IZEA Worldwide, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. IZEA operates marketplaces and software connecting marketers with content creators. Most revenue comes from managed influencer marketing and custom-content services; SaaS offerings include IZEAx, BrandGraph, and Shake.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $12.58 million | $6.42 million | $21.47 million | $11.94 million |
| Gross profit / margin | $5.37 million / 42.7% | $3.21 million / 50.0% | $9.08 million / 42.3% | $6.28 million / 52.6% |
| Operating loss | $0.44 million | $2.12 million | $2.89 million | $4.03 million |
| Net loss | $0.17 million | $0.16 million | $2.65 million | $2.05 million |
| Adjusted EBITDA (non-GAAP) | $0.25 million | $(1.47) million | $(1.87) million | $(2.76) million |
| Cash used in operating activities | Not presented quarterly | $4.57 million | $3.14 million |
- Managed Services revenue was $12.18 million in Q2, up 103% year over year, and $20.55 million for the half-year, up 86%. SaaS Services revenue was nearly flat for the half-year at $0.92 million.
- Q2 gross margin fell to 42.7% from 50.0%; management attributed the decrease to higher-cost, lower-margin large contracts. Six-month cost of revenue rose 119%, faster than revenue growth of 80%.
- At June 30, cash and cash equivalents were $11.35 million; short- and long-term investments were $33.07 million and $25.85 million. Together, cash and investments had a reported fair value of $70.27 million. Current assets were $54.89 million versus current liabilities of $13.79 million.
- Debt was limited: the balance sheet showed $31,068 of notes payable and no long-term notes or finance obligation; accrued expenses included a $34,292 current finance obligation. Management said it planned to repay the required portion of the CEBA loan by year-end to qualify for forgiveness of the remainder.
- Stockholders’ equity was $72.23 million. The accumulated deficit was $76.28 million. Six-month investing cash outflow of $59.49 million mainly reflected purchases of marketable securities, explaining most of the $64.09 million decrease in cash.
Changes, outlook, and notable matters
- Q2 revenue growth was concentrated in Managed Services. A large customer contract accounted for over three-fourths of the year-over-year increase and included approximately $2 million of catch-up revenue tied to production delays in prior quarters. Management said the remainder reflected increased sponsored-social orders from new and existing customers.
- The same large contract represented approximately 41% of Q2 revenue. Separately, one customer accounted for 50% of accounts receivable at June 30, and two customers together accounted for more than half of Q2 gross billings.
- Managed Services bookings were $9.34 million in Q2, down 15.9% year over year, but $21.47 million for the six months, up 22.3%. Management cautioned that bookings may take about nine months on average to convert to revenue, and are not a reliable predictor of quarterly revenue.
- Management stated it had sufficient resources for operations and planned investments for at least the next 12 months, while noting that additional capital may be needed for investments or acquisitions. It expects operating expenses to increase as the business expands. The filing provides no quantified earnings or revenue guidance.
- Q2 net loss was broadly similar to the prior-year quarter despite much higher revenue. The prior-year quarter and half-year included $1.93 million of income from PPP loan forgiveness; current-period other income included approximately $230,000 of interest income on investments. The half-year net loss therefore increased year over year.
- The company recognized $140,727 of digital-asset impairment in the first half, including $77,751 in Q2; remaining digital assets had a fair value of $72,536. Investment securities had $267,482 of net unrealized losses recorded in other comprehensive income at June 30.
- Management concluded disclosure controls were ineffective as of June 30 due to a material weakness concerning the timing of creator-content cost accruals and related revenue recognition. This weakness followed a restatement of 2020 interim financial statements. Remediation work and implementation of a new ERP system were reported as ongoing or completed, respectively.
- Nasdaq notified IZEA on July 6 that it did not meet the $1.00 minimum bid-price requirement. The stated initial compliance period ran through January 2, 2023; failure to regain compliance could lead to delisting. The company noted a reverse stock split could be considered if needed for a subsequent compliance period.
- Management described ongoing uncertainty from COVID-19 and cited customer cancellations, access to capital, competition, execution, and other risks. It reported no known legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- How much of recent Managed Services growth and future revenue depends on the large customer contract, its catch-up revenue, and a small number of customers?
- Whether bookings convert to revenue as expected, given the longer conversion cycle and Q2 bookings decline.
- Whether margins improve as large contracts are fulfilled, and whether SaaS subscriptions and marketplace spending stabilize.
- Cash burn and investment liquidity: the company reported $70.27 million of cash and investments at fair value, but used $4.57 million in operating cash during the first half.
- Progress in remediating the material weakness, including the controls over creator-cost accruals and related revenue recognition.
- Nasdaq bid-price compliance by the applicable deadline and any resulting financing or share-structure actions.
- Potential dilution from equity compensation and any future use of the available $100 million ATM sales agreement; no sales under that agreement were reported through June 30, 2022.