Q1 2024 Zedge Inc Earnings Call

Presentation

Operator

Good afternoon and welcome to Zedge's Earnings Conference Call for the First Fiscal Quarter 2020 for results. During management's prepared remarks, all participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation by Zedge's management. There will be an opportunity to ask questions to ask a question, please press star then one on your touchtone phone. To withdraw your question, please press star two. I will now turn the call over to Brian Siegel.

Thank you, operator. In today's presentation, Jonathan Reich, Centra's Chief Executive Officer of Yi Tsai, such as Chief Financial Officer, will discuss Central's financial and operating results that were reported today. Any forward-looking statements made during this conference call during the prepared remarks or in the question-and-answer session, whether general or specific in nature are subject to risks and uncertainties that may cause actual results in the future to differ materially from those discussed on today's call. These risks and uncertainties include, but are not limited to specific risks and uncertainties disclosed in the reports that Zedge appeared periodically files with the SEC. Such assumes no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that our earnings release is available on the Investor Relations page of this edge website. The earnings release has also been filed on Form eight K with the SEC. I would like to turn the call over to Jonathan.

Good afternoon. Thank you, Brian, and thank you all for joining us today. I will start by briefly reviewing our first quarter results, which are primarily encouraging and are a consequence of the investments we made in fiscal year 2023, which we expect will continue driving sustainable, profitable long-term growth.
Q1 revenue increased 3% from last year as we continued managing geopolitical, macroeconomic and industry specific challenges. Despite these challenges, ad revenue grew following four quarters of decline. The uptick was driven by Zedge marketplaces, improved performance, and the motor PTO, which was up 62%. Zedge plus our Zedge marketplace subscription offering delivered exciting results with revenue up 10% from last year and also showing sequential active subscriber growth for the second quarter in a row following six sequential quarterly decline. These factors led to record ARC now and 35% Zedge Premium GTV year over year growth.
Last quarter, we announced our commitment to building a full-stack marketing team with capabilities spanning user acquisition, branding, creative execution marketing analytics and reporting, competitive research, content, marketing, app store and search engine optimization and reengagement marketing. Along those lines, we recently hired a seasoned head of user acquisition who is scaling our marketing investments in order to deliver positive return on ad spend growth.
I'm now going to provide an update about each of our business units and or products paint is now more than a generative AI. wall paper maker and continues to be a primary focus of the Zedge marketplace. Take a look at what we have accomplished since our last call seven weeks ago. First, we have made payments available globally and are testing different regional business models in order to scale this feature.
Next, we launched the beta version of paints for mobile web, which enables users to create all types of images, not only wallpapers and seamlessly integrated it with print-on-demand functionality. This feature allows customers to purchase merchandise like T-shirts, pillows, coffee mugs and more printed with their art. If this goes well, we believe the Zedge website can fuel incremental growth, especially as we evolve the paint offering.
Turning to Zedge plus our subscription offering. As you recall, we overhauled the Android offering in late fiscal year 2023, resulting in the second consecutive quarter of sequential revenue growth. Almost in parallel, we introduced Zedge plus for IOS, which has been an early bright spot in driving subscription growth. Overall, the IOS ecosystem is an untapped opportunity for us and has delivered attractive growth rates over the past two quarters driven not only by the Zedge plus subscription offering, but also by better optimization of our ad inventory and growth from pain. We remain committed to continuing to grow IOS and generated a I may be key to unlocking this potential.
Automotive PDL had another strong quarter. We believe there is more to come with continued product innovation. Our previous investments in the website redesign, localization and technology upgrades are paying off. In fact, in November, a motor PTO recorded its best revenue month ever. With that success, we are now focused on testing new features such as emoji tax translations and Mash-up emoji designs, as well as introducing new content verticals like automotive coms, not to mention print-on-demand merchandising to name a few some of these will start rolling out in Q2, while others will become available later in the fiscal year.
As mentioned last quarter grew shots is has had initially been the case with the motor PTO experiencing a revenue down trend with growth taking longer to actualize than originally anticipated at the time of the transaction. Much of this relates to Apple's ATT framework which has severely limited the information that app marketers can collect to target prospective customers. Although Apple released scan network for data to enable growth with improved attribution tracking capabilities, its impact will be limited until major platforms like meta successfully embed this into their tech stack. In the meantime, we are taking a two-pronged approach to stabilizing Burger Shots and positioning it for growth. First, we focused on product innovation by recently rolling out battles, a new hybrid casual game play feature for users to start competing and fast-paced short-duration photo competitions. It are limited in size battles is now available to 5% of the recharges global user base. Our product team closely monitors all the relevant KPIs to tune and refine the experience and optimize engagement, retention, and in-game economy. We expect to make the feature available to a much larger audience over the next several weeks and believe the battles will ultimately assist in making the guru house game more accessible and relevant to a broader addressable market. We believe this feature will also avail an advertising supported monetization strategy.
Second, we are expanding our user acquisition efforts to deliver Ross positive users. This strategy is an iterative process that benefits from the data overhaul we undertook last year beyond the core game. We continue developing a I art master a new hybrid casual game that leverages generative AI. and game play where users compete against each other in fun, fast-paced competitions, AIR. Master’s currently in soft launch in five countries and can potentially be a fourth core product for us. We are improving the game by analyzing the usage data and targeting a broader rollout over the next several quarters. Taken together, we continue to believe that we have never been in a better position to create sustainable, long-term profitable growth given the combination of market opportunity, our current product portfolio and roadmap, our marketing prowess, data capabilities, tech stack, and most importantly, our team. Furthermore, we are not just talking about AI. We have already integrated throughout our business, including product technology and marketing. I wish everyone a happy holiday season, and I would like to turn the call over to Yi, who will review our financial results. Yi?

