Q1 2025 Zedge Inc Earnings Call
<unk> of the AD stack continues paying off this success also reaffirms <unk> role as a revenue generating powerhouse within our portfolio and validates our original acquisition thesis on cyber Monday <unk> expanded its emoji playground with the beat.
<unk> launch of its AI emoji generator, marking another milestone in our strategy to transform <unk> into an interacted and creative platform.
Users can now design their own custom emojis, making this a very personal experience and allowing them to make their creative dreams a reality.
In keeping with our goal of turning consumers into creators.
Although it's too early to report on the engagement metrics. We believe this feature along with the upcoming redesign of the website are critical to expanding our motor P. D as user base and deepening engagement with existing users.
Guru shots remains a work in progress and we are taking decisive steps to improve its growth trajectory.
Our strategy focuses on attracting new users and converting them into recurring paying players to date, we introduced a fun and a comprehensive onboarding experience to draw new users into the game play with ease and migrated to a coin based in game economy to enable more possibilities.
Reward and monetize players. We also launched emissions as set of tasks that players need to complete to earn rewards taken together. These initiatives have yielded encouraging results improving new player engagement and retention over the course of the past week, we started to debut.
Duals.
Fast paced real time player versus player game mechanic that adds an exciting competitive later to jewelry shops. We believe this enhancement will also drive further engagement from all players, including new legacy and even those who may not even been drawn solely to the games traditional format.
Although the transition has come with a drag on near term revenue. We are optimistic about the long term potential of these efforts by aligning our product roadmap with a robust marketing initiatives and leveraging live ops strategies, we aimed to widen the top of the funnel bring in new users and unlock.
<unk> revenue growth as we look to the rest of fiscal 2025, our focus is on leveraging generative AI to transform users into creators and drive growth across all business units.
The next phase of our AI roadmap includes the introduction of an AI audio generator for this edge marketplace, which we believe represents an exciting opportunity to attract new users and deepen engagement with existing ones.
Audio personalization is an emerging trend in AI and we aim to further enable our users to become creators with this feature and.
In fiscal year 'twenty five we are also focusing on transforming our technology development infrastructure to support faster and more efficient development of new apps and products.
By building, a modular and scalable platform, we aim to streamline the creation process, allowing components to be repurposed or adapted across multiple projects with these.
This approach not only enhances efficiency and reduces costs, but also enables us to operate with greater agility.
With this foundation, we can quickly prototype test and refine new ideas.
Ensuring we prioritize initiatives that demonstrate strong potential for returns this dynamic framework empowers us to pivot or scale efforts as needed driving sustainable and profitable growth over the long term.
Beyond product innovation, our marketing team remains a critical driver of revenue growth.
The team is accelerating Rojas positive user acquisition, particularly in well developed economies, where we see strong monetization potential. Our continued success with iOS users is a testament to the strategy for <unk>. We believe the continued expansion of the multi playground and the.
Supported website redesign will sustain its reputation.
As the premier destination for all emoji enthusiasts worldwide and enable further revenue growth.
Guru shots. Meanwhile, is at a pivotal stage by focusing on features that drive new user growth and effectively monetizing those users we are laying the groundwork for sustainable growth. Finally, we remain committed to developing new products to fuel long term growth initiatives like witchcraft in AI.
Master exemplify our ability to innovate rapidly and iterate on promising ideas these projects and others in development position us to uncover new opportunities that can drive incremental wins and breakthrough successes.
From a financial standpoint, we continued to prioritize smart capital allocation with over $20 million in cash and cash equivalents a strong balance sheet.
And the authorization of a $5 million share repurchase program, we are well positioned to deliver long term shareholder value in summary, while the first quarter presented some challenges, particularly on the topline the progress we've made across key areas of our business underscores our ability to innovate.
Act and execute we remain confident in our strategy and excited about the opportunities ahead wishing all a very happy holiday season, with health and peace with that I'll now turn over the call to <unk> to discuss our financials in more detail.
Thank you Jonathan total revenue in the first quarter was $7 2 million.
Speaker Change: One 6% from last year.
Speaker Change: Mainly due to the advertising challenges, we face in the quarter that Jonathan mentioned.
Speaker Change: And the continued transition of grew sharply.
Speaker Change: Subscription revenue was up 21% for the quarter.
Speaker Change: And our net active subscribers training continue to improve and was up nearly 8% year over a year.
Speaker Change: And sequentially for the sixth straight quarter.
Speaker Change: The higher value of Io as subscription and value added this plus offerings will enjoy are not only seeing organic growth, but they also continue to replace lower cost legacy secretion.
Speaker Change: Which only remove.
Speaker Change: That's trailing J T V achieved another quarterly revenue record at roughly $700000 up 62% versus last year.
Speaker Change: Despite the advertising challenges.
Speaker Change: I was still good 22% year over year to seven 7%.
Speaker Change: Personally revenue growth was mostly offset by the year over year revenue decline for flu shot which is reported on the physical goods and services.
Speaker Change: 32% in the quarter.
Speaker Change: Given the shift in strategy to prioritize new player acquisition list declines were anticipated.
Speaker Change: But we are cautiously optimistic based on the early positive return from the new feature releases.
Speaker Change: The business will return to growth soon.
Speaker Change: Cost of revenue was 6% of revenue for the quarter.
Speaker Change: Roughly flat year over year on an absolute basis.
Speaker Change: SG&A increased by 24% to $6 8 million during the quarter. This increase was mainly driven by marketing expenses related to a higher paying user in general as we scale, we expect to see operating leverage rebound. Additionally, our subscription model.
Speaker Change: As higher near term expenses as revenue and costs don't align.
Speaker Change: This is especially the case with a lifetime subscription, which also carry a higher platform fee.
Speaker Change: Annual subscription.
Speaker Change: As a platform fee expense immediately while revenue is recognized over two five years, although with a 100% operating margin.
Speaker Change: From operations, but 0.5 millennium for the quarter compared to income from operation.
Speaker Change: 0.3 million last year.
Speaker Change: GAAP net loss and loss per share for the quarter were zero point $3 million in <unk> compared to breakeven last year.
Speaker Change: On a non-GAAP basis, we were breakeven compared to non-GAAP net income and EPS of zero point $5 million.04 in the prior year.
Speaker Change: Adjusted EBITDA for the quarter was zero point $3 million.
Speaker Change: Versus $1 $5 million in the prior year.
Speaker Change: Knowing that DNA decreased 51% or nearly 400000 looser slots here due to the impairment of intangible in Q2 of fiscal 'twenty 'twenty four.
Speaker Change: From a liquidity standpoint, we add a little cash to our balance sheet and finished the quarter with over $20 million in cash and cash equivalents.
Speaker Change: During the quarter the board authorized a new 5 million share repurchase program.
Up to fully completing the prior approved buyback, we expect to commence repurchasing under the new program in December.
Speaker Change: Thank you for listening to our first quarter earnings call and I look forward to speaking with you again on our second quarter call in March.
Speaker Change: Operator back to you for Q&A.
Speaker Change: Thank you we will now begin our question and answer session.
Speaker Change: Ask a question you May press the Star Key then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press star two.
Speaker Change: At this time of a pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our first question is coming from Allen Klee with Maxim Group.
Speaker Change: Your line is life.
Allen Klee: Yes, good morning.
Speaker Change: You are in your 10-K for last quarter or July you had broken out for good shots that monthly active players.
Speaker Change: For the three months ending July 31 was.
Speaker Change: Or $5 million and average revenue per monthly active payer was like $52 50.
Speaker Change: As.
Speaker Change: Do you know what were those numbers are today.
Speaker Change: For this quarter.
Speaker Change: Alan I'm, sorry, it's Jonathan overseas and my line dropped temporarily can you repeat the question. Please.
Speaker Change: Yes, do we know for the quarter with monthly active for gurus shots with monthly active players.
Speaker Change: For the quarter.
Speaker Change: If I recall, we have not shared that number in the past so we will see.
Speaker Change: Speak offline and get back to you on that.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: So then.
Speaker Change: How should we think about in terms of maybe what the drag that guru shots.
Is having on your overall results today and.
Speaker Change: Like even that.
Got it.
Speaker Change: What's the ballpark revenue that you think overshot what needed for that cash.
Speaker Change: Cash flow positive.
Speaker Change: Or is there a certain.
Speaker Change: If you get to a certain point because it makes sense to shut it down or how.
Speaker Change: How do you think about those things.
Speaker Change: Sure we do not at this point believe that there is a good rationale to shutting guru shots down.
We are in as I said during the call a transformation.
Speaker Change: And that involves the steps that we are and have taken over the course of the last give or take six months.
Speaker Change: Coupled with our improvement in our marketing investment.
Speaker Change: And there are additional.
Speaker Change: Actions that we have planned in terms of increasing engagement opening oh actually opening the top of the funnel increasing engagement and ultimately translating that into revenue.
Speaker Change: As I said the trend line is with each of the changes that we've made.
Speaker Change: Is pointing in the right direction.
Speaker Change: And we are going to continue down that path of course.
Speaker Change: We're doing that being mindful of.
Speaker Change: Minimizing that cash burn and we believe that we will see improvement of that over the course of the.
Speaker Change: Finally, the fiscal year.
Speaker Change: Okay. Thank you.
Speaker Change: <unk>.
You mentioned in the press release that.
Speaker Change: There was some coding this year that impacted the results in the quarter that you subsequently resolved.
Speaker Change: This is a way to quantify what type of impact that had.
Speaker Change: So we have quantified it internally all three of those items that were mentioned are the.
Speaker Change: The coding issue a.
Speaker Change: Advertiser.
Speaker Change: Took longer in terms of testing our platform or.
Incremental value in terms of their spend.
Speaker Change: And.
Speaker Change: The addition of.
Speaker Change: A new mediation platform in our mix.
Speaker Change: <unk>.
Speaker Change: It had impacted us we again have not shared that number publicly but suffice it to say that those issues are all in the rearview mirror, we honored the coding bug.
Speaker Change: We have successfully.
Speaker Change: <unk> proven ourselves to that third party advertiser and their spending on our platform and the second mediation partner that we're using has been implemented now and is working well.
Well.
Speaker Change: That's great. Thank you.
Speaker Change: So to be more specific those in our opinion were one time.
Speaker Change: Items. Unfortunately.
It was sort of a you know.
Speaker Change: A perfect storm with all three of them hitting in the same quarter, but they had been resolved and.
Speaker Change: We are not.
Speaker Change: Continuing to struggle because of those items.
Yes.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Did you plan to manage here SG&A.
Speaker Change: Yeah.
Speaker Change: Two.
Speaker Change: To think about the bottom line is we try to remain adjusted EBITDA positive.
Speaker Change: Just on the asset.
Speaker Change: Yeah, the answer to that is a resounding yes.
Speaker Change: And.
Speaker Change: I feel that we will.
Speaker Change: B back in EBITDA positive territory.
Speaker Change: For the remainder of this fiscal year.
Speaker Change: The only or I shouldn't say the only if we saw some incredible growth opportunity, which would require us to scale marketing spend materially in order to earn a customer today that will generate multi.
Speaker Change: Multiples of that over.
Over some reasonable time period that would put us into EBITDA negative territory, but Ah that.
Speaker Change: That would in our opinion be a good investment however.
Speaker Change: However, based upon.
Speaker Change: Just standard business. Our goal is that we are managing the company to be EBITDA positive that is a.
Speaker Change: That that is a critical API that we monitor on a regular basis and.
Speaker Change: Are very very committed to seeing that we achieved.
Speaker Change: Okay.
Speaker Change:
Speaker Change: In terms of.
Speaker Change: Two items, you've mentioned that are in beta.
Witchcraft AI art Master.
Speaker Change: Any kind of update on how you are.
Feeling about them moving them out of the data.
Yeah at this point, we are going to continue to keep them in beta.
Speaker Change: We are being very diligent about investing resources in.
Speaker Change: The areas of the business that are <unk>.
Speaker Change: Producing revenue today and that we are able to.
Speaker Change: <unk> to improve upon.
Speaker Change: And the <unk>.
Speaker Change: Beta testing that heard about the beta testing, but the apps that are in beta are being hot.
Speaker Change: Put to a rigorous stress test if you will to ensure that when we go from beta to full production.
Speaker Change: We have a clear.
Speaker Change: Set of data demonstrating that these can scale and generate.
Speaker Change: The Ah.
Proper returns that we anticipate.
Speaker Change: We don't want to get something out early just to find out that we could have.
Speaker Change: Better optimized.
Speaker Change: And.
Speaker Change: Made sure that any investment that we make in terms of marketing ultimately delivers a positive return for us.
Speaker Change: Got it thank you.
Speaker Change: In terms of subscriptions, which was a bright spot.
Speaker Change: <unk>.
Speaker Change: Two things you highlighted iOS is doing well.
Speaker Change:
Speaker Change: I'm not sure if you broke out how much.
Speaker Change: As a total subscription but would also lifetime subscriptions.
Speaker Change: Can you explain to me.
Speaker Change: Two things on lifetimes, one why it's a good thing because.
Speaker Change: You get more money upfront.
Speaker Change: But then.
Speaker Change: Opinion, you don't get a recurring they keep signing up over time once it two and a half years.
