Greetings, and welcome to the IZEA Inc. First Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr. Ryan Schram, Chief Operating Officer. Thank you, Ryan, you may begin.

Good afternoon, everyone, and welcome to IZEA's Q1 2016 Earnings Call. I'm Ryan Schram, Chief Operating Officer at IZEA and joining me on the call this afternoon is IZEA's Chief Financial Officer LeAnn Hitchcock; and IZEA Founder, Chairman and Chief Executive Officer, Ted Murphy. On behalf of our entire team at IZEA, we're very pleased to have you with us today. Earlier this afternoon, we issued a press release with additional information regarding IZEA's first quarter performance. As a reminder, all of our Investor Relations information can be found on our corporate website at corp.izea.com. Please note that during the course of today's call, our management team will discuss IZEA's business outlook and may make forward-looking statements regarding the company that are pursuant to the safe harbor provision of the federal securities laws. These statements are predictions based on our team's expectations as of today. Actual events or results could differ due to a number of risks and uncertainties, including those mentioned on our most recent filings with the SEC. The company and the management team assume no obligations to update any forward-looking statements made during this call. With the appropriate disclosures out of the way, I'll turn the call over to IZEA's Chief Financial Officer, LeAnn Hitchcock, to walk us through a summary of the company's performance in the first quarter of 2016. LeAnn?

Thank you, Ryan, and good morning, everyone. I am pleased to share that IZEA had another record quarter. Net bookings increased 71% to a record $7.4 million compared to $4.3 million in Q1 2015. IZEA reported quarterly revenue of 32% to $5.5 million compared to $4.1 million in the prior year quarter. This increase is primarily attributable to the creation of our Content-only revenue stream due to the acquisition of Ebyline and continued increases in our existing Sponsored Social revenue. Sponsored Social revenue was $2.9 million accounting for 53% of total revenues in the quarter. Content revenue was $2.5 million, accounting for 45% of total revenues in the quarter. We are continuing to see larger deal sizes that extend over longer periods of time, which impacted our near-term revenue recognition. In order to provide more clarity to our investors, we are introducing a new key performance indicator called revenue backlog, which we will report moving forward. Revenue backlog consists of unbilled bookings for campaigns, which have not yet started as well as unearned revenue for campaigns that have been billed, but are not yet completed. Revenue backlog at the end of the quarter was $9 million, including unbilled bookings of $5.6 million and unearned revenue of $3.4 million. Over 95% of the current revenue backlog is expected to be recognized as revenue in this current fiscal year. Gross profit for the quarter increased 40% to $2.4 million as compared to $1.7 million in Q1 2015. The increase in gross profit is attributable to the increase in revenue during the quarter, along with improved margins on that revenue. Gross margin for the quarter was 43%, up from 41% in the prior year quarter. This gross margin improvement is primarily due to improved profit margins on Content revenue, as we have shifted…

Thanks, LeAnn. As our client development team embarked on 2016, there were 3 key priorities that we believe will be central to our success this year. First, to continue to capitalize on the incredible relationships our client development team has nurtured over the years by delivering highly measurable results and a world-class customer experience. Second, to develop new opportunities to cross-sell and upsell within the business, not only with influencer and content marketing, but with new exciting amplification possibilities as well. Third, to identify and secure the absolute best solution-selling Content in the industry in order to grow our team structure intelligently and to scale the business effectively with a view on the long term. I'm pleased to report that our Q1 performance represents a very strong start to 2016 and execution by our team against these key priorities. As LeAnn highlighted, our bookings in the quarter increased 71% to $7.4 million versus first quarter of 2015. This not only represents our sixth consecutive quarter of record booking, but it also tells a deeper story about the continued interest in the influencer and content marketing categories as a whole. Our Sponsored Social business grew more than 78% year-over-year in Q1 and our virtual newsroom content production business grew over 57% in that same period. The company's average deal size grew more than 68% from Q1 of 2015, as client budgets continue to increase and IZEA becomes a more integral part of their marketing effort. This has had an impact on near-term revenue condition as engagements continue to get longer, but also underscores a long-term growth trend that we're experiencing as a company. Beyond product mix and deal size, our leadership team is also keeping a close eye on the ratio of new versus existing business as the company rapidly grows.…

