Good afternoon and welcome to Zedge’s Earnings Conference Call for the First Fiscal Quarter 2024 Results. 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] I will now turn the call over to Brian Siegel.

Thank you, operator. 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 operating results that were reported today and the 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 the reports that Zedge periodically files with the SEC. 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 on the Zedge website. The earnings release has also been filed on form 8-K with the SEC. I would like to turn the call over to Jonathan.

Good afternoon. Thank you, Brian, and thank you all for joining us today. I will start by briefly reviewing our first quarter results, which are primarily encouraging and are a consequence of the investments we made in fiscal year 2023, which we expect will continue driving sustainable, profitable, long-term growth. Q1 revenue increased 3% from last year as we continued managing geopolitical, macroeconomic, and industry-specific challenges. Despite these challenges ad revenue grew following four quarters of decline. The uptick was driven by Zedge marketplace's improved performance and Emojipedia, which was up 62%. Zedge Plus, our Zedge Marketplace subscription offering, delivered exciting results with revenue, up 10% from last year and also showing sequential active subscriber growth for the second quarter in a row following six sequential quarterly declines. These factors led to record ARPMAU and 35% Zedge premium GTV year-over-year growth. Last quarter, we announced our commitment to building a full stack marketing team with capabilities spanning user acquisition, branding, creative execution, marketing, analytics, and reporting, competitive research, content marketing, app store and search engine optimization, and re-engagement marketing. Along those lines, we recently hired a seasoned head of user acquisition who is scaling our marketing investments in order to deliver positive return on ad spend growth. I'm now going to provide an update about each of our business units and/or products. Paint is now more than a generative AI wallpaper maker and continues to be a primary focus of the Zedge marketplace. Take a look at what we have accomplished since our last call seven weeks ago. First, we have made paint available globally and are testing different regional business models in order to scale this feature. Next, we launched the beta version of paint for mobile web, which enables users to create all types of images, not only…

Thank you, Jonathan. Now, for the Zedge marketplace, define as the number of unique users that open Zedge app during the last 30-days of the period decreased 10.7% from a year ago to $28.5 million. Now in the well-developed market and emerging market were down 13.1% and 10% respectively. Total revenue in the first quarter was $7.1 million, up 3% from last year. Digital goods and services, which encompasses revenue from GuruShots came in at $0.9 million, down 29% from last year. Similar to Q4, GuruShots revenue was again negatively impacted by Apple's ATT framework, macroeconomic issues, and the geopolitical situation. Subscription revenue for the quarter was up 10% versus last year. Additionally, this metric was up sequentially for the second straight quarter as our net active subscriber trend improved and higher value iOS subscription and new value added Zedge Plus offering for Android, replaced lower cost legacy subscriptions, which only removed ads. Zedge premium GTV grew 35% from last year to $421,000, reflecting incremental revenue generated from paint, which offset much decline in auto content sales. Advertisement per monthly active user or AMAU was $0.63, up 17% year-over-year, reflecting stability in ad pricing and the positive impact of our new iOS and Android subscriptions. Cost of revenue declined by 23% and was 6.9% of revenue. SG&A declined by 5.6% to $5.5 million. GAAP income from operations returned into the black, increasing by $0.5 million to $0.3 million. GAAP net income and EPS for Q1 were new, versus a net loss and loss per share of $0.1 million and $0.01 last year. This quarter, FX and income tax expense swing negatively impacted GAAP net income by $143,000 and $271,000, respectively versus last year. Adjusted EBITDA was $1.5 million versus $1 million in the prior year. From a liquidity standpoint, we remain in a strong cash position with over $18.7 million in cash and cash equivalent and only $2 million in bank loan at the end of the quarter. Note that on November 15, after the quarter ended, we paid down the $2 million in bank loan and had a remaining cash balance of approximately $16.7 million. Additionally, please note that we reached an agreement with GuruShots product owners, and we will not make any earnout payments related to our purchase of the company. Thank you for listening to our first quarter earning call and I look forward to speaking with you again on the next call in mid-March. Operator, back to you for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Allen Klee with Maxim Group. Please proceed.

