Q4 2022 Zedge Inc Earnings Call
Good day and welcome to <unk> earnings Conference call for the fourth quarter and full year fiscal 2022 results.
During managements prepared remarks, all participants will be in a listen only mode.
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I will now turn the call over to Brian Segal.
[music].
Thank you operator, and today's presentation Jonathan Reich.
<unk> Executive officer, and East side, such as Chief Financial Officer will discuss Idt's financial and operational results for the fourth quarter and full year ended on July 31 2022.
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 <unk> files periodically with the SEC.
<unk> assumes no obligation to update any forward looking statements or to update the factors that may cause the actual results to differ materially from those that they forecast. Please note that our earnings release is available on the Investor Relations page of <unk> website.
<unk> has also been filed on form 8-K, with the SEC I would now like to turn the conference over to Jonathan.
Often.
Okay.
Good morning.
Thank you, Brian and thank you all for joining us today.
I'm going to start by briefly reviewing our fourth quarter and fiscal 2022 results.
Revenue increased 41% and 36%, respectively, both guru shots and emerge a PDR.
Primary drivers of both the year over year and sequential quarterly growth ex.
<unk> revenue was up by 22% driven primarily by advertising.
As I mentioned in earlier calls, we are investing and scaling guru shots and don't expect it to be profitable for another 18 to 24 months, even so on a fully consolidated basis that remained profitable during the fourth quarter, although less so than last year.
Once you exclude the one time accounting gain on.
On a positive note for the edge App total installed increased 11% in 2022 from the end of 2021.
Arc now and that is average revenue per monthly active user increased 17% and zinc premiums gross transaction value or <unk> TV grew by 23% in the fourth quarter and 60% for the year.
Now for these edge app decline across well developed and emerging markets, finishing the year at $32 million.
He will provide more financial details in his section.
Now I will share an update on our strategic priorities moving forward.
Our leading products are the Guru shots photography game and that is premium digital content marketplace, which today offers mobile phone wallpapers video wallpapers, Ringtones and notifications happens.
In total our products served over 40 million users in July .
Our company is positioned at the intersection of two major growth trends in consumer Tech casual gaming and.
The creator economy.
Today, most smartphone users have become amateur content creators sharing their photos illustrations means and videos to express themselves and gain social validation. In addition, they value friendly competition and garner popularity and recognition from their online community.
Many of these creators are talented enough to attract a meaningful following and monetize their content.
This is what's known as the creator economy.
A market that has grown massively over the last five years.
Prior to the <unk> acquisition. This past April our core product was the zadruga, which served 32 million MAU.
In July 2022, we monetize these customers with a combination of advertising subscriptions and in App purchases of edge tokens are virtual currency.
<unk> premium offers artists the ability to sell their creations directly to our customers.
In December of 2021 we expanded the opportunity for <unk> premium artists.
Reducing ftes made easy which provides non crypto experts with an easy to use eco friendly platform to token eyes and sell their art to our customers for <unk> tokens, we've been somewhat insulated from the effects of the crypto winter that is currently challenging the NFC market.
As our offering focuses on making an F. T is affordable and easy to obtain for mainstream consumers.
Guru shot as a category killer that fuses photography with gaming, enabling amateur photographers essentially anyone with a smartphone to.
To compete in a wide variety of contests across iOS, Android and the web that showcase their photos.
Game mechanics include progressively more difficult competitions with successful players mastering their skills and then continuing to the next level until ultimately, earning in the coveted Guru title.
Players can compete individually are joined together as a team.
The game includes community features leaderboards and chat functionality, which create a sense of belonging inspiration and competition.
The penetration rates, we have a lot of room for growth as we estimate that 30 to 40 million photo enthusiasts regularly use their smartphones to taken publicly share high quality photos, and who would be interested in participating and photo contests every month.
We also acquired <unk> a profitable web site that is the go to source for all things Emoji and August of 2021 over the past year, we have redesigned the motor PDL website localized into 18 languages beyond English and have started to recognize that.
Benefits associated with overhauling the ad stack.
<unk> is building a strategic flywheel that leverages, the synergies of a gaming and marketplace dynamic across our portfolio.
