IZEA Worldwide, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparison is to FY2019. IZEA operates online marketplaces and software connecting marketers with content creators for influencer marketing and custom content. It launched BrandGraph and Shake during 2020.
Financial performance and position
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $18.33 million | $18.96 million | Down 3% |
| Operating loss | $10.23 million | $7.17 million | Loss increased $3.07 million |
| Net loss | $10.25 million | $7.29 million | Loss increased $2.96 million |
| Loss per share, basic and diluted | $0.25 | $0.29 | Improved by $0.04 |
| Adjusted EBITDA (non-GAAP) | $(3.65) million | $(4.69) million | Improved by $1.03 million |
| Cash used in operating activities | $2.10 million | $2.91 million | Use decreased $0.82 million |
| Cash and cash equivalents at year-end | $33.05 million | $5.88 million | Increased $27.16 million |
Cost of revenue was $8.00 million, or 44% of revenue, versus $8.52 million, or 45%, in 2019. Gross profit before depreciation and amortization was approximately $10.33 million (56% of revenue), compared with $10.43 million (55%) in 2019. Total costs and expenses increased 9% to $28.56 million, principally because of a $4.30 million goodwill impairment charge in 2020. The impairment followed COVID-related reductions in forecasts and market capitalization; 2019 included $0.42 million of impairment charges.
Managed Services revenue rose 4% to $15.99 million and represented 87% of revenue, compared with 81% in 2019. SaaS Services revenue declined 34% to $2.34 million: Marketplace Spend Fees fell 51% to $0.62 million and License Fees fell 24% to $1.51 million. Other Fees increased 94% to $0.21 million. Total gross billings, a company-defined operating metric and not GAAP revenue, declined 16% to $24.18 million; SaaS Services gross billings fell 39%.
Year-end current assets were $38.53 million and current liabilities $12.46 million, including $7.18 million of contract liabilities, largely advance customer payments. Notes payable totaled $1.94 million, including the $1.91 million PPP loan; a further $0.07 million finance obligation was outstanding. No secured credit facility borrowings were outstanding, and management estimated approximately $4.1 million of availability. The PPP loan forgiveness application for the full amount was pending. Working capital was approximately $26.06 million.
Financing cash flow was $29.61 million, primarily reflecting approximately $27.7 million of net ATM proceeds and the PPP loan. The company sold 14.82 million shares through its ATM in 2020 for $28.46 million gross proceeds. From January 1 through March 26, 2021, it sold a further 8.69 million shares for $34.31 million gross proceeds, increasing dilution. Management stated that available cash and financing sources were expected to cover expenses for at least one year from issuance of the report, based on its current estimates.
Material changes, outlook, and risks
- COVID-19 disrupted customers’ advertising decisions, timing, and spending and contributed to the goodwill impairment. IZEA shifted to fully remote work, allowed office leases to expire, temporarily reduced compensation and restricted hiring in Q2, and restored normal payroll and hiring effective July 1, 2020.
- Management reported Q4 2020 Managed Services bookings up 48% year over year and overall revenue up 10% year over year. It said bookings momentum continued into Q1 2021, while cautioning that bookings may not convert to revenue if customers cancel before services are performed. No formal financial guidance is provided in the supplied filing text.
- IZEA identified continuing risks from pandemic uncertainty, persistent losses and negative operating cash flow, the need for future financing, competition and pricing pressure, customer cancellations and concentration, and adoption of new platforms. One customer generated 12% of FY2020 revenue; none exceeded 10% in 2019.
- Other material risks include reliance on third-party social platforms, privacy and advertising regulation, cybersecurity, recruiting and retaining key staff, and potential further impairment. Patent protection is limited; the company relies principally on other intellectual-property protections.
- The company reported no legal proceedings or claims it believed would have a material adverse effect. Prior securities and derivative lawsuits had been settled and dismissed. Nasdaq notified IZEA of a bid-price deficiency in November 2020; the company regained compliance on January 6, 2021.
- The financial statements received an unqualified audit opinion. The auditor identified managed-services revenue estimates for costs to complete and goodwill impairment valuation as critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness.
Investor verification priorities
- Assess whether Q4 bookings growth and Q1 2021 momentum converted into recognized revenue, and whether cancellation or customer concentration risks increased.
- Reconcile GAAP revenue with gross billings and examine the continued contraction in SaaS fees and billings.
- Monitor operating cash burn, liquidity assumptions, remaining financing access, and dilution from ATM sales and equity awards.
- Confirm the SBA’s decision on PPP forgiveness and the repayment implications if forgiveness is denied.
- Review assumptions underlying managed-services costs to complete, the remaining goodwill carrying value, and any subsequent impairment indicators.
- Evaluate commercial adoption and economics of Shake and BrandGraph, and continued compliance with Nasdaq listing requirements.