Q3 2023 IZEA Worldwide Inc Earnings Call
Good afternoon, and welcome to ideas earnings call covering the third quarter of 2023.
Speaker 1: Good afternoon and welcome to IZEA's earnings call covering the third quarter of 2023. I'm Ryan Tram, President and Chief Operating Officer at IZEA, and joining me on the call are IZEA Chief Financial Officer Peter Beery and IZEA Founder, Chairman, and Chief Executive Officer Ted Murphy. Thanks for being with us.
I'm, Ryan Schram, President and Chief operating officer at ICR, and joining me on the call our Zia Chief Financial Officer, Peter Barry.
Z, a founder Chairman and Chief Executive Officer, Ted Murphy.
Thanks for being with us today.
Speaker 1: Earlier this afternoon, the company issued a press release detailing our performance for the third quarter of 2023. If you'd like to review those details, all of our investor information can be found online on our Investor Relations website at izea.com forward slash investor.
Earlier this afternoon the company issued a press release detailing our performance for the third quarter of 2023.
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 <unk> financial results and be advised that some of the statements that we made today regarding our business operations and financial performance may be considered forward looking and such statements may involve a number of risks and uncertainties that could cause.
Speaker 1: Before we begin, please take note of the safe harbor paragraph included in today's press release covering IZEA's financial results, and be advised that some of the statements that we made today regarding our business, operations, and financial performance may be considered forward-looking, and such statements may involve a number of risks and uncertainties that could cause actual results to differ materially. We encourage you to consider these disclosures contained in our SEC filings for a detailed discussion of these factors.
Cause actual results to differ materially.
We encourage you to consider these disclosures contained in our SEC filings for a detailed discussion of these factors.
Speaker 1: 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 and in our publicly available file.
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 and in our publicly available filings.
Speaker 1: With that, I'm pleased to introduce IZEA's Chief Financial Officer, Peter Beery. Peter.
With that I'm pleased to introduce <unk>, Chief Financial Officer, Peter Barry Peter.
Speaker 2: Thank you, Ryan, and good afternoon, everyone. I'll review operating results for the quarter ended September 30 2023 compared to the prior year's quarter and discuss our balance sheet highlights.
Thank you Ryan and good afternoon, everyone.
I'll review operating results for the quarter ended September 32023.
Compared to the prior year's quarter and discuss our balance sheet highlights.
Speaker 2: Total revenue for the third quarter of 2023 was $7.9 million.
Total revenue for the third quarter of 2023 was $7 9 million.
27, 1% or $2 9 million lower than the prior year quarter.
Speaker 2: 27.1% or $2.9 million lower than the prior year quarter.
Our net cash loss or EBITDA was negative $1 5 million for the quarter.
Speaker 2: Our net cash loss, or EBITDA, was negative $1.5 million for the quarter compared to negative $0.6 million for the prior year quarter.
<unk> to negative <unk> 6 million for the prior year quarter.
Our net loss in the current quarter totaled $2 million or 13 cents per share on 15 5 million shares.
Speaker 2: Our net loss in the current quarter totaled $2 million, or $0.13 per share, on 15.5 million shares.
Speaker 2: compared to a loss of $0.9 million or $0.06 per share on $15.6 million shares.
Compared to a loss of point 9 million or <unk> <unk> per share on $15 6 million shares.
Speaker 2: These share counts are adjusted for our June 2023 4-for-1 reverse split.
These share counts are adjusted for our June 2023, four for one reverse split.
Managed services bookings for the third quarter totaled.
Speaker 2: $7.1 million compared to $8.2 million for the prior year's third quarter, a $14.5 million
$7 1 million compared to $8 2 million for the prior year's third quarter.
A 14, 1% decline.
Early this year, we announced that we are parting ways with one large customer, which I'll refer to as our nonrecurring customer.
Net bookings from this nonrecurring customer were a negative 281000 for the current quarter.
Speaker 2: net bookings from this non-recurring customer were a negative $281,000 for the current order as we completed remaining contract obligations and totaled $2 million in the price.
As we completed the remaining contract obligations.
And total 2 million in the prior year's third quarter.
Stripping out bookings from this nonrecurring customer ongoing customer bookings, including existing and new customers totaled $7 3 million in the current quarter 18, 2% above the prior year's third quarter total of $6 2 million.
Speaker 2: Stripping out bookings from this non-recurring customer, ongoing customer bookings, including existing and new customers, totaled 7.3 million in the current quarter, 18.2% above the prior year's third quarter total of 6.2 million.
Speaker 2: Our order count from ongoing customers in the current quarter was 7% below the prior year quarter. However, the average order size increased 28% resulting in our quarterly bookings growth.
