Ted Murphy - Founder, Chairman & Chief Executive Office LeAnn Hitchcock - Chief Financial Officer Ryan Schram - Chief Operating Officer

Eric Des Lauriers - Craig-Hallum John Hickman - Ladenburg Thalmann Mike Jeffrey - Private Investor George Casco - Private Investor

Ladies and gentlemen, greetings and welcome to the IZEA Inc., Second Quarter 2018 Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Schram. Thank you, you may begin.

Good afternoon and welcome to IZEA's Q2 2018 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA. And joining me today is IZEA's Chief Financial Officer, LeAnn Hitchcock; and IZEA's Founder, Chairman and Chief Executive Office, Ted Murphy. Thanks for being with us this afternoon. Earlier today, the company issued a press release with details pertaining to our second quarter 2018 performance. If you were to review those details, all of IZEA’s investor information can be found on our Investor Relations website izea.com/investors. 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 be unduly relied upon. Actual events, results or trends could differ martially 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 certain non-GAAP financial measures, specifically gross billings and adjusted EBITDA. A discussion and reconciliation of these measures to the most directly comparable GAAP measure is presented in our most recent Form 10-Q available under SEC filings in the Investor section of izea.com. With the appropriate disclosures out of the way, I am pleased to introduce my colleague and IZEA's Chief Financial Officer, LeAnn Hitchcock, to provide a summary of the company’s performance in the second quarter of 2018. LeAnn?

Thank you Ryan and good afternoon everyone. IZEA reported second quarter 2018 revenue of $4.1 million compared to $5.7 million in the second quarter of 2017. Revenue from managed services accounting for 97% of total revenue in the quarter decreased 28% to $4 million in Q2, 2018 compared to $5.6 million in Q2, 2017. Lower revenue was the result of lower annual commitments from our larger customers, along with less sales and a decrease in smaller customers running short-term campaigns. Content workflow accounting for 2% of total revenue in the quarter decreased 33% to $63,000 in Q2, 2018 compared to $94,000 in Q2, 2017. Bookings for managed services in Q2, 2018 were $2.7 million compared to $5.4 million in Q2 2017. Revenue backlog at the end of the quarter was $9 million. Revenue backlog consists of $4.6 million in unbilled bookings for campaigns which have not yet started, as well as unearned revenue of $4.4 million for campaigns that have been built but are not yet complete. Cost of revenue decreased by $784,000 between the periods, primarily due to lower revenues in Q2, 2018. Cost of revenue as a percentage of revenue improved to 47% in Q2 2018 compared to 48% in Q2, 2107. Our cost of revenue consists primarily of direct costs paid to our third-party creators to provide the content and sponsorship services and our internal personnel costs for those who are primarily responsible for the fulfillment of our obligations under our managed service contract. Although our internal fulfillment costs have decreased 15% from approximately $540,000 in 2017 to $460,000 in 2018 due to a 17% reduction in departmental of personnel year-over-year, our internal fulfillment cost as a percentage of revenue increased to 11% in Q2, 2018 compared to 9% in Q2, 2017. This is primarily due to our fixed internal costs that do not fluctuate with revenue, becoming a larger percentage of revenue when revenue decreases. Total costs and expenses were $5.8 million in Q2, 2018 compared to $7.1 million in Q2, 2017. Total cost and expenses largely decreased to the lower cost of revenue, but also due to reductions in personal cost and a $231,000 reduction in our estimates for the future contingent performance portion due to our acquisition liability related to ZenContent. Although the total amount of costs and expenses are declining, as a percentage of revenue they have increased from 125% in Q2, 2017 to 142% in Q2, 2018. Net loss in the second quarter of 2018 was $1.6 million or negative $0.28 per share as compared to a net loss of $1.4 million or negative $0.25 per share in the prior year quarter. Adjusted EBITDA for the second quarter was a negative $1.5 million compared to a negative $840,000 during the period last year. As of June 30, 2018 we had $1.9 million in cash on hand and stockholders’ equity of $2.3 million. Receivables at the end of the quarter were $2.8 million and we had accessed approximately $845,000 on our $5 million credit facility with Bridge Bank. We've been very busy following the end of our second quarter. On July 2 we completed a public offering providing us with additional cash approximately $3.1 million after financing commission and expenses. On July 26 we closed on our acquisition of TapInfluence with an initial payment of approximately $1.3 million in net cash and 1,150,000 shares of our common stock. We also paid $111,000 in cash and issued 98,765 shares of our common stock on July 30, as payment for the second annual installment payment due on our acquisition liability related to the purchases and content. I would like to thank the entire IZEA team for their support, hard work and amazing accomplishment during my time as CFO of IZEA. I am proud of what we've built here and know that the company will be in great hands with Michael Heald as he steps into the role on August 15 as IZEA’s new CFO, bringing fresh perspective an in-depth expertise from years of auditing and working with a variety of public and private companies. I will now pass the discussion back over to Ryan to provide some additional commentary.

