Good day and welcome to the Zedge’s Earnings Conference Call for the First Quarter Fiscal 2025 Results. During management's prepared remarks, all participants will be in a listen-only mode. [Operator Instructions] After today's presentation by Zedge’s management team, there will be an opportunity to ask questions. [Operator Instructions] I will now turn the call over to Brian Siegel. Please go ahead.

Thank you, operator. During today's call Jonathan Reich, Zedge's Chief Executive Officer; and Yi Tsai, Zedge's Chief Financial Officer will discuss Zedge's financial and operational 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, 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 Zedge’s periodic SEC filings. Zedge 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 the Zedge website it has also been filed on Form 8-K with the SEC. 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.

Good morning. Thank you, Brian, and thank you for all joining us today. We entered fiscal 2025 with an eye toward driving innovation, improving operational efficiencies, and positioning Zedge for sustainable long-term growth. Although the quarter presented some challenges, the positive momentum across key areas of our portfolio and the advancements we've made reaffirm our confidence in our ability to deliver strong results over the course of the fiscal year. The Zedge marketplace continues to lead the charge in our ecosystem. Subscription revenue grew 21% year-over-year, bolstered by accelerated growth in lifetime subscriptions, which contributed to an 8% increase in overall subscriber counts. Zedge Premium was also a highlight during the quarter, with gross transaction value or GTV, surging 62% year-over-year, due to a combination of performance of our parallax 3D wallpapers, rewarded video CPM optimizations, and the launch of pAInt 2.0, which introduced powerful new creation capabilities, including image-to-image and real-time photo editing and AI enhancements. These innovative products demonstrate the growing demand for personalized interactive AI powered digital experiences. Another notable achievement this quarter was the 22% increase in Average Revenue Per Monthly Active User or ARPMAU reflecting our success in attracting users with higher value profiles. For example, on iOS revenue grew more than 60% year-over-year, underscoring the untapped potential of this higher ARPMAU platform. With continued enhancements and targeted marketing, we see significant room for further growth on iOS. While advertising revenue was negatively impacted from challenges, including and temporary bug that was resolved before the end of the quarter, delays with an ad-partners testing regime, and integration complexities associated with adding a new ad mediation platform to our stack, we remain positive about the environment. In addition, we took a more conservative approach to paid user acquisition, prioritizing higher returns on ad spend or ROAS…

Thank you, Jonathan. Total revenue in the first quarter was $7.2 million, up 1.6% from last year, mainly due to the advertising challenges we faced in the quarter that Jonathan mentioned, and the continued transition at GuruShots. Subscription revenue was up 21% for the quarter and our net active subscriber trend continued to improve and was up nearly 8% year-over-year, and sequentially for the sixth straight quarter. Our higher value iOS subscriptions and value-added Zedge+ offering for Android are not only seeing organic growth, but they also continue to replace lower-cost legacy subscriptions, which only removed ads. Zedge Premium GTV, achieved another quarterly revenue record at roughly $700,000, up 62% versus last year. Despite the advertising challenges, ARPMAU still grew 22% year-over-year to $0.077. Unfortunately, revenue growth was mostly offset by the year-over-year revenue declines for GuruShots, which is reported under digital goods and services, of 32% in the quarter. Given the shift in strategy to prioritize new player acquisition, these declines were anticipated, but we are cautiously optimistic based on the early positive returns from the new feature releases that the business will return to growth soon. Cost of revenue was 6% of revenue for the quarter roughly flat year-over-year on an absolute basis. SG&A increased by 24% to $6.8 million during the quarter. This increase was mainly driven by marketing expenses related to higher paid user acquisition. In general, as we scale, we expect to see operating leverage rebound. Additionally, our subscription model has higher near-term expenses, as revenue and costs don’t align. This is especially the case for a lifetime subscription, which also carries a higher platform fee than an annual subscription, as platform fees are expensed immediately, while revenue is recognized over 2.5 years, although with a 100% operating margin. GAAP loss from operations was $0.5 million for the quarter, compared to income from operations of $0.3 million last year. GAAP net loss and loss per share for the quarter were $0.3 million and $0.02, compared to break even last year. On a non-GAAP basis, we were break-even compared to non-GAAP Net income and EPS of $0.5 million and $0.04 in the prior year. Adjusted EBITDA for the quarter was $0.3 million versus $1.5 million in the prior year. Note that D&A decreased 51%, or nearly $400,000, versus last year due to the impairment of intangibles in Q2 of fiscal 2024. From a liquidity standpoint, we added a little cash to our balance sheet and finished the quarter with over $20 million in cash and cash equivalents. During the quarter, the board authorized a new $5 million share repurchase program, after fully completing the prior approved buyback. We expect to commence repurchasing under the new program in December. 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 mid-March. Operator, back to you for Q&A.

Thank you. We will now begin our question-and-answer session. [Operator Instructions] Thank you. Our first question is coming from Allen Klee with Maxim group. Your line is live.

Yes, good morning. In your 10-K for last quarter for July, you had broken out for GuruShots that monthly active payers for the three months ending July 31 was $4.5 million and average revenue per month the active payer was like $52.50. As -- do you know where those numbers are today for this quarter?

Allen, I'm sorry, it's Jonathan. I’m overseas and my line had dropped temporarily. Can you repeat the question, please?

Yes. Do we know for the quarter what the monthly active for GuruShots? What the monthly active payers’ were for the quarter?

If I recall, we have not shared that number in the past, so we will speak offline and get back to you on that.

Okay. So then, how should we think about, in terms of maybe what the drag that GuruShots is having on your overall results today and like given that, what's the ballpark revenue that you think GuruShots would need for it to be cash flow positive? Or is there a certain, if you get to a certain point, does it make sense to maybe shut it down? How do you think about those things?

Sure. We do not, at this point, believe that there is a good rationale to shutting GuruShots down. We are in, as I’ve said during the call, a transformation. And that involves the steps that we are and have taken over the course of the last give or take six months coupled with improvement in our marketing investment and there are additional actions that we have planned in terms of increasing engagement, opening or actually opening the top of the funnel, increasing engagement, and ultimately translating that into revenue. As I said, the trend line is with each of the changes that we have made is pointing in the right direction and we are going to continue down that path. Of course, we're doing that being mindful of minimizing that cash burn. And we believe that we will see improvement of that over the course of the, you know, fiscal year.

Okay, thank you. You mentioned in the press release that it was some coding issue that impacted the results in the quarter that you subsequently resolved. Is there a way to quantify what type of impact that had?

So we have quantified internally all three of those items that were mentioned. You know, the coding issue, a advertiser took longer in terms of testing our platform for incremental value in terms of their spend. And the addition of a new mediation platform in our mix had impacted us. We again have not shared that number publicly, but suffice it to say that those issues are all in the rear view mirror. We unearthed the coding bug. We have successfully proven ourselves to that third-party advertiser and they are spending on our platform. And the second mediation partner that we're using has been implemented now and is working well.

That's great. Thank you.

So, you know, to be more specific, those in our opinion, were one-time items. Unfortunately, it was sort of a perfect storm with all three of them hitting in the same quarter, but they had been resolved, and we are not, you know, continuing to struggle because of those items.

Okay. Do you plan to manage your SG&A to think about the bottom line and try to remain adjusted EBITDA positive based on…

Yes. The answer to that is a resounding yes. And I feel that we will be back in EBITDA positive territory for the remainder of this fiscal year. 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 current customer today that will generate multiples of that over some reasonable time period that would put us into EBITDA negative territory, but that would, in our opinion, be a good investment. However, based upon just standard business. Our goal is to see that we are managing the company to be EBITDA positive. That is a critical KPI that we monitor on a regular basis and are very, very committed to seeing that we achieved.

Okay. Very good. In terms of two items you mentioned that are in beta Wishcraft and AI Art Master. Any kind of update on how you're feeling about them moving them out of beta?

Yes. At this point, we are going to continue to keep them in beta. We are being very diligent about investing resources in the areas of the business that are producing revenue today and that we are able to continue to improve upon. And the beta testing that -- or not the beta testing, but the apps that are in beta are being put to a rigorous stress test, if you will, to ensure that when we go from beta to full production that we have a clear set of data demonstrating that these can scale and generate the proper returns that we anticipate. We don't want to get something out early just to find out that we should have better optimized and make sure that any investment that we make in terms of marketing ultimately delivers a positive return for us.

Got it. Thank you. In terms of subscriptions, which was a bright spot, two things. You highlighted iOS is doing well. I'm not sure if you broke out how much iOS is of total subscriptions, but also a lifetime subscription, can you explain to me? Two things on life times. One, why it's a good thing, because you get more money up front for it over the time. But then you don't get the recurring -- if they keep signing up over time, once it 2.5 years, it's whatever. And how you think about that? And then a could you just explain again the idea you're taking the costs upfront, but like with the lifetime subscription and you're taking the cost upfront, but then you're not going to make more money in the future to offset that? Or maybe you can just help me understand it. Thank you.

