Schneider National Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2024

There are 6 speakers on the call.

Operator

Good day, and welcome to the Zedge Earnings Conference Call for the 4th Quarter and End of Year Fiscal 20 24 Results. During management's prepared remarks, all participants will be in a listen only mode. After today's presentation by the Zedge management team, there will be an opportunity to ask questions. I will now turn the call over to Brian Siegel. Please go ahead.

Speaker 1

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. 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 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.

Speaker 1

Please note that our earnings release is available on the Investor Relations page on this Edge website. The earnings release has also been filed on Form 8 ks with the SEC. I would like to turn the call over to Jonathan.

Speaker 2

Thank you all for joining us today. We wrapped up fiscal 2024 with strong momentum, posting 14% year over year revenue growth in the 4th quarter, driven by continued expansion in the Zedge marketplace, with subscription revenue up 31% and average revenue per monthly active user, or ARPMOW, soaring by 43%, hitting a record $0.079 Zedge Premium's gross transaction value or GTV increased by 56% driven by enhancements in content and monetization further showcasing the positive impact of our team's execution. For all of fiscal 2024, we delivered revenue growth of 11%, representing 30 $100,000 in revenue, non GAAP net income of $1,800,000 and flat non GAAP EPS of $0.13 even while beginning to reposition GuruShots, continuing to roll out innovative product enhancements, testing new offerings and scaling marketing and user acquisition initiatives across our core platforms, While the Zedge Marketplace's monthly active user numbers fluctuated between $25,000,000 $30,000,000 we significantly improved the revenue generation capabilities of our user base as evidenced by the growth in our premium offerings, including 25% growth in subscription revenue to a record $4,300,000 a nearly 40% increase in Zedge Premium's GTV to a record $2,200,000 and a nearly 10x increase in iOS revenue, all leading to the record ARP mail we reported in Q4.

Speaker 2

We also strengthened our balance sheet during the year, with cash and cash equivalents up by more than 10% to $20,000,000 or $1.38 per share, even after repurchasing $600,000 in stock and paying off our $2,000,000 term loan, not to mention the material investments we made in marketing and user acquisition mentioned earlier. Additionally, Zedge's stock appreciated by 71 percent from $2.12 at the end of fiscal year 'twenty three to $3.62 at the end of fiscal year 'twenty four, leading to our inclusion in the Russell MidCap Index. Despite this performance, we still believe that at a trailing enterprise value to EBITDA of less than 6x, We are significantly undervalued on both an absolute and relative basis. So we are putting our money where our mouth is. After completing the previous $3,000,000 share buyback in July, The Board approved a new $5,000,000 plan in September.

Speaker 2

Looking to fiscal year 'twenty five, we are committed to driving growth by further scaling our businesses and optimizing our offerings with innovative product enhancements, testing new product initiatives and expanding our reach across all business areas, capitalizing on the solid foundation laid in fiscal 'twenty four. One of our primary goals is to convert our user base historically composed of content consumers into content creators, a transformation critical to positioning us as a leader in the creator economy. To accomplish this, we will continue embedding generative AI capabilities across our product portfolio, driving innovation and enhancing users' experiences. Our focus in the coming year is on agility and growth. In fiscal 2024, we centralized key support functions, including marketing, monetization, data and analytics.

Speaker 2

In fiscal year 2025, we are turning more of our attention to evolving our technology platform to better enable rapid development of new apps and products by creating an engine with modular and reusable components that can be easily recycled and or refactored from project to project. Optimizing our tech platform enables us to increase efficiency, reduce costs and fosters a rapid fire organization. These efforts will enable us to explore, adapt, test and launch new products, enhancements or ideas quickly. We will also be positioned to make faster decisions to double down on the initiatives that deliver attractive ROIs or pull back on the ones that don't, ultimately allowing us to achieve sustainable and profitable long term growth. Core to our ongoing success is a world class marketing organization that we built and tuned in fiscal 2024.

Speaker 2

The team is scaling user acquisition investment responsibly and is delivering cohorts with attractive return on ad spend or ROAS profiles. At the same time, it is addressing a myriad of other challenges with skill and proficiency, including the need for producing lots of ads efficiently, analyzing performance, ensuring each platform that we use to market our products adds incremental value and finally, that we focus our ad spend on targeting the right user segments despite having less information about them than existed a couple of years ago. Now I'd like to discuss several key product initiatives. For the Zedge marketplace, Paint, our Gen AI image creator, has been a standout success with over 22,000,000 images generated since its introduction in 2023. We are committed to converting our users who traditionally consumed our content into master creators.

