Ryan Schram – COO Ted Murphy – CEO

Howard Hilton – Telnet Brothers Brian Murphy – Merriman Capital Sam Bassett – Bentek Richard Molinsky – Private Investor James Fantozzi – Private Investor Abraham Aboraya – Orlando Business Journal Gabor Dupree – Private Investor

Good-day ladies and gentlemen, and thank you for standing by. Welcome to the IZEA Inc. Third Quarter 2013 Earnings Conference Call. In today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference would be open for questions. (Operator Instructions). This conference is being recorded today, Wednesday, November 6, 2013. I would now like to turn the conference over to our host, Mr. Ryan Schram. Please go ahead, sir.

Good afternoon everyone and welcome to today’s IZEA Fiscal ‘13 Q3 Investor Update. I’m Ryan Schram, Chief Operating Officer at IZEA. And joining me on the call today is IZEA’s Founder and CEO, Ted Murphy, we’re very pleased to have you with us. As a reminder, today’s call may contain forward-looking statements within the meaning of 21-E of the Securities Exchange Act of 1934. These forward-looking statements are based largely on IZEA’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond IZEA’s control. Actual results could differ materially from these forward-looking statements as a result of upon other factors, competitive conditions in the native advertising category in which IZEA operates, clearly to categorize one or more IZEA’s marketplace platforms and general economic conditions that is not favorable as expected. In light of these risks and uncertainties there can be no assurance that forward-looking information contained in this respect will in fact occur. Now with that out of the way, we’ll hear from Ted. And he’ll walk us through the Q2 results. Following Ted’s comments as operator mentioned, we’ll open the lineup for your questions. With that, let’s begin. Here is Founder, Chairman and Chief Executive Officer of IZEA Ted Murphy. Ted?

Thank you, Ryan, and good afternoon everyone. We have made some real progress in quarter three and I look forward to sharing some details with each of you today. We’re going to focus on five key areas of the business. Then I’ll open it up for Q&A. I’m going to begin with revenue. IZEA had record revenue in Q3, up 48% year-over-year to $1.57 million versus $1.06 million in Q3 2012. For those of you that are not familiar, I’d like to explain how the company recognized this revenue. Revenue from book business is typically recognized within 90 days of the initial sale. IZEA does not recognize revenue until the campaign is 100% complete. This can cause some delays in recognition based on campaign end date. As spends get bigger, they tend to be longer in duration. As of September 30, 2013, the company had $1.26 million in unearned revenue for campaigns that were currently underway and an additional $836,000 in signed contracts for campaigns that had yet to reach their kick-off date. That is a total of over $2 million in book business that’s yet to be recognized. So, let’s talk a little bit about booking. This is our third straight quarter of record bookings. Bookings grew 69% to a record $1.87 million for the quarter, besting the previous record set in Q2 of 2013. After years of pioneering and vandalizing this space, it is clear to me that the market is finally here. We’ve seen growth in demand on both the advertiser and publisher side of the market and believe that demand will continue to grow for this foreseeable future. The company booked $5.3 million in sales during the first nine months of 2013 or $7.1 million on an annualized run rate basis. As I mentioned earlier, these Q3 bookings will have a positive trailing revenue effect on Q4 and beyond. On to margin. Gross profit margin for the quarter was 68%, up 59% during the same period of 2012. This was primarily attributable to an increase in advertising using the company’s managed campaign services and related marketplace efficiencies that come along with those services. So, that higher bookings, higher revenue, higher margins but how are we doing with expenses? I’m incredibly proud of what our team has accomplished this quarter given the limited resources of the company. This team has become very efficient over the past 12 months. Our operating expenses for the quarter were $1.7 million compared to $1.5 million in the same period of 2012. Most of this was due to higher non-cash compensation expense and professional fees. Sales and marketing expense for the three months ended September 30, 2013, decreased by $156,000 or 71.1% compared to the same period in 2012. Total operating expenses for the nine months ended September 30, 2013, decreased $925,000 or 16% compared to the same period in 2012. The decrease was primarily attributable to lower payroll, travel, rent and other decreases in promotional marketing. EBITDA was negative $431,000 compared to negative $794,000 during the same period of last year, an improvement of 46%. This was primarily due to higher revenue and improved margins during the third quarter of 2013. We had a net loss of the period, we had a net loss for the period of negative $975,000 compared to negative $951,000 during the same period last year. Diluted earnings per share were negative $0.08 for the third quarter of 2013 compared to diluted earnings per share of negative $0.42 for the third quarter of 2012. The company remained focused on increasing bookings and revenue while controlling cost and creating efficiency. We see a huge opportunity in this space and look forward to the launch of our new exchange product in Q1 of 2014. At this time, I’d like to open up the line for any questions.

Thank you, sir. (Operator Instructions). Our first question comes from the line of Howard Hilton with Telnet Brothers (ph). Howard Hilton – Telnet Brothers: Good afternoon guys. I’m fairly new to the story and actually the space itself too. I’m wondering if you could actually provide a little background on how you evolve to this point and where you think that new extreme is going to take you in the next number of years.

Absolutely. When the company first started back in 2006, our primary focus was on sponsored blog post. So we created a platform that allowed advertisers to hire bloggers and have them blog on their behalf and exchange for compensation. Very quickly, this social media space has expanded so now we have new platforms like Instagram and Twitter and Facebook and YouTube. And advertisers now really want to be able to reach all these different channels through a single integrated campaign. So, as the company has evolved, we have created individual platforms that have been designed to stop these needs. We have a platform that is specifically designed for blog, we have one that’s specifically designed for Twitter. And what our new exchange platform is going to allow us to do is serve all these different types of social platforms and all the different types of content whether that be long-formed text, short-form text, photos or videos and provide one cohesive platform where the advertiser can go in very simply identify influences or publishes make offers, manage the work flow, manage the creative, get the analytics that they need and ultimately facilitate payments. Howard Hilton – Telnet Brothers: Okay. And how does I did a little bit of background on it. How does the evolution into I guess the Cloud and SaaS models that you’re into your plans going forward?

Our platforms have been in the cloud since 2006, so that’s always been part of our approach. I will say that that’s something that is going to be new in the exchange is the concept of software to service, where people will be paying a monthly fee to access the systems for different levels of features and functionality. So, ultimately that will be a new revenue stream for us. It is something new so we are approaching it in a way where we need to learn more about the customers and understand exactly what their desires are. But long-term, we believe that there is a huge opportunity there. And if you look at the types of platforms that marketers are using, there is certainly demand in the market space. Howard Hilton – Telnet Brothers: And one last from me is, what do you see as your cash flow breakeven point in terms of revenue?

We look at that number is, somewhere right around $850,000 a month. Howard Hilton – Telnet Brothers: Excellent. You’re up to I guess an inflexion point. Just keep up the good work going forward.

Thank you.

Thank you.

Our next question comes from the line of Brian Murphy with Merriman Capital. Brian Murphy – Merriman Capital: Hi, thanks for taking my question. So, I’m also new to the story here. Ted, could you tell me if there is any seasonality to revenue sort of December quarter, September quarter to December quarter?

It’s a little difficult to pin-point that. We believe that ultimately the marketing in online advertising space does have some seasonality. Our growth trajectory has not necessarily always mimicked that. We believe that we’ll get a little bit more inside into that next year in terms of the campaigns that are running. What I can tell you is that in Q3, we did see a lot of bookings that came in that were for Q4 campaigns. So the advertises are definitely thinking ahead which is a good thing for us. And they are looking to this medium as a way of getting the message out for the holiday season. Brian Murphy – Merriman Capital: Okay. And I’m just looking at the bookings trend here. And it looks like you’re up against the pretty easy revenue comp in the December quarter. I mean, it looks to me like we should expect revenue growth to accelerate from here next quarter. Is that fair to say?

We’re not putting out any Q4 numbers yet, but we feel like we’re in a pretty good position right now for Q4. Brian Murphy – Merriman Capital: Okay. And just on the sustainability of the gross margin, you talked about an increase in your managed, I’m sorry, some of your managed services. Again, I’m just wondering about the variability in the margins there, how do we think about the gross margin going forward?

Yes, the gross margins were higher than we normally are accustomed to. I would not expect that those margins are going to be in that high 60s range. I would expect that they are going to be in that high-50s range. There were a couple of dynamics that made those margins much higher in Q3. Part of that was a higher concentration of managed campaigns and the other part of that was a little bit lower celebrity utilization than normal. So, I think that moving forward, you should be looking towards more of the high 50s rather than the high 60s. Brian Murphy – Merriman Capital: And just curious, in the December quarter last year, did you have a high level of celebrity utilization?

No, there wasn’t really a high level there. And there was more smaller campaigns last year. Brian Murphy – Merriman Capital: Okay. And the headcount that I have for the end of the period is 46, is that right?

That’s correct. Brian Murphy – Merriman Capital: And where was that last year?

I honestly don’t know off the top of my head. Yeah I think it was the high 30s. Brian Murphy – Merriman Capital: Okay. And how should we think about the headcount at the end of the year?

Right now we are looking to still add on a few more sales people and a few more engineers but we’re not talking about any sort of significant growth. Brian Murphy – Merriman Capital: Okay. Good stuff. I’ll pop back in the queue. Thank you.

Thank you. Our next question comes from the line of Sam Bassett with Bentek (ph). Sam Bassett – Bentek: Yes, hi. Another question is, your international sales, what is the percentage of international sales out of your total sales?

Yes, international sales right, now is about less than 5% that is still a new market for us. I can tell you that looking forward to next year, a big part of our strategy with Next and IZEA exchange is to allow white label partners to utilize the system to run it in their own local geography in their own language. So, that is part of the long-term plan. What we do find is that the other market and the lag behind the U.S. So, in many ways, we hear that Europe is like it was in 2006, 2007 here in terms of their social marketing effort. So I think it’s going to take a little bit of time for those geographies to mature. But we want to get into them early and mature along with them. Sam Bassett – Bentek: And what do you expect in terms of strategy, I mean, if the strategy for example like acquiring a company or would your strategy be coming to each country and being local?

Yes, the exchange – the idea behind the exchange is really that we are licensing the software to partners that have either buy side or sell side capacity or in many cases both so that we are giving them the software or licensing the software to them and allowing them to essentially build up the deals flow in their local geography. Sam Bassett – Bentek: Okay. And what about India, did you continue with India. I saw some points that you were in India?

Yes. We are in India and we still believe that that is a big opportunity again in one of those markets that is slowly maturing. And I think that there may be some opportunities there with the more of the things – the capabilities of Next versus our existing platforms. Sam Bassett – Bentek: Okay. Thank you very much.

Thank you. (Operator Instructions). Our next question comes from the line of Richard Molinsky, private investor. Richard Molinsky – Private Investor: Hi Ted, congratulations by the way on the quarter. Quick question for you, how is Twitter going public, how will that affect you, in a positive or negative way? And with the news because I didn’t see the balance sheet I know that you took to the funding, financing. So, how is the balance sheet look at this moment with the additional cash you just received?

Yes. The cash and cash equivalents at the end of September 30, was $1.66 million. In terms of the Twitter IPO, I think that the positive is, there is a Halo effect around all of social media. I think that it is definitely making marketers aware of these opportunities to reach people directly through these channels. I’m sorry, someone – there we go. I think that the fact that they are offering a native advertising solution also helps our efforts as well. So, I think that it’s a positive thing for us to really see difference that is in Twitter’s IPO. Of course we have to see how everything goes for them. And if they over price things and if that hurts them or the space in general but I think that it just legitimizes what we’re doing and why it’s important for marketers. Richard Molinsky – Private Investor: All right, I appreciate it. Thank you.

All right.

Our next question comes from the line of James Fantozzi, private investor. James Fantozzi – Private Investor: Yes, hi. I’m just curious on the native ad exchange. Can you add something to that? Thanks.

Yes. That is the – that’s our new product we’ve been working on that since October of last year. The goal with this product is really to consolidate all of our existing marketplaces, all the technologies. And then actually add new channels for distribution. So, Next is connected to Twitter, Four Square, Facebook, LinkedIn, Instagram, Google Plus, YouTube, Google Analytics, Word Press, Blogger, Type Pad, it really allows us to look at the entire social sphere if you will. And understand how somebody may influence purchase decisions in one channel versus another channel. So we’re trying to make things much easier for our advertisers. We’re trying to allow them to activate on these various channels through one platform. And at the same time it makes us more efficient as a company. Right now we’re maintaining three different market places, three different code bases, that adds expense both on the engineering side as well as the hardware side. All of that will consolidate into one platform and one code base for us to manage moving forward. James Fantozzi – Private Investor: Is there a time-span on that one it’s going to happen?

So, we will be announcing the platform in early Q1. And our hope is that by the end of Q2, we will have made the full transition from our existing marketplaces and the back-ends that they’re running to this new platform. James Fantozzi – Private Investor: Okay. Thank you very much.

Our next question comes from the line of Brian Murphy. Brian Murphy – Merriman Capital: Hi, thanks. Ryan, just a related question on the native ad exchange, launch on the platform consolidation here. So my understanding is that sort of the registered user base of creators and advertisers are going to have to create new accounts. Can you help us understand the transition risk there and what your expectations are in terms of retention?

Yes, some of the people will need to create new accounts depending on how – which platform they’re registered with. We do intend to move over all the people and sponsored Tweets and also the people in social spot. But we have to recognize that in order for them to really take advantage of the systems, they will need to add multiple connections when they register. So it’s not just about coming over from sponsored Tweets and then having your Twitter account there. We want you to add your Facebook, we want you to add your Four Square, we want you to add your LinkedIn. So, there will be a transition there. We believe that the people that don’t feel comfortable in a new platform or with new software, there will be some risk there. But we believe that the upside is going to be much greater for the people that are active and do participate. Because the big difference for this in the way that the opportunities are managed is that for the first time the influencers, the publishers can proactively approach advertisers. So right now, it is much more of a passive experience where influencers are simply waiting for and e-mail that says that they got an offer for that they have been invited to participate in something. And now they are going to be able to actually pitch themselves to advertisers and say this is why I should be part of this campaign. So we hope that that creates more opportunities for them to work with advertisers. And from the advertisers perspective, it will create more demand and a higher quality of influencer that’s approaching them. Brian Murphy – Merriman Capital: Okay, it makes sense. So, I mean, it sounds like a pretty big functionality upgrade here. I mean, I’m sure you’ve reached out to a lot of the registered user base. What’s been their reaction so far?

Yes, right now we’re actually in an early registration where people can come in, poke around and add their accounts. There is already 10,000 over 10,000 people registered on the platform that connects to over a 100 million end-points which could be a stay-in or a follower depending on what platform they’re on. So, so far so good, eventually we’ll make that transition and bring everybody over. But that won’t happen until we turn off those existing platforms. Brian Murphy – Merriman Capital: Okay. Thanks for all the color here.

My pleasure.

Thank you. Our next question comes from the line of Abraham Aboraya with Orlando Business Journal. Go ahead sir. Abraham Aboraya – Orlando Business Journal: Yeah, I just wanted to check in and see if there are any early social media platforms that you guys are keeping an eye on that, might be big in the future?

Right now we’re really focused on the major platforms that advertisers have raised their hands and said, hey, we’d like to be able to do a campaign through this platform. They – the social media, there are so many social media networks and if they don’t have the advertiser demand they’re not necessarily going to be a good fit for us. So, I can’t say that there is any right now that I have my eye on, that we haven’t already added. But the system is designed to be very modular. So we are completely agnostic. If the next Facebook comes along and that’s what where advertisers want to be, we will support that platform. Abraham Aboraya – Orlando Business Journal: Thank you.

We have a follow-up question from the line of Sam Bassett with Bentek. Sam Bassett – Bentek: Yes. Another thing to ask is, there were some other companies in the past which were doing stuff like seeding, which were actually not allowed by Facebook. And the question is like platforms like Facebook or Instagram, for example Instagram doesn’t allow usually direct connection or Facebook doesn’t like services that actually charge money for sponsor its messages. So the question is, how are you coming by past that. I mean, do you have an agreement with like Facebook or Instagram or any other technological thing that you managed to solve?

Yes, we think we have a pretty unique way of packaging up those sponsorships. You have to wait until you see the platform to see how that’s all executed. But the reality of it is that there is a commercial connection to all these platforms, I mean, whether it’s Twitter, Facebook, Instagram, people are promoting commercial content constantly. You have to work within the guidelines that are provided on each of those systems. But there is a way to do it and a way to do it transparently and in a way that’s still complies. Sam Bassett – Bentek: Thank you.

Our next question comes from the line of Gabor Dupree, a private investor. Gabor Dupree – Private Investor: Hi, Ted. My question was, actually I had two. The first one was, your operating expenses continue to run higher than your revenue. What kind of plan do you have to kind of reduce those – bring them down to half of what they are now or somewhere there comparable?

Yes, if you actually – if you look at a lot of those operating expenses. You have non-cash expenses that are built into that number. So, in this past quarter, you had about $190,000 that were non-cash expenses that are wrapped up into that number. We have done I think a phenomenal job of actually reducing our expenses over the past 12 months. I don’t know that there is much more that we can do without sacrificing our ability to grow top-line. And really that’s where our focus is, it’s not that we’re going to continue to cut I think that we’re incredibly efficient right now, I think that we’re at the right size and that we are funding things in the right way. And our goal is to continue to grow that top-line. Gabor Dupree – Private Investor: Sort of steady one. The next question was, what’s the productivity have you seen with the kind of edible ads?

Edible ads, was a bit of an experiment for us to see what type of advertiser demand there was for that. Frankly it hasn’t been something that we’ve seen a lot of success with. It’s not something that we are going to incorporate in that model into internet because there just hasn’t – there hasn’t been that demand for that. What we noticed is that the advertisers are much more about the sponsorship model, at least our advertisers because that is what they know us for. They want an unique connection, they want unique content being created by the people that they’re working with. They’re not looking for just a way of distributing content which is what edible ads, was. So, over the years we’ve launched and sort of killed a number of products and that’s something that will always be part of our G&A. Our goal is to place little bets and to see how they pan out. And if they don’t pan out we’re not going to continue to support them or push them. And if they pan out, they evolve and they become part of the bigger picture. Gabor Dupree – Private Investor: Thank you.

Mr. Murphy, there are no additional questions at this time. Just continue with any closing remarks.

Okay. I want to thank everybody for joining us today and for the questions that were voiced to Ted. A copy of this phone call will be available on the IZEA Investor Relations website at corp.izea.com/investors along with a transcript later on this evening. We look forward to hosting a call again for the fourth quarter call. And we’ll talk to you then. Thank you.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.