Allen, are you on mute?

Allen, can you hear us?

He dropped out of the queue.

Guys, can you hear me now?

We can hear you, Allen. Thank you.

Hi, I'm sorry about that. Starting off with, so despite monthly active users declining, you've been executed on everything to really deep my top and bottom line numbers. I wanted to ask a question to start with on monthly active users. Is that -- some of that is macro, some of that’s industry. Just on that one point, what would you say is what you're working on doing that could potentially start to stabilize that?

Hi, Allen, it's Jonathan. Thanks so much for the kind words. In terms of MAU and stabilizing and potentially, even growing that number, literally everything that we have in our product roadmap is focused on improving that number. And in addition to that, the marketing efforts that we have, both with respect to organic, as well as paid marketing initiatives are focused on improving that number. So everything that we have talked about today, as well as our future product growth is tied to improving that monthly active user base. I just want to point out as well that we're just slightly below 30 million monthly active users. The number is still a very, very significant number. There aren’t that many apps that I am aware of that have that sort of massive penetration. And we are certainly shooting to resume growth with that number in the upcoming corners.

Yes, I would note that some industry research is saying that after smartphone sales being down for around two years, it looks like it may start -- sales may start stabilizing and grow next year, which maybe that will help just that backdrop also?

Yes.

So you talk about with GuruShots and waiting with Apple's privacy rules and waiting for the big sites like Facebook to implement what Apple has done. What are you hearing about the timing for that and when that might become effective?

We speak to Facebook regularly. They, I think as you know, had rolled out a scan for implementation several months ago and they had to quickly roll that back. There's no question of a doubt this is a high priority item for them, but really that question is best geared for the folks over at Meta. Having said that, we have undertaken several initiatives in order to assist in scaling our page user acquisition initiatives, including creative, and really massively increasing the number of creatives -- creative themes and design and so on and so forth. As well as taking advantage of a new product that, or products feature I should say that Facebook had rolled out known as AEM, Aggregated Event Measurement, which is meant to improve performance by aggregating data from both the app or mobile space and web space. And that, we believe, is having a positive impact as well in terms of helping us scale. So those two items together coupled with some internal work that we are in the process of undertaking in conjunction with our data team that is analyzing it's funnel events that we believe can be targeted against are all tools that are being used in order to help us get there. But of course, once GAD4 does come out, we are chomping at the bit to include that in our marketing stack in order to increase whether it be first time depositors, users, and the like.

Thank you. It sounds like you have good momentum with paint where that's getting rolled out and how have you -- talk a little about, kind of, how you think about the -- how that's going to plan of them -- get it the adoption rate for that? Thank you.

Sure. So as mentioned in my earlier comments, we've now made paint available on a global basis. I think a point of differentiation between us and let's say many of the other gen AI apps that are out there is that our offering does not require a user to have to purchase tokens or subscribe to a service, but rather they can essentially paint through watching rewarded videos. And the way that we are approaching this is through several different means in terms of making sure that it is available and visible to our users, making sure that we are optimizing our store listing, but at the same point in time, maintaining our leadership position in terms of ranking with respect to mobile phone personalization. And also using the benefits of marketing automation to convert users from being consumers into actual creators. Separate and apart from all that, I think in last quarter's conference call, I mentioned that we are working on a standalone gen AI app that we hope to release in the first couple of months of 2024 calendar year. And having a standalone fully dedicated app focused on gen AI is going to allow for us to market in ways that really free us of any focus that we have on personalization and rather shift that focus all around, you know, generative AI. So that is, in a brief nutshell, how we think about this evolving space, and we're excited by where this space can eventually lead to. But at the same point in time, proceeding with, you know, a rational and deliberate growth plan, so that we are in better control of our destiny.