Our order count from ongoing customers in the current quarter was 7% below the prior year quarter. However, the average order size increased 28%, resulting in a quarterly bookings growth.
Speaker 2: managed services revenue totaled $7.8 million during the third quarter of 2023, which was $2.6 million or 25.2% below the third quarter of 2022.
Managed services revenue totaled $7 8 million during the third quarter of 2023.
Which was $2 6 million or 25, 2% below the third quarter of 2022.
Speaker 2: Revenue from our non-recurring customer totaled .9 million in the current quarter and 3.3 million in the prior year's third quarter, declining 71.8% and explaining most of the comparative revenue decline in the current quarter.
Revenue from our nonrecurring customer totaled <unk> 9 million in the current quarter and $3 3 million in the prior year's third quarter.
Planning 71, 8% and explaining most of the comparative revenue decline in the current quarter.
Speaker 2: Managed services revenue from our ongoing customers totaled $6.9 million during the current quarter.
Managed services revenue from our ongoing customers totaled $6 9 million during the current quarter three.
Speaker 2: 3.9% lower than the previous year's third quarter, which totaled $7.2 million.
Three 9% lower than the previous year's third quarter, which totaled $7 2 million.
The delivery time between bookings and revenues has improved to about seven and a half months from approximately nine months through the second quarter of this year.
Speaker 2: The delivery time between bookings and revenues has improved to about seven and a half months, from approximately nine months to the second quarter of this year.
Our managed services backlog, which represents the total of unrecognized revenue for contracts that are underway.
Speaker 2: Our managed services backlog, which represents the total of unrecognized revenue for contracts that are underway.
Speaker 2: as well as recent bookings that we haven't started to invoice. Total $12 million on September 30, 2023.
As well as recent bookings that we haven't started to invoice totaled 12 million on September 32023.
Speaker 2: Backlog associated with our non-recurring customers now less than 500,000 and will be recognized in the fourth quarter
Backlog associated with our nonrecurring customers now are less than 500000, and it will be recognized in the fourth quarter.
Sam service revenues totaled <unk> 1 million for the third quarter of 2023.
Speaker 2: SAS service revenues totaled 0.1 million for the third quarter of 2023, down 83.7% from 0.4 million in the prior year of third quarter.
Down 83, 7% from point 4 million in the prior year third quarter.
We previously announced that our ICL X platform would be sunset during the second quarter of 2023 in favor of a new feature rich platform platform, we call flex, which together with the creator marketplace launched in October of 2022, we expect to provide ICR.
Speaker 2: We previously announced that our IZEAx platform would be sunset during the second quarter of 2023 in favor of a new feature-rich platform we call Flex.
Speaker 2: which together with the Creator Marketplace launched in October of 2022, we expect to provide IZEA.
Speaker 2: with license and transaction fee revenue growth opportunity.
With license and transaction fee revenue growth opportunity.
Speaker 2: The cost of license access is considerably cheaper than our previous enterprise license fees for IZEA-X, which means that as our subscriber base grows, related revenues will grow at a slower pace.
The cost of license access is considerably cheaper than our previous enterprise license fees for Zia Ax, which means that as our subscriber base grows related revenues will grow at a slower pace.
Our total cost of revenue was $4 7 million in the third quarter of 2023.
Speaker 2: Our total cost of revenue was $4.7 million in the third quarter of 2023.
Speaker 2: or 59.3% of revenue compared to 6.6 billion or 60.9% of revenue in the prior year quarter.
Or 59, 3% of revenue.
Paired to $6 6 million or 69% of revenue in the prior year quarter.
Our blended gross margin excluding labor costs showed improvement in the current quarter as revenues from our nonrecurring customer wind down.
Speaker 2: Our blended gross margin, excluding labor costs, showed improvement in the current quarter as revenues from our non-recurring customer wind down.
The mix of revenues from this nonrecurring customer has depressed our overall gross margin by about 20% on average.
Speaker 2: The mix of revenues from this non-recurring customer has depressed our overall gross margin by about 20% on average.
For approximately six quarters through mid 2023.
Expenses other than the cost of revenue totaled $5 9 million for the third quarter of 2023.
Speaker 2: expenses other than the cost of revenue totaled $5.9 million for the third quarter of 2023.
Up five 3% from $5 6 million in the prior year quarter sale.
Speaker 2: up 5.3% from 5.6 million in the prior year quarter.
Speaker 2: Sales and marketing costs totaled 2.7 million during the third quarter, up 7.9% to the prior year quarter, primarily due to higher spending on brand awareness and demand generation activities to drive bookings growth.
Sales and marketing costs totaled $2 7 million during the third quarter up seven 9% to the prior year quarter.
Primarily due to higher spending on brand awareness and demand generation activities to drive bookings growth.
General and administrative costs totaled 3 million during the third quarter.
Speaker 2: General administrative costs totaled $3 million during the third quarter, up 3.6% from the prior year quarter due primarily to higher web hosting fees offset by lower accounting and professional fees.
Up three 6% from the prior year quarter, due primarily to higher web hosting fees offset by lower accounting and professional fees.
Speaker 2: Our net loss was $2 million for the third quarter of 2023, or negative $0.13 per share, compared to a net loss of $0.9 million in the prior year quarter, or negative $0.06 per share.
Our net loss was 2 million for the third quarter of 2023 or a negative <unk> 13 per share.
We're doing that loss of <unk> 9 million in the prior year quarter or negative <unk> <unk> per share.
Adjusted EBITDA was negative $1 5 million for the third quarter of 2023 compared to negative <unk> 6 million for the prior year quarter.
Speaker 2: Adjusted EBITDA was negative 1.5 million for the third quarter of 2023 Compared to negative 0.6 million for the prior quarter
Speaker 2: The change in EBITDA was primarily due to lower gross margin dollars.
The change in EBITDA was primarily due to lower gross margin dollars.
Speaker 2: As of September 30th, 2023, we had $62.7 million in cash and investments. That's $2.4 million lower than the beginning of the quarter, primarily due to negative EVA debt, our share buyback, and additions to working capital.
As of September 30th 2023 we had $62 7 million in cash and investments that's $2 4 million lower than the beginning of the quarter, primarily due to negative EBITDA or share buyback and additions to working capital.
Speaker 2: We earned $0.7 million in interest on our investments during the third quarter. And lastly, we did not have any debt on our balance sheet.
We earned $1 7 million in interest on our investments during the third quarter and.
Lastly, we did not have any debt on our balance sheet.
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 lay ahead.
Speaker 2: With cash on hand and liquidity from our investment portfolio as required, we believe that we're in a solid position to execute on business growth and opportunities that may lay ahead. With that, I'll turn the call back over to Ryan.
With that I'll turn the call call back over to Ryan.
Speaker 1: Thanks, Peter. And hello again, everyone. I want to provide a series of updates covering innovation, marketing, sales, and industry honors pertaining to the third quarter. First, let's start with highlighting the industry innovation brought forward by our continued investments in technology.
Thanks, Peter and Hello, again, everyone I wanted to provide a series of updates covering innovation marketing sales and industry honors pertaining to the third quarter for.
First let's start with highlighting the industry innovation brought forward by our continued investments in technology.
Speaker 1: This is best represented outward through IZEA's differentiated portfolio of enterprise software and marketplace products, IZEA Flex, the Creator Marketplace, and Form.AI for Creators.
This is best represented outward. There is he is differentiated portfolio of enterprise software and marketplace products idea flex the creator marketplace and form AI for creators.
Speaker 1: For brands and agencies who have an in-house team of influencer marketing experts, IZEA Flex provides those power users with best-in-class price-to-value and a flexible tool set that makes their workdays more efficient by reducing manual tasks.
For brands and agencies, who have an in house team of Influencer marketing experts.
<unk> provides those power users with best in class price to value and a flexible tool set that makes their work days more efficient by reducing manual tasks.
Speaker 1: During the third quarter, we added multiple new features requested by customers, including verified Google Mail integration, comprehensive influencer marketing expense management, and end-to-end creator offer negotiation to make the manual back and forth less stressful for everyone involved.
During the third quarter, we added multiple new features requested by customers, including verified Google Mail integration comprehensive Influencer marketing expense management.
And end to end creator offer negotiation to make the manual back and forth less stressful for everyone involved.
Within our industry first form AI offering idea launched free access to open a eyes chat G. P T four for all creators.
Speaker 1: Within our industry-first Form.ai offering, IZEA launched free access to OpenAI's ChatGPT4 for all creators.
Speaker 1: This enables influencers and creators alike a broad set of added benefits to expedite the way they imagine their output.
This enables influencers and creators alike.
Broad set of added benefits to expedite the way they imagine their outputs.
Speaker 1: From photos and videos to developing better copy, bringing together the best of Form.ai with Open.ai just made sense.
From photos and videos to developing better copy, bringing together the best of form AI with open AI just made sense.
Speaker 1: Giving it an affordable price point and universal access only bolsters its long-term potential as an added growth vehicle for our software unit by continuing to diversify IZEA's customer base and increase overall stickiness to IZEA products and services.
