IZEA(IZEA) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited interim financial information Item 1. Financial Statements This section presents IZEA Worldwide, Inc.'s unaudited consolidated financial statements, detailing assets, liabilities, equity, operations, and cash flows Unaudited Consolidated Balance Sheets Presents the company's financial position at specific dates Total Assets and Liabilities | Metric | September 30, 2022 | December 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :------------------- | :------------------ | :--------- | :--------- | | Total Assets | $83,994,430 | $90,795,072 | $(6,800,642) | -7.5% | | Cash and cash equivalents | $20,026,477 | $75,433,295 | $(55,406,818) | -73.5% | | Short term investments | $21,879,305 | — | $21,879,305 | N/A | | Long term investments | $25,106,327 | — | $25,106,327 | N/A | | Total Liabilities | $13,103,240 | $15,969,937 | $(2,866,697) | -18.0% | | Total Stockholders' Equity | $70,891,190 | $74,825,135 | $(3,933,945) | -5.3% | Unaudited Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss over specific periods Nine Months Ended September 30, 2022 vs. 2021 | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $32,293,682 | $19,678,991 | $12,614,691 | 64.1% | | Cost of revenue | $18,989,076 | $9,688,870 | $9,300,206 | 96.0% | | Sales and marketing | $7,312,240 | $6,622,128 | $690,112 | 10.4% | | General and administrative | $9,810,102 | $7,865,510 | $1,944,592 | 24.7% | | Loss from operations | $(4,222,592) | $(5,447,423) | $1,224,831 | -22.5% | | Net Loss | $(3,552,365) | $(3,452,134) | $(100,231) | 2.9% | | Basic and diluted net loss per common share | $(0.06) | $(0.06) | $0.00 | 0.0% | Unaudited Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts over specific periods Stockholders' Equity Changes (Nine Months Ended September 30, 2022) | Item | Amount ($) | | :-------------------------------- | :----------- | | Balance, December 31, 2021 | 74,825,135 | | Stock purchase plan & option exercise issuances | 18,727 | | Stock issued for payment of services | 93,742 | | Stock-based compensation | 428,013 | | Shares withheld to cover statutory taxes | (57,467) | | Other comprehensive income (loss) | (864,595) | | Net comprehensive income (loss) | (3,552,365) | | Balance, September 30, 2022 | 70,891,190 | Unaudited Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Nine Months Ended September 30) | Activity | 2022 ($) | 2021 ($) | Change ($) | | :----------------------------------- | :----------- | :----------- | :----------- | | Net cash used for operating activities | (6,916,555) | (3,652,080) | (3,264,475) | | Net cash used for investing activities | (48,439,579) | (4,088) | (48,435,491) | | Net cash provided by (used for) financing activities | (50,684) | 45,159,174 | (45,209,858) | | Net increase (decrease) in cash and cash equivalents | (55,406,818) | 41,503,006 | (96,909,824) | | Cash and cash equivalents, end of period | 20,026,477 | 74,548,231 | (54,521,754) | Notes to the Unaudited Consolidated Financial Statements Provides detailed explanations of significant accounting policies and financial instrument details NOTE 1. COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Describes the company's operations and its key accounting policies - IZEA operates online marketplaces connecting marketers with content creators, offering 'Managed Services' and self-service platforms (IZEAx, BrandGraph, Shake, The Creator Marketplace, IZEA FLEX)[21][23][24][25][26] - The company adopted an indefinite work-from-home policy due to COVID-19, experiencing no major declines in operating efficiency[26] - Revenue from Managed Services is recognized on a gross basis, while Marketplace Spend Fees are recognized on a net basis[54][59][60] - One customer accounted for 33% of total accounts receivable at September 30, 2022[41] - Recognized impairment of $141,808 on digital assets (Bitcoin and Ethereum) for the nine months ended September 30, 2022[49][86] - Capitalized $558,599 in software development costs for internal-use software during the nine months ended September 30, 2022[88][90] Advertising Costs | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 585,000 | 530,000 | | Nine Months Ended Sep 30 | 1,576,500 | 1,484,000 | - The company is evaluating the impact of ASU 2016-13 (Credit Losses), ASU 2020-06 (Convertible Instruments), and ASU 2021-08 (Contract Assets and Liabilities) which become effective in future fiscal years[74][75][77][78] NOTE 2. PROPERTY AND EQUIPMENT Details the company's property and equipment, net of accumulated depreciation