Thank you, Jonathan. Now for the Z marketplace, defined as the number of unique users that opened Zedge app to the last day of the period decreased 10.7% from a year ago to $28.5 million now in well-developed market and emerging market were down 13.1% and 10% respectively. Total revenue in the first quarter was $7.1 million, up 3% from last year. Digital goods and services, which encompasses revenue from grew share, came in at $0.9 million, down 29% from last year. Similar to Q4. Faurecia revenue was again negatively impacted by Apple's ATT framework, macroeconomic issues, and the geopolitical situation. Subscription revenue for the quarter was up 10% versus last year. Additionally, this metric was up sequentially for the second straight quarter as our net average subscriber churn improved and higher value IOS subscription and one new value added this plus offering for Android replace lower cost legacy subscriptions, which only agree more, that's premium GTV, grew 35% from last year to $421,000, reflecting incremental revenue generated from paint, which offset March to decline in powder content sales. Average revenue per monthly active user for now was $6.03, up 17% year over year, reflecting stability in ad pricing and the positive impact of new IOS and Android subtractions cost of revenue declined by 23% and was 6.9% of revenue. SG&A declined by 5.6% to $5.5 million. GAAP income from operation written into the black increasing by $0.5 million to $0.3 million. Gaap net income and EPS for Q1 were nil r versus a net loss and loss per share of $0.1 million and $0.01 last year. This quarter. Fx and income tax expense swing negatively impacted GAAP net income by $143,000 and $271,000, respectively versus last year. Adjusted EBITDA was $1.5 million versus $1 million in the prior year.
From a liquidity standpoint, we remain in a strong cash position with over $18.7 million in cash and cash equivalents and only $2 million in bank loan at the end of the quarter, no debt on nominal 15. After the quarter ended, we paid down $2 million in bank loan and had a remaining cash balance of approximately $16.7 million. Additionally, please note that we reached an agreement with crucial prior owners, and we would not make any payments related to our purchase of the Company.
Thank you for listening to our first quarter earnings call. And I look forward to speaking with you again on our next call in mid-March. Operator, back to you for Q&A.