Speaker 2

We are also working to attract new user cohorts that may not have found Zedge relevant when we only focused on mobile phone personalization. With the release of Paint 2.0 in September, we introduced a powerful set of image to image capabilities powered by AI. By enabling capabilities beyond creating wallpapers, users can now reimagine any image, creating entirely new visuals either by text prompting, via image upload or even by taking a photo in real time. They can then add filters, edit photos, create avatars and or stickers and render output in any size. We expect that these enhancements will unleash higher levels of creativity that will improve engagement and retention.

Speaker 2

We are working on the next iteration of our suite of AI tools with the focus being on introducing an AI auto generator. As the year progresses, we plan to release even more features and enhancements to provide best of breed service. Taken together, we expect these activities will assist in driving user growth, improving engagement and bolstering retention. Turning to Emojipedia, we remain excited about its growth potential as we head into fiscal 2025. Over the past year, we introduced emoji playground, availing users with popular features like emoji mashups and quizzes.

Speaker 2

In keeping with our consumer into creator theme for fiscal year 2025, we will soon enhance the playground with custom emoji creation and digital sticker capabilities powered by GenAI. Additionally, in the second half of fiscal twenty twenty five, we expect to roll out a redesigned Emojipedia experience and improve the Playgrounds games section. At GuruShots, reversing our losses and resuming growth are our top priorities, and we will chart its future based on how successful we are in these endeavors. To accomplish this, our strategy has shifted towards prioritizing product features and enhancements that can drive new user growth ahead of elements designed to appeal primarily to legacy player cohorts. This is evidenced from the changes we have already made and the roadmap that we have planned for this fiscal year.

Speaker 2

To date, we have introduced a robust onboarding experience to ease more users into the engagement funnel, adopted a coin based in game economy with multiple currencies and most recently launched Missions, a proven gamification technique for driving engagement and improving retention by rewarding players for completing specific goals. Later this fall, we will introduce Duels, a fast paced real time player versus player dynamic that allows users to compete against each other even while they are playing in longer duration GuruShots challenges. Our pivot wouldn't be complete without coupling these activities together with robust marketing initiatives that seek to target a broader range of potential new players with attractive ROAS profiles as well as utilizing live ops strategies to optimize in app purchases. Taken together, we believe that this multilayered approach will ultimately widen the top of the funnel, bring in more users, engage them in a fun, exciting and strategic experience and ultimately unlock revenue growth. While not a slam dunk, early results from the recent introduction of Missions points to improved engagement, adding to the successes we've experienced with the new onboarding funnel and coin based economy.

Speaker 2

Finally, from a new product standpoint, in early fiscal 2025, we began testing WishCraft, a standalone Gen AI app created with a goal of radically simplifying the creation process to draw in users that have not historically thought of themselves as creators. We also continue monitoring AI Art Master, a casual AI art battle game born from Guru Shapta's leadership in the photo competition vertical, where players create AI art and compete in themed and fast paced competitions in order to earn accolades for creativity, style and aesthetic talent. While these products remain in beta, we are, as described earlier, hard at working at filling our pipeline with a host of products that we can iterate on quickly with a fail fast approach. I feel compelled to underscore that we believe that this strategy can yield outsized returns with Rovio as a great example. Rovio launched 51 games prior to hitting the jackpot with Angry Birds, which as of February 2023 had grossed in excess of $500,000,000 360,000,000 installs.

Speaker 2

Long story short, we have a great team of products, marketing, monetization, designers and engineers, all focused on unearthing that diamond in the rough and taking it to the next level. Both our 4th quarter and full year results show that we are on the right track to generating sustainable, profitable long term growth. Our strong performance is a testament to the investments we've made in growth and innovation. And despite the ongoing industry and geopolitical challenges and macroeconomic uncertainties, we remain well positioned to capture market opportunities across our product lines. Lastly, as part of optimizing our business, we are committed to smart capital allocation strategies, including implementing the new stock repurchase program for up to $5,000,000 which, when combined with our operating leverage, we believe will deliver long term shareholder value.

