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Operator
Good afternoon and welcome to IZEA's Q4 2021 earnings call. I'm Ryan Schramm, President and Chief Operating Officer at IZEA. And with me on the call today is IZEA Chief Financial Officer, Peter Beery, and IZEA Founder, Chairman, and Chief Executive Officer, Ted Murphy. Thanks for joining us. Earlier this afternoon, the company issued a press release with details pertaining to our fourth quarter and full year performance for 2021. If you'd like to review those details, all of our investor information can be found on IZEA's investor relations website at IZEA.com, I-Z-E-A dot com forward slash investors. Before we begin, please take note of the safe harbor paragraph included in today's press release covering the company's financial results and be advised that during today's earnings call, our management team will discuss IZEA's business outlook and made 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 a certain non-GAAP financial measure, adjusted EBITDA, and other key financial metrics such as gross billings and bookings. A detailed explanation of these measures is included in our earnings release and in our most recent form, 10-K. With the appropriate disclosures taken care of, I'd now like to turn the call over to my colleague and IZEA's Chief Financial Officer, Peter Beery. Peter.
Ryan Schramm
Thank you, Ryan, and good afternoon, everyone. Before I review our fourth quarter results, I'd like to refer you to our Form 10-K for the year ended December 31st, 2021 for detailed disclosures of adjustments made in previously issued financial statements. which impacted certain liabilities, costs, and related revenues associated with our managed services business. In the Form 10-K, we restated previously issued interim financial statements, which were included in our quarterly reports on Form 10-Q for the periods ended March 31st, June 30th, and September 30th, all in 2020. Previously issued financial statements for the fourth quarter and full year end December 31st, 2020 and all interim periods for 2021 were not materially impacted and did not require restatement. It is essential to note that these adjustments did not affect the total cost of revenues to be recognized, they only altered the timing. The aggregate adjustments reduced gross revenues by $362,000, or less than 2% of revenue, for the year ended December 31, 2020. and the total impact of the adjustments on 2021 gross revenues was a positive $157,000. All comparisons in our earnings release for the fourth quarter of 2021 are made on an as-adjusted basis. Now I'll turn to our operating results for the quarter. Total revenue for the quarter of 2021 was $10.3 million or 62% higher when compared to Q4 of 2020, with $9.9 million coming from our managed services business and $449,000 coming from our SAS offerings. Managed services revenue increased by $4 million or 69%, while SAS revenue declined by $89,000 or 17%, both compared to the prior year quarter. As we previously announced, managed services bookings, a key metric measuring sales orders we receive less any cancellations or refunds given during a period, totaled $10.6 million for the fourth quarter of 2021, an increase of 164% compared to Q4 of 2020. The trend toward larger brands increasing their marketing spend with IZEA also continued during the fourth quarter, as we added several new Fortune 500 customers alongside repeat business from three Fortune 10 partners. These factors, taken together with efforts put forth by our team to fulfill campaigns by the end of the year, resulted in the increased managed services revenue. We recognize revenue on most of our managed services contracts over time based on the completion percentage and delivery timing can vary greatly. We're winning larger contracts with new and repeat customers and these contracts take longer to complete. This has lengthened the average period for revenue recognition from six to seven months a year ago to approximately nine months currently. SAS revenue, which consists of license fees, self-service marketplace spend fees, and other fees, were $89,000 lower for the fourth quarter of 2021 compared to Q4 of 2020. While overall licensee count continues to grow every quarter, total license fees declined year over year due to lower competitive pricing that we introduced in the summer of 2020. We also lowered our pricing on select self-service offerings, which impacted our margins on marketplace spending during the quarter. Gross billings for marketplace spend in the fourth quarter were 53% lower than the prior year quarter, leading to the lower revenue of fee revenue. Our cost of revenue was 4.8 million in Q4 of 2021, or 46% of revenue compared to 2.8 million or 44% in the prior year quarter. Accordingly, gross margin in the current quarter averaged 54% compared to 56% in the prior year quarter. Expenses other than the cost of revenue totaled $5.5 million for the current quarter compared to $4.7 million for the prior year quarter. Sales