Q2 2025 Zedge Inc Earnings Call
David Brown: [music].
Speaker Change: Good day and welcome choose edges earnings conference call for the second quarter of fiscal 2025 results.
During managements prepared remarks, all participants will be in a listen only mode.
Speaker Change: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation by is that just management, there will be an opportunity to ask questions.
Speaker Change: Ask a question. Please press Star then one on your Touchtone phone to withdraw your question. Please.
Speaker Change: Star two.
Speaker Change: I will now turn the call over to Brian Segal.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Later during today's call Jonathan Reich <unk> Chief.
Speaker Change: Chief Executive Officer, and East side, such as Chief Financial Officer will discuss <unk> financial.
Speaker Change: <unk> financial and operational results that were reported today.
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 could differ materially from those discussed on today's calls. These risks and uncertainties include but are not limited to specific risks and uncertainties disclosed in.
Speaker Change: That's just periodic SEC filings.
Speaker Change: <unk> assumes 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.
Please note that our earnings release is available on the Investor Relations page of its edge website and has also been filed on form 8-K with the SEC.
Speaker Change: Finally on this call we will use non-GAAP measures. Examples include non-GAAP EPS non-GAAP net income and adjusted EBITDA. Please see our earnings release for an explanation of our use of these non-GAAP measures now I would like to turn the call over to Jonathan.
Jonathan Reich: Thank you Brian Good afternoon, everyone and thank you for joining us today to discuss his edges second quarter fiscal 2025 results. This quarter presented a challenging macro environment negatively impacting AD revenue for the.
Jonathan Reich: Most part the unclear regulatory status of a tick tock band resulted in tick tock pulling back on user acquisition spend which had a ripple effect across the industry on companies where AD spend is an important revenue driver.
Jonathan Reich: Both Apple and Google removed tick tock from their storefronts for close to a month.
Jonathan Reich: With less demand from a high bidder cpm's fell across the industry, although our optimization efforts did enable our overall CPM to rise versus last year, helping offset the lower demand and lower miu sets.
Jonathan Reich: While total revenue declined 10% year over year to $7 million take talks returned to the Apple and Google App stores in fiscal Q3 is yielding encouraging results, even while we await a final outcome about <unk> future in the U S. The other key event during the quarter was Ara announced.
Jonathan Reich: <unk> in order to improve operational efficiency.
Jonathan Reich: <unk> ability and free cash flow overall between our restructuring and other items, we expect to reduce our annualized expense run rate by approximately $4 million primarily related to a 22% reduction in our global workforce driven by cuts to the Guru shots.
Jonathan Reich: <unk> and the closure of our Norway office.
Jonathan Reich: Taken together this will yield annualized cost savings of approximately $3 million in compensation related and other expenses and $1.2 million in savings, resulting from the exploration of the retention bonus payments owed to guru shots employees under the term.
Jonathan Reich: <unk> of the April 2022 acquisition, our financials will start reflecting these savings in Q3 and culminate in Q4.
Jonathan Reich: The impetus and undertaking the restructuring was to improve efficiency enhance our ability to invest in growth opportunities and positions edge for sustainable profitability. In addition, we expect that this will help us in generating free cash flow.
Jonathan Reich: I also want to underscore that we acted decisively to mitigate the impact of picked hawks mandated withdrawal from the market by focusing efforts on areas under our control such as further optimizing our AD inventory for example, this quarter, we added new demand partners and a new <unk>.
Add unit, where these continual optimizations, we are enhancing engagement driven monetization strategies and strengthening our subscription and premium offerings. Our quarterly subscription revenue growth remained strong increasing 13% year over year, reflecting our success and effectively monitor.
Jonathan Reich: Rising our user base, we continue to reap the benefits of our revamped subscription offering and upselling legacy subscribers to higher value plans, which helped to drive a 22% increase in active subscribers.
Jonathan Reich: This quarter, we not only experienced an uptick in subscriptions from well developed markets, but also from emerging markets, which points to our ability to iterate until achieving success.
Jonathan Reich: It's edge premium continued to see strong momentum with a G T V growing 27% year over year.
Our relentless efforts to optimize monetization continues to pay off for example, the work we've done with rewarded video has made this category a powerful monetization channel for increasing as edge premiums G. T V.
Jonathan Reich: Rewarded video usage grew nearly 40% with very impressive low double digit conversion rates effectively activating a new segment of purchasers of smaller volumes of zev credits and expanding the overall ecosystem. The launch of paint 2.0 on iOS in.
Jonathan Reich: <unk> and Android in October was also significant to our Gen AI strategy, introducing powerful new creation capabilities, including image to image in real time photo editing paint has gained significant traction over the past year with increasing engagement metrics from a low single digit percent.
Jonathan Reich: <unk> of its edge marketplaces daily users to a low double digit percentage more recently.
Jonathan Reich: Engagement metrics specific to paint surged more than 100% year over year in February further underscoring its growing popularity, let's not forget the gen. AI is still early and consumer market adoption and we offer a great product for an attractive price in the coming quarters, we are going to fare.
Jonathan Reich: Other expand those edge marketplaces Gen AI capabilities by offering an AI audio creator.
Jonathan Reich: This expansion represents a significant opportunity to further engage with users in an emerging and growing vertical with the goal of converting our consumers into creators by empowering them with an easy way to make awesome ring tones sound effects and personalized audio clips by diversifying.
Jonathan Reich: Our AI driven offerings, we aimed to tap into the growing demand for customizable audio content, while opening new monetization opportunities.
Jonathan Reich: While gershon faced continued challenges in Q2, our late January restructuring plan will help lower costs and drive the business towards breakeven as we revamped the unit for growth. Fortunately there was only a slight sequential revenue decline when compared to Q1 looking beyond.
Jonathan Reich: Cost structure improvements. We made we are early in the process for re imagining Guru shots 2.0, and looking at everything from gameplay to content generation to monetization and more to unlock value from this asset.
Once the strategy and roadmap are solidified over the next few quarters, we will begin to allocate investment based on key milestones to enhance engagement and long term revenue potential.
Jonathan Reich: <unk> results were roughly flat compared to last year on a positive note. The introduction of emoji PD is first AI feature and AI emoji generator monetized with it rewarded videos has been encouraging users can now design their own custom emojis, allowing them to <unk>.
Jonathan Reich: Usually make their creative dreams a reality.
Jonathan Reich: This is in keeping with our goal of turning consumers into creators. Additionally, we plan to continue to expand the emoji sandbox over time with new content and features and finally, we are in the process of redesigning the emoji P. D. A dot org website to a more modern.
Jonathan Reich: And user friendly experience, which we believe will drive further engagement. Looking ahead, we are cautiously optimistic that the worst of the AD revenue decline is behind us and while Tictoc is back in the market at this time like the rest of the industry. We will continue to monitor the situation.
Jonathan Reich: <unk> and adjust if the situation is resolved in an adverse manner that said we are excited by the potential of the roadmap for all of our products. We continue to believe our stock is significantly undervalued based on multiple valuation metrics and we expect to continue actively buying back shares under <unk>.
Jonathan Reich: Our existing $5 million authorization.
Speaker Change: With that I'll now turn the call over to E to discuss our financials in more detail E.
Speaker Change: Thank you Jonathan total revenue in the second quarter was $7 million down 10% from last year.
Speaker Change: Mainly due to the advertising headwinds the industry has faced in the quarter.
Speaker Change: Jonathan mentioned and the continued challenges of Grusha.
Speaker Change: Second quarter subscription revenue was up 13% from last year and our net active subscriber growth trends continue to improve and was up 22% year over year and sequentially for the seventh straight quarter.
Speaker Change: Our highest value Io as subscription.
The other added this plus offering for Android are not only seeing organic growth, but they also continue to outpace churn, which is mainly replacing lower cost legacy subscription, which only removed ads.
There's premiums GTA V achieved roughly $700000 up 27% versus last year.
Speaker Change: The nation about feature and content offering and monetization expertise.
Speaker Change: To drive attractive growth.
Speaker Change: Despite the pressure on advertising.
Speaker Change: Now still grew 9% year over year to seven 8%.
Garage shop, which is reported in the.
They're sort of good and services revenue.
Speaker Change: Remain a challenge down 33% from last year, but only 4% sequentially, we expect the year over year to start to improve in our fourth quarter and into 22006.
Speaker Change: Cost of revenue was six 4% for the quarter.
Speaker Change: Roughly flat year over year on an absolute basis.
Speaker Change: SG&A increased by 9% to $7 1 million during the quarter.
Speaker Change: This increase was mainly driven by marketing expenses related to higher pay user acquisition.
Speaker Change: <unk> marketplace, and our subscription model as higher near term expenses.
Speaker Change: Timing of revenue and cost down on line.
And this is especially the case for a lifetime subscription, which also carry a higher platform fee then.
Speaker Change: It was subscription.
Speaker Change: For example for a lifetime subscription platform fee side expense immediately while revenue is recognized over two five years living.
Speaker Change: Leaving us with 100% operating margin after the initial purchase and helping improve operating margin leverage as we scale.
Speaker Change: We had restructuring charges of zero point $5 million and noncash asset impairment charges of zero point $8 million during the quarter.
Speaker Change: Related to our announced restructuring activity in late January and early February.
Speaker Change: Last year, we have asset impairment charges of $12 million.
Speaker Change: Related to writing down the Caruso acquisition, which has now been fully.
And down.
Speaker Change: We currently expect to take a total of approximately $1 $1 million.
Speaker Change: Additional restructuring and noncash asset impairment charges during the third and fourth fiscal quarter.
Speaker Change: GAAP loss from operation was $2 2 million for the quarter compared to $12 million last year.
Speaker Change: GAAP net loss and loss per share for the quarter were $1 7 million and 12% compared to $9 2 million.
Speaker Change: 66%, respectively last year.
Speaker Change: non-GAAP net loss and loss per share of 0.2 million in one sense.
Compared to a non-GAAP net income and EPS of zero point $5 million.04 in the prior year.
Speaker Change: Cash flow from operation was zero point $7 million and free cash flow. It was zero point $6 million per quarter.
Speaker Change: While both were down from last year. We believe this will start to improve in the third and fourth quarters.
Speaker Change: Our restructuring saving start to impact the bottom line.
Speaker Change: Adjusted EBITDA for the quarter was negative zero point $1 million versus positive $1 $5 million in the prior year.
Speaker Change: No that D&A decreased 58% over $400000 compared to last year due to the impairment of intangible.
Speaker Change: From a liquidity standpoint, we finished the quarter with over $20 million in cash and cash equivalents during the quarter. We bought back 245000 shares under a $5 million share repurchase program.
Speaker Change: Was announced in Q1.
Speaker Change: Thank you for listening to our second quarter earnings call and I look forward to speaking with you again, our third quarter call in mid June.
Speaker Change: Operator.
Back to you for Q&A.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the star keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: On the first question today is coming from <unk> <unk> from Maxim Group.
Speaker Change: Your line is live.
Yes, hi, good afternoon.
Speaker Change: I I missed when you said, what you expected the restructuring charges to be in your third and fourth fiscal quarters could could you repeat that please.
Speaker Change: Okay.
Alan: Hi, Alan.
Speaker Change: Because of the accounting rules, we can't really cool.
Speaker Change: So to me.
Speaker Change: Severance and termination benefit until it's been communicated to the impacted employee.
Speaker Change: That occurred in February which halt in Q3.
Additionally, we are looking to set in payments related to our office space in Toronto.
Speaker Change: Those costs will be recorded in <unk>.
Speaker Change: Q3, or Q4, a squiggle subtalar in how we negotiate with the law.
Speaker Change: Right.
Speaker Change: Question.
Speaker Change: Yeah.
Speaker Change: So here you are targeting around three nine to $4 1 million annualized cost savings.
Speaker Change:
Speaker Change: That's compared to the prior 12.
Speaker Change: What does that compare to <unk>.
Speaker Change: And of the base and then second.
Speaker Change:
Speaker Change: When do.
