IZEA Worldwide - Q2 2024

Transcript

Operator (participant)

Welcome to the IZEA Worldwide, Inc. Q2 2024 Earnings Call. At this time, all participants are in a listen-only mode. The 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. As a reminder, this conference is being recorded. I would now like to hand the call over to President and Chief Operating Officer, Ryan Schram. Ryan, you may begin.

Ryan Schram (President and COO)

Good afternoon, everyone, and welcome to IZEA's earnings call covering the second quarter of 2024. I'm Ryan Schram, President and Chief Operating Officer at IZEA, and joining me on the call are IZEA Chief Financial Officer, Peter Biere, and IZEA Founder, Chairman, and Chief Executive Officer, Ted Murphy. Thanks for being with us today. Earlier this afternoon, the company issued a press release detailing IZEA's performance during Q2 2024. If you'd like to review any of those details, all of our investor information can be found online on our investor relations website at izea.com/investors.

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 make 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 these 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 and in our publicly available filings. With that, I'd now like to introduce and turn the call over to IZEA's Chief Financial Officer, Peter Biere. Peter?

Peter Biere (CFO)

Thank you, Ryan, and good afternoon, everyone. I'll review operating results for the quarter ended June 30, 2024, compared to the prior year's quarter and discuss certain balance sheet highlights. We saw strong demand for managed services during the second quarter of 2024, resulting in a 40% lift in bookings over the prior year quarter and the highest total in 8 quarters. This demand is expected to be reflected in revenues over the coming quarters, and we believe it indicates a strong potential for our growth. Managed services bookings for the second quarter of 2024 totaled $10.3 million, compared to $7.3 million in the prior year's quarter, a 40.3% increase. The increase was largely attributable to a robust sales pipeline that has continued to develop over the past several quarters.

As a reminder, IZEA reports bookings net of cancellations and refunds issued within a quarter. Total revenue for the second quarter of 2024 was approximately $9.1 million, or 14.9% below the prior year quarter. Excluding revenue attributable to the large customer, which we parted ways with in 2023, referred to as the non-recurring customer, revenues grew a healthy 23.9% from the prior year quarter. Our managed services revenue totaled $8.9 million during the second quarter of 2024, which was $1.8 million, or 16.6% lower than the second quarter of 2023.

Removing approximately $3.3 million of revenue from our non-recurring customer in the prior year quarter, Managed Services revenue increased by $1.6 or 21.7% from the same period in 2023, largely driven by improving demand. It's important to note that IZEA's revenue typically lags behind bookings, with an average delivery time of 7.5 months between contract signing and revenue recognition. Our Managed Services backlog, which represents unrecognized revenue for contracts that are underway, as well as recent bookings that we haven't started to invoice, totaled $15.6 million on June 30th, 2024. This is an increase of $1.1 million versus the first quarter of 2024 and $4 million from December of 2023.

SaaS services revenue totaled $0.2 million in the second quarter of 2024, more than triple the total from the prior year quarter. This growth has been driven primarily by subscriber expansion within IZEA.com and revenue from the Zuberance customer base. We ended the current quarter with a record number of active SaaS customers, a continuing positive trend. The majority of these customers are actively using IZEA's AI tools. Our total cost of revenue was $5.2 million, or 56.9% of revenue in the second quarter of 2024, compared to $6.3 million, or 58.5% of revenue in the prior year quarter. The current percentage cost decline represents improved margins from our ongoing customer base.

Expenses other than the cost of revenue totaled $6.8 million for the second quarter of 2024, up 11.4% from $6.1 million in the prior year quarter. Sales and marketing costs totaled $3.2 million during the second quarter, up 13.2% compared to the prior year quarter, due primarily to higher spending on demand generation activities to drive new customer growth. General and administrative costs totaled $3.4 million during the second quarter, up 6.5% from the prior year quarter, due primarily to higher human capital costs and increased professional and contractor fees.

Our net loss in the current quarter totaled $2.2 million, or -13 cents per share, on 16.5 million shares, compared to a net loss of $1 million, or -7 cents per share, on 15.6 million shares for the second quarter of 2023. Adjusted EBITDA was -$1.6 million for the second quarter of 2024, compared to -$0.6 million for the prior year quarter. As of June 30th, 2024, we had $56.5 million in cash and investments, a decrease of $4.3 million from the beginning of the quarter, primarily due to negative EBITDA and funding higher level of working capital. During the current quarter, we earned $634,000 in interest on our investments. Lastly, we do not have any debt on our balance sheet.

With cash on hand and liquidity from our investment portfolio as required, we're in a solid position to execute on organic business growth and acquisition opportunities that lie ahead. With that, I'll turn the call back over to Ryan.

Ryan Schram (President and COO)

Thanks, Peter, and good afternoon, everyone. I'm excited to share the progress we've made in the second quarter of 2024, and to highlight the strides we're making in both our managed services and technology enablement initiatives. IZEA is on a solid path towards achieving the three-year plan our management team laid out at the beginning of this year, and we're eager to provide you with an update on our recent performance. Let's start with managed services. Our managed services team made significant headway during Q2. In the quarter, we saw strong organic growth in bookings, with our win rate recovering as we converted a higher percentage of opportunities in our pipeline into bookings. The success in Q1 and Q2 bookings has started to translate into revenue during the second quarter and should continue to have positive impacts on Q3 and beyond this year.

