Q3 2023 Zedge Inc Earnings Call
Speaker 1: Thanks for watching!
Speaker 1: And that that.
Speaker 2: 2021-2023 quarterly results.
Speaker 2: 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 key followed by zero.
Speaker 2: After today's presentation by Zeges Management, there will be an opportunity to ask questions. To ask a question, please press star then 1 on your touch tone phone. To withdraw your question, please press star 2. I will now turn the call over to Brian Fiegel.
Speaker 2: Thank you, operator. In today's presentation, Jonathan Reich, such as chief executive officer at E-Sci, such as chief financial officer, will discuss such as financial and operating results that were reported today. Any forward-looking statements made during this conference call during the prepared remarks or in the question-and-answer session.
Speaker 3: 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, which are periodically filed with the SEC.
Speaker 3: such as no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that they forecast.
Speaker 3: Please note that our earnings release is available on the investor relations page on the SEDGE website. The earnings release has also been filed on Form 8K with the SEC. I would like to turn the call over to Jonathan.
Speaker 4: Good afternoon. Thank you, Brian , and thank you all for joining us today.
Speaker 4: I'm going to start by briefly reviewing our third quarter results, which were generally in line with our expectations.
Speaker 4: QT revenue increased 8% from last year.
Speaker 4: While there were still challenges related to the combination of geopolitical, economic, and industry-specific issues, we saw some early signs of stabilization in advertising, with year-over-year declines in advertising revenue decreasing to 6% in Q3 from 19% in Q2.
Speaker 4: the combination of Emojipedia delivering high double-digit growth, and the Zedge app's monthly active user base, or MAO, remaining roughly flat on both a sequential and year-over-year basis.
Speaker 4: were the primary drivers behind this performance.
Speaker 4: The headwinds have taken their greatest toll on guru shots.
Speaker 4: As I discussed last quarter, the mobile gaming industry is still struggling with effectively overcoming Apple's App Transparency Tracking Framework, or ATT, which reduces an advertiser's ability to precisely identify and target prospective customers.
Speaker 4: resulting in lower ad performance and increased cost.
Speaker 4: Yet, there is light at the end of the tunnel, as the ecosystem nears the stable adoption of solutions including SCAN 4.0 and the increasing use of AI to improve audience targeting that should result in improved return on ad spend or ROAS.
Speaker 4: Let me provide some more granular detail about our major product initiatives.
Speaker 4: For Zedge, we are iterating with Paint our generative AI wallpaper maker to improve take rates and engagement.
Speaker 4: This includes investments in onboarding, product marketing, and the core product.
Speaker 4: At the same time, we have revamped Zedge Plus, our subscription offering by bundling in-app currency that users can paint with as well as use to purchase other premium content.
Speaker 4: The subscription overhaul was rolled out in mid-May and we are currently seeing a 50% increase in free trials on Android. In addition, we also introduced subscriptions on iOS and the initial demand is exceeding our expectations.
Speaker 4: If this trend continues, it will add incremental revenue and cash to our financial statements.
Speaker 4: Over the course of the next several months, we will optimize the pricing and are hopeful that these steps will result in returning to subscriber growth.
Speaker 4: And finally, we are continuing to scale paid user acquisition for the Zedge app on Android, where we have had success in generating ROAS that justifies investment.
Speaker 4: Turning to GuruShots, over the next couple of weeks we expect to release the Battles gameplay feature, which brings a hybrid casual gaming experience that enables newbies to start competing in short duration photo competitions that are limited in size. Battles is expected to open the top of the funnel, making the GuruShots more fun.
Speaker 4: mechanic and taps into the explosive growth in the AI generative art sector.
Speaker 4: As with the rest of our portfolio, we will closely monitor KPIs including retention, engagement, session length, and the like, and then iterate to improve performance. Our goal is to expand the launch into other markets this summer.
Speaker 4: Although user acquisition for Guru Shats is still challenging, we are expecting improvements as the industry continues adjusting to the post-ATT world. Aside from the improvements and new features we're introducing to make our games more attractive to a broader base of players, we are also keen on benefiting
Speaker 4: from the advances that the market is making with Scan 4.0, which is Apple's framework to help advertisers measure the effectiveness of their ad campaigns on iOS devices, as well as the increasing use of AI to more effectively target specific audiences.
Speaker 4: In addition, we are also advancing the economy in testing an advertising layer.
Speaker 4: Take an altogether week, expect that ROAS will return to acceptable levels justifying further UAS spent.
Speaker 4: We also know that heavy hitters like Facebook and Google are hard at work tuning their models to provide publishers with a sustainable solution that delivers profitable UA spent. We are monitoring developments closely, testing, speaking with other publishers, and keeping our ear close to the ground.
Speaker 4: so that we can invest wisely. We also have focused on the AI space with the introduction of AI ArtMaster because of the potential that organic marketing brings to the table. Recall, the Zedge app has garnered most of its 600 million plus total installs by way of organic channels. Even so...
Speaker 4: Given the change in the market environment and near-term expectations since we acquired GuruShots, we were obligated by accounting standards to take a one-time non-cash write-down of $8.7 million this quarter relating to goodwill which negatively impacted our operating income. E will address this further in his comments.
Speaker 4: Turning to Emojipedia, this business is firing on all cylinders, exhibiting an impressive growth of 90% year-over-year in Q3. The improvements we've made to the user experience, ads back and multi-language support have been really paying off and there is more to come.
Speaker 4: In July , we will celebrate the 10th anniversary of World Emoji Day, with a redesign of the website and further upgrades to the offering that we believe will drive continued outperformance for this business. In closing—
Speaker 4: We saw some encouraging signs in our business in Q3, even in the face of a difficult environment. Our team is passionate about executing effectively, driving innovation, increasing revenue, and reducing costs.
Speaker 4: despite the numerous obstacles that the tech industry, particularly the mobile app sector, is currently confronting.
Speaker 4: Throughout the past few quarters, we have successfully bolstered our team with experienced professionals in product development, engineering, data analysis, and management.
Speaker 4: These individuals are diligently working towards unleashing the full potential of Zetch. With cautious optimism, I believe that these investments will generate significant value for our shareholders, just as we have already begun to accomplish with Emojapedia. I want to thank you, our investors, board members, partners and employees.
Speaker 4: for your continued support. Now I would like to turn the call over to E who will review our financial results. E.
Speaker 4: Now I would like to turn the call over to E who will review our financial results.
Speaker 5: Moving to our dual quota results. Now, defined as the number of unit users that opened our Zest app during the last 30 days of the period.
Speaker 5: decreased 0.3% from a year ago to 32 million.
Speaker 5: Now in well-developed market, it's down 6.7%.
Speaker 5: and the emotion market will up 1.6% driven by strain in Latin America.
Speaker 5: Europe , which contributed to both metrics, continued to suffer from the Russian invasion of Ukraine, inflation, and the energy crisis.
Speaker 5: Total revenue in the third quarter was $6.7 million, an 8% increase from last year.
Speaker 5: Digital goods and services which encompasses revenue from Gurushop came in at $1.1 million.
Speaker 5: Similar to Q2, GuruShot's revenue was negatively impacted by Apple's ATT framework.
Speaker 5: macroeconomic issues, and geopolitical situations.
Speaker 5: Subsolution revenue was down 8.6% driven by a 12% decrease in active subscribers.
Speaker 5: As Jonathan mentioned, we are now starting to see signs of a rebound with a new subscription offer that we rolled out over the past several weeks.
Speaker 5: Z-premise GDB was flat at $410,000 reflecting incremental revenue generated from pain.
Speaker 5: which offset modest declines in other content sales.
Speaker 5: Average revenue per monthly active users or at now is 5.3 cents.
Speaker 5: and increase of 1.5% year-over-year.
Speaker 5: Upwarding expenses increase.
Speaker 5: primarily due to the inclusion of Google Shop and an increase in paid user acquisition for the Zatch app on Android.
Speaker 5: Beyond our normal operating expenses, we also took at one time $8.7 million non-cash Good Will in payment charging Q3.
Speaker 5: that impacted operating expenses. In accordance with accounting standard,
Speaker 5: We usually perform our annual good will impairment test in Q4.
Speaker 5: However, in light of the sustained decline in our stock price,
Speaker 5: We performed an interim impairment test in Q3.
Speaker 5: and concluded that the carrying value of groove shots exceeded its fair value.
Speaker 5: resulting in this one time charge.
Speaker 5: Please note, this is an accounting treatment and does not reflect our view on the potential for Gurusha.
Speaker 5: Net loss, including the $8.7 million one-time charge, was $7.7 million.
Speaker 5: and reported loss per share was $0.55.
Speaker 5: adjusted EBITDA was 1.7 million dollars
Speaker 5: versus $2.9 million in the prior year period. From a liquidity standpoint, we remain in a strong net cash position with over $18 million in cash and cash equivalents.
Speaker 5: Moving to our stock repurchase program, we repurchase 239,000 cloud speed shares during a quarter.
Speaker 5: At a very average price of approximately $1.95 per share.
Speaker 5: In total, as of the end of Q3, we have repurchased 681,000 clause B shares since inception of the buyback in October 2021.
Speaker 5: Thank you for listening to our dual quarter earning call.
Speaker 5: and I look forward to speaking with you again on the next call.
Speaker 5: operator back to you for Q&A.
Speaker 2: Thank you. We will now begin the question and answer session.
Speaker 2: To ask a question, you may press star then one on your touch tone phone.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star 2 at this time. We will pause momentarily to assemble our roster.
Speaker 2: Your first question is from Alan Klee with Maxim Group. Please proceed. Ok.
Speaker 5: Good afternoon. Congratulations on your discipline to to continue to run the business cash flow positive in difficult times. My first question is related to guru shots. Um, you're
Speaker 5: When you originally bought it, you had discussed some planned increased marketing spend. How do you talk about the amount of marketing spend that you're putting towards it and how you feel?
Speaker 5: those dollars if you're getting or you think you'll get a good return on that.
Speaker 5: and how we should be monitoring Battle and Learn and also maybe also moving, putting pictures on Zedge Marketplace. Thank you.
Speaker 4: Thank you, Alan. Marketing spend is a function of return on ad spend. For
Speaker 4: every dollar that we spend on user acquisition. We have data from historical cohorts.
Speaker 4: that we can compare in terms of the efficiency of that spend and as discussed.
Speaker 4: in my comments.
Speaker 4: With the resettling of the user acquisition space post-ATT, we have seen a
Speaker 4: Decline in performance.
Speaker 4: Therefore, we are.
Speaker 4: being exceptionally careful about waiting for new solutions to come out.
Speaker 4: that will yield better return on abstinence.
Speaker 4: We are constantly testing, we are constantly investing in our infrastructure to improve the return on ad spend.
Speaker 4: And in addition to that, as mentioned earlier, we are investing in the product.
Speaker 4: in order to open up new sources of revenue and new customer bases, they can generate that revenue.
Speaker 4: ultimately to yield a better ROI.
Speaker 4: from the product. We believe that as the industry continues to develop and find an effective way to...
Speaker 4: target customers while preserving privacy according to the guidelines and the rules that Apple has built into its ecosystem that we will benefit from the advancements and be able to put
Speaker 4: money to work in terms of
Speaker 4: identifying those prospective customers and scaling from there accordingly.
Speaker 4: In terms of battles, as I mentioned, we are in the midst of releasing that. It's been in beta. And the goal with battles is for us to open up more of the top of the funnel to engage users. make work quickly, interventions can work on that.
Speaker 4: that are newbies that
Speaker 4: need to understand what Guru Shastra is and the intention is to provide a more contained, less
Speaker 4: and what Guru Shat's is, and the intention is to provide a more contained, less heavily intensive
Speaker 4: Game experience.
Speaker 4: for these users to sample the Guru Shots game. And then as they...
Speaker 4: continue to enjoy battles.
Speaker 4: we would then begin to bring them into the overall Guru Shat's competitive realm, if you will.
Speaker 4: then begin to bring them into the overall Guru Shat's competitive realm, if you will. Okay, great. And
Speaker 5: the process of, for pictures that people are submitting with scuba shots into competitions.
Speaker 5: to move some of those pictures into being sold on your marketplace. What's the status of that? La Modulele lull.
Speaker 4: So we've done some initial testing there. There's product work that needs to take place in order to avail that as a seamless, very easy to correct or objects most likely.
Speaker 6: accomplish.
Speaker 4: business goal and that is still under development.
Speaker 4: Separate and apart from that, we've talked about the notion of using some of the Guru Shots expertise in gamification to add gamification elements to the Zedge app. And that is also something we are investing in. And I hope that fast forward to the next.
Speaker 4: quarter or so, some of that will be fully available in the in the ZEDGE ringtone and wallpaper app.
Speaker 4: Some of that will be fully available in the ZEDG ringtone and wallpaper app. Thank you.
Speaker 5: In terms of you mentioned that your monthly active users was
Speaker 5: close to, like had held it pretty stable, which in this environment is a positive. What would you attribute that to?
Speaker 4: A combination of several factors. First of all, continued focus on
Speaker 4: seeing to it that our product is enjoyable.
Speaker 4: offers value and is easy to use. In addition to that, we have also
Speaker 4: been ramping up our user acquisition spend for the ringtone and wallpaper app specifically focused on Android. And we've seen attractive return on Aspen for that.
Speaker 4: investment. That is one of the movers to the growth that we've experienced, particularly in Latin America. And we will continue to invest in paid user acquisition as long as the ROI is there to justify that investment. Okay, great.
Speaker 5: You've been able to hold up your advertising rates despite a market where I imagine most other companies are seeing down numbers. What do you attribute that to?
Speaker 4: Our AdOps team has and continues to invest significantly in terms of everything having to do with the optimization of our ad inventory and on a monthly basis just to give you a frame of reference we've likely run several hundred different tests.
Speaker 4: from that ad inventory. And as you know, that's been a never-ending part of our business and one which we continue to excel at.
Speaker 5: Great. The new name, new game that you're rolling out...
Speaker 5: I'm not sure if I got the name AI, AI Art Master. Could you just tell us?
Speaker 5: a little bit more of I think it's a soft launch now, but what the plan is there.
Speaker 4: Sure. So AI Art Master is
Speaker 4: Sure, so AI Art Master is really focused around
Speaker 4: offering a competitive opportunity for users to create AI images.
Speaker 4: and then compete to see who has the best AI image around a particular theme. Could be...
Speaker 4: anything from pet pets to...
Speaker 7: to
Speaker 4: next generation automobiles and anything that you can think of.
Speaker 4: The gameplay is such that we have a small audience competing against each other over a short duration of time. Users will go in and the core game mechanic is that they will begin voting based upon side-by-side views of various images specific to that theme.
Speaker 4: The user that garners the most votes will get ranking. There's also a meta game associated with that.
Speaker 4: where the user will be able to open up an art gallery. And the intention is to bring visitors into their art gallery. The more visitors that they bring in.
Speaker 4: where the user will be able to open up an art gallery. And the intention is to bring visitors into their art gallery. The more visitors that they bring in, the more...
Speaker 4: credits that they receive and rank higher and so on and so forth.
Speaker 4: From a monetization perspective, we expect that the game will have a combination of both advertising as well as a token-based economy, very much following the trend in mobile gaming, which is this hybrid casual model. And insofar as a soft launch, we expect that the game will have a combination of both advertising as well as a token-based economy,
Speaker 4: Over the course of the last quarter we have and will continue to
Speaker 4: fine-tune the gameplay while at the same point in time ensuring that we have no bugs or potential logical errors in the game. And after that, we will begin to take a look at retention graphs.
Speaker 4: marketing and seeing to it how do we expand into other markets. We are really working
Speaker 4: in a very iterative and fast-paced environment.
Speaker 4: taking our learnings in real time and tuning the game and fine tuning the game in order to see to it that when we do go out to commercial launch that we have a very, very attractive game mechanic, which will ultimately yield a good retention curve, good engagement statistics.
Speaker 4: and opportunities to generate revenue.
Speaker 5: Great. You're offering a paint where you can do AI wallpaper generation. Any updates on that?
Speaker 4: First, so I think that when you take a look at.
Speaker 4: where we are investing effort, we are very much investing effort company-wide in riding the explosive AI market. And as you had mentioned, we've got Paint, which is an AI wallpaper image generator. We've got the AI Artmaster game. We're also using AI in terms of...
Speaker 4: Anything from marketing needs to our tech stack and things of that sort. And we're one of several companies that are publicly traded that offer an opportunity for investors to...
Speaker 4: benefit from the explosive growth that's taking place in this market specific to paint
Speaker 4: We are doing several things there. First of all, we are continuing to refine the product. We are improving the onboarding funnel to draw more users in, and we are...
Speaker 7: Pub.
Speaker 4: offering users the ability to have
Speaker 4: a continuum of paint opportunities when they become subscribers. As mentioned earlier, we've invested in
Speaker 4: our subscription offering and in May we rolled out a subscription offering that has chock full of value as in it aside from just what had been our ad free offering. And one of those is offering paint so that users can paint.
Speaker 5: with large volumes without having to clip the ticket every time they created an image. Interesting. So, following up on that, on subscriptions, you commented. So it was down year over year, but you had very positive comments on what you just said, the May offering of.
Speaker 5: a new offering for Android and you're also rolling it out for iOS. Um, does.
Speaker 5: for Android and you're also rolling it out for iOS. do how
Speaker 5: Maybe if you could just remind us what is being added, you just printed paid, anything else that you think is out of that you think is.
Speaker 5: causing this to improve or whatever is causing it to improve.
Speaker 4: Sure, so the core offering is an ad-free experience coupled with
Speaker 4: the ability for users to paint and lower the volumes of opportunities for them to paint without having to pay for each individual image as well as Zedge.
Speaker 4: tokens that can be used in order to purchase premium content. And that is striking a chord with users when taking a look at the value proposition that that brings to the table. And on iOS, similar, you know, mentality. Well, there are a couple of reasons why Rust is using WinD Th works is because not all the screen egalitarianization is another way of creating something fun that helps you to
Speaker 4: has proven to be very attractive as well in terms of bringing subscribers in. That is a new line of revenue for us. We had never offered a subscription offering on iOS. I think I mentioned that...
Speaker 4: or is proving to be very attractive as well in terms of bringing subscribers in. That is a new line of revenue for us. We had never offered a subscription offering on iOS. I think I mentioned that what we have seen is...
Speaker 5: an uptick of 50% of trial subscriptions on Android, and some very, very solid revenue being produced from the iOS offering, which we have rolled out for the first time. That's great.
Speaker 5: Last one last quarter's earnings call you mentioned and you were doing you were implementing a two and a half to three million cost cutting initiative was
Speaker 5: Has all the whatever that is already been done and how much of that was?
Speaker 5: the impact of that reflected in the April results.
Speaker 5: Sure. So.
Speaker 4: The annual goal is to get to that two and a half to three million bracket, and we have taken steps forward in order to achieve that. And we're on track, I would say to meet that goal.
Speaker 4: And it really addresses or the way in which we are achieving this is really taking a look at all areas of the company where we are able to either renegotiate rates where we're able to measure.
Speaker 5: ROI and say, hey, we're not getting the ROI that we needed from this, let's pull back on it, and so on and so forth. And there may be some additional.
Speaker 4: pieces that will not kick in until contract is fired, but nonetheless, we are generally tracking to meet.
Speaker 4: that will not kick in until contract is fired, but nonetheless, we are generally tracking to meet those numbers accordingly.
Speaker 5: Okay, so if I take everything I heard today, um...
Speaker 5: From what you know today, would this suggest that maybe the bottom, the business has
Speaker 5: Stabilized at a certain level with some potential of. Of improving if it's something still right.
Speaker 4: I mean, I mean, listen, I think that last quarter, as I said, last quarter was a
Speaker 4: much more complicated quarter. We have seen some stabilization. I don't think that the jury is fully out yet in terms of what's happening at a macroeconomic slash geopolitical level. And in terms of the industry specific challenges that others with signing the racetrack University have they fully understood
Speaker 4: you know, we are facing with respect to ATT. Some of the major players, let's say Facebook, is planning on releasing their solution to this over the summer. When that comes out, you can be rest assured that we're gonna do everything within our power.
Speaker 4: to benefit from it and scale on the Guru shot side. And on the Zech side of the business,
Speaker 4: We're subject to what's happening, you know, on a macroeconomic slash geopolitical level. So depending on what happens with CPM and user acquisition costs and things of that sort. We hope that, you know, we've seen the worst and that, you know,
Speaker 4: Times will improve, but at the same point in time, I'm not a market prognosticator. We're really operating and keeping our eye on doing the right things. As you had said in your introductory comments, we had delivered positive cash flow.
Speaker 4: And that is to us something which continues to be a very, very critical part of building and expanding our business..
Speaker 5: Thank you so much. Thank you. Thank you. Again, if you have a question, please press star then one on your touch tone phone.
Speaker 2: It looks like we have no further questions in queue. This concludes our question and answer session and conference call.
Speaker 7: Thank you for attending today's presentation. You may now disconnect.