IZEA WORLDWIDE, INC. Company Overview
IZEA Worldwide, Inc. ("IZEA", "we", "us" or "our") creates and operates online marketplaces that connect marketers, including brands, agencies, and publishers, with content creators such as bloggers and tweeters ("creators"). Our technology brings the marketers and creators together, enabling their transactions to be completed at scale by managing custom content workflow, creator search and targeting, bidding, analytics, and payment processing. We help power the creator economy, allowing everyone from college students and stay-at-home individuals to celebrities and accredited journalists the opportunity to monetize their content, creativity, and influence through our marketers. IZEA compensates these creators for producing unique content such as long and short-form text, videos, photos, status updates, and illustrations for marketers or distributing such content on behalf of marketers through their websites, blogs, and social media channels. We provide value through managing custom content workflow, creator search and targeting, bidding, analytics, and payment processing. While the majority of the marketers engage us to perform these services (the "Managed Services") on their behalf, they may also use our marketplaces to engage creators for influencer marketing campaigns or to produce custom content on a self-service basis by licensing our technology. Our primary technology platform, The IZEA Exchange ("IZEAx"), is designed to provide a unified ecosystem that enables the creation and publication of multiple types of custom content through our creators' websites, blogs, and social media channels, including, among others, Twitter, Facebook, YouTube, Twitch, and Instagram. We extensively use this platform to manage influencer marketing campaigns on behalf of our marketers. This platform is also available directly to our marketers as a self-service tool and a licensed white label product. IZEAx was engineered from the ground up to replace all of our previous platforms with an integrated offering that is improved and more efficient. In 2020, we launched two new platforms, BrandGraph and Shake. BrandGraph is a social media intelligence platform offering marketers an analysis of share-of-voice, engagement benchmarking, category spending estimates, influencer identification, and sentiment analysis. The BrandGraph platform maps and classifies the complex hierarchy of corporation-to-brand relationships by category and associates social content with brands through a proprietary content analysis engine. Shake is an online marketplace where buyers can quickly and easily hire creators of all types for influencer marketing, photography, 25
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design, and other digital services. The Shake platform is aimed at digital creatives seeking freelance "gig" work. Creator's list available "Shakes" in their accounts on the platform. Marketers select and purchase creative packages from them through a streamlined chat experience, assisted by ShakeBot - a proprietary, artificial intelligence assistant.
Impact of COVID-19 on our Business
The COVID-19 pandemic impacted our operations, sales, and finances beginning in 2020. To protect the health and safety of our employees, we took precautionary action and directed all staff to work from home effectiveMarch 16, 2020 . We allowed the leases for our company headquarters and temporary office spaces to expire at the end of their terms throughout 2020. We have not experienced any major declines in operating efficiency in our remote working environment and have decided to continue our work-from-home policy indefinitely as a virtual-first employer. We will continue to actively monitor the COVID-19 situation and may take further actions altering the business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our future financial results.
Key Components of Results of Operations
Overall consolidated results of operations are evaluated based on Revenue, Cost of Revenue, Sales and Marketing expenses, General and Administrative expenses, Depreciation and Amortization, and Other Income (Expense), net.
Revenue
We generate revenue from four primary sources: (1) revenue from our managed
services when a marketer (typically a brand, agency, or partner) pays us to
provide custom content, influencer marketing, amplification, or other campaign
management services ("Managed Services"); (2) revenue from fees charged to
software customers on their marketplace spend within our IZEAx and Shake
platforms ("Marketplace Spend Fees"); (3) revenue from license and subscription
fees charged to access the IZEAx and BrandGraph platforms ("License Fees"); and
(4) revenue derived from other fees such as inactivity fees, early cash-out
fees, and other miscellaneous fees charged to users of our platforms ("Other
Fees").
As discussed in more detail within "Critical Accounting Policies and Use of
Estimates" under "Note 1. Company and Summary of Significant Accounting
Policies," under Part I, Item 1 herein, revenue from Marketplace Spend Fees are
reported on a net basis, and revenue from all other sources, including Managed
Services, License Fees, and Other Fees are reported on a gross basis. We further
categorize these sources into two primary groups: (1) Managed Services and (2)
SaaS Services, which includes revenue from Marketplace Spend Fees, License Fees,
and Other Fees.
Cost of Revenue
Our cost of revenue consists of direct costs paid to our third-party creators
who provide the custom content, influencer marketing, or amplification services
for our Managed Service customers, where we report revenue on a gross basis. It
also includes internal costs related to our campaign fulfillment and SaaS
support departments. These costs include salaries, bonuses, commissions,
stock-based compensation, employee benefit costs, and miscellaneous departmental
costs related to the personnel responsible for providing support to our
customers and ultimately fulfilling our obligations under our contracts with
customers. Where appropriate, we capitalize costs incurred with software
developed or acquired for our revenue-supporting platforms and amortize these
costs over the estimated useful lives of those platforms. This amortization is
separately stated under depreciation and amortization in our consolidated
statements of operations and comprehensive loss.
Sales and Marketing
Our sales and marketing expenses consist primarily of salaries, bonuses, commissions, stock-based compensation, employee benefit costs, travel and miscellaneous departmental costs for our marketing, sales, and sales support personnel, as well as marketing expenses such as brand marketing, public relations events, trade shows, and marketing materials, and travel expenses.
