Izea's (IZEA) CEO Ted Murphy on Q2 2014 Results - Earnings Call Transcript

| About: IZEA Inc. (IZEA)


Q4 2014 Results Earnings Conference Call

August 13, 2014, 04:30 PM ET


Ryan Schram – COO

Ted Murphy – CEO


Jon Hickman - Ladenburg Thalmann


Good day everyone and welcome to the IZEA Inc. Second Quarter 2014 Earnings Call. Today's conference is being recorded.

I would now like to turn the conference over to Ryan Schram. Please go ahead, sir.

Ryan Schram

Good afternoon, everyone and welcome to today’s Q2 Investor Update. I’m Ryan Schram, Chief Operating Officer at IZEA. And joining me on the call this afternoon is IZEA’s Founder and CEO, Ted Murphy. On behalf of the entire IZEA family, we’re very pleased to have you with us today.

As a reminder, today’s call might contain forward-looking statements within the meaning of 21-E of the Securities Exchange Act of 1934. These forward-looking statements are based largely on IZEA’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond IZEA’s control.

Actual results could differ materially from these forward-looking statements as a result of among other factors, competitive conditions in native advertising category in which IZEA operates, clearly to categorize one or more of IZEA’s marketplace platforms and general economic conditions that are less favorable than expected. In light of these risks and uncertainties there can be no assurance that forward-looking information contained in this respect will in fact occur.

Now with the appropriate disclosure, out of the way, we’ll get the update from Ted and he’ll walk us through the business of -- Q2 accomplishments. Following Ted’s comments, we'll open the line up for your questions as time allows.

It's now my pleasure to introduce Founder, Chairman and Chief Executive Officer of IZEA Ted Murphy. Ted?

Ted Murphy

Thank you, Ryan and good afternoon, everyone. I am pleased to share that IZEA has had another record breaking quarter on multiple fronts. Our bookings reached a record $2.57 million in Q2 of 2014.

This is the highest amount of net bookings in the history of the company and the first time that we've surpassed the $2 million in a single quarter. This represents a 40% increase over Q2 2013.

It's slightly ahead of what we had originally expected and budgeted for and part of that is that we benefitted from some of the business from Q1 being delayed until Q2.

Overall, our team is very active with clients in Q2. We generated new opportunity of pipeline of $12.8 million in Q2 and that's up 16% from Q1 and up 44% from Q2 2013. New pipeline creation is an important part of our sales funnel. We can't close managed opportunities without first providing a client a proposal for them to react to.

Our revenue in Q2 was up 14.8% year-over-year to $1.97 million versus $1.7 million in Q1 of 2013. There will always be a little bit of a lumpiness between bookings and revenue, revenue from book business is typically recognized within 90 days of the initial sale, so some larger campaigns may take a little bit longer to recognize.

That's why you may see a slight difference between the bookings number and the actual revenue recognition. It really depends on when those individual campaigns may be recognized. The bookings number that we report is net of any cancellations or refunds in a given quarter.

Our gross profit margin for the quarter was 67%, up from 55% during the same period in 2013 and that's primarily attributable to an increase in advertisers using the company's managed campaign services and the related marketplace efficiencies that we derive from the execution of those campaigns.

Expenses for the quarter were $2.5 million, compared to $1.48 million in the same period in 2013. As I stated in our last call, we're actively making investments in sales, marketing, engineering and investor relations. Growth in our expenses was going to outpace revenue near term in order to provide infrastructure to create greater growth later this year and beyond.

Operating EBIDTA for the quarter was negative $932,000 compared to negative $321,000 during the same period last year. Again this is primarily due to the investment in sales, marketing and engineering and on top of that we’re no longer capitalizing our IZEAx developing costs.

Our net income for Q2 was $2 million compared to a loss of $893,000 in Q2 2013. This is primarily due to a change of $3.2 million in the fair market value of the company derivatives. Basic and diluted earnings per share were $0.04 and $0.03 for the first quarter 2014 respectively compared to a basic and diluted loss per share of $0.12 for the second quarter of 2013.

I will now pass it back over to Ryan and let him speak a little bit about the client brands that we are partnering in the second quarter of this year.

Ryan Schram

Thanks Ted. The foundation of team IZEA client development philosophy is all about building lasting relationships with world’s leading brands and agencies that support them.

As a principal, we stand shoulder-to-shoulder with our clients and utilize both the company's top leadership and sponsored social in combination with the investments and technology Ted was mentioning to deliver incredible campaign experiences and meaningful business results.

During the second quarter of this year, we were privileged to serve a number of return clients, many of which are names that you recognize including Wal-Mart’s, Unilever, ConAgra, Nestle, MetLife, Mariac Corportaion, Clorox, Kruger and Dollar General among others.

What was also very gratifying for our team was that during the quarter Q2 we were also able to welcome new members via family including Adidas, Bloomin’ Brands, the parent company of restaurant concepts including Outback Steakhouse, Waterway foods, Gallo Family Vineyard, HSBC, David Yurman, ICHIA, Stobart and Dean Foods among others.