We expect to be able to begin reporting year-over-year revenue growth again in the coming quarters as these bookings are recognized. We recently announced the acquisition of 26 Talent and The Reiman Agency. 26 Talent brings a roster of creators and a wealth of creator representation experience to IZEA, enhancing our talent representation business in Australia. 26 Talent has been tucked underneath the Huume umbrella, and we recently just launched a new website and rebranding of Huume, which now lives at huume.com. That's H-U-U-M-E dot com. The Reiman Agency, known for its innovative approach to talent brokerage and content creation, will further bolster IZEA's service offerings and expand our reach in the creator economy overall. Reiman has deep relationships with athletes, celebrities, and other top-tier talent, allowing brands to quickly execute programs that may otherwise be cost-prohibitive or difficult to execute.

These new acquisitions are pivotal in our strategy to both diversify revenue and strengthen our client portfolio. IZEA's acquisition philosophy emphasizes stable operations, manageable risks, and the potential for expense consolidation with post-acquisition upside. We're in the process of migrating our recent acquisition to IZEA's systems, processes, and proprietary technologies, and we've identified multiple areas for improvement and efficiency, and we'll continue to work with the management teams of those companies to both grow their businesses and contribute to IZEA overall. IZEA's acquisitions to date have been strategic, but rather small in size. This has been deliberate in an effort to institutionalize the company's M&A capabilities internally and create the framework for a full acquisition life cycle. I'll now turn things over to our founder, chairman, and CEO, Ted Murphy. Ted?

Ted Murphy (Chairman and CEO)

Thank you, Ryan. We are operating against our three-year plan to reach $76 million in annual revenue by 2026. In addition to revenue, achieving sustainable profitability in this timeframe is absolutely key for management and the board, and we know it is important to our investors. Our intent is to deliver a meaningful EBITDA improvement in 2025 and begin to show EBITDA positive quarters in the back half of 2026. 2024 is a transition year for us. We continue to experience lower revenue comparisons after parting ways with a large customer last year, but this is now over. We expect to begin seeing year-over-year revenue growth in the third quarter. The loss in revenue has been hurting our profitability as well, but we're progressing nicely forward as we fill the revenue gap with more profitable customers.

The bookings growth we've seen this year is beginning to show in higher revenues. We have also been taking measures to reduce some human capital resources and other expenses where appropriate. In Q2, we made a slew of technology announcements, ranging from our AI influencer marketing assistant, Izzy, to new budgeting and workflow tools. While these technologies can be licensed by customers, I want to emphasize that our core focus near term is making our own people and processes more efficient through technology enablement... IZEA Managed Services is our first and best customer. With each new release, we help our team accomplish more with less, better leveraging our costs, while our end customers enjoy a better experience. We have fewer FTEs today than we did at our peak in 2016, but we are generating more than 4 times the annual revenue.

Revenue per FTE continues to be a focus of ours, and the best way to boost output is through an ongoing focus on automations in every job capacity. Last year, we began rolling out AI tools to everyone on our team. The self-reported efficiency gains, not to mention the increased capabilities, have been felt in every department and seen by our end customers. We believe technology, and specifically AI enablement throughout our enterprise, is a critical piece of our three-year plan. However, expense management and efficiency gains alone will not drive us to sustainable profitability. Certain baseline costs will continue to increase with inflation, such as healthcare costs and fees associated with being a public company. Sustainable profitability must ultimately be achieved by way of revenue growth through a diverse mix of customers and services. Our strategy for growth remains two-pronged.

On one hand, we are committed to driving organic growth by enhancing our product offerings, improving customer experiences, and entering new markets. On the other hand, we are actively exploring further acquisitions that complement our existing services and bring valuable new capabilities and markets to our portfolio. Customer diversification is essential to our strategy. It reduces our reliance on single clients, making us less vulnerable to fluctuations in specific client relationships or industries. Over the next three years, our aim is to attract a broader range of clients across various sectors and regions, fostering long-term partnerships with IZEA. This strategy will enhance our stability, predictability, and profitability. We previously announced a $5 million share repurchase program. While we have been unable to execute against this buyback to date, due to the restrictive windows mentioned in the announcement, we intend to be active buyers when our trading windows are open.

We believe our stock is undervalued, and this repurchase program reflects our confidence in the company's future growth and value creation potential. This move underscores our commitment to returning value to our shareholders and our belief in the long-term prospects of IZEA with the capital on hand. In conclusion, we are excited about the progress that we are making, both in managed services and tech enablement. We are confident in our ability to reach our revenue goals and deliver long-term value to our shareholders. The board and management are committed to proactive measures to ensure we achieve our strategic objectives. Thank you for your time today. I will now open the call for Q&A from the analyst community.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Thank you. I'm showing no questions at this time. I'd now like to hand the call back over to Ryan Schram for any closing remarks.

Ryan Schram (President and COO)

Thanks so much, Daryl, and thank you, everyone, for joining us this afternoon. As a reminder, you can find all of IZEA's investor relations information on our investor relations website. That's at IZEA.com/investors. Thanks for joining us, and have a nice evening.

Operator (participant)

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.