Greetings, and welcome to the IZEA Worldwide First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Schram.

Please go ahead..

Good afternoon, everyone, and thank you for joining us for IZEA's earnings call covering the first quarter of 2023. I'm Ryan Schram, President and Chief Operating Officer at IZEA. And joining me on the call are IZEA's Chief Financial Officer, Peter Biere; and IZEA Founder, Chairman and Chief Executive Officer, Ted Murphy.

We're glad to have you with us today. Earlier this afternoon, the company issued a press release detailing our performance for the first quarter of 2023. If you like to review those details, all of our investor information can be found online on our Investor Relations site at izea.com/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 some of the statements that we made today regarding our business, operations and financial performance may be considered forward looking.

And such statements involve a number of risks and uncertainties that could cause actual results to differ materially. We encourage you to consider the disclosures contained in our SEC filings for a detailed discussion of these factors. Our commentary today will also include the non-GAAP financial measure of adjusted EBITDA.

Reconciliations between GAAP and non-GAAP metrics for our reported results can also be found in our earnings release issued earlier today as well as in our publicly available filings. And with that, I'm pleased to introduce IZEA's Chief Financial Officer, Peter Biere.

Peter?.

Thank you, Ryan, and good afternoon, everyone. I'll review our operating results for the quarter ended March 31, 2023, compared to the prior year's quarter, and I'll breakdown results for our Managed Services and SaaS license businesses, and then provide some balance sheet highlights.

Total revenue for the first quarter of 2023 was $8.7 million, 1.7% or $153,000 lower than the prior-year quarter. Our net cash loss, or EBITDA, was $2.2 million for the quarter, 3% below the prior-year quarter.

Our net loss in the current quarter totaled $2.8 million or $0.04 per share on 62.4 million shares compared to a loss of $2.5 million or $0.04 per share on 62.1 million.

Turning to our Managed Services business, given our announcement on January 12 of this year regarding the unwinding of business with a particular Managed Services customer, it's useful to understand our bookings and revenue trends from our core customer base apart from the impact related to this large customer.

I'll use references to the non-recurring customer and our core customers to make these distinctions. This past April 10, we announced that our Managed Services bookings for the first quarter of 2023 totaled $6.1 million compared to $12.1 million for the prior year's first quarter, a 50% decline.

Core customer bookings, which totaled $5.8 million for the first quarter of 2023 and which represented 96% of total bookings for Q1, declined 39% compared to the prior year's first quarter.

Our order count was on par with the prior-year quarter and the average order size fell by about half, showing relative strength in demand, quantity and a pullback in spending commitments. Bookings from the non-recurring customer was approximately $250,000 in the quarter, down 91% from the first quarter of 2022.

Managed Services revenue totaled $8.5 million during the first quarter of 2023, which was about 1.6% or $130,000 above the prior year's quarter. Approximately $3.5 million of the quarter's revenue is related to the non-recurring customer, which was 95% greater than this customer's revenue for the prior year's first quarter.

Managed Services revenue from our core customers totaled $5 million during the quarter, which is 22% lower than the prior year's first quarter. The decline in these core customer revenues is primarily related to softer bookings in the second half of 2022.

The delivery time between bookings and revenues averaged over nine months during the past six quarters, compared to an average between six months and seven months prior to our business with this non-recurring customer. We expect that our time to revenue should decline to historic levels over the course of this year.

Gross margins for this non-recurring customer have averaged between 30% and 35% of our historical average margins.

So, while we expect our comparative Managed Services bookings to decline in the short run during the unwinding process with this non-recurring customer, we anticipate our blended average gross margin will gradually return to historical levels.

Our Managed Services backlog, which represents the total of unrecognized revenue for contracts that are underway, as well as recent bookings that have yet to begin invoicing, totaled $16.1 million on March 31, 2023.

Over $4 million of this backlog is related to our non-recurring customer and we expect to recognize this amount as revenue in the following two quarters. This non-recurring revenue will somewhat mute the top-line impact of this customer loss while we continue to add new higher margin customers.

SaaS Service revenue, consisting of license fees, self-service, marketplace spend fees and other fees, declined by $283,000 in the quarter or by about 55% compared to the prior-year quarter. Revenue from license fees declined by 49% from the prior-year quarter, while net marketplace spend fees declined 33%.

The transition away from our legacy IZEAx platform to Flex brings with it a lower revenue model for self-service customers, which we believe will increase adoption over time. Our total cost of revenue was $6 million in the first quarter of 2023 or 68% of revenue compared to $5.2 million or 58% of revenue in the prior-year quarter.

Accordingly, our gross margin, including internal labor costs, in the first quarter averaged 32% compared to 42% in the prior-year quarter. The increase in the cost of revenue was primarily due to higher delivery costs on our non-recurring customer, which made up 41% of total revenues during the current quarter.

