Market Overview

IZEA Reports Second Quarter 2018 Results

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IZEA,
Inc. (the "Company") (NASDAQ: IZEA),
operator of IZEAx, the premier online marketplace connecting brands and
publishers with influential content creators, reported its financial
results for the second quarter ended June 30, 2018.

Q2 2018 Financial Highlights Compared to Q2 2017

  • Revenue was $4.1 million in Q2 2018, down 28%, compared to $5.7
    million in Q2 2017.
  • Total costs and expenses were $5.8 million, compared to $7.1 million.
  • Net loss was $(1.6) million, compared to a net loss of $(1.4) million.
  • Adjusted EBITDA was $(1.5) million, compared to $(840,000).

Trailing Twelve Months Ended June 30, 2018 Compared to Same Year-Ago
TTM

  • Revenue decreased 3% to $21.9 million, compared to $22.5 million.
  • Revenue from Managed Services decreased 2% to $21.4 million, compared
    to $21.8 million.
  • Net loss improved 27% to $(7.1) million, compared to a net loss of
    $(9.8) million.
  • Adjusted EBITDA improved 27% to $(5.2) million, compared to $(7.1)
    million.

Management Commentary

"In the last three quarters we have seen the impact of weak pipeline
development in the prior year affecting our bookings. An unhealthy
overemphasis on larger customer contracts, combined with lower overall
pipeline development activity in 2017 has had a rippling effect through
the past 3 quarters," commented Ted Murphy, Chairman and CEO of IZEA.
"We began a course correction in the fourth quarter of 2017, and have
seen new opportunity pipeline grow significantly in the second quarter
of 2018, which we believe will lead to sequential growth in bookings and
revenues starting in the third quarter of this year."

"In addition to the rebalancing of our sales efforts, we have taken
steps to reduce core operational expenses as we navigate our way through
this time," continued Murphy. "Although some expenses will be higher
during the period due to the recent acquisition of TapInfluence, Inc.,
we expect to see a meaningful impact of operational efficiencies
beginning in the fourth-quarter of 2018. We expect to emerge from 2018
more operationally efficient, with higher revenue per employee,
increasing monthly recurring revenue, and a significantly more
diversified customer base."

Q2 2018 Financial Results

Revenue in the second quarter of 2018 decreased 28% to $4.1 million
compared to $5.7 million in the same year-ago quarter. The portion of
revenue attributable to our Managed Services decreased 28% to $4.0
million, compared to $5.6 million in Q2 2018. The decrease in our second
quarter 2018 revenue is primarily due to lower annual commitments from
some of our larger customers for their 2018 advertising spends and a
decrease in the number of smaller customers running short-term Managed
Service campaigns beginning in the fourth quarter of 2017. Net bookings
from Managed Services were $2.7 million in Q2 2018, compared to $5.4
million in Q2 2017. Revenue backlog, which includes unbilled bookings
and unearned revenue, was $9.0 million at the end of Q2 2018.

Our total Gross Billings (a non-GAAP metric management uses to measure
total transaction volume, as defined below) were down 30% to $4.9
million in Q2 2018 compared to $7.0 million in Q2 2017, due to the
decline in Managed Services commitments and Content Workflow
transactions.

Cost of revenue as a percentage of revenue improved from 48% in 2017 to
47% in 2018. Total costs and expenses in the second quarter of 2018 were
$5.8 million compared to $7.1 million in the same year-ago quarter. This
decrease was primarily due to the decrease in costs of revenue on lower
revenue produced, decreases in sales and public relations expense, and
decreases in labor and non-cash expenses in general and administrative
expense.

Net loss in the second quarter of 2018 was $(1.6) million, or $(0.28)
per share, as compared to a net loss of $(1.4) million, or $(0.25) per
share, in the same year-ago quarter. Adjusted EBITDA (a non-GAAP metric
management used as a proxy for operating cash flow, as defined below) in
the second quarter of 2018 was negative $1.5 million compared to a
negative $840,000 in the same year-ago quarter. This decrease was a
result of lower revenues during the second quarter of 2018.