Engaging communities of consumers with content that provides value across a multitude of online and mobile platforms, including social networks messaging and gaming. This approach connect creators with friendly competition community and commerce.
One of the critical foundations needed to accomplish this formidable GUL has easy access to accurate data that can be used to make informed decisions about all aspects of our business, including marketing product design and usage.
Content, serving et cetera to this end, we created a dedicated data leadership role and recently hired a head of data to oversee indirect all data initiatives, including data collection cleansing analytics model building and deployment.
Organizing all of these efforts in one group enables us to progress with a unified approach that is expected to drive improved monetization marketing product development data science and business intelligence.
We have also committed meaningful dollars to marketing specifically paid user acquisition and Reengagement campaigns.
We are scaling up while also benefiting from the data that guides our decisions.
The changes to user privacy rules that have unfolded in the industry over the past 18 months or so require us to analyze all aspects of the marketing funnel with granularity in order to optimize the return on investment we are developing our capabilities in this domain company wide in order to deliver prop.
Notable customers to <unk> marketplace and Guru shocks.
<unk> marketing is a function of many ingredients and depends on good data as such our success is tied to coupling these initiatives.
Another marketing focus is enabling guru shots artists to sell their awesome images and our premium marketplace.
We expect to introduce phase one of this crossover later this month and evolved from there eventually offering sales not only from within the <unk>, but also on the web every month Guru shots players upload around 1 million photos to the platform.
We are excited about the monetization opportunity that this creates for guru shots players, who will be able to make money from their content that they create for gameplay and just about six months.
We are delivering on a synergy that we identified when making this transformative acquisition.
Talking about synergies, we started a cross pollination process loaning various members have ours edge app team to Guru shots to both accelerate guru shots initiatives and acquire gamification expertise as we expect to apply these learnings to the Z. Jack This also allows us to control.
SG&A better as we want to continue running the company profitably.
From a product perspective, we have several promising developments that are either in the midst of being introduced or are to be rolled out in the next several weeks starting with Guru shops, we have three major initiatives underway. The first relates to customer onboarding over the past several months.
We revamped the Onboarding process and recently had a breakthrough with respect to converting users into paying players are new onboarding ramp has yielded a more than 35% rise in converting installs to first time paying players, which is a key gauge of measuring the success of driving users to paying players.
That generate revenue and.
And a positive return on AD spend otherwise known as robots. It goes without saying that time will tell if these increases are sustainable but if they are they speak to some of the early benefits associated with overhauling our data organization.
Next.
We are about to introduce a feature that our players have been asking for mainly <unk>.
Learn feature which is a tick tock style feed of short form and engaging educational videos that focus on providing tips and techniques.
Four improving one's photographs created by expert photographers depending on how this unfolds, we may be able to use it as a mechanism to introduce a subscription based offering and or advertising support providing additional incremental revenue and diversifying our monetization.
Finally, we've been testing battles, which offers a quick way for newbies to start competing in simplified photo competitions that are short limited in size and built on a coin based economy.
We expect the battles will allow us to drive more users into the game play increase engagement advance our game economy, and ultimately drive more revenue.
Moving to the Z Jack we initiated a comprehensive 360 degree user experience review to identify shortcomings that chip away at engagement retention and lifetime value. If we successfully close these gaps we expect to benefit from improvements.
Not only in the aforementioned kpis, but also in improving our already strong user ratings and reviews.
Which would unleash improved placement in Google play the algorithm and ultimately drive more user installs as mentioned earlier, we continue enhancing search premium and specifically the N F. T has made easy platform as.
As we evolve the offering we will add features including drop dates.
Creating the ability to use crypto as a payment type.
And opening the platform up to more types of content and artists. Additionally, we expect more well recognized artists to distribute their content in our marketplace as banksy and Michele Klein have already done.
Turning to emerge a PDR, we now support 19 different languages going forward, we will focus on two areas optimizing the adds back and expanding the product offering potentially with a native mobile App version.
Finally, we are down the road and evaluating the viability of new content and products. In addition to the ones we've discussed today.
They tuned for more information on this in the upcoming quarters.
