Ladies and gentlemen, greetings and welcome to the IZEA Worldwide Inc. Fourth Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief Q&A 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, Chief Operating Officer. Thank you. You may begin.

Good afternoon and welcome to IZEA's Q4 and fiscal year 2018 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA. And joining me today is IZEA's Chief Financial Officer, Troy Vanke, and IZEA's Chairman and Chief Executive Officer, Ted Murphy. Thanks for being with us this afternoon. Earlier today, the company issued a press release with details pertaining to our fourth quarter and fiscal year 2018 performance. If you like to review those details, all of IZEA’s investor information can be found on our Investor Relations website which is izea.com/investors. Before we begin, please take note of the Safe Harbor paragraph that appears at the end of the press release covering the company’s financial results. And be advised that during the course of 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 martially 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 certain non-GAAP financial measures, specifically gross billings and adjusted EBITDA. A discussion and reconciliation of these measures to the most directly comparable GAAP measure is presented in our most recent Form 10-Q available under SEC filings in the Investors section of izea.com. With the appropriate disclosures out of the way, I am pleased to introduce my colleague and IZEA's Chief Financial Officer, Troy Vanke. Troy?

Thank you, Ryan and good afternoon, everyone. Before I begin, I would like to thank Ted and Ryan for the opportunity to join such an energetic and dynamic organization. In the six short weeks I've been with the company, I've met many quite amazing team members, and I've been truly impressed by the vision and the organizational drive. I'm looking forward to the ongoing challenge and to building a lasting relationship. As I turn to a review of the financial results, I would like to remind those on the call today that IZEA adopted new revenue recognition guidelines, starting with the first quarter of 2018. Since the company did not recast its prior year amounts for the new revenue recognition rules, any comparison of 2018 revenue figures to corresponding revenue figures of 2017 isn't 100% pure apples-to-apples comparison. Now, let me turn to our fourth quarter 2018 before moving on to the full year. As mentioned in prior public releases, we acquired TapInfluence during 2018. This acquisition combined with strong organic growth of IZEAx has driven a significant increase in revenue from our software as a service or SaaS offerings. Also, we made an effort to balance our business between our managed services and SaaS offerings in 2018, which is what you're starting to see in the mix of our revenues. As we make this transition towards the business with more SasS related services, it is important to note that IZEA’s individual revenue streams have different accounting treatments under the new revenue recognition rules. Managed services and SaaS licensing fees are accounted for as gross revenue, while marketplace fees and legacy workflow result in revenue being recognized net of the amounts paid to our creators. Over time, this difference in gross and net revenue recognition will widen the gap between…

Thank you, Troy. On our Q3 earnings call, I shared that we believe that we would return to adjusted EBITDA positive in Q2 of 2019. I am pleased that we were able to deliver another adjusted EBITDA positive quarter, two quarters early. In the last six quarters, three of them have been adjusted EBITDA positive. This is important to us as we continue our march towards profitability and manage our growth responsibly. Keeping a sight line to adjusted EBITDA positive remains important to us as, a leadership team. I want to commend team IZEA for its grit and commitment to get to adjusted EBITDA positive in Q4. Every team member across the company contributed to helping us achieve this goal. While I am pleased with our progression towards adjusted EBITDA positive, we do not yet believe that we are at a point where every quarter will be adjusted EBITDA positive. We have significant seasonality in our business, with the back half of the year accounting for the majority of both bookings and revenue. At the same time, we have significant annual expenses that we will incur in Q1 of each year, including our annual audit. 2018 marked the beginning of a fundamental transformation for our organization. I would like to talk a bit about where we have been and where we are going. IZEA’s business model has historically been driven by offering managed services to agencies and brands. These brands and agencies hire IZEA to execute marketing campaigns on their behalf. IZEA employees run these campaigns using IZEA’s technology platforms to discover, manage and pay influencers and other content creators. While this model has sustained our business to this point and grown meaningfully along the way, we believe we can unlock significantly more value and higher quality revenue streams through…

