Q1 2021 Zedge Inc Earnings Call
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Good afternoon, and welcome to the Jets first quarter 2021 earnings conference call.
During managements prepared remarks, all participants will be in on listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation by is that just management, there will be an opportunity to ask questions.
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In today's presentation, Jonathan Reich, such as Chief Executive Officer, and East side that just Chief financial Officer, well discuss the just financial and operational results for the three months period that ended on October 31st 2020.
Any forward looking statements made during this conference call either in the prepared remarks or on 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 in the reports the Dutch files periodically with the U.S. Securities and Exchange Commission.
So just the it was the no obligation to update any forward looking statements of that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast.
Please note that the said earnings release is available on the Investor Relations page of the Zedge website.
The earnings release has also been filed on a form 8-K with the FCC.
I would now like to turn the conference over to Mr. Jonathan Reich.
Thank you operator, and thank you all for joining US today. Good afternoon bonuses ex U.S first quarter fiscal year Twentytwenty, One earnings conference call on.
Jonathan Reich, Chief Executive officers average and with me is our Chief financial officer, each on who will provide additional insights into our financial performance.
Q1 was an outstanding quarter percentage as we eclipse previous highs for revenue, which was up 85% year over year operating income operating margin net.
Net income.
Earnings per share cash flow from operations and EBITDA amongst other metrics in.
The initiatives, we have invested in over the past five quarters are bearing fruit.
As demonstrated by the continued progress we make the monetizing our 32 million plus users during the quarter.
That said, we believe there is ample opportunity to continue increasing both revenue and users moving forward.
For those of you there are new to the story.
Zedge is the leading apps developer focusing on mobile phone personalization and the entertainment.
Our heritage is rooted in being one of the leading providers of mobile personalization content focused on offering consumers a richer ray of high quality wallpapers video wallpapers, Ringtones and the notifications assets, our flagship App Zedge wallpapers and Ringtones is all of that.
The personal identity and that has a popular how the for self expression vermilions seeking mobile phone personalization, social content and and sand the mark to date. The App has surpassed 465 million organic installs and currently has the.
32 million monthly active users.
Of which around 30% are located in well developed markets the.
The generates revenue from a combination of advertising paid subscriptions and our zedge premium marketplace, which enables content creators ranging from world class celebrities to emerging artists to display and market their digital content and sell it to our users.
Moving to our results we reported record revenue in the first quarter and attribute the growth primarily to higher paid subscriptions.
And the improvements to our AD stack.
Paid subscribers, an important growth driver grew by 214% year over year.
Subscriptions are valuable for two reasons first they provide us with a recurring revenue stream, which yields on some level of predictability in the business and the second they have a higher margin when compared to AD supported users.
Renewals are even more profitable.
As the fees, we pay Google dropped by 50% of your too.
AD revenue also experienced robust growth.
Due to several factors, including improvements we've made in optimizing our inventory.
MAU growth.
And the seasonal improvement in Cpms, which are what advertisers pay is for every 1000 impressions over.
Over the next couple of months, we expect to focus on developing regionalized, the AD experiences, which should yield the incremental revenue as well as expanding the number of demand partners.
That are able to bid on average inventory on a per impression basis.
Moving to the future I want to highlight the investments we are making to drive further user growth in fiscal 2020, one and be on with.
With the recent release of our new content management system.
Which now houses all content.
Both the user generated and the premium we.
We can start working on critical enhancements, including social and community features overhauling user accounts.
Personalized content fees.
And even improving on personalized the widgets and App icons.
In iOS 42.
Taken together, we expect these investments to positively impact user growth usage and retention.
Particularly in well developed markets. In addition, we expect to enhance our paid subscription offering which may include unique content or unique value added features which should make the offering more attractive to a broader set of users.
We believe the Zedge premium offers great potential beyond the the world of mobile personalization content.
We're wrapping our hands around how to evolve the platform and make it relevant to a broader swath of users, including fandom communities and stocks sort of customers.
If we execute well we can become a coveted destination for a broader cross section of creators.
They want to monetize their content.
Even if it isn't directly related to wallpapers and green patterns.
As we look past fiscal Twentytwenty, one we see optionality in two areas. The first is new product introductions.
For example in fiscal Twentytwenty, we entered the entertainment genre.
With the beta rollout of the new Standalone Entertainment tap shorts buys edge with the zero at the end.
Shorts is all about serialized short form fiction today, our shorts AFE offers the rich catalog of short stories rendered in a text messaging like format.
We believe the user interest in the short form the serialized fiction space remains high and we will continue to focus on enhancing our shorts beta by offering both AD supported and all the car experience as well as testing short casts.
Our high quality of short form podcasts of these stories.
We envision having clarity about whether his shorts progresses to a full blown product offering over the next four or five quarters.
The second relates to the penetration of apples Echo system historically, Apple has shied away from the mobile phone personalization vertical however, with the introduction of iOS 14, and the opens the door for limited customization functionality, specifically with the widgets and.