As of June 30, 2018, cash and cash equivalents totaled $1.9 million,
receivables were $2.8 million, and the Company had accessed
approximately $845,000 of its $5.0 million credit line. On July 2, 2018,
the Company completed an underwritten public offering whereby it
received approximately $3.1 million in cash after deducting underwriting
discounts and commissions and estimated offering expenses.

Conference Call

IZEA will hold a conference call to discuss its second quarter results
today at 5:00 p.m. Eastern time. Management will host the call, followed
by a question and answer period.

Date: Tuesday, August 14, 2018
Time: 5:00 p.m. Eastern time
Toll-free
dial-in number: 1-877-407-4018
International dial-in number:
1-201-689-8471

The conference call will be webcast live and available for replay via
the investors section of the Company's website at https://izea.com/.

Please call the conference telephone number five minutes prior to the
start time. An operator will register your name and organization.

A replay of the call will be available after 8:00 p.m. Eastern time on
the same day through August 21, 2018.

Toll-free replay number: 1-844-512-2921
International replay
number: 1-412-317-6671
Replay ID: 13682061

Use of Non-GAAP Financial Measures

We define Gross Billings, a non-GAAP financial measure, as the total
dollar value of the amounts earned from our customers for the services
we performed, or the amounts charged to our customers for their
self-service purchase of goods and services on our platforms. Gross
Billings for Content Workflow differs from revenue reported in our
consolidated statements of operations, which is presented net of the
amounts we pay to our third-party creators providing the content or
sponsorship services. Gross Billings for all other revenue equals the
revenue reported in our consolidated statements of operations.

We consider this metric to be an important indicator of our performance
as it measures the total dollar volume of transactions generated through
our marketplaces. Tracking Gross Billings allows us to monitor the
percentage of Gross Billings that we are able to retain after payments
to our creators. Because we invoice our customers on a gross basis,
tracking Gross Billings is critical as it pertains to our credit risk
and cash flow.

"EBITDA" is a non-GAAP financial measure under the rules of the
Securities and Exchange Commission. EBITDA is commonly defined as
"earnings before interest, taxes, depreciation and amortization." IZEA
defines "Adjusted EBITDA," also a non-GAAP financial measure, as
earnings or loss before interest, taxes, depreciation and amortization,
non-cash stock related compensation, gain or loss on asset disposals or
impairment, changes in acquisition cost estimates, and all other
non-cash income and expense items such as gains or losses on settlement
of liabilities and exchanges, and changes in fair value of derivatives,
if applicable.

We believe that Adjusted EBITDA provides useful information to investors
as they exclude transactions not related to the core cash operating
business activities including non-cash transactions. We believe that
excluding these transactions allows investors to meaningfully trend and
analyze the performance of our core cash operations.

All companies do not calculate Gross Billings and Adjusted EBITDA in the
same manner. These metrics as presented by IZEA may not be comparable to
those presented by other companies. Moreover, these metrics have
limitations as analytical tools, and you should not consider them in
isolation or as a substitute for an analysis of our results of
operations as reported under GAAP. A reconciliation of GAAP to non-GAAP
results is included in the financial tables included in this press
release.

About IZEA

IZEA operates IZEAx, the premier online marketplace that connects
marketers with content creators. IZEAx automates influencer
marketing and custom content development, allowing brands and agencies
to scale their marketing programs. IZEA creators include celebrities and
accredited journalists. Creators are compensated for producing unique
content such as long and short form text, videos, photos, status
updates, and illustrations for marketers or distributing such content on
behalf of marketers through their personal websites, blogs, and social
media channels. Marketers receive influential content and engaging,
shareable stories that drive awareness. For more information about IZEA,
visit https://izea.com/.