The Guru shots acquisition will alter our financial projections, given the growth investments, we expect to make Furthermore, like many digital businesses. Our business is experiencing pressure due to global economic uncertainty geopolitical risks, especially resulting from Russia.
Invasion of Ukraine energy shortages inflation and rising interest rates as such we are remaining cautious with our outlook that said, we still expect revenue growth in fiscal 'twenty 'twenty three on a consolidated basis, while remaining profitable.
Next week, we are going to celebrate Thanksgiving.
Living in a free and Democratic country gives us much to be thankful for I would like to use this opportunity to thank our investors for your continued support I also want to thank our employees for their commitment and hard work, especially in light of the Guru shots acquisition finally.
I'd like to underscore how highly we think of our colleagues at Guru shops.
We've had a great start to our relationship and we are excited to work together to increase shareholder value overtime.
Now I would like to turn the call over to <unk>, who will review our financial results.
E.
Thank you Jonathan.
I want to remind last one I'll call that our fiscal year ended July 31.
Please note that Q4 was the first in which we recorded a full quarter of gurus shots results.
Moving to a full quarter of resolve.
Now defined as the number of unique users that opened our that's add to in the last 30 day of the period.
<unk> increased 7% to 32 million for Q4 2022.
MAU in work apparel market was down 14%.
And in the merchant market nearly 5%.
Europe , which contributes to both branching was hit especially hard.
By the Russian invasion, and the attitude of the crisis and its economic impact play of most in the second row in this quota decline.
Total revenue in fourth quarter was $7 $4 million of 41% increase from last year.
<unk> revenue showed growth.
But weaker user number and the overall economic environment led to restrain growth.
This quarter, we added gaming revenue as a line item in our press release financial.
Which today.
It makes up in App purchase on Google shop, totaling one 4 million followers in the quarter.
Similar to the other part of our business Kurus US revenue was negatively impacted by the situation in Europe .
Subscription revenue was down nearly 4% as we are starting to see the impact of reduced active subscriber number.
Auto revenue, which mainly include a more superior and as premiums increase primarily from the addition of and which are pretty or this year.
However, there's premium continue to show attractive growth rate.
A smaller base.
There's payment of gross transaction volume or J T V.
And so total sales volume transacted through our marketplace.
<unk> increased 23% to $320000.
Flapping increased sales and XP.
Acting subscription, but down 8% versus last year as new subscription sale did not offset the charm.
Overall average revenue per monthly active user or App MAU was 5.8 cents, an increase of 17% year over year, driven by the advertising performance and higher revenue from that premium.
This year operating expenses, excluding one time items increased by 110% due mainly to the acquisition of Goose shock.
However, we did have a one time non cash item and the full quarter.
A 4 million contract operating expenses to revalue the crews short earn out.
Based on the updated growth assumption.
This was classified on the income statement as a change in fair value of contingent consideration.
Excluding this contra expense.
Operating income.
Decreased by 62%.
Leading to an operating margin of 11, 4% versus 42.2% last year.
Provision for income taxes, which totaling $16000 this quarter versus a benefit from income tax expense of $56000 last year.
Our effective income tax rate was 12, 6% for Q4 fiscal 2022 must dos and the statutory rate primarily due to a 4 million one time benefit discuss about.
And in fact have income tax rate was negative two 3% last year.
Primarily due to a release of procreation, earning against deferred tax asset.
Reported diluted EPS was <unk> 31 cents. However, excluding the 4 million one time benefit just mentioned.
Diluted EPS would have been four cents versus <unk> 17 same loss shares.
Diluted share count was 14.7 million.
Adjusted EBITDA was $2 $2 million this year losses to $9 million last year.
Our adjusted EBITDA margin was 30% this year versus 55% last year.
No that we excluded the 4 million, one time benefit and $600000 in stock comp expense from our adjusted EBITDA calculation.
From a liquidity standpoint, we remain in a strong net cash position with almost $17 million in cash and cash equivalents.
On that note in late October we made a risk management decision to put in place at 11 million loan facility.
May a lot of the term loan and revolving line of credit.
We felt this move was prudent given the uncertain economic environment.
As part of the agreement, we drew down $2 million of the tongue pong at closing.
We believe that our strong financial performance over the last several years combined with our future business prospects contribute to our ability to secure a facility of this size.