Speaker 2

Now I'll turn the call over to Yi to review the financials in more detail.

Speaker 3

Thank you, Jonathan. Total revenue in the 4th quarter was $7,600,000 up 14% from last year. For the year, revenue grew 11% to a record $30,100,000 The continuous work we do on optimizing our ad stack both through this year, with advertising revenue up 13% for the quarter and 15% for the year. Subscription revenue was up 31% for the quarter and 25% for the year versus last year. Our net active subscriber trend continued to improve and was up sequentially for the 5th straight quarter.

Speaker 3

And our higher value iOS subscription and value added Zeiss plus offering for Android replaced lower cost legacy subscription, which only remove ads. Zestream and JTV achieved quarterly and yearly revenue record at $600,000 $2,100,000 up 56% and 39%, respectively versus last year. This growth drove record R and A of $0.079 up 43% year over year. Two things have become clear. 1st, our strategy to drive growth is working.

Speaker 3

And second, the initiatives Jonathan spoke about are driving higher quality revenue for the Zedge marketplace. Unfortunately, this growth was partially offset by year over year revenue decline for Gurushar, which is reported under digital goods and services of 24% in the quarter and 25% for the year. Given the shift in strategy to prioritize new player acquisition, this decline was not unexpected. But we are cautiously optimistic based on the early positive return from the new feature releases that the business will return to growth soon. Cost of revenue was 6% of revenue for both the quarter the year and decreased 4% 17%, respectively, when compared to the same period in the prior year.

Speaker 3

SG and A increased by 33 percent to $6,900,000 during the full quarter. For the full year, SG and A increased 17% to 25,600,000 dollars This increases were mainly driven by marketing expenses related to an increase in paid user opposition, which is helping to drive growth. As we scale, we expect to see operating leverage rebound. But today, between the higher spending and lower revenue from Gurusak, we are seeing the impact of high operating leverage. Additionally, our subscription model caused higher near term expenses as revenue and costs down align.

Speaker 3

To demonstrate when we get a lifetime subscription, we receive cash upfront, but also pay upfront fees to Google and Apple based on the full amount of subscription. However, revenue in land recognized over 2.5 years. While this disproportionately negatively impact expenses in the current quarter when the subscription is sold, over the remaining recognition period, the revenue is recognized at 100% growth and operating margin. GAAP loss from operation was $100,000 for the quarter compared to income from operation of $200,000 in the Q4 last year. For the full year, loss from operation was 11,800,000 compared to a loss from operation of $6,900,000 last year.

Speaker 3

For the full year number, both years were negatively impacted by non cash accounting write down related to acquisition, with the FY 'twenty four write down being much higher at $12,000,000 versus $6,800,000 last year. At this point, we have written off 100 percent of the value of the asset on the book related to Guruschap acquisition. So we don't expect any large write down moving forward. GAAP net income and EPS were nil for the quarter compared to net income and EPS of $200,000 and $0.01 last year. For the full year, GAAP net loss and loss per share were $9,200,000 $0.65 versus $6,100,000 $0.44 respectively in the prior year.

Speaker 3

Both year's losses reflected the tax adjusted non cash accounting write off for acquisition I mentioned. For the Q4, non GAAP net income and diluted EPS were $300,000 and $0.02 versus $600,000 $0.04 in the prior year, respectively. Adjusted EBITDA for the quarter was $800,000 versus $1,600,000 in the prior year. Note that D and A decreased 56% versus last year, primarily due to the write offs. For the full year, adjusted EBITDA was $4,700,000 versus $5,700,000 last year, primarily due to higher SG and A.

Speaker 3

From a liquidity standpoint, we added nearly $2,000,000 in cash to our balance sheet and finished the year with $20,000,000 in cash and cash equivalents. We also bought back about 200,000 share of stock. Thank you for listening to our 4 quarter earnings call and I look forward to speaking with you again on our Q1 call in December. Operator, back to you for Q and A.

Operator

We will now begin the question and answer session. Your first question is coming from Derek Greenberg with Maxim Group. Please proceed with your question. Your line is live.

Speaker 4

Hi. Thanks for taking my question. In terms of Guru Shuts, I was wondering if there's any metrics you can provide, whether it be like the number of users, how that's changing, as well as just retention and engagement rates associated with that app?