Safe Harbor Statement

All statements in this release that are not based on historical fact are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements, which are
based on certain assumptions and describe our future plans, strategies
and expectations, can generally be identified by the use of
forward-looking terms such as "believe," "expect," "may," "will,"
"should," "could," "seek," "intend," "plan," "goal," "estimate,"
"anticipate" or other comparable terms. Examples of forward-looking
statements include, among others, statements we make regarding
expectations concerning IZEA's ability to increase its revenue and sales
pipeline and improve Adjusted EBITDA, expectations with respect to
operational efficiency, and expectations concerning IZEA's business
strategy. Forward-looking statements involve inherent risks and
uncertainties which could cause actual results to differ materially from
those in the forward-looking statements, as a result of various factors
including, among others, the following: competitive conditions in the
content and social sponsorship segment in which IZEA operates; our
ability to popularize one or more of the marketplace platforms of IZEA;
our ability to attract and retain customers; our ability to finance
growth initiatives in a timely manner; our ability to establish
effective disclosure controls and procedures and internal control over
financial reporting; our ability to satisfy the requirements for
continued listing of our common stock on the Nasdaq Capital Market;
changing economic conditions that are less favorable than expected; our
ability to finance obligations related to recent acquisitions; and other
risks and uncertainties described in IZEA's periodic reports filed with
the Securities and Exchange Commission. The forward-looking statements
made in this release speak only as of the date of this release, and IZEA
assumes no obligation to update any such forward-looking statements to
reflect actual results or changes in expectations, except as otherwise
required by law.

   

IZEA, Inc.

Unaudited Consolidated Balance Sheets

 
    June 30,
2018
  December 31,
2017
Assets
Current:
Cash and cash equivalents $ 1,878,159 $ 3,906,797
Accounts receivable, net 2,821,401 3,647,025
Prepaid expenses 626,246 389,104
Other current assets   40,456     9,140  
Total current assets   5,366,262     7,952,066  
 
Property and equipment, net 315,987 286,043
Goodwill 3,604,720 3,604,720
Intangible assets, net 451,873 667,909
Software development costs, net 1,078,337 967,927
Security deposits   148,103     148,638  
Total assets   $ 10,965,282     $ 13,627,303  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,527,539 $ 1,756,841
Accrued expenses 1,112,108 1,592,356
Contract liabilities 4,434,627
Unearned revenue 3,070,502
Line of credit 845,365 500,550
Current portion of deferred rent 40,307 45,127
Current portion of acquisition costs payable   386,872     741,155  
Total current liabilities   8,346,818     7,706,531  
 
Deferred rent, less current portion 17,419
Acquisition costs payable, less current portion   351,150     609,768  
Total liabilities   8,697,968     8,333,718  
 
Commitments and Contingencies
 
Stockholders' equity:
Preferred stock; $.0001 par value; 10,000,000 shares authorized; no
shares issued and outstanding
Common stock, $.0001 par value; 200,000,000 shares authorized;
5,860,933 and 5,733,981, respectively, issued and outstanding
586 573
Additional paid-in capital 53,335,845 52,570,432
Accumulated deficit   (51,069,117 )   (47,277,420 )
Total stockholders' equity   2,267,314     5,293,585  
 
Total liabilities and stockholders' equity   $ 10,965,282     $ 13,627,303  
 
   

IZEA, Inc.

Unaudited Consolidated Statements of Operations

 
Three Months Ended
June 30,
Six Months Ended
June 30,
    2018   2017   2018   2017
Revenue $ 4,120,960   $ 5,712,904 $ 8,017,401   $ 10,547,409
 
Costs and expenses:
Cost of revenue (exclusive of amortization) 1,930,298 2,714,699 4,093,440 5,051,759
Sales and marketing 1,735,596 1,886,528 3,491,122 4,275,348
General and administrative 1,970,610 2,166,370 3,585,832 4,613,288
Depreciation and amortization   210,691     358,260     476,146     720,866  
Total costs and expenses   5,847,195     7,125,857     11,646,540     14,661,261  
 
Loss from operations (1,726,235 ) (1,412,953 ) (3,629,139 ) (4,113,852 )
 