General and Administrative
Our general and administrative ("G&A") expense consists primarily of salaries,
bonuses, commissions, stock-based compensation, employee benefit costs, and
miscellaneous departmental costs related to our executive, finance, legal, human
resources, and other administrative personnel. It also includes travel, public
company, investor relations expenses, accounting, legal professional services
fees, leasehold facilities, and other corporate-related expenses. G&A expense
also includes our technology and development costs consisting primarily of our
payroll costs for our internal engineers and contractors responsible for
developing, maintaining, and improving our technology, as well as hosting and
software subscription costs. These costs are expensed as incurred, except to the
extent that they are associated with internal-use software that qualifies for
capitalization, which is then recorded as software development costs in the
consolidated balance sheet. We also capitalize costs
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that are related to our acquired intangible assets. Depreciation and amortization related to these costs are separately stated under depreciation and amortization in our consolidated statements of operations and comprehensive loss. G&A expense also includes current period gains and losses on our acquisition costs payable and gains and losses from the sale of fixed assets. Impairments on fixed assets, intangible assets, and goodwill are included as part of general and administrative expense when they are not material and broken out separately in our consolidated statements of operations and comprehensive loss when they are material.
Depreciation and Amortization
Depreciation and amortization expense consists primarily of amortization of our internal-use software and acquired intangible assets from our business acquisitions. To a lesser extent, we also have depreciation and amortization on equipment and leasehold improvements used by our personnel. Costs are amortized or depreciated over the estimated useful lives of the associated assets.
Other Income (Expense)
Interest Expense. Interest expense is primarily related to the imputed interest on our secured credit facility, accrued interest for the PPP loan, and interest on the financing of computers. Other Income. Other income consists primarily of interest income for interest earned on investments, or changes in the value of our foreign assets and liabilities and foreign currency exchange gains and losses on foreign currency transactions, primarily related to the Canadian Dollar. For 2021, it also includes a gain on the forgiveness of debt related to our PPP loan (see "Liquidity and Capital Resources - PPP Loan" below) and a gain on the sale of digital assets.
Results of Operations for the Twelve Months Ended
The following table sets forth a summary of our consolidated statements of operations and the change between the periods:
Twelve Months Ended December 31,
2021 2020 $ Change % Change
Revenue $ 30,022,377 $ 17,967,207 $ 12,055,170 67 %
Costs and expenses:
Cost of revenue 14,461,702 7,896,078 6,565,624 83 %
Sales and marketing 8,795,038 5,999,671 2,795,367 47 %
General and administrative 11,034,246 8,611,423 2,422,823 28 %
Impairment of goodwill - 4,300,000 (4,300,000) (100) %
Depreciation and amortization 1,089,118 1,652,126 (563,008) (34) %
Total costs and expenses 35,380,104 28,459,298 6,920,806 24 %
Loss from operations (5,357,727) (10,492,091) 5,134,364 (49) %
Other income (expense):
Interest expense (25,320) (63,012) 37,692 (60) %
Other income, net 2,242,426 46,708 2,195,718 4,701 %
Total other income (expense), net 2,217,106 (16,304) 2,233,410 (13,699) %
Net income (loss) $ (3,140,621) $ (10,508,395) $ 7,367,774 (70) %
Revenue
The following table illustrates our revenue by type, the percentage of total revenue by type, and the change between the periods:
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Twelve Months Ended December 31,
2021 2020 $ Change % Change
Managed Services Revenue $ 28,203,556 94 % $ 15,625,273 87 % $ 12,578,283 80 %
Marketplace Spend Fees 319,419 2 % 621,536 3 % (302,117) (49) %
License Fees 1,454,874 5 % 1,667,662 9 % (212,788) (13) %
Other Fees 44,528 - % 52,736 - % (8,208) (16) %
SaaS Services Revenue 1,818,821 6 % 2,341,934 13 % (523,113) (22) %
Total Revenue $ 30,022,377 100 % $ 17,967,207 100 % $ 12,055,170 67 %
Managed Services revenue during the twelve months ended
SaaS Services revenue, which includes license and support fees to access the platform services, and fees earned on the marketers' self-service use of our technology platforms to manage their content workflow and influencer marketing campaigns, declined 22% from the same period in 2020, due to: •Marketplace Spend Fees decreased by approximately$0.3 million for the twelve months endedDecember 31, 2021 , when compared with the same period in 2020, primarily as a result of lower spend levels from our marketers and lower fees assessed on those spends as a result of competitive pricing efforts in IZEAx. Revenue from Marketplace Spend Fees represents our net margins received on this business. •License Fees revenue decreased during the twelve months endedDecember 31, 2021 to$1.5 million compared to$1.7 million in the same period of 2020. The decrease in IZEAx license fees was partially offset by an increase in subscribers for BrandGraph and IZEAx Discovery services, albeit at lower rates. Additionally, we implemented a competitive standardized pricing system for all IZEAx license fee customers. Prior to 2021, the subscription fees for BrandGraph and IZEAx Discovery were classified under Other Fees, but these amounts from 2020 have been reclassified under License Fees to conform with their 2021 classification.
