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spk02: Good afternoon and welcome to IZEA's Q1 2022 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 first quarter performance for fiscal year 2022. If you would like to review those details, all of our investor information can be found on IZEA's investor relations website at IZEA.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 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 a non-GAAP financial measure, adjusted EBITDA, and 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, 10Q. with the appropriate disclosures taken care of. I would now like to turn the call over to my colleague and IZEA's Chief Financial Officer, Peter Beery. Peter.
spk00: Thank you, Ryan, and good afternoon, everyone. I'd like to review our operating results and highlight our first quarter accomplishments. Revenue for the first quarter of 2022 totaled 8.9 million, which was 61% higher than Q1 of 2021. We recorded 518,000 in net revenue from our SAS offerings during the current quarter, up 5% from the prior year quarter. Revenue from managed services improved to $8.4 million during the first quarter, up 66% over the prior year on the strength of steady quarterly bookings growth and an increase in completed campaigns during the quarter. As we previously announced, managed services bookings, a key metric measuring sales orders we receive, net of cancellations and refunds during a period, reached another all-time high of $12.1 million for the first quarter of 2022, an 88% increase over Q1 of 2021. Our steady quarterly bookings growth, enhanced revenue growth, demonstrates that demand for managed services continues to increase as new and existing customers are shifting more of their marketing spend to influencer marketing campaigns. We record revenue on most of our managed service contracts over time, based on completion percentage, and delivery timing can vary greatly. Since Q2 of 2021, our average time from contract booking date to completion is nine months. We continue to win larger contracts with new and repeat customers, and while some of these contracts are as long as 12 months in length, subcontracts with influencers may stretch over 18 months before all the revenue can be recognized. Our managed service backlog, which represents a total of unrecognized revenue for underway contracts, as well as recent bookings that have yet to begin invoicing, totaled $24.2 million on March 31, 2022. We expect to record most of this backlog as revenue in the following three quarters. SAS services revenue, consisting of license fees, self-service marketplace spend fees, and other fees, was $25,000 higher for the first quarter of 2022 than the prior year quarter. While licensee accounts continue to grow year over year, this growth has yet to translate in increased fee revenues. License fee revenue in the first quarter was about flat with the prior year quarter, while marketplace spend fees were off 45% from Q1 2021, as gross billings fell 39% from the prior year quarter. Our cost of revenue was $5.2 million in Q1 of 2022, or 58% of revenue, compared to $2.5 million, or 44%, in the prior year quarter. Accordingly, gross margin in the first quarter averaged 41.7% compared to 55.6% in the prior year quarter. The increase in the cost of revenue and therefore lower blended gross margins was due to a high cost delivery with one customer contract that made up approximately 14% of current revenues. This significant contract aside, the cost of revenue for our other customer contracts was within the recent historical range. Expenses other than the cost of revenue totaled $6.2 million for the quarter compared to $5 million for the prior year quarter. Sales and marketing costs were $2.5 million in the first quarter of 2022, or 21% above the comparative quarter, due primarily to higher sales compensation, which varies with higher bookings, and increased marketing costs, including additional headcount associated with driving customer growth. General and administrative costs totaled $3.5 million during the quarter, or 38% above the prior year quarter, due primarily to higher compensation and contractor costs to support operations and product investments. Our net loss was $2.5 million for the first quarter of 2022, or negative 4 cents per share, compared to a net loss of $1.9 million in the prior year quarter, or negative 3 cents per share. Adjusted EBITDA was negative 2.1 million for the first quarter compared to a negative 1.3 million for the prior year quarter. As of March 31st, 2022, we had 72.6 million in cash on hand, down from 75.4 million at the beginning of the year, partly due to negative EBITDA during the quarter and also to creator cash advances ahead of customer billings late in the quarter. We do not have any debt on our balance sheet. In June of 2021, the company entered into an at-the-market sales agreement under which it may offer up to 100 million of its common stock from time to time. We have not sold any shares to date under that agreement. With cash on hand, 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 any opportunities that may lie ahead. With that, I'll turn the call back over to Ryan.
spk02: Thanks, Peter. Since our last call with shareholders on March 30th, we've continued to execute against our 2022 operating plan in line with guidance shared in previous updates. Management continues to be pleased with the string of records delivered to the benefit of our shareholders and the execution against various platforms for future growth progressing at or ahead of schedule. These efforts range in scope and size to further diversify our customer base and increase the variety of opportunities for creators at large. As a result, IZEA's first quarter was not only successful from a business standpoint, but equally productive on the strategic front as we laid the foundation for driving long-term value for our clients and shareholders alike. On January the 18th, we announced the appointment of Ross Yellowlees as our GM for Emerging Markets, a newly created role at IZEA. Ross joined our Managed Services Leadership Council and is the person responsible for building a team of influencer marketing professionals who identify and scale new market opportunities for the company on a geographic and or sector basis. The overarching strategy related to emerging markets was connected to many of the quarter's key announcements. including the February 15th unveiling of MetaMod, our specialized unit that will use IZEA's capabilities, relationships, creator network, and innovative lineage to bring sponsored collaborations to virtual worlds tied to the promise of Web 3.0. MetaMod builds on our extensive influencer network, offering brands and agencies the opportunity to partner with influencers inside of popular gaming platforms, such as Roblox or Fortnite, as well as with artists on key NFT marketplaces. From various client conversations this quarter, We are seeing very early returns from brands wanting our help to drive awareness of Metaverse activations, creating Metaverse experiences to help promote a product, having our team develop and distribute branded virtual objects, and even hosting sponsored virtual events in the Metaverse, such as concerts and parties. Then, in the month of March, we celebrated two geographic expansions, starting with IZEA entering the Chinese market for the first time ever. Our efforts, based in Beijing and led by industry veteran Zhifu Yang, provides a tremendous opportunity to partner with China-based companies who desire to reach consumers across North America and around the globe. Shortly thereafter, we commemorated our seventh year as a pioneer in the Canadian marketplace by announcing the appointment of Mike Libes to serve as our country GM. Through his efforts and experience, we intend to increase IZEA's market share and make strategic investments to bolster the next chapter of growth across the country to serve leading brands and agencies. All told, these initiatives and others still in formation will serve to further expand our client base and the types of relationships we enjoy with brands and agencies. Whether it's through professional managed services, enterprise software, or self-service offerings, we recognize the need and opportunity to meet customers where they are and expand opportunity by providing a variety of solutions that exceed their expectations. As Peter mentioned in his remarks, this approach could have various financial side effects related to timing of revenue recognition, costs, and the like. While our average deal sizes continue to increase for one-off campaign investments, we're also thrilled to be winning relationships that transcend multiple quarters or even fiscal years at substantially higher amounts of investment. Given the scope and dynamics of those types of arrangements, it can impact results within a certain quarter if our client's business circumstances change and we shift deliverables timing accordingly in an effort to be accommodating as a partner. That said, our focus remains on the things that we can continue to directly control. Thoughtfully growing our customer base, driving innovation forward in a highly competitive category, and expanding our market share wherever and whenever possible with an opportunistic mindset. Now, for some additional commentary on Isaiah's first quarter from his perspective, I'd like to turn the call over to our founder, chairman, and CEO, Ted Murphy.