Given you're at an affordable price point and Universal access only bolsters its long term potential as an added growth vehicle for our software unit by continuing to diversify ideas customer base and increase overall stickiness to ISC of products and services.
Our product engineering team delivered all of these initiatives, while simultaneously reducing its overall expenditure through a combination of organizational design deficiency decreasing infrastructure costs and any new forms of operational leverage.
Speaker 1: Our product engineering team delivered all of these initiatives while simultaneously reducing its overall expenditure through a combination of organizational design efficiency, decreasing infrastructure costs, and gaining new forms of operational leverage.
Speaker 1: As we look ahead, there is conviction that there are further ways this business unit can continue to deliver increased savings while maintaining the level of quality and innovation our customers are used to.
As we look ahead there is conviction that there are further ways. This business unit continued to deliver increased savings, while maintaining the level of quality and innovation our customers are used to.
Speaker 1: Let's turn our attention to our IZEA Everywhere marketing strategy, which we've referred to in previous earnings updates.
Let's turn our attention to our a Z everywhere marketing strategy, which we've referred to in previous earnings updates.
Speaker 1: We've been very pleased with the work our team has done across the course of 2023. IZEA has no doubt elevated its top-of-mind awareness with new and existing customers alike, thanks to these important investments paired with strong execution.
We've been very pleased with the work our team has done across the course of 2000 and twenty-three idea has no doubt elevated it's top of mind awareness with new and existing customers alike. Thanks to these important investments paired with strong execution.
Speaker 1: Across the board, the metrics that matter have all materially improved this year.
Across the board the metrics that matter have all materially improve this year.
Speaker 1: inbound opportunity leads, record site traffic to izea.com, and record new user signups for our various software offerings.
In bound opportunity leads records site traffic to Isaiah dot com and record new user sign ups for our various software offerings.
Best of all the industry is also taking note.
Speaker 1: Best of all, the industry is also taking note.
In August idea was named best Influencer marketing company in the 2023 Martech breakthrough awards on top of multiple honors for individual campaign work across the course of the year. Some as recent as last month.
Not surprisingly given that performance at the top of the funnel, we are seeing meaningful evidence of positive impact across the organization.
Within our managed services business unit September was our highest new opportunity pipeline generation month in company history, followed by our second biggest month just last month in October.
Bookings are up outside of one outsized customer and we even expect to see our gross margins increase over the course of the coming quarters.
In addition, we believe there is additional approaches via economic models to serve clients while unlocking other sources of added revenue for managed services on a go forward basis.
These new ways of working are rooted informing longer term relationships with brands and agencies. While also meeting the process of buying from a Z are easier than ever before.
There's more to come in future calls, but our team is actively trialing. These efforts with clients to set ourselves up for a strong 2024 with a return to growth.
For his commentary on the third quarter I'd now like to turn the call over to Izea's founder Chairman and CEO, Ted Murphy Ted Thank.
Thank you Ryan I would like to take this opportunity to reflect on the strategic vision, we set forth back in December of 2019 before.
Before the world encountered the unprecedented challenges brought about by COVID-19.
Our objective was ambitious yet clear.
To achieve an average annual revenue growth of 30%.
Aiming for a milestone $38 million in revenue by the year 2023.
Although 2019 it seems like it was just yesterday the world has experienced a myriad of significant events since then.
We have navigated through a global health crisis, economic instability and a series of geopolitical conflicts that have collectively impacted the global economic landscape.
Despite these macro challenges the most significant direct impact on our company in 2023 have come from more tangible and immediate factors.
As Ryan highlighted earlier, one of the major events for US. This year was the conclusion of our partnership with a major customer.
This client had a disproportionate influence on our bookings and revenue streams, albeit contributing lower margins and a slower cash flow compared to our broader customer base.
While this separation had an immediate effect on our financials. It was a move towards fostering a healthier more sustainable business model focused on customers that are better aligned with Ivy its objectives.
This year marked a strategic pivot for our company as we decided to Sunset idea X and introduced ICF flex.
Flex represents our next generation lower cost enterprise Influencer software platform, which we believe is the foundation of our future.
This rapid platform transition was executed with the fore sight of its short term implications on our SaaS revenue and customer metrics.
Our revenue shortfall versus 2022 is not insignificant.
And we are actively pursuing strategies to mitigate this year over year decrease.
However, I'm pleased to report that despite these challenges we are poised to closely approach the $38 million revenue target set back in 2019.
Beyond 2023, we are confident that the proactive measures we have put in place will not only offset the current deficit, but will also propel us into an accelerated bookings growth trajectory in 2024.
Our team has been relentlessly working throughout 2023 to expand our core business and strengthen our competitive position in the market.
We've been laying the groundwork for what we anticipate to be a materially transformative phase for our company.
And if identified both organic and inorganic catalysts to propel us forward.
This year, we brought onboard a new head of growth, whose primary focus is to drive organic revenue.
We have restructured our product organization to enhance agility and software development and simultaneously reduce operational costs.
We have strategically expanded our sales footprint, establishing a presence in Korea and building upon our market entries into China, and the U K from the previous year.
In addition to these growth initiatives, we have fortified our finance and legal teams to provide superior service to our clients and to navigate the evolving landscape with agility and foresight.
And then a significant move to signal our commitment to growth through consolidation.
We've appointed our first team member dedicated to mergers and acquisitions.
As the year has unfolded, we've observed a growing trend in M&A activity within our industry sector.
With a solid cash reserve and a public market currency, we are uniquely positioned to act as a consolidator.
Integrating creator economy centric companies of varying sizes.
Our M&A philosophy is to engage in accretive transactions.
We are not interested in ventures that are hemorrhaging cash or present untenable risks.
Our targets are companies with stable operations that are near our breakeven point or EBITDA positive today with the prospect of growth in consolidating expenses to achieve synergies post acquisition.
Maintaining our strong balance sheet is a priority.
We intend to structure transactions in a manner that aligns the interest of the acquired company's management with sustained growth.
Tying the majority of their compensation to performance milestones reached in the second and third years following the close of the deal.
Our strategy for growth is twofold, encompassing both organic expansion and strategic acquisitions.
By cultivating organic growth, we are focusing on enhancing our product offerings, improving customer experience and entering new markets.
Enabling us to execute larger global campaigns with increased efficiency and creativity.
Concurrently our acquisition strategy is designed to integrate companies that not only complement <unk> existing services, but also bring new customer segments and specialized expertise from across the broader creator economy to our portfolio.
This dual approach ensures that we can service niche categories effectively catering to specific market needs. While also expanding our overall market reach.
Both strategies are aligned with our goal of customer diversification.
We are committed to avoiding over reliance on any single customer or sector Amy.
Aiming instead for a broad and varied clientele that spans different sizes sectors and geographic regions.
This breadth will not only mitigate risk, but will also solidify our presence as adverse of tile and resilient global player in the market capable of weathering industry fluctuations and capitalizing on emerging opportunities. Thank.
Thank you all for joining us today I would like to open the floor to questions from the analyst community.
Thank you.
Ladies and gentlemen, Viva and I'll be conducting a question and answer session.
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Ladies and gentlemen, we will wait for a moment wildly poll for questions.
Our first question is from Jon Hickman with Ladenburg. Please go ahead.
Hello.
Can you elaborate on these comments about.
The new opportunity pipeline.
Is that.
Hum.
How does that work into actual bookings.
The John the new opportunity pipeline is the.
I opportunities that we've identified with customers, where we have active proposals and dollars associated to those proposals.
So it's you know it's the very top of the funnel we have a customer that comes in as a lead we began working with them to bring their proposal one front of them.
The.
New opportunity pipeline that Brian was speaking about.
So theoretically those should translate into bookings.
Yeah.
The way that that funnel works is that the new opportunity pipeline, then goes into bookings, which then translates ultimately to to revenue.
So the question is you know the close rate on on the.
New opportunity pipeline that we have but.
The past two months were records for us.
On the record for the close rate.
Our records for the the gross amount of the pipeline and then it takes time to work through the pipeline itself in and figure out whether those deals closing.
So can you tell us now.
Now that that.
Unnamed big customer is out of the picture.
Uh huh.
Percentage of bookings that actually get done in the quarter.
And once upon a time it was around I don't know.
60% and then it.
Dropped a lot with that because what is it what is it now.
Are you talking about the amount.
Amount of time for our bookings to turn into revenue.
Yes.
Peter mentioned that I believe its about seven and a half months now.
Okay.
And alright.
Yes.
Okay.
Okay and then.
From your comments, you've you've actually.
Brought somebody on as a business development person.
That's their only function.
Yeah, we have a team member now who is squarely focused on on M&A activity.
Okay.
That's it for me.
Thank you John.
Yeah.
Yeah.
As there are no further questions I would now have the conference over to Ryan Schram for any closing comments Ryan.
I'd like to thank everyone for joining us this afternoon and as a reminder, you can follow all of ICR Investor information All press releases.
I see a dotcom forward slash investors. Thanks again for joining US we'll talk to you soon.
Thank you.
Yeah. It has now concluded. Thank you for your participation you may now disconnect your lines.
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