Question and Answer Session

Operator

We will now begin the question and answer session. To ask a question. You may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star two. At this time, we will pause momentarily to assemble our roster. First question comes from Allen Klee with Maxim Group. Please proceed.
Fell on year-on-year. Yes, yes, yes. And can you hear us he dropped out of the queue, but can you hear

Can you hear me now I mean, yes, we could have now and thank you. I'm sorry about that. But I'm starting off with a. So despite monthly active users declining, your you're been executing on everything to. So really it are my top and bottom line numbers.
I wanted to ask a question to start with on monthly active users on that. Some of that's macro, some of that industry would just on that one point, what would you say is what you are working on doing that could potentially start to stabilize that?

I and it's Jonathan. Thanks. So much for the kind words in terms of our mall and stabilizing and potentially even growing that number. Literally, everything that we have in our product road map is focused on improving that number. And in addition to that, the marketing efforts that we have, both with respect to organic as well as paid marketing initiatives are focused on improving that number. So everything that we talked about today as well as our future product growth is tied to improving that monthly active user base. I just want to point out as well that we're just slightly below 30 million monthly active users. The number is still a very, very significant number. There aren't that many apps that I'm aware of that. Have it sort of massive penetration, and we are we are certainly shooting to reserve and resume growth with that number in the in upcoming quarters.

Yes, I would note that some industry research is saying that after smartphone sales being down for around two years. It looks like it may start, sales may start stabilizing and grow next year, which maybe that will help on just that backdrop also on.

Yes.

So on you talk about with two shots and waiting for with some Apple's privacy rules and waiting for the big sites like Facebook to implement what Apple's done what are you hearing about the timing for that and when that might become effective?

We speak to Facebook come regularly and they I think, as you know, have rolled out a scan for implementation several months ago, and they have to quickly roll that back. There's no question of a doubt. This is a high priority item for them, but really that question is best geared and for the folks over at Meta. Having said that, we have undertaken several initiatives in order to assist in a scaling our paid user acquisition initiatives, including our creative and really massively increasing the number of creatives creative with Siemens and design and so on and so forth, as well as taking advantage of them a new products that are product feature. I should say that Facebook had rolled out known as AEN. aggregated event management met measurement, which is meant to improve outperformance by ARM aggregating data from both the app or mobile space and the web space. And that we believe is having a positive impact as well in terms of helping us scale up. So those two items together, coupled with some internal work that we are in the process of undertaking in conjunction with our data team that is analyzing them. It's funnel events that we believe can be targeted against and are all tools that are being used in order to help us get there. But of course, once Carrefour does come out, we are chomping at the bit to include that in our marketing stack in order to increase whether it be first-time depositors, users and the like, as I think you, it sounds like you have good momentum with paint on where that's getting rolled out and how I would talk a little about kind of how you how you think about that B on how that's going to kind of get at the adoption rate for that? Thank.

Sure.

So as I mentioned in my earlier comments, we've now made available on a global basis. I think a point of differentiation between us and let's say many of the other gen AI apps that are out there is that our offering does not require a user to have to purchase tokens or subscribe to a service, but rather they can essentially paint through on watching rewarded videos. And the way that we are approaching this is through several different means in terms of making sure that it is available and visible to our users, making sure that we are optimizing our store listing, but at the same point in time, maintaining our leadership position in terms of ranking with respect to mobile phone personalization and also using the benefits of marketing automation to convert users from being consumers into actual creators separate. And apart from all that, I think is less quarter's conference call, I mentioned that we are working on a stand-alone G&A. I asked that we hope to release in the first couple of months of 2020 for calendar year hot and having a stand-alone fully dedicated app focused on G&A. I pump he's going to allow for us to market in ways that really free us have any harm focus that we have on personalization and rather shift that focus all around generative Pehong. So that is in a brief nutshell, how we think about this evolving space. And we're excited by where this space can eventually lead to.

But at the same point in time, proceeding with have a rational and a deliberate our growth plan so that we are in better control of our destiny, excellent home for AIR. Master, how I went to that Google and Apple stores today, and I know they're not yet if they're helpful in the US, but on health, when you're launching a new game, how do you what's the marketing strategy to tried to get it to, you know, accelerate and ramp up how are you thinking about the market, how to make that happen?
Sure.

