Q3 2021 Zedge Inc Earnings Call
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Good afternoon, and welcome to <unk> third quarter 2021 earnings conference call. 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.
Followed by zero after today's presentation by such as management, there will be an opportunity to ask questions to ask a question. Please press Star then 1 on your Touchtone phone to withdraw your question. Please press Star then 2.
In today's presentation, Jonathan Reich as edges cheap.
Keith Executive Officer, and <unk> XI, Zhang Chief Financial Officer will discuss <unk> financial and operational results for the 3 months period that ended on April 30th 2021 any forward looking statements made during this conference call either in the prepared remarks or 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 that surge files periodically with the U.
Securities and Exchange Commission.
Is that 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 Zed your earnings release is available on the.
U S relations page of <unk> 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> third quarter fiscal.
Investor <unk> 'twenty 'twenty, 1 earnings conference call on Jonathan Reich, CEO of <unk> and with me is our Chief Financial Officer Heath, Si who will provide additional insight into our financial performance Q3 was an excellent quarter for us edge, we reported revenue of $5.3 million or second.
Highest quarter in the history of the company. We also delivered our fourth consecutive quarter of net income.
Sixth consecutive quarter of positive EBITDA and seventh consecutive quarter of positive cash flow from operations. We're very proud of these achievements, especially in light of the seasonal nature of our business.
Full year with Q3, being historically weak mostly from a drop in post year end holiday ad budgets.
For those of you that are newer to the story <unk> is a leading app developer focusing on mobile phone personalization and entertainment.
Arity is really in being 1 of the leading providers of mobile personal.
<unk> patient content focused on offering consumers a rich array of high quality wallpapers video wallpapers, Ringtones and notifications.
Our flagship App Xetra wallpapers and ring tones is all about personal identity. It acts as a popular hub for self expression for millions seeking.
<unk> personalization, social content and band of Mark the App is rapidly approaching 500 million organic installs across Android and iOS and the outstanding achievements for any app. The app generates revenue from a combination of advertising paid subscriptions and our zinc premium marketplace, which.
Mobile for content creators ranging from world class celebrities to emerging artists to display and market their digital content and sell it to our users.
<unk> strong third quarter performance is a testament to the ongoing investments we are making in AD operations paid subscriptions and.
Enabled the latter of which was up nearly 20% year over year specific to a last point. We also started seeing a material slowdown in the rate of mail decline in well developed markets, which dropped by only 1% in Q3 <unk>.
Delving into paid subscriptions, although we benefited from what we.
We consider healthy renewal rates of approximately 45% in year, 2 and approximately 65% in year 3 and the year over year increase remains strong we did not match the level of our prior sequential quarterly increases. This was a function of customer churn rate remaining constant on a higher total.
Total subscriber number combined with lower MAU in well developed countries, where our subscription offering tends to have better traction.
It is unclear at this time, whether the subscription part of our business was actually impacted by seasonality or if it was something else.
Other way, we are being proactive in our efforts to reverse this trend.
Trend, particularly in well developed markets until recently, we had 2 product managers overseeing our entire product portfolio Sage wallpapers, and Ringtones Zed premium Zed, plus and shorts, we recognize that to better scale, we needed to invest in expanding our product management.
We weighted to pull the trigger on this until early calendar 2021 with the completion of the content management system migration and now have 3 dedicated product managers working on our personalization app 1 focusing on the premium offering another focusing on <unk> plus our pay subscription.
Ascription offering in the third focusing on <unk> premium in.
In addition, we have a product manager assigned to new initiatives, including shorts, we believe that the additional resources will allow us to scale and execute on the various growth initiatives that we have identified with greater efficiency and these all.
Although early we're starting to see results from these hires most recently with the completion of the overhaul of user accounts, a prerequisite for social and community features that will be incrementally introduced later this summer.
The ability to follow artist send to other users.
And share collections notify users.
