Good afternoon, and welcome to the Zedge’s Second Fiscal Quarter 2022 Earnings Conference Call. During management’s prepared remarks, all participants will be in listen-only mode. [Operator Instructions] After today’s presentation by Zedge’s management, there will be an opportunity to ask questions. [Operator Instructions] In today’s presentation Jonathan Reich, Zedge’s Chief Executive Officer; and Yi Tsai, Zedge’s Chief Financial Officer, will discuss Zedge’s financial and operational results for the second fiscal quarter that ended on January 31, 2022. Any forward-looking statements made during this conference call, either in 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 the actual results to differ materially from those which the Company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in the reports that Zedge files periodically with the U.S. Securities and Exchange Commission. Zedge assumes no obligation either to update any forward-looking statements that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that the Zedge earnings release is available on the Investor Relations page of the Zedge website. The earnings release has also been filed on a Form 8-K with the SEC. I would now like to turn the conference over to Mr. Jonathan Reich.

Thank you, operator, and thank you all for joining us today. Good afternoon. Welcome to Zedge’s earnings conference call for the second quarter of fiscal year 2022 ended January 31, 2022. I’m Jonathan Reich, CEO of Zedge and with me is our Chief Financial Officer, Yi Tsai, who will provide additional insight into our financial performance. We will then be happy to take your questions. For those of you who are new to the Zedge story or haven't followed us in a while, we own a portfolio of leading digital consumer brands that served 44 million users globally in January of 2022. Our portfolio consists of Zedge Ringtones and Wallpapers, otherwise referred to as the Zedge App, which is the leading mobile app used for mobile phone personalization, social content and fandom art and includes Zedge Premium, a marketplace for artists, celebrities and emerging creators to market their digital content and NFTs to Zedge’s users; Emojipedia, the leading website dedicated to all things emoji; and a set of experimental apps and services that our Innovation team are working on all at various stages of development. It's important to underscore that these are experimental and may not evolve into full-blown commercial offerings. We possess deep expertise in monetizing our digital real-estate, whether through advertising, subscriptions or content sales. Our products appeal to a wide range of user segments globally. We have a strong customer base in North America, Europe and emerging markets, particularly India. Importantly, at the current time, we do not have material exposure in Russia or Belarus. Today, Android users account for roughly 96% of the Zedge App’s monthly active user base and 91% of its revenue. Our second quarter was another record quarter for revenue, growing 30% over last year. Operating margins remained strong at 45%, net income…

Thank you, Jonathan! I want to remind those on the call that our fiscal year ends July 31 and thus our second quarter ended on January 31st. Moving to our second-quarter results; MAU, defined as the number of unique users that opened our Zedge app during the last 30 days of the period, increased 2.5% to $36.3 million during January versus $35.4 million last January. Emerging markets MAU expanded by 7.3% while well-developed markets MAU contracted by 10.5%. Total revenue in the second quarter increased 30% to $6.9 million from last year. This year we benefitted from our ongoing work to improve our ad operation. In addition, subscription revenues were up 18% from last year. Zedge Premium's Gross Transaction Volume or GTV, that is the total sales volume transacted through our marketplace, more than doubled to $434,000. As Jonathan indicated, this is a crucial focus for us as we believe the marketplace's potential is still substantially untapped and will benefit significantly from our new NFT platform. Active subscriptions were up 7% versus last year and were roughly flat sequentially. The slowdown in net subscription growth was basically due to the number of new subscriptions added being offset by our churn rate, which has remained a constant percentage even as we grew to a higher base number of subscriptions. This is a common problem for consumer subscriptions as the subscriber base gets larger, and as Jonathan mentioned, we are taking steps to re-accelerate sequential growth in these numbers. Overall, ARPMAU, was $0.06– an increase of 22% year-over-year, driven by the combination of better advertising performance and higher-paid subscription numbers versus last year. Operating margin decreased to 45% versus 47% last year. While still a very strong number, several items, which when taken as a whole, caused this number to decline, including…

[Operator instructions] And our first question today is coming from Allen Klee at Maxim Group. Your line is live. You may begin.

Yes hi. I think you guys are being humble given your revenue growth rate, 95% gross margins over 40% operating margin. Very impressive numbers. So, I wanted to start off with the migration to a new ad platform. How has it gone and is there any indication that it will have an impact on your CPMs or is it just you're being conservative or what could you tell us about that?

Hi, Alan, thank you for the compliments and really the thanks goes to the entire team. Insofar as the migration we have been evaluating a couple of different vendors and until we are fully up and operational I think it would be prudent to not leave, the answer to conjecture. Having said that the analysis of potential vendor solutions centered around a couple of different variables. Certainly one of those being ad rates, but also scalability ease of use reporting data, all of those items and our target if you will, to see to it that there is not degradation insofar as how we've been monetizing, but until we're fully at scale, we're not going to be able to answer that question with absolute clarity. Although again, to reiterate goes without saying that the goal of see to it that we are monetizing at par if not better than that in the world after we have completed this migration.