Where we lack couple of quarterly updates, to provide you some insight of the growth of our client serving organization if I could you an update at this time.

During Q2, we added eight net new staff members in client services bringing the total IZEA team 68 full time employees in addition to our robust undergraduate and graduate level internship program, which primarily impacts our team both at Winter Park headquarters as well as our field office in the city of Chicago.

At the quarter end of Q2, the number of core tenured sales team members stood at 26 individuals. We are continuing to invest and recruit for senior level account director position in key advertising markets that you might imagine make the most at including New York, Los Angeles, San Francisco and Chicago.

Our [Tele] (ph) Acquisition Group is currently on pace to reach the target that I mentioned in our Q1 update of 40 total team members by – sales team members rather by the end of calendar year 2014 with a majority of individuals being based out of our Winter Park headquarters.

This aggressive growth strategy will largely impact fiscal year ’15 as we recruit on Board and train these individuals against a six-month broad being scheduled for all new members.

And I will turn it back to Ted to talk about the progress we’re making with IZEAx.

Ted Murphy

Thanks Ryan. We launched the IZEA Exchange into public data in March and we are actively transitioning the entire business to that class. This technology is surely the future of our company and it is going to eventually replace all of our legacy platforms. It provides us with the ability to serve a wider group of creators, streamline our operations, deliver new tools to our advertisers and create a much larger network affect.

As of quarter end, we had 66,000 registered users in IZEAx up from 50,000 in Q1, which is an increase of 32%. The platform now reaches an aggregate audience of 530 million fans and followers, up from 392 million at the end of Q1, an increase of 35%. Our original goal was to have 12 partners in the exchange by the end of fiscal year ’14.

At the end of Q2, we had 13 signed IZEAx white label partners and two signed IZEAx certified resellers for a total 15 partners year-to-date.

We believe that our platform solved a real problem for our partners. There is very strong interest in working with us and we’re not aware of any other solutions that meets the partner’s needs in the same way. In Q2, we signed CBX, one of the top 10 global media companies in the world.

That site is now live at BrandedPost.com. We’re slowly ramping these relationships so we can build out a small team in the business development area to train and onboard these partners.

It’s a process to get these accounts added, material develops and people train but we’re very confident that these relationships will provide significant deal flow and user growth over time.

It’s important to recognize that our Q2 bookings and revenue were almost entirely from our legacy platforms. We’re in the process of sun setting those platforms and are targeting the September to October time frame to have all clients and all campaigns completely on IZEAx. You may have also noticed an increase in marketing and investor relations activities and just feasibility in general.

We’re raising the awareness of the company and our corporate profile and this is being done through a combination of traditional media placements in addition to things like search, programmatic display and of course the huge amount of sponsored social to our own platforms and partners.

We’ve recently retained Allison+Partners as our new public relations firm of records, the majority owned by MDC Partners and they were named the 2014 midsized agency of the year by the Holmes report. Moving forward, you’re going to see us at more events on television and in trade publications. If you happen to be at the upcoming Craig-Hallum Conference, I would welcome the opportunity to meet with you in person.

Thank you for your time today and your continued support of IZEA and now I would like to turn over the call to the operator to take any questions.

Question-and-Answer Session


(Operator Instructions) And first we will go to Jon Hickman with Ladenburg.

Jon Hickman - Ladenburg Thalmann

Ted, good afternoon. I was wondering can you elaborate a little more on the CBS local. What if you compare the size of that network to your current IZEAx can you give us some metrics around that?

Ted Murphy

Their network right now comprises mostly of their owned and operated properties, which actually if you go on BrandedPost.com, you can a see a list of those properties. They include accounts like CBS New York and CBS LA. So it is really the sum of those properties plus a small amount of additional people that have joined the network since they have started marketing.

So if you are on one of those CBS websites, you may very well see an ad for BrandedPost.com. They are now actively marketing the platform and driving traffic to it but that is a recent development and is relatively new.

So right now as a percentage of the network, it is very small. But obviously they have a huge amount of reach through their owned and operated radio stations and television stations and we expect that to grow relatively quickly.

Jon Hickman - Ladenburg Thalmann

Okay. And then could you refresh my memory. What would your bookings in Q1 of 2014?

Ted Murphy

Our bookings in Q1 of 2014

Jon Hickman - Ladenburg Thalmann

Were they up like $1.8 million or $1.9 million?

Ted Murphy

Q1 2014, perhaps I don’t have that off the top of my head. Ryan, do you have that? Okay, give me one second Eric. I’ll put it…

Jon Hickman - Ladenburg Thalmann

Like 100% year-on-year or something like that?

Ted Murphy

Ryan, was that you?

Ryan Schram

It was Jon asking about those on a percentage basis I believe but the net bookings for Q1 of this year were $1.7 million Jon.

Jon Hickman - Ladenburg Thalmann

Okay, and so now they are two points something and you say that’s going to be recognized in roughly 90 -- over the course of 90 days? And that’s all on the old network basically because we’re just now converting everybody over the IZEAx, is that right?

