Good day and welcome to the IZEA, Inc., First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Ryan Schram. Please go ahead.

Good afternoon and welcome to IZEA's Q1 2020 earnings call. I am Ryan Schram, Chief Operating Officer at IZEA, and joining me today is IZEA Interim Chief Financial Officer, LeAnn Hitchcock, and IZEA Chairman and Chief Executive Officer, Ted Murphy. Thanks for being with us this afternoon. Earlier today, the Company issued a press release with details pertaining to our first quarter performance for 2020. If you would like to review those details, all of our investor information can be found on our Investor Relations website at 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 materially from our forecasts 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 during today's call. In addition, our update today will also refer to certain non-GAAP financial measures, specifically gross billings and adjusted EBITDA. A reconciliation of these measures to the most directly comparable GAAP measure is presented in our earnings release with additional discussions of both of these measures available in our most recent Form 10-K and 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 Interim Chief Financial Officer, LeAnn Hitchcock. LeAnn?

Thank you, Ryan, and good afternoon everyone. On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus, also known as COVID-19, as a global pandemic and recommended containment and mitigation measures worldwide. On Friday, March 13th, we directed all of our staff to work from home effective the next business day on Monday, March 16th, and they are continuing to do so for the foreseeable future. All of our business operations and our ability to support our customers are fully functional while our employees are working from remote locations. However, we have begun to see impacts on our operations due to changes in advertising decisions, timing, and spending priorities from our customers, which may result in a negative impact to our bookings and revenue in current and future quarters. While the disruptions are currently expected to be temporary, there's uncertainty around the duration and total economic impact. Total revenue in our first quarter of 2020 was flat year over year at $4.8 million, with $4.1 million coming from our Managed Service business and $583,000 coming from our SaaS business. We saw a $258,000 or 7% increase in our Q1 2020 managed service revenue as a result of increased sales orders, which we referred to as bookings in the second half of 2019. This increase in bookings led to increased revenues in Q1 2020, as managed service bookings typically convert to future revenue over the next 3 to 12 months. Our revenue from SaaS services decreased by $333,000 in Q1 2020 as compared to Q1 2019, primarily as a result of lower spend levels from our SaaS marketers and competitive pricing efforts, which reduced our margins on those spends and on our licensing fees. Our SaaS marketers also curtailed spending in March 2020 as a result of COVID-19. For Q1 2020, our gross billings on these revenues decreased to $6.1 million compared to $7.8 million in Q1 2019. This 22% decline in gross billings was primarily due to lower marketplace spend from the former TapInfluence and Ebyline platform customers as they transitioned to IZEAx in Q1 2020, and due to the churn during the renewal of some of those customers throughout 2019. Our cost of revenue exclusive of amortization held at $2.1 million in Q1 2020 compared to Q1 2019. As a percentage of revenue, our cost of revenues exclusive of amortization increased from 44% in Q1 2019 to 45% in Q1 2020. Our total costs and expenses were $10.9 million for Q1 2020 compared with $6.5 million for Q1 2019. In March 2020, the reduction in our projected revenue as a result of COVID-19 and the continuation of a market capitalization below our carrying value with uncertain chances for recovery given the volatility of the capital markets surrounding COVID-19 caused a triggering event which required us to perform an interim assessment of goodwill, which resulted from our prior acquisitions. Based on this assessment, we recorded a $4.3 million impairment of goodwill in the three months ended March 31, 2020. This increase in costs and expenses was reduced by a loss of $191,000 associated with our first quarter 2019 settlement on a portion of our crude acquisition costs that did not recur in 2020. Our net loss for Q1 2020 was $6.2 million, or $0.18 per share, compared to a net loss of $1.8 million, or $0.15 per share for Q1 2019. Adjusted EBITDA in the first quarter of 2020 was negative $1.2 million compared to negative $874,000 in the first quarter of 2019. The increase in adjusted EBITDA loss was primarily due to $250,000 less in capitalized expenses related to our internal software build of IZEAx 3.0 and a $73,000 increase in advertising and marketing efforts in the first quarter of 2020 compared to the same period in 2019. On March 31, 2020, we had cash on hand of nearly $5.6 million, inclusive of approximately $1.2 million in funds we received from our line of credit using our qualified receivables as collateral. In late April, we received a loan of $1.9 million under the Payroll Protection Program to help us retain our employees through the downturn in the market as a result of COVID-19. As we disclosed in our quarterly report filed earlier today, based on what we know today regarding our current plans and cost reductions, we expect that with our cash on hand coupled with funds from the SBA loan and our line of credit on receivables, we will have sufficient capital to cover our operating needs for the next 12 months.