Thanks, Ted. 2018 was a remarkable year of change and evolution for our organization, one that we expect will lend to our success long term as well as deliver value for our clients, team members and shareholders alike. Let me begin by recapping the TapInfluence acquisition and share how the integration process has gone so far. Overall, we continue to be very pleased with the catalyst that Tap’s acquisition provided following the deal closing in late July. We set out to accomplish five key outcomes enabled by this transaction. First, to increase and diversify revenue mix through a boost to SaaS revenue from licensing as well as marketplace spend. Number two, to strengthen IZEA’s operating margins. Third, to bolster our technological footprint by consolidating engineering investment in order to create the industry's premier platform of record for influencer and content marketing. Fourth, we wanted to increase our market share by combining two of the largest players in the space with the first major market consolidation of that influencer marketing in an otherwise highly fragmented market. And last, we want to transform operations on day one, delivering the promise of being a technology first, value driven organization with leading services and software offerings. Beyond these five objectives, there were many other, less obvious, but equally valuable aspects of bringing together Tap and IZEA. For example, it will create more deal flow and marketplace liquidity for our creators by providing them with more opportunities to partner with brands than ever before. This strengthens our already solid working relationships and super charges the greater value of the creator economy overall. Every department at IZEA worked collaboratively and swiftly to integrate the two organizations post acquisition, thanks to terrific due diligence conversations and efficiency planning ahead of the official close. As a result, we…

Thank you, Ryan. Over the past year, our leadership team has spent a considerable amount of time, looking inward at the business and outward at our industry. As we look to the future, we have a few core beliefs. One, our industry is real and growing. Influencer marketing is no longer an afterthought or remnant buy. Current estimates of the industry tag the annual spend in our space at approximately $2 billion. The budgets are growing and virtually every large consumer focused company is utilizing influencer marketing in some way. Two, platforms will dominate. While the majority of transactions are still happening manually, in order for this industry to continue to grow, agencies and brands will need technology and tools to make them more efficient. It is important to note that our space is fast moving with constantly changing social networks and customer requirements. Unlike the display ad space that moves at a snail's pace, the platforms in our space are always evolving. At one point, Twitter didn't have pictures and Instagram didn't have stories. Their constant partner changes and those changes require influencer marketing platforms to change as well. It is those changes that make it so difficult and expensive to build software in our space. It is an arms race. This space is incredibly fragmented with literally hundreds of players and providers. There is intense competition for customers and awareness, and it will require a significant investment in sales, marketing and technology to effectively breakout and increase market share in a meaningful way. As the industry gets bigger, so will be investment required to compete and win. Four, scale matters. Building and maintaining technology in this space is expensive, as is marketing and sales. However, there's also opportunity to gain real efficiency and scale. As the top line…

[Operator Instructions] Our first question comes from the line of Mike Malouf from Craig-Hallum.

Great. Thanks guys for taking my questions and congrats on getting to that EBITDA positive, certainly ahead of our outlook. So that was great.

Thank you.

Question for you, as you roll out the SaaS business, can you give us a little color on what, whether it's brands that are first to jump on this or it's agencies and just give us a sense of maybe how many of each are in total that you have on the platform right now?

Yeah, it's been a pretty even mix between brands and agencies, and I would actually throw a big category that we're seeing is actually PR firms. So, I would put them in that category of agencies. There's different use cases for the platform, depending if it is a brand or an agency. And one of the things that we like a lot about the agency business is that they're able to support a lot of marketplace spend through multiple clients. But on the brand side, we obviously like the direct relationship as well. We're not yet releasing any sort of numbers in terms of the number of customers. But we're pretty evenly selling in between those two different types of customers.

Okay, great. And then as you look into managed services, bookings being down, maybe a little bit in the first quarter, and then starting to grow in the second quarter. How fast do you think revenues will trail that growth? Obviously, it'll be down in the first quarter, year-over-year, but, will it be down again, probably be down again in the second quarter, but when will we see that growth in revenues?

Yeah. I mean, typically if you look at the trailing effect of the bookings there, it's been about six months. And it really depends on kind of what the customer mix is and what the programs are. So, I think it's a little bit early for us to speculate on that. We're going to be rebuilding the managed services team here and have started that process, but it's going to take some time for them to build their pipeline, grow their bookings, and then ultimately have that flow through to revenue.

Got it? And then just one final question. Can you remind us again, when we take a look at the revenue of the SaaS business, relative to the managed services business, if you just look at all three, managed service, software license and marketplace, where are the gross margins for those three as you sort of target over the next couple of years?

Yeah, so if you look at historically managed services, it's been about 60% or just a hair over 60%. Marketplace, it averages about 12.5%. A lot of that is, there's legacy Tap customers that are at a lower marketplace fee. And then on the licensing side, it's -- you've got the cost of the infrastructure and the engineering, but that flows through at basically 100%.

[Operator Instructions] Ladies and gentlemen, we have no further questions in queue. I'd like to turn the floor back over to management for closing comments.

I would like to thank everyone for joining us this afternoon. As a friendly reminder, if you’d like any additional information on IZEA as an investor, it's available for you online at izea.com/investors. Have a great evening.

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation and have a wonderful day.