LeAnn Hitchcock - CFO Ted Murphy - Founder, Chairman & CEO

Matt Tiampo - Craig-Hallum Jon Hickman - Ladenburg Thalmann Bob Evans - Pennington Capital George Kafkarkou - Private Investor

Welcome to the IZEA's First Quarter 2015 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to your host today LeAnn Hitchcock, CFO. Thank you. You may begin.

Good afternoon, everyone and welcome to today's IZEA Q1 2015 investor update. I'm LeAnn Hitchcock, Chief Financial Officer at IZEA. And joining me on the call is IZEA Founder, Chairman and CEO, Ted Murphy. On behalf of our entire team at IZEA, we are glad to have you with us today as we share our updates and perspective regarding our business. During the course of today's call, our team will discuss our business outlook and probably make some forward-looking statements regarding the Company. These statements are predictions based on our management team's expectations as of today. Actual results or events could differ due to the number of risks and uncertainties including those mentioned in our most recent filings with the SEC, the company assumes no obligations to update any forward-looking statements made during this call. Now with the appropriate disclosures out of the way, we can focus on IZEA's financial performance in the first quarter of 2015. I'm pleased to share that IZEA had another record breaking quarter on multiple fronts. IZEA had its best quarterly revenue in the history of the Company. First Quarter 2015 revenue increased 111% to 4.14 million compared to 1.96 million in Q1 2014. This increase was primarily attributable to the creation of our content only revenue stream after January 2015 through the acquisition of Ebyline and increases in our existing sponsored social revenue. Content represented 1.4 million in revenue accounting for 33% of total revenues for the quarter, sponsored social represented 2.7 million revenue accounting for 65% of total revenues for the quarter. Sponsored social revenue increased approximately 874,000 representing a 48% year-over-year increase. We continued to see larger sponsored social campaigns and increased repeat business. Gross profit for the quarter was 1.7 million, up from 1.3 million during the same quarter last year, an increase of 29.6%. The gross profit increase is attributable to the increase in sales during the quarter. Gross profit margin for the quarter was 41% down from 67% during the same period in 2014. This is largely due to substantially lower profit margins from Ebyline related operations as well as increased participation by IZEAx partners. Gross profit margin for the quarter for sponsored social was 56% while gross profit for content was 10%. Ebyline's profit margin on content sales in Q1 2014 was 7% therefore we’re encouraged by the gains made during the first two months on integration and believe that overtime there is room for significant improvement. Although the gross profit margin of 41% for the first quarter was higher than the annual target previously indicated by management we believe that 30% to 35% is still the proper gross profit range for the year given our anticipation of increases in lower margin content revenue and increased participation by IZEAx partners that result in lower sponsored social margins. We expect that margins on content revenue will improve overtime due to growth in our managed services over the content business. Operating expenses for the first were 3.4 million compared to 2 million in the same period in 2014. We are actively making investments and additional sales and engineering staff in addition to increasing advertising, marketing and public relations efforts in order to improve consumer and investor awareness. We expect the growth and expenses will outpace the growth in our gross profit near term as we expand our personnel to support our managed content business and as we increase our engineering expenses to improve and support our web based platforms and IZEAx partners. These investments are being made in order to provide the infrastructure to create continued revenue growth at higher margins in the coming years. Operating EBITDA for the quarter was a loss of 1.4 million compared to a loss of 504,000 during the same period of last year. This is primarily due to the increased overhead with the acquisition of Ebyline and our investment in sales and engineering personnel. Net loss for the fourth quarter was 4.3 million compared to a net loss of 600,000 in 2014. Basic and diluted loss per common share for Q1 2015 was $0.07 compared to basic and diluted loss per common share of $0.02 for Q1 2014. This is primarily due to a $2.5 million change in the fair value of the company's derivatives and investment in additional personnel to support the sales efforts. At March 31, 2015 our cash and cash equivalents balance was 3.9 million and we had a positive working capital balance. In April 2015 we expanded our credit facility with Bridge Bank to $5 million. This credit facility is currently untapped. We believe there could be expanded credit line in our current cash position we have sufficient cash reserves available to cover expenses for the future year. .:

