Greetings and welcome to the IZEA Third Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Ryan Schram, Chief Operating Officer. Thank you. Please begin.

Good afternoon and welcome to IZEA's Q3 2019 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA. And joining me today is IZEA's Chief Financial Officer, Justin Andrews and IZEA 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 third quarter performance for 2019. If you had to review those details all of IZEA's investor information can be found on our Investor Relations website izea.com/investors.com. 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 unduly be relied upon. Actual events, results or trends to differ materially from our forecast due to a number of factors, including those mentioned 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 reconciliation of these measures to the most directly comparable GAAP measure is presented in our earnings release with additional discussion of both of these measures available in our most recent Form 10-K and 10-Q, available under SEC filings in the investor section of izea.com. With the appropriate disclosures out of the way, I'm pleased to introduce my colleague and IZEA's Chief Financial Officer, Justin Andrews.

Thank you, Ryan, and good afternoon everyone. I'm pleased to recap our results for the quarter ending September 30, 2019. For the third quarter 2019, IZEA reported total revenues of $4.4 million, with approximately $3.6 million coming from our Managed Service business and about $800,000 coming from our software-as-a-service or SaaS offering. This compares with Q3 2018 revenues of about $4.9 million for Managed Services and about $900,000 for a SaaS offerings. For Managed Service business, our overall revenues have primarily decreased, due to reduced headcount in our direct sales team and the trailing recognition of revenue. While bookings for Managed Services was up 12% in the quarter, these bookings are typically recognized over six months to nine month period. Ryan will discuss our efforts in this area in a bit more detail in just a few minute. As a percentage of revenue, our cost of revenue is exclusive of amortization has increased from 41.5% in Q3 2018 to 43.2% in Q3 2019. This primarily due to a few large client projects being recognized in the quarter. Our total costs and expenses were $5.6 million for Q3 2019 compared with $7 million in Q3 2018. This comparison includes $753,000 gain associated with the final settlement payment for the acquisition of Tap and $41,000 gain associated with the settlement payment for the acquisition of ZenContent. Due to our stock price being lower, at the time of payment, then the 30-day weighted average stock price used to determine the number of shares for the liability settlement. Our net loss for Q3 2019 was $1.2 million compared with $1.3 million for Q3, 2018. Adjusted EBITDA for Q3 2019 was a loss of $1.3 million compared with a loss of $300,000 for Q3, 2018. Our ending cash balance as of September 30, 2019 was approximately $6.8 million and the balance on our bank line of credit remains at zero. The company settled the vast majority of our acquisition cost payable obligations during the third quarter. And have since settled the remaining acquisition cost payable. Now that those obligations are settled and our $5 million line of credit is paid up, with a healthy balance sheet from which we can fund our continuing operations and future investment in our core technology platform. I would now like to turn the call over to Ryan.

Thanks Justin. And welcome to the team. The third quarter of 2019 was productive in multiple facets of our business. We started July at the Influencer Marketing Conference and Expo in Los Angeles. In front of branded agency personnel as well as top creators. IZEA had the distinct privilege and providing the opening keynote in front of all conference attendees, sharing industry insights from our award winning state-of-the-creator economy study and the right brain consumer research and Cantor. Later that same month we announced that IZEA joined forces with IRI to launch InfluenceImpact, a new offering to IZEA's clients to measure the impact of influencer marketing on retail sales. For those of you not familiar, IRI is the leading provider of big data predictive analytics and forward-looking insights that help CPG companies to grow their businesses. Packaged goods is one of the largest sectors in North America, that's $2 trillion in annual consumer spending and while it's relatively easy to track and attribute influencer marketing impact for online sales and awareness, it is much more difficult to measure offline impact at a retailers physical location. InfluenceImpact enables IZEA to offer our CPG customers, the next level of sales analysis providing measurement of sales uplift through in-store purchase data to track how influencer marketing campaign positively impact sales lift for any mass market packaged good. Lastly, throughout this summer, our team also focused on putting the capital we raised in May to work in the form of a comprehensive brand awareness and lead generation strategy. These investments run the gamut, on areas big and small, from increasing marketing analyst coverage at IZEA to having surprise and delight awareness placements, both online and offline. All of the efforts are focused on bolstering the company's differentiation and credibility in the increasingly competitive Influencer…

Thank you, Ryan. In May, IZEA completed a $10 million public offering to provide the capital needed for the company's ongoing operations as well as investment in the growth strategy for the company moving forward. As Ryan mentioned, we've been using those resources to invest in expanding our sales team, strategic marketing initiatives and the advancement of our technology platforms. It is our belief that these investments will yield return for both Managed Services and SaaS as we look to the future. It is also our belief that a combination of SaaS and Managed Services revenue streams from customers of all sizes will allow IZEA to get to sustainable profitability more quickly. And that diversifying our customer base is key to long-term success. As we finish out the final weeks of 2019, we are looking towards 2020 with heightened excitement and anticipation for the coming quarters. Much of that excitement has to do with the sales pipeline and new product development. But another part of that excitement for the future is moving on from the past. Over the next six months, we will shutter the legacy Ebyline and TapInfluence platforms. Our goal for the integration and sun setting of these platforms has always been, what we call parity plus. Before moving customers over, we wanted to make sure that they could do everything they did in the previous systems plus much, much more. We believe we have now extracted the best parts of each platform and grafted them onto IZEAx. We have also added significant new capabilities to IZEAx that did not exist in these platforms, many of which were top asks from Platform users. Our teams have already begun to execute against the platform transition plans. Across the course of this year, customers have been trained and transferred and…