•Other Fees revenue decreased (16)% for the twelve months ended
Cost of Revenue
Cost of revenue for the twelve months endedDecember 31, 2021 , increased by$6.6 million , or approximately 83%, compared to the same period in 2020 primarily due to the increase in Managed Services revenue. Cost of revenue as a percentage of revenue increased from 44% in 2020 to 48% in 2021, due primarily to several large contracts in the current period that carry a lower average margin.
Sales and Marketing
Sales and marketing expenses for the twelve months endedDecember 31, 2021 , increased by$2.8 million , or approximately 47%, compared to the same period in 2020. Advertising and marketing expenses increased$1.2 million to further promote brand awareness and improve customer acquisition, satisfaction, and retention. Payroll, personnel-related expenses, and stock compensation for sales and marketing personnel increased$1.3 million due to higher commissions and bonuses driven by increased bookings.
General and Administrative
General and administrative expense for the twelve months endedDecember 31, 2021 , increased by$2.4 million , or approximately 28%, compared to the same period in 2020. The increase in general and administrative expense was primarily due to$1.4 million in higher compensation costs associated with additional personnel and higher commission and bonus expense linked to performance. Contractor costs increased$1.1 million for additional engineers to supplement our team working to expand our technology offerings.
Impairment of
In
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assessment of goodwill, using the discounted cash flow method under the income approach and the guideline transaction method under the market approach, and determined that the carrying value of our Company's reporting unit as ofMarch 31, 2020 exceeded the fair value. As a result of the valuation, we recorded a$4.3 million impairment of goodwill resulting in an expense for the twelve months endedDecember 31, 2020 .
Based upon our analysis of goodwill in late 2021, there has been no further
impairment as of
Depreciation and Amortization
Depreciation and amortization expense for the twelve months ended
Depreciation expense on property and equipment was$0.13 million and$0.14 million for the twelve months endedDecember 31, 2021 , and 2020, respectively. Depreciation expense decreased slightly due to the disposal of aging equipment in 2021. Amortization expense was$1.0 million and$1.5 million for the twelve months endedDecember 31, 2021 , and 2020, respectively. Amortization expense related to intangible assets acquired in the Ebyline, ZenContent, andTapInfluence acquisitions was$0.5 million and$1.1 million for the twelve months endedDecember 31, 2021 , and 2020, respectively, while amortization expense related to internal-use software development costs was$0.5 million and$0.4 million for the twelve months endedDecember 31, 2021 , and 2020, respectively. Amortization on our intangible acquisition assets is decreasing due to the completion of amortization on certain intangible assets acquired in prior years while amortization on our internal software costs is increasing due to continued development and the release of BrandGraph and Shake in 2020.
Other Income (Expense)
Interest expense decreased by$0.04 million to$0.03 million during the twelve months endedDecember 31, 2021 compared to the same period in 2020 due primarily to the elimination of amounts owed on our acquisition costs payable and the reduction in our average borrowings on our secured credit facility during the twelve months endedDecember 31, 2021 , compared to the same period in 2020. Other income, net increased by$2.2 million during the twelve months endedDecember 31, 2021 , when compared to the same period in 2020, primarily from the gain on the forgiveness of debt. including principal of$1.9 million and interest of$0.02 million , totaling$1.92 million on the PPP Loan and a gain of$0.19 million on the sale of digital assets.
Net Loss
Net loss for the twelve months endedDecember 31, 2021 , was$3.1 million , a$7.4 million decrease in the net loss of$10.5 million for the same period in 2020. The decrease in net loss was the result of increased net revenue and the gain on the forgiveness of debt related to the$1.9 million PPP Loan. 29
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Key Metric
We review the information provided by our key financial metrics, Managed Services Bookings, and gross billings, to assess the progress of our business and make decisions on where to allocate our resources. As our business evolves, we may change the key financial metrics in future periods.
Managed Services Bookings
Managed Services Bookings is a measure of all sales orders received during a time period less any cancellations received, or refunds given during the same time period. Sales order contracts vary in complexity with each customer and range from custom content delivery to integrated marketing services; our contracts generally run from several months for smaller contracts up to twelve months for larger contracts. We recognize revenue from our Managed Services contracts on a percentage of completion basis as we deliver the content or services over time, which can vary greatly. Historically, bookings have converted to revenues over a 6-month period on average. However, since late 2020, we have been receiving increasingly larger and more complex sales orders which, in turn, has lengthened the average revenue period to approximately 9-months, with the largest contracts taking longer to complete. For this reason, Managed Services Bookings, while an overall indicator of the health of our business, may not be used to predict quarterly revenues, and could be subject to future adjustment. Managed Services Bookings is useful information as it reflects the amount of orders received in one period, even though revenue from those orders may be reflected over varying amounts of time. Management uses the Managed Services Bookings metric to plan its operating staff, to identify key customer group trends to enlighten go-to-market activities, and to inform its product development efforts. Managed Services Bookings for the twelve months endedDecember 31, 2021 and 2020 was$39.5 million and$17.3 million , respectively.