And App icons, we're committed to embedding the U.S into our products over the next several months in order to benefit from the iPhone refresh cycle dips.
Depending on the demand for this content.
There is the potential to move the needle longer term not to mention the potential the Apple evolves, it's thinking and embraces this vertical in a meaningful way we want to be in a position to capitalize on that if it comes about in closing while Q1 was outstanding we are now.
Not resting on our laurels and believe there is great potential for our business going forward Q2, which we expect the benefit from the year end the advertising spend is already off to a strong start.
We are still targeting revenue growth for the full year to be at least 20%.
With profitability and positive cash flow from operations and the EBITDA in each quarter we.
We could not have achieved these results without the efforts and dedication of our employees.
Thank you and keep up the good work.
As for our loyal users. Please continue to look for product updates in the months the comp.
Now I am going to turn the call over to the who'll provide details about our financial performance pushing all on a happy healthy and safe holiday season. Thank.
Thank you.
Thank you Jonathan.
The ones to start by reminding most on the call that whole fiscal year assets to lead the reserves.
Also on the plan announced some changes we are making to the match of will go to the investor.
The improved transparency.
This quarter, we added EBITDA and operating margin to our earnings release table.
Including comparison flow of historical trend from the last year.
I also want to remind everyone that our fiscal Q1 and Q2 tend to be she's on the stronger.
While Q3 tends to be the seasonal low.
Moving to the first quarter results.
The monthly active user on Merrell.
Defines the number of unique user the open on the App during the last 30 day of the period.
The increased on a 0.1% of 32.1 million during October 2020.
From 29 points of a million.
In October of 2019.
And it was up slightly from the end of Q4 of fiscal 2020.
The merchant market showed strong double digit growth.
While with the goal of market continuing to come true.
As Jonathan mentioned.
We had an act of the pick instead.
To enhance our offerings for user the well developed market.
The spurt.
No growth and higher the rate for the Zedge premium.
Total revenue came on increased 85% to briefly on the million dollar.
Compared to the year ago quarter.
The main driver was sufficient growth optimization of on at waterfall in.
On the increase in advertising rate.
This payment growth in assessing value well to TV.
Net is the total sales volume transacted through the marketplace, which $208000 in Q1.
Up 8% compared to the year ago cooler.
And 10 per cent compared to last quarter.
As Jonathan indicated.
We want to position the premium assets of growth driver in the quotas to clone.
Pay subscriber exceeded 600000 at the end of the quarter.
The 205% increase year over year.
On the 21% on the sequential basis.
Lets you will recall.
When the news of purchase of pollution.
All of freemium the use of convert into a pace of fiber, we pay at 30% feeds of Google.
Which showed on me now its in aid has said marketing expense.
However, if the subscriber where the multi or anything.
The new new submission of the 12 months look.
On the Google of feeds are up to 15%.
We continue the sea annual renewal rate, surpassing the 40%, which is generally considered to be strong performers within the industry.
Overall on mountains of record 3.6 cents.
And the increase of 73% year over year.
And 28% sequentially.
The year over year improvement is primarily attributable to revenue growth in paid subscription and the head of the peasant benefits discussed earlier.
Our operating margin increase of 29% growth.
This was negative 37% loss share.
The positive 14% in Q4.
This reflects strong cost containment and higher subscription revenue on CNN only increased 3% versus last year.
Net income and diluted earnings per share the $1 million.08, respectively.
Versus a net loss of $800000 and the loss per share of eight cents in the look on a year.
This quarter, we are introducing EBITDA assets of mantra that women book.
In Q1.
EBITDA was one point the immune involved.
Up $1.7 million.
From last year.
We remain in the strong position in terms of liquidity.
As of October 31st we have $6.3 million in cash and cash equivalents.
A $1.2 million sequential increase in the $4.6 million increase compared to a year ago.
The increase in cash will look beautiful, it's driven primarily by positive operating cash flow.
And we have now generated positive cash flow from operation.
The five consecutive quarters.
That has almost no outstanding debt.
While maintaining access to the revolving credit facility of up to $2 million if needed.
In late November we filed a shelf registration rates of the $20 million.
The filed this registration took book by opportunistic financial flexibility to.
Two we identified organic or inorganic investments of opportunities.
On to further fortify our already strong balance sheet.
Along this line, we put in place and at the market offering.
Also known as an ATM offering.
The sale up to $5 million and stop.
Directly into the market as conditions warrant.
Finally, let's start the sales of looking at the business and physical 2021.
We are targeting top line growth rate in excess of 20% continuing positive the cash flow from operation and profitability on both the quarterly and full year basis.
I hope the each of you remain safe and the bulk of Bluetooth speaking with you again on the next call.
Operator back to you for queuing day.
Thank you we will now begin the question answer session to ask the question you May Press Star then one on your touched on found.
