Q3 2020 Zedge Inc Earnings Call
Ladies and gentlemen, thank you for your patience you are holding for today's is that just third quarter 2020 earnings conference call. At this time, we are gathering additional participants and we'll begin momentarily. We appreciate your patience. It asked that you. Please continue to hold.
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Good afternoon.
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Hi, apologies, ladies and gentlemen, good afternoon, and welcome does that just third quarter Twentytwenty earnings conference call. During management's prepared remarks, all participants will be in listen only mode should you need assistance. Please the teleconference specialist by pressing the star key followed by zero.
After today's presentation buys that just management there will be an opportunity to ask questions to ask your question. Please press star one Dan on your Touchtone phone.
Withdraw your question. Please press <unk> into days a presentation Elliott get there is that just interim chief Executive Officer, and Jonathan Reich is that just chief financial Officer, and Chief operating officer, well discuss such as it financial and operational results for the three month period ended on April Thirtyth Twentytwenty any forward looking statement.
Made during this conference call either in 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 to differ materially from those which the company anticipates. These risks and uncertainties include but are not limited to specific risks and uncertainties disclosed.
The reports that jets pledge of files periodically with the U.S. Securities Exchange Commission.
Zajic assumes no obligation either to update any forward looking statements that have been made or may make or to update the factors that may cause actual results could differ materially from those that they forecast.
Please note that the Zedge earnings release is available on the Investor Relations page of this edge web sites. The earnings release has also been filed under form 8-K with the FCC I would now like to turn the conference over to Mr. at least give her.
Thank you operator, thank you all for joining us today.
Welcome to <unk>.
Third quarter fiscal 2020 earnings conference call Recapping, the three months ending April Thirtyth 21.
Joining me today is Jonathan Reich, Chief Financial <unk>, Chief operating officer will provide additional insights into the numbers that we reported earlier this afternoon.
For those of you are no new to judge Oh, Oh take a moment to tell you a little about the company well one is leading the bodies of mobile personalization can.
Focus on Wall Street, so much richer right high quality wallpapers video wallpapers Ringtones notifications.
Oh flat should judge wallpapers and ranked.
More than 436 million organic installed since 1000 9 million monthly active users users.
We monetize bisoli enough advertising offering paid subscriptions observes that premium.
Marketplace, which enables license all the sell the digital got.
So our consumers.
Are you our user base consist mostly of Android users at approximately 31% of our uses all okay well developed economies.
In December 2019th we completed the rolled out the news standalone stay with okay. So shorts jobs jobs stories by the edge, which we expect to help us to extend our present the world the magic Jamie.
Today's short survive serialized shorts warm searching stories, Randy Jackson doesn't seem like format.
It goes without saying that the school Q3 was atypical in many ways. We started the quarter in a great note with improving metrics and study progress in several areas, including the rollout of shorts data.
Early march or the impact of them, but of the pandemic and the related restrictions grew a business started stacy many challenges.
Initially advertising rates dropped precipitously as budgets were caught at the same Dod a rapid decline renewal and that's still a decrease in M&A you.
Furthermore, shorts for true, whose KBR <unk>. We go who are also suffered with respect to subscribers pulling back likely due to the financial uncertainty.
In response to those these challenges we instituted a high grade started negotiating with vendor than just for concessions and materially reduced discretionary spend you also prioritize projects those focusing on revenue expansion and cost reduction. It's a recognition that this of course, our various product.
Did you did well above last year and shorten space.
Recalling that one of our key goals for the years being guest.
I think it's come up commendable and even in an exceptionally difficult market, we boarded a third sequential quarter of positive guest.
Aside from the top go after its described we have also been exploring ways to adopt and capitalize on new market reality.
It is and we're innovating across our current product portfolio as well is exploring new opportunities and couldn't help and further diversifying our bid.
We accelerated the development messaging platform in order to more effectively market as you compare freedom greedy zedge wallpaper and ring tones, using users and you're paying subscribers.
We've also been looking at ways in which we get pardon me with her Spartan decision and beds to promote apidos virtual concert, but not only allow these are just to make your living but also benefit those suffering called it the sports.
When it comes Detroit's we've initiated testing various marketing strategy that we believe can extend acquisition funnel and maximize pay conversion.
If I decided they were monitoring market conditions trip and try and examine different opportunities weighing the risk not an acting on those that we get does with relative ease Oh still doing how best to maintain positive cash flow.
I would like to provide a brief update about short.
As mentioned earlier the keeps form it indicates we've been using to measure says this beta mainly conversion average revenue per subscriber churn rates are on track to me well ahead of those minimum.
Thresholds that we said prior to the outset.
[noise] bothering to breakout journey sure increase to an unacceptable level.
Aside from testing new marketing programs that make Jay just I know.
We also accelerated development of new mountain.
They should mechanisms, including you know enough purchases in order to improve the critical math that's critical metric.
Right product development perspective, we expect it to introduce short guess additions over the short stories about getting married with due to the pen dynamic we haven't been able to answer recording studio.