The cost of revenue for our core customers was within the range of recent historical averages. Expenses other than the cost of revenue totaled $6.2 million for the first quarter of both comparative periods.

Sales and marketing costs totaled $2.4 million during the first quarter, down 5% from the prior-year quarter due primarily to reduced payroll costs that are tied to performance.

General and administrative costs totaled $3.4 million during the first quarter, down 3% from the prior-year quarter, due primarily to lower overall compensation costs, partly offset by an increase in audit-related professional fees.

Our net loss was $2.8 million for the first quarter of 2023 or negative $0.04 per share, compared to a net loss of $2.5 million in the prior-year quarter or negative $0.04 per share. Adjusted EBITDA was negative $2.2 million for the first quarter of 2023 compared to negative $2.1 million for the prior-year quarter.

The change in EBITDA was primarily due to lower gross margin dollars, mostly offset by lower cash operating costs and higher interest income from our investment portfolio. As of March 31, 2023, we had $67.5 million in cash and investments, $2.5 million lower than at the beginning of the quarter, primarily due to negative EBITDA.

We earned $571,000 in interest on our investments during the first quarter. And lastly, we do not have any debt on our balance sheet. With cash on hand and liquidity from our investment portfolio as required, we believe that we are 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..

The 2023 State of Influencer Equality and The State of Influencer Earnings. These findings are frequently cited in places far and wide, from trade publications such as eMarketer to other marketing blogs and even by Chuck Todd in NBC's Meet the Press recently.

Our investment in, not to mention the credibility we gain, from marketing research underscores while leading brands and agencies see IZEA as the most experienced, most trusted and most innovative influencer marketing company there is.

It's not only a corporate point of pride, it directly equates to thoughtfully expanding our business and leveraging the totality of our talent. With that in mind, I'd now like to turn the call over to IZEA's Founder, Chairman and CEO, Ted Murphy, to share his perspective on the quarter and our road ahead.

Ted?.

66% of influencers are using AI in their daily life; 38% of influencers are using AI to generate images; and 81% would be willing to pay more for a product or service that uses AI. Looking at how the broader economy impacts our marketplace, the macroeconomic environment continues to be challenging, especially when compared to the past two years.

That said, we've seen some recent indications of positive momentum for our Managed Services team. In early 2023, the market faced a significant level of uncertainty, leading to layoffs that impacted both brand and agency clients. However, as we progress into the middle of the year, there is a noticeable shift in customer behavior.

We believe that customers are now displaying greater confidence in determining their budgets and staffing levels, which is translating into a surge of commitments being made. Throughout this year, our Managed Services team has been observing gradual improvements in market conditions and client responsiveness.

And April turned out to be the most successful month for Managed Services bookings so far this year. During our last conference call, I announced that our Board of Directors had approved $1 million share repurchase plan. We are prepared to move forward with that plan soon after our blackout period ends on May 18.

Any repurchases will be made only during open trading windows and only at times when the company is not in possession of material non-public information. IZEA's Board believes, as many of you do, that IZEA is significantly undervalued, trading at less than cash value and without credit for the business we are building.

Thank you all for your support and for joining us today. I will now open up the call for Q&A from the analyst community..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question, Jon Hickman with Ladenburg. Please go ahead..

Hi.

Ted, can you hear me okay?.

I sure can..

Okay. Just two questions. I was wondering, I just want to make sure the significant customer that shall not be named, their -- that relationship will be over basically in the next two quarters. Is that what....

Yes..

[indiscernible].

Yes, we're winding it down. There's still some small bookings that are coming in, but the intent is to have that completely wound down in the next two quarters..

So, do you expect to do business with them in the future on a different more in line with your other customers, or are you just parting ways?.

Right now, we are just parting ways..

Okay. And then my second question is, so you seem to indicate that April -- well, the business has gotten better as the year has moved on and April was the best month of the year.

You said it was the best month or the second best month in the last year and a half, is that also what you said?.

I don't believe I said that. It was the best month so far this year..

But Ryan said something about it too or maybe....

Yes, Jon, it's me. On number of opportunities basis, yes, it was one of our best of two months over the last year and a half..

Okay..

Yes, that's count -- the count of opportunities..

The count of opportunities, okay. So -- okay.

One follow-up, I guess, is can you say anything about possible acquisition targets? Are you looking still? Are you intrigued with anything?.

I think that the market has definitely shifted from the past couple of years. There are a variety of targets out there that are at varying size, but we're not in a position to comment on anything right now. I will say that the economics have made M&A more attractive, but we still have to find the right fit for the company..

Okay. Thanks. That's it for me..

Thank you..

Thank you. We've reached the end of the Q&A session. I would like to turn the call over to Ryan for closing remarks..

Thank you, Stacy, and thank you everyone for joining us this afternoon. As a reminder, all of IZEA's investor information and press releases can be found online on our Investor Relations website at izea.com/investors. Thanks again for joining us, and we'll talk to you soon..

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation..