Ryan Schram - Chief Operating Officer LeAnn Hitchcock - Chief Financial Officer Ted Murphy - Chief Executive Officer

Eric Des Lauriers - Craig Hallum Capital Group Jon Hickman - Ladenburg Thalmann Avram Fischer - Long Cast Advisers

Greetings and welcome to the IZEA Inc. First Quarter 2017 Earnings Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Ryan Schram, Chief Operating Officer for IZEA Inc. Thank you Mr. Schram. You please go ahead.

Good afternoon and welcome to IZEA's Q1 2017 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA. And joining me for today's call is IZEA's Chief Financial Officer, LeAnn Hitchcock; and IZEA's Founder, Chairman and CEO, Ted Murphy. We are very pleased to have you with us this afternoon. Earlier today, we issued a press release with additional information regarding IZEA's first quarter performance. As a reminder, all of our Investor Relations information can be found in the corporate section of our website, izea.com. Please note that during the course of today's call, our management team will discuss IZEA's business outlook and may make forward-looking statements regarding the company that are pursuant to the Safe Harbor provision of the federal securities laws. These statements are predictions based on our team's expectations as of today. Actual events or results could differ due to a number of risks and uncertainties, including those mentioned in the most recent filings with the SEC. The company and its management assume no obligations to update any forward-looking statements made during today's call. Our discussion this afternoon will also include certain non-GAAP financial measures such as EBITDA and adjusted EBITDA. A discussion and reconciliation of these measures the most directly comparable GAAP measure is available in the press release issued today and available on our website izea.com. With the appropriate disclosures out of the way, I'll now turn the call over to IZEA's Chief Financial Officer, LeAnn Hitchcock, to walk us through a summary of the company's performance in the first quarter of 2017. LeAnn?

Thank you, Ryan, and good afternoon, everyone. I am pleased to share that IZEA continues to improve its operation and set higher record targets each period. IZEA reported first quarter revenue up 14% to 6.2 million compared to 5.5 million in Q1 2016. This increase is primarily due to organic growth in our Managed Service revenue comprised of sponsored social and content revenue. Managed Services increased 27% to 4.7 million in Q1 2017 compared to 3.7 million in Q1 2016, accounting for 76% of total revenues in the quarter. Content workflow, self-service revenue from traditional news agencies and publishers decreased 14% to 1.5 million in Q1 2017 compared to 1.7 million in Q1 2016, accounting for 23% of total revenues in the quarter. Net bookings increased 5% to 7.8 million in Q1 2017 compared to 7.4 billion in Q1 2016. Revenue backlog at the end of the quarter was 11.8 million compared to 9 million in the same quarter last year, an increase of 31%. This includes unbilled bookings of 8 million and unearned revenue of 3.8 million. Revenue backlog is increasing as a result of a large amount of bookings for longer term contracts that are up to a year in length. Gross profit for the quarter increased 27% to 3 million as compared to 2.4 million in Q1 2016. The increase in gross profit is attributable to the increase in revenue during the quarter along with improved margins on that revenue. Gross margin for the quarter was 48% up from 43% in the prior year quarter. The increase in gross margin is attributable to the increase in revenue from our higher margin managed service business at 61% margins versus reduced revenue from our lower margin content workflows business, which is only a 7% margin. We estimate that average growth margins for the year ending December 31st, 2017 will average approximately 48% to 49%, but this is largely dependent on our sales mix between our managed services and content workflow. Operating expenses in the first quarter of 2017 were 5.7 million compared to 4.9 million in the same period last year. Cash based OpEx in the first quarter of 2017 was 5 million compared to 4.4 million in Q1 2016, an increase of 14 % year-over-year. Cash based operating expenses increased as a result of a $306,000 increase in personnel costs, due to a 7 % increase in the average number of personnel, as well as increased salaries for existing personnel compared to the prior year period. Cash based operating expenses also increased by $361,000, due to public relations and marketing expenses increasing as a result of our IZFS conference held in February 2017. Non-cash operating expenses are increasing as a result of higher amortization cost on intangible assets and acquisition related adjustments. These costs are expected to increase by approximately $400,000 in 2017 as compared to 2016. Net loss for the first quarter of 2017 was 2.7 million compared to a net loss of approximately 2.6 million in the first quarter of 2016. Loss per common share for the first quarter of 2017 was $0.49 compared to the same loss per common share of $0.49 in the prior your quarter. Adjusted EBITDA for the first quarter was negative 2 million compared to the same negative 2 million during the same period last year. As of March 31st, 2017, we had 4.4 million in cash on hand, a positive working capital balance and stockholder's equity of 7.4 million. In addition to our cash on hand at the end of the period, we still have an untapped $5 million credit facility with Bridge Bank in an open shelf registration. I will now pass it over to Ryan to provide a recap of the company's operations during 2017.

Thanks LeAnn. The company kicked off the 2017 fiscal year in a big time way with our signature events IZEAFest. For those of you not familiar with the event, IZEAFest is a two day conference unlike any other; bring together content creators, brands and agencies in a single track main stage experience. This year's speakers included thought leaders from Google, Yahoo Nasdaq, HP, Chipotle and many others are also showcasing leading influencers and celebrities like Daymond John from ABC's popular show Shark Tank. The energy from bring together the various facets of the IZEA ecosystem was indelible, both in the conference hall at the Gaylord Palms as well online. In fact, the hashtag IZEAFest was a trending topic on Twitter both regionally and nationally over the duration of the event. And what makes the investment of time and resources particularly compelling from a business standpoint is the 48 to 72 hours of exclusive face time with many of our largest existing clients and client prospects. This year, amongst the 1,500 registrants, we hosted over 700 IZEA clients from brands and agencies alike. As you might imagine, we find having a captive audience with nothing but the IZEA brand, IZEA culture in front of an audience for two straight days to be incredibly useful sales tool. On day one of the conference, Ted announced IZEAx 2.0 during his keynote address, which included a slew of new features and product enhancements. We've already seen several million dollars of pipeline added to 2017 as a direct result of IZEAFest. And did will quote unquote halo that comes from improve the company's overall thought leadership position and reputation to industry is something we believe will deliver additional benefits for quarters to come. Shifting gears for a minute, let's talk about the change in categorizations we made beginning with this quarter's financials. Previously, we spoke about our revenue in terms of sponsored social and content. We're changing the groupings to discuss our business in terms of managed services and content workflow we didn't hear in the first quarter of 2017. Managed services is the growth vehicle of IZEA. This is why often referred to as client development or sales. Managed services focuses on the sales of sponsored social and custom content services, whereby our customers work with our team to fulfill a campaign utilizing IZEA technology. Our client development team shows both influencer marketing and custom content in an integrated fashion. These offerings now operate at similar gross margins and the majority of our clients are by a combination of these offerings. Separate from that end services is line of business we refer to as content workflow. Content workflow is a legacy business that IZEA inherited by way of our acquisition of Ebyline in 2015. Content workflow allows news companies to hire and pay freelance journalists. When we had purchased Ebyline, it wasn't existing content workflow business that was the compelling opportunity as a function of a low margin and unfortunately rapidly declining sector. Instead, we felt it was taking the asset of editorial grade freelancer creators and making them available to marketers who will pay a much higher premium for custom content. We expect the content workflow business to continue to decline alongside the overall newspaper category that it supports. We now have isolated this legacy business in our financials in order to provide a more clear picture for our investors. In contrast to content workflow, our managed service custom content for brands business is an offering that runs within IZEA's desired gross margin profile and continues to be in strong demand by brand marketers of all sizes. This is a high growth segment that we believe is still in its earliest earnings as a value creation mechanism for our customers and our shareholders. Adding then content capabilities in August of last year that were focused on e-commerce content creation needs, specifically things like metadata, product descriptions and other high volume asset creation that e-commerce businesses require, givers IZEA another opportunity to extend categorically inside of the largest retail organizations. With our several big wins at e-commerce during the Q1 of this year, I expect that will continue to grow that portion of the business throughout the remainder of 2017. Consistent with the pattern we established through 2016, our managed service client development team delivered terrific organic revenue growth up 27 % year-over-year compared to Q1 of 2016. When we do those bookings, our average deal size keeps edging up as well, up 10 % in the same period in 2016. Our team also contributed to IZEA's future bookings ability, generated almost $30 million of new opportunity pipeline during the quarter. Our management team often speaks about IZEA's unique opportunity to disrupt the broader marketing services ecosystem with a more efficient and innovative approach, thanks to our technology back platform and marketplace of high caliber talent versus the steep hourly fees paid to retain the traditional agencies. And here is add notes to that, recently we signed a master agreement with one of North America's largest retail holding companies to provide sponsored social and custom content creation to support multiple segment bonders the company. In doing so, IZEA replaced the previous expensive agency of the relationships that were in place for decades giving our client the ability to utilize IZEA's platform in tandem with specific aspects of our client service and client strategy groups to deliver superior value with less cost, greater flexibility and increased innovation. This story though it's not unique. Indeed all of our largest brand relationships are using IZEA to all traditional agency model in some way shape or form. It's our intent as we continuously improve every aspect of our managed services unit to win more relationships like the one I just shared. It's a global trend that is ripe for disruption and IZEA's solutions that provides an immediate solve for businesses in a wide variety of sectors and needs dates. For some additional perspective on IZEA's first quarter and a look at the road ahead, I'll turn the call over to my colleague and IZEA's Chief Executive, Ted Murphy. Ted?

