IZEA Worldwide, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; financial statements are unaudited. IZEA operates online marketplaces and software platforms that connect marketers with content creators. Results include TapInfluence, acquired in July 2018.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $4.79 million | $3.90 million; up 23% |
| Gross profit / margin | $2.69 million / 56% | $1.73 million / 44% |
| Operating loss | $1.71 million | $1.90 million |
| Net loss | $1.83 million; $0.15 per share | $2.05 million; $0.35 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $874,000 | Loss of $1.85 million |
| Operating cash flow | Provided $885,000 | Used $1.12 million |
| Cash and cash equivalents | $2.32 million at March 31 | $1.97 million at December 31, 2018 |
| Line of credit | $1.34 million drawn; up to $3.52 million stated as available | $1.53 million drawn at December 31, 2018 |
Current assets were $8.78 million and current liabilities were $15.73 million at quarter-end. Current liabilities included $3.79 million of acquisition costs payable and $5.46 million of contract liabilities. Stockholders’ equity was $6.61 million; accumulated deficit was $54.93 million. IZEA reported no long-term debt on the balance sheet, but had future lease and acquisition-payment obligations.
Revenue growth was chiefly acquisition-driven: SaaS Services revenue rose to $913,000 from $77,000, primarily following TapInfluence. Managed Services revenue increased 2% to $3.87 million. Cost of revenue declined 3% to $2.10 million, while general and administrative expense rose 62% to $2.61 million. Results included a $191,000 loss on settling a TapInfluence acquisition obligation; the prior-year quarter included a $304,000 gain on acquisition-cost remeasurement.
Outlook, risks and notable items
- Management expected cash on hand and credit availability to cover expenses for at least one year from the report’s issuance, while also identifying additional equity issuance and borrowing as part of its plans to continue as a going concern. The company cited its history of losses and negative operating cash flow.
- TapInfluence’s remaining $3.5 million payment was due in July 2019 and could be paid in cash, stock, or a combination, at IZEA’s option. A final ZenContent installment of approximately $333,000 was also due in July 2019; a further $45,000 was due by November 2019.
- After quarter-end, on May 10, 2019, IZEA completed an underwritten offering of 14,285,714 shares at $0.70 per share, generating approximately $10.0 million gross and $9.4 million net proceeds before estimated company-paid offering expenses. The filing reported 27,143,735 common shares outstanding as of May 10.
- IZEA released IZEAx 3.0 in April 2019 and planned further platform development and integration. Management warned that the upgraded platform may not gain sufficient market acceptance and that migrating customers and creators from legacy platforms could reduce revenue. Legacy Workflow revenue declined 22%, and management expected further declines.
- Disclosure controls were deemed ineffective at March 31 because remediation of a material weakness involving revenue recognition and cost classification had not been completed and tested. The company had previously restated certain 2015 and 2016 financial statements. A new CFO joined during the quarter.
- IZEA had accrued $500,000 for its securities class action deductible. A proposed settlement filed after quarter-end contemplated a $400,000 company payment, with additional amounts paid by insurers, subject to court approval. Separate derivative suits had proposed settlements involving insurer payments and corporate-governance reforms, also subject to court approval.
- Customer concentration is a credit risk: one customer represented 23% of accounts receivable at March 31, and one customer generated 10% of Q1 revenue. TapInfluence increased exposure to customers with significant marketplace balances.
Most important facts for investors to verify
- Whether the May 2019 offering proceeds and share issuance materially improve liquidity, and the resulting dilution relative to the shares outstanding before the offering.
- Whether the July 2019 TapInfluence obligation and other acquisition payments were settled in cash or stock, and the effect on liquidity and share count.
- Whether SaaS Services and gross billings growth can continue as TapInfluence is integrated, and whether Managed Services growth improves.
- Progress in remediating and testing the material weakness, and the status of the proposed legal settlements and required court approvals.
- Whether operating cash flow remains positive; Q1’s cash generation benefited from working-capital movements, including receivable collections.