Thanks, LeAnn. The first quarter of 2015 was transformational for IZEA. We completed the acquisition of Ebyline, we started selling content as a standalone offering, we began our integration with Vine and we had the best quarterly bookings and revenue in our history. All of this coming off the moment we created throughout 2014. There is a tremendous amount of excitement right now as we realize the benefits of the strategic investments in team members and technology we have made over the past 12 months. Normally our COO Ryan Schram would discuss our client development efforts, but he is on a well-earned vacation with his family after an intense and prosperous Q1. Ryan, if you’re listening right now please hang up the phone and go get a margarita. From pipeline to bookings to revenue, Q1 marked several new milestones for the company. New opportunity pipeline or the total value of proposals placed in front of clients was $19.4 million in Q1, a new all-time record. That was a 77% increase in activity from the same period in 2014 and a demonstration of what added client development resources can help accomplish in a company like ours. We hit another all-time record on the bookings front with $4.3 million in net bookings in Q1, a 155% increase over the same quarter last year. And speaking of records March was the first time we exceeded $2 million of bookings in a single month. Fueling the growth during the first quarter were many of our loyal repeat client brands including Kelloggs, Groupon, Hershey, Atlantic Luggage, Wal-Mart, Dollar General, Bed Bath & Beyond, Cornell, Hollywood Reporter, Marriott, Dish [ph], Sargento, Time, and JPMorgan. These clients and others made up approximately 43% of our Q1 net bookings, and represented an increase of 38% year-over-year of repeat client business. We had a strong surge in news sponsored social business in Q1 as a result of our expanded sales efforts. With more team members reaching out to more brands and agency partners. New business bookings grew 157% year-over-year. We welcome many new brands to the IZEA eco-system during the quarter including Toyota, Jamba Juice, MassMutual, Blue Nile, Brooks Brothers, 3M, and Colgate. We’re beginning to see the early benefits of cross selling social sponsorships in content. Several long term IZEA clients are now taking advantage of our content creation capabilities with professional journalists. In some cases we’re seeing content budgets at or above the budgets for sponsored social from the same client. I'm bullish on the opportunity that Ebyline acquisition has afforded us specifically as it relates B2B clients and ongoing relationships with publishers, broadcasters and other firms that are part of the publishing and content eco-system. At the conclusion of the first quarter the quota carrying members of IZEA client development staff totaled 32 people in six locations. With the vast majority based out of our Winter Park Headquarters in addition to our field offices in New York City, Los Angeles, Chicago and Detroit. Beyond our client services organization, team IZEA grew to over 100 employees by the end of Q1 up from 60 team members just one year ago. We will continue to hire in sales and look to add an additional 20 net new quota carrying people by the end of this year with approximately 50% of those dedicated to content. I'm very pleased by the progress we’re making on the sales front. I continue to be confident in our ability to grow IZEA bookings to $25 million for the 2015 fiscal year. This will result in approximately 175% revenue growth and $23 million in revenue. Now let's turn our attention to the network, it remains our steadfast belief that the marketplace with the highest quality creators and brands coupled with liquidity and ease of use will be the platform that ultimately earns the lion share of this market. As of March 31, 2015 we had 446,000 registered users in IZEAx up from 243,000 in Q4, a quarterly increase of 83%. To put that into context at the end of March last year we had 50,000 registered users. We have increased our user base almost eight fold in the past year. The IZEAx aggregate network reach grew from 2.3 billion to 2.7 billion during the last quarter, an increase of 17%. At the end of Q1 2014, our reach was 392 million less than 1/6th the size it is now. This number does not include the creator base from our Ebyline acquisition at the end of January 2015 which adds another 12,000 creators with professional journalism backgrounds. Ebyline creators will be migrated to the IZEAx platform over the coming year. We continue to strategically add IZEAx partners to the ecosystem. In Q1 we announced Meredith Studios, Frederator and Bent Pixels. At the end of the quarter we had signed 30 IZEAx partners including major media companies, MCMs and talent agencies. We saw increased participation from these partners in Q1. The overall buy side [ph] participation remains small relative to the sales generated by our own sales team. We had several new partnerships that we will be announcing over the course of Q2, we believe that these partnerships will have a more meaningful impact on licensing fees, content and sponsorship revenue in future quarters. Operationally we have made some significant changes this year. We have added additional team members in management positions, built out our data and analytics team and added John Caron, Former President of Olive Garden to our Board of Directors. The company is continuing to evolve our processes and governance with an eye towards the future and our goal of ultimately uplisting to a major exchange. Through it all we remain hungry and humble and operate with the same passion, spirit and entrepreneurial drive as a fledgling startup. IZEA is a home for dreamers, doers and thinkers and I'm very proud of the team that we have built. As a company we remain focused on top line revenue growth while being aware and respect of the bottom-line implications. Our OpEx will significantly increase this year as we absorb Ebyline expenses and build up the sales and technology team to better service our growing customer base. There is a huge opportunity in this space and we intend to capitalize on our people, our network, our technology and our experience. I can honestly say that I have never been more excited about this company than I'm today. We have no doubt we have been through some tough times in the past but all the struggle, effort and perseverance of our team has positioned us to dominate the market that we created some nine years ago. In October of this year we will be unveiling multiple new IZEAx technology initiatives at IZEA Fest. These initiatives will focus on data, analytics, targeting and a creator experience. IZEA Fest will held up all Walt Disney World in Orlando and includes speakers from our clients at HP, Scott's, Discover Card, Kellogg's and Lenovo as well as some of the world's biggest creators. IZEA Fest is our equivalent of sales forces dream force or Facebook's F8. It is the event where we will bring together our entire ecosystem, to network, learn and share while giving us an opportunity to showcase our latest innovations. It is a great chance to understand our roadmap for 2016 and beyond and I sincerely hope you can join us. If you would like to register please go IZEAFest.com. Thank you for spending your time with us this afternoon. I would now like to open the call for Q&A.

