Earnings Call Transcript - IZEA Q4 2025

Operator, Operator

Greetings, and welcome to the IZEA Worldwide Fourth Quarter and Full Year 2025 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Francis, Vice President of Sales and Marketing Operations. Thank you. You may begin.

John Francis, Vice President, Sales and Marketing Operations

Good afternoon, everyone, and welcome to IZEA's Earnings Call for the Fourth Quarter of 2025. I'm John Francis, Vice President of Sales and Marketing Operations at IZEA, and joining me are IZEA's Chief Executive Officer, Patrick Venetucci, and Chief Financial Officer, Peter Biere. Thank you for being with us today. Earlier this afternoon, the company issued a press release detailing IZEA's performance during Q4 2025. If you want to review those details, please visit our Investor Relations website at izea.com/investors. Before we begin, please take note of the safe harbor paragraph included in today's press release regarding IZEA's financial results and be aware that some statements we make today about our business, operations, and financial performance may be considered forward-looking and involve risks and uncertainties that could cause actual results to differ significantly. We encourage you to review our SEC filings for a detailed discussion of these factors. Our commentary today will also include non-GAAP financial measures like adjusted EBITDA and revenues excluding divested operations. Reconciliations between GAAP and non-GAAP metrics for our reported results are available in our earnings release issued earlier today and in our publicly accessible filings. Now, I would like to introduce and hand the call over to IZEA's Chief Executive Officer, Patrick Venetucci. Patrick?

Patrick Venetucci, CEO

Thank you, John, and good afternoon, everyone. At the end of 2024, the leadership team and I have made a commitment to accelerate our path to profitability. I'm pleased to announce that at the end of 2025, we delivered on that commitment. Year-on-year, we broke even, increased cash, held managed services revenue relatively flat, excluding Hoozu, and grew our enterprise accounts faster than the market. We achieved a net profit swing of $18.9 million, which is not only a first for this company but is a notable event in the context of microcap public company turnarounds. Annual revenue was $31.2 million, a 13% decrease that reflects a deliberate strategic pivot toward long-term profitability compounded by broader macroeconomic headwinds. During the year, we successfully exited international markets and off-boarded lower-margin SMB accounts to prioritize a high potential enterprise portfolio. These internal shifts coincided with government-induced disruptions as factors like cryptocurrency and trade policies negatively impacted our government and retail accounts. Looking at the fourth quarter, revenue was $6.1 million, down 45% year-over-year. More than half of this variance was a direct result of our strategic client rationalization, while the balance can be attributed to delayed bookings in the second half of the year on a few key enterprise accounts and a conservative holiday marketing environment. Despite these strategic shifts and external headwinds, managed services revenue, excluding Hoozu, remained resilient, finishing the year down a modest 2%. This relative stability masks significant underlying growth considering our enterprise accounts expanded well above industry growth rates. As we've strengthened and expanded our relationships with enterprise clients, we've been rewarded with more business. We have successfully scaled five enterprise accounts beyond the $1 million threshold, each delivering double or triple-digit growth. Having largely worked through the attrition of our legacy SMB accounts, we believe the client portfolio is close to being stabilized, allowing the higher growth potential of our enterprise business to take center stage. Our sales and marketing efforts are attracting new clients, and our pipeline reached a new high for the year with invitations to larger pitches growing. Lastly, we produced new work for Stellantis, Warner Bros., Georgia Pacific, Denon and many other leading brands, consistently delighting our clients. Our restructured cost base was instrumental in our return to profitability this year. We achieved a 40% reduction in total operating expenses, driving a significant turnaround in cash operating profit to $0.7 million, a substantial recovery from last year's $11.1 million cash operating loss. This disciplined approach further strengthened our balance sheet, putting an end to the cash burn. By implementing advanced human capital management systems, we have institutionalized this cost discipline to ensure our profitability is both sustainable and scalable. Looking ahead, our strategy is centered on a few core pillars. We are building deeper vertical expertise and executing key account plans on our enterprise accounts to maximize value for these high-potential clients. We are refocusing our SMB efforts on boutique accounts, clients with franchise business models, so that our solution frameworks are highly repeatable. We are investing in high-tier talents who can level up our capabilities in creator strategy, media, and commerce, which our enterprise clients are demanding. At the same time, we are extremely active in M&A discussions, searching for companies that can build these capabilities faster and accelerate the growth of our enterprise client portfolio. It's important to note that given our low operating margin, an acquisition could be instantly accretive. Operationally, we are preparing to launch a proprietary technology platform which will enable our account managers to manage integrated creator campaigns at enterprise scale efficiently and effectively. This platform is infused with AI and tightly integrated with our unified operating model. In summary, we've reset the company's economic model in 2025 by creating operating leverage beyond cost reduction, establishing durable breakeven economics where future revenue growth is expected to translate directly into profitability. This work has positioned the company for long-term success with a more focused client portfolio, a stronger leadership team, an engaging culture, significant client opportunity, and incredible possibilities with IZEA's technology platform. With all of this momentum and opportunity ahead of us, I am optimistic about the future of this company and our ability to deliver additional value to all of our stakeholders, shareholders, clients, and employees alike. With that, I'll turn the call over to Peter Biere, our Chief Financial Officer, for a closer look at the financial results.

