IZEA Worldwide, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. IZEA operates marketplaces and software that connect marketers with content creators for influencer marketing and custom content. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022. Its new IZEA Flex platform launched commercially in January 2023; the company planned to sunset IZEAx in Q2 2023.
Financial results and position
- Revenue: $8.74 million, down 2% from $8.89 million. Managed Services revenue was $8.50 million; SaaS Services revenue was $0.23 million, down 55%.
- Profitability and margins: Net loss was $2.81 million versus $2.48 million; diluted loss per share was $0.04 in both periods. Gross profit was approximately $2.78 million, or 32% of revenue, compared with $3.71 million, or 42%, in Q1 2022. Operating loss was $3.38 million versus $2.45 million.
- Adjusted EBITDA: Loss of $2.19 million, compared with a loss of $2.13 million; adjusted EBITDA margin was negative 25% versus negative 24%. This is a non-GAAP measure.
- Cash flow: Operating cash outflow was $2.44 million, compared with $2.73 million. Cash and cash equivalents increased $1.56 million to $26.16 million, primarily reflecting investment maturities, while investing activities provided $4.02 million net.
- Liquidity and debt: Cash, cash equivalents, and marketable securities totaled $67.46 million. Current assets were $52.44 million and current liabilities $14.33 million. Finance obligations totaled $177,765; the filing reports no other significant debt.
- Balance sheet: Total assets were $82.26 million, total liabilities $14.44 million, and stockholders’ equity $67.83 million. Accumulated deficit was $80.91 million.
Material changes versus Q1 2022
- Total revenue slipped 2%, while cost of revenue rose 15%; management attributed the cost increase and lower gross margin primarily to deliveries for a large, lower-margin customer.
- Managed Services revenue increased 2%, but revenue from core customers was approximately $5.0 million, down 24%, reflecting softer bookings. Approximately $3.5 million of Q1 Managed Services revenue came from the large customer the company is leaving.
- Managed Services bookings fell to $6.1 million from $12.1 million. Total gross billings were $9.72 million, up 1%.
- SaaS Services revenue fell 55%, including lower license fees and the wind-down of legacy platforms. Depreciation and amortization increased 149% to $346,262, largely as IZEAx software costs were amortized.
- Other income was $572,086, primarily investment portfolio interest income; Q1 2022 had a $24,283 net other expense. This helped offset, but did not reverse, the increase in operating loss.
Outlook, risks, and unusual items
- Management said it believes available cash and invested resources are adequate to fund operations and planned investments for at least the next 12 months. It also stated that additional capital, if needed, may come principally from equity, equity-based, or debt offerings.
- No quantified revenue, earnings, or bookings guidance was provided. Management cited softer bookings, longer sales cycles, inflationary and broader economic pressures, and continued demand in its pipeline; it said these factors could adversely affect future results.
- The company expects to part ways with a large customer after completing its related backlog, which was $7.8 million at December 31, 2022 and was expected to be completed during 2023. The filing says $7.8 million of prior-year contract liabilities was recognized as revenue in Q1; most of the remaining contract liabilities are expected to be recognized in 2023.
- Customer concentration is material: one customer accounted for 41% of Q1 gross billings, and three customers accounted for 61% of accounts receivable at March 31, 2023. The company warns that losing customers or failing to replace revenue could materially harm results.
- Other disclosed risks include the need to fund future operations, Nasdaq continued-listing requirements, competition, customer cancellations, cybersecurity and intellectual-property risks, and international operations. The risk discussion references remediation of a material weakness; separately, management concluded Q1 disclosure controls were effective and reported no material changes in internal control during the quarter.
- The company reported no known legal claims it believed would have a material adverse effect and no subsequent events requiring disclosure through May 15, 2023.
Important facts for investors to verify
- Whether bookings recover and core-customer demand offsets the planned departure of the large customer; monitor backlog conversion and revenue concentration.
- Whether Flex adoption and monetization compensate for declining legacy-platform fees after IZEAx is sunset.
- Whether gross margin improves as the lower-margin customer work concludes, and whether operating cash outflows and Adjusted EBITDA losses narrow.
- Composition, maturities, and fair-value movements of the $41.30 million marketable-securities portfolio, and the company’s liquidity position relative to its stated 12-month funding outlook.
- Progress on the control weakness referenced in the risk discussion and continued compliance with Nasdaq listing requirements.