IZEA Worldwide, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. IZEA operates online marketplaces connecting marketers with content creators, primarily through its IZEAx platform. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $4.04 million | $4.41 million | $11.93 million | $13.13 million |
| Operating loss | $1.27 million | $1.20 million | $9.19 million | $4.84 million |
| Net loss | $1.25 million | $1.17 million | $9.21 million | $5.00 million |
| Adjusted EBITDA (non-GAAP) | $(0.72) million | $(1.26) million | $(3.19) million | $(3.40) million |
| Net cash used in operations | Not provided for quarter | Not provided for quarter | $2.00 million | $2.28 million |
Q3 cost of revenue, excluding amortization, was $1.70 million, or 42% of revenue, versus $1.90 million, or 43%, a year earlier. The corresponding gross margin was approximately 58% versus 57%. For the first nine months, cost of revenue was $5.26 million, or 44% of revenue, versus $5.82 million, also 44%; corresponding gross margin was approximately 56% in both periods.
At September 30, cash and cash equivalents were $30.62 million, compared with $5.88 million at December 31, 2019. Total assets were $41.65 million and stockholders’ equity was $30.02 million. Notes payable totaled $1.94 million, including the $1.91 million PPP loan; the company also reported a $0.09 million finance obligation. It had no balance outstanding on its secured credit facility and reported approximately $3.2 million of potential availability under it. Management said available cash and financing sources were expected to cover expenses for at least one year from the report’s issuance, based on its current revenue and expense estimates.
Changes versus comparable periods
- Revenue declined 9% in both Q3 and the first nine months year over year. Q3 managed services revenue fell 1%; SaaS services revenue declined 39%, mainly reflecting lower marketplace activity and license fees.
- For the first nine months, SaaS services revenue decreased 33%. Marketplace spend fees fell 49% and license fees fell 23%; managed services revenue declined 3%. Other fees increased but remained a small portion of revenue.
- Q3 net loss widened by $0.08 million. The nine-month net loss increased by $4.21 million, primarily due to a $4.30 million goodwill impairment recorded in Q1.
- Cash increased substantially following an at-the-market equity offering: 13.26 million shares sold for $25.74 million gross proceeds through September 30. Common shares outstanding increased to 48.33 million from 34.63 million at year-end 2019.
- Gross billings, a company-defined non-GAAP operating metric, fell 17% in Q3 and 23% for the first nine months year over year.
Outlook, commentary and risks
- Management reported that COVID-19-related changes in customer advertising decisions, timing and spending hurt bookings and revenue, and said the duration and overall economic impact remained uncertain. Management anticipated a possible rebound after the pandemic was contained but gave no quantified revenue or earnings guidance.
- The company recorded a $4.30 million goodwill impairment after lower revenue projections, market capitalization below carrying value and pandemic-related market uncertainty prompted an interim impairment test. Further impairment charges remain possible if conditions worsen.
- IZEA received a $1.91 million PPP loan at 1% interest and planned to apply for forgiveness in Q4 2020. Forgiveness was not assured. The company also received a CAD 40,000 CEBA loan, with potential partial forgiveness subject to repayment conditions.
- COVID-19 cost actions included temporary wage reductions and a hiring freeze, both removed effective July 1, 2020, as well as reduced travel and marketing and non-renewal of office leases. Employees were working remotely; management noted potential operational and commercial drawbacks.
- On November 12, 2020, Nasdaq notified the company that its share price had been below $1.00 for 30 consecutive business days. IZEA had until May 11, 2021 to regain compliance, with a possible additional compliance period subject to conditions.
- The company reported a $69.59 million accumulated deficit and a history of losses and negative operating cash flow. It warned that continued losses may require additional financing, potentially dilutive equity issuance or debt, and that financing may not be available on acceptable terms.
- Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter. The company reported no known legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Whether revenue, gross billings and cash collections stabilize as customer advertising budgets and marketplace spending evolve.
- Cash burn and liquidity against the one-year runway estimate, including the availability of the secured credit facility.
- PPP loan forgiveness outcome and any resulting repayment obligations.
- Share dilution from the ATM offering and any subsequent equity financing; the filing reports 48,459,607 shares outstanding as of November 12, 2020.
- Progress toward Nasdaq’s minimum bid-price requirement and any subsequent listing developments.
- Whether further goodwill impairment or other COVID-19-related effects materially affect results or financial position.