Property and Equipment, Net | Date | Amount ($) | | :----------------- | :----------- | | September 30, 2022 | 76,182 | | December 31, 2021 | 155,185 | Depreciation Expense | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 25,672 | 33,072 | | Nine Months Ended Sep 30 | 91,200 | 98,759 | NOTE 3. INTANGIBLE ASSETS Provides information on the company's intangible assets, including digital assets Intangible Assets, Net | Date | Amount ($) | | :----------------- | :----------- | | September 30, 2022 | 71,455 | | December 31, 2021 | 213,263 | Amortization Expense (Definite-Lived Intangible Assets) | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 0 | 216,667 | | Nine Months Ended Sep 30 | 0 | 505,556 | - Impairment losses on digital assets (Bitcoin and Ethereum) were $1,081 for Q3 2022 and $141,808 for YTD 2022. The fair market value of digital assets held as of September 30, 2022, was $71,455[86] NOTE 4. SOFTWARE DEVELOPMENT COSTS Outlines capitalized software development costs and their estimated amortization Software Development Costs, Net | Date | Amount ($) | | :----------------- | :----------- | | September 30, 2022 | 1,264,543 | | December 31, 2021 | 1,019,600 | Capitalized Software Development Costs | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 281,230 | 0 | | Nine Months Ended Sep 30 | 558,599 | 0 | Future Estimated Amortization Expense for Software Development Costs | Year | Amount ($) | | :-------------------- | :----------- | | Remainder of 2022 | 117,851 | | 2023 | 471,405 | | 2024 | 289,484 | | 2025 | 190,639 | | 2026 | 114,477 | | 2027 | 80,687 | | Total | 1,264,543 | NOTE 5. ACCRUED EXPENSES Details the company's accrued liabilities, including payroll Total Accrued Expenses | Date | Amount ($) | | :----------------- | :----------- | | September 30, 2022 | 2,045,355 | | December 31, 2021 | 2,502,882 | Accrued Payroll Liabilities | Date | Amount ($) | | :----------------- | :----------- | | September 30, 2022 | 1,787,297 | | December 31, 2021 | 2,251,284 | NOTE 6. NOTES PAYABLE Provides information on the company's outstanding debt and interest expense Interest Expense | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 814 | 1,558 | | Nine Months Ended Sep 30 | 2,594 | 24,090 | - The Canada Emergency Business Account (CEBA) Loan of CAD 40,000 ($29,220 USD) is due in the fourth quarter of 2022, as the company was deemed ineligible for loan forgiveness[96] - The secured credit facility with Western Alliance Bank was terminated in April 2021[97] NOTE 7. COMMITMENTS AND CONTINGENCIES Describes the company's contractual commitments and potential legal contingencies - The company has no operating or finance leases greater than 12 months in duration as of September 30, 2022[98] 401(k) Employer Matching Contributions | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 77,970 | 45,784 | | Nine Months Ended Sep 30 | 270,035 | 167,312 | - The company is not aware of any legal proceedings or claims that would have a material adverse effect on its business as of November 14, 2022[100] NOTE 8. STOCKHOLDERS' EQUITY Details changes in stockholders' equity, including stock-based compensation - The $100 million ATM Sales Agreement entered into in June 2021 was terminated on September 6, 2022, with no common stock sales made under it[107][108] - As of September 30, 2022, 2,916,441 shares of common stock remained available for issuance under the 2011 Equity Incentive Plan[109] - The company is shifting its employee compensation strategy towards restricted stock units (RSUs) instead of stock options[125] Restricted Stock Units (RSUs) Granted (Nine Months Ended September 30, 2022) | Recipient Type | Units Granted | Initial Value ($) | | :------------- | :------------ | :---------------- | | Non-executive employees | 613,351 | $651,727 | | Executive employees | 318,860 | $355,404 | Future Compensation Expense for Non-Vested RSUs (Sep 30, 2022): $934,089, recognized over approximately 2.6 years Stock Options Activity (Nine Months Ended September 30, 2022) | Item | Shares | | :-------------------- | :------- | | Granted | 125 | | Exercised | (27,336) | | Forfeited | (49,322) | | Outstanding (Sep 30, 2022) | 1,719,130 | | Exercisable (Sep 30, 2022) | 1,345,643 | Future Compensation Expense for Non-Vested Stock Options (Sep 30, 2022): $589,655, recognized over approximately 1.92 years Total Stock-Based Compensation Expense | Period | 2022 ($) | 2021 ($) | | :-------------------- | :--------- | :--------- | | Three Months Ended Sep 30 | 154,115 | 229,039 | | Nine Months Ended Sep 30 | 428,013 | 633,219 | NOTE 9. LOSS PER COMMON SHARE Presents the calculation of basic and diluted loss per common share Loss Per Common Share (Nine Months Ended September 30) | Metric | 2022 | 2021 | | :----------------------------------- | :----- | :----- | | Net Loss | $(3,552,365) | $(3,452,134) | | Weighted average shares outstanding | 62,162,508 | 59,875,142 | | Basic and diluted net loss per common share | $(0.06) | $(0.06) | - A total of 2,467,042 weighted average anti-dilutive shares (stock options, restricted stock units, restricted stock) were excluded from diluted loss per common share computation for the nine months ended September 30, 2022[136] NOTE 10. REVENUE Breaks down revenue by product service type and geographic region Revenue by Product Service Type (Nine Months Ended September 30) | Revenue Type | 2022 ($) | % of Total (2022) | 2021 ($) | % of Total (2021) | Change ($) | Change (%) | | :-------------------- | :----------- | :---------------- | :----------- | :---------------- | :----------- | :----------- | | Managed Services Revenue | 31,025,350 | 96.1% | 18,309,295 | 93.0% | 12,716,055 | 69.5% | | Marketplace Spend Fees | 122,243 | 0.4% | 256,308 | 1.3% | (134,065) | -52.3% | | License Fees | 1,030,718 | 3.2% | 1,082,734 | 5.5% | (52,016) | -4.8% | | Other Fees | 115,371 | 0.4% | 30,654 | 0.2% | 84,717 | 276.4% | | Total Revenue | 32,293,682 | 100.0% | 19,678,991 | 100.0% | 12,614,691 | 64.1% | Revenue by Country of Domicile (Nine Months Ended September 30) | Country | 2022 ($) | 2021 ($) | | :------------ | :----------- | :----------- | | United States | 31,914,735 | 19,098,638 | | Canada | 378,947 | 580,353 | | Total | 32,293,682 | 19,678,991 | - One customer accounted for 33% of total accounts receivable at September 30, 2022[41] Contract Balances | Item | September 30, 2022 ($) | December 31, 2021 ($) | | :-------------------------- | :--------------------- | :-------------------- | | Accounts receivable, net | 8,643,509 | 7,599,103 | | Contract liabilities (unearned revenue) | 9,236,220 | 11,338,095 | NOTE 11. FINANCIAL INSTRUMENTS Details the company's investment strategy and marketable securities - The company initiated a revised investment strategy in April 2022, depositing $60 million into marketable securities[143] Marketable Debt Securities by Maturity (As of September 30, 2022) | Maturity | Fair Value ($) | | :-------------------- | :----------- | | Due in 1 year or less | 21,879,305 | | Due in 1 year through 5 years | 25,106,327 | | Total | 46,985,632 | - Net unrealized losses on marketable securities totaled $(864,595) as of September 30, 2022[146] - Realized gains (net of losses) on securities held were $2,501 for the nine months ended September 30, 2022[146] NOTE 12. SUBSEQUENT EVENTS Reports on events occurring after the balance sheet date - No subsequent events requiring disclosure were identified through November 14, 2022[147] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, and capital resources, highlighting revenue growth, increased expenses, and cash decrease due to investments Cautionary Note Regarding Forward-Looking Information Warns about risks and uncertainties associated with forward-looking statements - The report contains forward-looking statements subject to inherent risks and uncertainties, including the impact of COVID-19, customer cancellations, funding needs, Nasdaq listing requirements, internal control weaknesses, and competition[148][151] - The company assumes no obligation to update any forward-looking statements, except as required by law[150] Company Overview Provides a general description of the company's business and operations - IZEA operates online marketplaces connecting marketers with content creators, offering influencer marketing and custom content services[151][152] - Key platforms include IZEAx, BrandGraph, Shake, and the newly launched 'The Creator Marketplace' (replacing Shake and IZEAx as primary platform), complemented by 'IZEA Flex' workflow tool[155][156][157][158] - The company has adopted an indefinite work-from-home policy due to COVID-19, without major declines in operating efficiency[158] Key Components of Results of Operations Explains the primary drivers of the company's financial performance - Revenue is primarily from Managed Services (gross basis) and SaaS Services (Marketplace Spend Fees on a net basis; License Fees and Other Fees on a gross basis)[161][162] - Cost of revenue includes direct costs to third-party creators for Managed Services and internal costs for campaign fulfillment and SaaS support[163] - General