Good day. Welcome to IZEA Worldwide, Inc. Second Quarter 2021 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ryan Schram. Please go ahead.

Good afternoon, everyone, and welcome to IZEA's Q2 2021 earnings call. I'm Ryan Schram, President and Chief Operating Officer at IZEA. And joining me today is IZEA's Chief Financial Officer, Peter Biere; and IZEA's Chairman and Chief Executive Officer, Ted Murphy. Thanks for being with us. Earlier this afternoon, the company issued a press release with detail pertaining to our second quarter performance for 2021. If you had to review those details, all of our investor information can be found on our Investor Relation website at izea.com/investors. Before we begin, please take note of the safe harbor paragraph included in today's press release covering the company's financial results. And be advised that during today's earning call, our management team will discuss IZEA's business outlook and make forward-looking statements. These statements are prediction 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 materially 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 a non-GAAP financial measure, adjusted EBITDA and other business metrics such as gross billings and bookings. A detailed explanation of these measures is disclosed in our earnings release and in our most recent Form 10-Q. With the appropriate disclosures taken care of, I'd now like to turn the call over to my colleague and IZEA's Chief Financial Officer, Peter Biere. Peter?

Thank you, Ryan, and good afternoon, everyone. I'd like to highlight our results for the quarter ended June 30, 2021. Total revenue for the second quarter of 2021 was $6.5 million or 109% higher when compared to quarter 2 of 2020, with $6.1 million coming from our managed service business and $425,000 coming from our SaaS offerings. Managed services revenue increased by $3.6 million or 146%, while SaaS revenue declined by $220,000 or 34%, both compared to the prior year quarter. As we previously announced, managed services bookings, a key metric, which measures sales orders received, less any cancellation or refunds given during the period, topped $11 million for the second quarter of 2021. This all-time record represents an increase of 187% compared to Q2 of 2020 and continues the growth trend that we've seen since late last year. The trend toward larger brands, increasing our marketing spend with IZEA, also continued during the second quarter as we added several new Fortune 500 customers and repeat business from three Fortune 10 partners. These factors, taken together with efforts put forth by our team to fulfill campaigns, resulted in the increase in managed services revenue. As a reminder, we recognize revenue on our managed services contracts over time on the percentage of completion and delivery timing can vary greatly. Historically, bookings have converted to revenue over a 6 to 7-month period on average. However, since late last year, we've been receiving increasingly larger and more complex sales orders, which in turn has lengthened the average period for revenue recognition to approximately 9 months, with the largest contracts taking even longer to complete. Planning for larger contracts takes more time upfront, which can also cause further delays. For these reasons, managed services bookings, while an overall important indicator of the health of…

Thanks, Peter. The leadership team and I remain pleased with the progress we made across all units in the business here in the front half of 2021. As we guided towards when we last spoke with shareholders, there has been demonstrable improvement within IZEA in a variety of areas, including bookings, revenue and operational efficiency, none of which would have happened without the strong support from our clients and customers, only exceeded by that of the hard work invested by members of team IZEA and our creators themselves. My personal gratitude goes out to all of you listening today. Let's start with looking at our managed service unit in detail. This professional services offering continues to impress us with its ability to deliver both front end bookings growth, an all-time high in Q2 of $11.1 million, matched with handsome revenue recognition, up 146% year-over-year in the same period. These metrics are driven by both new business wins and existing client expansion alike from a range of sectors, including consumer technology, high-frequency consumer packaged goods, e-commerce and entertainment. What's more, we are also seeing substantially higher efficiency on both the booking per salesperson and revenue per FTE front as well. A major contributor towards those areas is IZEA's focused investment in technology to automate aspects of our sales and services processes, leaving our talented team more quality cycles to grow client relationships and unlock the approaches to serve those beloved household brands. As we look to the back half of the year and on to 2022, our intent for managed services remains for it to be a key contributor and growth catalyst. As such, we'll make strategic incremental personnel investments driven by data in order to provide the same world-class experience that IZEA has become known for. It will result in…

Thank you, Ryan. On our last investor call, I shared that our goal was to deliver at least 30% annual revenue growth per year for each of the next 3 years or a 30% compound annual growth rate. That remains our longer-term goal. However, based on the current bookings and revenue numbers for managed services, in particular, we believe we are going to materially exceed that 30% goal this year. As of July, managed services bookings have already exceeded all of that of 2020. And we will likely exceed 30% year-over-year bookings growth again in Q3. Our pipeline remains very strong, and we have been building on the success and momentum with expansion of key accounts as well as new customer acquisition. IZEA recognizes managed services revenue on a percentage of completion basis, which is about 9 months on average. The bookings increases we saw in Q1, Q2 and now in Q3, will take some time to be recognized. The exact timing of revenue can be difficult to predict as it is based on actual execution of campaigns, which often move based on both marketers and creators. Timing of revenue recognition has also been impacted by world events outside of our control over the past 18 months. That said, we do believe that the significant increase in bookings will begin to be recognized as revenue in the back half. Even with the delay to revenue recognition, we believe annual revenue will be well in excess of our 30% growth goal in 2021. Given the spike in bookings, it can be difficult for investors to anticipate what Q3 may look like from a revenue perspective. In order to assist investors, we've included a chart in our latest earnings press release that illustrates the historical correlation between managed services bookings and revenue.…

[Operator Instructions]. We have a question from the line of Jon Hickman from Ladenburg.

Ted, I was wondering, you made a comment about -- or somebody made a comment about -- can you hear me okay?

