IZEA, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. The unaudited filing covers a business operating online marketplaces and platforms that connect marketers with content creators, including IZEAx and the acquired Ebyline and ZenContent businesses.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $6.98 million | $6.91 million | $13.18 million | $12.38 million |
| Gross profit / margin | $3.54 million / 50.7% | $3.50 million / 50.6% | $6.55 million / 49.7% | $5.86 million / 47.3% |
| Operating loss | $(1.41) million | $(1.64) million | $(4.11) million | $(4.22) million |
| Net loss | $(1.45) million | $(1.63) million | $(4.17) million | $(4.22) million |
| Loss per diluted share | $(0.25) | $(0.30) | $(0.74) | $(0.79) |
- Revenue mix: In Q2, Managed Services revenue rose 7% to approximately $5.59 million, while Content Workflow declined 15% to $1.36 million. For the first half, Managed Services increased 15% to $10.28 million; Content Workflow fell 14% to $2.83 million. Service-fee revenue also declined.
- Expenses and margins: Q2 operating expenses declined 4% year over year, chiefly due to lower sales and marketing spending. First-half operating expenses increased 6%, reflecting higher personnel costs and IZEAFest marketing expense. First-half gross margin improved to about 50% from 47%, with higher-margin Managed Services contributing most gross profit; Content Workflow margin remained about 7%.
- Cash flow: First-half operating cash use was $2.31 million, versus $3.31 million in 2016. Investing cash use was $89,100 and financing provided $12,606. Cash declined $2.39 million from year-end to $3.56 million at June 30.
- Balance sheet and liquidity: Current assets were $7.96 million and current liabilities $7.20 million. Total liabilities were $8.14 million, including $1.16 million of acquisition costs payable. No advances were outstanding under the secured $5 million receivables-based credit facility; the company estimated up to $3.30 million available, assuming all receivables qualified. Management said cash and the facility should cover expenses for longer than 12 months, while noting that it may seek additional capital and that equity financing could dilute shareholders.
- Debt: No credit-facility borrowings were outstanding at quarter-end. The filing reports interest expense but does not describe material funded borrowings; acquisition payment obligations remain.
Changes, outlook, and key risks
- First-half revenue grew 6.5%, gross profit rose 11.7%, and net loss narrowed slightly compared with the prior year. Q2 revenue growth was modest at 1%.
- Management attributed Managed Services growth to larger managed campaigns and repeat customers. It expects Content Workflow revenue to keep declining, potentially by as much as 35% year over year, amid newspaper-industry consolidation and cutbacks; the company does not actively market this lower-margin offering to new customers.
- 2017 outlook: Management estimated total revenue of $29–$30 million and gross margin of 48%–49%; it expected Managed Services growth above 15%, offset in part by Content Workflow declines. It estimated full-year Adjusted EBITDA of negative $4.0–$4.5 million and anticipated continued investment in sales and engineering. These are forward-looking estimates, not guarantees.
- Net bookings were $6.6 million in Q2, down 3%, and $14.4 million for the first half, versus $14.3 million a year earlier. Management noted a $1 million reduction to a prior-year customer booking following that customer’s budget cuts; bookings can change or be delayed and do not assure revenue.
- IZEA paid $266,898 in cash on July 31, 2017 for the first ZenContent annual installment, after a working-capital adjustment. Further ZenContent payments depend partly on revenue targets and may be paid in cash or shares; Ebyline earn-out targets were not met in the first two years and management did not expect them to be met in year three.
- Key risks include ongoing losses and operating cash use, the need to sustain customer growth and convert bookings into revenue, continued decline in Content Workflow, acquisition integration and contingent-payment estimates, possible future financing and dilution, and competition, staffing, and execution risks. The filing reported no known legal proceeding expected to have a material adverse effect. Management said disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting.
Investor facts to verify
- Whether Managed Services growth and the guided $29–$30 million annual revenue target are achieved, and how much Content Workflow continues to contract.
- Whether cash burn, operating losses, and available borrowing capacity support management’s stated liquidity horizon, particularly after the July ZenContent payment.
- Whether net bookings convert to recognized revenue on the expected timetable, including the impact of cancellations, delays, or customer budget changes.
- Future ZenContent earn-out estimates and payment mix, along with any resulting cash requirements or share issuance.
- Potential dilution: 5.69 million common shares were outstanding at June 30; the filing also discloses outstanding options and warrants and additional equity-plan and acquisition-related share issuance potential.
- The company had not finalized its assessment of the impact of the new revenue-recognition standard, which it expected to adopt January 1, 2018.