IZEA Worldwide, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The unaudited filing covers IZEA’s creator-marketing and content marketplaces, with marketplace activity consolidated on the IZEAx platform following prior customer migrations.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $3.14 million | $3.92 million | $7.90 million | $8.72 million |
| Operating loss | $1.81 million | $1.94 million | $7.92 million | $3.65 million |
| Net loss | $1.79 million | $1.99 million | $7.95 million | $3.82 million |
| Adjusted EBITDA (non-GAAP) | $(1.27) million | $(1.27) million | $(2.46) million | $(2.14) million |
| Operating cash flow | Not separately presented for the quarter | $(1.93) million | $(0.16) million |
- Q2 cost of revenue was 45% of revenue, implying a gross margin of approximately 55%; the comparable 2019 gross margin was approximately 54%. Adjusted EBITDA margin was negative 40% in Q2 and negative 31% for the first half.
- Cash and cash equivalents were $20.82 million at June 30, 2020, versus $5.88 million at year-end 2019. Total liabilities were $10.15 million and stockholders’ equity was $20.98 million.
- Debt included a $1.91 million PPP loan and a C$40,000 CEBA loan (reported as approximately $29,000). No balance was outstanding on the secured credit facility at quarter-end; the company reported approximately $2.4 million of potential availability, subject to eligible receivables.
- Operating cash use was $1.93 million in the first half, versus $0.16 million in the prior-year period. Financing provided $16.83 million, principally from the ATM stock offering and PPP loan.
Changes versus comparable periods
- Q2 revenue declined 20%; first-half revenue declined 9%. Q2 managed-services revenue fell 17%, while SaaS-services revenue fell 31%. First-half SaaS-services revenue also declined 31%.
- Management attributed weaker revenue to customer campaign cancellations or pauses amid COVID-19 uncertainty and civil unrest. Marketplace-spend fees also declined due to lower customer spending, competitive pricing, and the migration of lower-margin legacy workflow activity.
- Despite lower Q2 revenue, managed-services bookings increased 50% year over year, from $2.64 million to $3.96 million. Management said bookings typically convert to revenue over three to twelve months, with timing uncertain.
- Q2 net loss narrowed 10%, supported by lower operating costs and interest expense. First-half net loss more than doubled, primarily because of a $4.3 million goodwill impairment recorded in Q1 after COVID-related forecast reductions and market-capitalization concerns.
- Common shares outstanding increased from 34.63 million at December 31, 2019 to 41.78 million at June 30, 2020, mainly reflecting ATM issuance. Through August 10, the company had sold 13.26 million shares for $25.74 million gross proceeds; 48.41 million shares were then outstanding.
Outlook, risks, and unusual items
- Management expected cash and financing sources to cover expenses for at least one year from the report’s issuance, based on its current revenue and expense estimates. This is not a revenue or earnings forecast; no specific numerical operating guidance was provided.
- Management characterized COVID-19 disruption as expected to be temporary but said its duration and economic impact were uncertain and could materially affect bookings, revenue, results, and liquidity. A recovery in economic activity was anticipated if the pandemic became demonstrably contained, but timing and extent were uncertain.
- Temporary salary and wage reductions averaging 20%, reduced benefits, and a hiring freeze were implemented during Q2; salary reductions and hiring restrictions ended July 1, 2020 after additional capital was secured. Employees were working remotely, and the company did not plan to renew its headquarters lease before the end of 2020.
- The $4.3 million goodwill impairment was a material non-cash charge. Further impairment could result from adverse changes in forecasts or other assumptions.
- The $1.91 million PPP loan bears 1% interest and has a two-year term. Forgiveness is conditional on meeting program requirements; the company gave no assurance that any portion would be forgiven. The ATM program was authorized up to $40 million, creating potential future dilution.
- The company disclosed a history of losses and negative operating cash flow. Other cited risks include customer cancellations, access to capital, Nasdaq listing compliance, remote-work challenges, competition, and dependence on key personnel. It reported no known legal matters expected to have a material adverse effect and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether Q2 bookings convert into recognized revenue, and whether customer advertising demand recovers.
- Cash burn, the assumptions underlying management’s one-year liquidity estimate, and the availability of receivables-based credit.
- PPP loan forgiveness status and the terms and repayment obligations for both government loans.
- ATM share issuance after August 10, remaining offering capacity, and the resulting dilution.
- Whether weaker SaaS revenue and any further impairment affect the company’s path toward profitability.