Yes. Okay. We can hear you.

Okay. Someone made a comment about the marketplace spend being lower even though customer counts are up. Can you talk about that?

Yes. We have -- the customer counts have continued to increase. They're up 100% year-over-year. But you have customers that are either in our Disco product that does not have a marketplace component or you have typically smaller customers who are just spending less in those platforms.

So that's kind of the opposite of what's going on in managed services. So is there a reason why people are doing their own, but giving you the work?

It is -- they're basically having us manage that work for them. And some of those customers that were previously software customers have moved over to managed services as they have made changes in their marketing organization. So we've been able to retain those customer relationships, but they have -- they switched from SaaS to managed services.

And do you -- like, is there a reason for that? Is that completely new? Or can you comment on why that's happening?

Yes. I mean, there is a larger trend of in housing for many brands, but it really comes down to resources and expertise. So even though we use the same software that our customers would use, there is a human component of that. Just like if you were going to have somebody run a campaign with Google Adwords, everybody is using the same software, but there's absolutely a human aspect of the strategy and the execution that goes into the success of the campaign.

So how -- like, so you -- don't you need to add people there too, influencer marketing and engineering?

We have been adding some staff there, although our software really allows us to scale pretty well. So our team is able to handle a much larger load than they have historically. And Ryan, I don't know if you want to comment a little more on that.

Jon, Yes. I mean, two thoughts here really. One is, is that we are seeing the capacity of our staff be able to be supplemented by the technological innovation of our engineering investments, meaning that it just takes less human cycles to deliver a campaign on average that did a year or 2 ago or certainly 3 or 4 years ago, which is promising and really aligns to our entire business hypothesis. Secondarily, to answer your other question related to software and what we think could happen down the road is, as markets mature, we think that there will be ample opportunity for both lines of this business. There's inevitably going to be larger brands and agencies, but also mid and smaller-sized brands and agencies that will want to do execution for themselves, especially as those investments increase. But I also think there's real value to the duality of our business, like Ted was saying, to be able to support those clients and customers if their circumstances change and we -- and then IZEA doesn't lose out in either regard.

Okay. And then my last question, it seems to me that you were indicating without using numbers that gross margins were probably going to be lower in the near term, but then improving maybe in the back -- or late this year, early next year? Is that what you were trying to say?

Yes, I mentioned that in my comments. Yes. As we conquest new business, Jon, we find that in many cases, we have to lower our margins in order to secure that business initially that you have, depending on the size of the business implications. We do think that will have an impact on us here in the back half. We also, as we look to the future, think that there's real opportunity for us to inch that margin back up, particularly, as we're able to use our pricing leverage and buying power in the broader creator economy.

So if I were to use numbers here, you would -- do you expect margins in Q3 to be lower than Q2? Is that what you're trying to tell me?

We would.

And then later on, it gets better?

That would be the intent, although right now, we're still in the process of having clients that were winning, given all the growth. So it's hard to necessarily have a direct line of sight over time depending on what things we win between now and then and the timing of those campaign wins. As Peter was saying, larger campaign commitments do sometimes have shorter time tables or longer time tables, which is why we're trying to provide average guidance on duration for revenue recognition and that would then have the implication to your gross margin timing as well.

So who are you competing with, in-house people? I mean, I don't know anybody else publicly that's doing what you do.

There are, to our knowledge, no other publicly traded companies that are pure-play influencer marketing organizations, Jon. The competition for us ranges from venture-backed companies to even departments in large ad agency holding companies that try to do some form of influencer marketing. But what we see as the opportunity is that even in those circumstances, perhaps that there is a professional services offering somewhere else. Chances are they'll need world-class software in order to be able to execute their campaigns at some point. So that presents an opportunity for us with a different type of customer.

And at this time, I'd like to turn it over to Ted Murphy to review any questions that were submitted on the Investor Relations website.

Thank you. We opened up a form on our website to retail investors to ask some questions. I'm going to answer a few of those questions now. The first one is from Sean, and he asked if there will be a Shake app at some point. The answer is yes, we do intend to create a Shake mobile app. We will likely start with an iPhone app. But as I said earlier on today's call, we're still working through some of the user flows, and we want to perfect that on the web before we bring them to a mobile app. The next question I'm going to answer is from SMR. He asked what if one of the big Tier 1s mimic what IZEA has done or achieved so far, how will IZEA protect its tech and its position? And I commented on this a little bit during our last call. We believe that IZEA is positioned as an agnostic provider, is really one of the reasons that brands continue to choose us even when the social networks have offered their own influencer marketing solutions in the past. As Ryan spoke about, we've been awarded an influencer marketing contract from one of the social media platforms themselves to execute campaigns on behalf of their clients. And I think that, that's a testament to the value that we provide. There's no doubt going to be continued competition in our space from providers that are both big and small, but we believe that there's a unique combination of proprietary software and data across multiple platforms that really sets us apart, which is why these more of CPG companies and retailers continue to choose IZEA. Edward asked, is the growth of managed services bookings since December the result of the specific activity, or…

Thank you so much, Ted, and we'd like to thank everyone for joining us this afternoon for our Q2 earnings call. And as a reminder, you're welcome to view all of our investor information on our Investor Relations website, and that's at izea.com/investors. You're also welcome to submit other questions to us for future earnings calls on that site as well. Until next time, on behalf of all of us here at team IZEA, stay safe, be well, and thanks again for joining us.

That does conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.