IZEA, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. The filing identifies the registrant as IZEA, Inc. IZEA operates online marketplaces connecting brands with content creators, including sponsored social content and custom branded content.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $7.50 million | $5.44 million | $19.88 million | $14.21 million |
| Gross profit / margin | $3.57 million / 48% | $2.15 million / 40% | $9.43 million / 47% | $5.56 million / 39% |
| Operating loss | ($1.47 million) | ($0.89 million) | ($5.69 million) | ($4.84 million) |
| Net loss | ($1.51 million) | ($2.65 million) | ($5.73 million) | ($8.90 million) |
| Adjusted EBITDA (non-GAAP) | ($0.93 million) | ($2.17 million) | ($4.07 million) | ($5.28 million) |
Q3 revenue increased 38% year over year; nine-month revenue rose 40%. Sponsored revenue and content revenue drove growth. Management attributed gains to a larger sales force, larger managed campaigns, repeat customers, and acquisitions. Q3 gross margin improved to 48%, principally as managed services made up a larger share of content revenue and pricing improved. Q3 operating loss nevertheless widened as operating expenses grew 66%, led by personnel and overhead.
For Q3, sponsored revenue was approximately $4.64 million and content revenue $2.77 million; reported gross margins were 60% and 26%, respectively. Net bookings were $7.7 million for the quarter and $21.9 million for the nine-month period, up 14% and 27%, respectively. Management said bookings generally convert to revenue within about 120 days, although larger contracts may take longer.
Cash, liquidity, and obligations
- Cash and cash equivalents were $6.60 million at September 30, 2016, down $5.01 million from year-end 2015. Net cash used in operations was $4.22 million for the first nine months; investing used $0.80 million and financing provided $4,803.
- Current assets were $11.47 million and current liabilities $7.30 million. The company reported no outstanding advances under its secured Bridge Bank facility, which permits borrowing up to $5 million subject to eligible receivables and other terms.
- Total liabilities were $8.05 million. Acquisition costs payable totaled approximately $1.77 million, including current and long-term amounts. No capital lease obligation remained at quarter-end.
- Accumulated deficit was $39.98 million. Management stated that cash and the available credit line should fund expenses for longer than the next 12 months, while noting it may seek additional capital and that an equity financing could dilute shareholders.
Material changes, transactions, and outlook
- On July 31, 2016, IZEA acquired ZenContent for $400,000 cash and 86,207 shares valued at $600,000 at closing, with additional guaranteed and performance-based payments. ZenContent contributed approximately $466,000 of revenue and $219,000 of gross profit after acquisition through September 30. Its purchase-price allocation remained preliminary.
- Management expected higher revenue for the remainder of 2016 than in 2015, citing bookings, new customers, larger managed campaigns, and repeat business. No quantified full-year revenue or earnings guidance was provided.
- IZEA said it did not expect to owe Ebyline’s contingent performance payments, based on historical results and projections against the revenue targets. The filing reports the related contingent liability had been reduced to zero.
- Comparisons are affected by unusual 2015 items: a $1.85 million warrant-exchange loss and a $1.73 million gain from reducing estimated Ebyline contingent consideration. Their nonrecurrence contributed to the year-over-year improvement in reported net loss; Q3 operating loss itself increased.
- The company continued to incur losses and negative operating cash flow and stated it expected a net loss for the remainder of 2016. Risks cited include achieving profitability, customer retention and concentration, acquisition integration, competition, hiring and labor costs, and potential future dilution. One customer represented 11% of nine-month 2016 revenue. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether bookings convert to recognized revenue on the expected timetable and whether growth persists without further acquisition contributions.
- Whether improved gross margins can offset higher personnel, sales, and administrative costs and move the company toward profitability and positive operating cash flow.
- Cash runway and access to the Bridge Bank facility, including the timing and cash-versus-stock mix of acquisition payments and any potential capital raise.
- ZenContent’s subsequent operating performance, final purchase-price allocation, and achievement of revenue thresholds for future payments.
- The scale of customer concentration, receivable collectibility, and potential dilution from outstanding equity awards and acquisition consideration.