Thanks LeAnn, and on behalf of all of team IZEA, we wish you nothing but the best. As we advised during our first quarter earnings call, Q2 results were expected to be lower than in prior years. However our team has not stood still or become paralyzed by these challenges, instead they have dug deep, reevaluated every facet of our historical efforts and looked in on those things that they could have done better. And while the positive impact of those efforts have not been fully translated to booking or revenue, we have evidence to believe that we are rebounded from this slump in top line performance. Let me explain why. If you're familiar with the broader category, you already know that the influencer here in content marketing space remains white horse. Today there have literally hundreds of companies in North America alone buying for market share, whereas a few years ago that number was less than 50. As a result IZEA’s go-to-market sales strategy and our resulting opportunity lifecycle dynamics has evolved to reflect the fluid landscape. On our last call, Ted mentioned in his remarks that we saw new opportunity pipeline grow year-over-year in Q1, 2018, but at the same time we saw bookings down year-over-year due to a decrease in closed right. Amongst our sale team, the consensus was that there was a disconnect between the positive momentum, it felt like we had built in sales versus the results we were seeing. By developing a different look at our internal tracking data, we believe we now understand that correlation and the trailing effects of efforts in better detail. For example during the first three quarters of 2017, IZEA’s new opportunity pipeline generated by our sales team was down year-over-year, but at the very same time we saw opportunity close rates increase for those very same quarters were also delivering bookings grow. If you looked at those same quarters in isolation, it would appear that we're just seeing significant better by closing deals and growing the business. However in retrospect we now see that the total pipeline denominator was simply getting smaller during that same period of time. Not only was it getting smaller, it was becoming more concentrated with fewer larger clients comprised in the pipeline, which increased ultimately our risk. The deals that are being won were actually because of a sales effort put forward many months prior. We also recognized that some of this for this time were the team being distracted by our own strategic review process, as well as the fundamental changes we made to the organization as the restructural operations on IZEA’s path to profitability throughout the course of 2017. But regardless of the reasons, I believe shareholders want to know what did we learn from this period in the company's history and how can we avoid a similar scenario in the future. First, our sales manager team now has a multi-year data model that strongly suggests that there is an eight to 10 months trailing correlation between overall new opportunity pipeline trends and bookings. This differs from a historical view of the correlation between pipeline and bookings, where we were primarily focused on pipeline and booked within a singular quarter. Put simply, the sales pipeline effort put forth in a given quarter will be reflected over the next three quarters in the form of bookings which ultimately convert to revenue. Here's some points: In 2017 IZEA had three quarters of year-over-year declines in the opportunity pipeline. As a result, we had three quarters of year-over-year booking declines beginning in Q4, 2017. Second, it's important to acknowledge that access to larger brand direct budgets can deliver a meaningful impact to IZEA’s bottom line. But those impacts are investments to also have a prolonged consideration period or can entice a sales team to focus too much effort toward the largest opportunity instead of the broader spectrum of potential budgets. As a result, we have placed renewed emphasis on diverse client activities to build the top of our sales funnel and it is working. For investors who might be new our story, IZEA defines new opportunity pipeline as the total dollar value of proposals presented declines during a specific period. Year-over-year new opportunity pipeline growth began to return at the end of last year and a positive momentum has continued in the first half of 2018. Simultaneously, we made staffing adjustments over the past two quarters to reduce overhead expenditure, while rebalancing our go to market strategy to focus on diversifying our pipeline deal size. All told, it is our team’s belief that IZEA will begin to see a positive effect and increasing quarter-over-quarter bookings beginning in Q3 of this year, with revenue recognition trailing those bookings.

Thank you, Ryan. We are indeed beginning to see a rebound. We've been aggressively filling the top of the funnel for three quarters now and we are starting to see it flow through to purchase. From a sales perspective, July 2018 was the best July in the history of the company with managed services bookings up 153% year-over-year. New opportunity pipeline was up year-over-year continuing the trend we have seen of positive year-over-year pipeline grows every month this year. We believe the acquisition of TapInfluence will add meaningful gross billings and revenue to IZEA in the future. We expect that quarterly gross billings will grow sequentially in Q3 and Q4. Revenues are expected to trail this growth and we will see the effect of low bookings from our managed services in Q4 of 2017 through Q2 of 2018 dragging down revenues in Q3 of 2018 and to a lesser extent in Q4 of 2018. While we believe gross billings will be up for this year, we now expect that revenues will be down for the year because of this trailing effect. We will have increased expenses from the TapInfluence acquisition in Q3, but expect our losses to taper dramatically in Q4. We are expecting to be EBITDA positive beginning in the first half of 2019 as we fully experience the operational efficiencies of removing duplicative resources in both organizations. As we look beyond this year, we envision both the recovery in managed services sales, combined with grown in SaaS and marketplace spend as we continue to innovate on the product front. We have a number of major product improvements that we expect to release in the back half of 2018, some of which have been in development since early 2017. Many of these are first for our industry and we believe that we’ll have a positive impact on increasing SaaS sales and marketplace spend. SaaS is going to play an ever increasing role in the future of our company. We see a large opportunity in this space and believe that both brands and agencies have a need for our software solution. The technology, experience and people we acquired from TapInfluence will serve to accelerate development and enhance the end customer experience. On the technology integration side we plan to migrate TapInfluence customers to the IZEAx platform over the coming 12 to 18 months. The migration of initial customers is scheduled to begin in about six months. As IZEAx 3.0 is released and the feature set in IZEAx eclipses all capabilities of the existing TapInfluence platform. TapInfluence customers will gain access to a variety of new features that have been on their wish list for quite some time. The amount of wasted effort and money between the players in our space is significant. There is duplicated spending among competitors and those resources can be better applied when focused on a single entity who can devote a higher percentage of overall spend towards servicing the end customer and growing the revenue base. Companies are spending sales and marketing dollars to compete aggressively with each other. They are caring the same overhead and administrative costs, and most importantly investing significant engineering resources to build platforms that are trying to solve the exact same customer problems. That doesn't make much sense, and we believe there is significant room to both grow topline and generate a profit at the same time. What our TapInfluence acquisition, we expect to significantly increase our revenue per employee, gross billings per employee and ultimately EBITDA per employee with many additional benefits to our organization and our customers. We continue to have discussions with others in our space who see the opportunity in combining our efforts. This acquisition has also opened up new discussions with the platform players and large agencies in our space, who are interested in partnering with companies who represent a more meaningful scale and strategic opportunities. We believe that scale matters and we’ll continue to explore new ways to gain more operational leverage and diversify our revenue streams. As we look to the reminder of 2018, we have four goals: close on the pipeline we have already established, continue pipeline development momentum and aggressively pursue new opportunities, deploy our new technologies and ensure a smooth acquisition transition. Before we get to questions, I would like to give a special thanks to our outgoing CFO LeAnn Hitchcock. LeAnn you have been a tremendous IZEA team member and you will be dearly missed. We appreciate all the long hours and hard work and thank you for your service and your friendship. Thank you for spending your time with us this afternoon. I would now like to open the call for Q&A.

Thank you. [Operator Instructions]. Our first question comes from the line of Eric Des Lauriers from Craig-Hallum. Your line in now live.

Alright, thank guys for taking my questions and congrats on closing the TapInfluence acquisition.

Thank you.

I wonder if I could a touch on something that that Ryan spoke of. So in light of the increasing number of influence or marketing companies, I think Ryan said it’s in the hundreds now. I'm wondering, how you guys differentiate yourself when you're pitching to potential clients both large and small.

Yeah the number that I said, it was actually for influencer and content marketing organizations that we are monitoring throughout North America. Really what we find a very high level, the key differentiators for IZEA being are, one, the scale that Ted had mentioned, really no one has a marketplace with the depth and breadth that we have and that's increasingly important, especially when a quantifiable quality is so you know foremost in the minds of our brand marketing clients. Secondarily, the duality of our offering being both managed service and SaaS is very unique in the market, while many, many people claim to have some kind of technology. Ultimately we find in most of our competitive due diligence that those offerings are very limited or have very specific drawbacks that differentiate IZEA’s as the premier offering. Third, and I think equally as important, the huge rush towards the space happened perhaps as it became buzzy and there was a lot of early stage interest, but what ultimately happens in early stage investments as most people know is that those get sorted out largely by reality and demand. So while they may have a flash kind of effect and temporarily disrupting the markets, we believe our position having a fairly large sales staff, a very solid decade plus reputation and a competitive offering I had mentioned before stands apart.