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

I wanted to touch quickly on Ebyline, now that you’ve had that business under your belt for about a quarter at this point, can you talk to us a little bit about what you’re seeing in terms of growth on that sort of business -- about 8 million last year and if I recall correctly Q1 is sort of a seasonal low for them but maybe just give us some color what we should expect in terms of growth in the content business this year?

Yes we have seen some continued growth from Ebyline. I would say that one of the things that is very encouraging on the sales front is that there seems to be a tremendous amount of interest from our existing client. And I alluded to this a little bit in the previous part of the call but some of those budgets are actually much larger than what our clients are actually even looking at spend on sponsored social. So we see that as a growing part of the business. We’re investing in additional sales people on that side that specifically go after B2B clients and open up that vertical but it is going to be a meaningful part of the business moving forward. One of the first steps on the platform side is still bring those creators into IZEAx and make them available to our self-service partners and that’s something that you’re going to see here over the coming next couple of months.

And then my second question concerns your white label partners and some of them have been on-board now for about a year I guess -- what re you guys seeing in terms of growth and revenue from that opportunity and what should we expect as we move into '15 and even out in the '16 in terms of white label contribution?

I think that one of the really encouraging things on that side that we’re definitely seeing more -- we’re seeing more and more participation on the sells-side of that equation and we’re starting to see some more meaningful contribution on the buy side as well. I think that this is still one of the areas that we’re struggling with on the buy side to be honest is, it is a slow process there is a lot of education and frankly some of our partners just aren't set up internally to support this type of initiatives. Some of them more recent partners that we have announced are actually going to be more meaningful in their contribution even though they are far lesser known names and even things like the reconnect partnership that we announced earlier this week I think had a real opportunity to be meaningful on the buy side sooner than even some of the buyer media companies and talent agency that we have signed this in the past.