No that's got some but this initiative we rolled out in the fall. Furthermore, in light of current conditions that short term outlook you slow down the page, which released new stories in order to better maintain a catch up cash position.
Well in all this means they'll need until the end of calendar 2000, each plenty to access the long term viability of this Spain.
Before handing the call quality Johnson will provide an overview of course finance results I want to complement the team for doing an excellent jobs by the virus related challenges.
Recall that with little Whiting employees working in three different countries seamlessly adopted to work from home game addressing a multitude of challenges, including downward pressure on revenue in active users engage engagement and still we're able to generate positive cash flow we did though.
We did this all with a total of.
39, compared to 61 at the same time last year, which speaks to the dedication and commitment I team has to the business I'm very impressed I'm going to turn the called out of its John Thanks you.
Thank you only my remarks today will focus on our key operational and financial results for the third quarter, if our fiscal year Twentytwenty for a comprehensive and detailed discussion of Arizona. Please read our earnings release, which we issued earlier today.
And our form 10-Q, which we expect a with the FCC tomorrow.
Following my comments, we will open the call if any questions you may have.
Throughout my remarks, the third quarter refers to February through April Twentytwenty and comparisons are to the corresponding created in 2019 or our second quarter, which was November 2019 through January twentytwenty.
Monthly active users or now that is the number of unique users that opened our app. During the last 30 days as of quarter decreased 15.4% to 28.8 million during April Twentytwenty from 34 million and the corresponding period a year ago.
We believe that part of this decline is directly correlated to the drop in smartphone sales, resulting from Cobi 90.
It is common for consumers to install and engage ones edge after purchasing a new handset.
This accelerated the drop of man in well developed and emerging markets by 28.7% and 7.6% in Q3 fiscal Twentytwenty respectively.
Total revenue in the third quarter increased 8.7% to $2.1 million compared to the year ago quarter and decline, 21.4% when compared to the prior quarter.
The sequential drop was primarily impacted by advertising budgets being open due to the pandemic, partially offset by growth in paid subscriptions net premiums gross transaction volume or GTV that is the total sales volume transacted through the platform was 100.
$80000 in Q3 compared to $159000, a year ago and $197000 last quarter.
TV fell by 5.7% on a year over year basis and declined by 24% on a sequential quarter basis.
As mentioned last quarter. This decline is likely a result, both allocating promotional inventory to marketing Schwartz and the redesign of our apps home page, which will enable improvements in content discovery and recommendations.
Social and community features and the potential for new content you John Russ.
Until this effort is completed that premium DTV and revenue will likely face pressure I.
I should add that due to our hiring freeze the anticipated completion date for this project, maybe the way [noise].
Hey, subscriptions also grew materially approaching close to 400000 at the ended the quarter fivefold increase of 567% year over year and growth of 31% on a sequential quarter basis.
That's correct fans have generated cumulative gross revenue of $2 million since their introduction in January 2019, as you recall when a freemium user converts into a paid subscriber Google takes around 30%, which shows up in S. Fiennes. However, its subscriber.
<unk> their subscription from and after the 13th month, Google lowered its the 15% currently we are seeing annual renewal rates surpassing 40%.
Overall average revenue per monthly active user generated from our apps or arc Mal increased 32.8% to 2.2 cents.
Year over year, well following 16% sequentially.
The year over year improvement is primarily attributable to growth in paid subscriptions, whereas the sequential quarterly decline is due to a combination of cobiz related challenges, coupled with seasonality relating to lower AD budgets in the first three months as a year.
Direct cost of revenue in Q3 was $289000 or 13.9 presented revenue representing an 18.2% decrease from $353000, which represented 18.4% of revenue in the year ago.
Quarter, and 11.6% of revenue in the previous quarter, we expect that absolute direct cost of revenue to decline as we complete the platform migration project mentioned earlier.
As seen in the third quarter was $1.6 million, 31.5% decrease compared to the year ago corridor, and they 17.2% decrease compared to the prior quarter.
The decrease primarily relates to lower compensation costs and discretionary spend offset by increases in the Google see on P. subscriptions and shorts content acquisition expense.
This dollar surged to historical highs against the Norwegian kroner this quarter, which also contributed in part to the overall decline as feeling a and the majority of the company's employees are based in Norway loss from operations in the third quarter was $127000 compared to a loss of 1.1.
In dollars and the year ago period, and income of $80000 in the prior quarter net loss per share improved to three cents from a loss of 12 cents in the year ago quarter, but fell compared to income a one cents in the prior quarter.
At April Thirtyth, we reported $1.6 million in cash and cash equivalents compared to $2.2 million a year earlier and $2.3 million at January 31st Twentytwenty. The increase in cash over the prior quarter was driven primarily by net proceeds of one.
$9 million from our registered direct offering and early February and positive operating cash flow.
We generated cash flow from operations of $658000 in the third quarter compared to a loss at $65000 and a year ago quarter and $573000 last quarter I would like to add it. This is our third consecutive quarter of positive cash flow.