Okay, that’s great. It’s good to hear. I was wondering if I could dig in on that second point you made about duality. It seems in the broader ad text space, you know we’re seeing more agencies and brands go away from managed services and to self-service platforms that are otherwise bringing their advertising in house. To what degree are you guys seeing this trend in the influencer marketing space and then as a follow-on, how might the acquisition of TapInfluence affect your business in light of this trend.

Great question. For us, you're absolutely right, we are seeing in the broader Fortune 1000 brand portfolio, the move away from traditional agencies. I think it's important to differentiate that from a managed service offering like IZEA has. You know what we've seen is that up to a third of leading brands are trying to in-house some aspect out there; the creation of content, creation of creative or management of media, and as a result the traditional holding company approach for agencies has been disrupted as a result. Those multiyear retainers, billing hourly has definitely decayed and those businesses are struggling as a result. What we've heard from our customers is that they're actually looking for a hybrid. They are looking for at technology backed provider that can license software to them, so that they can do certain executions of influencer and content marketing on their own, but then if resources are limited or [inaudible] is just simply too complex or they don't have that resource in place, they want to be able to have you know reasonable project management and strategy resources available to them vis-à-vis a managed service offering and that's where our team comes in. So to answer the second part of your question regarding TapInfluence, this really in our opinion is triple accretive. There is the revenue aspect of it, the technology aspect and the talent aspect. We think that there is just a lot of complimentary things that both companies were doing. Frankly that was a waste of a duplicative effort as Ted mentioned in his remarks, but at the same time the ability to cross sell and up sell different brand customers on those different services. You know being able to offer someone perhaps who was a TapInfluenced licensee, the opportunity to bolt-on adhock managed services or promoted post offering is an immediate opportunity that we're very excited about. And then long term, being able to take the engineering resources and the intellectual property that IZEA required via the acquisition and really transforming the landscape for the future of what will be IZEAx and the combined entity is something that you'll hear more about from us in coming quarters.

Okay, good, that’s great to hear. I was wondering if you could dig in just a little bit more as it relates to TapInfluence and the SaaS offering. Can you just give us sort of an overview of how that's different from managed services? Is it really just they have access to the TapInfluence platform and they can you know go on and sort of do their own self service platform or just if you could help us understand how that sort of fits into the managed services versus in house versus agency, sort of dynamic, that will be helpful.

Yeah, this is Ted. The way that Tap operated was pretty different from the way that IZEA operates. So IZEA has had IZEAx as kind of our backbone technology and we had a small group of customers who have been licensing that technology in a SaaS capacity and also spending some money through the marketplace. But the majority of our revenue has historically come from managed services. Tap is the exact inverse of that. All their customers are paying a monthly SaaS fee to them and then they also are getting a market place fee as well. So the brands are actually coming in, they're using the platform themselves, they're managing the campaigns themselves, and Tap is really the mechanism to allow those transactions to happen.

Okay, that makes sense. I appreciate the clarity there. Final question form me, with TapInfluence being you know a SaaS company and basically license revenues and the little bit of managed services that they do seem to be recognized on a net basis. Is it reasonable to expect that Tap’s gross margins will be north of 90%?

We are still in the process of going through and you know auditing everything and we'll be putting out the financial information for Tap in the coming months. But when you look at that, when you look at the revenue, you have really two buckets. One, you have SaaS revenue which is a license fee and you know there are no cost of goods against that outside of you know developing the platform and maintaining the technology. And then you have the market place fee and that percentage is anywhere between 15% and 20% and the way that we account for that or will account for that is on a net basis. So the market place spend will show up in our gross billings and then the net revenue from that will show up on the revenue line.

Okay. And the number that was decided for TapInfluences trailing revenue did that have a marketplace fees on a net basis or was that gross?

That was on a net basis. So, you saw two numbers there. You saw the number that was the total billings in 2017 and then you saw a revenue number which was the net.

Got it, I appreciate it. I’ll hop back in the queue. Thanks again.

Thank you. Our next question comes from the line of John Hickman from Ladenburg Thalmann. Your line is now live.

Hi Ted, just one question on the – the number you quoted for the best July ever, you said bookings were up year-over-year 153%. Is that…?

I believe that’s the number, yep.

Okay, my question is does that include anything from Tap?

No, that is strictly managed services. That does not include anything from the Tap acquisition.

Okay. And then in the past you've given us some indication of bookings. You said that you expect year-over-year revenues to be down this year. Any clarity on bookings for the year?