Speaker Change: Do you have a sense of how much of that shows up in.
Speaker Change: That's annualized but how much of the amount you might see in fiscal third quarter and how much.
In fiscal fourth quarter.
Speaker Change: I mean.
The cost savings annualized so approximately about a million dollars per quarter.
Speaker Change: But we would be fully at that run rate.
Speaker Change: For the third quarter or will it be at that run rate in the fourth quarter or some time next year when will it.
Speaker Change: Do you think it will be at that 1 billion savings.
Speaker Change: Yeah, Oh, sorry.
The third quarter, we should start seeing that one on the model.
Speaker Change: Run rate for clothing and saving.
Speaker Change: Before you factor in the additional.
Speaker Change: Based on all the suffering charges.
Speaker Change: So will you see the coal.
Speaker Change: $1 million do you think in the <unk>.
Speaker Change: Third quarter or do you think you won't quite be there yet in the third quarter.
Speaker Change: We will see that four 1 million in the third quarter because.
Impacted employees Theres still a payroll, but they will be offset with gains.
Speaker Change: The restructuring charges, which is not part of the.
Speaker Change: Normalized SG&A expense.
Okay.
Speaker Change:
Speaker Change: Thank you and then.
Speaker Change: Just in terms of the two.
Business.
Speaker Change: Just when you were talking about tick Tock Hao.
Speaker Change: You had you said you have some sense that debt.
Speaker Change: That is starting to improve.
Speaker Change: Maybe I wanted to ask here.
Your.
Speaker Change: Average revenue per car.
Speaker Change: I'm going to say record monthly active user.
Speaker Change:
Speaker Change: That metric looked like it held up for the quarter, but is that because of things like.
Speaker Change: Subscriptions and.
Speaker Change: Marketplace.
Speaker Change: Spending getting blended into it or why.
Speaker Change: I'm talking about sequentially, but R. R.
Speaker Change: Or what what.
The rash why is why is that.
Speaker Change: Yes. So you know we have decline in advertising revenue, but it was partially offset by the growth in subscription revenue.
Speaker Change: And also on that premium.
Speaker Change: But remember the average.
Speaker Change: Revenue per month, they use so it will be a lower base because we have a lull now.
So sequentially our knowledge.
Speaker Change: Still higher.
Speaker Change: Compared to last year or sequentially.
Speaker Change: Okay.
Speaker Change:
Speaker Change: For goober shots what.
Speaker Change: Help me understand again right now.
<unk> allocated.
Speaker Change: A good amount of the cost cutting related to it.
Speaker Change: How do you think that are you still trying to do some initiatives to increase the.
The top of the funnel and engagement and usage of new users users or <unk>.
Speaker Change: What's the status with that.
Jonathan Reich: Yeah, Alan it's Jonathan.
Jonathan Reich: So in jewelry shops, we have the existing.
Jonathan Reich: Guru shots game has.
Jonathan Reich: We know it today and.
Jonathan Reich: The focus is on optimizing it.
Jonathan Reich: Revenue performance and a win.
Jonathan Reich: With.
Jonathan Reich: We reduced AD spend bringing in new users with a very attractive Roe profile.
Jonathan Reich: Separate and apart from that we are now in.
Jonathan Reich: Ideation slash planning stage for what through the shops to that though will be.
Jonathan Reich: And how we will be able to.
Jonathan Reich: Improve the game materially built on modern infrastructure in order to realize and recognize the value that we believe that the game carries with it.
Jonathan Reich: We are not as of yet doing any development work on ghoulish thoughts to Goddeau when.
Jonathan Reich: When I say development work, I mean coding and stuff like that we're in now and ideation phase game design phase.
Jonathan Reich: And thinking about where we can bring in the game.
Jonathan Reich: Such that we can ultimately make a presentation to the board and have a recommendation as to what should come next in terms of that.
Jonathan Reich: Part of the business.
Jonathan Reich: Okay.
Jonathan Reich: For third.
Speaker Change: In the past, but last quarter you mentioned witchcraft then.
Jonathan Reich: Art Master were.