Gross Billings by Revenue Type
Company management evaluates our operations and makes strategic decisions based, in part, on our key metric of gross billings from our two primary types of revenue, Managed Services, and SaaS Services. We define gross billings as the total dollar value of the amounts charged to our customers for the services we perform, and the amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms. The amounts billed to our SaaS customers are on a cost-plus basis. Gross billings are the amounts of our reported revenue plus the cost of payments we made to third-party creators providing the content or sponsorship services, which are netted against revenue for generally accepted accounting principles inthe United States ("GAAP") reporting purposes. Managed Services gross billings include the total dollar value of the amounts billed to our customers for the services we perform. Gross billings for Managed Services are the same as Managed Services Revenue reported for those services in our consolidated statements of operations and comprehensive loss in accordance with GAAP. SaaS Service gross billings include license and other fees together with the total amounts billed to our SaaS customers for their self-service purchase of goods and services on our platforms, termed 'Marketplace Spend Fees.' Our SaaS customers' marketplace spend is billed on a cost-plus basis. SaaS Services Revenue includes the total of License and Other Fees gross billings, plus the Marketplace Spend Fees gross billings (which includes our third-party creator costs on those billings that are netted against revenue for GAAP reporting purposes). We consider gross billings to be an important indicator of our potential performance as it measures the total dollar volume of transactions generated through our marketplaces. Tracking gross billings allows us to monitor the percentage of gross billings that we retain after payments to our creators. Additionally, tracking gross billings is critical as it pertains to our credit risk and cash flows. We invoice our customers based on our services performed or based on their self-service transactions plus our fee. Then we remit the agreed-upon transaction price to the creators. If we do not collect the money from our customers prior to paying our creators, we could experience large swings in our cash flows. Additionally, we incur the credit risk to collect amounts owed from our customers for all services performed by us or by the creators. Finally, gross billings allow us to evaluate our transaction totals on an equal basis to see our contribution margins by revenue stream so that we can better understand where we should be allocating our resources.
The following tables set forth our gross billings by revenue type, the percentage of total gross billings by type, and the change between the periods:
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Twelve Months Ended December 31,
2021 2020 $ Change % Change
Managed Services Gross
Billings $ 28,203,556 84% $ 15,625,273 65% $ 12,578,283 80%
Marketplace Spend Fees 3,970,308 12% 6,607,425 28% (2,637,117) (40)%
License Fees 1,454,874 4% 1,667,662 7% (212,788) (13)%
Other Fees 44,528 -% 52,736 1% (8,208) (16)%
SaaS Services Gross Billings 5,469,710 16% 8,327,823 35% (2,858,113) (34)%
Total Gross Billings $ 33,673,266 100% $ 23,953,096 100% $ 9,720,170 41%
Non-GAAP Financial Measure
Adjusted EBITDA
Adjusted EBITDA is a "non-GAAP financial measure" under the rules of the
Securities and Exchange Commission (the "SEC"). We define Adjusted EBITDA as
earnings or loss before interest, taxes, depreciation and amortization, non-cash
stock-based compensation, gain or loss on asset disposals or impairment, and
certain other unusual or non-cash income and expense items such as gains or
losses on settlement of liabilities and exchanges, and changes in the fair value
of derivatives, if applicable.
We use Adjusted EBITDA as a measure of operating performance, for planning
purposes, to allocate resources to enhance the financial performance of our
business and in communications with our Board of Directors regarding our
financial performance. We believe that Adjusted EBITDA also provides valuable
information to investors as it excludes non-cash transactions, and it provides
consistency to facilitate period-to-period comparisons.
You should not consider Adjusted EBITDA in isolation or as a substitute for an
analysis of our results of operations as under GAAP. All companies do not
calculate Adjusted EBITDA in the same manner, limiting its usefulness as a
comparative measure. Moreover, Adjusted EBITDA has limitations as an analytical
tool, including that Adjusted EBITDA:
•does not include stock-based compensation expense, which is a non-cash expense,
but has been, and will continue to be for the foreseeable future, a significant
recurring expense for our business and an essential part of our compensation
strategy;
•does not include stock issued for payment of services, which is a non-cash
expense, but has been, and is expected to be for the foreseeable future, an
important means for us to compensate our directors, vendors, and other parties
who provide us with services;
•does not include depreciation and intangible assets amortization expense,
impairment charges and gains or losses on disposal of equipment, which is not
always a current period cash expense, but the assets being depreciated and
amortized may have to be replaced in the future; and
•does not include interest expense and other gains, losses, and expenses that we believe are not indicative of our ongoing core operating results, but these items may represent a reduction or increase in cash available to us.
Because of these limitations, Adjusted EBITDA should not be considered a measure
of discretionary cash available to us to invest in the operation and growth of
our business or as a measure of cash that will be available to us to meet our
obligations. You should compensate for these limitations by relying primarily on
our GAAP results and using these non-GAAP financial measures as supplements. In
evaluating this non-GAAP financial measure, you should be aware that in the
future, we may incur expenses similar to those for which adjustments are made in
calculating Adjusted EBITDA. Our presentation of this non-GAAP financial measure
should also not be construed to infer that our future results will be unaffected
by unusual or non-recurring items.
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The following table sets forth a reconciliation from the GAAP measurement of net loss to our non-GAAP financial measure of Adjusted EBITDA for the twelve months endedDecember 31, 2021 , and 2020: Twelve Months Ended December 31, 2021 2020 Net loss$ (3,140,621) $ (10,508,395) Gain on the forgiveness of debt (1,927,220) - Gain on the sale of digital assets (185,895) - Non-cash stock-based compensation 878,739 477,993 Non-cash stock issued for payment of services 147,329 125,000 Interest expense 25,320 63,012 Depreciation and amortization 1,089,118 1,652,126 Impairment of goodwill and intangible assets - 4,300,000 Other non-cash items (22,022) (22,598) Adjusted EBITDA$ (3,135,252) $ (3,912,862) Revenue$ 30,022,377 $ 17,967,207 Adjusted EBITDA as a % of Revenue (10) % (22) %
Liquidity and Capital Resources
We had cash and cash equivalents of$75.4 million as ofDecember 31, 2021 , as compared to$33.0 million as ofDecember 31, 2020 , an increase of$42.4 million , primarily due to net proceeds received from the sale of our common stock in our "at the market offering" program, offset by operating losses. We have incurred significant net losses and negative cash flow from operations for most periods since our inception, which has resulted in a total accumulated deficit of$73.6 million as ofDecember 31, 2021 . To date, we have primarily financed our operations through revenue from operations, and the sale of our equity securities. Twelve Months Ended December 31, 2021 2020 Net cash (used for)/provided by: Operating activities$ (2,566,999) $ (2,095,651) Investing activities (26,169) (354,407) Financing activities 44,981,238 29,610,654 Net increase in cash and cash equivalents$ 42,388,070
Cash used for operating activities was$2.6 million during the twelve months endedDecember 31, 2021 and is primarily the result of continued use of cash to cover operating losses. Net cash used for investing activities was$0.03 million during the twelve months endedDecember 31, 2021 , primarily due to the purchase of digital assets. Net cash provided by financing activities during the twelve months endedDecember 31, 2021 , was$45.0 million , which consisted primarily of proceeds of approximately$46.5 million from the sale of our common stock in our at the market offering program offset by$1.1 million in stock issuance costs and$0.5 million of payments on shares withheld for taxes.
At the Market (ATM) Offering
OnJune 4, 2020 andJanuary 25, 2021 , we entered into ATM Sales Agreements withNational Securities Corporation , as sales agent ("National Securities "), pursuant to which we could offer and sell shares of our common stock through National Securities, by any method deemed to be an "at the market offering" as defined in Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), for aggregate purchase prices of up to$40 million and$35 million , respectively (the "ATM Offerings"). During the twelve months endedDecember 31, 2021 , we sold 11,186,084 shares at an average price of$4.16 per share for total gross proceeds of$46.5 million . FromJune 4, 2020 throughApril 15, 2021 , we sold a total of 26,005,824 shares at an average price of$2.88 per share for total gross proceeds of$75.0 million in the ATM Offerings under our shelf registration statement on Form S-3 (File No. 333-238619). TheJune 2020 andJanuary 2021 Sales Agreements were each terminated following the sale of all shares of common stock available to be sold thereunder. 32
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OnJune 21, 2021 , we entered into a third ATM Sales Agreement with National Securities, as sales agent, pursuant to which we could offer and sell shares of our common stock, from time to time, through National Securities, for aggregate purchase prices up to$100 million by any method deemed to be an "at the market offering" as defined in Rule 415 under the Securities Act under our shelf registration statement on Form S-3 (File No. 333-256078). No sales had been made under this agreement as ofDecember 31, 2021 .
PPP Loan
OnApril 23, 2020 , we received a loan under the Paycheck Protection Program (the "PPP Loan") in the principal amount of$1.9 million . OnJune 18, 2021 , we were notified by the lender that the PPP Loan had been forgiven by theSmall Business Administration in full, including accrued interest. The principal amount of$1.9 million and accrued interest of$0.02 million was recorded as a gain on forgiveness of debt in other income (expense) in our consolidated statements of operations and comprehensive loss inJune 2021 .
Financial Condition
Our business operations and results have been impacted by COVID-19, which in the first half of 2020 had a material effect on our customers, their advertising commitments, bookings cancellations, revenues, and cash flows. Since late 2020, while the economy continues to feel the impacts of supply-chain, labor disruption, and business closures, the Company has seen a material increase in the overall social media marketing spend by large and small customers, which has benefited our bookings and revenue growth rates, cash flows and future prospects. We are still feeling some effects of the pandemic in our daily operations, despite the growth we are experiencing. While the disruption caused by COVID-19 is currently expected to be temporary, it is generally outside of our control, and there is uncertainty around the duration and the total economic impact. Therefore, this matter could have a further material adverse impact on our business, results of operations, and financial position in future periods.
Critical Accounting Policies and Use of Estimates
We prepare our financial statements according to accounting principles generally accepted inthe United States ("GAAP"). Certain accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. These judgments will be subject to an inherent degree of uncertainty by their nature. Our judgments are based upon the historical experience of the Company, terms of existing contracts, observance of trends in the industry, the information provided by our customers, and information available from other outside sources, as appropriate. For a summary of our significant accounting policies, please refer to Note 1 - Company and Summary of Significant Accounting Policies and Note 2 - Restatement and Revision included in Item 8 of this Annual Report. We consider accounting estimates to be critical accounting policies when:
•The estimates involve matters that are highly uncertain at the time the accounting estimate is made; and
•Different estimates or changes to estimates could have a material impact on the reported financial position, changes in financial position, or results of operations.
When more than one accounting principle, or method of its application, is generally accepted, we select the principle or method that we consider the most appropriate when given the specific circumstances. The application of these accounting principles requires us to estimate the future resolution of existing uncertainties. Due to the inherent uncertainty involving estimates, actual results reported in the future may differ from our estimates. The following critical accounting policies are significantly affected by judgments, assumptions, and estimates used to prepare the financial statements.
Accounts Receivable and Concentration of Credit Risk
Accounts receivable are customer obligations due under normal trade terms. We consider an account delinquent when the customer has not paid its balance due by the associated due date. Uncollectibility of accounts receivable is not significant since most customers are bound by contract and are required to fund us for all the costs of an "opportunity," defined as an order created by a marketer for a creator to develop or share content on behalf of a marketer. If a portion of the account balance is deemed uncollectible, we will either write off the amount owed or provide a reserve based on our best estimate of the uncollectible portion of the account. Management estimates the collectability of accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history, and current economic conditions. We had a reserve of$0.2 million for doubtful accounts as ofDecember 31, 2021 . We believe that this estimate is reasonable, but there can be no assurance that the estimate will not change due to a shift in economic or business conditions within the industry, the individual customers, or our Company. Any adjustments to this account are reflected in the consolidated statements of operations as a general and administrative expense. Bad debt expense was less than 1% of revenue for each of the twelve months endedDecember 31, 2021 and 2020. 33
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Concentrations of credit risk in accounts receivable were typically limited because many geographically diverse customers make up our customer base, thus spreading the trade credit risk. However, with our acquisition ofTapInfluence , we increased credit exposure on certain customers who carry significant credit balances related to their Marketplace Spend. We control credit risk through credit approvals, credit limits, and monitoring procedures. We perform credit evaluations of our customers but generally do not require collateral to support accounts receivable. We had three customers that accounted for 38% of total accounts receivable onDecember 31, 2021 and 2020. We had one customer that accounted for 14% of our revenue during the twelve months endedDecember 31, 2021 . One customer accounted for 13% of our revenue during the twelve months endedDecember 31, 2020 .
Software Development Costs and
In accordance with Accounting Standards Codification ("ASC") 350-40, Internal
Use Software , we capitalize certain internal-use software development costs
associated with creating and enhancing internally developed software related to
our platforms. Software development activities generally consist of three stages
(i) the research and planning stage, (ii) the application and development stage,
and (iii) the post-implementation stage. Costs incurred in the research and
planning stage and the post-implementation stage of software development or
other maintenance and development expenses that do not meet the qualification
for capitalization are expensed as incurred. Costs incurred in the application
and development stage, including significant enhancements and upgrades, are
capitalized. These costs include personnel and related employee benefits
expenses for employees or consultants directly associated with and who devote
time to software projects and external direct costs of materials obtained in
developing the software. We also capitalize certain costs related to cloud
computing arrangements ("CCAs"). We have capitalized software development costs
of $3.0 million in the consolidated balance sheet as of December 31, 2021 . These
costs are reflected as intangible assets in the consolidated balance sheet as of
December 31, 2021 . We do not transfer ownership of our software to third
parties. These software developments and CCA costs are amortized on a
straight-line basis over the estimated useful life of five years upon initial
release of the software or additional features. We review the software
development costs for impairment when circumstances indicate that their carrying
amounts may not be recoverable. If the carrying value of an asset group is not
recoverable, we recognize an impairment loss for the excess of carrying value
over the fair value in our consolidated statements of operations and
comprehensive loss.
Goodwill represents the excess of the consideration transferred for an acquired business over the fair value of the underlying identifiable net assets. We have goodwill in connection with our acquisitions of Ebyline, ZenContent, andTapInfluence .Goodwill is not amortized, but instead, it is tested for impairment at least annually. If management determines that the value of goodwill has become impaired, we will record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We perform our annual impairment tests of goodwill as ofOctober 1 of each year, or more frequently, if certain indicators are present. For instance, inMarch 2020 , we identified triggering events, including the reduction in our projected revenue due to adverse economic conditions caused by the COVID-19 pandemic, the continuation of a market capitalization below our carrying value, and uncertainty for recovery given the volatility of the capital markets surrounding COVID-19. Therefore, we performed an interim assessment of goodwill, using the discounted cash flow method under the income approach and the guideline transaction method under the market approach, and determined that the carrying value of our Company's reporting unit as ofMarch 31, 2020 exceeded the fair value. As a result of theMarch 2020 valuation, we recorded a$4.3 million impairment of goodwill which is reflected as an expense in the consolidated statements of operations for the twelve months endedDecember 31, 2020 .Goodwill is required to be tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial information available; (ii) engage in business activities; and (iii) whether a segment manager regularly reviews the component's operating results. Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business based on the anticipated organizational structure of the combined entities. If two or more components are deemed economically similar, those components are aggregated into one reporting unit when performing the annual goodwill impairment review. We have determined that we have one reporting unit. Management performs a qualitative assessment in the fourth quarter, or more frequently if events or changes in circumstances indicate it may be impaired, by comparing the carrying value to the fair value. For the year endingDecember 31, 2021 Management determined that no indicators were present that would trigger an impairment test and that there had been no further impairment. 34
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Purchase, Disposal, and Impairment of Digital Assets
Historically, we have mined digital assets (mining operations ceased in 2019) and purchased digital assets on exchanges. We recently announced that we will accept payments in digital assets for our services from customers. We will also pay our creators in digital assets, if requested. We will record our digital assets in accordance with ASC 350, Intangibles -Goodwill and other, which requires acquired intangible assets to be recorded at cost. Under FASB ASC 350, an entity should determine whether an intangible asset has a finite or indefinite life. FASB ASC 350-30-35-4 states that if no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset should be considered indefinite. We will record our digital assets as an indefinite-lived intangible asset. Our transactions have historically transacted onCoinbase . Therefore, to-dateCoinbase is determined to be the principal market and will be used to determine fair values at initial recognition and subsequent measurement. If other exchanges or markets are used, we will reevaluate our principal market. We considerCoinbase to be an active market with quoted prices. Based on the fair value level hierarchy, we have determined the market to be observable and Level 1.
