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Operator
Good afternoon and welcome to IZEA's Q4 2020 earnings call. I'm Ryan Schramm, President and Chief Operating Officer at IZEA. And joining me today is IZEA Interim Chief Financial Officer Leanne Hitchcock and IZEA Chairman and CEO Ted Murphy. Thanks for being with us this afternoon. Earlier today, the company issued a press release with details pertaining to our fourth quarter performance for 2020. If you'd like to review those details, all of our investor information can be found on our investor relations website at IZEA.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 IZEA'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 also refer to the key metrics of gross billings and the non-GAAP financial measure adjusted EBITDA. A detailed explanation of these measures is disclosed in our earnings release and in our most recent Form 10-K available under SEC filings in the Investors section of IZEA.com. With the appropriate disclosures out of the way, I'm pleased to introduce my colleague and IZEA's Interim Chief Financial Officer, Leanne Hitchcock. Leanne.
Ryan Schramm
Thank you, Ryan, and good afternoon, everyone. For the three months ended December 31, 2020, IZEA's total revenue was $6.4 million, a 10% increase compared to Q4 2019, with $5.9 million coming from our managed service business and $537,000 coming from our SaaS offerings. we saw a 17% increase totaling $842,000 in our managed service revenue and a $274,000 decline in our SaaS service revenue in Q4 2020 as compared to Q4 2019. As we have previously announced, our bookings of managed services increased approximately 48% in Q4 2020 compared to Q4 2019. As a result, our revenue for managed services not only increased by 17% compared to the comparable quarterly period in 2019, it also increased by $2.3 million or nearly 67% compared to our managed service revenue in Q3 2020. Larger customers are increasing their marketing spend with us, and more brands are shifting more of their marketing dollars to influencer marketing campaigns. For Q4 2020, our gross billings increased $8 million compared to $7.8 million in Q4 2019. This 2% increase in gross billings was primarily due to the $842,000 increase in managed service revenue, offset by the decline in marketplace spend and license fees from SaaS customers. The reduction in SaaS gross billings due partially to customer churn, lower fees, and changed spending habits due to COVID uncertainties and other factors resulted in the $274,000 decrease in SaaS services revenue in Q4 2020 as compared to Q4 2019. Our cost of revenue exclusive of amortization was approximately $2.7 million in both quarterly periods, but as a percentage of revenue, our cost of revenue exclusive of amortization has improved from 46% in Q4 2019 to 43% in Q4 2020, primarily due to the reduction in personnel and travel-related costs on the fulfillment of our customer marketing campaigns. Our total costs and expenses were $7.4 million for Q4 2020 compared to $8.2 million for Q4 2019. If we exclude the non-cash $418,000 impairment of intangible assets recorded in Q4 2019, the improvement between periods is approximately $300,000, primarily as a result of cost reduction efforts affecting personnel, rent, and travel expenditures that were cut due to COVID operating changes. As a result of the notable improvements in our operating results, our net loss was $1 million or $0.02 per share in Q4 2020 compared to our net loss of $2.3 million or $0.07 per share for Q4 2019. With the increase in overall revenues, we were able to improve adjusted EBITDA by $825,000 or 64% to only negative $467,000 in Q4 2020 compared to negative 1.3 million in Q4 2019. This was achieved through the steps taken to increase revenue and maintain a virtual work environment during this quarter. Although our team is working remotely, our internal business operations are fully functional. We have observed changes in advertising decisions, timing, and spending priorities from our customers, which initially had a negative impact on our revenue. However, we found ways to reduce expenses and gain efficiencies in our internal operations to minimize the initial effects and focused our team to meet the needs of our customers throughout this year. Bookings is one of our key metrics that is our measure of all sales orders minus any known or expected cancellations or refunds within a period. However, bookings is not always an indicator of revenue for the quarter and could be subject to future adjustment. Revenue from managed service bookings is typically recognized over a six-month period on average. Based on the increase in bookings in Q4 2020, we are entering 2021 with a revenue backlog of approximately $10.6 million, and we are expecting to see continued increases in revenues in 2021 compared to 2020, which will be used to further invest in our own marketing and engineering spends. While we anticipate increased revenues, there is still a high level of uncertainty around the duration and total economic impact of the COVID pandemic on our industry in the future. As of December 31, 2020, we had cash on hand of $33 million and we subsequently raised $34.3 million under our ATM offering in the first quarter of 2021. From June 2020 to date, we have raised total gross proceeds through the ATM offering of $62.8 million. These funds put us in a position of strength with capital for our future growth. With that, I will turn the call back over to Ryan.