Speaker Change: In data is there any change.
Jonathan Reich: Change in that or what's happening there.
Speaker Change: Those are still in beta.
Jonathan Reich: And obviously with the.
Speaker Change: Restructuring.
Speaker Change: There's not a tremendous amount of effort being invested in those I believe that some time between now and the end of Q3, we will make a decision as to what we're going to move forward with AR.
Speaker Change: What we at or what we might.
Speaker Change: I'll, just say like Hey, no sense in moving forward on this one and move on to some other project.
But we're not there yet.
Speaker Change: Okay.
<unk>.
Speaker Change: Similarly, with AI audio I think I heard you say something like <unk>.
Looking to launch that maybe in the next couple of quarters.
Speaker Change: Well it is.
Speaker Change: Is is we are expecting to.
Speaker Change: Add in AI audio feature too.
Speaker Change: These edge marketplace in the paint suite.
Speaker Change: In the next couple of months.
Speaker Change: I hope that that will actually be in Q3, if not in Q3, it will be the beginning of Q4.
Speaker Change: But that will not be a separate app that will just be part of our.
Speaker Change: <unk> suite of solutions.
Speaker Change: Adding a new Vista, which is outside of the realm of those.
Speaker Change:
Speaker Change: Visual.
Speaker Change: Entering us into the realm of audio.
Okay got it.
If I step back and think about your company.
Speaker Change: I think youll get very high marks overtime with what you've done on monetizing advertising.
Speaker Change: And the challenges come from girl shots and monthly average users.
So it sounds like.
Speaker Change: Can you tell me if I'm wrong, but.
Speaker Change: Google shots.
Speaker Change: Downsizing and then addressing.
Speaker Change: Monthly active users how do you think about just in general.
Speaker Change: That.
Speaker Change: Some of it is macro some of it I don't know what it is.
Speaker Change: How do you think about.
Speaker Change: Getting that.
Speaker Change: Start to grow.
Yeah. So.
I think that there are a couple of pieces in motion. There one is continued product innovation.
Speaker Change: And you know resilience in terms of.
Speaker Change: How we invest in the products and how we get users to engage with.
Speaker Change: New features and.
And the like.
Speaker Change: And then another feature of this relates to a subscriptions.
Speaker Change: Whereby.
Speaker Change: We monetize better with subscriptions and subscribers now there is a funnel there in terms of what happened in second year third year on my part and as you have.
Speaker Change: As you know we discussed about the growth that we've had with lifetime subscriptions and so on and so forth.
Speaker Change: So holistically our perspective is.
Speaker Change: Try to continue to build with new features.
Speaker Change: And monetize those teacher as well.
Speaker Change: Optimize.
Speaker Change: The.
Speaker Change: Segment of prospective subscribers.
And try to get lifetime subscribers.
Speaker Change: And.
Speaker Change: For those users that don't subscribe optimize our ad inventory.
Speaker Change: To generate the greatest ROI.
And that as soon as edge marketplace.
Speaker Change: In terms of.
Speaker Change: Oh, and I should certainly mentioned.
Speaker Change: <unk> and paid user acquisition.
Speaker Change: To complement the strong organic growth that we have for the <unk> marketplace.
Speaker Change: And we've been doing that.
Speaker Change: Successfully.
Speaker Change: When it comes to go to the shops.
Speaker Change: Part of the reason.
Speaker Change: That we have.
Speaker Change: Undertaken the restructuring relates to the notion of.
Speaker Change: Giving us runway in order to redesign.
And then come out with something that we think will.
Speaker Change: Strike the cord and spark.
The growth there.
Speaker Change: We believe is achievable.
Speaker Change: And that will also be a function of not only products, but also investment and marketing and as I indicated earlier.
Speaker Change: Scaled back <unk>.
<unk> in terms of our marketing spend for jewelry shops.
Speaker Change: Yielding a much more attractive.
Speaker Change: Rojas profile.
Speaker Change: And then we're keeping.
Fire powder in the keg, such that when girls shops, two goddeau comes to fruition.
Speaker Change: So we have the money to invest and to grow that user profile.