Speaker 2

Eric, it's Jonathan. Thanks for the question. And at this point in time, the KPIs that we've included in the release are the ones that you should be looking at. Directionally, as I said during my call during my comments, the focus for GuruShots is really geared towards new users and having them come into the funnel, convert into players and then having them engage to a point where they are generating revenue by purchasing coins that they can use to accomplish certain goals within the gameplay. And generally speaking, what we have seen is that engagement from these new users is increased.

Speaker 2

They are consuming coins. They are converting. And as those numbers hopefully continue to grow, that will also translate into driving revenue for us. And we will consider going forward if there are additional KPIs that we can provide, which will yield greater detail with respect to how performance unfolds.

Speaker 4

Okay, got it. In terms of the Zedge offering, could you just talk about for the fact that it's driving the growth in marketplace, gross transactional value as well as subscription numbers as well as how you're getting to that higher average monthly revenue per monthly active user?

Speaker 2

Sure. So in terms of GTV gross transactional value for our premium artists, We are doing many things in the app in order to promote content, as well as making Zedge relevant to the creator economy. And for an artist that wants to gain access to a mass customer base, Zedge is one of the platforms that they can turn to. Coupled with that and we've actually published the piece about this on our blog around a month and a half ago, we are actually seeing growth in premium art from the use of AI and the ability to offer outstanding content that meets the need and the desire of our users. Moving to subscriptions, we have done many, many different things to optimize and improve our take rate on subscriptions, things from the internal messaging and how that is actually viewed.

Speaker 2

So going from a static in app message to an animated in app message, We've been doing a lot of testing in terms of different price points and the value adds that we fold into the subscription offering, such as the AI features and the like. We've done a lot of work in terms of localization, localization in terms of both the messaging as well as the pricing. And then we've also been trying and expanding, with a lifetime subscription, so pay once and you have our subscriber into perpetuity. And if I were to provide a metaphor, it would be going into some sort of a lab where one is trying to solve for curing an illness. There are many, many different approaches that one will see in that lab and that is what we have.

Speaker 2

So it's relentless AB testing. And then based upon the results of those AB tests, another set of AB tests and so on and so forth. And then with respect to our overall ARP now average revenue per monthly active user increasing, As we've said for many, many quarters, we are constantly focusing on improving our ad stack and optimizing and doing so in a fashion which is beneficial both from a financial perspective as well as from a UX perspective, user experience perspective. And that is also an area where we literally have dozens of tests that unfold on a monthly basis. And the incremental value of a test, if it has a 2% improvement, well, when you begin to stack that up over time based upon the volume of users and the volume of ads that our users are exposed to, that helps us in terms of improving that average monthly per active average revenue per monthly active user.

Speaker 2

I hope that answers your question.

Speaker 4

Yes, definitely. That's helpful. Thank you. And then in terms of the advertising revenue of that business, can you just talk about how that's trending and how you've been able to respond to some of the industry changes in terms of the data you're available to access?

Speaker 2

I'm sorry, I didn't hear the last part of your question.

Speaker 4

Just how you've been able to respond to like changes in how you're able to access data and target customers following changes on different platforms?

Speaker 2

Okay. Well, remember, we're when you say advertising, do you mean our advertising revenue or do you mean how are we spending marketing dollars in advertising to customers to come to Zedge or GuruShots?

Speaker 4

I guess we can touch on both, but primary was the advertising revenue side of the business.

Speaker 2

Okay. So from an advertising revenue perspective, we are using 3rd party for mediation and it's really a function of being in the programmatic offering that that third party has. So it's less around our having specific customer segments that we are selling. So let's say, I don't know, auto lovers or cigar aficionados and stuff like that. However, we are beginning to focus on collecting both 0 party and first party data, obviously being very sensitive to compliance with any regulations, whether those be legal regulations or they be platform specific regulations.

Speaker 2

And as we begin to amass enough information there, we may be able to go out and offer cohorts of users that have an attraction to a particular type of demographic message or the like. From a marketing perspective, we are hard at work in terms of understanding what are the triggers that prospective Zedge or Groooshap users would be inclined to take and then using the benefit of having a mass volume of ads that can articulate those benefits and make Zedge or any of our businesses attractive to prospective users and those that will install our apps and the like.

Speaker 4

Okay, got it. In terms of new products and features, I saw in the press release that there was plans for an AI audio offering. And then on the call and in the press release, you've mentioned the WishCraft beta app. I was wondering if you could just give some commentary around both.

