Q2 2021 Zedge Inc Earnings Call
Good afternoon, and welcome to <unk> second quarter 2021 of the earnings conference call. During management's prepared remarks, all participants will be in a listen only mode.
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In today's presentation.
The patients Jonathan Reich, such as Chief Executive Officer, and he say the such as Chief Financial Officer will discuss the such as financial and operational results for the three months period that ended on January 31, 2021.
Any forward looking statements made during this conference call either in prepared remarks or in the question.
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 that such files periodically with.
With the U S Securities and Exchange Commission <unk> assumes no obligation either to update any forward looking statements 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 edge earnings release is available on the investor.
Relations page of this edge website. The earnings release has also been filed on a form 8-K with the SEC 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, welcome to <unk> second quarter fiscal year 'twenty 'twenty.
The one earnings conference call from Jonathan Reich.
CEO of Sage and with me is our Chief Financial Officer E side.
Who will provide additional insight into our financial performance.
Q2 was another record quarter for Zurich, we surpassed $5 million in revenue.
<unk> for the first time ever an increase of more than 100% when compared to the year ago quarter and also reported new highs for operating income operating margin.
Net income EPS cash flow from operations and EBITDA operationally we.
Completed the long awaited migration to our new content management system, which is delivering encouraging results earlier than anticipated and we rolled out app icons on iOS taken as a whole we are well positioned for what we hope to be a strong second half of our fiscal.
School year.
For those of you that are newer to story zadruga, leading app developer focusing on mobile phone personalization and entertainment.
Our heritage is rooted in being one of the leading providers of mobile personalization content focused on offering consumers a rich array of high quality.
Quality wallpapers video wallpapers, Ringtones and notifications sounds.
Our flagship App that wallpapers, and Ringtones is all about personal identity and the acts as a popular hub for self expression for millions of seeking mobile phone personalization Soc.
Social.
Net and fandom art to date, the App has surpassed $482 million organic installs and currently has 35 million monthly active users or MAU.
The app generates revenue from a combination of advertising paid subscriptions and our <unk> premium.
Current marketplace, which enables content creators ranging from world class celebrities to emerging artists to destroy and market their digital content and sell it to our users.
Moving to our second quarter performance, we continued optimizing our AD inventory benefiting from both.
Liam growth and seasonal strength in AD pricing active subscriptions also performed well with the 102000 day net additions and second year renewal rate of approximately 45%.
As you May recall, we earn a higher margin for year, two renewals as google's fee.
<unk> drops by 50%, we need to continue to provide the content and user experience to maintain the strong renewal rates, which we expect will fluctuate over time.
Turning to product, we completed the rollout of our new content management system in December this milestone.
C opened the door for us to start introducing new features and enhancements that we expect will improve engagement and retention, especially in well developed markets, including overhaul user accounts, social and community features and search and discovery.
These will be tested.
The old out iteratively.
Currently we are focused on re imagining our user accounts the foundation needed for many of these initiatives.
We expect to complete this redesign in Q3 and shortly thereafter start introducing community features that will enable users to follow artists.
And the other users create and share of collections notify users about new followers in new content and the even offering an easy to remember as edge handle like <unk> Dot me Slash Jonathan Reich.
We are also scoping out product enhancements that can be offered to bolster our pace.
Paid subscription offering in fiscal 'twenty 'twenty two.
Our investment in debt premium our marketplace for artists continues we are in the process of identifying and hiring a dedicated product manager to lead this important part of our business.
This positions.
<unk> responsibility will be to increase the number of professional artists using <unk> as a distribution platform growing the average revenue per artist and increasing the use of our marketplace by customers in the meantime, we are testing new designs, the better display relevant premium content to users as.
As well as growing our artist base.
I'm happy to report that the Schwartz beta is now available with an AD supported model, enabling users to consume as much content as they would like simply by watching rewarded ads.
Those users seeking an AD free experience can sign up for our paid.
Subscription.
We expect the AD supported version to increase the customer base at the top of the sales funnel and set the stage for increased subscriptions over time.
In addition last week, we rolled out short casts, which are high production value podcasts of our shortz stories.
We're excited by the possibilities that short form of audio can bring to the product and we will start by analyzing how our users engage with this content.
On our last call, we discussed the $5 million at the market offering which has now been completed we expect to initiate.
<unk>, a new $10 million program imminently to further fortify our balance sheet in order to provide for maximum flexibility to pursue incremental potential growth opportunities such as the acquisitions for example to drive incremental growth and unlock shareholder value.
We expect to consider potential acquisition targets in but not limited to mobile gaming social video and even mindfulness.