There's about new followers, and new content and offering an easy to remember handle like Z <unk> forward Slash, Jonathan Reich are expected to unlock fundamental user growth.
Furthermore, we are going to enhance xetra plus by bundling in value adds to make it more attractive to a broader cross section of prospect.
Active customers and ultimately drive incremental growth.
Finally, the newly hired Ziff premium product manager is working on a set of initiatives to expand our premium creator community increase average revenue per artist optimize and localized pricing make premium content more accessible to consumers.
<unk> introduced new functionality, including Ftes or non fungible tokens, ensuring that they are easier to use operationally affordable and environmentally sustainable and an improvement to our creator publishing platform. Apart from this we now have the marketing infrastructure in place per.
<unk> to analytics and all the associated connections to start testing paid acquisition and growth strategies.
This will be an iterative process, allowing us to scale based on ROE assets or return on ad spend.
I would be remiss, if I didn't spend some time updating you about shorts earlier this.
This year, we hired a product manager who has been spending the bulk of his time doing foundational work needed to understand the user base, how they interact with the app what content, they like and how they consume it.
Under his watch we introduced an AD supported version of short casts high value podcasts.
Content, we believe that short form fictional content is optimal for smartphone users and that this space is still in the early stages of maturation. We are also beginning to test various paid user acquisition strategies to complement existing organic channels introduce new features and expand our audio.
<unk> of the catalog we.
We were even more encouraged that there is a large opportunity here for <unk> in light of Nabors recent acquisition of what pad for $600 million.
<unk> acquisition of radish or $430 million.
Last quarter, we introduced disciplined M&A as part of our growth strategy.
While we don't have anything to announce at this juncture, we have been active in looking at potential targets. As a reminder, our acquisition strategy is to seek out opportunities, where we can leverage our large user base expertise in monetization knowhow and managing complex platforms outstanding engineering talent.
<unk> has a healthy balance sheet.
In closing our first 3 quarters of the fiscal year have been outstanding and we expect to report continued strong year over year growth in Q4, despite a tougher comp as our business turned the corner in Q4 of fiscal 'twenty 'twenty based on our strong fiscal year to date performance.
We are raising our full year fiscal 'twenty 'twenty, 1 expectations for revenue growth of 95% to 100%, while maintaining our track record of strong profitability and cash flow from operations before handing the call over to <unk> I would like to thank you our investors for your support.
And also want to remind everyone that our success is a direct outcome of the outstanding team of talented and dedicated professionals, who work its edge and who go above and beyond to execute our vision. Thank you now I'm going to turn the call over to <unk>, who will provide details about our financials.
Actual performance. Thank you.
Thank you Jonathan.
I want to start by reminding those on the call that our fiscal year ends July had thought it force.
Additionally, last quarter, we introduced the term debt sub question.
Place pace.
I had question on sort of magic.
Due to the change in the calculation used by Google play and now accounts.
With just a subsection stats that begins when they use this from a payment fail in.
In the 3 days Grace period and without payment resolution.
<unk>.
The chemical Purion last while up to 30 days.
With the aim to reduce cancellation rate.
Moving to the third quarter results monthly active user on now.
<unk> is a number of unique user that open.
Solution generic lots Dodi day of the period.
Increased 20% to $34.5 million June April 'twenty 'twenty 1 on.
28 on a million June April 2020.
Emerging market Mt expanded by nearly <unk>.
Per cent.
Total revenue in the third quarter increased 153% from lost share to $5.3 million.
While our growth was extremely impressive regardless.
Keep in mind that Q3 of 2020.
<unk> is weighted CPM bobbins aisle.
So this year, we saw the benefit of the work we are continually doing between pool I'll add operation.
Subscription revenue was up 98% from last year.
Demonstrating strong growth.
By the slowdown in net additions.
It is unclear how much of the slowdown in sequential new subscription growth was.
Was seasonal and how much was related to lower Mao and loyal developed market.