Excellent. For AI Art Master, how -- I went to the Google and Apple stores today, and I know they are not yet available in the U.S. But when you are launching a new game, how do you -- what is the marketing strategy to try to get it to accelerate and ramp up? How are you thinking about the marketing? How to make that happen? Thanks.

Sure. So there are many components that go into that. But let me tell you some of the things that we are currently doing, even though the game is, your point is correct, is only soft launch is available in only five countries today. Nonetheless, we've been investing in the AI Art Master website and that website has continued to improve its rankings in terms of search engine optimization. And that will assist in terms of driving organic growth when the game is introduced into more countries and eventually rolled out on a global basis. Separate and apart from that, we have been doing some very, very light paid user acquisition campaigns in the markets in which the game is in soft launch. Certainly, paid user acquisition will be a significant part of that business. And then, I think it's really critical to underscore that we will be marketing that game to our user base. So give or take 30 million monthly active users. And our users are over-indexed for engaging with casual hybrid casual type of mobile games, so that's an additional plus. And then there is a whole set of initiatives around App Store optimization, coming up with the right collaterals in the App Store, making sure that we are benefiting from the hypergrowth that gen AI is currently experiencing. So taken together, that constitutes a good portion of our thoughts with respect to marketing this new title as we continue to progress with the soft launch.

Thank you. Emojipedia has been a home run. I didn't catch everything you said of some of the new features you are looking to roll out. Could you just go over that again? Thank you.

Sure. So we're looking at, let's call it an emoji translator. You can type in a field of text and you will have that text rendered in a string of emojis. We're looking at adding new content types like emoticons. We are also in the midst of testing a print-on-demand capability where you can design…

I'm sorry, what was that second? What was that second one?

Emoticons?

Yes, what is that? I’m sorry.

Emoticons. Emoticons. E-M-O-T-I-C-O-N-S.

Yes, could you explain what that is?

It's another form of representation of emojis, if you will. And we think that it's a logical extension of the emoji space. So that is certainly something that we're looking at. But just to give you an example of an emoticon, prior to emojis, if you wanted to end a email or text message with a smile, you would type in a colon and a close parentheses. That is an emoticon.

Thank you.

So to answer your question. But, you know, the notion of offering emoticons and then also offering a mashup emoji design where you can actually take two emojis and join them together and you have a new visual that is the output associated with that. So those are all areas that we're looking at. And I would add as well that we're also looking into the notion of offering a subscription tier to the Emojipedia service that we would want to test. And if that shows good prospects, then we would further develop that.

That's very helpful. I'll throw in a financial question. You're not giving specific guidance, but any commentary on how seasonality and maybe any financial metrics that you're kind of prioritizing?

Well, seasonality is, you know, our business is heavily weighted towards advertising revenue and we are in the same boat as any other digital business that is heavily weighted towards advertising space. Obviously RQ2, which extends November, December, January, is historically our strongest quarter of the year. And, you know, there's no reason to believe that will be different this year. And in terms of financial KPIs, we are always looking at our cash, things like quick ratio, and then ARPMAU as being really important to the theme of being financially solvent and allowing for us to have ample runway to continue to grow the business and seize opportunity as we see that opportunity unfolding.

That's great. So I'm probably going to say this wrong, but the average revenue per monthly active user, that was up 17%. A lot of things go into that subscription definitely helped. What do you see like going forward as the key things you are doing that can impact what direction that moves in?

Yes, so it's a function of our product and when I say our product that involves or that includes not only our ad stack and how we monetize our ad inventory, but also our subscription offering. As you've seen, the growth and subscription space has sustained for, I guess, two quarters. Subscriptions, the introduction of subscriptions on iOS are really exciting. They are at higher price points when compared to Android. So that coupled with the Zedge premium marketplace, where we actually go out and allow for artists to sell licensed content and how that is priced and how that is offered to our user base, all of those taken together contribute to influencing that average revenue per monthly active user.

Okay, great. That's it for my questions. Thank you very much. Congratulations on a strong quarter.

Thank you.

We have no further questions in queue. This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.