We view this as a positive, especially in light of the challenging physical landscape.
This move will enhance our cash balance and the facility would give us additional flexibility to further growth when appropriate.
We also announced a share repurchase program during the fourth quarter.
As of November 10, 2022, we repurchased 160000 shares.
Thank you for listening to our fourth quarter earnings call and I look forward to speaking with you again on our next call.
Operator back to you for Q&A.
Thank you we will now begin the question and answer session to.
To ask a question you May Press Star then one on your Touchtone phone.
If you were using a speakerphone please pick up your handset for pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
On the first question comes from Allen Klee.
From Maxim Group Allen Your line is live.
Yes, good morning, and congrats on all the while.
While the stuff you're doing.
Could we start with.
Average revenue per monthly active user that being up around almost 17% can.
That was surprising to me considering what we're hearing from from other people out there.
What was the driver behind that thank you.
Hey, Alan It's Jonathan Reich, Thanks for the for the compliment.
The driver behind that is again, what we've talked about quarter over quarter.
Which is.
Almost a.
Nonstop maniacal perspective too.
Optimizing power.
AD Tech stack as you recall, we migrated from mobe hub to App Lubbock is our mediation platform.
In March of 2022.
And when.
When we had undergone that process, we've done testing across other platforms and.
<unk> <unk> was proving too.
Outperform and since then we have continued to improve.
The entire flow so that we can ultimately deliver.
This sort of.
Performance.
That's great.
And then in terms of the monthly active users.
How do you think about kind of on a sequential basis.
Is there any way you can think about when that might stabilize kind of.
Or what are the factors that will get you there.
Sure. So if I recall correctly on a sequential basis Q4, we were we were basically flat quarter over quarter.
And.
Where we are investing our efforts.
It is really around two areas.
One is around feature development.
That we believe can help us in terms of turning that quarter corner, if you will.
And then the other is around.
And taking advantage of.
Pete.
Channels for both user acquisition and ultimately a reengagement.
And doing so within the context of.
Driving profitable users to engage and re engage with the app.
I think then.
We will be able to talk about this with greater clarity.
When we report Q1 earnings.
Between now and then there are some new features that are coming out and we might have some early indications as to what impact that is having on DAU, but ultimately.
Aside from those new features as you know we had introduced social and community features into the App.
Later than expected due to the resources, we had to invest in the App love and migration.
And we are seeing that.
That investment.
Early stage is also having a positive impact we have a lot of work to do there in order to get more users too.
Enroll and engage in the <unk> funnel.
But that will also potentially be a contributor to reversing that trend.
Great and for.
For Google shots. So so is great would you talked about the 35% increase.
<unk>.
Of converting to first first time payors.
Can you talk a little about how.
How you think about.
The process of.
How that might continue and also.
The integrating of.
The ability to sell the pictures on.
The premium.
Sure.
The various shots.
Game is.
Fairly sophisticated game.
Gameplay, and there is a rather steep learning curve.
It is.
<unk>.
The user stays when they start engagement with the game.
So.
As mentioned we have a.
New feature called battles that.
Is shortly to be rolled out and the notion around battles is to provide immediate game play to a limited customer base.
In a short period of time, so by way of comparison, let's say a typical photo competition will last 48 hours and is open to the entire universe of players.
You can add several thousand players that are competing.
And for a new user that's a fairly.
Steep learning curve.
They have to undertake in order to ultimately when our competition.
By contrast with battles.
Battles will be shortened duration could be five minutes 10 minutes and will be capped in terms of the number of players as well as.
What's needed in order to ultimately prevail.
And it will be much more of a real time type of experience.
So.
The notion of bringing the game play.
And making it immediately accessible to users in a fashion which provides for.
Let's call it.
If not instant gratification near real time instant gratification.
Something which we believe coupled with the improved onboarding funnel.
We will contribute to.
Making the game more accessible to a broader number of users that.
Engage with the game.
And finally, as we mentioned, we're improving the game economy.
Battles will be the first iteration, where we introduce a token based economy.
Which will allow for a lot more flexibility in terms of how users.
Ultimately by game resources and apply those game resources in order to win a particular battle.