Our acquisition strategy is to seek out opportunities, where we can leverage per large user base expertise in monetization outstanding engineering.
The teams.
And healthy balance sheet.
We are early in this process and do not know what will transpire, but suffice it to say that we are being cautious and selective.
We also do not plan on discussing specific potential targets or opportunities until there is something to announce publicly.
<unk>.
In closing we had a record first half and expect to report continued strong year over year growth during the second half of the year. Despite the seasonality in the AD supported portion of the business as such we now believe the topline growth.
For fiscal 'twenty, 'twenty, one will increase between 75% to 80% when compared to the previous year. In addition, we expect solid growth in EPS and in cash flow from operations.
Before handing the call over to <unk> I want to thank you.
Our investors for your support.
I also want to remind everyone that our success is a direct outcome of the outstanding team of talented professionals, who work its edge and who go above and beyond to execute on our vision. Thank you.
Now I am going to turn the call over to E.
<unk>, who will provide details about our financial performance.
Thank you.
Thank you Jonathan I want to start by reminding notice from the call debt.
All of fiscal year ends July 31.
And that our fiscal Q1 and Q2 tend.
To be seasonally stronger while the Q3 tend to be the season the low.
Typically with incremental sequential improvement in Q4.
Additionally, we introduced the term active subscription total.
Please pay subscription that's the macerich for this quarter.
Due to a change in calculation goes by Google play.
That now includes accounts hole, which is the subsidies from status. The begins when the users from the payment fail in.
In the three days per year has ended with low payment resolution the kind of help here.
The loss for up to 30 days with the aim to read the cancellation rate.
Moving to the second quarter results monthly active user of MAU defined with some number of unique user the open the app during the lots two of the day of the period.
The increase.
Kris three 2% to 35 4 million during January of 2021 from $34 3 million in January of 'twenty 'twenty.
And was up nine 3% sequentially.
Most of the market showed strong.
The digit growth wild well developed market continue to contract.
However, in the lower rates than when compared to all four quarters in fiscal 'twenty 'twenty.
It's Jonathan touch on the ACA.
Actively taken steps in the Haines our offerings.
<unk> for user growth.
The above market to spur growth Mt growth and higher growth rates for lids.
The premium.
Total revenue in second quarter inquiries Hunter and 1% two of five $3 million compared to the year ago quarter.
<unk>.
The driver were sufficient growth optimization of a waterfall and the increase in advertising rates relating to the ear buds.
Budget.
The payments gross transaction value for.
For G. TV net adds of total sales volume transacting.
Two of our markets with two months of $11000 in Q2.
Up seven 1% compared to the year ago quarter as Jonathan indicated we want to position that the premium that's a growth driver in the.
Quotas to come.
And the <unk>.
The active abusers of accounts and additional future will be key to of salary growth rates.
<unk> sufficient exhibit 700000 at the end of the quarter.
139% increase year over year, and 17% on the sequential basis.
Auction, but you'll recall when the new user purchase of subscription.
On a family of users convert to the pace of growth to repay at 30% fee to Google.
Which shows up in the SG&A as a marketing expense.
However, EBIT subscribers with the monthly.
<unk> will end the re.
It's the accretion of the 12 months, the Google fee drops to 15%, we continue with the sea annual renewal rates for approximately 45%, which is generally considered to be strong performance within the industry.
Although average Avenue per month of user are up now with the record of $4 90.
And the increase of 88% year over year and 35% sequentially.
The year over year improvement is primarily attributable to growth pace of Hudson.
And the continue empathize the benefits from inventory optimization, and adding new distribution partners.
Our operating margin increased to 47% versus 3% last year and 29% in Q1. This reflects higher so.
The fifth from revenue and strong cost containment.
G&A only increase 14% versus last year.
Net income and diluted EPS for two $3 million.17, respectively versus $100000.01 in.
In the prior.
The year.
Average shares outstanding for the second quarter, $13 4 million of fully diluted basis.
EBITDA was $2 $9 million versus $500000 losses from the.
The liquidity standpoint, we remain in the strong net cash position.
With almost no debt as of.
January 31, we had $13 $6 million in cash and cash equivalents.
Seven $4 million sequential increase and then $11 $4 million increase compared to a year ago. The.
The increase in cash.
So for Q1 of the Shriven combination of positive operating cash flow of $2 3 million and net proceeds of $4 8 million from the ATM.
During the quarter moving.
Moving to guidance for fiscal 2021 of <unk>.
Jonathan mentioned, we have increased.
All of top line growth expectation to 75% to 80% Q3, which has historically been our seasonally slowest quarter.
The expected to be of relative throw book Com due.
Due to our business being negatively impacted by COVID-19.
