram, President and Chief operating officer at ICR and joining me on the call.
Ziad, Chief Financial Officer, Peter Barry and I see a founder Chairman and Chief Executive Officer, Ted Murphy, we're glad to have you with us today.
Earlier this afternoon the company issued a press release detailing our performance for the fourth 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've made today regarding our business operations and financial performance may be considered forward looking and such statements involve a number of risks and uncertainties.
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 provide additional context for the fourth quarter of 2022 and highlight our full year performance.
Revenues hit an all time record level of $41 1 million in 2022 growing 37% over 2021, and representing the third straight year of topline improvement for ICF.
We narrowed our EBITDA loss in 2022 by 12% also a consecutive three year improvement moving steadily towards profitability.
Total revenue for the fourth quarter of 2022 was $8 8 million, 15% lower compared to the prior year quarter.
Managed services revenue was $8 4 million in the fourth quarter also 15% below the prior year quarter.
We recorded $371000 in net revenue from our SaaS offerings during the fourth quarter down 17% from the prior year quarter.
Managed services revenue for the fourth quarter of 2022 fell by $1 5 million from the prior year's quarter, primarily due to a weaker second half of the year bookings.
As previously announced managed services bookings fell by 26% to $7 8 million in the fourth quarter of 2022.
Compared to the prior year quarter following a similar percentage decline in the third quarter. This year as we saw the contracting process slow down over the summer months.
Overall, approximately 80% of the bookings decline we experienced in the last two quarters was due to slowing demand from our largest customer.
However, due to timing revenues from this customer increased compared to the prior year fourth quarter.
Somewhat offsetting a 26% decline in year over year quarterly revenues from our other customers.
On January 12 of this year, we announced that during the fourth quarter of 2022, we began the process of parting ways with the large managed services customer I just mentioned.
This customer represented 23% of our 2022 managed service bookings, which totaled $37 5 million for the year.
Representing a 33% decrease in that customer's bookings compared to the prior year.
The delivery time between bookings and revenues for this customer is longer than our average over recent years, which is a large reason for the growing gap between our bookings and revenues over the past seven quarters.
Additionally, the gross margin for those customers averaged between 30% and 35% of our historical margin.
Although the absence of this customer will cause a temporary decline in our managed services bookings, we expect to see our average margins gradually returned to historical levels.
At the end of 2022, the backlog attributed to this customer which represents the lag between bookings and revenues totaled $7 8 million, which we expect to recognize before the end of 2023.
This carryover revenue will somewhat mute the topline impact of this customer loss, while we continue to add new higher margin customers.
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.
The $18 3 million at December 31, 2022.
And as previously mentioned $7 8 billion or about 43% is nonrecurring from our largest customer.
We expect to record most of this backlog as revenue in the following three quarters.
SaaS services revenue consisting of license fees self service marketplace that fees and other fees declined by $79000 in the current quarter or about 18% compared to the prior year quarter.
Revenue from license fees declined 27% from the comparative quarter, while gross marketplace spend fees grew 32%.
Gross billings for SaaS services fell by 15% compared to the prior year quarter, mostly due to a sharp decline in marketplace spending.
Including fewer marketers at lower average spending levels.
It should be noted that our transition away from our legacy ICF X platform to flex brings with it a lower revenue model for self service customers, which we believe will increase adoption over time.
Our total cost of revenue was $5 7 million in the fourth quarter of 2022, or 65% of revenue compared to $4 7 million or 46% of revenue in the prior year quarter.
Accordingly, our gross margin, including internal labor costs in the fourth quarter averaged 35% compared to 54% in the prior year quarter.
The increase in the cost of revenue was primarily due to higher delivery costs on one large customer contract, which made up 19% of total revenues during the current quarter.
This major customer side, the cost of revenue for other customers contracts during the fourth quarter was within the range that we have.
Experienced historically.
Expenses other than the cost of revenue totaled $4 5 million for the fourth quarter compared to 5.5 billion for the prior year quarter.
Sales and marketing cost totaled $2 2 million during the fourth quarter up 2% compared to the prior year quarter.
Additional head count and related payroll costs associated with driving customer growth were mostly offset by lower sales commissions that vary with bookings.
General and administrative costs totaled $1 8 million during the fourth quarter, $1 3 million or 42% less than the prior year quarter, due primarily to capitalized payroll and contractor costs associated with current period platform development.
Our net loss was 917000 for the fourth quarter of 2022 are negative one cents per share.