In many ways.
Battles is taking.
Which has.
Deep strategy.
<unk> ended with it and making it more accessible I don't want to say that we're turning it into a social game, but the notion of having a.
More social game type of like experience is core to.
What we believe will help.
Drive growth and increased purchases and drive revenue and.
So on and so forth moving onto your second question.
We expect to see let's call. It version, one point, though of the Guru shops into Z premium funnel.
Old out.
In the next couple of weeks.
<unk>.
The intent there is to <unk>.
Take these high quality.
Photographs the brewery shots.
Audience and community creates and avail them for monetization opportunities within our premium marketplace.
There is a lot of iteration that will happen from version one point, though but the notion ultimately is to see to it that it is.
As seamless a process as one could possibly imagine.
If we were to have done nothing.
It would have been 12 Gui shots player somehow knows as edge. They have to open up an account in veg. They then have to get approved they have to upload their content depth to set pricing and so on and so forth agreed to a different set of terms and conditions privacy policy.
Pretty laborious the notion of Cree.
Creating.
A.
Seamless funnel is one where.
We ultimately want to be in a position, where we have a good shots pleasure to say hey by the way would you like to monetize that you'd like to sell your content.
Two Z is 32 million monthly active users.
<unk> would say, yes, and then the.
The ultimate will be the data on auto pilot and they can ultimately begin to benefit.
And then use that money.
That they earn too.
Potentially spend more on.
The Guru shops game accordingly.
No that that's really interesting. Thank you and then.
Just an update on an N F Ts in terms of.
Well two things maybe premium what you've been doing I know you've added some high profile part is and.
And maybe any update on kind of how <unk> has been tracking.
And an update on your you said that the personalization and social.
Items have had been delayed a little because of them.
Focus on the AD stack could could you just remind me on what.
That is in the process of happening and when that's if it's already available or whether that should be fully available. Thanks, yeah. So I'll start with the second one first so yes, we rolled out some of the social community features.
What I said was that the original.
Expected delivery date had been pushed out because we had to allocate our resources to complete.
<unk>.
Apple of in migration.
And.
Although they've been out there for a couple of months, we are seeing that for the user base that is opting in and taking advantage of them that those users are accurate actually.
We're seeing an improvement in all of their key performance indicators, whether it be retention engagement monetization and so on and so forth.
What we're beginning to focus our efforts on.
Is product marketing initiatives in order to bring more of our user base into that.
Funnel that we call <unk> edge, which has these.
Social and community features.
In terms of.
The.
Former question with respect to <unk>.
So as we all know.
The industry is in a deep state of.
Crypto winter.
<unk> had.
Our announcement last week, and so on and so forth I want to be very very clear.
<unk> is not in.
In any way shape or form.
At risk, we don't we are not a crypto provider.
We.
<unk> always taken a philosophy that.
There is this technology that provides for.
Provenance allows for limited edition capabilities allows for.
True ownership of content.
And we have not.
Jumped on the hype train.
That existed during the.
Crypto bubble if you will.
Having said that we have seen a decline in FTE sales.
Calling that our average price for NFC is not thousands of dollars not hundreds of dollars but.
Typically double digit dollar price levels.
It is something where our long term belief is this is technology and technology, which is <unk>.
Benefits creators.
Technology, which is a benefit to end users.
And for it to scale and really too.
Become commonplace the need for an easy to use.
Seamless solution is what it's all about and that's how we have crafted NFC has made easy.
From an artist perspective, an artist goes into the portal they don't need to own a crypto wallet. They don't need to know anything about technology or how <unk> works they simply toggle switch.
And then they say that they want that particular piece of content to be minted as an NFPA pick a price point and they're done and from an end user perspective. The end user uses Fiat currency to make an in app purchase buys some of our virtual edge tokens those were not crypto.
<unk>, they're just virtual currency thats used in our App.
Then they use those tokens in order to buy the.
Non fungible token which is well.
A video wallpaper wallpaper.
Soon to be under content to other content types accordingly.
So.
Chances are that we are.
Not growing as fast as we would like to just because of the fact that <unk> has gotten a bad name in the marketplace because of crypto winter. However, we're in this for the long haul and the notion of being able to offer some of this functionality.
