IZEA Worldwide, Inc. — Q3 2023 Form 10-Q
Business context and period. IZEA connects marketers with digital content creators, primarily through managed influencer-marketing and content services. This unaudited filing covers the three and nine months ended September 30, 2023, compared with the same 2022 periods. The company is transitioning from legacy platforms to IZEA Flex and The Creator Marketplace; IZEAx was sunset in Q3 2023.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $7.9 million | $10.8 million | $27.3 million | $32.3 million |
| Operating loss | $2.6 million | $1.3 million | $7.7 million | $4.2 million |
| Net loss | $2.0 million | $0.9 million | $5.8 million | $3.6 million |
| Diluted loss per share | $0.13 | $0.06 | $0.38 | $0.23 |
| Adjusted EBITDA (non-GAAP) | $(1.5) million | $(0.6) million | $(4.4) million | $(2.5) million |
- Revenue fell 27% in Q3 and 15% for the nine-month period. Managed Services generated 99% of Q3 revenue; SaaS Services revenue declined 84% in Q3 and 71% year to date.
- Cost of revenue was 59.3% of revenue in Q3 versus 60.9% a year earlier, implying gross margins of about 40.7% and 39.1%. For the nine months, cost of revenue was 61.9% versus 58.8%, implying gross margins of about 38.1% and 41.2%.
- Operating cash use was $5.7 million for the first nine months, compared with $6.9 million in 2022. Cash and equivalents rose to $35.2 million from $24.6 million at year-end, mainly reflecting shorter investment maturities. Investing activities provided $17.4 million, primarily from marketable-security transactions.
- At September 30, cash and marketable securities totaled $62.7 million, including $14.8 million in current and $12.7 million in non-current marketable securities. Current assets were $57.9 million and current liabilities $12.2 million. Total liabilities were $12.3 million; financing obligations were $137,652.
- Total assets were $76.8 million, stockholders’ equity $64.5 million, and accumulated deficit $83.9 million. The company reported no federal income tax expense, citing its history of net operating losses.
Changes, outlook, and risks
- Customer transition and demand: Management attributed most of Q3’s Managed Services revenue decline to a large customer it began exiting in 2023. Revenue from that customer was about $0.9 million in Q3; continuing-customer Managed Services revenue was about $6.9 million, down 3.9% year over year. For the nine months, continuing-customer revenue was about $19.2 million, down 7.0%.
- Bookings: Managed Services bookings were $7.1 million in Q3 versus $8.2 million, and $20.5 million for nine months versus $29.7 million. Management said bookings remained below internal expectations, while its pipeline showed signs of improving demand; it also reported that demand from ongoing customers, excluding the departing customer, grew 18.2% in Q3 year over year. Bookings may convert to revenue over varying periods and are not a precise quarterly revenue predictor.
- Profitability pressures: Sales and marketing expense rose 8% in Q3 and 9% year to date. Nine-month cost of revenue as a share of revenue increased, which management attributed in part to large, lower-margin contracts. Increased investment income partly offset operating losses: other income was $1.9 million for the nine months versus $0.7 million in 2022.
- Platform investment: The company continued developing Flex and The Creator Marketplace, capitalizing $672,053 of software costs in the first nine months. Management said significant Flex development would continue through Q4 2023. New Q3 features included Flex Offers, Creator Content Requests, Offer Negotiations, and AI tools in the Creator Marketplace.
- Liquidity outlook: Management stated that available cash and invested resources should fund operations and planned investments for at least the next 12 months. It expects operating expenses to increase as it pursues growth and said additional capital, if needed, may come primarily from equity, equity-linked, or debt offerings. The company has incurred losses and negative operating cash flow for most periods since inception.
- Other items and risks: IZEA completed a $1.0 million share repurchase in August 2023, buying 365,855 shares at an average $1.23 per share. A 1-for-4 reverse stock split took effect in June 2023. Three customers each represented more than 10% of accounts receivable at quarter-end; customer concentration, weaker marketing budgets, competition, platform transition execution, and access to future financing are disclosed risks. Management reported disclosure controls were effective and no material changes in internal control during the quarter. The company reported no known legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Whether bookings and continuing-customer demand recover, and how quickly bookings convert to recognized revenue.
- Whether Flex and the Creator Marketplace can replace legacy-platform revenue and increase recurring SaaS revenue.
- Customer concentration, receivable collectability, and the financial impact of completing the departure from the large customer.
- Operating cash burn and the composition, maturity, fair-value sensitivity, and custodial exposure of the investment portfolio. The filing says $34.6 million of bank deposits exceeded applicable deposit-insurance limits at September 30, 2023.
- Ongoing losses, rising year-to-date Adjusted EBITDA loss, software-development capitalization and amortization, and any future need for external financing or equity issuance.