spk01: Ted. On our last conference call, I shared that our team is nearly a full year ahead on our three-year plan to deliver a 30% revenue growth rate each year from 2021 to 2023. I'm happy to report that this is still the case. We believe we remain on track to hit our 2022 revenue target of $39 million based on our current trajectory. Bookings did not slow down from our record-breaking fourth quarter in Q4 2021. In fact, in Q1 2022, we set yet another all-time managed services bookings record, growing quarterly bookings by 88% year-over-year, and Q2 is off to a strong start as well. Based on the growth percentages we are seeing, we believe we continue to gain market share in the influencer marketing industry. which eMarketer forecasts will grow 11% this year alone. Our 30% revenue growth would be nearly 3x the industry growth rate. I want to take a moment to recognize the changes that are happening in the global financial markets and the potential impacts on marketing spend moving forward. We are well aware that some categories of marketing have already seen a slowdown or have even shrunk year over year. The influencer marketing space grew dramatically during the pandemic, at a time when many other forms of marketing and advertising were adversely affected. We believe the space will continue to grow, but we are not relying on overall growth and advertising spend to propel our own growth. While we are a leader in our space, we also recognize that the influencer marketing industry is vast with many competitors, most of which are small in size. We believe that IZEA's primary growth will come from the conquest of new customers who are already investing in influencer marketing with other solution providers, or struggling to execute and optimize influencer marketing initiatives on their own. We are not expecting to be able to grow existing relationships 30% year over year at a time when GDP is shrinking. We are going to grow by increasing our share of the overall industry by adding customers, and there is room for growth, even in a time of economic slowdown in some industries. A slowdown may actually prove to be a positive thing for IZEA long term. Smaller competitors simply wanted the resources to compete for talent or invest in marketing and technology, which will create opportunities for us given our fortified balance sheet and prudent expense management. In the same way that COVID-19 forced many players out of business, we believe any extended recession scenario would likely bring another wave of consolidation. less viable competitors is a good thing for us as we set our sights on gaining market share we are well positioned to weather a near-term financial storm and we have been focusing on employee efficiency even before the pandemic we have 15 less employees now than we did in 2016 at our all-time peak but those employees are generating significantly more revenue per person. IZEA intends to prudently invest in sales, marketing, and technology this year. However, any headcount growth will be more tempered as we continue to monitor the global economy and make adjustments as needed. This will also give us some time to allow our revenues to catch up with some of the investments that had impacted us here in this quarter. In our recent IZEA survey of more than 1,000 social media users, we found that 44% of respondents between the ages of 18 and 29 identified themselves as influencers or aspire to become one. This aligns with the tremendous growth we expect to continue seeing in content creation across various platforms and the number of brands looking to benefit from partnering with these emerging influencers. Working with influencers can provide incredible value for brands versus other forms of marketing which continue to push the space forward. If there is one constant in the world, it is change. Things have changed a lot since 2006 when we created the influencer marketing industry, and they will continue to change as new platforms and creators emerge. It is incumbent on our team to anticipate and lead those changes on all fronts. One component of that change is the emerging geographic markets that Ryan spoke about. We are seeing a growing opportunity outside of the U.S., and we want to be able to capitalize on it by offering our services to customers beyond our current geographic footprint today. The other change is broader and more global in nature. We are starting to see more influencer marketing dollars shift away from traditional Web 2.0 social platforms such as Instagram and begin to embrace wholly new types of activations on other platforms across the metaverse. In fact, some of the biggest contracts we have signed in recent months include activations on these platforms. and we believe that trend is still in the very early stages. I have always had a fundamental belief that IZEA should be as platform agnostic as possible. I have seen many social platforms come and go over time, and if we were to hitch our success to just one of them, we would rise or fall with their popularity. The challenge that every creator platform faces is that the next generation of creators rarely wants to haunt the same corners of the internet as their older siblings. parents, or grandparents. In many ways, the more success a platform has with the general public, the less cool it becomes to the most influential users. It is a difficult balance to maintain, and one that IZEAT chooses to avoid by being platform agnostic. As we set our sights on the future, we believe it is more important than ever to look at the influencer marketing industry through this lens. Influencer marketing is so much more than just Instagram or TikTok posts. And yet so much of the landscape today is fixated only on these platforms paired with a short-term mindset. There are influencers in every online community and messages are spread via platforms ranging from Telegram to Discord. While we are able to capture some of the dollars being spent on alternative platforms, We also recognize we are not fully optimized to do so. IZEA and our software offerings must be in a position to embrace this cornucopia of influence and empower our customers to drive the best possible outcomes for their marketing dollars. We also believe it is imperative to provide demonstrative return on investment data beyond vanity statistics like engagements. Marketers are seeking more quantifiable sales analysis, and we are going to make it easier than ever to track performance and close the purchase loop. To that end, our product teams have been hard at work to reimagine our software from the ground up. And later this year, you will see an all-new IZEA, supercharged and ready for Web3 and beyond. Our leadership team remains committed to innovation, growth, and expansion and continues to champion the creators that have helped us be so successful. We are thankful for your support thus far in 2022 and look forward to reaching new heights this year. Thank you all for joining us. I will now open up the call for your questions.
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