Thank you, Ryan. Q1 was a nuanced quarter for IZEA. On one hand, we delivered year-over-year revenue growth, a continued increase in average deal size, a new seven figure client, and many new brand direct relationships. On the other hand, we experienced a pull back from newspaper customers in our content workflow business increasing time to close as deals got larger and longer times from booking to revenue recognition. As excited as we are about our progress with major brands, the ongoing shift to these types of relationships has ramifications both positive and negative for the business. As the contracts and deliverables continue to increase in scope, an individual customer can have a meaningful impact on the quarter at our current scale. We saw that impact in Q1 both in bookings and in revenue recognition. The ways of a couple of weeks or even days can materially change what our financials look like for a given reporting period. This can be seen most directly in our revenue backlog which as Ryan mentioned has grown 31 % year-over-year and is up $1.6 million from Q4 2016. Our managed service sales team remains focused on growing these individual client commitments. IZEA has been very successful in our land and expand approach, which is a testament to our sales team, as well as the service we are providing. We expect that large deals will continue to impact our financials this year and may cause swings in bookings or revenue recognition until we reach greater overall scale. As Ryan mentioned earlier, the ongoing decline of workflow poses another challenge for us. Workflow revenue decreased 5 % annually from 2015 to 2016. The 2017 guidance we issued earlier this year assumed another 5 % year-over-year decrease in this revenue. However, in Q1, we experienced an unexpected and notable 21% decrease in Q1 workflow bookings year-over-year. Subsequent discussions with contacts within these news organizations allude to heightened challenges and continued cutbacks from our newspaper customers. Our clients have indicated that future quarters should see an even greater decrease in content spend with freelancers and shrinking overall newsrooms. Based on this feedback, we now believe we could experience up to a 50 % decrease in content workflow revenue in 2017 as newspaper client spending pulls back. If this comes to fruition and we believe it will, the revenue impact could be $2 million to $3 billion this year. In addition to content workflow reductions, we were very recently notified of budget cuts at one of our largest managed service customers. That customer has reduced their annual marketing spend by eight figures. While we have not received formal notice, we believe the impact for us will be approximately $1 million in reductions in 2017. This was book business in 2016 with revenue that would have been fully recognized in fiscal year 2017. While we believe we can make up much of these losses in new bookings this year based on our current pipeline is important for shareholders to understand that our bookings to revenue recognition timeline is also extending as a result of larger deals. For instance, if we sell a new $1 billion deal in quarter 3 which is recognized as a booking, we would likely see the majority of it recognized as revenue in the following fiscal year. As a result of the above information, we are lowering our annual revenue outlook to approximately $29 million to $30 million dollars from $32 million to $33 million. $30billion in revenue for 2017 would equate to approximately 11% overall growth. In a vacuum, that type of growth could easily be viewed as disappointing given the sector we operate in. Content and influencer marketing are among the top areas of marketer interest in a growing area of investment. However, it is important to recognize that the overwhelming majority of our forecasted revenue reduction is in the newspaper side of our business through content workflow. We do not invest resources into the workflow business. It is low margin and it has never been part of our vision moving forward. Where we do invest resources is in the people and technology to service brands and agencies and that part of our business continues to deliver growth. When you exclude the content workflow and service fee lines from our financials, you are left with what we call managed services, which accounted for 76% of our revenue in Q1. More importantly, managed services is where we make our money. Managed services accounted for 95% of the contribution margin of IZEA's business in Q1 2017. We had a very strong quarter in managed services. Managed bookings were up 20% and manage revenue was up 27% with essentially the same amount of salespeople and nearly 10% less people in client services. We had an average of 42 sales people in Q1 2017 versus 40 people in Q1 2016. This team was able to deliver $1 million more in managed revenue year-over-year with average bookings per sales person increasing 8.5% year-over-year. We delivered that revenue with less staff and campaign management and higher gross profit margins because our technology and process continued to improve. While we absorbed some large expenses in Q1, we expect a significant decrease in EBITDA losses in future quarters as compared to Q1. That said our overall annual loss will be impacted as a result of loss in workflow and increase in personnel and professional fees and most importantly, the stretching of revenue recognition over longer periods of time, due to bigger relationships. The additional impact on EBITDA loss in fiscal year 2017 will likely be between $1.25 million and $1.5 million for an estimated annual EBITDA loss of $4 million to $4.5 million. I recognize that this is a significant adjustment from our guidance provided just over one month ago. However, these are new client developments and I believe it is important to convey information with our shareholders as that information becomes available to us. Our team is a 110% focused on minimizing the impact of these changes with an emphasis on creating additional top line opportunities. On our last call, I mentioned that IZEA had received an unsolicited acquisition proposal. We continue to evaluate opportunities as they relate to long term value creation for our shareholders. IZEA's Board of Directors is currently in the process of identifying and engaging a banking partner to provide guidance and further explore our options in greater detail. These options may include a financing, strategic investment and buy or sell side M&A. It is highly premature to suggest that any such engagement or subsequent discussions may lead to a transaction of any nature. I also want to be clear that no assurance can be given by IZEA that any proposal will be pursued or completed. While the past few weeks have delivered news of some setbacks for our team, I remain bullish on our outlook. Our core business is strong and growing. We continue to establish direct relationships at the world's largest companies. Our clients are spending more and our technology keeps getting better. We have some work to do to make up for from unfortunate events but I am confident that we will recover and be even stronger as we look to the future. Thank you for spending time with us this afternoon. I would like to open up the call for Q&A.

Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session. [Operator Instruction] Our first question comes from the line of Mike Malouf with Craig-Hallum Capital Group. Please proceed with your questions.

Hi Guys. This is Eric on from Mike. Thanks for taking my questions.

Hey Eric.

I was wondering - so I think we mentioned that several million dollars has been added to the pipeline after introducing the IZEAx 2.0 platform. Obviously that came with a number of new features. I was wondering what kind of feedback you guys have gotten on the various features and you know if some are looking like greater growth potential than others. And you know just kind of your feedback and thoughts going forward on the various different new features?

Yeah. I think that the feedback overall has been very positive. I would say that the two biggest features that we're excited about are Promoted Posts and ContentAmp and that seems to be where it's really resonating with our clients. On top of that I think that the features that we introduced in the enterprise suite are definitely going to help us gain some efficiency and make it easier for our clients to deal with us and the managed services side.

Okay great. And then I was also wondering if you could talk a bit about IZEA Pay. I know you guys used basically directly the model from Ebyline and you know that's kind of what you have for the content workflow reported segment. Will you guys be included IZEA Pay in that content workflow reported segment. And if so, do you expect that to offset some of the decline caused by just general newspaper media, just kind of wondering you know how, where you guys will be reporting that and how you see that offsetting the decline with newspapers?

Once that becomes something that is more material, we might get at breaking that out separately. But right now that would likely be under the managed services because it would be part of likely of a campaign where there's some expenses that are being reimbursed that may not be tied to it directly to us sponsorship.

Okay. And then will that be booked in a similar way where it's gross you know you guys both revenue growth and then you know you basically have roughly 93% cost of revenue is just very similar to content workflow or because that managed service do you think you guys might be booking that now just kind trying to engage, how we should think about that going forward?

It would be booked gross as well.

All right, that's it for me. Thanks guys.

Thank you.

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

Hi. This question is primary for LeAnn I guess. Could you go over the expenses in Q1 that are recurring also I guess associated with IZEAFest?

Yes, really the IZEAFest added about $400,000 additional expense to our Q1 and not definitely would not be recurring to the next quarters.

And if I can if I got what you were saying, you said that going forward for the rest of the year that you thought that EBITDA loss would total about $1.5 million, no, about $1.5 million dollars additional, so is that a total?

So that means over the next three quarters, the EBITDA loss going to total $1.5 million, right. It was it was $4 million to $4.5 million was in the total for the year.

For the year though.

Correct. For the next three quarters, it's $1.5 million.

$2.5 million.

It would be $2.5 million.

$2.5 million, okay.

$4.5 million minus $2 million.

Okay. So then the workflow business last year that was about a what of $2 million almost $3 million?

No, workflow last year in 2016 was $6.5 million aggressively.

Okay. And you expect it might go down by around 50%, okay.

That's correct. The contribution margin on that was much only about a $0.5 million.

Yeah, okay. So I guess that's it for me. Thanks.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Avi Fischer with Long Cast Advisers. Please proceed with your question.

Hi. Good afternoon. Ted, I asked you this question last quarter, I wondered if you could just speak again, how do you balance the value of your independence and your future growth opportunities in light of what you talk about this unsolicited proposal with your duties and obligations to your employees and shareholders considering the reality of your balance sheet? Thanks.

Thank you. You know that is something that we're continually evaluating. And as I mentioned earlier in the call, you know we were in the process of identifying a banking partner to help us look at the landscape and see what the opportunities are as it relates to that offer and other opportunities that are out there.

Thank you. There are no further questions at this time. I'd like to turn the floor back to management for closing comments.

I'd like to thank everyone for joining us this evening. And if you'd like more information about IZEA or any information regarding your investor materials, those are available for you online at izea.com/investors. Thanks again, I will talk to you next quarter.

This concludes today's teleconference. You may disconnect your line for this time. Thank you for your participation.