IZEA Worldwide, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2016. Financial statements are unaudited. IZEA operates online marketplaces connecting brands with content creators; its revenue comes from sponsored content, custom content, and platform service fees.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $6.91 million | $4.63 million | $12.38 million | $8.76 million |
| Gross profit / margin | $3.50 million / 51% | $1.71 million / 37% | $5.86 million / 47% | $3.40 million / 39% |
| Operating loss | $(1.64) million | $(2.20) million | $(4.22) million | $(3.95) million |
| Net loss | $(1.63) million | $(1.99) million | $(4.22) million | $(6.26) million |
| Adjusted EBITDA (non-GAAP) | $(1.10) million | $(1.72) million | $(3.14) million | $(3.12) million |
- Q2 revenue rose 49%; six-month revenue rose 41%. Sponsored revenue and content revenue drove growth. Six-month 2016 included six months of Ebyline results versus five months in the 2015 comparison.
- Management attributed higher gross margins to a greater share of managed services and improved pricing. Managed services represented 32% of content revenue in both the Q2 and six-month 2016 periods, compared with 12% and 11%, respectively, in 2015.
- Operating expenses increased 31% in Q2 and 37% in the first half, primarily from higher personnel and overhead costs. Six-month operating loss widened despite higher revenue and gross profit. The 2015 six-month net loss included a $2.26 million derivative fair-value loss; the 2016 period recorded a $29,000 gain.
- Net bookings were $6.8 million in Q2, up 10%, and $14.3 million for the first half, up 36%. Management said revenue is recognized on average within 120 days of booking, though larger contracts can take up to 12 months.
- Six-month operating cash use was $3.31 million; investing cash use was $285,000. Cash declined by $3.59 million to $8.02 million at June 30. Accumulated deficit was $38.47 million.
- At June 30, current assets were $13.12 million and current liabilities $7.16 million; total liabilities were $7.24 million. There were no advances under the $5 million Bridge Bank receivables facility. A $911,904 Ebyline acquisition installment was classified as current. No material conventional debt balance is reported.
Outlook, risks, and unusual items
- No formal revenue or earnings guidance is provided. Management expected higher 2016 revenue based on bookings and stated that cash and the available credit line should cover expenses for longer than 12 months. It also said it may seek additional capital; an equity raise could dilute shareholders.
- IZEA reported ongoing losses and negative operating cash flow and expected a net loss for the remainder of 2016. Management cited customer retention and acquisition, competition, growth execution, hiring and retention, integration of acquisitions, and access to capital among key risks.
- Management did not expect Ebyline to meet the revenue thresholds for up to $5.5 million of contingent performance payments; it expected total Ebyline consideration of $3.33 million. The remaining guaranteed installment was $911,904 at quarter-end.
- After quarter-end, IZEA acquired ZenContent for $400,000 cash and 86,207 shares valued at $600,000, plus $1 million in scheduled installments and up to $2.5 million in contingent payments. Purchase accounting was incomplete at filing. This acquisition adds cash obligations and potential share dilution.
- Derivative fair-value gains or losses depend on stock price and other market inputs and can affect reported earnings. The company said remaining warrants subject to remeasurement had fallen to 5,516 at June 30.
- No material litigation was identified. 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 bookings convert to recognized revenue and whether managed-service margins persist as revenue mix changes.
- Cash burn, the adequacy and availability of the Bridge Bank facility, and the potential need for additional financing.
- ZenContent’s performance against payment thresholds, final acquisition accounting, and cash-versus-stock settlement terms.
- Ebyline’s revenue performance against acquisition targets and the timing and form of the remaining installment payment.
- Customer concentration: one customer contributed 11% of six-month 2016 revenue; review ongoing receivable quality and the increased doubtful-account allowance.
- Potential dilution: options, warrants, equity plans, and shares that may be issued for acquisition consideration.