So there are many components that go into that. But let me tell you some of the things that we are currently doing even though the game is your point is correct. There's only soft launches available on only five countries today. Nonetheless, we've been investing in the AIR. master website. And that website has continued to improve its rankings in ARM in terms of search engine optimization. And that will assist in terms of driving organic growth when the game is introduced into more countries and eventually rolled out on a global basis. And apart from that, we have been doing some very, very light on paid user acquisition campaigns in the markets in which the games in soft launch and certainly paid user acquisition will be a significant part of that business. And then I think it's really critical to underscore, but we will be marketing that game to our user base. So give or take 30 million monthly active users and our users are over indexed for them engaging with casual hybrid casual type of mobile games. So that's an additional plus. And then there is a whole set of initiatives around app store optimization coming up with the write collaterals in the App Store making sure that we are benefiting from the hyper growth that JNI is currently experiencing. So taken together, that constitutes a good portion of our thoughts with respect to marketing this new title as we continue to progress with the soft launch.

Thank you. I'm a manager. Pv has been a home run. I didn't catch everything. You said of some of the new thing features you're looking to roll out. Could you just go over that again? Thank you.

Sure.
So we are looking at some, let's call it an emotive and emoji translator. You can type in a field of text, and you all have that text rendered in a string of emojis. We're looking at adding new content types like a motor pumps. We are also in the midst of testing a print on demand on facility design.

I'm sorry, what was that?
Second? What was that?

Second loaded on Alma, which you have, what modem offer i-mode accounts, EMOTICONS., could you explain what that is?
It's another form of representation of emojis, if you if you are, if you will, and we're we think that it's a logical extension of the of the emerging space. So on that, that is certainly something that we're looking at. But just to give you an example, of an emotive con prior to emergence. If you wanted to and a e-mail or text message with a smile, you would type in a colon and a closed parentheses that isn't a motorcar. So I think to answer your question, but the notion of offering emerging hot emotive cons and then also offering a mashup emoji design where you can actually take to Moody's and join them together. And you have a new visual of the art is the output associated with that. So those are all areas that we're looking at. And I would add as well that we're also looking into the notion of offering a subscription tier to the emerging media service that we would want to test. And if that shows good prospects then we would you have further developed that.

That's very helpful on. I'll throw in a financial question. I know you're not giving specific guidance, but any commentary on how seasonality and maybe any financial metrics that you're kind of prioritizing?

While seasonality is? Our business is heavily weighted towards advertising revenue and . We are we are in the same boat as any other digital business that is heavily weighted towards advertising space. Obviously, our Q2, which extends November, December January, is historically our strongest quarter of the year, and there's no reason to believe that will be different this year. And in terms of harm of financial KPI eyes, we are always looking at home our cash and things like quick ratio and then our now it has been it really importance to on the theme of being financially solvent and allowing for us to have ample runway to continue to grow the business and seize opportunity as well, we see that opportunity unfold that's graded on.

So I'm probably going to say this wrong, but the average revenue per monthly active user on that was up 17% a lot of things go into that subscription definitely helped on what do you see like going forward as the key things you're doing that that can impact what direction that moves?

Yes. So it's a function of our product. And when it's our product that involves or that includes not only our adds back end how we monetize our ad inventory, but also our subscription offering. As you've seen, the growth in subscription space has sustained for our analogous two quarters. Subscriptions are the introduction of subscriptions on IOS. Pom are really exciting. They are at a higher price points when compared to Android. And so that coupled with the Zedge mark premium marketplace, where we actually go out and allow for artists to sell a licensed content and how that is priced and how that is offered to our user base. All of those taken together contribute to influencing that average revenue per monthly active user.

Okay, great. That's it for my questions. Thank you very much. Congratulations on a strong quarter.

Thank you.

Operator

We have no further questions in queue. This concludes our question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect.