IZEA Worldwide, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. IZEA operates online marketplaces and software platforms connecting marketers with content creators, including IZEAx, BrandGraph and Shake. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $5.38 million | $4.76 million; up 13% |
| Managed Services revenue | $4.87 million | $4.13 million; up 18% |
| SaaS Services revenue | $0.50 million | $0.64 million; down 21% |
| Gross billings (company-defined metric) | $6.62 million | $6.10 million; up 9% |
| Operating loss | $2.01 million | $6.12 million loss |
| Net loss and diluted loss per share | $1.99 million; $0.04 | $6.16 million; $0.18 |
| Adjusted EBITDA (non-GAAP) | $1.39 million loss; -26% of revenue | $1.19 million loss; -25% of revenue |
| Operating cash flow | $0.83 million used | $1.35 million used |
| Cash and cash equivalents | $65.47 million | $33.05 million at Dec. 31, 2020 |
| Total liabilities / notes payable | $12.55 million / $1.94 million notes payable | Total liabilities $12.97 million at Dec. 31, 2020 |
Cost of revenue was 45% of revenue in both periods, implying a reported gross margin of approximately 55% before separately reported depreciation and amortization. Q1 financing cash flow included $34.36 million in gross proceeds from ATM stock sales; cash increased by $32.42 million overall. Accumulated deficit was $72.63 million. Management said cash and available financing were expected to cover expenses for at least one year from the filing date, based on current estimates.
Material changes and notable items
- Revenue growth came from Managed Services as customers resumed or expanded marketing activity; SaaS revenue fell, including lower marketplace spend fees and lower-priced IZEAx license renewals.
- The net loss narrowed substantially year over year, largely because Q1 2020 included a $4.30 million goodwill impairment related to COVID-19. No goodwill impairment trigger was identified in Q1 2021.
- Sales and marketing expense rose 36% to $2.08 million, including higher advertising and personnel costs. General and administrative expense rose 5% to $2.54 million.
- Adjusted EBITDA loss widened to $1.39 million from $1.19 million despite revenue growth; this is a non-GAAP measure defined by the company.
- In Q1, IZEA sold 8.70 million shares through ATM agreements for $34.36 million gross proceeds. After quarter-end, it sold another 2.48 million shares for $12.19 million gross proceeds. The company announced April 15 that all shares available under the 2020 and 2021 ATM agreements had been sold; combined gross proceeds were approximately $75 million. Common shares outstanding were 61,726,599 as of May 10, 2021.
- The company had a $1.91 million PPP loan and was awaiting SBA approval of its application for full forgiveness; forgiveness was not assured. It terminated its secured credit facility upon renewal in April 2021; no balance was outstanding at quarter-end.
Outlook, risks and contingencies
No quantitative revenue, earnings or margin guidance is provided. Management reported year-over-year growth in Managed Services bookings in Q4 2020 and Q1 2021 and linked this to Q1 revenue growth, while cautioning that bookings may not become revenue if customers cancel before services are performed. Management said COVID-19’s duration and economic effects remained uncertain and could adversely affect customers, sales, results and liquidity. The filing also cites competition, operating variability, customer cancellations, capital-raising needs, Nasdaq listing requirements, key-personnel and technology-development risks, and volatility in IZEA’s share price.
IZEA reported no legal proceedings or claims it believed could have a material adverse effect. It had no office lease or other lease longer than 12 months at March 31, 2021. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether reported bookings convert into revenue and whether customer cancellations increase.
- Whether Managed Services growth can offset continued declines in SaaS revenue and gross billings.
- Operating cash burn and the assumptions supporting management’s stated one-year liquidity outlook.
- The SBA’s decision on PPP loan forgiveness and resulting repayment obligations if forgiveness is denied.
- The effect of ATM share issuance on dilution, per-share results and the post-offering share count.
- How the company’s spending on sales, marketing and engineering affects operating performance and Adjusted EBITDA.