Sure. So with any subscription, any 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 with fairly good position, determine what the average lifetime value of a subscriber is. And 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. If all customers did, then your point is absolutely correct. However, when taking a look at the blended average, we're able to come up with what the lifetime of the subscriber is. And then we have the ability to offer a one price for lifetime and amortize it over that window of time, which we consider to be a value for customers. They feel that they are getting more knowing pay once, and I have this forever. And the cost of maintaining that customer post the term of that lifetime is de minimis within the overall cost structure of our business. So we view that as being a benefit from both a user acquisition perspective, as well as from a revenue and cash perspective.

Okay. Thank you. In terms of monthly average users, could you comment on the trend? And what are the things that you're working on, you think could maybe have the impact or just start turning that around?

Sure. So it's monthly active users. If I had to look back over the course of the last year, I would say that we have been more discerning in terms of focusing our efforts on monthly active users that are going to generate a better return for us. What will contribute to helping us improve that number. Number one is our marketing efforts. There has been a very strong push to focus on Tier 1 users and our acquisition costs and the associated ROAS are in a good place and scaling that but scaling that in a fashion which is rational, so that we can demonstrate that these users are profitable to us. And then the other piece is ultimately seeing to the product enhancements that we invest in are ones which will bring users back on a recurring basis. That is one of the impetuses behind pAInt and specifically pAInt 2.0, where we have expanded from text to image to image to image to 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 rolling out audio AI features, which we, again, believe will help us in terms of seeing to it that our monthly active users are engaging with us on a more frequent basis, if you will.

Okay. Thank you. Did you buy back any stock during the quarter?

This quarter, we did not buy stock back. We were in a closed quarter, because of the period of time between our annual and the close of Q1 although we do have a $5 million plan in place and when the window opens, I'm confident that we will be back in the market buying stock.

Okay. For the -- okay, for your outlook, you've mentioned next quarter is your seasonally strong quarter. Is there -- do you have any commentary on like do you think you’ll be able to grow revenue or what you're thinking about adjusted EBITDA?

So as you know, we've not provided projections. But suffice it to say that -- we are comfortable that Q2 has been growing at a nice clip, whether it be advertising revenue subscriptions and the like, as well as Zedge Premium. And GuruShots is the same story that we had discussed during the call. And the actions that we're taking in GuruShots are slowly but surely beginning to have an impact on the growth trajectory of that business.

Thank you. Your -- one of the things that you excel at is your advertising rates for monthly active users. I know it's hard to forecast, but what would you say are kind of the key factors on how you can maybe continue the strength in those rates or potentially improve them?

So of course, the economy holding up is not within our purview, but strong economy, coupled with the notion that advertising revenue in the world of mobile continues to be a growing market. One of the steps that we had taken this quarter was adding an additional mediation partner to our mix in order to optimize the inventory that we have based upon having two mediation partners someone does better in certain types of ad units, the other does better in different types of ad units. And then there's the ongoing daily incessant optimization that we undertake in terms of squeezing out the highest CPMs that we can for our inventory and that is just standard practice buyouts. And the additional pieces, how do we optimize between our advertising and availing users of some of the value adds in the AI arena, if you will, and seeing to it that we are inserting rewarded ad units at the right place, rewarded ad units carry 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, where the user will say, yes, I'll watch this 30-second ad in exchange for the value that you are providing me. And then finally, ongoing testing new partners, looking for new ad product integrations, that we have not thought of that have not been available in the market and testing to see if those will improve ARPMAU accordingly.

Okay. Maybe my last question is Zedge Premium, where the gross transaction value was up like 62% year-over-year? What would you attribute that to? And what new things are you looking to add to related to that?

Sure. So it's primarily due to, I guess, the following: One is we continue to make the platform attractive to artists, and we make sure that we are operating a platform in a fashion, which is efficient in order to squeeze the greatest margin available in our business. So if the platform is not attracted to artists, 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 platform efficiently. Those are the ingredients that I would focus on. And in terms of how do we continue to do that. There are some new potential product opportunities that we are in the midst of investing in. And when I say investing in, I mean being able to test, come up with an MVP, a minimally viable product to indeed demonstrate that yes, this works. In the past year, I think you know that we've expanded and we've grown with respect to video wallpapers and parallax wallpapers and the like and sort of incremental product improvements with new types of content is a ingredient that goes into that mix, allowing for more opportunity to sell additional products to our audience. We also have started to avail users with the ability of buying content online, not only through the app, and that will also be something that we expect to continue to invest in, in the upcoming quarters.

Okay, great. Thank you so much.

Sure.

Thank you. [Operator Instructions] As we have no further questions, this concludes our question-and-answer session and conference call. Thank you for attending today's presentation, and you may now disconnect.