[Operator Instructions]. Thank you. Our next question comes from the line of Jon Hickman with Ladenburg Thalmann. Please proceed.

I’ve a couple of questions, on the white label partners, I was of the impression that revenues that are generated there you get just a piece of each transaction and the white label partner keeps the rest because they are managing the networks? And I thought there was like pretty much -- I thought that that was very, very high margin business although it would not be a lot of revenue, it would be high margin and I think from LeAnn's comments I'm not understanding that correctly. Could you enlighten?

Yes. There is actually three pieces, three parties to every transact and that goes to the exchange. So there is whoever provides the advertiser and we call that buy side, there is whoever provides the creator and we call that sell-side and then there is the exchange where it takes a small piece off of each of those transactions. So in cases where clients are using our platform that simply manage campaign with their own advertisers and their own creators, we’re only going to take a small cut of that transaction for advertisers that we bring to the table and we’re using inventory provided by a third party, let's say that a talent agency brought in a bunch of celebrities. We’re going to get advertiser cut at that transaction as well as the exchange [ph] kind of that transaction and then the partner will get the creator cut of that transaction. So it really depends on who's on which side of that transaction. But if we have a partner involved in that transaction they are going to take a piece of that individual sponsorship for creation content.

So is that the same relationship that exist with the relationship that you just announced down in Australia?

Those guys are buy side and sell side, and in addition to that say are paying a monthly licensing fee and then after year one if they qualify for continued exclusivity in Australia they were paying additional fee just for exclusivity.

So at the end of last year how many quota carrying sales people did you have?

I believe the number was 30 at the end of last year.

So now it's 32 right? At the end of March?

Correct.

So can you elaborate a little bit on the meaningful jump in the sales and marketing line? I mean it was 300,000 in December and now it's a 1.5 million.

Yes actually in prior years the personnel expenses for sales and marketing, people were included in the general administrative line. In the current year we’re reclassifying all of those personnel expenses into the sales and marketing line, so that it's more transparent and easy to follow and so as we start producing the results for 2015 you will be able to see the comparative back to 2014 and in the first quarter of this year the sales expenses were about 1.6 million in 2015 compared to about 900,000 in the first quarter of 2014. The 700,000 jump in this first quarter is mainly the result of the additional increase in personnel that we added after -- it was really after Q2, of 2014 when we started to add the additional sales personnel. So we increased our sales staff over 70% from the Q1 of last year.

Okay. So going forward your operating expenses were about 83% of sales in this quarter, if we were to kind of what kind of expectations can you give us for the remainder of the year?

Yes. That is about where we’re -- we’re continually each quarter decreasing and working on decreasing those expenses as comparative to sales because the sales are increasing. They will hold flat to some extent just as we’re adding additional sales people to support the increase in the content revenue, but then further than that we expect them to continue decreasing.

Thank you. Our next question comes from the line of Bob Evans with Pennington Capital. Please proceed.

Can you comment -- I think you’ve talked about 23 million of revenue for this year, can you give us a kind of a sense of how that might fit between Ebyline and your traditional business?

Yes, I don’t want to provide too much detail on here because what we’re seeing on our sales front is that we’re already experiencing some cross over. So it's not necessarily Ebyline versus sponsored social I would really look at it as more content versus sponsored social. I think that overall you’re going to see I would think that they are going to wind up, about equal by the end of the year.

Content versus sponsored social.

Correct. But you’ve to realize that our sales team is selling content as well as sponsored social so that people that were selling sponsored social last year are now selling content plus sponsored social and that we’re hiring additional sales people to sell just content.

But Ebyline has if I'm not mistaken relatively aggressive targets to earn their earn out so they are looking to grow rather rapidly.

They do. They are looking to grow rather rapidly but again those earn-outs are tied to all content sales so they are going to benefit from the cost selling that we do on our side as well.

Right, I guess it's fair to say if they reach their earn out this year your number is going to be more than 22 million?

I would say that’s fair to say, yes.