But with our recent hires and profit.
Product initiative, we are working to re accelerate growth in fiscal 'twenty 2.
There's payments growth transaction value on GTD net is the total sales volume transacted through our marketplace.
250000 novel.
This is up 68% compared to the year ago quarter.
And 19% sequentially.
As Jonathan indicated.
We are investing in growing this offering.
<unk> exceeded 750000 at the end of the quarter.
Sure.
And any a 9% increase year over year.
As you recall when the new user purchase obstruction.
Freeman user converts to a paid subscription.
We pay Adobe percentage to Google.
Which shows up in our SG&A.
Marketing expense.
However, if a subscriber with a monthly or annual.
Renewed air separation after 12 months the.
So Google fees dropped to 15%.
In Q3, we continued to see and Neil second renewal rate.
Approximately 45%.
And <unk> renew on are coming in at 65%.
Which is generally considered to be strong performers within the industry.
Overall, the average revenue per monthly active user on.
Al.
L plus 4.9%.
An increase of 121% year over year.
Driven by a combination of better advertising performance and higher pace of Christian numbers.
Operating margin increased 38% Lucius negative 6%.
Question.
Reflecting the continuing cost control, we have implemented while still being able to invest in growth.
Net income.
And diluted earnings per share with $1.9 million and 13% respectively.
Versus.
<unk> net loss of $300000 and loss per share on <unk>.
In the prior year.
Average shares outstanding for the third quarter were about $14.6 million on a fully dilutive basis.
Representing the share with the issue is powered by <unk>.
<unk> combined with option exercises as the stockpile increased set of clinical need and value over the past 12 months.
EBITDA was $2.3 million.
Versus breakeven last year.
From a liquidity standpoint, we have room.
In a strong net cash position with almost no debt.
And near $25 million in cash and cash equivalent.
A $20 million increase on last year and over $11 million sequentially.
The increase in cash over Q2, what's driven by.
The combination of positive operating cash flow of $4 million and net proceeds of $7 million on the $10 million ATM program, we initiated in this quarter.
Sales of which occur in a weighted average price of about $15.
Moving.
To guidance for the full fiscal 2021.
As Jonathan mentioned, we have increased our top line growth expectation to 95% to 100%.
Yeah.
Q4 has traditionally had been stronger than Q3.
But also keep in mind net our Q4.
Some will be tougher due to the gross jet sectorial that began in Q4 'twenty.
Also known as that with some key new hires we expect our operating expense run rate to.
<unk> increased slightly in Q4.
I hopefully.
Hopefully each of you remain safe and I look forward to speaking with you again on our next call.
Operator back to you for Q&A.
Okay.
We will now begin the question and answer session.
To ask a question you May Press Star then 1 on your Touchtone phone.
On if you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Your first question is coming from Allen Klee with Maxim Group Your line.
Line is live.
Good afternoon, congratulations on continued excellent execution.
1 thing that I have lots of things for more positives in the quarter, but the first thing I wanted to highlight to dig into was the.
The strength in your users and your advertising.
<unk> rates.
This was supposed to be a seasonally.
Weaker quarter.
So what do you attribute to the strength that you saw in your monthly average users and.
The revenue that you were getting for them per user.
Hi, Alan its Jonathan and thank you for the compliment and are really credit goes to the team.
And specific to your question.
It is the hard work of our AD ops team that is.
Really focused on optimizing.
The Cts.
Associated with our inventory.
We think that bad it is.
A very very significant part of the work that they continue to or the time that they continue.
<unk> to invest in.
Generating more from the inventory and that involves everything from optimizing the inventory optimizing the user experience focusing on tools like header bidding decreasing latency and so on and so forth.
I'll also.
Also add debt.
I think that industry wide cpm's had been holding up as the economy begins to open up no question of without debt.
We're benefiting from that as well hope that helps.
Alright.
And then taking into what you said that.
We're well developed a monthly the N. They use was down only 1% could you could you go into what what do you think was behind that.