and marketing costs were $2.2 million during the quarter, $328,000 or 18% above the comparative quarter. due primarily to sales compensation, which varies with higher bookings, and increased marketing costs associated with driving customer growth. General and administrative costs total $3.2 million during the quarter, $723,000 or 30% above the prior year quarter, due primarily to higher compensation and contractor costs to support operations and IT investments. We generated $312,000 in net income for the fourth quarter of 2021, or one cent per share, compared to a net loss of $1.1 million in the prior year quarter, or negative two cents per share. Adjusted EBITDA was positive $549,000 for the fourth quarter, compared to a negative $512,000 for the prior year quarter, an improvement of approximately $1.1 million. As of December 31st, 2021, we had 75.4 million cash on hand, up about 1 million from the end of quarter three, partly due to positive EBITDA during the quarter and cash advances from managed services customers ahead of payment to creators. We do not have any debt on our balance sheet. As previously announced in June 2021, the company entered into a new two-year at-the-market sales agreement under which it may offer up to $100 million of its common stock from time to time. That agreement provides IZEA with financial flexibility moving forward. The company has not sold any shares to date under that agreement. With cash on hand and continued strong growth in our core business and a financing vehicle in place, should we require it, we're in a solid position to execute on business growth and opportunities that may lay ahead. With that, I'll turn the call back over to Ryan.
Operator
Thanks, Peter. 2021 was truly our breakout year as a company. All in all, we set new records in nearly every measurable facet, and it served as a positive stepping stone towards IZEA's broader growth strategy shared in previous earnings calls. From our best quarter of bookings ever to delivering an all-time full-year revenue record, it's clear that IZEA's investments of time, capital, and talent are providing demonstrable results for our shareholders. I'd like to share some insight on how we continue to build positive momentum during fiscal year 2021, while also further establishing the foundation for the future of things to come. First, let's start with IZEA's go-to-market strategy. During the course of 2021, we saw a variety of sectors driving IZEA's growth, some of which began investing in influencer marketing more notably due to factors created by the pandemic and have since carried forward as a force multiplier as the world begins to reopen. The nucleus of our business, is Fortune 10 to Fortune 500 brands across five core segments, consumer electronics, entertainment and media, consumer packaged goods, retail and grocery, and social media platforms. We're very proud to be the partner of choice for household name companies who entrust our managed service team and who license our software products to develop innovative campaigns across the creator economy. When we win or expand business with these types of customers, many of whom conduct extensive competitive reviews and vetting, we believe it not only emphasizes IZEA's value proposition, but it validates our distinct market strategy long-term as we seek to consolidate market share. To that end, when you read press releases or hear commentary during this call regarding clients of our managed service practice or SaaS customers who license IZEA X Unity Suite, we intentionally refer to these wins by sector and rank instead of brand or corporation name due to industry standard confidentiality clauses unless we have permission to disclose from those clients. Don't get us wrong, we love to shout these names from the hilltop, but in an effort to provide visibility around momentum to our shareholders, we feel it's important to highlight particularly notable commitments in as detail of a manner as possible whilst protecting our clients' confidentiality in a public setting. As you've likely read in our various press releases throughout the last year, IZEA is actively expanding into new geographies, new sectors, and entirely new types of clients, thanks to the hard work of new and existing team members alike. We are assertively, yet prudently, investing in a combination of personnel, performance marketing, and technology research and development to drive our growth, both near-term and long. Many of these initiatives will be 2023 and beyond storylines, but with a critical foundation having been established during 2021 and throughout this year in 2022. While we don't have time to recap everything today, I would like to take this opportunity to remind shareholders that all of our exciting news can be found on IZEA.com forward slash investors. including the opportunity to subscribe to automated email alerts whenever we make important announcements that you may be interested in. That being said, plan on hearing more from us on many of these exciting