Purchased digital assets will be initially recorded at cost, including transaction fees.
Digital assets may be disposed of throughCoinbase . The conversion of digital assets to USD, or other fiat currency, will not be considered ordinary business activities and will follow the guidance within ASC 610-20. Proceeds will not be reported as revenue, but the excess over carrying value will be reported as a gain. Digital assets will be subject to impairment testing prior to derecognition, therefore significant losses are not expected upon derecognition. We will use FIFO for tracking our digital assets. Indefinite-lived intangible assets are initially carried at the value determined in accordance with FASB ASC 350-30-30-1 and is not subject to amortization. Rather, it should be tested for impairment annually or more frequently if events of changes in circumstance indicate it is more likely than not that the asset is impaired. When an identical digital asset is bought and sold at a price lower than the entity's current carrying value, this will serve as an indicator that impairment is more likely than not. In determining if an impairment has occurred, we will consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset. Each individual acquisition of digital asset represents a unit of account for impairment testing. If the then current carrying value of our digital assets is more than the fair value, an impairment loss has occurred. We will adjust the carrying value and the loss will be reflected as an operating expense.
Revenue Recognition
We generate revenue from four primary sources: (1) revenue from its managed
services when a marketer (typically a brand, agency, or partner) pays us to
provide custom content, influencer marketing, amplification, or other campaign
management services ("Managed Services"); (2) revenue from fees charged to
software customers on their marketplace spend within our IZEAx and Shake
platforms ("Marketplace Spend Fees"); (3) revenue from license and subscription
fees charged to access the IZEAx and BrandGraph platforms ("License Fees"); and
(4) revenue derived from other fees such as inactivity fees, early cash-out
fees, and other miscellaneous fees charged to users of the our platforms ("Other
Fees").
We recognize revenue in accordance with Accounting Standards Codification Topic
606, Revenue from Contracts with Customers ("ASC 606"). Under ASC 606, revenue
is recognized based on a five-step model as follows: (i) identify the contract
with the customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to
the performance obligations in the contract; and (v) recognize revenue when (or
as) performance obligations are satisfied. The core principle of ASC 606 is that
revenue is recognized when the transfer of promised goods or services to
customers is made in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. We apply
the five-step model to contracts when it is probable that it will collect the
consideration it is entitled to in exchange for the goods or services it
transfers to the customer. At contract inception, once the contract is
determined to be within the scope of ASC 606, we assess the goods or services
promised within each contract and determine those that are distinct performance
obligations. We also determine whether it acts as an agent or a principal for
each identified performance obligation. For transactions in which we act as a
principal, revenue is reported on a gross basis as the amount paid by the
marketer for the purchase of content or sponsorship, promotion, and other
related services and record the amounts we pay to third-party creators as cost
of revenue. For transactions in which we act as an agent, revenue is reported on
a net basis as the amount charged to the self-service marketer using our
platforms, less the amounts paid to the third-party creators providing the
service.
We maintain separate arrangements with each marketer and content creator either
in the form of a master agreement or terms of service, which specify the terms
of the relationship and access to our platforms or by a statement of work, which
sets the price and the services to be performed, along with other terms. The
transaction price is determined based on the fixed fee stated in the statement
of work and does not contain variable consideration. Marketers who contract with
us to manage their advertising campaigns or custom content requests may prepay
for services or request credit terms, and payment terms are
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typically 30 days from the invoice date. The agreement typically provides for either a non-refundable deposit or a cancellation fee if the customer cancels the agreement prior to completing the services. Billings in advance of completed services are recorded as a contract liability until earned. We assess collectibility based on several factors, including the creditworthiness of the customer and payment and transaction history.
