IZEA Worldwide, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 30, 2020. This is an annual report, not a stand-alone Q4 report. IZEA operates marketplaces and software connecting marketers with content creators, offering managed influencer-marketing and custom-content services plus SaaS products.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $18.96 million | $20.10 million |
| Gross profit before depreciation and amortization | $10.43 million; 55.0% of revenue | $11.06 million; 55.0% of revenue |
| Operating loss | $7.17 million | $5.41 million |
| Net loss | $7.29 million; $0.29 per share | $5.72 million; $0.67 per share |
| Adjusted EBITDA, non-GAAP | Loss of $4.69 million; (25)% of revenue | Loss of $3.63 million; (18)% of revenue |
| Operating cash flow | Use of $2.91 million | Use of $5.58 million |
| Cash and cash equivalents at year-end | $5.88 million | $1.97 million |
At December 31, 2019, current assets were $12.03 million and current liabilities were $10.18 million. Total liabilities were $10.23 million. No amount was outstanding on the $5 million secured credit facility; the company estimated $4.5 million of availability, assuming all receivables were eligible. A separate equipment finance obligation totaled approximately $72,500. Cash increased mainly due to the May 2019 equity offering, which generated approximately $9.2 million in net proceeds.
Changes versus FY 2018
- Revenue fell 6%. Managed Services revenue declined 12% to $15.43 million, which management attributed partly to a 30% reduction in front-line sales personnel and lower bookings during the first three quarters.
- SaaS Services revenue rose 39% to $3.41 million, increasing to 18% of revenue from 12%. License Fees rose 73% and Marketplace Spend Fees rose 18%, supported by the TapInfluence acquisition and increased SaaS sales efforts.
- Gross billings, a non-GAAP measure, declined 3% to $28.95 million. Gross billings include creator payments that are netted from certain GAAP revenue.
- Net loss increased 27%; operating expenses rose 2%, including higher general and administrative expense and depreciation and amortization. Cost of revenue remained 45% of revenue.
- Operating cash use improved year over year, while financing cash flow benefited from the public offering. The company issued 14.29 million shares in the offering and 8.02 million shares for acquisition-related obligations during 2019.
Outlook, risks and unusual items
- Management said cash on hand, expected operations and available credit were expected to fund expenses for at least one year from the filing date, but also warned that additional capital could be needed in the near term. Failure to raise capital or increase borrowings could require it to slow or pause development.
- COVID-19 had begun affecting customer advertising decisions, timing and spending priorities; the company expected a negative effect on sales but could not estimate the full impact. After year-end, it began drawing on the secured facility to preserve financial flexibility and planned to reassess goodwill and intangible assets.
- IZEA migrated nearly all Ebyline and TapInfluence customers and creators to IZEAx by year-end; TapInfluence platform use was discontinued in March 2020. The transition contributed to a $418,099 impairment charge for developed technology.
- Management highlighted competition, dependence on third-party social platforms, customer and sales variability, privacy and advertising regulation, and the need for continued platform investment. BrandGraph entered beta in late 2019; Shake was planned for release in 2020. No quantitative revenue or earnings guidance was provided.
- Nasdaq had granted an extension to June 8, 2020 to regain the $1.00 minimum bid-price requirement; failure could result in delisting. The company had a history of losses and a $60.38 million accumulated deficit.
- The securities class action and two shareholder derivative cases were settled or dismissed, with the class-action settlement funded by $800,000 from the insurer and $400,000 from the company for its insurance deductible. A $418,099 intangible-asset impairment and $602,410 gain on settlement of acquisition-cost obligations were notable 2019 items.
- The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting at year-end and said a previously identified material weakness had been remediated; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether COVID-19’s effect on client demand, collections and cash burn changed the company’s stated one-year liquidity outlook, and the extent of subsequent draws on the credit facility.
- Progress in Managed Services bookings and sales capacity, and whether SaaS growth can offset continued managed-services declines after platform migrations.
- Nasdaq listing compliance by the June 8, 2020 deadline and any related capital-raising or reverse-split actions.
- Share count and dilution from the 2019 offering, acquisition-related issuances, equity awards and any later financing.
- Potential further impairment of goodwill or intangible assets, and the assumptions supporting the 2019 impairment assessments.