Okay. That's helpful. Another bigger picture issue. Google came out a little while ago talking about kind of maybe like a two year transition on how they're going to handle privacy. How do you think about that and how that could, if at all, have an impact on you guys?

It's great question and suffice it to say that Google's primary revenue source or a largest revenue source is ad dollars. Our fundamental belief is that as Google works on their solution, that they are going to be mindful of both customer privacy, as well as may if not enhancing their revenue stream. Google has been talking about this migration for a while. They had a prototype available, give or take last summer that they ultimately had scratched. And we will continue to monitor how this evolves over time with the fundamental understanding that we are very sensitive to maintaining customer privacy. And with the understanding that we don't believe that Google will want to put in a position where it metaphorically bites its nose, despite its face considering how sensitive their businesses to advertising revenue.

That makes sense. And then one other big picture question. I read recently that it's possible that Apple might have some supply constraints related to some of the lockdowns in China, but I'm not sure if that also applies to Android phone production. Have you heard anything that may make us think that new users might get impacted by supply chain issues?

Great question. I, in offhand who not been following that is closely as I should have and will follow up after the call.

Oh, okay, great. Then I'll, move to a company specific. So NFT sounded like that started off. Maybe I can just not even get that. Just, the question of you have a bunch of opportunities you're working on. If you had to say your new opportunities, which one you would've to guess, would two years from now be the biggest contributor? What would you speculate today?

Sure. So let's bifurcate between the existing ring tone wallpaper business versus the reference that I had made to the innovation team, the innovation team is really focused on new products that do not exist in our portfolio today. And as I referenced, our goal is give or take to try to get around three proof of concepts out into the market per quarter. And many of those will fail quickly. We will be able to gather information, collect data, analyze and sort of say, hey, the, it makes sense to take the next gate or let's cut it off here. When taking a look at the flagship app as I've indicated in the past, we believe that the convergence of generally speaking the creator economy on a more global basis the evolution of the tokenized world with NFTs web three and the like coupled with our core value proposition of NFPs made easy opening up the door to a tokenized world for artists that do not have deep crypto experience or technical experience is something that we think bodes well for veg as a business, as we continue to evolve. And as you know our premium marketplace today when taking a look at the overall revenue mix of the company give or take it's around, 5% to 10% of the overall revenue mix, we believe that we can see to it that with the proper feature set development and marketing that we can grow that piece of the pie over time.

That makes sense. And I don't know if people realize, but tell me if this is right. If an artist sells an NFT on average, they're selling that significantly higher price than just their typical art, which is better for the artist than better for you. Is that correct?

That is correct. There's also another derivative of that, and that is if a consumer buys that NFT and then it point in time chooses to sell it, there is incremental revenue that the artist will generate and that Zedge will generate from that sale.

Got it. Right. That's very interesting. Okay and then for subscription, you kind of hinted to some things that might come that some additional features that could maybe enhance that offering. Did I catch that?

So on the subscription side, I would qualify by saying that there are two areas that we are focusing on, one is around marketing and then the other is feature set development and those two play hand to hand. I think that we've been more heavily focused for the last couple of months on the marketing piece. And as calendar 2022 continues to unfold, we will begin to look at a feature development of value ads if you will, that can make the subscription offering or that may make the subscription offering more attractive accordingly.

Thank you. How do you think about the potential of Emojipedia kind of where it is now and maybe where it could be in two years?

We imagine that there's going to be growth there. Recall that Emojipedia is today only a web based offering available in English. And we are, as I discussed in the process of localizing Emojipedia, so that there will be multilanguage support opening up the possibility for incremental growth for non-English speakers. And in parallel, we are in the midst of an overall site redesign that should provide additional functionality in use cases make content more discoverable and available. And as part of that site redesign as well that includes monetization and specifically what ad units are placed, where, and how do we be benefit from that. After we're done completing that and sort of in the second half of the calendar year, we're going to be looking at potential ways to take the Emojipedia from the world of web into the world of native mobile app and that will presumably be another growth driver for us.

Thank you. In terms of, on the last quarters call, you talked about how you were going to be experimenting with paid acquisition to paying, to try to get customers in and see how that would go. Do you have anything to report back on learning anything there?