Managed Services Revenue
For Managed Services Revenue, we agree to provide services that may include multiple distinct performance obligations in the form of (i) an integrated marketing campaign to provide influencer marketing services, which may include the provision of blogs, tweets, photos, or videos shared through social network offerings and content promotion, such as click-through advertisements appearing in websites and social media channels, and (ii) custom content items, such as a research or news article, informational material or videos. Marketers typically purchase influencer marketing services to provide public awareness or advertising buzz regarding the marketer's brand and purchase custom content for internal and external use. We may provide one type or a combination of all types of these performance obligations on a statement of work for a lump sum fee. We allocate revenue to each performance obligation in the contract at inception based on its relative standalone selling price. These performance obligations are to be provided over a stated period that generally ranges from one day to one year. Revenue is accounted for when the performance obligation has been satisfied, depending on the type of service provided. We view our obligation to deliver influencer marketing services, including management services, as a single performance obligation that is satisfied over time as the customer receives the benefits from the services. Revenue is recognized using an input method of costs incurred compared to total expected costs to measure the progress towards satisfying the overall performance obligation of the marketing campaign. The delivery of custom content represents a distinct performance obligation that is satisfied over time as we have no alternative for the custom content, and we have an enforceable right to payment for performance completed to date under the contracts. We consider custom content to be a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue is recognized over time using an output method based on when each piece of content is delivered to the customer. Based on our evaluations, revenue from Managed Services is reported on a gross basis because we have the primary obligation to fulfill the performance obligations, and we create, review, and control the services. We take on the risk of payment to any third-party creators and establish the contract price directly with our customers based on the services requested in the statement of work.
Marketplace Spend Fees Revenue
For Marketplace Spend Fees Revenue, the self-service customers instruct creators found through our IZEAx and Shake platforms to provide and/or distribute custom content for an agreed-upon transaction price. Our platforms control the contracting, description of services, acceptance, and payment for the requested content. This service is used primarily by news agencies or marketers to manage the outsourcing of their content and advertising needs. We charge the self-service customer the transaction price plus a fee based on the contract. Revenue is recognized when the transaction is completed by the creator and accepted by the marketer or, if related to influencer marketing services, over the content posting period as verified by the platform. This revenue is reported on a net basis since we are acting as an agent through our platform for the third-party creator to provide the services or content directly to the self-service customer or to post approved content through one or more social media platforms. License Fees Revenue License Fees Revenue is generated by granting limited, non-exclusive, non-transferable licenses to customers to use the IZEAx, BrandGraph, and untilFebruary 2020 , theTapInfluence technology platforms for an agreed-upon subscription period. Customers may also separately subscribe to the IZEAx Discovery service within the IZEAx platform. Customers license the platforms to manage their influencer marketing campaigns. Fees for subscription or licensing services are recognized straight-line over the term of the service.
Other Fees Revenue
Other Fees Revenue is generated when fees are charged to our platform users primarily related to monthly plan fees, inactivity fees, and early cash-out fees. Plan fees are recognized within the month they relate to, inactivity fees are recognized at a point in time when the account is deemed inactive, and early cash-out fees are recognized when a cash-out is either below certain minimum thresholds or when accelerated payout timing is requested. We do not typically engage in contracts longer than one year. Therefore, we do not capitalize costs to obtain its customer contracts as these amounts generally would be recognized over a period of less than one year and are not material.
Stock-Based Compensation
Stock-based compensation is measured at the grant date, based on the award's
fair value, and is recognized as an expense over the employee's requisite
service period. We estimate the fair value of each stock option as of the date
of grant using the Black-Scholes pricing model. Options typically vest ratably
over four years, with one-fourth of options vesting one
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year from the date of grant and the remaining options vesting monthly, in equal increments over the remaining three-year period and generally having five or ten-year contract lives. We use the simplified method to estimate the expected term of employee stock options. We do not believe historical exercise data will provide a reasonable basis for estimating the expected term for the current share options granted. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the options expire. We use the closing stock price of our common stock on the date of the grant as the associated fair value of our common stock. For issuances afterJune 30, 2019 , we estimate the volatility of our common stock at the date of grant based on the volatility of our stock during the period. For issuances on or beforeJune 30, 2019 , we estimated the volatility of our common stock at the date of grant based on the volatility of comparable peer companies that were publicly traded and had a longer trading history than us. We determine the expected life based on historical experience with similar awards, considering the contractual terms, vesting schedules, and post-vesting forfeitures. We use the risk-free interest rate on the implied yield currently available onU.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We estimate forfeitures when recognizing compensation expense. This estimate of forfeitures is adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and a revised amount of unamortized compensation expense to be recognized in future periods. The following table shows the number of stock options granted under our 2011 Equity Incentive Plans and the assumptions used to determine the fair value of those options during the twelve months endedDecember 31, 2021 , and 2020: Weighted Weighted Average Average Weighted average Weighted Average Weighted Average Risk-Free Grant Date expected Twelve Months Ended Total Options Granted Exercise Price Expected Term Weighted Average Volatility Interest Rate Expected Dividends Fair Value forfeiture rateDecember 31, 2020 411,350$ 0.69 6.0 years 108.58% 0.46% -$ 0.56 7.72%December 31, 2021 296,569$ 2.60 6.0 years 120.18% 0.98% -$ 2.25 11.74%
Total stock-based compensation expense recorded in our consolidated
statements of operations for restricted stock, restricted stock units, stock
options, and employee stock purchase plan issuance during the twelve months
ended
There were outstanding options to purchase 1,795,663 shares with a weighted
average exercise price of
As ofDecember 31, 2021 , we had unvested restricted stock units representing 375,444 shares of common stock with an intrinsic value of$0.5 million and 3,553 unvested shares of issued restricted stock with an intrinsic value of$4.8 thousand .
Recent Accounting Pronouncements
See "Note 1. Company and Summary of Significant Accounting Policies," under Part II, Item 8 of this Annual Report for information on additional recent pronouncements.
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