Thank you Ryan. As we began 2016, the IZEA leadership team set out some clear objectives for the company to accomplish over the course of the year. Our first objective is to grow IZEA's annual bookings in excess of $33 million and create the infrastructure required for even greater growth looking forward. We remain laser focused on our $100 million annual bookings target in 2018. And we know the investments we make today, provide the platform of tomorrow. Our second objective is to optimize and streamline operations throughout the organization. Our primary focus will be on improving gross profit margin, revenue per employee and OpEx to revenue ratio. Our third objective is to drive technology enhancements in IZEAx, making it more valuable and powerful for the creators, brands and agencies we serve. I'm pleased to share that we made significant progress on all 3 fronts in Q1 and our team is working diligently to achieve these goals. Our record bookings in Q1 provides us with a strong foundational start to the year, but perhaps, more important is the significant increase in gross profit margin, specifically, in our Content business. When we acquired Ebyline in January of last year, one of our core assumptions was that we would be able to dramatically impact the percentage of dollars that flow into the bottom line. In the 1-year since acquisition, we have nearly doubled our gross profit margin from 10% in Q1 of 2015 to 19% in Q1 of 2016. We are proud of what we've accomplished here and believe there is still plenty of room for improvement. In addition to the gains we are making in margin, we are also recapturing hours and inches throughout the company. We are achieving this through continual process improvement and technology automation wherever possible. In Q1,…

[Operator Instructions] And our first question comes from the line of Matt Tiampo from Craig-Hallum.

Maybe we can start with the bookings and revenue. It seems like the relationship there is breaking down a little bit in terms of how bookings flow to revenue, and just wondering if you can help provide us with some guidance, or some of the related forecast, how those 2 are really related as we move forward? And whether or not that bookings metric is really a useful modeling metric given the size and dynamics there?

Ryan, you're line is -- hello, Ryan, can you hear us?

We didn't hear you. Can you hear us?

Yes, we can hear you, Ryan.

Okay. Matt, I'd like to address that question really by directing you to look at the backlog number and that's why we put that in this quarter because we're finding that at times it's getting increasingly more and more difficult to timeout exactly when the revenue is hitting. And so if we're looking at it in the booking plus or unearned revenue that's been there in the backlog of what has not yet been billed, that has been helping to predict what that revenue is going to be for the quarter. But as customers want to push off their campaign and the timing of that, we often have no control over that. But that's why you've seen the backlog grow. It was $7.4 million in Q1 and has grown to $9 million here in Q2. And therefore, the offset to that was the lower revenue, because they pushed it off until a future quarter. And as we're getting these larger campaigns, they're spreading the amount over the years opposed to just within 90 days. And so we're averaging more, a 120 days, plus on those as opposed to where we were at the 90 days.

Okay. So is there an overlap between revenue backlog and bookings? Or are those usually through the buckets?

No. It's the backlog from a prior quarter and then we're adding those bookings in -- is where it comes. So if we book nothing else the rest of the year, it would -- we already have revenue of about $14.5 million that would be recognized this year.

Including Q1 revenue or to go remaining that?

That would be -- that's including the Q1 revenue, yes.

Okay. I think I've got it. Maybe just next on gross margin. Clearly, a bright spot in Q1 and obviously, congratulations on the progress that you made with Content, but I just want to make sure there was nothing sort of anomalous on either the social or the Content side in the quarter in terms of gross margin and then also, I mean, how far do think you can take the Content gross margin? What's the potential feeling there just given sort of how mix changes here?

I'll take that. Can you hear me, Matt?

Yes.

Okay. Great. So on the Content side, what we are putting in front of brand customers on the Content side is largely in line with what we're doing on Sponsored Social. So -- or in line with what we're doing on Sponsored Social. So we expect that we can continue to increase that over time, as the brand part of the business becomes more and more of that Content mix.

Okay. That's very helpful. Maybe just last one for me and I'll hop back in the queue, but how is the affiliate marketing program with eBay progressing?

Yes. I would say that that is still very much in its early days. We are definitely seeing increasingly or increasing amounts of participation from the creators. One of our concerns is we're not seeing the type of conversion ratios that we've seen in some other programs. So we are working on tweaking that so that we're optimizing for CPA because that's how we're compensated on that. So that's going to be an ongoing process, but we are also working on other opportunities with other e-tailers that we think may have different types of conversion rate, given the types of products that they have.

[Operator Instructions] And our next question comes from the line of George Kafkarkou, private investor.