Thank you, LeAnn. It is hard to believe, but it's now been two months since IZEA first directed our employees to stay-at-home and work remotely as a result of the coronavirus pandemic. What has happened in that period of time has been challenging, emotional, and humbling, but most of all, it has been inspiring to me as the leader of this organization filled with such wonderful and dedicated people. At the end of September of last year, I delivered a speech to my fellow IZEAns about our need to move faster and adapt to the ever-changing environment and industry that we work in. In Q4 of last year, we began implementing those changes. We made shifts in marketing and product development, reduced the size of our leadership team, and consolidated departments to allow them to operate more efficiently. Heading into this year, our leadership team knew that we would continue to make adjustments as needed, but little did we know what we would be facing in just a few short months. In the weeks leading up to the stay-at-home orders being issued across the country due to COVID-19, our team had really hit its stride on both sides of the business. We were seeing strong bookings in Managed Services and had record new customer starts for IZEAx Unity Suite in Q1. Prior to March 13th, we were expecting strong year-over-year bookings and revenue growth for the Managed Services business and had visibility to an even higher number of new SaaS customers than the record we set in Q1. As we gained more insight into the near-term implications of COVID, we made dramatic changes. Some of the measures we took were a reduction of employee salaries by 19% to 21% at all levels of the organization, a reduction of employee benefits, a hiring freeze for new employees, the furloughing of part-time employees, and the reduction or elimination of contractors and vendors. We also instituted a freeze on all travel and entertainment expenses and did not renew our lease for our corporate headquarters in Florida, as well as non-renewals of leases for flexible workspace in California and Canada. All part-time staff hours were reduced to zero, and the number of full-time equivalent (FTE) employees at IZEA has been reduced by 21% since the end of Q3 2019. We are the leanest that we have been in over five years. These are meaningful reductions in operating expenses designed to get us through a period of uncertainty. We will continue to evaluate all of these measures and the longer-term implications associated with these cost reductions as they relate to our performance. As I mentioned earlier, we have been in a mode of cost optimization since last year, but the bulk of these cost savings will likely not be seen until Q2. For example, TapInfluence was shut down in Q1, but the hosting cost savings will not be seen until Q2. Following the cascade of stay-at-home orders across the country, we began to see a rapid drop in customer commitments. Our trajectory began to stall from what was a meaningful high for the year. For the six weeks following March 13th, we saw incremental declines in new business sales, with the 14-day average run rate trend line for Managed Services bookings bottoming out and beginning to curve up at the end of March. Our run rate started to see an uptick in early April, but we were still far below our previous averages, and there was reason for concern. What has followed since that time has been simply remarkable. We began to see a dramatic resurgence of bookings on a much more consistent basis. We have seen six-figure incremental spends from customers who are less impacted by COVID-19, and we have also been awarded new campaigns from both new and existing customers, including one from a government entity we had never worked with before. I’m pleased to share that as of today, the 14-day average bookings trend line for Managed Services is now above our 14-day pre-COVID-19 average run rate, measured from January 1st to March 15th, and we have been gaining momentum. As of today, we believe that there is a line of sight to at least match Q2 2019 Managed Services bookings. The timing of those bookings and revenue recognition from previously booked managed campaigns is yet to be determined. However, in all cases, our operating expenses will be lower in the second quarter due to our cost-cutting efforts. Our SaaS team is still digging out from the overall decline in SaaS licensing revenue related to TapInfluence customer churn. However, our monthly recurring revenue from IZEAx hit a new all-time high in March 2020, and we also saw record new customer starts for Unity Suite in Q1. SaaS sales attributable to new customers post-March 13th have been slower to rebound than Managed Services, primarily due to a high concentration of retail customers that were in the pipeline prior to stay-at-home orders going into effect. The majority of these customers will remain on hold until such time that stay-at-home orders are generally lifted. We have been diligently rebuilding the SaaS pipeline with customers less impacted by COVID-19, and our 14-day average trend line for daily demos hit an all-time record high last week. You will notice in our press release for this quarter that we provided a graph for our Managed Services bookings year-to-date. We don't normally provide this level of detailed bookings data to the street, and we won't be doing so in the future, but in this case, our leadership team decided it was important for our investors to understand the parabolic downturn and subsequent recovery, demonstrating the resilience of this company and our ability to adapt to the harshest of environments, even without a home to call our own. I have never been prouder of this organization. This truly was a case of all hands on the virtual deck. Our team rallied and came together despite being geographically further apart. What this team has done together only makes me more bullish about our future. I have no doubt we will emerge with even more tenacity, grit, and capability on the other side of this. This is not a victory lap by any means. We still have much work to do in order to continue this pace and recover from the setback delivered by coronavirus. However, in many ways, I believe this company is in a much better place than we were two months ago. We have significantly reduced our overhead through a variety of efforts. Our output per engineer has increased while our bounce rates from quality assurance have decreased, which translates into better software delivered faster. Our existing customer relationships have grown stronger, and new customers are looking to us for thought leadership and guidance in a time of uncertainty. In fact, last month, we saw our raw inbound leads double in quantity from this time last year, despite a significant decrease in marketing spend. If you have been following the consumer research that IZEA has published throughout their lockdown period, you will know that there is a great sea of change occurring in consumer behavior. In our last report, we noted that 45% of consumers now say that their shopping habits have permanently changed and that they will be spending more money online. Well, none of us would ever hope for local businesses to be negatively impacted. We must also realize that this macro change will likely benefit IZEA over time, as our core customers tend to market their goods and services across state lines and, in some cases, over country borders. As customer shopping habits change, advertisers' marketing approaches are changing with them. Advertisers are pulling back from traditional media at an accelerating rate, with reports indicating a 44% decline in traditional media spends. On Tuesday, it was noted that General Motors, PepsiCo, and General Mills were all looking to cut back on television spend. Our category and IZEA, in particular, have an opportunity to gain share of advertising spend as large brands seek to reinvent their go-to-market strategy. I believe that IZEA's products and services are well aligned for the current and future consumer environment, and I am cautiously optimistic that this change in behavior will drive increased opportunity and prospects for profitable growth. To our team members, investors, and partners, I wish you safety and health. Thank you all for your support. I hope you can join me next Monday for the BrandGraph streaming event. We've built some pretty incredible technology there; you've got to see it for yourself. I would now like to open the call for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from Clarke Murphy with Craig-Hallum. Please go ahead.