initiatives that are actively underway, whether as part of our emerging market strategy that has IZEA entering the Chinese market for the first time, to our new MetaMod offering that brings our 15 years of experience, relationships, and technology to the metaverse in order to embrace the full promise of Web3. to the continued expansion of our Solution Partner Program, an industry leading coalition of technology and service providers that enhance the campaigns that we build for our clients. It's a tremendously exciting time to be at IZEA, but it all starts and ends with our premise of involving cutting edge technologies in every aspect of our business. IZ had created the influencer marketing industry in 2006 by launching the very first platform to pay influencers, and we haven't stopped innovating since. To that end, we are actively building the next generation of our enterprise software while simultaneously bringing our marketplace efforts aligned to Shake front and center in the coming months. We also believe there might be entirely new ways to serve the creator economy, given the continued large amounts of money flowing into the space globally, particularly given that they're simply more prospective customers who are creators on an absolute count basis than the brand marketing ecosystem itself. Putting both universes under our proverbial roof creates limitless potential. These investments have multi-business unit impact for IZEA in that they drive software and transactional revenue while also working to lower the cost basis of our managed service business unit by increasing operational leverage. Lastly, I want to share some insight on our point of view regarding organic versus inorganic growth. While IZEA has been acquisitive historically, the lion's share of our growth in recent years has been driven solely by organic means. Therefore, our philosophy remains to be primarily focused on ourselves, while also being opportunistic to strategic inbound M&A, given our unique status of being the only public company dedicated to influencer marketing. Ultimately, it's our belief that consolidation on a multi-continent and or global basis is inevitable, and we feel that IZEA is well positioned to lead, not follow, that reality. One of the key ingredients of our success in recent years has been our role in the war on talent. IZEA aspires to be the singular player in the creator economy where our industry's best talent lives and thrives. From client-facing positions to those in our technology workgroups, we have greatly benefited from the net gain of talented individuals seeking to showcase themselves on a bigger stage and abandon their previous roles at competing smaller startups. Their decision to join Team IZEA is due in part to our financial stability, our access to resources, the company's continued positive performance, and most importantly, our growth potential in the years ahead. We're so glad to have them here and as active co-owners of the company through our compelling team member equity program. For some closing remarks on 2021 and a forward-looking view at our business through his eyes, I would now like to turn the call over to my colleague and IZEA's founder, chairman, and CEO, Ted Murphy. Ted.
Peter
Thank you, Ryan. At the end of 2020, our team set forth a goal to deliver at least 30% annual revenue growth per year for each of the next three years, or a 30% compound annual growth rate. Revenues in 2020 were approximately $18 million. Based on that rate of 30% growth per year, our goal was to achieve revenues of approximately $23.8 million in 2021 and $31 million in 2022. I shared this goal with our investors in Q1 of 2021. at a time when many were still wearing masks and COVID-19 vaccine distribution was limited. There were a variety of macroeconomic unknowns at that time, much like there are today, but we still put forth a bold target, a target that would require our entire team to work together and execute on a level we never had before. Not only did we hit our 2021 goal, we significantly beat it with organic annual revenue growth of 67% compared to 2020. We are nearly a full year ahead on the three-year revenue growth plan I outlined this time last year. And as a result, we were able to deliver a profitable Q4 and smaller loss for the full year. During our all company meetings, I often talk about the concept of invisible lines. Invisible lines are the unseen barriers that seem difficult, sometimes impossible to cross. They keep us confined to a box, bound by what we know to be true or possible. At one time, $5 million in revenue was an invisible line for IZEA. Then $10 million. Then $25 million. Last year, we smashed through the $25 million revenue line. then continued on to smash $30 million. 