Speaker Change: And that user base.
Speaker Change: Profitably.
Speaker Change: Thank you.
Speaker Change: Got it.
Speaker Change: Yes. Thank you you mentioned lifetime subscriptions and pushing to grow them.
Speaker Change: Does there at some point become an issue if you just do lifetime subscriptions that.
You.
You start to lose like subscription revenue because everyone signed up for.
Speaker Change: No.
Lifetime or.
Speaker Change: How do you think I mean, you get the benefit in the short term but.
Speaker Change: How do you think about that.
Speaker Change: That's a great question remember we have that's very very large.
Speaker Change: Set of users that are coming into that.
Speaker Change: On a regular basis, new user that is.
Speaker Change: And the way that we think about it as really segmenting.
Speaker Change: Based upon where we see the best possible outcome for any particular user.
Speaker Change: So I think with the.
Speaker Change: Okay.
Speaker Change: Robust organic growth.
Speaker Change: Coupled with the paid user acquisition that we invest in we have room to maneuver there it's.
Speaker Change: It's not binary it's not like.
Speaker Change: We only have a lifetime subscription if you don't sign up for it you can't usually yeah remember we've got multiple tiers.
Got subscriptions within subscriptions, we've got annual subscription monthly subscription.
Speaker Change: Okay.
Speaker Change: So then we have the free tier and then we have features that are.
Speaker Change: Available to buy and use or interacting with a rewarded video so theres a pretty wide range of.
Speaker Change: Tabs.
Speaker Change: We can steer users down in order to.
Speaker Change: Yield the best possible outcome per segment, if you will.
Speaker Change: Okay. Thank.
Speaker Change: Thank you.
Speaker Change: I wanted to I am not sure if I heard what you guys said right when you you.
You made some commentary that.
Speaker Change: You expected.
The improvement in advertising.
From what you've seen so far in the next quarter.
Yeah.
Speaker Change: But.
Speaker Change: I don't know if you've went this far and let me ask.
Speaker Change: The quarter you just reported I think is your seasonally strong quarter.
So the next quarter I believe is normally seasonally not as strong did you make a comment.
Speaker Change: You think.
Speaker Change: Your.
Fiscal <unk> revenue would be above.
Speaker Change: Fiscal <unk> or my extrapolated into something.
No you are traveling and what we've said is we think that the.
Speaker Change: Challenge imposed with deep.
Speaker Change: In availability of tick tock for basically around a month.
Speaker Change: <unk>.
Speaker Change: Is behind us tick tock being back in the market.
Speaker Change: Has.
Speaker Change: The impact of.
Speaker Change: Increasing cps.
And that is what we are experiencing.
Speaker Change: And.
Speaker Change: Coupled with that tick tock being back in the market also helps us.
Speaker Change: On the paid user acquisition side because.
Speaker Change: There are more platforms, so supply demand.
Speaker Change: Dynamics kick in and are benefiting us.
Seasonally you are correct our fiscal Q2.
Speaker Change: <unk> is the strongest quarter.
Speaker Change: And although it's.
Speaker Change: With some optimizations we've done it.
Speaker Change: With our AD inventory.
Speaker Change: Got it.
From what we can see.
Speaker Change: Or that the downside pressure the <unk>.
Speaker Change: Existed with Tic Toc wasn't round is in the rearview mirror.
Speaker Change: And then from a.
Speaker Change: I guess political perspective.
Speaker Change: My understanding is that the 75 day window has been extended.
Speaker Change: Which I.
Speaker Change: I guess <unk>.
Speaker Change: Good points too.
Speaker Change: The outcome of that.
Speaker Change: President Trump is.
Speaker Change: Trying to achieve and that is finding an appropriate buyer.
Speaker Change: To keep take top alive.
Speaker Change: Alive and well in the U S.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Okay. Those were my questions.
Speaker Change: Thank you so much.
Speaker Change: Thank you and if there were any other questions at this time. Please press star one on your phone.
Speaker Change: There are no other questions at this time that concludes our question and answer session and conference call.
May disconnect your lines at this time, thank you for your participation.