IZEA Worldwide, Inc. (IZEA) Earnings Call Transcript & Summary

Greetings, and welcome to IZEA's Shake Investor Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Ryan Schram, Chief Operating Officer. Thank you, sir. You may begin.

Good afternoon, and welcome to IZEA's Shake Investor call. I'm Ryan Schram, Chief Operating Officer at IZEA. And joining me today is IZEA's Chairman and Chief Executive Officer, Ted Murphy. Thanks for being with us this afternoon. During the course of today's call, our 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 materially from our forecast due to a number of factors, including those mentioned in our most recently filed periodic reports with the SEC. The company and our management team assume no obligations to update any forward-looking statements made in today's call. To read our full safe harbor statement, please visit izea.com/safe-harbor-statements. Now with the appropriate disclosures out of the way, let's get shaken. I'm pleased to introduce my colleague and IZEA's founder, Ted Murphy.

Thank you, Ryan. I would like to begin the call by thanking everyone for joining us. The surge in support we have seen for IZEA in recent months has been incredible. Today, I'm here to discuss Shake. But before I do, I must address my fellow team members listening to this afternoon's call. When we began to see the impacts of COVID-19 in March, it was unclear what the future would look like for this company or for the world at large. Here, just 3 months later in June, I can say that our future has never been brighter, and that the COVID-19 crisis actually made us stronger. I owe that to our team of dedicated employees that have stuck with this company despite the challenges and uncertainty surrounding the pandemic. When faced with adversity, this group of people banded together. Everyone took pay cuts, so we could avoid mass layoffs and retain as many team members as possible to recover and keep our revenue engine intact. Despite getting paid less, people somehow gave even more. Everyone pushed and contributed in their own way to help us recover as quickly as possible and keep us moving forward. I'm internally grateful to my fellow IZEAns and their families for the sacrifices you have made and the commitment you have to the company we share. Thank you. Now let's turn our attention to the future. Because I have to tell you, it's an exciting one. I'll be honest, I haven't slept much over the past few months. I can see what is happening at IZEA behind the scenes, and it is exhilarating. Last week, we announced the launch of Shake. On this call, I'm going to address questions that have come to me privately via e-mail as well as publicly on Twitter. We will also open the call to take a few questions at the end.