Anything on Speakerphone, please pick up your handset before pressing the keys.
To withdraw your question please press one.
Again at the Star one and at this time, we will pass on momentarily to assemble our roster.
We will go from Talen clean at National Securities.
Hi, good afternoon on congratulations on the strong results. My first question relates to what you said about your new content management system and you can work on developing social personalization and other so that you believe will improve user retention of.
Could you talk about how you think about the timing of this and other.
And maybe give us a little bit of some examples on the pathway of of of how you're thinking about rolling this out.
Hi, Alan Thanks, so much appreciate the compliment.
Sure. So briefly as described our content management system now houses all of our content, whether it's premium content per user generated content on their one.
Roop and.
We have started two key way that are in the field I expect that it will be available to the entire user base.
Before the end of our fiscal Q2.
And that's the point of departure, where we will be able to start.
Yeah.
Introducing working on introducing some of these feature enhancements and in the sense of.
One of the things the handle our profit or lack of is that more community the type of experience.
And on the goal there is to slowly but surely on an incremental basis began to rollout of features such as our of being able to like.
Later on being able to potentially comment or being able to collect on being able to share.
And being able to follow on.
As as feature sets. The you know we think.
Resin will resonate with our user base and those will begin to out of appear.
Appear in the App during the second half of the fiscal year.
And and just a follow up.
The net benefit of that that you see is that you'll have a more engaged.
Consumer serves so they'll be.
More of retention more viewership, which should improve advertising revenue was is that the weighted I should think of this.
Yes. So the expectation is that that will certainly help in terms of driving engagement and retention of.
But we also believe that it will begin to impact.
User growth.
Because the artists that are within the in as a premium.
Well of quite to users and sort of say hey, you can engage with me ins edge of the following locations on and so forth and we know the users just generally speaking from the social space when they have the ability to connect more closely with the influencer on.
That helps.
Helps in terms of are propelling net user growth and then all of the other items the growth from that in terms of the monetization aspect.
We expect the it will certainly help in terms of incremental AD revenue.
But we also see there being upside where.
With respect to revenue generated from our the premium marketplace.
As users are retained better on as they engage more on it.
When artists for lease new.
Creations thats another potential buying opportunity on it.
So those are the two most obvious areas, where we believe the.
Revenue can be positively impacted.
Thank you. The my next question is you talked about the steps to to grow the developed country of monthly.
Monthly active users.
And I guess, what you just said would relate to that and also what you're talking about with the Apple.
Are those the two main things and then how do we think about when hopefully when we might hopefully soon see this in the numbers.
Sure so.
Our focus for user growth of.
On the is.
Very much on the how well developed the holidays.
Uh huh.
And the reason for that ties back to higher advertising rates more discretionary income.
And so on and so forth.
Insofar as the emerging markets.
We are.
Essentially developing customized.
Skews that he will of that we'll have the different user experience insofar as monetization. So.
We may play with the AD stack in.
Many of these emerging markets.
And our expectation is that that will contribute incremental income, but those are changes are happening on an incremental basis.
So slowly, but surely they are making it into the revenue stream and as we the.
The key success.
Dan, we really roll that out of the entire region or the entire world depending on what the changes are so by way of example, when we began to test header bidding on and we saw that it was working we continue to roll that out of them on a global basis, where the risk.
Back to the regional changes, we May say, hey, lets have a following experience in one region a different experience in a different region, but.
But limit that experience specific to that region based upon.
The user experience that we're trying to maintain or achieve whether it be in that region or in other region. Accordingly.
Okay.
You mentioned there is seasonality on the CPM and the third pursued the discord or you just had and next quarter will be the.
The strong ones or is there a rule of thumb to think about kind of how how of that.
How to think about that over the four quarters.
Sure so typically our talent our fiscal.
Q2 is the strongest quarter of the year because of it is the November December January.
On a quarter of.
And as we all know advertising.
In November and December typically is typically.
A big in of.
Budgeted number four.
Retail.
So by contrast going into January advertising budgets are cut people are inevitable.
Not from spending a ton of money because they've already sent per holiday cash. So what we find is that the Q2 by contrast.
Is a weaker quarter, we'll begin to then see some recovery in Q3 and then.
In Q4 of which are Arkansas will begin to see some what we'll see that Q3 begins to our nose down.
Q4 begins to flatten out and then on Q1 of which is August September October begins to pick up as the.
Our back the school back to work on.
Dynamic begins to set in.
So so in brief and I'm, sorry that I confuse the quarters Q on Q2 fiscal.
Fiscal year are typically stronger than Q3, and Q4 of the fourth quarter, usually Q3 is the one which has the most.
The significant weakness associated with it.
Thanks.
And again, ladies and gentlemen of Star one if you have a question at this time.
And that will conclude our question and answer session on conference call. We thank you for attending today's presentation you may now discuss.
Okay.
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