Compared to a net income of 311500 in the prior year quarter or positive <unk> <unk> per share.
Adjusted EBITDA was negative 301000 for the fourth quarter of 2022 compared to positive 549000 for the prior year quarter.
The change in EBITDA was primarily due to lower gross margin dollars, partially offset by lower cash operating costs and higher interest income from our portfolio.
As of December 31, 2022, we had $70 million in cash and investments.
Up from $67 million at the end of Q3.
Primarily due to the collection of customer receivables.
Given recent concerns coming out of the banking sector. It's important to note that we have limited our exposure where possible.
Our investment portfolio is held in trust accounts, which are shielded from normal commercial banking risks and invested in high quality instruments.
And are still rising interest rate environment, our investment holdings have accumulated unrealized losses. However, we believe that we have plenty of liquidity to hold all of these investments to maturity with full principal recovery.
We also changed our primary commercial bank to better enable international growth, which we understand has the added benefit of reduced venture lending exposure.
We earned $489000 in interest in our investments during the fourth quarter and $1 2 million for the year of 2022.
Lastly, we did not have any debt on our balance sheet.
So with cash on hand, and liquidity from our investment portfolio as required we believe that we're in a solid position to execute on our 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.
And taking the inventory of the year in fall 2022 was quite the paradox for idea.
On one hand, it was filled with meaningful accomplishments that brought the company to new Heights.
Our record bookings in revenue over multiple quarters, the company's launch into China, and the U K solid cost containment multiple industry awards and the announcement of not one but two entirely new software initiatives flex and marketplace.
At the same time, it's clear that following a period of significant acceleration in digital advertising investment during the height of the pandemic the macroeconomic climates headwinds are being felt by everyone including idea.
In this moment one of the greatest responsibilities and challenges our collective team has is finding signal from the increasing noise surrounding us and keeping everyone accountable on those things we can control.
It's equally important to recognize that these same distractions are being faced by our clients and customers there.
They're trying to make the best business decisions possible, while budgets are being unexpectedly shifted timelines are being delayed and initiatives are being re prioritized.
As a result now more than ever we believe that ideas near term opportunity remains directly aligned to our long term purpose as a company.
Leading the creator economy forward and rising to serve our clients in meeting their needs and respective need states with an unmatched level of flexibility.
Thanks to prudent investments we have made over the last several years idea stands ready to provide differentiated and cost efficient solutions that brands and agencies look to value when value matters most.
Our managed services group is built for all marketers brand side or agency side. We worked on a campaign basis that is priced upfront with guaranteed results.
No hourly fees retainers or other surprises.
I see a flex has in our opinion the best price to value in the Influencer marketing industry.
Paired with the latest innovation, which lowers the barrier to entry for enterprise grade software competitively with no long term contracts required.
And the creator marketplace is geared towards one off transactional engagements when buying software just doesn't add up it's quick it's easy and simple to use and absolutely perfect for small campaigns are projects that need fast turnarounds and transparent pricing.
Based on what we know today our team expects the remainder of the first half of 2023 to contained continued turbulence with improving stability and growth sometime in the second half of the year.
Much of our assumption is predicated on a general calming of the macroeconomic environment paired with reduced interest rate heights and consumers remaining resilient as they have in recent quarters.
While that interim turmoil isn't enjoyable for anyone we believe that short term disruption can still be beneficial for idea and its shareholders.
Our management team intends to further reduce spending in select areas across the company to make prudent investments in methods to unlock growth opportunities be.
Be it in paid demand generation event marketing or expanding the types of services, we offer to our clients.
After all when times are tough clients look for new ideas from market leaders and idea is well positioned to be a partner that they can trust, while bringing innovative solutions to the table.
That said, we continue to approach these tradeoffs with an overarching mindset that flatter is faster leaner is better and that technological innovation married with deep subject matter eminence makes us all the more differentiated.
In addition, there may also be opportunities for inorganic growth through competitive acquisitions in this space as nearly the entire treater economy was built off of a tremendous wave of venture capital and many of those startups are now facing the harsh realities of a forced exit amidst the current climb.
Right.
Because of that we remain an interested in opportunistic perspective buyer for the right scenario as we believe the tide has turned to our space being a buyer's market compared to 12 to 18 months ago.
Before I turn the call over to Ted I also want to express a word a sincere gratitude to our team members now on four different continents, who are the heart and soul of our business.
For all of the industry recognition that comes from is yes campaign work, our technological innovation the awards that matter. The most to US are those that come from comparably as independent employee survey data, which honored our company with five different awards last year alone providing idea with quantitative.