Operator
Thank you, Leanne. It's hard to reconcile the last year of our lives, both personally and professionally at times. In late March 2020, there was unprecedented uncertainty, not just within our business and the greater creator economy, but of course, the world at large. When we sent our team members across North America to work from home on Friday, March 13th, we thought it would be 15 days to flatten the curve. A minor distraction to end our fiscal quarter, perhaps. It's almost laughable now looking back to see how naive we all were as a society, as we faced what may likely be the largest global challenge of our generation. What transpired after the week of March 13th was horrifying. Our clients canceled our froze campaigns, all new business activity was stopped in its tracks, and suddenly the realization that IZEA could be highly vulnerable amidst all the broader chaos became a very real fear for us. But where other companies panicked and suffered as a result, we put our heads down and got to work. We focused on controlling the things that we could control within the dynamics of a once-in-a-lifetime pandemic. Creating content, sharing thought leadership, developing new products, and inspiring brand investment through a stable hand. I personally can say I've never worked so hard while at the same time being so terrified about the unknown. And much of our staff, of course, felt the same. And along the way, it hasn't been easy. In fact, nothing about the last 54 weeks has been easy on any of us. Our team members all took temporary pay cuts so we could avoid laying off full-time team members who needed health insurance and income during the height of the pandemic. Some of us got sick, but thankfully recovered. Some of us lost beloved family members who passed away while alone in a hospital. Many of us were and still are lonely due to extended social distancing. But through it all, the conviction of our team was unwilling to waver. We, Team IZEA, found a way forward to not just survive, but thrive by adapting quickly. For example, thanks to our cloud-first infrastructure approach originally designed years ago to help us navigate being headquartered in a hurricane zone, our team members were able to move from offices to home without missing a beat. And while we all prefer to see a few less Zoom meetings in 2021 as immunization rates increase and it becomes safer to be together again, Having the ability to collaborate in real time seamlessly during the workday provided many of us solace in an otherwise physically disconnected world. As society settled into the COVID economy last summer, we quickly realized that amidst the tectonic shifts in advertising and marketing that occurred due to the pandemic, that influencer marketing mattered more than ever. We committed to aggressively invest in our future, building a complete ecosystem of solutions anchored by proprietary technology. We weren't satisfied with the idea of shifting from quote unquote brace for impact to just recovery mode. No, we shifted from recovery mode to a high growth posture with confidence. In our managed service unit, we keyed in on the fact that more than ever in the COVID economy, brands wanted and needed a partner like IZEA who could provide agile, campaign-focused, flat-fee relationships with world-class execution instead of burdensome, expensive multi-year retainers. Paired with the strong relationship basis our client-facing team members have built over the years allowed IZEA to deliver its highest Q4 managed service bookings ever in 2020. In our enterprise SaaS work group, the macroeconomic impacts on the greater MarTech sector opened up a window of opportunity for us to overhaul our entire go-to-market approach via best-in-class cost-to-value pricing, improved term flexibility, and a relentless focus on reducing the time to impact for new customers onboarding, all of which drove a record number of SaaS customers signing up to ISEA X. And we did it all with a smaller workforce than we've historically had in place, fueled by increases in individual contribution productivity that was enabled by the technology investments we've made in our platforms. We have fewer people delivering more revenue per person. However, to be truly successful on a global basis, we cannot just go it alone. You have to link arms with like-minded companies who share IZEA's worldview and complement what we cannot do solely by ourselves. Through our partnerships workgroup, IZEA formed a multitude of industry-first working relationships during 2020 and into early 2021. First, with the formation of Influence United last September, which has brought a cohesive, multi-continent concepting, integrated strategy, and investment strategy to the industry. Our fellow Charter Alliance members give reciprocal capability presence across North America, LATAM, the EU, Southeast Asia, India, Australia, the continent of Africa, and across the Middle East. Never before in the influencer marketing industry has a partnership structure enabled global brands the opportunity to streamline their end-to-end investments, achieving scale through localized execution while saving time and money. More recently, IZEA announced the creation of an entire partner program ecosystem. The newly established roster of invitation-only companies brings together best-in-class solution providers and top representation agencies that strategically integrate with IZEA's consultative managed service offering and across our various software platforms, including Shake, IZEAx Unity Suite, and IZEAx Discovery. By leveraging members of the partner program, ISEA clients and customers can take their influencer marketing initiatives to new heights, igniting exclusive executional possibilities across a wide array of prominent talent and innovative technologies. Looking to the future, our goal is to not just partner with these companies, but provide a basis for even deeper relationship with our clients and customers as a result, leading to increased spend while providing the highest quality of service paired with revolutionary technology. Now, to provide some more details on the road ahead and to share some exciting announcements on the other aspects of our progress, I'd like to turn the call over to my colleague and IZEA's founder, chairman, and CEO, Ted Murphy. Ted. Thank you, Ryan.
Leanne
Before I begin, I would like to share a heartfelt thanks to Leanne for her years of service to IZEA. As previously announced, tomorrow is Leanne's last day serving as interim CFO. She has been an incredible CFO for this company and is one of the most amazing human beings I've ever had the pleasure to work alongside. You will be greatly missed and we appreciate all that you have done for this organization and our shareholders. Speaking of our shareholders, I want to thank you as well. Without your support and belief in this team and our company, we would not be in the position we are today. 2020 was no doubt the most challenging year in the history of our company, but it was also among the most rewarding and transformational periods we've ever experienced. Last year, in the middle of the pandemic, we launched two new products, BrandGraph and Shake, at a time when many companies were laying off staff, shutting down new initiatives, and retreating to safety. Instead of pulling back on research and development, we increased the size of our engineering team, dramatically reduced our licensing fees, and got much more aggressive with our marketing initiatives to build back our sales momentum. IZEA's vision has always been to connect the buyers and sellers who drive the creator economy forward. Our goal is for both parties to financially benefit by transacting and collaborating with each other. Our intent is to make IZEA technology platforms available and affordable for the broadest base of customers possible. The introduction of IZEAx Discovery, lower pricing tiers in IZEAx Unity Suite, and of course the introduction of Shake are all part of that vision but we are still in the early days of what we believe is a very large opportunity within a total addressable market that is growing each year. At the end of Q3, we shared that we had an all-time record number of customers licensing our software, largely due to self-service signups for IZEA X Discovery. This trend continued into Q4, Last I spoke on our Q3 earnings call, I commented on the resilience demonstrated by ZX discovery since the onset of COVID. That resilience has now translated to growth. As a result, we ended Q4 with the highest number of active software customers we've ever had. And as we peak into Q1, we expect that number will be bested yet again in March. Record customer counts are always exciting, but what is even more exciting is that our Discovery product is on the verge of a major technology upgrade in Q2 of this year. We have completely rewritten core components of our influencer search experience, and that will benefit both IZEAx Unity Suite as well as IZEAx Discovery users. For the first time, you will see deep IZEAX integration with BrandGraph and Shake, all within one incredibly powerful and easy-to-use solution. It is the culmination of years of engineering effort and something I can't wait to share with you next quarter. In addition to major IZEAx enhancements, we continue to improve Shake, which opened up for public transactions for the first time in November 2020. Shake is very much so a nascent platform, but we are making consistent improvements each week with new creators and buyers joining the platform. One of the challenges of any marketplace is balancing supply and demand in the very early days. you need to have inventory to sell to buyers, and you need buyers to attract sellers. As we have onboarded new talent, we have seen an increase in the amount of money being spent on the platform. But these numbers are still small compared to our overall revenue today, and it will take some time to build into a meaningful portion of IZEA revenue. Increasing inventory is a primary directive of the Shake team, and we have aligned many of our engineering sprints towards increasing conversion rates and the creation of quality Shake listings. Our product team has also identified multiple opportunities to improve the Shake creation experience, starting with the redesign of the homepage that launched a few weeks ago. This has had an immediate positive impact on time on site, conversion rates, and bounce rates. We're also in the process of designing and implementing other Shake platform changes that we believe will have a positive impact on both signups and the creation of approved Shake listings. In addition to software refinements, our Shake inventory building effort also includes larger initiatives, such as our recently announced Parade of Stars, as well as the IZEA Partner Program that Ryan mentioned earlier. We are seeing a steady uptick of new Shakes from creators and influencers of all sizes in Q1, and the rate of Shake creation is accelerating from the rate we saw in Q4. These improvements to Shake would not be possible without the recent investments we've made to expand and enhance the Shake product team. In the very beginning, Shake started out as a Skunk Works project with me and a single engineer. We now have a proper, dedicated product management team, a team of front-end and back-end engineers, and dedicated QA resources. The Shake platform and the team behind it is still maturing and gaining momentum. And as it does, we expect Shake to grow in inventory, capabilities, and revenue. This is a common theme in our engineering organization. IZEA has been able to accomplish a great deal with a relatively small team to date, but that has been at the greater expense of speed to market and or product capabilities. A small engineering team working on very complex systems can only take you so far. To give you some perspective on this, last year, IZEA spent $4.1 million in development costs for its various SaaS platforms. In comparison, a competing public company that operates a marketplace similar to Shake spent over $45 million on research and development in 2020. more than 10x IZEA's investment across multiple platforms. We are very proud of what we've been able to do with such a small, talented team, but we are changing our approach moving forward. We are making the engineering investments needed to fully realize the potential of the platforms that we have created. Over the past few quarters, we've been working to build out our engineering and product teams. In addition to bolstering our count of engineers writing code, we have created and filled many of the management positions needed to scale from here. We have added multiple new product managers, a new director of engineering, and starting this week, a new senior manager of data science and data engineering. We are investing heavily in research and development, and we intend to continue to bring on engineering and product talent throughout 2021 and beyond. We are doing so in order to expand the capabilities of our existing platforms, refine our offerings based on customer feedback, and build out new software products that are focused on the creator economy. That includes things such as the next generation of IZEA-X and BrandGraph, as well as the expansion of Shake, including a much requested Shake mobile app. We have built a vast technological foundation at IZEA, and we intend to aggressively pursue the development of our software to address the market opportunities. Alongside the investment in product, we intend to market much more aggressively, and that investment will ramp up as we release new software features. Expect to see up to triple the investment in marketing over the course of 2021 as we seek to increase brand awareness and significantly grow revenue in this year and beyond. Again, to provide some perspective on this, last year, IZEA spent approximately $6 million in total sales and marketing. In comparison, that same marketplace I previously referenced spent $94 million in sales and marketing, almost 16x that of IZEA. That is 30% of revenue for IZEA versus 50% of the revenue for our competitor. Make no mistake, IZEA is transitioning to an aggressive growth mode. And to achieve the type of aggressive growth we are aiming for, we must invest aggressively. well ahead of near-term profits. We are focused on expanding our customer base, increasing the inventory of creators available on our platform, providing the best possible customer experience we can, and of course, meaningfully growing our revenue while increasing operational efficiency. Our team will do so in a strategic and responsible way. but we will bias towards speed, we will bias towards growth, and bias towards capturing as much share of the influencer marketing industry as we can. Over time, we believe our biases will result in a larger, more valuable, and more profitable company with the scale needed to sustain the technology and marketing investments needed to continue gaining market share. We have waited 15 years for influencer marketing to become mainstream. For all the negatives that have come with COVID-19, it has also served as the catalyst to propel influencer marketing to center stage and spawn the rebirth of IZEA. We had the worst possible social and economic scenario thrown at us last year. Not only have we survived, but we have thrived. and we have emerged a better company for it. We are positioned to attack the market on all fronts. We have a strong balance sheet to support long-term investments. We have an incredible and growing base of customers ranging from four of the Fortune 10 to hundreds of smaller brands and agencies. We have a proven team that can tackle the most difficult of situations, and we are building on an amazing technology base that is constantly raising the bar for others. Thank you all for your support. I would now like to open up the call for Q&A.
Disclaimer