Speaker Change: Whatever.
Speaker Change: <unk>.
And.
Speaker Change: How do you think about that and then.
Could you just explain again the idea youre, taking the cost upfront but.
Speaker Change: It's a lifetime subscription and you're taking the cost upfront.
Speaker Change: But then youre not going to make more money in the future.
Speaker Change: Offset that or may or maybe you can just help me understand that.
Sure.
Speaker Change: Subscription.
Speaker Change: Any subscriber.
Speaker Change: Subscriber that we have we take a look at whether it be monthly annual and so on and so forth and we are able to.
Speaker Change: With fairly good position.
Speaker Change: <unk>, what the average lifetime value of a subscriber.
Speaker Change: And.
Speaker Change: Because as an example, if someone signs up for a monthly subscription today. It does not mean that they will renew that subscription into perpetuity.
Speaker Change: Yes.
Speaker Change: Not all customers did and your point is hot.
Speaker Change: Absolutely correct. However, when taking a look at the blended average were able to come up with what the lifetime of a subscriber is and then.
Speaker Change: We have the ability to offer a one price for lifetime and amortize it over that window of time.
Speaker Change: Which we consider to be.
Speaker Change: Hey.
Speaker Change: Value for customers they feel that they are getting more annoying.
Speaker Change: Once and.
Speaker Change: I have this forever.
Speaker Change: And the cost of maintaining that customer.
Speaker Change: <unk>.
The term of that lifetime is.
Speaker Change: De minimis within.
Speaker Change: The overall cost structure of our business.
Speaker Change: So we view that as being a benefit.
Speaker Change: From both a user acquisition perspective, as well as from a revenue and cash perspective.
Speaker Change: Okay. Thank you.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: In terms of monthly average users.
Speaker Change: Could you comment on the trend and what are the things that youre working on.
Speaker Change: You think could maybe have the impact.
Speaker Change: To start turning that around.
Speaker Change: Sure.
Speaker Change: Monthly active users if I had to look back over the course of the last year I would say that we.
Speaker Change: We have been more discerning in terms of.
Focusing our efforts on.
Speaker Change: Monthly active users that are going to generate.
Speaker Change: Right.
Speaker Change: Better return for us.
Speaker Change: Hi.
Speaker Change: What will contribute.
Speaker Change: Contribute to helping us.
Speaker Change: Improve that number.
Speaker Change: Number one is our marketing efforts there has been a very strong.
Speaker Change: Push to focus on tier one users.
Speaker Change: And our acquisition costs and the associated Ross R. R.
Speaker Change: In a good place and scaling that scaling that in a fashion, which is rational so that we can.
Speaker Change: Demonstrate that these users are profitable to us.
Speaker Change: And then the other piece is ultimately.
Speaker Change: <unk> seen.
Speaker Change: Turning to the product.
Enhancements that we invest in are ones, which will bring users back on a recurring basis.
Speaker Change: That is one of the impetus is behind.
Speaker Change: And specifically to Dato where we've.
Speaker Change: Expanded from text to image to image the image to take you can't take a photo in real time.
And enhance it with AI features and so on and so forth and then in the first half of 2025, we are going to be hot rolling out.
Speaker Change: Audio AI features which we again believe that will help.
Speaker Change: Help us in terms of.
Speaker Change: Seem to it at all.
Speaker Change: Our monthly active users are engaging with us on a more.
Speaker Change: Frequent basis, if you will.
Speaker Change: Okay.
Okay.
Speaker Change: Okay. Thank you.
Speaker Change: Did you buyback any stock during the quarter.
Speaker Change: This quarter, we did not buy stock back we were.
Speaker Change: In a closed quarter because of the.
Speaker Change: Period of time between our annual our annual and the <unk>.
Speaker Change: Close of Q1.
Speaker Change: Although we do have a $5 million plan in place and.
Speaker Change: When the window opens.
Speaker Change: I'm confident that we will be back in the market buying stock.
Speaker Change: Okay.
Speaker Change: Okay.
Sure.
Speaker Change: Okay.
Speaker Change: Look you've mentioned the next quarters your seasonally strong quarter.
Speaker Change:
Speaker Change: Hi.
Is there.
Speaker Change: Do you have any commentary on why.
Speaker Change: We either grow revenues or what youre thinking about adjusted EBITDA.
Speaker Change: So as you know we've not provided.
Speaker Change: Projections, but suffice it to say that.
We are.
Speaker Change: Comfortable that.