Is something which is beneficial to this creator economy that we are a member of and we will continue to offer that to our artists and ultimately.
Two are.
Consumers so that they can have.
Proof of ownership.
And take advantage of the content that is being offered in a token is fashion.
That's great. My last question just just in terms of your outlook.
Sure.
Just is there anything.
That you can provide of.
It seems like the way to think about it as youre going to be reinvesting a lot of.
Of your sort of the revenues into some of the.
Growth initiatives for for your new businesses. So.
Modest profitability in the next year.
Is that the way to think about it or.
Sure sure Okay.
So I'd say it falls off.
Our.
Our goal is to see to it that we continue to run the company profitably on a consolidated basis.
Profitability give you runway it gives you optionality and so on and so forth.
We.
Are going to be reinvesting.
Profits to grow.
The assets that we have.
And our portfolio, obviously, we acquired Ur shops within knowledge that.
They weren't they are not yet profitable. However, we also believe the group's shops has great potential on a standalone basis as well as through some of the synergies that it can bring to the table and as I said earlier, we're here for the long haul.
We're building a business we're building a business that has.
No.
Two business units in it.
And two business units, which individually have great value.
But also open up the door for.
A halo effect in terms of the synergies that we see available to us.
And we think that.
The proper thing to do is to seize that opportunity.
And act in a fashion so that we can make this pie that much bigger based upon the assets that we have in our portfolio and.
One is which.
Most platforms, if they were to take what we have.
Or take an individual piece of what we have would not be able to tap into those synergies. So.
One feeds off of the other and we're going to continue to pursue that.
To make that a reality.
That's great Congratulations again and thank you very much.
Thank you.
Thank you once again, ladies and gentlemen, if you do wish to enter the Q&A queue. Please press star one on your phone at any time.
The next question is coming from Sanjay rigor.
Sanjay is a private investor.
Hi, good morning.
So I had two questions.
Last year, there seem to be a lot of focus.
On the shorts.
So I just wanted to ask about that.
What the plans are for the App.
And how to think about that moving forward.
And the second question is on Manhattan, a hard time.
Understanding.
The $2 million loan gives them be.
Cash position.
And how does that.
Play out as far as.
If there is an overall.
Concern about the macro economic environment.
And then why is money being spent buying back shares.
And I'm just trying to reconcile all of this information.
And how to think about it going forward.
Yes.
Hey, Sanjay. Thanks. Thanks for the question. So let me start with shorts as we said previously.
When we acquired Guru shots remember, we made two acquisitions in fiscal 2022 ammonia PD angerer shops.
And.
Our.
Analysis pointed us into that.
And in the process of saying well do we continue to invest in shorts.
And.
Digest these two apps.
Acquisitions, while still at.
At the same point in time, focusing on the ringtone and wallpaper business.
And we made a decision to say, let's hold back on Schwartz for now we don't want to spread ourselves too thin it will take.
Resource and investment in.
In order to.
Scale that business.
So shortz is really back burner.
And we are not investing.
Resources.
<unk>.
Continuing to evolve that product for the meantime, we have a lot of work cut out for us in terms of delivering on the strategic vision that we've described with respect to.
These edge and Guru shots.
Businesses, both on a standalone basis and Synergistically.
In terms of the.
Credit facility.
So as described in the credit facility is.
In total and $11 million credit facility, there is a term components.
And we and.
In order to see.
Secure this.
We're required to draw down $2 million.
We think that the.
Benefit of having extra powder in the keg that we can use.
In the event that there is a great opportunity in terms of <unk>.
Growing the business.
Honestly.
We have great breakthroughs in certain areas.
It is worth the risk.
In a.
Overall market conditions as we are faced with and in terms of the buyback we think that the stock is.
Undervalued, it's as straightforward as that.
So.
As you May recall we.
Had raised.
$15 million.
At the market offering I think our average price for that was around $10 a share.
So.
With the expectation or with the hope that our stock will appreciate over time, we think that it is.
Valuable too.
It takes some of those shares out of the market.
I hope that answers your question.
It does thanks Jonathan.
Sure.
Thank you.
And that concludes our question and answer session and conference call.
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