Other income (expense):
Interest expense (35,403 ) (13,272 ) (56,714 ) (30,348 )
Change in fair value of derivatives, net 113,801 (8,420 ) (11,794 ) (9,038 )
Other income (expense), net   82     (11,953 )   4,772     (12,580 )
Total other income (expense), net   78,480     (33,645 )   (63,736 )   (51,966 )
 
Net loss   $ (1,647,755 )   $ (1,446,598 )   $ (3,692,875 )   $ (4,165,818 )
 
Weighted average common shares outstanding – basic and diluted   5,837,476     5,676,629     5,819,883     5,637,636  
Basic and diluted loss per common share   $ (0.28 )   $ (0.25 )   $ (0.63 )   $ (0.74 )
 

Revenue stream and the percentage of total revenue by stream:

  Three Months Ended   Six Months Ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
Managed Services $ 4,004,850   97 % $ 5,592,800   98 % $ 7,801,515   97 % $ 10,276,923   97 %
Content Workflow, net 62,761 2 % 93,910 2 % 126,309 2 % 196,173 2 %
Service Fees & Other 53,349   1 % 26,194   % 89,577   1 % 74,313   1 %
Total Revenue by stream $ 4,120,960   100 % $ 5,712,904   100 % $ 8,017,401   100 % $ 10,547,409   100 %
 
   

IZEA, Inc.

Non-GAAP Reconciliations

(Unaudited)

 

Reconciliation of GAAP Revenue to Non-GAAP Gross Billings:

Three Months Ended   Six Months Ended
    June 30,
2018
June 30,
2017
  June 30,
2018
June 30,
2017
Revenue $ 4,120,960   $ 5,712,904 $ 8,017,401   $ 10,547,409
Plus transaction costs for third-party creators (1)   780,584     1,267,318     1,594,503     2,635,318
Gross Billings   $ 4,901,544     $ 6,980,222     $ 9,611,904     $ 13,182,727
 
(1) Transaction costs related to third-party creators for services
provided for the Content Workflow portion of our revenue reported on
a net basis for GAAP.
 

Non-GAAP Gross Billings by revenue stream and the percentage of total
Gross Billings by stream:

  Three Months Ended   Six Months Ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
Managed Services $ 4,004,850   82 % $ 5,592,800   80 % $ 7,801,515   80 % $ 10,276,923   78 %
Content Workflow 843,345 17 % 1,361,228 20 % 1,720,812 18 % 2,831,491 21 %
Service Fees & Other 53,349   1 % 26,194   % 89,577   1 % 74,313   1 %
Total Gross Billings $ 4,901,544   100 % $ 6,980,222   100 % $ 9,611,904   99 % $ 13,182,727   100 %
 

Reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA:

  Three Months Ended   Six Months Ended
    June 30,
2018
  June 30,
2017
  June 30,
2018
  June 30,
2017
Net loss $ (1,647,755 )   $ (1,446,598 ) $ (3,692,875 )   $ (4,165,818 )
Non-cash stock-based compensation 203,351 167,870 349,632 326,846
Non-cash stock issued for payment of services 33,819 22,830 62,490 83,462
(Gain) loss on disposal of equipment (2,253 ) (1,734 ) (1,400 ) (3,687 )
(Gain) loss on settlement of acquisition costs payable (10,491 )
Increase (decrease) in value of acquisition costs payable (231,502 ) 37,986 (624,596 ) 141,778
Depreciation and amortization 210,691 358,260 476,146 720,866
Interest expense 35,403 13,272 56,714 30,348
Change in fair value of derivatives   (113,801 )   8,420     11,794     9,038  
Adjusted EBITDA   $ (1,512,047 )   $ (839,694 )   $ (3,362,095 )   $ (2,867,658 )
 
Revenue   4,120,960     5,712,904     8,017,401     10,547,409  
Adjusted EBITDA as a % of Revenue   (37)%   (15)%   (42)%   (27)%
 

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