2021 set a new standard for IZEA, a new norm for what we know is possible, along with creating the infrastructure and people to support that level of revenue. Yes, we are well ahead of our three-year plan, but we have zero intention of slowing down. Quite the opposite. We have begun to demonstrate what we can accomplish when meaningful investments are made, and our intent is to get even more aggressive with further strategic spending as the year progresses. That means expenses will grow in 2022, just as they did last year. We will spend more in sales, marketing, and technology, the areas that give us operational leverage. We have $75 million in cash and we intend to put a portion of that to work in 2022. New markets will take time to mature, as will new products, and we expect that we will be investing ahead of their contribution. Despite the significantly tougher annual comparison and higher baseline revenue, we are still targeting 30% annual revenue growth in 2022, which translates to a $39 million target this year. This target is aligned with our goal to continue gaining share in the influencer marketing industry, which eMarketer predicts will grow by 11% in the U.S. in 2022. While there are unprecedented global financial and political factors we must continue to monitor and adapt to, we believe IZEA is well positioned to deliver on our revenue growth goals this year, given the strong bookings throughout last year and record-breaking Q1 bookings to start 2022. The best is yet to come. We believe that we are nowhere near our full revenue potential. We are in a growing industry that will expand as new platforms and the next generation of creators is born. We forget that over 40% of the global population still isn't on social media. Each progressive generation of children will drive further adoption of social media platforms of all types, and each platform brings a new crop of influencers who are coveted by brands. IZEA roared out of the gates in Q1. It is not only the best Q1 managed services bookings in company history, it is the best quarterly bookings ever in a quarter that has historically been our lowest bookings quarter of the year. Last week, we announced that managed services bookings for the quarter have surpassed $11.5 million compared to $6.4 million in 2021, an increase of over 80% year-over-year. We will release the final managed services bookings number next week. While 2022 bookings are off to a tremendous start, we have yet to fully recognize the efforts from last year's contracts. Unearned revenue at year-end was $11.3 million, up 71% from $6.6 million at the end of 2020. The unearned revenue from 2021 should be recognized over the coming quarters in 2022, and the fast start and current pipeline gives us confidence in our ability to grow revenue in 2022. Last year, our goal was to stabilize SaaS licensing revenue after making sweeping changes in Q3 of 2020 and lowering our pricing plans across the board. We were able to do that by the back half of 2021. And in the process, we increased the number of SaaS customers that we are serving to record heights. We believe that the addressable market for influencer marketing software and services is broad and our intent is to diversify our customer base as much as possible. We intend to do so at both ends of the spectrum, from enterprise Fortune 500 clients with entire teams focused on influencer marketing to small startups who just need an easy way to get their first campaign up and running. This year is going to be a big one for IZEA on the technology front, and that starts this week, with the release of a completely redesigned checkout experience in Shake. We have made it easier than ever to find and hire an influencer on the platform, and we are continually refining the offering. In a few more weeks, we will deliver a massive improvement to Shakebot, which will further guide people through the entire order process. These changes are in advance of much larger fundamental shifts to the Shake platform, including the introduction of a subscription model for both creators and marketers, as well as an iOS app in the back half of this year. IZEA X is also getting some upgrades. Later this quarter, we will unveil a new discovery experience in IZEA X that takes advantage of the growing capabilities of BrandGraph. And later this year, we will release an entirely new enterprise influencer marketing platform. We are building a revolutionary application for the next generation of influencer activations. A platform with flexibility to accommodate all that Web 3.0 will become with a focus on social commerce and measuring influencer ROI. It is a radical departure from both ISEA X and Shake and something our entire team is incredibly excited about. As transformational as 2021 was, 2022 is shaping up to be an even more monumental year for our company. Our leadership team remains committed to growth, innovation, and expansion of our geographic footprint. This mindset has served us well over the past year, and we will continue making investments in building our future. We are thankful for your support in 2021 and look forward to reaching new heights in 2022 and beyond. Thank you all for joining us today. I will now open up the call for Q&A.
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