Speaker Change: Q2 has been growing at a nice clip whether it be advertising revenue subscriptions and the like.
Speaker Change: As well as.
Speaker Change: Premium.
Speaker Change: And Ah.
Speaker Change: Guru shots is.
Speaker Change: Okay.
Speaker Change: The same story that we had discussed during the call.
Speaker Change: And the actions that we're taking in anger shots are slowly, but surely beginning to have an impact.
Speaker Change: On the.
Speaker Change: The growth trajectory of that business.
Speaker Change: Thank you.
Speaker Change: You're one of the things that you excel at is your own advertising rates.
Speaker Change: Monthly active users.
Speaker Change: I know, it's hard to forecast, but what would you say are kind of the key factors on.
Speaker Change: You can maybe continue to strengthen in those rates or potentially improve them.
Speaker Change: So.
Of course, the economy holding up is.
Speaker Change: Not within our purview, but.
Strong economy.
Speaker Change: Coupled with the notion that advertising revenue in.
Speaker Change: The world of mobile continues to be a growing market.
Speaker Change: One of the steps that we've taken this quarter was adding an additional mediation partner to our mix.
Speaker Change: In order to optimize.
Speaker Change: The inventory that we have based upon having to mediation partners. Some one does better in certain types of AD units. The other does better and different types of AD units and then there's the ongoing daily.
Speaker Change: Incessant optimization that we undertake in terms of squeezing out the highest CPM is that we can for our inventory.
Speaker Change: And that is just standard practice by us.
Speaker Change: And.
The additional piece is how do we optimize between our advertising and availing users of some of the <unk>.
Speaker Change: Value adds in the AI Arena, if you will.
Speaker Change: And.
Speaker Change: Seeing to it that we are inserting rewarded AD units at the right place rewarded AD units carry.
Speaker Change: A very attractive CPM with them and doing so in a fashion, where it does not become a drag to the user experience, but rather it is value exchange.
Speaker Change: Where the user will say, yes, I'll watch this 32nd AD in exchange for the value that you are providing.
Speaker Change: And then finally ongoing testing new partners looking for new AD product integrations.
Speaker Change: That.
Speaker Change: We have not.
Speaker Change: Thought of that have not been available in the market.
Speaker Change: And testing to see if those will improve.
Speaker Change: Our MAU accordingly.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Maybe my last question <unk> premium where the.
Speaker Change: Gross transaction value was up by 62% year over year.
Speaker Change: <unk>.
Speaker Change: What would you attribute that to and what.
Speaker Change: What new things are you looking to add.
Speaker Change: Related to that.
Speaker Change: Sure. So it's primarily due to I.
Speaker Change: I guess.
Speaker Change: The following.
Speaker Change: One is we continue to make the platform attractive to artists.
Speaker Change: And we make sure that we are operating at platform.
Speaker Change: In a fashion, which is efficient in order to squeeze the greatest margin.
Speaker Change: Available.
Speaker Change: In our business.
Speaker Change: No.
Speaker Change: Yeah.
Speaker Change: If the platform is not attractive it's artists.
Speaker Change: Then that becomes very very difficult assuming that the platform, which we believe is attractive to artists than just continuing to optimize and operate that.
Speaker Change: <unk> platform efficiently those are the ingredients that.
Speaker Change: I would focus on and in terms of how do we continue to do that.
Speaker Change: There are some new potential product opportunities that we are in the midst of.
Speaker Change: Investing it.
Speaker Change: And when I say investing in.
Speaker Change: Being able to test.
Speaker Change: Come up with an MVP, a minimally viable product to indeed demonstrate that yes.
Speaker Change: Yes.
Speaker Change: This works.
Speaker Change: In the past year I think you know that we have.
Speaker Change: <unk> expanded and we've grown with respect to video wallpapers and.
Speaker Change: Parallax wallpapers.
Speaker Change: And the like and.
Speaker Change: Sort of incremental product improvements with new types of content.
Speaker Change: Is.
Speaker Change: Hey, ingredient that goes into that mix.
Speaker Change: <unk> for more opportunity to sell additional products to our audience.
Speaker Change: We also have started to avail.
Speaker Change: Users with the ability of buying.
Speaker Change: Content online not only through the App and that will also be something that we.
Speaker Change: We expect to continue to invest in in the upcoming quarters.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: If you have any questions. Please press star one on your telephone keypad.
Speaker Change: Okay. As we have no further questions. This concludes our question and answer session and conference call.
Can you for attending today's presentation and you may now disconnect.