IZEA Worldwide, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. IZEA operates online marketplaces and software that connect marketers with content creators, earning most revenue from managed influencer marketing and custom-content services. Figures are unaudited.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $8.89 million | $5.53 million |
| Cost of revenue | $5.18 million | $2.46 million |
| Gross margin | 41.7% | 55.5% |
| Operating loss | $2.45 million | $1.91 million |
| Net loss | $2.48 million; $0.04 per share | $1.89 million; $0.03 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $2.13 million; 24% of revenue | Loss of $1.29 million; 23% of revenue |
| Operating cash flow | Use of $2.73 million | Use of $0.83 million |
| Cash and cash equivalents | $72.56 million at March 31 | $75.43 million at December 31, 2021 |
At quarter-end, total assets were $89.24 million, total liabilities $16.75 million, and stockholders’ equity $72.49 million. Debt obligations were limited: $31,985 of CEBA loan principal and a $34,292 current finance obligation were reported; the company said it planned to repay 75% of the CEBA loan by December 31, 2022 to qualify for forgiveness of the remainder. No operating or finance leases longer than 12 months were outstanding.
Cash declined $2.87 million during the quarter. Investing activities used $127,913, including $99,426 of software development costs capitalized; financing activities used $19,730. Management stated it believed cash resources were adequate for expected growth, while noting that continued losses could require additional financing.
Changes versus the prior-year quarter
- Revenue increased 61% to $8.89 million. Managed Services revenue rose 66% to $8.37 million and accounted for 94% of revenue; SaaS Services revenue increased 5% to $517,880.
- Nearly half of the Managed Services revenue increase came from one large customer contract. That contract represented approximately 14% of Q1 2022 revenue.
- Cost of revenue increased 111%, faster than revenue, reducing gross margin to 41.7% from 55.5%. The company attributed the increase primarily to higher delivery costs on the large contract and growth in other customer work.
- Sales and marketing expense increased 21%; general and administrative expense increased 38%, with management citing headcount and compensation, engineering contractors, software and hosting costs, and professional services, including ERP implementation and restatement-related audit work.
- Net loss increased by $583,306. Lower amortization of fully amortized acquired intangible assets partly offset higher operating expenses. Other income declined, in part due to lower interest income and a digital-asset write-down.
- Managed Services bookings were $12.1 million, versus $6.4 million. Gross billings increased 44% to $9.58 million, while SaaS Services gross billings declined 25% to $1.21 million.
Outlook, risks, and unusual items
- Outlook: The filing provides no specific revenue, earnings, or cash-flow guidance. Management expects operating expenses to increase as it pursues expansion and states that existing cash is currently expected to fund growth. Bookings may convert to revenue over an average of approximately nine months, with larger contracts taking longer; management cautions that bookings do not predict quarterly revenue.
- Customer and revenue concentration: One customer contract drove a substantial portion of revenue growth and accounted for about 14% of quarterly revenue. Three customers each represented more than 10% of gross billings in Q1 2022, and two customers each represented more than 10% of receivables at quarter-end.
- Controls and restatement: Management concluded disclosure controls were not effective at March 31, 2022 due to a material weakness in controls over the timing of creator-content cost recognition and related revenue. The issue led to restatements of interim 2020 financial statements. Management was working to remediate the weakness; a new ERP system was implemented during the quarter.
- Unusual items: The company recorded a $62,976 noncash impairment of digital assets. Other Fees revenue rose by $77,578, primarily due to recognition of a large forfeited customer deposit. Neither item should automatically be assumed to recur.
- Risks: The filing cites risks including customer cancellations, competition, the COVID-19 pandemic and macroeconomic effects, the Ukraine crisis and related sanctions, ability to raise capital and maintain Nasdaq listing requirements, technology and cybersecurity risks, and potential claims or inquiries related to the restatement. Management reported no known legal proceedings it believed would have a material adverse effect.
Important facts for investors to verify
- Whether the large customer contract renews or expands, its delivery costs and margins, and the extent to which revenue growth depends on it.
- Whether bookings convert to recognized revenue and cash collections on the expected timetable, including developments in SaaS revenue and gross billings.
- Progress in remediating the material weakness, and whether subsequent filings report any further restatements, control deficiencies, or regulatory inquiries.
- Cash burn, working-capital movements, and whether the company needs to use its available equity offering capacity or obtain other financing.
- Customer concentration in receivables and billings, and the collectability of outstanding amounts.