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

If we could just start off InfluenceImpact sounds like a really interesting offering, especially given just that data that you can provide. Can you talk a little bit about any impact with the sales uplift with that and maybe just some early indications of how that's been implemented?

Yes we are - we are still early in that process. You know, we have a relatively long sales cycle here, but that is being pitched specifically on the Managed Services side of the business. And so far it's been very well received. We've also got a fair amount of press and excitement about that in the retail space. So the measurement is incredibly important to our end customers. It's something that we get asked about a lot specifically for CPG customers being able to actually track the up lifts that they are seeing at a physical store location really helps justify the spend. So we're confident that this is going to be something that there is going to be a lot of uptake on and will be something that is likely standardized in a lot of these Managed Services packages moving forward.

And then as we look into the - to the SaaS business down a little bit sequentially on the license side, obviously you're going through a little bit of churn with TapInfluence. I'm wondering if you can give us a sense or at least quantify about where you are in that process? You sort of have growth on one side and some churn on the other. And just kind of wondering as we go into December, should we start to see sequential growth pick up in December or are we still going to see some offset from the churn.

Yes, well, you're still going to see some offset from the churn in Q4 and that largely comes down to some customers that were paying frankly very large licensing fees where they were being overcharged coming from those legacy, Tap relationships. We want our customers to be able to spend the large majority of the dollars that they have allocated for influencer marketing, towards the influencers themselves, so that they actually get the - to get the return. So we had been modifying some of those contracts, some proactively, some at the end of the - at the end of the period. And we will feel the effects of that in Q4, but we are now through the full one year cycle with those TapInfluence customers and don't expect there to be impact beyond Q4. We'll be adding, we expect to be adding more customers and licensing fees than any sort of adjustments or churn that we have.

Okay, good. So sort of back to growth on Q1.

We believe so.

And then as it relates to the marketplace spend side, we saw some weakness there as well. I'm just kind of wondering as we go into December, we have some seasonality that should help you. But then again, you do have some of these SaaS customers churning off. So can you give us a sense of how you sort of looking at this number?

I can't give specific insight into December. I can tell you that certainly the marketplace spend will be less due to some of those customers that have churned but also due to some challenges that customers - that haven't churned are just experiencing in their own organizations. So we have two large customers in particular that are just they're dealing with their own challenges. We've been feeling those challenges with those customers throughout the year. We have seen some rebound, but they're just not spending like they used to and that will have an impact in Q4.

Yes. Okay, all right. Great. And then just a question, maybe for Justin, as we look into the G&A expense, you really done a great job of keeping that down. I'm just kind of wondering as you go through the next couple of quarters. Are you expecting in G&A to sort of stay flat from here? Or is that going to tick up?

We don't know exactly what's going to happen with G&A. We don't - we really can't give too much insight whether it's going to go up or down. Potentially it could go either way, kind of depending on what we decide to do with investment into new revenue lines and stuff like that. But right now, no real insight.

Our next question comes from the line of Jon Hickman with Ladenburg Thalmann. Please proceed.

So I want to follow up on Mike's question about the SaaS business. So you're telling us that the number of customers on the SaaS platform is at a record level? Is that true?

Yes, yes.

So the number of customers paying you recurring revenues, every month because they're licensing it? That's - is that a true statement.

Yes, you have - well you have customers that are licensing in two different modes. You have the customers that are signing long term licenses of 12 months that are IZEAx enterprise customers or Unity Suite customers. We also have customers that are the self-service customers that are coming in with their credit cards that have no long-term contracts. But renew monthly automatically. So we - when we talk about like bookings for SaaS, we would book contracts for the total amount of a SaaS license on Unity Suite, but we do not book - we don't assume any forward commitment from customers that are on discovery.

And so, and then the marketplace spend is coming from the licensees as they do transactions through the network, right?

Correct, correct.

So as the number of customers goes up the marketplace spend should go up.

Well, you have - you have customers of different type. We have customers that are in Unity Suite that tend to spend on marketplace, but realize that not all of them spend in marketplace. Some of them are providing product instead of payments because our platform supports any type of compensation that they want to provide whether that be a gift card or promo code or any sort of product that they sell. And then you have the discovery and more recently the discovery pro offering, which is kind of a group license to discovery tool. Those customers are not - they're never going to spend money through the platform. They are just going to pay us a licensing fee to get access to the creator base and the insights that we provide.

So you talked little bit about the Managed Services for the end of the year. What's your - we're putting - counting the churn like you say you're going to get every 3 - start to growth in Q1. So can you give us kind of a sense of - is it flat or are we still going to see down numbers on facts?

I mean what I think that you're going to probably still see down numbers from Q4 because you're seeing the people that turned and/or adjusted in Q3 and for some of those contracts, if we're rightsizing somebody who is paying tens of thousands of dollars into a much smaller licensing fee that's more appropriate for what their level of spend is it takes multiple customers to replace that one customer. So you will feel the effects of that in Q4. I would say that broader speaking what we're really excited about is that we've been building out the Managed Services sales team as well as the SaaS sales team and we've got a nice size SaaS team including one of the people who was one of our best sellers on the Managed Services side, he has now moved over to the SaaS organization and we think that there is a lot of upside and potential there. So, I think that we'll really start to feel those benefits come Q1, but we've got to kind of - we've got to work our way through that churn and the pricing adjustments that we made.

And then for Justin, now, I mean there are a lot of one-time there was - it sounds like there is a lot of stuff going on in Q3 with all the payments, is there - could you give us some sense of cash burn going forward on a quarterly basis.

Yes, we can't really give forward projections on any of our cash burn, but again everything should be pretty much in line with what you would expect with growth in sales.

Yes, I would add on to that. The idea is that as we start to see the benefit of those sales people that are better coming online and starting to contribute and a rebound on the Managed Services side, which is a major contributor to the overall gross margins for the company that the burn should taper over time, but it's going to take some time for the - for those sales people to have the full effect and the bookings to flow through to revenue. So even though you had Q3 bookings were up year-over-year, with that smaller sales team those bookings are going to be recognized as revenue over the next call it six months to nine months.

And so, tell us again how many sales guys, do you have now? That are full time.

When we get to the - by the end of this year we expect to have just under 50 sales people, which are both in SaaS and Managed Services, and that will - that will bring us back to our 2006 levels. What we were at the end of - I'm sorry, not 2006, 2016 level. And that was a year of really significant growth for us. So we raise this round of capital to really be able to get aggressive again on the sales front and that's really what our team has been focused on doing.

Our next question comes from the line of Curt Van Hill with Everest Group. Please proceed.

Good. Question for Justin I think. Can you guys give me a little bit of color on the contract liabilities, 5.4 in comparison to maybe of accounts receivable.

Okay. Let me --.

Curt, the majority of those are going to be payments due to the creators that are in our network.

Creators in your network. So, it's not reserved in your accounts receivable or cash anywhere?

Well, no, we would have - their accounts receivable are the payments due to us from our customers and then we have liabilities to pay that to pay the creators.

Right. So these are the - okay. So how long have those paid out?

The way that our payments work are the creators get paid 45 days after their work is complete. So that's always kind of a rolling number for us.

Our next question comes from the line of [Nadhil Shamil with CDI]. Please proceed.

My question is like there was a share buyback program, is it completed like there was a million dollar program. I think million share something, is that buyback completed?

No, I think what you're referring to is that the authorization of the share buyback. That authorization goes through the end of next year and that is at the discretion of the Board. So we haven't announced any sort of share buyback to date in terms of executing on that authorization. But the Board can choose to do that at any time. We are restricted by the same blackout windows as like a management stock purchase would be. So it has to happen within certain windows.

Just one more question, so you have been talking greatly about like 2016 was a great year and so after four years, if you are expecting similar kind of a growth. So what kind of opportunities were not there or there in 2016 or challenges which were not there, which you see in 2020? Will there be any challenges, which were not there in 2016 and which can offset the opportunities in 2020?

The biggest difference between our sales structure now and in 2020 was - I'm sorry in 2016, we had a much larger sales organization overall in 2016, but I would also say that sales team was not as well equipped to sell as our sales team is today. We have invested a lot more in training and onboarding and continual education of that sales team and I believe you're seeing that reflected in the most recent bookings. You have a 25% smaller team that's delivering 12% better results year-over-year. So that sales team is more effective than in previous years and we've been seeing that kind of increase pretty steadily over the past couple of years as the efficiency per sales person. I think that a difference between 2016 and today is that there is certainly a lot more noise in the channel. There is certainly a lot more fragmentation in influencer marketing, but at the same time there are a lot more dollars to go around. I feel particularly confident in our team, not just based on the productivity gains that they've had, but also, based on the types of relationships that they've been able to form directly with Fortune 500 and Fortune 10 corporations and they've been able to grow that business and we think that those relationships can continue to grow in 2020 and with more sales people, it just gives us more at bats, a lot of this is just about getting in front of more customers to be able to tell the IZEA story to be able to show them our platform and that's why we've made that investment in growing out that team.

Thank you. We have reached the end of our question-and-answer session. Allow me to hand the floor back over to management for closing remarks.

Thank you all for joining us today. A recap of this call will be available on IZEA.com and you can check out the press release and financials on our site.

Thank you. This will conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.