Zedge has no outstanding debt, we have access to a revolving credit facility about two two and a half million dollars from Western Alliance Bank if needed in conclusion.
Well, we face many challenges and uncertainties this quarter as a result of the global pandemic, we were able to manage the business to generate positive operating cash flow, which was an improvement over the prior quarter and also the year ago period.
Major key performance indicators during the quarter were mixed we experienced downward pressure in our number of Mal and revenue our arc mouse saw immaterial improvement in the corner and we were able to lower our S DNA costs.
Shorts data was curtailed because depending on a although we remain excited by the opportunity generally we are optimistic about where the business can go when we get through the other side of the Kobin Caetano our team's performance in the week of a once in a lifetime Black Swan event is no.
Worthy some innovative opportunities are being analyzed and we hope to report back to you about new pads to expand our business in the upcoming quarter I hope that each of you remain C and enjoy the summer.
Operator back to you for QNX.
Thank you 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're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question you May press one.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Allen Klee with National Securities Corporation. Please go ahead Sir.
Yes, good afternoon.
So obviously, we're in unprecedented times, but but with the opening of the economy I don't know if you're comfortable just saying if if you sit.
See you know anything subsequent to the quarter and in terms of anything different in terms of advertising and monthly average users.
Hi, Alan Thanks for the question, yes, so the opening any part of me at this point has not been something that.
We've been able to measure specific to our business as I indicated in my comments one of the user patterns or zedge is that when a consumer purchases a new phones. They wanted the early things that they do is download the app and would retail sales down there.
New phone purchases have been pushed out into the future.
Having said that what we are seeing early into a Q4, which were in the middle of right. Now is that there had been a shift in advertising.
Clearly there's been a you know a significant pull back.
<unk> brand advertisers, whether it be from travel hospitality all the you know.
Normal ones that you would expect are going to pull back because of.
The travel restrictions and the like and the impact on retail, having said that we've seen and uptick in terms of <unk>.
Performance based advertisers a these are essentially direct marketers that our oh.
As it is focused on acquiring customers that will download apps.
And we have to see whether or not that holds up.
Through the summer accordingly.
In terms of monthly active users really hard to say at this point because part of that equation relates to a new phone sales.
So as the economy opens up and in a more tangible way with respect to retail shopping will have aglitter greater clarity about that.
Thank you short seems like it could be a very good opportunity long term we.
We understand the some of the temporary delays.
Have you have you ever said anything are you comfortable saying anything about.
One of the measure you know Howard was tracking what performance indicators, you were looking at and and maybe what how you think about what the opportunity be.
Sure. So we haven't gone into that in the past, having said that yeah. We're looking at conversions, we're looking at revenue per user.
And we're looking at current those words, just sort of being a key performance indicators that will help us in terms of.
Measuring the health of the business in terms of what we see what the business. We're really trying to build a comprehensive echo system here focused around short form content.
And I guess, the best metaphor would be to look at this as being three legged stool leg. One is a short form content delivered NFC attack.
And the implementation we have today is through a chat interface, but we're not limited to that it could be just regular written pros, but again serialized short form fictional analytes leg to we'll be taking this content and availing it and it audio format, what we call.
Short casts a and we will have they all that content in app as well as Syndicate Cross third party platforms.
And obviously, if you've been watching a world of podcasting. It has experienced some very very healthy growth over the course of the last year.
And the notion of short form fictional podcast thing is and it's very very early stages. So are we think that if we have some great content spectrum position us in a really really good spot for both consumption as well as user growth and then like three of that three legs.
At school metaphor is availing in this content as short form video and that will not be something that we will talk about a and move forward with presumably in 2021.
But the least common denominator is ultimately providing ubiquity so that a user can.
Consume this content independent of where they are and what they're doing so if they get up in the morning and read an episode and then they hop on their bike.
Rights work well they've got their headset odd they can listen to the second episode in that series.
And if they're enjoying lunch or a drink after work and want to watch the next episode, we're Dallas to them Accordingly.
So we're pretty excited about where we think that's can go and then there are other opportunities in the event that this content begins the trend that opens up the door potentially for further exploitation.
Whether it be.
Television movie book game, or whatever the case, maybe Ah, but again, that's sort of you know forward thinking and.
Were you know working.
Right now I'm really making sure that the next to lead is up the podcasts and piece or what we call the short cats.
No that's great I'm I'm, a big fan of podcasts.
My last question, you're you've been doing very well with your subscription offerings.
How do you think about what penetration what's reasonable assumption of the penetration of your users that said my.
Take up a subscription.
Its a good question, we haven't shared that number yet.
And we have several product initiatives underway that we expect will improve.
Our position from where we are today, even though we're really happy about where we are but I would say later this year a week and.
Begin to to a you know get more specific about where backed errors and how the numbers sort of.
Back into that from a modeling perspective.
Okay, great. Thank you so much.
Thank you.
Thank you again, ladies and gentlemen, if you have a question. Please press Star then one at this time.
This concludes our question and answer session and conference call. Thank you for attending today's presentation. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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