Very solid from what I can detail here from the numbers. There was something that I didn't quite understand. Could you just describe what flywheel is again, did I hear that correct? Flywheel is that right?

Yes. Yes. So we broadly put all of the things that we're working on that are in that performance, marketing industry, under flywheel. So when we think of flywheel, we think that there is an ability to work with performance marketers in a different type of arrangement, whether that be cost per click, cost per action, cost per install. Those are all things that we don't currently offer through our platform. So the eBay integration that we've done with SocialLinks, that's our first CPA type integration. And in the future, you will see other flavors of performance marketing that are available to our customers. And we think that that is a very large opportunity for us. We see the type of spending that is being done for contents indications for companies like Outbrain and Taboola the huge move for performance marketers into platforms like Facebook and Twitter. And we think that right now we're frankly just leaving dollars on the table. So we put all that under flywheel, and that's largely because the majority of those performance marketers are in kind of set it and forget it spending mode, where as long as the ROI is able to be dialed in and they're paying strictly per performance, they tend to spend on a monthly basis over and over and over again without the need to really go back in and resell those customers.

And this activity, when you can enable this in the IZEAx platform, it sounds purely incremental, right? There's no overlap to the existing bookings activity, correct? This is in -- direct for booking.

That is correct. If you think about the clients that we go after right now and that we currently work with, they are largely focused on branding and affinity and awareness. And while we certainly measure performance and provide all that information back to them, they are not what we would consider performance marketers, or direct response marketers in the strictest sense of the term.

And you guys got to this conclusion about flywheel just in Q1, or is it something you've been working on for a long time?

It is something that we've been -- that we've been building up the pieces for. Part of the core technology that we announced when we first unveiled SocialLinks, last year at IZEAfest provided the foundation for these flywheel opportunities moving forward.

Okay. Okay. What -- was this the reference to your quick tick tweet that said great idea, game changing, incremental whatever it was, or is that something...

There are number of things happening, George. Honestly, a lot of these things kind of play together. And we're really excited about what we're working on the engineering front and the opportunity it will create long term for us.

Okay. Okay. You touched on the reinvigorated activity with ViOS, your IR firm conferences, could you just spend a few minutes on how you guys think about that? I mean, IZEA seems to be in a fabulous space, you guys are delivering world-class execution, quarter-on-quarter. It's quite incredible what you guys are doing in my opinion. And yet as of 3:55 today, there are only 10 shares traded. How do you guys think about the work that you're doing now in the IR side?

Yes, I think that it's a process, right, and part of what we had to do was get this uplifting behind us, get our Q4 numbers behind us and now we have another proof point in Q1. So I don't think that this is going to be an overnight process. I believe that we really got to put in the hours and be very strategic in the way that we're approaching awareness and trying to create liquidity. But I believe that if we continue to execute and do well as a business that eventually the liquidity and hopefully the price along -- accretion along with it will happen. But it's a process that we're working through with ViOS and putting in the time and meeting with as many people as we possibly can to at least get on their screen.

Right. How do you guys think about the average deal size. Each quarter, the average deal size is growing significantly, that's very clear. But clearly, we're seeing a lot of the revenue that will be generated from these bookings will be deferred revenue recognized later. At some point, with more bigger deals, with more seven-figure deals, for example, a lot of the revenue recognition will fall into following kind at fiscal years. So I guess, the question is, is there a metric of what the optimum deal size is? How do you guys think about that? And how should we think now about the $34.7 million qualified proposal pipeline that you generated in Q1, which is, I think, the highest in history, I think or very close to it? And it's clearly an impressive number. Have I explained the question, okay?

Yes, I believe so. The average deal size climbing is something that we continue to believe is a positive indicator. It means that now our clients have larger budgets and that they are more and more comfortable providing us with access to those budgets and because 60% of our business is coming from the key clients, we know that we are servicing them properly and they are seeing the return that they're looking for. I don't know if there is such thing as an optimal number, but I will say, we are trying to balance the big opportunities with smaller opportunities that can be recognized faster, but you're correct. We saw, just from Q1 of last year to Q1 of this year, you've got a 68% increase and even if you look at our average deal size for all of 2015 to Q1, Q1 is our biggest average deal size and that's counting the seven-figure deal that we closed in Q4 of last year. So those are all very positive metrics, but I think that I'm not too concerned near term about how -- in what months that revenue is recognized, I'm more concerned with -- are we doing a great job for our clients and are they willing to invest significant dollars with us, and I think that what we're seeing is that the answer is yes.