Peter Biere, CFO

Thank you, Patrick, and good afternoon, everyone. This afternoon, we reported our fourth quarter and full-year 2025 results and filed our Form 10-K with the SEC. I'll focus today on the key drivers behind our operating performance, add more color regarding our strategic repositioning and the resulting profitability improvement, and provide an update on our cash position. All of today's comments exclude Hoozu, which we divested in December 2024. As Patrick described, we repositioned our business in early 2025 to prioritize larger recurring core enterprise accounts and reduce our exposure to lower-margin project-based or high turnover client relationships. We refer to these collectively as noncore customers. Additionally, we reduced our annual cash operating costs in 2025 by over 40% and or $10 million, while increasing our investment in enterprise account management personnel where we're seeing growth. Overall, results show that we're on track, posting positive cash from operations and breakeven net income for the year, both of which show significant improvement over 2024 results. Our strategic reset had a significant impact on 2025 contract bookings which declined by $10.3 million or 27% year-over-year. This decline reflects our intentional reduction in noncore customer activity, which accounted for the majority of the decline rather than weakness in our enterprise business. We ended 2025 with a $10.1 million contract backlog. Based on current pipeline opportunities and first quarter progress to date, we believe our bookings reset is largely behind us and expect to return to year-over-year bookings growth in early 2026. Given that revenue recognition for our managed services typically trails contract bookings by roughly seven months, 2025 revenue still reflected the runoff from noncore contracts booked prior to our repositioning, the majority of which concluded by the end of the second quarter of 2025. So, we expect year-over-year revenue comparisons in the first half of 2026 to be lower, reflecting the absence of this noncore activity. We anticipate a return to year-over-year revenue growth in the second half of 2026 as revenue increasingly reflects our current mix of core enterprise engagements. Turning to results for the fourth quarter, managed services revenue was $6 million, down from $9.8 million in the prior year quarter, reflecting our deliberate shift away from noncore accounts toward enterprise relationships. About half of the year-over-year decline relates to the expected runoff from noncore customers as a part of the strategic client rationalization, while the remainder primarily reflects the timing of bookings from several enterprise accounts and a more cautious holiday marketing environment. Operating expenses declined meaningfully to $4.4 million, down 40% year-over-year, driven primarily by lower sales and marketing spend and reduced employee and contractor costs, which reflect our structural cost reset. For the quarter, we reported a net loss of $1.2 million or $0.07 per share on 17.1 million shares outstanding compared to a net loss of $4.6 million in the prior year period or $0.27 per share on 17 million shares. This significant year-over-year improvement reflects the impact of our operating reset, improved cost structure, and a higher quality customer mix. Adjusted EBITDA for the fourth quarter was negative $0.9 million compared to negative $2 million in the prior year quarter. As a reminder, in late 2024, we refined our non-GAAP definition of adjusted EBITDA to exclude nonoperating items, primarily interest income from our investment portfolio, and we restated the prior year amounts for comparability. A reconciliation of adjusted EBITDA to net income is included in the earnings release. We earned $0.4 million of interest income during the quarter primarily from cash balances held in a money market account following the maturity of all investment securities. And finally, we continue to operate with no debt on our balance sheet. In September 2024, we announced a commitment to repurchase up to $10 million of our common stock in the open market, subject to customary restrictions, which include regulatory limits on daily trading volume and company-imposed share price thresholds. Through December 31, 2025, cumulative repurchases totaled 561,950 shares for an aggregate investment of $1.4 million under the program. No shares were repurchased during the fourth quarter. We remain committed to a disciplined capital allocation approach, and we'll continue to evaluate repurchase activity in light of market conditions, liquidity needs and alternative uses of capital. As of December 31, 2025, we had $50.9 million in cash and cash equivalents, a decrease of just $0.2 million from the beginning of the year. This compares favorably to the $13.1 million reduction in cash during 2024 and reflects improved operating performance and disciplined cost management. With $50.9 million in cash and investments at year-end, we believe we're well positioned to support organic business growth initiatives and pursue our strategic acquisition plans. Thank you for your time today. At this time, we invite our investors and analysts to share their questions so that we may provide clarity and insights.

Operator, Operator

And our first question today comes from Jon Hickman with Ladenburg Thalmann.

Jon Hickman, Analyst

So could you give us a little clarity on gross margins going forward? Kind of high hurdles?