The last year.
Q4 is traditionally have been higher than Q3, but keep in mind. The law cheerful com may be slightly tougher due to the growth trajectory that the gain in Q4 'twenty.
I hope the heaps of you remain safe and the look forward to speak.
And with you again on the next call operator back to you for Q&A.
We will now begin the question and answer session.
To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
Your first question is coming from Allen Klee with Maxim Group Your line of live.
Good afternoon, congratulations on the on very strong results.
Starting with the advertising your your the rate that you.
Provided for the quarter of four.
Point of four nine.
It's by far the highest you've ever had and I know, it's the seasonality in there and it's also affected by.
Increase in subscribers, but to what extent are we at like a higher level of.
Advertising monetization in terms of rates based on sort.
Everything that you've done to make things better. Thank you.
Hi, Alan its Jonathan I'm, not sure I understand.
And your your question when you say it.
What rate are we at a higher rate of one more time.
I'm just trying to understand.
To what extent you feel of the changes you've made have your advertising rates kind of out of higher level.
So the changes.
We've made have resulted in generating.
<unk> revenue per monthly active user.
And.
We.
Our benefiting from changes that we've made both.
That we pre migration.
And that is pre the.
Of the CMS migration that we talked about earlier as well as post CMS migration does that answer your question.
Sure could you maybe the follow up on that and for the operator I just wanted to make sure the call doesn't end after two.
Two questions.
Could you talk a little about what CMS is and what that does for you.
Sure.
CMS our content management system is.
The.
Part of the platform that manages all of the content that we have in the App.
As we've shared with investors, we had a major investment in rebuilding our content management system from the ground up such that it would house.
Both our user generated content and our premium content together in that.
<unk>.
Project was completed in December and opens the door for us to go out and.
Began rolling out new features and enhancements.
Such as social features community features.
And so on and so forth the.
That we expect will.
Positively impact engagement and retention.
Those will be rolled out incrementally after we've completed the overhaul of our whole user accounts.
Setup, which is underway and which we hope to complete by the end of.
Fiscal year of Q.
Will be.
Which is at the end of April.
And then those new features we start to rollout incrementally obviously.
The better of a job that we do in terms of improving engagement and retention translates into.
More revenue.
From our.
Threes.
Yeah.
Great and then could you.
The expand a little on what you said about the focus on.
Improving with your well developed.
In well developed countries and.
What youre doing with Apple now and.
And have the have.
Of the traction that you're seeing there.
Absolutely so as.
We've said one of our goals is to.
Take our.
Well developed country.
User base and put that back.
Back on the grid.
Growth trajectory.
And many of the features and enhancements that we are investing in are ones, which we believe will help reverse that trend.
Moving to Apple.
As you know with the introduction of <unk>.
14, Apple opened up for the door of crack.
To the whole personalization vertical.
And just by way of background.
Mobile phone personalization is highly available.
On Android.
Being that it's been baked into their operating system and its very easy to check.
Tangible wallpaper or ringtone.
With our App you just preview what it is that you like in your press set and you're done.
That's much more complex and.
In the half.
Apple ecosystem, however, apples entree, if you will into the world of personalization.
Is specific to.
And for icons the can now be customized as well as our app.
<unk> widgets that can be cut.
Customized and we have rolled out app icons.
At the end of December on iOS.
And expect to roll out.
Widgets later this fiscal year.
Those two items we.
Believe can help generate.
Incremental revenue from our iOS user base and just by way of reference.
Give or take around 90% of our users today are on Android and around 10% on iOS.
Got it thank you with.
I'm sure, it's very encouraging that you're have the AD supported model.
Can you give us any metrics in terms of.
What that has done just in terms of the amount.
Amount of usage or.
The type of metrics.
Well, it's really early Alan as I had mentioned, we just rolled out AD supported shorts.
Last week.
But.
From the very very preliminary data, but we have seen is that there is more engagement and the specifically day to return.
Tension.
Has improved.
We.
Would be premature in terms of really getting into mountains and mountains of data.
I think that we need to give us some more time before we can.
Report back to shareholders with respect to what the overall.
The impact is both short and long term.
Okay.
Short cats.
Cash sorry that sounds pretty exciting.
How is that going to be set up in terms of the options of.
Monetizing and and the format.
I'm out of it and and what you think the potential is.
Sure that's of Great question and.
So the honest with you.
We have not.
Made any decisions about how to monetize that as of yet our first goal is to understand how users engage.
With these high quality.
Many podcasts, if you will of the content.
And then based upon that we can use that data to make an informed decision about how we can monetize.
With that being said.
There are.
Any different possibilities there is the possibility for having audio ads in there.