Let's start with the #1 question. What is Shake? Shake is a marketplace where creators can sell digital services online. That includes our core base of influencers and content creators, such as writers and photographers, but also spans people like illustrators, designers, video editors, even marketing strategists. Think about the creative people that are typically employed at an advertising agency or a media company or perhaps represented by a talent agency. These people will all have a new way to sell freelance services on Shake. Shake is not just a marketplace, it is the marketplace for digital natives to transact in new ways. How is Shake different from IZEAx? First, in many aspects, Shake is the exact opposite of IZEAx, and that's on purpose. We built Shake to be everything that IZEAx is not. We did this to open ourselves up to a completely new customer base and multiple new sources of revenue, while using the technology, foundation and creator base IZEA has built over years and years of investment to supercharge its success. Here are a few key differences between IZEAx and Shake. IZEAx is a private marketplace designed for large enterprises. Right now, if you are a marketer and want access to transact in IZEAx, you must license our software, which is thousands of dollars a month and requires a minimum 12-month commitment. The brands that are licensing our platform tend to be large, including Fortune 500 companies ranging from leading quick service brands to global electronics manufacturers. They use our private marketplace to carefully plan, curate and execute campaigns that can include hundreds of influencers to reset specially designed workflows. This model and campaign-focused tool set is great for these large organizations, but is both cost prohibitive and more powerful than what is needed by many other brands and agencies. If you aren't spending hundreds of thousands of dollars in influencer marketing, paying for enterprise license fees to utilize IZEAx is likely not the best fit for your organization. Because of our enterprise focus to date, we were unintentionally limiting the amount of opportunities we could deliver to our creators and the amount of transactions that we could financially participate in. Our mission as a company is to champion the world's creators by connecting them with opportunities to monetize their content, creativity and influence. We are happy that we have been able to connect brands and creators to dramatically increase the payments made to creators over the years. But we can do more, much, much more. While IZEAx is a private marketplace, with buyers who are large enterprises, in contrast, Shake is a public marketplace aimed at any buyer of any size. Access to creators in Shake is 100% public. There is no log in or subscription needed to see creators that are interested in working with buyers. Notice, I didn't say marketers. Shake will be open to anyone who wants to buy quality creative services and will offer both personal and commercial license options for content. Want to buy custom photos for your website? Shake. Want to sponsor a TikTok video to promote the product launch? Shake. Want a celebrity intro for your company's virtual marketing conference? Shake. Our creators have always done work for brands, but they will now have the ability to sell directly to individual consumers as well. So want a celebrity shout-out for your kid's 10th birthday? Shake. Want to video conference with your favorite Twitch broadcaster? Shake. We are going to dramatically increase the buying universe for our creators in order to fulfill our mission and generate more monetization opportunities. IZEAx Unity Suite is an enterprise software sale. It requires salespeople, demos and contracting. The contracts are significant but are tied to longer sales cycles. Sales in Shake will be driven entirely by our new marketing efforts, including influencers incentivized to drive traffic to their own profiles for their own direct monetization. We also think that there's going to be a halo effect around Shake driving opportunities for IZEAx Unity Suite as well as our Managed Services offerings. The next difference between IZEAx and Shake that I want to talk about is workflow. IZEAx is enterprise software. It has been designed from the ground up to accommodate large, complex campaigns with many creators producing and publishing assets on a variety of platforms. Much like HubSpot or Salesforce, the software experience and capabilities are quite deep. Because it is so feature-rich, it requires some training and is likely overkill for someone who is looking to hire a couple of influencers here and there. Shake strips all of that away. It is elegantly simple and streamlined for the average consumer. Workflow is accommodated through an intelligent chat experience powered by Shake bot. Shake bot does everything from processing your credit card to gathering requirements for a project. It is designed to facilitate one-to-one transactions and requires no training or specialized experience. These are some of the differences between IZEAx and Shake, but these 2 platforms also share many similarities, starting with the underlying technology. Shake is built upon the same core software services as IZEAx, including things like user authentication, finances, metrics and messaging. That allows us to build Shake at a small fraction of the cost of starting from scratch. We are really proud of what we've been able to accomplish with this small group of brilliant minds. I encourage you to take a look at Fiverr or Upwork's R&D costs and compare them to IZEA's. Now realize that we have built and continue to iterate on IZEAx Unity Suite. We've launched BrandGraph and now Shake. The foundational technology and data assets at IZEA are deep and remain largely untapped. As we look to the future, we are going to fund R&D more aggressively to surface more monetization opportunities faster. When you build on top of shared technology, you begin to get compounding benefits as shared enterprise systems that IZEAx utilizes are improved and updated, Shake benefits as well. From an end-user perspective, it helps create more seamless ecosystem. In both platforms, creator profiles and social data come from a single source. Financial balances and accounts are also universal, so money earned in either IZEAx or Shake go towards the shared IZEA account. Here's why this is important. In any marketplace, you need buyers and sellers. The day we open this to both sides, we will have both supply and demand. Large marketers with funds in IZEAx can choose to spend those same funds in Shake for executions that