Patrick Venetucci, CEO

Yes, we don't give specific guidance, but I think we're on the right track. There's been an increase relative to the last couple of years. But more importantly, we really have our eye on net revenue. The real goal is to focus on growing the net revenue and keeping our cost structure aligned with that?

Jon Hickman, Analyst

Okay. And then kind of in line with Peter's comments about the first half of the year being lower than last year, but the second half being higher. In total, do you expect year-over-year growth in revenues?

Patrick Venetucci, CEO

Yes, we're aiming for growth. I mean, this is a growth market. And so we're absolutely aiming for growth.

Jon Hickman, Analyst

Okay. And then one last question. You mentioned several times in acquisition strategy. So do you see lots of targets out there? Is it lots of sellers? Or are things tight? Can you maybe elaborate on that?

Patrick Venetucci, CEO

Sure. It's a very high priority. I'm spending a lot of time speaking with M&A targets. We're very active in the marketplace. As some of you know, this is my background. I've come from a space where I successfully was able to close quite a few deals in a short period of time. We're both tapping into my personal network of potential acquisition targets as well as working with quite a few investment bankers that specialize in this space. We're seeing good deal flow, and we're actively engaged at different stages of M&A.

Jon Hickman, Analyst

To follow up, there has been a significant difference between private market values and public market values in the past. Is this divergence in valuations a concern for you, or can it be managed?

Patrick Venetucci, CEO

I agree. There definitely is a difference in valuation. It's not an issue for us. I think it points out an opportunity for investors in terms of investing in IZEA, because the equity value is not exactly what we're seeing in the private markets for IZEA. However, from our perspective, we have enough cash to be able to buy at a fair market value. We're going to be disciplined. We're doing our homework and using various valuation methodologies and so forth and making sure that any investment that we make, we have certain metrics, we're modeling out what our return on capital would be, and we have certain hurdle rates that we're striving to achieve.

Jon Hickman, Analyst

So are you interested in customers or technology, or both?

Patrick Venetucci, CEO

Well, more customers. I mean, we've got ample technology. As you know, we shifted our strategy to be services first supported by technology. And so our acquisition strategy really reinforces some of the things we've been outlining throughout the year. Number one, the verticalization and enterprise accounts. So if there's an ability to add to our depth of certain verticals to add enterprise-grade clients with recurring revenue and strong relationships, that's one area. The second area is capabilities. As I've also stated throughout the year, we're trying to increase our service offerings that we're able to sell to our enterprise client base. Having an integrated service offering is certainly part of our future.

Operator, Operator

And your next question comes from Kris Tuttle with Blue Caterpillar.

Unknown Analyst, Analyst

I think one of the things that would be really helpful right now is you guys are obviously having a lot of terrific discussions with your clients and potential clients the last couple of months. I would love an update on how are they thinking about IZEA in terms of their overall context? And not strictly speaking, competition, but going to creators directly or different strategies they might employ. I'd just love an update on how they're seeing you positioned relative to all the other things they have to consider and just some of your observations around that for this year.

Patrick Venetucci, CEO

There is a significant change occurring in marketing right now that we are taking advantage of. As television audiences decline, social media audiences are on the rise. We are experiencing what I call the social singularity, where social audiences have surpassed television audiences. Many marketers are still organized around the traditional television-first approach, and they are finding it challenging to adopt a social-first strategy. The key to reaching social audiences lies in working with creators, who are akin to modern-day channels. This is where IZEA plays a role. We offer solutions that connect brands with creators. We view this as a marketing partnership, assisting brands in selecting and curating the ideal mix of creators. We handle the agreements with them, which enables brands to effectively reach their target audiences and engage with consumers.

Unknown Analyst, Analyst

I noticed that the enterprise value today compared to the cash was quite low. I'm curious if that influences your decisions on when to initiate some of the buyback, especially considering you have M&A opportunities, but it wouldn't take much for the enterprise value to approach zero again.

Patrick Venetucci, CEO

Yes, we have always supported buybacks and believe there is significant potential in this strategy. This is why we have implemented it in the past and maintain our approach to buybacks at the right price. While we are not specifying a particular price, we are examining the market as a whole. There is a noticeable disparity between how private markets are valuing companies like ours and their public market valuations, which presents a great opportunity for investors. Using our capital to invest is one of our options. We have bought back shares before, and if conditions remain favorable, we will continue to do so.

Operator, Operator

Ladies and gentlemen, there are no further questions at this time. So I'll hand the floor back to John Francis for closing remarks. Thank you.

John Francis, Vice President, Sales and Marketing Operations

Thank you, everyone, for joining us this afternoon. As a reminder, a replay of today's call will be available shortly on our website, izea.com/investors. We appreciate your continued interest and support and hope you'll join us for our next conference call to discuss our first quarter 2026 results. Thank you so much.

Operator, Operator

Thank you, and this concludes today's call. All participants may disconnect.