and Administrative expenses include payroll, professional services, technology and development costs, and asset impairments[165] Results of Operations for the Three Months Ended September 30, 2022 and 2021 Compares financial performance for the three-month periods Financial Performance (Three Months Ended September 30) | Metric | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | 10,826,335 | 7,734,374 | 3,091,961 | 40.0% | | Cost of revenue | 6,597,430 | 4,022,395 | 2,575,035 | 64.0% | | Sales and marketing | 2,502,128 | 2,240,936 | 261,192 | 11.7% | | General and administrative | 2,928,679 | 2,670,785 | 257,894 | 9.7% | | Depreciation and amortization | 127,535 | 220,453 | (92,918) | -42.1% | | Loss from operations | (1,329,437) | (1,420,195) | 90,758 | -6.4% | | Other income, net | 424,019 | 20,961 | 403,058 | 1922.9% | | Net Loss | (906,232) | (1,400,792) | 494,560 | -35.3% | - Managed Services revenue increased by 43.9% to $10.5 million, with $3.1 million of the increase attributed to one large customer[171][172] - SaaS Services revenue decreased by 22.6%, primarily due to lower Marketplace Spend Fees (-81.7%) and License Fees (-9.7%), partially offset by increased Other Fees (+37.1%)[171][179] - Cost of revenue increased by 64.0%, primarily due to higher cost deliveries on one large customer contract, representing approximately 30% of current quarter revenues[174] - Other income, net, significantly increased by 1,922.9% due to interest income earned on marketable securities, following an investment strategy commenced in April 2022[180] Results of Operations for the Nine Months Ended September 30, 2022 and 2021 Compares financial performance for the nine-month periods Financial Performance (Nine Months Ended September 30) | Metric | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | 32,293,682 | 19,678,991 | 12,614,691 | 64.1% | | Cost of revenue | 18,989,076 | 9,688,870 | 9,300,206 | 96.0% | | Sales and marketing | 7,312,240 | 6,622,128 | 690,112 | 10.4% | | General and administrative | 9,810,102 | 7,865,510 | 1,944,592 | 24.7% | | Depreciation and amortization | 404,856 | 949,906 | (545,050) | -57.4% | | Loss from operations | (4,222,592) | (5,447,423) | 1,224,831 | -22.5% | | Other income (expense), net | 670,227 | 1,995,289 | (1,325,062) | -66.4% | | Net Loss | (3,552,365) | (3,452,134) | (100,231) | 2.9% | - Managed Services revenue increased by 69.5%, with over one-third of the increase from a single large customer contract[181] - SaaS Services revenue declined by 7.4%, driven by decreases in Marketplace Spend Fees (-52.3%) and License Fees (-4.8%), partially offset by a significant increase in Other Fees (+276.4%) due to a customer deposit forfeiture[187] - General and administrative expense increased by 24.7% due to higher payroll, contractor costs, professional services, travel, public company expenses, and software/licenses[184] - Other income, net, decreased by 66.7% compared to the prior year, which included income from debt forgiveness. The current year includes $230,000 in interest income from marketable securities[189] Key Metrics Presents operational metrics such as bookings and gross billings Managed Services Bookings | Period | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Three Months Ended Sep 30 | 8,217,765 | 11,290,569 | (3,072,804) | -27.2% | | Nine Months Ended Sep 30 | 29,683,261 | 28,838,629 | 844,632 | 2.9% | - Managed Services Bookings conversion to revenue has lengthened from a historical 6-month average to approximately 9 months due to increasingly larger and more complex sales orders[192] Total Gross Billings | Period | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Three Months Ended Sep 30 | 11,585,371 | 8,724,086 | 2,861,285 | 32.8% | | Nine Months Ended Sep 30 | 34,526,973 | 22,559,807 | 11,967,166 | 53.0% | Gross Billings by Revenue Type (Nine Months Ended September 30) | Revenue Type | 2022 ($) | % of Total (2022) | 2021 ($) | % of Total (2021) | Change ($) | Change (%) | | :-------------------- | :----------- | :---------------- | :----------- | :---------------- | :----------- | :----------- | | Managed Services Gross Billings | 31,025,350 | 89.9% | 18,309,295 | 81.2% | 12,716,055 | 69.5% | | SaaS Services Gross Billings | 3,501,623 | 10.1% | 4,250,512 | 18.8% | (748,889) | -17.6% | Non-GAAP Financial Measure - Adjusted EBITDA Reconciles net loss to Adjusted EBITDA, a non-GAAP measure Adjusted EBITDA Reconciliation | Metric | Q3 2022 ($) | Q3 2021 ($) | YTD 2022 ($) | YTD 2021 ($) | | :----------------------------------- | :---------- | :---------- | :----------- | :----------- | | Net