Ted Murphy

Correct. Correct. Really the bookings in Q1 and Q2 -- that is -- all that is majority through the legacy platforms and by the September or October timeframe, we will be completely off all the old systems.

Jon Hickman - Ladenburg Thalmann

Okay. So…

Ted Murphy

So right now we’re running campaigns through IZEAx but it’s not all of the campaigns right now.

Jon Hickman - Ladenburg Thalmann

Okay. Well based on your bookings you’re kind of running a $9 million run rate. Is that right?

Ted Murphy

I would say, yes, we’re in that range.

Jon Hickman - Ladenburg Thalmann

Okay. Thank you. That’s it for me.

Ted Murphy

Thank you.


(Operator Instructions) We move on to [George] (ph) who is a private investor.

Unidentified Analyst

Thank you for your great quarter guys. Thank you very much. Can you guys hear me okay?

Ted Murphy

Sure can, George

Unidentified analyst

All right. Couple of questions. I note that all the revenue and the net bookings so far are on the legacy platform, I understand that. It's still in the 50% sequential quarterly growth rate in net bookings in Q1 and Q1 pretty much. That’s a very impressive obviously.

A lot of talk about partners. We have 15 partners if I heard you correctly Ted, so far. How would do you characterize a typical profile of the partner and clearly the partner itself is a much larger entity than IZEA how would one -- how would you extrapolate that to say the potential net bookings or even revenue from a business partner? So profile, I guess the addressable market space of the partner white label community. How would you characterize those two things?

Ted Murphy

It’s a very, very diverse group of people that we’re serving. On one hand we have relatively small partners like the Latino blogger network, which is a group of 400 bloggers and it’s relatively small media company that it represents those and brings them all together and sells very niche campaign and then on the other hand, you have CBS, which is one of the top 10 global media companies in the world.

The profiles of those organizations is obviously very different but what is common is that it is still a process to onboard, train and properly equip the sales people with the right marketing tools that are branded for their offering, get them up to speed, get them selling and then actually have their sales process go all the way through and start generating some wins.

So with all of these partners we’re still at a point where we’re training, we’re building out the network, we’re working with their sales team, we’re providing them with materials, we’re providing them marketing guidance and we’re still very. very early in the stages with everyone of those of partners.

In terms of the addressable market, every major media company out there right now is doing Social Sponsorship in one way or the other, whether it's the New York Times or Car and Driver Magazine or as once illustrated or the CBS Television station.

The challenge that all of them face right now is that it's all a very much of a manual process. There is no exchange. There is no scale and because of that it's very difficult for advertisers to buy because they have to negotiate with each one of those partners individually to actually do a large scale campaign.

So I think that what we are ultimately trying to do is create a platform that will allow the smaller networks to be more efficient and actually be able to compete and participate in the larger buys and trying to unlock the potential of the much larger EA companies where they cannot only monetize their existing accounts, but they can build entire networks on top of that infrastructure and really start to transform their audience into a media asset.

Unidentified Analyst

Right. So to me if I understand this correctly, a lot of the significant brands counts a lot of O&O have their own O&O profits right. Historically they would be reluctant to give up their brands for any exchange, now because of -- if I understand this correctly, because of the new platform they are rolling out now, they can now do their own response in a scalable system, completely in more brands and presumably that's a tremendous appeal to us.

Ted Murphy

Correct and it's -- no it's very similar to what Google has done with their DSP product where I can custom brand the entire experience and use it to manage internal campaigns, but also obviously that one of the huge tests into the larger network and the deal flow that comes along with it.

So I think that that's really how you unlock that opportunity and how you can get those bigger media companies on Board because no, they wouldn’t necessarily want to just add a bunch of their properties to IZEA.com, but they would love to build out their own private label network and then there is enough capability that we've had in the past.

Unidentified Analyst

Okay. One final question for me because I was just wanting to ask, how would you characterize the elapsed time of on Boarding a media partner the new shift…

Ted Murphy

I think that we are still trying to figure out what that is ultimately going to look like. Its heart of what has happened is we have frankly seen more success than we originally expected. We thought that the sales cycle was frankly just going to be a lot longer and that we would build up that team through the course of the year and we felt that it would harder to get, it's taken some time to get these partners on Board, but we knew it was going to be a lot harder.

So as we are bringing these people on Board, we are simultaneously staffing and training that staff and then trying to keep sets how to train the partner. so you have kind of lot of moving parts here that I think over time it will be much faster to on Board those partners and get them up and get them selling, but right now, we are kind of -- we are dealing with building that internally and servicing the partner at the same time.

Unidentified Analyst

Okay. All right guys. Great quarter. Thank you. And may your sales cycle get even shorter than that you are having now. Take care.

Ted Murphy

Thanks George.


(Operator instructions) We have no one else in queue.

Ted Murphy

We want to thank everybody for joining us here this afternoon and for the great question and both John and George. As a reminder, you can follow all Investor Relations related activity on our corporate website at corp.izea.com and then click on the Investor Relations link.

Thanks again for dialing in today and we'll talk to you again in November.


This does conclude today's conference. We do thank you all for your participation.

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