Yes. I would agree with that. I mean, especially, if I heard the metric correctly in Q1, 40% of revenue or bookings, I'm not sure, which came from new customers, is that correct? Did I hear that correct?

Correct. That's correct.

That's correct.

Ryan gave, yes. Yes.

So Ryan's comment that if 40% of the bookings or revenue came from new clients, isn't that just a lead indicator that there is just tremendous headroom here?

I believe so. I'll let Ryan speak a little bit more to that.

George. You hear exactly right. I mean, the thing for us is that we would be overly concerned, frankly, if the ratios were leaning towards a lot of new and very little returning as the company scaled, in my experience, a 60-40 mix of existing versus new on a bookings perspective is almost exactly what you're looking for in a organization like ours. I'd also say that what's interesting is that when you look at the types of business, like I mentioned, one of our tenants this year, was really focusing on being able to take long-term Sponsored Social customers and introduce them to our content marketing production arm, virtual newsroom. And those conversations continue to grow as well. So for us, I think that the adjustment of what -- your question started about bookings to revenue and Ted's point is spot on. To some extent, we're a victim of our own success and that we're able to grow all these things all at the same time. And if someone would say to me, would you like a bigger customer who's going to spend money with you throughout the year versus a one-off smaller campaign, I imagine that you'd know my answer.

Yes. I mean, a 60-40 relationship at this point given your last 7, 8, 9, 10 quarters is more than impressive, and I'm just trying to understand how you guys think about that, would you expect that to continue?

I mean, that's our goal. We'd like to see that ratio in this year of substantial growth against the guidance that Ted has provided to our shareholders. If it stay at those same ratios moving forward, I would say that's a gold star effort by our team.

Okay. Fantastic. Do I have the opportunity to ask a couple more questions or should I get off guys?

Please go ahead.

Just very quickly. The international white labeling localizing offering for IZEAx, should we be thinking about European territories just distinctly? I mean, it's very topical with Brexit going on rather than a European offering. Are you talking -- are you guys thinking of one partner for the U.K., one partner for Germany, one partner for France, each which are huge markets, for example, how do you guys think about that?

I think that when we get into geographical exclusivity, there needs to be a very specific business reason to do it. Our hypothesis going into it is, particularly, in a very large advertising market like the United Kingdom, there is the opportunity for there to be multiple partners in a single territory. Whereas in a more narrow market like a Dubai, it makes more sense to go with one large partner to service that. I'd also -- I didn't mention it in my prepared remarks, but our partnership that we announced last year with WeConnect in Australia, functions with a very similar management of that of Hashtag. And we refer to it lovingly around the office as the McDonald's franchise model. And it basically, if we can put many IZEAs into countries, where we don't tend to place our team and use our assets in a different way, it's a very ample opportunity for us.

Okay. And the final question on that, is it fair to say that the typical profile of such partners would be your quintessential agencies?

We believe so. Particularly, agencies that have a desire to do influencer or content marketing or both as part of their general practice on a consulting basis. But ultimately, we're seeing interest from agencies of all sorts. Those that focus traditionally on PR, or even brand or digital marketing, all the way into things that are very niche like social marketing, in particular, in the case of Hashtag.

Okay. Fantastic. Just a final question. How do you guys think of a competitive market space? I'm struggling to find any material competitors in the influenced marketing space. How do you guys think of that?

Well, as you know, we keep a very close eye. I am encouraged by the increasing number of startups and early-stage companies trying to get into the space validates a lot of what we've been -- what we've known for a long time now going out a decade that this was going to be not just an opportunity in the market -- in advertising landscape, but potentially, a real game changer. So to your point, I agree. I don't think that there is any real competitors of scale that we are directly concerned about. But we're always keeping a close eye because we understand that this is going to be ultimately a landgrab game in our perspective and in preparing for the long term and delivering value to our shareholders. Everything that we do from a strategy perspective, all the way down to execution and messaging is hounding on that long-term value proposition.

There are no further questions at this time. I'll turn the call back over to management for any closing remarks.

I appreciate everybody's time today. And I just want to reiterate, if you'd like to meet with me as I continue to tour the country and meet with new investors, please contact Ron Bolt at ViOS. Thank you very much, and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your time and participation today. You may disconnect your lines at this time, and have a wonderful rest of your day.