Evidence that underscores the value we place in the IC away.
I would now like to turn the call over to our chairman and CEO , Ted Murphy to share his perspective on <unk> 2022 performance as well as additional commentary on what's next for 2023.
Ted Thank you Ryan.
2019 prior to the pandemic I set forth a growth plan with our team and board to achieve an average of 30% revenue growth each year with a target of reaching $38 million in revenue in 2023.
I am very proud of this team for beating our third year revenue goals and delivering $41 million in revenue in 2022.
Full year ahead of schedule.
However, there is no doubt that we are operating in a different environment than we were in the early days of 2022.
On one hand, the unpredictable and turbulent macroeconomic environment presents a variety of challenges relative to sales activity near term.
But on the other.
Creates a variety of opportunities to optimize and reallocate resources during a lull in economic activity.
He has been through many of these macro economic cycles over the course of our 16 year history.
Each time, we have emerged a stronger and more capable organization.
Our team is aligned to ensure that this cycle will be no different.
We are aware of the obstacles, we face and seek to capitalize on the opportunities.
Other than dwell on the challenges.
Earlier this week, we announced that we had been named to comparable he's best company outlook list.
This list highlights companies, where employees feel confident about the company's future success our.
Our likely to recommend working near to a friend and are typically excited go to work each day.
Comparatively awards are derived from sentiment readings anonymously provided by employees about their workplaces in multiple categories on comparable dot com during the 12 months period.
I find this award to be remarkable.
A testament to their leadership team, we have built at Ics.
Our company has been making significant changes over the past 12 months.
That includes investments in long term areas of growth, but also has been trimming back adjusting our direction and making some very painful decisions where necessary.
As I first shared during our Q3 earnings call, we have reduced our staffing levels.
Those adjustments have continued in Q4 and Q1.
As we seek to optimize the organization for speed.
<unk> and most of all customer delight.
Concept of customer delight is ideally a two way street.
We wanted to provide the highest quality products and services, we can for our customers.
At the same time, we want to work with customers that value our company and our people.
That means working with customers that have the right margin profile.
And sometimes parting ways with individual customers or customer types in order to focus our efforts on building long term value.
And idea we run a very transparent organization.
Our employees are aware very strategic decisions there.
They are aware of the macroeconomic environment there.
They are aware of the disconnect between our stock price and our true value.
Their positive outlook is a reflection of the strength of our global culture.
The outstanding leadership team that I have a privilege to work with each day.
And the creativity tenacity and grit of their fellow eyes unions.
As Ryan shared earlier, we expect the first six months of this year to be more challenging than last year.
We are using this time to shift some resources and accelerate key initiatives.
The biggest of which is the transition of all testimony.
From IC acts to flex and the creator marketplace, which was originally slated for the end of 2023.
We expect to accelerate our original plan by two full quarters.
And anticipate shuttering ICF next for customer use by the end of Q2.
Once complete the shutdown of Ikea X will lead to significant infrastructure cost savings for the company.
And allow us to fully focus our product support and engineering efforts on the technology platforms of our future.
By the end of Q2, we will complete the migration of hundreds of thousands of creators that have signed up to IZEA ex and make them available for hire in the new marketplace experience.
This will dramatically increase the amount of creators that brands can search for an IV of dotcom and.
And we expect to increase the footprint of our site by 'twenty X in terms of publicly available pages.
Since we shuttered shake and launched the idea of marketplace last fall.
We have gradually seen a <unk> increase in organic search traffic, which in turn has helped feed more sign ups in the marketplace as well as inbound leads for managed services.
We believe the addition of more public profiles will further increase this traffic and accelerate low cost acquisition of customers of all types, whether they be fortune 500 customers or the smaller brands and agencies, who typically license our software.
In addition to customer acquisition and the transition to flex will help bring greater efficiency to our managed services organization.
Which we believe will allow us to do more with less need for additional head count in the future.
The sooner we moved managed services to flex the sooner, we can optimize our legal accounting sales and service practices around our new operating platform.
As with all software systems, we know that this migration won't be without its challenges for all parts of our organization.
We went through this in 2014, when we transitioned from our sponsored tweets and social spark platforms twice he acts nearly a decade ago.
We see this period in time is the perfect opportunity to make the transition as quickly as we can and we are already well down that path from an operational perspective.
But that does not mean that were slowing down on innovation.
Last week, we announced two new modules and flex.
AI, Storyboards and files, which brings cloud storage directly inside the platform.
