IZEA Worldwide, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. IZEA operates online marketplaces and software platforms connecting marketers with content creators. Results include TapInfluence, acquired in July 2018; the prior-year comparable period did not include TapInfluence.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.92 million | $4.12 million | $8.72 million | $8.02 million |
| Operating loss | $1.94 million | $1.73 million | $3.65 million | $3.63 million |
| Net loss | $1.99 million | $1.65 million | $3.82 million | $3.69 million |
| Loss per share, diluted | $0.09 | $0.28 | $0.22 | $0.63 |
| Adjusted EBITDA (non-GAAP) | $(1.27) million | $(1.51) million | $(2.14) million | $(3.36) million |
- Q2 revenue declined 5%; six-month revenue grew 9%. Managed Services revenue fell 25% in Q2 and 12% year to date, which management attributed primarily to fewer front-line sales personnel.
- SaaS Services revenue rose to $907,000 in Q2 from $102,000 and to $1.82 million for six months from $179,000, primarily reflecting TapInfluence. Gross billings, a non-GAAP measure, increased 35% in Q2 and 50% for six months.
- Cost of revenue was 46.3% of revenue in Q2 versus 46.8%; for six months it was 45% versus 51%. Management attributed the improvement to a larger share of higher-margin SaaS revenue, reported net of creator payments.
- Cash from operations was $(161,000) for six months, versus $(1.98) million in 2018. Investing used $464,000, including $452,000 in capitalized software development. Financing provided $7.98 million, principally from the May equity offering.
- At June 30, cash was $9.33 million, current assets $14.24 million, and current liabilities $13.43 million. Working capital was approximately $808,000; current ratio was approximately 1.06. The accumulated deficit was $56.92 million.
- Line-of-credit borrowings were $280,000, down from $1.53 million at year-end; reported remaining availability was $3.07 million, assuming all receivables qualified. Current acquisition costs payable were $3.86 million.
Changes, outlook, and notable items
- On May 10, IZEA completed a public offering of 14.29 million shares at $0.70 per share, generating approximately $9.23 million in net proceeds. Shares outstanding rose to 27.09 million at quarter-end, compared with 12.08 million at year-end.
- IZEAx 3.0 was released in April 2019. Management said it planned to continue adding SaaS and white-label features and integrating legacy-platform offerings; it cautioned that commercial success and revenue benefits were uncertain. Management expected Legacy Workflow revenue to continue declining as it shifted focus from newspaper and traditional-publisher activity.
- No specific financial guidance was provided. Management cited continued losses and a history of negative operating cash flow; future results may vary and depend in part on funding, sales execution, customer retention, competition, and successful platform integration.
- After quarter-end, TapInfluence’s final $3.5 million acquisition installment was settled with 6.91 million shares; the company recorded a $753,000 gain on settlement. The final ZenContent installment was also paid in shares. A July 1 authorization permits repurchases of up to $3.5 million through December 2020; none had been repurchased by August 9.
- The securities class-action settlement remained subject to court approval, with a hearing scheduled for September 23, 2019. IZEA had paid $400,000 of its insurance deductible into escrow; insurers funded $800,000. Proposed settlements of related derivative lawsuits, including insurer-funded payments and governance reforms, also awaited approval.
- Nasdaq notified IZEA that its share price had been below the $1.00 minimum bid for 30 consecutive business days. The company had until December 10, 2019 to regain compliance, with a possible second compliance period subject to conditions.
- Management concluded disclosure controls were not effective at June 30 because remediation and testing of a material weakness involving revenue recognition and cost classification had not been completed. The filing reported no goodwill or long-lived-asset impairment charges for the periods presented.
Important facts for investors to verify
- Whether SaaS growth can offset declining Managed Services revenue, and whether IZEAx 3.0 and platform integration improve customer retention and profitability.
- Cash consumption, access to the secured credit facility, and liquidity after acquisition payments and any share repurchases.
- Share dilution from the offering and acquisition settlements, alongside the potential effect of the repurchase authorization.
- Progress in remediating and validating the material weakness in financial reporting controls.
- Final court approval and financial consequences of the securities and derivative lawsuit settlements, and Nasdaq bid-price compliance status.
- Customer concentration in receivables: one customer represented 26% at June 30, 2019.