We stopped reporting overall bookings in in Q1. We are going to still continue to share managed service bookings through the end of this year and we shared them for this quarter. We will continue to share those, but we're not giving any sort of guidance on bookings right now.

Okay, thank you

And part of that too is just making sure that, we want to make sure that everything is accounted properly for on the Tap side.

Okay, thank you.

Thank you. [Operator Instructions] Our next question comes in line of Mike Jeffrey a Private Investor. Please go ahead.

My questions are for Mr. Murphy. Mr. Murphy, first of all I would like to thank you for the accusation of TapInfluence back in July, and in addition to that, you know I notice that you have purchased 100,000 shares off your stock as well as the other insider bought over 500,000, which I think you have done a good job by doing that because that would give the investors’ confidence that insiders are buying. Do you have any plans for you or the insiders to purchase more off your shares in the near future?

You know I can't speak for, you know for all of our insiders, I will say that for me personally I purchased stock every year and haven't sold any stock since inception. So you know I believe that there will likely be purchases in the future, but I can't say as to when or how much.

Okay, and is it possible that you know you could encourage your employees to purchase…

Are you there? I'm sorry, did we drop the line?

Gentlemen, the caller is no longer in queue.

Okay. Alright, so I guess we'll move on to the next call.

Our next question comes on line of a George Casco a Private Investor. Please go ahead.

Hi guys, thank you for taking my call. A - Ted Murphy: Hi George.

Forgive me if I missed it, did you guys give guidance for overall revenue including tax influence? If so, what is that please?

No we haven't given any sort of guidance for revenue or overall revenue. You know we need to get on the other side of the analysis of TapInfluence and also get I think a little bit more comfortable in this rebound before we're going to give additional updates on revenue moving forward.

Well, okay if I understood the call properly, if I heard properly, it seems like things are being turned around. July was the biggest July ever, so how do you guys think about four trajectories. I mean yeah, help me with that please.

Yeah, you know I think that we're starting to see some momentum. It feels like that we have reversed the trajectory and that bookings are heading in the right direction. You know we've had a number of notable wins here in the first six weeks of this quarter and some of those are you know meaningful in size and also the type of a customer; you know large organizations that are net new to the company and we're pretty excited about that. So we feel like that the momentum is building on the managed services side. The core business you know pre Tap, but we are also very, very excited about the synergies that have come because of Tap and specifically the opportunities on the SaaS side of the business. You know moving forward you're going to hear us talking a lot more about SaaS, you're going to hear us talking a lot more about marketplace, because those are the things that we believe give us operational leverage that helps to diversify our revenue, gives us more of a recurring revenue stream and so we're investing a lot of time and resources and building that part of the business. To the question that we got earlier about what's happening with brands and agencies, we are seeing that more, more brands are taking these things in-house, that they've developed their own influence and marketing team. We've also seen that the agencies frankly are getting much more sophisticated and understand that they need software in order to run these things at scale. So we think that that this space is kind of coming into the age of automation, it's coming into an age of a bigger spends and the need for more sophisticated software. And what we believe we’ve built is an enterprise class system to serve those customers and we believe that through software we are going to be able to get much stronger relationships with our clients and much more predictability in our own revenue and bookings.

Okay. I mean if I look at how the market values IZEA today, the valuation is about $12 million. I'm thinking that’s 50% or less of what I would expect forward revenues to be for the year. I mean just as a – is that a crazy thought?

You know again, I can't give any sort of guidance on revenue, but I do agree with you that there seems to be a pretty steep discount to the revenue, especially as we look at you know SaaS and marketplace revenue moving forward in the pipes and multiples that are afforded to other public companies and in this space. Even for an agency model, you know when you look at the agency holding companies, you are typically talking about 1x to 2x revenue multiples on those types of organizations and we're trading at a fraction of that right now.

One last question, it wasn't that long ago that I think the company mentioned that they were approached with an offer to be acquired. Is that offer still on the table?

We spoke about that earlier in the year, I think in January and that was in Q1of 2017 that we talked about that, so that has not been the focus. We have more than been focusing on you know growing the business and looking at opportunities to consolidate the other types of companies in the space.

Okay, thanks for taking my call.

Thank you, George.

Thank you. Ladies and gentlemen we have no further questions in queue at this time. I'd like to turn the floor back over to management for closing.

I would like to thank everybody for joining us and as always, we invite you to review all of our Investor Relations information on our website at izea.com/investors. Thanks and have a great rest of your evening.

Thank you ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day!