IZEA Worldwide, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. IZEA operates online marketplaces connecting marketers with content creators; after platform migrations, marketplace revenue was generated solely through IZEAx.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $4.764 million | $4.794 million |
| Gross profit and margin | $2.623 million; 55.1% | $2.694 million; 56.2% |
| Operating loss | $6.119 million | $1.711 million |
| Net loss | $6.163 million; $0.18 per share | $1.831 million; $0.15 per share |
| Adjusted EBITDA (non-GAAP) | $(1.195) million; (25)% of revenue | $(0.874) million; (18)% of revenue |
| Operating cash flow | $(1.349) million | $0.885 million |
| Cash and cash equivalents | $5.634 million | $5.885 million at Dec. 31, 2019 |
Cost of revenue was $2.141 million, or 45% of revenue, compared with 44% a year earlier. The $4.3 million goodwill impairment drove most of the increase in net loss. Excluding that charge, results still reflected an operating loss; adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP results.
At March 31, total assets were $17.274 million, current assets $10.073 million, current liabilities $9.496 million, and stockholders’ equity $7.713 million. The current ratio was approximately 1.06. The company had $1.163 million outstanding on its receivables-based secured credit facility, with approximately $1.8 million of additional availability if remaining receivables qualified. The facility permits borrowing up to 80% of eligible receivables, subject to a $5 million limit, and is secured by receivables and substantially all other assets.
Changes versus prior year
- Revenue was down 1%, while managed services revenue rose 7% to $4.125 million and represented 87% of revenue.
- SaaS services revenue fell 36% to $0.583 million. Marketplace spend fees declined 56%, and license fees declined 15%; management cited lower marketer spend, competitive pricing, and churn among former TapInfluence customers.
- Total gross billings, a non-GAAP measure, declined 22% to $6.097 million; SaaS gross billings fell 51% to $1.917 million.
- Sales and marketing expense increased 12% to $1.523 million; general and administrative expense declined 7% to $2.418 million, partly because a $191,439 acquisition-settlement expense in 2019 did not recur.
- Operating cash flow shifted from $0.885 million provided to $1.349 million used. Cash declined by $0.250 million during the quarter, with credit-facility proceeds partly offsetting operating cash use.
Outlook, risks, and unusual items
- COVID-19 had begun to affect customer advertising decisions, spending priorities, and demand. Management expected negative effects on bookings and future revenue; timing and scale of any recovery were uncertain.
- In March, the company recorded a $4.3 million goodwill impairment after revised revenue expectations and market capitalization concerns led its impairment assessment to conclude carrying value exceeded fair value.
- Management said cash at March 31, the subsequent PPP loan, and expected eligible credit-line draws should fund estimated expenses for at least one year from the report’s issuance. The company also disclosed a history of losses and negative operating cash flow and cautioned that additional capital might be needed.
- Cost actions included temporary average salary and wage reductions of 20%, reduced benefits, a hiring freeze, lower and shifted marketing spending, eliminated near-term travel, and non-renewal of office leases. These measures could have adverse long-term effects, management said.
- After quarter-end, IZEA received a $1.905 million PPP loan on April 23, 2020, at 1% interest, with a two-year term. Forgiveness depends on eligibility and compliance with program requirements; no assurance of forgiveness was given. It also received a 40,000 CAD Canadian emergency loan on April 22, with potential forgiveness of 10,000 CAD if 30,000 CAD is repaid by December 31, 2022.
- IZEA had until August 24, 2020 to regain Nasdaq’s minimum bid-price compliance, following an extension related to COVID-19. Failure could lead to delisting and impair share liquidity and access to capital.
- Shareholder derivative lawsuits were dismissed with prejudice following a settlement that included a $300,000 insurer-funded payment and corporate governance reforms. Management reported no other known claims expected to have a material adverse effect.
- Management reported disclosure controls were effective and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether COVID-related booking declines translated into subsequent revenue, and whether management’s expected recovery occurred.
- Cash burn, eligible receivables, actual availability under the secured credit facility, and the company’s ability to fund operations beyond its stated one-year estimate.
- PPP loan forgiveness eligibility and outcome, and the terms and repayment status of the Canadian loan.
- Nasdaq bid-price compliance status and any resulting listing or financing consequences.
- Assumptions behind the goodwill valuation and whether further impairments were recorded.
- Clarification of the MD&A prose on managed-services gross billings: the table shows a 7% increase, while one sentence says they decreased.