IZEA Worldwide, Inc.

Greetings. Welcome to IZEA second quarter 2020 earnings call. At this time, all participants will be in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that today's conference is being recorded. At this time, I'll turn the conference over to Ryan Schramm. Ryan, you may now begin.

Good afternoon, and welcome to IZEA's Q2 2020 earnings call. I'm Ryan Schramm, Chief Operating Officer at IZEA. And joining me today is IZEA Interim Chief Financial Officer, Leanne Hitchcock, and IZEA Chairman and Chief Executive Officer, Ted Murphy. Thanks for being with us this afternoon. Earlier today, the company issued a press release with details pertaining to our second quarter performance for 2020. If you'd like to review those details, all of IZEA's investor information can be found on our investor relations website. at ZEA.com forward slash investors. Before we begin, please take note of the safe harbor paragraph that appears at the end of the press release covering the company's financial results. And be advised that during the course of today's earnings call, our management team will discuss ZEA's business outlook and make forward-looking statements. These statements are predictions based on our team's expectations as of today, that are subject to inherent risks and uncertainties and should not be unduly relied upon. Actual events, results, or trends could differ materially from our forecast due to a number of factors, including those mentioned in our most recently filed periodic reports with the SEC. The company and our management team assume no obligations to update any forward-looking statements made in today's call. In addition, our update today will refer to certain key metrics and non-GAAP financial measures such as bookings, gross billings, and adjusted EBITDA. A detailed explanation and reconciliation of these measures is disclosed in our earnings release and in our most recent Form 10-Q available under SEC Filings in the Investors section of EISEA.com. With the appropriate disclosures out of the way, I'm now pleased to introduce my colleague and EISEA's Interim Chief Financial Officer, Leanne Hitchcock. Leanne.

Thank you, Ryan, and good afternoon, everyone. On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus, also known as COVID-19, as a global pandemic and recommended containment and mitigation measures worldwide. We directed all of our staff to work from home after March 13, and they will continue to do so at least through the end of 2020. All of our business operations and ability to support our customers are fully functional while our employees are working from remote locations. Although our internal operations are fully functional with minimal impact, we did experience impacts from our customers in the quarter. We observed changes in advertising decisions, timing, and spending priorities from our customers, which had a negative impact on our revenue in the current quarter. While the disruption is currently expected to be temporary, There is a high level of uncertainty around the duration and total economic impact. The following is a summary of our results for our second quarter ended June 30, 2020. Total revenue in the second quarter was down 20% to $3.1 million compared to $3.9 million in the second quarter of 2019, with $2.5 million coming from our managed service business and $645,000 coming from our SaaS business. We saw a $501,000 or 17% decrease in our Q2 2020 managed service revenue. The decrease in revenue was driven by two things. Marketers were canceling or delaying the launch of previously sold campaigns, largely from bookings in the fourth quarter of 2019 and in the first quarter of 2020. IZEA's revenue recognition is tied to the start and fulfillment of our customers' advertising campaigns and content needs. and many customers hit pause during the period due to the COVID changes and uncertainty. Secondly, as previously discussed in our last call and in subsequent press releases, our managed service bookings took a meaningful hit in March and April. I would like to take a moment to explain how we recognize managed service revenue at IZEA and the differences between bookings and revenue. Bookings represent the amount of sales order contracts signed in a given quarter. minus any cancellations or refund in the same quarter. So if we sold new contracts valued at a million in the quarter and had customer cancellations of 200,000 on previously placed orders in the same period, the amount of bookings we would report would be $800,000. Once we book a contract, we typically recognize revenue over an average of three to six months for managed services. That means that revenue recognition in a given quarter is largely driven by bookings in the previous two quarters. While we saw our revenue decline 17% in the second quarter of 2020 as a result of lower bookings in Q1 2020, our bookings were up 50% in the second quarter of 2020 compared to the second quarter of 2019. Q2 2020 bookings were 3.96 million compared to 2.64 million in Q2 2019. The Q2 2020 bookings include over $670,000 in cancellations and refunds we provided to customers impacted by COVID-19. This is more than two times that of Q2 2019 and 10 times that of Q1 2020. Despite the large increase in cancellations that impacted both bookings and revenues, we saw a material increase year over year. Revenue from these bookings in Q2 are expected to be realized in the next 3 to 12 months. Our revenue from SaaS services decreased by $288,000 in Q2 2020 as compared to Q2 2019, primarily as a result of lower spend levels from our SaaS marketers and as a result of competitive pricing efforts which reduced our margins on those spends and on our licensing fees. For Q2 2020, Our gross billings on these revenues decreased to $4.5 million compared to $6.6 million in Q2 2019. This 32% decline in gross billings was primarily due to lower marketplace spend from the former TAP Influence and eBuyLine platform customers as they transitioned over to IZEAx and due to the churn during the renewal of some of those customers throughout 2019. Our SaaS marketers curtailed spending in March 2020 and throughout Q2 2020 and new customers were hesitant to enter into long-term licensing contracts due to COVID-19 uncertainties and other factors. Our cost of revenue, exclusive of amortization, was $1.4 million in Q2 2020 compared to $1.8 million in Q2 2019. As a percentage of revenue, our cost of revenue decreased from 46% in Q2 2019 to 45% in Q2 2020. This improvement was due to the reduction in personnel and travel-related costs due to cost reduction efforts put into place to help mitigate the negative effects of COVID-19 on the company's revenue. Our total costs and expenses were $4.9 million for Q2 2020, compared with $5.9 million for Q2 2019. This decrease was due to a $403,000 reduction in the cost of revenue as a result of lower sales A $71,000 reduction in amortization costs as assets were fully amortized in the quarter, and a $526,000 decrease from cost reduction efforts affecting wages, rent, travel, and marketing expenditures to help mitigate the negative effects of COVID-19 on the company's revenue. Our net loss for Q2 2020 was $1.8 million, or $0.05 per share, Compared to a net loss of $2 million or $0.09 per share for Q2 2019. Adjusted EBITDA in the second quarter of both 2020 and 2019 was negative $1.3 million. Given our low stock price, small market cap, and uncertainty in the financial markets, coupled with expected reductions in future receivables upon which funding from our line of credit is dependent, we applied for and on April 23rd received a loan from Western Alliance Bank in the principal amount of $1.9 million under the Paycheck Protection Program in order to retain our full-time employees during this time of uncertainty. We subsequently filed a registration statement with the U.S. Securities and Exchange Commission and raised gross proceeds of $15.4 million from the sale of our common stock in June 2020 through an at-the-market offering under which National Securities Corporation serves as a sales agent. On June 30, 2020, we had a cash balance of $20.8 million. After June 30, we have raised an additional $10.3 million under the market offering. In total, we have raised $25.7 million at an average price of $1.94 per share. After we were able to secure this additional capital, we paid down our line of credit and removed the employee salary reductions and hiring restrictions that we had previously implemented. These reinstatements went into effect July 1, 2020. We currently have more cash on hand than we have ever had in the history of the company, and here is Ryan to provide some insight on how we plan to put it to good use for our marketers, creators, and investors.