And maybe like have you been doing with some of the initiatives with Apple.
Yes, so as you know we are a dominant on Android.
And ongoing improvements that we are making in terms of the overall experience or user experience in the app.
Is.
Something that we are benefiting from.
As I.
I indicated in my comments.
Going into the summer we have a lot of initiatives focused on.
What we expect will result in.
Tier 1.
Are the well developed market.
Yes.
Growth.
Specific to social and community features per.
Personalized.
It's improving improved search and recommendations.
And things like marketing automation, where we will send push notifications and so on and so forth to our users.
And those will be rolled out incrementally.
And as we see success we will.
Continue to.
Go down the path of investing in the.
<unk>.
Enhancements that are yielding that success and the ones that are non.
We're translating into.
Improved engagement.
Will.
Be turned off accordingly.
Got it.
If I move on to your <unk>.
Subscription AD free Biz.
Business.
It looked to me like that's continuing to.
To grow sequentially.
I'm not ex could could you explain a little your comments of what you said that it was a little less than the prior quarter.
Yes.
So let's bifurcate.
Not in subscribers and revenue.
You are correct that you know revenue continue to improve.
And that is a function of.
New subscribers and then renewals.
Existing subscribers going into year 2 renewals we're seeing.
That approximately 45%.
Annual subscribers will renew for a second year and then going into third year now that we've got a couple of months of third year renewals under our belt, we're seeing that approximately 65% of.
On the users that had renewed for a second your R&D is renewing for third year.
As such.
The overall revenue pie.
Kris even though we did not have a net gain.
Again in terms of.
Additions.
100000, users, which had been <unk>.
Standard in previous quarters.
Want to add anything to that.
Yes Allen Ms.
This quarter, we only added <unk>.
42000, net addition to pull off.
Such.
Fiber.
I need to get new a dish on numerous subscriber to offset the chair.
So is your base go larger.
It's harder to tell.
New substation to offset.
As such the cadence on.
And that's why the net addition has been slowed down a bit when compared to last quarter.
And got it I guess for Mike.
I would like to add 1 more piece, which I touched upon in.
But my comments on looking at.
Calendar year 2021 to date.
We have really made a significant commitment towards.
Growing our product management team and are seeing.
It seemed to us that we have.
Vacated product managers focusing on.
Our various products. So we've got a dedicated product manager focusing on on the freemium.
Portion on the wallpaper and ringtone App, we've got a brand new dedicated product manager focusing on.
Net premium our marketplace, we have another brand new dedicated product manager focusing on subscriptions and what we can do in order to.
Gross that business over time.
With value adds and things of that sort and.
And then we have a.
Product manager that we replaced.
Focusing on new initiatives in at this point in time.
That is primarily around shorts, although we have other things going on under the Hood in terms of new potential product.
<unk>.
Debt is also being looked into buyback particular product manager.
Thank you in terms of your marketplace.
And.
Do you have a lot of initiatives that are going to launch this summer.
2 things that I heard you say.
Say.
Stood out to me is kind of new 1 was including <unk> and if could you explain maybe how that would work.
When people actually bid for them on when your site or have to go they'd be created there and then second you said that you might be able to start.
Paid acquisition marketing.
Getting in and if so how do you think about what that would be targeted for thank you.
Yes.
Sure with respect to NFC use non tangible tokens.
We view <unk> as being.
A valuable utility that will be attractive too.
2 part of that exist in our marketplace.
Our requirements for that if you will are we want to make sure that.
There are affordable and so far as.
Getting the NFC out there with the artist.
<unk> is not going to.
To be in a position where they have to pay so much money to mint. These in ftes.
Got it.
Is not valuable for them number 2 is that.
They are sustainable from an environmental perspective.
And then number 3 we want to do everything possible to provide for.
Use of use and in today's world.
Minting and NFC for most people is complicated.
It requires having a crypto wallet it requires a lot of knowhow on the NFC side, we're really trying to lower that bar to make this utility 1 which is.
Is.
Accessible to a wide array of artists many of whom do not have the technical knowhow needed 2 minutes those NFC.
In terms of whether or not we will available on third party sites.
It remains to be seen but we certainly want.
Want to make sure that they are embedded in our creator platform.
Turning to your second question about paid user acquisition.
We are looking at this very analytically, we want to know that.
Uh huh.
We market to a particular segment. However, you define that segment by demographic geography.
Content taste agenda, you name it net.
We can.
Measure.
The return on AD spend.
And understand.
Did that.
User base that segment generates a positive ROI when taking a look at their LTV lifetime value. So we have invested in building the infrastructure. So that we have quote on quote all of that those connections.
Available.
Then we will understand from the point of attribution, all the way through and including.
On the customer.
Signing up and then interacting with our product.
Whether or not that's a segment that we can afford to.
Bring on but with a positive ROI.
And that will take.
That process is 1 where we will proceed.
Cautiously 1 we find and hopefully on Earth segments that make a lot of sense, we'll begin to spend more money on acquiring those segments accordingly.
2 such time that we crossed the threshold, where we say Oh, you know financially.
We can't go beyond this amount of money for this particular segment does that answer your question.
Yeah, that's great I just had a.
You housekeeping things and I'm done.
1 is so you've made.
And to hires.
That should be positive on future growth.
As to weighted.
I'm guessing that not all the cost of them was in this current quarter or is this current quarter a good run rate or is it is going to jump up from that level and any color on that.
So some of these some of these ads.
No.
We're.
Brand, new and we're not on we're not part of our team this quarter.
So I think that you will see some change but on the flip side.
There had been some people that have exited the.
The companies so it's really a balancing game.
Do you want to provide a little bit of color there.
Yeah.
Oh I'm.
So total of 9 months to April 30, we bought on the total.
So taking a day.
All per engineer product manager and.
6 of the 13 came on board during Q3.
And in terms of run rate I mean, we are not done with chipotle.
Q4, we probably don't go on another 2.
Pulled on manager.
So we probably.
You know if you're looking for a run way you probably need to factor into more head or 2 more assets.
That's great and then just going back to seasonality.
Remind us.
So I know you talked about it a little bit, but you did say that.
The July quarter, which is the next quarters typically.
Higher on an absolute basis compared to.
The the quarter, you just had but.
But then I heard you say I think that but your.
Comparisons are getting tougher but.
Is there any reason that makes you think that.
There's something about that or just something about the seasonality of how to think about the fourth quarter versus the third or or just in general.
Yes, it's 6 months, probably it's too early in the quarter.
Your company table.
A L.
Educated on.
You answered there.
Turning back to Q2 versus Q3 as as you know our Q2 is November December January so typically we.
Benefit from end of your AD spend and then there's that.
Seasonal decline.
In the February March April timeframe, where advisors AD budgets are cut back.
And.
We then will begin to see that.
For us.
Q4 for us will be.
Slightly above Q3.
But I think.
That is historical with all of the changes that we have going on in the App right now it's something that.
We're not in a position.
Debt to provide accurate guidance other than to say that overall the business is holding up nicely.
Great. Thank you my last question, just it's a balance sheet or it looks like you raised around $7.4 million in equity during the quarter.
<unk> I'm guessing that it was from your from the $10 million ATM or are you able to provide.
Where that stands today, and maybe where the share count is.
It's probably in your queue I'm not sure if <unk> came out yet thank you.
Yeah.
Yeah.
Do you want to address that.
Yes.
So we.
We raised.
7.4 and we still had about 2 points.
On.
6 on total assets that will lap and we.
To complete the $10 million.
Offering wooden nickels.
It goes down.
So our current share count is somewhere around 14.2 million share.
Excellent okay. Congratulations thank you so much.
Thank you al.
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