So first, I just wanted to go over the goodwill impairment charge that you guys have; was this related to the TapInfluence acquisition? If you could give any additional color there, that would be helpful?

Sure. I can jump on that. Yes, it's not really related to any one acquisition. We do have goodwill from all three of the acquisitions that we've acquired over the years, and we report everything as one operating unit. So, it really is on the Company as a whole, not just any specific reporting unit.

Okay. That's helpful. And then looking at the financials here, it looks like you guys have like virtually no CapEx in the quarter. I just don't know if you had any insight onto what CapEx will look like for the rest of the year?

Yes, I can take that as well. With the implementation of IZEAx 3.0 last year, we are having a lot less in CapEx. That was where the majority of our spend was coming, was developing that software and increasing. We also completed more at the end of last year and a little bit in the first quarter of this year, a complete overhaul of equipment for our staff. So, we are anticipating not a lot of spend for the remainder of the year.

Okay. And then one more from me, if you guys would take it. If you could just give any color into the BrandGraph offering and how that continues to perform, and what you're seeing in terms of trends for customer acquisition and then kind of insights on cross-selling opportunities on the IZEAx platform?

Yes, I'll speak to that. BrandGraph is really kind of in the same boat as IZEAx in terms of the pipeline that we had generated for that platform, with a lot of those customers being in retail segments that were dependent on physical locations. So, we have had to rebuild a lot of that pipeline. A lot of those customers are on hold until their businesses really open up in a material way. I will say that in our previous sales cycles prior to COVID-19, it was the fastest sales cycle that we had seen. We believe that as the states start to open up and restrictions start to loosen a bit, we will hopefully see some of those customers back that were in the pipeline prior, but I've also been building a strong pipeline with new clients who aren't as impacted as the previous clients due to COVID-19.

Our next question will come from Michael Bienstock with Semaphore. Please go ahead.

I have actually two questions. One, I didn't know if you can give any color on the repurchase program that had been in effect, if that was still ongoing or if that was completed or put on hold, or if you could give any color on that? And the second is just a little bit of thoughts and perspective from your side with respect to the $1.9 million PPP. I know there's a lot of pushback against publicly traded companies applying for the program. Many had given back the PPP, but you guys are under the $2 million Safe Harbor ruling that seems to just come out in the last few days. So, I just wanted some perspective on that?

Yes, great. I'm happy to take those questions. On the stock buyback, there has not been any sort of stock buyback, obviously, with the advent of COVID-19 and us taking a PPP loan, that is not something that we would be doing at this time. In terms of the PPP loan itself, we believe that we're in a good position there. We feel comfortable in taking those funds and feel even better now that some of the new guidance has come out because there's been a lot of questions and changing perspectives over time.

This concludes that question-and-answer session. I'd like to turn the conference back over to Ryan Schram for any closing remarks.

We'd like to thank everyone for joining us today and a reminder that all of our investor information is available on our Investor Relations website, which is izea.com/investors. Please stay safe and stay healthy. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.