make more sense on that platform. We fully expect that marketers will make use of both platforms as they both have a place depending on what you're trying to accomplish with your workflow. Not only can large marketers buy, but creators with earned balances can spend their money to hire other creators. So if I'm a YouTuber and need a new logo, I can hire a fellow creator on Shake with the money in my IZEA account. We are building a true financial ecosystem, not just between our 2 platforms, but between buyers and sellers of creative services, both big and small. I'm now going to answer a few questions from Twitter. This is from @jose9. You talked about price differences between Shake and Fiverr and other similar companies. Can you tell us some more key differences between Shake and these other available platforms? Thank you for your question. We have certainly heard discussion of in comparison against Fiverr, Etsy and Upwork, along with other marketplaces. First, let me say that these are incredible companies to be compared to. All of them have huge market caps and revenue multiples that far exceed IZEA's. I'm happy to be added to any side-by-side comparison. And one of our goals is to share their same types of multiples and market capitalization as we grow. We think we have the vehicles to get there. While many of these marketplaces share similar features, we believe we have some distinct advantages that will set Shake apart. Number one is price point. As reported by their most recent quarterly filing with the SEC, the average buyer in Fiverr spends $177. The average cost of a single post in IZEAx in 2020 is more than 9x that, at $1,647. Our enterprise buyers are accustomed to spending tens of thousands to hundreds of thousands of dollars per campaign. While we expect the average clearing price in Shake to be lower than that of IZEAx, we also expect it will be well north of the $177 that Fiverr worked up to just now. That means more opportunity to make meaningful income for our creators. Number two is services offered. Etsy sells physical good. We will not be selling any physical goods of any type. Upwork offers services such as virtual assistance and data entry, with much of this being purchased on an hourly rate. In their marketplace, it is also the buyer who creates the listing, not the seller. Everything on Shake is fixed fee, project-based work, with the seller creating the listing and determining their own price. On Fiverr, you can find listings to purchase obsession love spells and fortune-telling for $5. On this point, we have several differentiators. We will not be offering fortune-telling, spell castings or other similar services through Shake. We are focused on high-quality, digital creative services. Not only will we limit the categories to exclude these types of offerings, we will curate the listings we permit in any given category. Much like Tesla and Apple, we will focus on upmarket customers. We want to offer a premium experience that may be slightly more expensive, but is well worth the money. That is what has allowed us to attract so many Fortune 500 customers on the enterprise side of our business. We will apply the same principle to software, support and pricing here. We will not cater to all buyers and sellers. We will cater to the best buyers and sellers. IZEA has long been focused on helping people in creator economy to earn more. We are champions for our creators and want them to be fairly paid for their services. Part of that is setting a ground for a fair price. For that reason, we are setting the minimum listing in Shake at $50, which is 10x that of Fiverr. We value our creators' time, and we can't think of anything we would want listed in Shake that would be fairly priced at just $5. Not only will base prices paid to creators be higher, Shake's fees will be lower than others as well. Fiverr reports an average take rate of 27.1% through a combination of fees charged to buyers and sellers. We think that is aggressive, especially if creators are driving traffic to their own pages in a self-service marketplace. Our fee will be 15% of the total transaction or even lower with a paid subscription in the future. There will be 0 fees charged to buyers. Shake will have higher minimums and transaction fees near half what the competition is charging. We call this initiative creator-first pricing. We know this will resonate positively with creators, especially when positioned against the competitive set. We also think it will be difficult for entrench marketplaces with much more expensive cost structures in IZEA to match that model as they have built their businesses on charging higher fees. Number three, and this is the most important, influencers. None of the aforementioned competitors have what we have in IZEAx. We have a network of more than 850,000 registered influencers who want to sell content and influence their marketing services. They include celebrities and stars in every social platform. We have social profile and content data to help marketers make informed decisions. And we have analytics capabilities to track influencer performance. Make no mistake that influencers will be front and center in Shake. We will bring our robust experience in enterprise influencer marketing to the world's biggest brands, to an experience that is streamlined and accessible to all. Nobody can offer what we offer here, not without decades of influencer marketing experience, social and content data and relationships and integrations with the major social platforms. So to recap, our current customers in IZEAx spend more per asset. Our minimum purchase threshold in Shake will be higher than our competition. Our transaction fees charged to buyers and sellers will be close to half that of larger rivals. And we have an enormous network of influencers already signed up in IZEAx. Moving on to other questions. This is from @justingslb. Will Shake be a separate application or a feature within the IZEA App? Shake is its own entirely separate experience outside of IZEAx. At launch, it will be a web-based application at shake.izea.com, with a mobile optimized web experience. These are early days. Once we feel like we have nailed the web experience, we will take on the mobile app experience. Shake is 100% API-based, so the hardest part of building an application is already complete. This next one is from @[indiscernible]. What kind of changes in revenue or opportunities do you see coming in the future for IZEA that you haven't seen before? This is going to unlock 4 brand-new customer sets for us. Smaller agencies and brands, small to midsized businesses, individuals looking for personal-use content, and of course, the creators themselves. We will benefit from both transaction fees as well as subscription fees. This next one is from @zachkesner. Is it exclusive to influencers or can anyone use it? Anyone who is interested in offering digital creative services can Shake so long as the listing meets our quality standards. We are intentionally going to be selective about who gets listed, especially at launch. This next one is from @[indiscernible]. Do you see commission art pieces as an area of opportunity for Shake? Also, will you tap into the competitive gaming landscape with this platform, and if so, how? Our primary focus is going to be on influencers and digital creative services. Think TikTok videos, food photography, logo design and other digital services. We will not focus on physical art at this time, though digital art may be an option. We'll hit the gaming space through creators who are producing content on Twitch. This is from @[indiscernible]. As we all know, celebrities are one of the top influencers in our society. Do you plan on working with celebrities or having them on board to promote Shake? We have a storied history of having celebrities listed in IZEAx and also benefit from long-standing relationships with many of the major talent agencies. We plan to introduce celebrities in Shake as well. That said, we plan on utilizing a variety of influencers of all sizes to promote the platform once we open it up to buyers. More on that in a moment. Our next tweet is from @tofloodandocean. How do you guys plan on incentivizing influencers to adopt the Shake platform? IZEA is well-known for helping people make money online. We don't think we'll have any problem getting adoption from our existing influencers. And we are already seeing registration from people that are new to IZEA as well. His next question was, could you give us a demo or illustration of Shake bot in action? Yes. And I can't wait. Let me talk a little bit about timing moving forward. We are currently in the preregistration phase of launch. Next week, we will start distributing early access codes. The access codes will allow sellers to begin creating their shakes. We will then stock the marketplace for a handful of months before opening up to buyers. The general public can expect to be able to buy or sell your first shake in Q3. Once we are ready to allow buyers in, we will have the big unveiling. We will do a streaming event with a full demo and start the marketing machine. There's been so much organic buzz around Shake. What most people fail to realize is that we haven't spent any money on paid media or influencer sponsorships yet. We are going to use our own technology and influencers to spread the word, along with other PR efforts, such as television appearances like you've see from me in the past. I would now like to address some other common questions. First up is, how big is the addressable market for Shake? Business Insider estimates that the global influencer marketing industry alone will be a $15 billion industry by 2022. We know, right now, we are only catching a very small portion of that and we want more, much more. Shake is going to help us capture a big chunk of the market that we don't currently touch at all. Next question. Is Shake going to replace IZEAx? No. They will live alongside and complement each other. We will continue to offer BrandGraph, IZEAx Discovery and IZEAx Unity Suite. Shake is a new line of revenue, not a replacement. How will you monetize Shake? Shake will be free for buyers to browse and creators to list. IZEA generates revenue from a transaction fee on each Shake offering. In addition, we expect to add an option to Shake that will have a low monthly subscription fee in order to gain access to special features, including even lower transaction fees. So there will be both transaction fee revenue and SaaS revenue long term. Are you hiring additional staff with the capital you raised? Yes. We will be hiring additional engineers and marketing team members to support not only Shake but IZEAx Unity Suite and BrandGraph as well. These 3 products create a tremendous amount of opportunity for us and we want to make sure they are adequately resourced to be successful. Speaking of IZEAx, we have been a bit quiet on that front lately, but make no mistake, it is our flagship software solution and provides the infrastructure for everything else. We have a number of new innovations to unveil in the back half of this year, pertaining to both IZEAx Unity Suite and IZEAx Discovery. If I seem excited these past few weeks, it is because I am. The engine that drives the core revenue of our business today is recovering from COVID very well. We expect Managed Services bookings to grow north of 25% year-over-year in Q2 despite the impact of the pandemic. Our balance sheet is the strongest it has ever been. As of close of business yesterday, the company had raised gross proceeds of $14.775 million, at an average price of $2.29 a share from our ATM. We are currently saving a significant amount of money each month on rent and other expenses by working virtually. We have a massive back half coming on the technology front, with Shake opening up to buyers and sellers and innovation in our core platform, and our team has never been more united in our mission. Thank you all for joining me today. I would now like to open up the call for Q&A.

[Operator Instructions] Our first question comes from Bill Musser with New Frontier Capital.

It occurred to me that the largest sort of potential marketing organization you've got for Shake are really the influencers themselves. And is it possible that cross incentivized influencers or creators to refer other people they respect or potentially to work together as teams and popularize the concept more rapidly?

Yes. Yes. Thank you for your question. Absolutely. I mean the influencers are going to be a key component of driving awareness for Shake. In the IZEAx platform currently, there's an affiliate program as well that allows to get compensated for signing up other people to the platform. And we would expect to use that same type of approach for Shake as well.

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn it back to Ted Murphy for closing remarks.

Thank you all for joining us today. We welcome your assistance in making sure that this is a successful launch for Shake and would love it if you would tell your friends and families, that are digital creators, to sign up at [email protected]. Thank you, and have a great day.

This concludes today's conference. All parties may disconnect. Have a great evening.