AI Storyboards are already wowing customers, providing a whole new way to brainstorm, new ideas and developed Influencer marketing campaign Bruce.
The files module utilizes a power flex associations to organize documents related to creators and campaigns across organizations of all sizes.
Expect to see another new module in April and an ambitious stream of new innovations moving forward in flex.
All offered with an industry leading price to value.
I can confidently say that there is not another influencer marketing platform anywhere near our price point that does what flex does.
But there's also not another platform that works the way that flex does.
It is a paradigm shift and we know it.
A new way of doing things.
I wanted to be clear that our expectation is that flex is going to have a classic S curve when it comes to growth.
It's going to take some time to dial things in.
We've already on boarded a few fortune 500 clients, but success will not be overnight.
The same is true with the idea of marketplace.
We are slowly growing our subscriber base, there, which is going to take some time.
But unlike shake which was 100% transaction based marketplace has a subscription component.
Which can scale and compound over time.
The realities of the macro environment had informed our staffing structure for product development.
We have created small nimble focused teams rapidly innovating and iterating.
AI Storyboards was just the beginning of what Youre going to see from idea this year.
We're going to be releasing a slew of AI powered innovations in 2023 focused on helping our customers gain additional efficiencies in their own businesses.
Some of you have asked does management see near term bumps in the road.
Yes, we do.
We can't ignore what is happening in the world right now.
And we made a variety of operational adjustments as a result.
But are we simultaneously optimistic in our long term outlook and our ability to navigate those obstacles yes.
Yes, our management team is and the overall company is.
As evidenced by the comparable award we just won.
The board and I are also confident.
Today I am pleased to announce that I see as board of directors has authorized a share buyback of up to $1 million.
That is approximately two 5% of the market value, assuming a market cap of $40 million given the trading range over the past few weeks.
Ivy as board believes as many of you do that idea is significantly undervalued trading.
Trading at less than cash and investment value.
At the same time, we Wanna be metered in our approach given the opportunities we see in the market for both organic and inorganic growth.
We are in a position of financial strength to ensure we can weather the economic unknowns ahead and.
And we intend to remain in that position of strength. The idea teams experienced organizationally aligned to our strategy and well equipped to capitalize on the long term opportunities that had been created by a short term downturn in the economy.
Thank you all for joining us today I will now open the call for Q&A from the analyst community.
Thank you as he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your questions friendly Kim and.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question is from John Heckman with Ladenburg. Please proceed.
Hello.
Hi, John .
Can you hear me okay.
I can't.
Okay.
So can you can you do you.
Add a number of sales guys last year.
We added some salespeople and we also made some changes.
Changes with some existing salespeople.
The net is actually a smaller sales team.
Oh really okay.
So.
Can you like.
Sure.
Can you quantify at all your.
Your thoughts around the next six months like year over year changes.
I know like I've been reading that advertising across the board its down about 8% to 10% from last year.
Hum.
You.
Providing more clarity to your six month outlook.
Yeah.
I don't think that we're in a position to provide any sort of.
Specific guidance there I mean, we are definitely going to be in.
Impacted from.
Parting ways with that large client.
A significant portion of the bookings.
Last year.
And our focus is really on replacing that business. The best that we can but it was a large chunk of.
Our bookings and revenue in 2022.
Okay.
Okay.
Then Ryan mentioned something about or.
Inorganic growth.
Can you.
Like it's the target.
Audience getting bigger or more tests per quarter.
Any comments there.
Ryan do you want to add some additional context there right.
Sure Hi, John .
We're seeing like I said, the fact that pretty much the entire creator economy.
Venture backed as having a reconciliation moment quite frankly.
And there are some great companies that just aren't able to secure additional rounds and they may be forced to consider options.
In that situation, where there is.
A good complementary and accretive effect.
In my remarks, I think that we look at ourselves as a.
Our prudent and disciplined to evaluate those opportunities.
As the path towards inorganic growth and what's nice about our business today is that we have the three lines between marketplace.
SaaS and managed services that could go a number of different directions in terms of the types of targets that we can look at and that would benefit shareholders.
Yeah.
Okay. Thank you.
Youre welcome.
There are no further questions at this time I would like to turn the conference back over to management for closing comments.
Thanks, Sherry and thank you everyone for joining us. This afternoon as a reminder, all of ideas investor information as well as recent press releases can be found on our Investor Relations website at <unk>.
Yeah, Dotcom forward slash investors take care.
Have a great second quarter.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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