loss | (906,232) | (1,400,792) | (3,552,365) | (3,452,134) | | Non-cash stock-based compensation | 154,115 | 229,039 | 428,013 | 633,219 | | Depreciation and amortization | 127,535 | 220,453 | 404,856 | 949,906 | | Adjusted EBITDA | (591,427) | (925,930) | (2,462,797) | (3,683,877) | | Adjusted EBITDA as a % of Revenue | (5.5)% | (12.0)% | (7.6)% | (18.7)% | - Adjusted EBITDA improved for both the three and nine months ended September 30, 2022, reflecting better operating performance despite increased net losses[203] Liquidity and Capital Resources Discusses the company's cash position, funding, and capital needs - Cash and cash equivalents decreased by $55.4 million from $75.4 million at December 31, 2021, to $20.0 million at September 30, 2022, primarily due to investments in marketable securities and operating losses[205][206] - The company terminated its $100 million ATM Sales Agreement in September 2022 without any sales[208] - While the company expects adequate cash for the next twelve months, future business expansion may require additional equity or debt financing[209] - Softness in bookings during Q3 2022 suggests potential economic impacts on marketing budgets, although demand for influencer marketing services remains[210] Critical Accounting Policies and Use of Estimates Highlights significant accounting policies and judgments - There have been no material changes to the company's critical accounting policies as set forth in its Annual Report on Form 10-K for the year ended December 31, 2021[211] Recent Accounting Pronouncements References information on newly adopted or future accounting standards - Refer to Note 1 for information on additional recent accounting pronouncements[212] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to smaller reporting companies - This section is not applicable to smaller reporting companies[213] Item 4. Controls and Procedures Disclosure controls were ineffective due to a material weakness in cost recognition for Managed Services, leading to restatements, with remediation efforts ongoing - Disclosure controls and procedures were not effective as of September 30, 2022[218] - A material weakness was identified in internal control over financial reporting related to the timing of cost recognition for creator content deliveries in Managed Services, which resulted in the restatement of interim financial statements for Q1, Q2, and Q3 2020[219][220] - Remediation efforts include identifying additional controls, engaging a third-party technical accounting expert, and utilizing a new Enterprise Resource Planning (ERP) system[221][222] PART II. OTHER INFORMATION This section provides other required information and disclosures Item 1. Legal Proceedings The company is not aware of any legal proceedings or claims expected to materially adversely affect its business - As of November 14, 2022, the company is not aware of any legal proceedings or claims that are believed to have a material adverse effect on its business[225] Item 1A. Risk Factors Key risks include potential Nasdaq delisting due to minimum bid price non-compliance and significant customer concentration - The company received a notification on July 6, 2022, for non-compliance with the Nasdaq Capital Market's $1.00 minimum bid price rule and has until January 2, 2023, to regain compliance, with a possibility of an additional 180-day extension[227][228] - One customer accounted for 33% of total accounts receivable at September 30, 2022, and two customers accounted for almost 40% of gross billings during the three months ended September 30, 2022, posing a risk if these customers reduce or cease business[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable - Not applicable[232] Item 3. Defaults Upon Senior Securities This section is not applicable - Not applicable[233] Item 4. Mine Safety Disclosures This section is not applicable - Not applicable[234] Item 5. Other Information This section is not applicable - Not applicable[235] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report, including corporate governance documents and certifications - Exhibits include certifications of the Principal Executive Officer and Principal Financial and Accounting Officer (31.1, 31.2, 32.1, 32.2) and XBRL formatted financial statements (101)[237] SIGNATURES This section contains the official signatures for the report - The report was signed by Edward H. Murphy, Chairman and Chief Executive Officer, and Peter J. Biere, Chief Financial Officer, on November 14, 2022[242]