There is a possibility for bundling that into subscriptions.
<unk>.
Subscriptions more valuable there is also a possibility with.
The user base being interested in.
The SC in syndicating across third party platform is by way of the example of style of five <unk>.
Notify or.
And Apple podcasts or things of that sort of.
But really long story short still too early to answer the question with great degree.
Degree of.
The clarity we need to see.
What engagement is like and then proceed from there.
Thanks, and then.
I think I know the answer to this but I just think of it would be helpful to you <unk>.
I mentioned this on the call because I think your stock had gotten hit during the quarter when there was.
Some.
News of Google.
Changing some of their.
There are what data could be tracked and privacy rules related to that could you explain like if that has an impact on you or if not why that is.
Our stock hit.
No matter of stock our user base had been hit back in late August 2019 early September 2019.
Because of some buggy code for the third at a third party.
Advertiser had in.
Their SDK, that's the software that allows our apt to communicate with that advertisers platform.
And.
We were temporarily.
And from the Google play store until that problem was fixed.
Overall with respect to.
To privacy.
We are clearly very sensitive to.
Making sure that we.
We protect our users' privacy.
And.
I should mention as well that unlike many other apps.
Debt.
We will have challenges.
The associated with <unk>.
<unk> decision to remove idea of Fei, which is the.
The.
Way by which.
The information is collected.
About the users and shared with advertising networks.
We really.
We're not going to see a material impact of that because of the small amount of relatively small amount of apple users that we have.
Yeah.
Thank you and then just touching on the seasonality.
Is it.
We know that I'm I think the next quarter is the seasonally slowest and you did mention the.
You will have tough comps.
In the fourth quarter, but is there a way to think about maybe.
Directionally the magnitude of of the seasonality in the third and fourth quarter.
Yeah, if you look back historically.
There has been a fall off.
And I don't have the numbers in front of me.
But anywhere from 10% to 20% seems directionally correct.
When looking back of previous quarters.
I can't tell you whether or not.
That will continue to be the case this year.
But.
For the purpose of modeling, it's most likely okay to look at that and.
Hi.
Of that.
Effect of extra model.
Do you have anything that you want to add to that.
No.
Okay.
Some of them well I mean, when when when we got the table of Colgate 80 ramping of it's down to 20.
E Commerce all of the.
<unk> from tawny to 30 to 40 to 50 to 60 so.
So we hopefully we can maintain of 60000 novel of 50000, a lot of the baby revenue level.
Great and then your monthly active users.
Or is.
Which was 35400, which.
For the 35 of your losses.
Yeah, Yeah, I'm, sorry, sorry about that so youre hitting kind of of high on that wall.
I mean the.
Close to a high of what you've ever had well.
Isn't the strongest time of the economy, we've ever had so.
What what would you attribute that to.
Sure so.
I would say that there are a couple of things.
As you know we have been making improvements in the app.
There has also been.
Growth in the emerging markets.
One country that screams out and that capacity is India, where we've seen very very.
Material growth over time.
And as.
As you recall, we had litigation we were in litigation with.
An Indian company.
Which we ultimately prevailed with and as a result of that.
Our app was.
Suddenly made available throughout the entire country.
Prior to that the.
The.
Plaintiffs in the case.
And.
Successfully.
Seem to at the at the Department of Indian Department of Telecommunications was able to block our app.
And that block was.
<unk> removed and we've seen some really really nice growth in India. Since then.
And then I would say is well.
There has been.
As a way as it is well aware.
Throughout the entire digital market.
Uh huh.
The increase in the use of mobile apps.
Cause of Covid and stay at home orders, where we have likely suffered to some extent, though is with respect to.
Okay.
Okay.
Okay.
For.
With respect to.
Oh and sales of our new phone sales in it.
<unk>.
Retail locations because of the slowdown in.
Retail sales due to Covid and our hope.
Has that.
As we began exiting this COVID-19 tunnel and retail sales begin to resume.
And get restored that we will be able to benefit from that simply due to the fact that one of the use of patterns that is very common when a new when the user buyers of new.
The phone is they want to personalize it and as such they will come to us edge download the app and part.
<unk> of the content.
That's great My last question just.
Could you tell me if you if you happen to know what your share count is kind of.
As of now.
E Correct me, if I'm wrong, but I believe it's somewhere around $13 5 million.
That is correct.
Fantastic well.
Congratulations on excellent.
Excellent execution.
Thank you so much thank you.
Again, if you have any questions. Please press star then one on your phone.
Yes.
We have no further questions from the lines. This concludes our question and answer session and conference call.
Paul Thank you for attending today's presentation you may now disconnect.