Sure. So we have started to scale up paid user acquisition. We're pursuing this with a very clear mindset of making sure that everything that we can do to bring on profitable customers is taken into account and that we don't get too far ahead of ourselves in terms of saying, well, we spend a lot of money and then the more money that you spend, presumably your return on ad spend begins to decline because you find less relevant customers and so on and so forth. So this is really, really being done with that mindset of bringing on customers that will ultimately generate a return for us. We've added to that team and we've had learnings around without getting into the specifics of the platform. Certain platforms have proven to be valuable to us that we thought would be out of our price range, other platforms or other forms of acquiring customers have not always worked out as we would anticipate. But again when making, or when starting with a new platform or a new way of attracting a paid user, we start with a very modest budget and then start to scale from there. And when we see that we've reached the ceiling, then we choose not to overspend in order to protect profitability.

Okay. Thank you. You highlighted that you were spending some money on the transition to the new ad platform. Is it possible to call out kind of how much, how much that was, maybe we could think of that as kind of one time?

Yeah, I think that that is correct in terms of being a onetime item. We have not broken that out in our earnings release and as discussed earlier. So there are sort of like onetime cost, if you will. And there was a diversion of resources. So engineers that would otherwise work on feature development got pulled off to undertake the analysis testing and so on and so forth. We expect that that process be pretty much wrapped up next month, barring any unforeseen surprises.

Okay, great. Anything you want to add on Shortz.

So, as I said, we're in the process of analyzing where we go with Shortz. We'll have greater clarity in the next quarter. And we're looking at a set of different KPIs and then coming back and sort of saying, well, build a business case in terms of how can it scale. Separate apart from that, the Shortz foundation is one, the Shortz platform, if you will, is one which lends to potentially other innovative products or proof of concepts and we're considering those as well. We'll be able to get into a lot more detail when we announce Q3 and give or take around three months from now.

Great. Okay. My last question is just on your efforts to start to grow the developed user base. I know some of that's going to be focused on socialization and personalization or could you maybe just touch that one more time of because that seems like that that should be pretty important long term.

Absolutely. So, as I mentioned in our fiscal Q1, we started to roll out early stage social capabilities such as Follow Me because of the ad mediation migration. As I had mentioned a couple of minutes ago, we had to divert resources for getting the next stage out, but next up in the pipeline is the notification panel where users will get notified based upon all sorts of different choices. But the concept is new content that is relevant to the user. There'll be a little sign on the app or some messaging to the user saying, hey, come back and visit more. And we will continue to incrementally add features that we suspect will draw users back in to the app and help us in terms of reversing that tier one monthly active decline -- monthly active user decline that we have discussed over the course of the last couple of quarters.

That's great. Thank you so much.

Thank you.

[Operator instructions] Our next question today is coming from William Vaughan at RegentAtlantic Capital. Your line is live. You may begin.

Hi guys. Congratulations on the really good quarter. My question surrounds capital allocation. When you look at the market cap of the company, the cash balance keeps going up. Now you're up to $30 million in cash. Backing out the cash, we're looking at the something close to five times EBITDA through the evaluation, closing it on that, or five times cash or whatever evaluation metric you want to use. So how do you think about allocating the cash in terms of to new investments or possibly doing a buyback? What are the thought process on using the $30 million, any cash going forward?

Great question, William. So our primary focus and we've talked about in the past quarter is how can we continue to grow the company and invest that cash, whether it be through internal development or M&A and the board will continue to evaluate these auctions over time in order to prioritize whether we continue down that path or potentially consider using some of that for a buyback.

Okay, thanks. In terms of user growth we saw another quarter of growth in emerging markets and sort of flat numbers and developed markets, I guess what -- do you, could you talk a little bit more about the trends in terms of what makes the product or the experience so I guess attractive for emerging markets, specifically India, and also thought process around turning around the user trends and develop markets than you just touched on that a little bit, but any more color would be helpful on that?

Yeah, really no, not much more color in terms of the developed markets. Obviously, as I said, social community features more features in terms of our artists community NFPs, as you can imagine. So artists begin to embrace that offering as they want to grow their business, they're going to reach out to their followers and that translates into bringing users into the Zedge ecosystem as well as user acquisition initiatives, whether it be paid or organic. And so far as what makes the product attractive in the emerging markets remember that our app consists of or has both premium content and premium content and in many of these emerging markets disposable income is a fraction of what it would be in a well-developed market. So when offering a user an option where they can acquire content that is attractive to them without having to pay for it in a hard dollars that becomes a very, very compelling offering, if you will.

Yep. Makes sense. In terms of Emojipedia, I know you mentioned that it's mainly in English right now. What's the geographic distribution of users for Emojipedia roughly

It is solely in English right now and we have not broken out geographic footprints, but I think it's fair to say that our footprint, in terms of the English speaking markets, including the United States, Canada, Australia and the UK is over 50% if I recall correctly. So it's a big number.

Those, all my questions. Thanks guys. Great quarter.

Thank you.

Thank you, ladies and gentlemen. This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.