IZEA Worldwide, Inc. — Q3 2019 Form 10-Q
Business and period: IZEA operates online marketplaces and technology platforms connecting marketers with content creators, offering managed influencer-marketing and custom-content services alongside self-service and licensing revenue. This unaudited filing covers the quarter and nine months ended September 30, 2019; comparisons are with the corresponding 2018 periods.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $4.41 million | $5.78 million | $13.13 million | $13.80 million |
| Operating loss | $1.20 million | $1.26 million | $4.84 million | $4.89 million |
| Net loss | $1.17 million | $1.33 million | $5.00 million | $5.03 million |
| Adjusted EBITDA (non-GAAP) | $(1.26) million | $(0.29) million | $(3.40) million | $(3.66) million |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(2.28) million | $(4.16) million |
Margins: Cost of revenue, excluding amortization, was 43.2% of revenue in Q3 2019 versus 41.5% in Q3 2018. For the nine-month periods it was 44% versus 47%, respectively. Management attributed the nine-month improvement to greater SaaS revenue, which is generally reported net of creator payments.
Liquidity and debt: Cash and cash equivalents were $6.81 million at September 30, 2019, up from $1.97 million at year-end 2018. Current assets were $11.99 million and current liabilities $8.78 million. The company had no balance outstanding on its secured credit facility (versus $1.53 million at December 31, 2018) and reported up to $3.60 million of remaining availability, subject to eligible receivables. Financing cash flow was $7.70 million, principally reflecting $9.23 million net proceeds from the May share offering, partly offset by credit-facility repayments.
Changes versus prior periods
- Q3 revenue fell 24%; nine-month revenue fell 5%. Managed Services revenue declined 27% in Q3 and 18% for the nine-month period. Management cited fewer managed/content contracts, client delays and, for the nine-month period, a smaller sales team.
- Nine-month SaaS Services revenue rose 141% to $2.64 million, led by TapInfluence and increased SaaS sales efforts. However, Q3 SaaS revenue declined 11% to $0.82 million; management cited slower TapInfluence customer migration to IZEAx and customer churn.
- Gross billings, a company-defined non-GAAP measure, fell 28% in Q3 to $6.65 million but increased 12% for nine months to $21.11 million.
- Q3 net loss narrowed year over year, while nine-month net loss was nearly unchanged. Nine-month depreciation and amortization rose 56% to $1.32 million, and interest expense rose 65% to $0.24 million.
Outlook, risks and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management expects legacy Ebyline workflow revenue to continue declining as resources shift to IZEAx. It expects TapInfluence to support future SaaS gross billings, while noting the transition and integration remain underway.
- The company reported continuing operating losses, negative operating cash flow and an accumulated deficit of $58.09 million. It states that it has historically relied on equity offerings and borrowings to finance operations.
- IZEA is consolidating acquired platforms and migrating customers and creators to IZEAx. Management cautioned that the platform may not gain sufficient market acceptance; migration failures, customer or creator attrition, or competitors’ offerings could harm results.
- IZEA received a Nasdaq notice after its share price remained below the $1 minimum bid requirement for 30 consecutive business days. The filing stated that the company had until December 10, 2019 to regain compliance, with a possible further compliance period subject to conditions. Delisting could impair liquidity and access to capital.
- Management concluded disclosure controls were not effective as of September 30, 2019 because remediation of a material weakness in applying accounting guidance to customer contracts, revenue recognition and cost classification had not been validated and tested. The company said remediation efforts were continuing.
- The securities class action settlement was approved by the court in September 2019; the company had paid $400,000 of its insurance deductible, with the insurer contributing $800,000. Related shareholder derivative settlements remained subject to final approval, with a hearing scheduled for December 16, 2019; proposed terms included a $300,000 insurer payment and governance reforms.
- The May 2019 offering raised approximately $9.23 million net and added 14.29 million shares. The company also issued shares to settle TapInfluence and ZenContent acquisition obligations. At September 30, acquisition costs payable included $44,805 for ZenContent; the filing says the final $45,000 cash payment was made November 1, 2019. A $3.5 million share-repurchase authorization was approved, but no shares had been repurchased as of November 8, 2019.
Important facts for investors to verify
- Whether IZEAx integration improves customer retention, SaaS adoption and billings, particularly given the Q3 decline in SaaS revenue and gross billings.
- Cash burn and funding needs if operating losses persist; assess credit availability against eligible receivables and expected working-capital requirements.
- Progress toward Nasdaq’s minimum-bid-price compliance deadline and any subsequent listing actions.
- Completion and testing of material-weakness remediation, and final court approval and closure of the derivative lawsuits.
- Potential dilution from acquisition-related stock issuances, equity compensation and any future financing or share repurchases.