And beyond this year since you’re investing in new sales people, give us a sense of -- I know you don’t know for sure but a sense of trajectory of growth that you would say given where we’re at and what I see in more the greater investment in sales, here is what potential growth rate might be for 2016.

2016 is a bit far out right now. I think we would like to get another [indiscernible] under our belt to just see how this integration continues to work and what that might mean, because we have seen a lot of positive moment and success and I would like to get a handle on some of these larger opportunities that we had in front of us and how those materialize or issues we may run into.

Thank you. Our next question comes from the line of George Kafkarkou, a Private Investor. Please proceed.

I just have four very simple questions, the first one, you mentioned 446,000 registered users. Was that as of March 1st or April 1st? I wrote down March 1st, did I write that right?

That was as of end of March 31.

And you mentioned there was a question about white label partners and it takes time to ramp, and I understand that but yet you mentioned Ted, in your remarks that in Q2 and we’re half through Q2 already pretty much that there are going to be more partners that will result in more meaningful revenue. Could you talk to that a little bit -- does that mean we’re choosing different types of partners now or what have we learned or why will these new partners that you will announce be more beneficial and contribute quicker than other existing?

We have really switched our approach on what type of partner we’re going after. When we first started down this path the thought was go and get the biggest media companies as you can get and the biggest names you can get and what we have found is while those are great to have there are also probably the most difficult to navigate and to get upto speed and to really get behind the effort because they are just so embedded in their existing operations, the compensation models, there is a tremendous amount of internal politics. So with our new partners that we’re announcing we’re charging licensing fees so they are paying customers. They are structured in a way that I think is more beneficial to the way that we sell and aligns with what we’re doing and they have experience in what we’re doing and so I just believe that these partner should get out to speed faster and even outside of that because we’re collecting licensing fees. We will have some income coming in from them one way or the other.

So my take away is that we have now learnt sufficient to say that profile of a partner we are targeting is slightly different that will give us results quicker, so I'm very good with that. Interesting the news with we connect, that’s like a geographic deal, you’ve outsourced Australia pretty much on an exclusive basis on the buy and sell side and you get licensing fees. And that exclusivity continues, should they hit certain milestone into the next year? Is that a policy that you’re adoption for all international markets like Germany, France, UK etcetera?

This is our first deal that we’ve done like this but it is the model that we would like to adopt or some variation of it. You know it's very hard to gain traction specifically on the advertiser side in those different countries unless you already have the relationships with the brands and the agencies. So, we do like to be able to partner with other entities that can immediately bring us deal flow in those geographies. It doesn’t prohibit us from continuing to build our own network in those geographies and sourcing our own creators but it gives us a way to get parked [ph] in directly into those ad communities which are not need me to break into as an outsider.

Should we be expecting announcements with partners in Europe?

I think it's a little bit early for that. We just got this one done. We’re having ongoing discussion with a variety of partners with that geographies but we want to learn from this first relationship here and see what that’s going to be like.

Okay, my final question. According to my modeling that I’ve been working very hard over the last 2-3 months, it does appear to me that you have overachieved $23 million of revenue in 2015 but if we just use $23 million as a benchmark we have achieved 18% in Q1, how do you see the split across the quarters. Is it 21%, 26%, 34%. I mean how do you see the distribution presumably each quarter grows, can you share some color on your modeling please, on that?

I think moving forward to the next three quarters, I think that the growth is going to be sequential. The summer is typically a slower time for us but given the additional highs that we have made in sales and the additional Ebyline revenue and some of the other relationships that we have in the pipeline I think that you’re going to see it grow from Q2 to Q3 to Q4. So you can do the distribution from there.

Thank you. We have no further questions in queue. I would like to hand the floor back over to management for any closing remarks.

Thank you for joining us today. I'm going to be on the road over the next coming weeks and visiting cities up and down the East and West Coast, if you like an opportunity to meet with me please email me directly at ted@izea.com or reach out for IR firm Genesis [Technical Difficulty]. Thank you and have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.