Speaker 2

Sure. So as you know with Paint 2.0, we've taken our initial foray into the world of GenAI creation, which was launched give or take around a year ago. And that was a text to image experience that would render a really great mobile phone wallpaper. Paint 2.0 just elevates this experience. First of all, it is no longer text to image alone.

Speaker 2

It can be image to image. It can even be you click a phone you click a photo from your phone and you can then use Paint 2.0 to accomplish all sorts of different things, whether it be make an avatar, do photo editing, render that picture, that image in many different styles and so on and so forth. And it's no longer limited to simply wallpaper. You can determine the size of it. So it can be really any size that you would like.

Speaker 2

And we feel that based upon the fact that we are known in the world of personalization for not only wallpapers, but also ringtones, believe it or not, there is a tremendous amount of demand from our consumers to consume wallpapers, engage with to consume ringtones, engage with the audio that we have. And that audio expands all sorts of different genres, music, to humor, to funny sounds and so on and so forth. And we feel that the next iteration of paint needs to be something specific to audio. We've actually found that when marketing is edged to users, we see that there is actually improved results when focusing on the fact that we have audio ringtones and notification sounds for users to consume. And we think that it's a logical next step to say, well, now let's empower our consumers with the ability to actually go out and create various forms of audio, specific ringtones notifications to start with.

Speaker 2

But then depending on how users interact with that, there are many different things and paths that we can take in order to make sure that upcoming product enhancement. WishCraft, as we've talked about in the past, is a standalone, GenAI image app, so either text image or image to image. But what we've done differently in WishCraft and WishCraft is beta. We are setting specific thresholds in terms of what KPIs need to be reached as we iterate rapidly to make sure that if those KPIs are meeting the thresholds we continue, if not, that we can fail quickly and then focus our efforts on other opportunities that will provide greater success. But the notion of witchcraft really lies in a belief that many people are intimidated with the notion of figuring out how to use AI, what should they prompt, how do they actually engage with an image and make it better or transform it into something that they couldn't even wildly imagine, let alone explain.

Speaker 2

And at its core, what WishCraft does is it has an alternative user interface where the user doesn't have to type, they can actually see tiles and begin to click on tiles and then they will see the output associated with those tiles, which can be used as well to improve or change an image that they've uploaded. And our hope is that with this enhanced and improved user interface that we will be able to draw in prospective users that would otherwise be latecomers to the world of Gen AI creation and bring them in at an earlier point, build a relationship with them, entice them and so on and so forth, so that they do not feel scared or anxious about, oh, what is AI? How do I do this? I don't want to try something because I'm not familiar with it. Does that answer your question?

Speaker 4

Yes, that makes sense. I have one more question and then that will be it for me. But for Emojipedia, I was just wondering your outlook for that in 2025 as well as just how that performed compared to the Q3. I remember there was, I think, a redesign that impacted performance in that quarter. I was just wondering if this has been remedied and the business has turned to normal during the quarter?

Speaker 2

Great question. So yes, you're correct. In Q3, we had launched a redesign and that redesign did not perform as was anticipated. We made the changes. That has been remedied and Emojipedia has been humming along nicely.

Speaker 2

For fiscal year 2025, we I think are focused on 3 areas. 1 is never ending ad optimization and the ad stack and so on and so forth. That is a part of our standard operating procedures. Number 2 is testing and introducing some new content verticals. So we've talked about emoji stickers or let's call them bespoke emojis that a user can create with AI.

Speaker 2

So that's a second area of focus. And 3rd area of focus is a more comprehensive redesign of the Emojipedia property to add a little bit more, what shall I say, luster and excitement to it. Today, it is a almost very much like a as it sounds, an Emojipedia, a Wikipedia type of experience. But we believe that there is more opportunity in terms of driving engagement and encouraging retention and the like with a design overhaul. And one of the things which is I think an obvious question would be, well, who's to say that you don't experience the same thing that happened in Q3, where we rolled something out and then we found out that it did not perform as was anticipated.

Speaker 2

Well, when we remedied the Q3 issue from 2024, we also had upgraded some of the technology, which will which essentially has positioned us in an area where we have a lot more data that we now have access to than we had had in the past. And I don't expect that that will be a problem that recurs again based upon the investment that we've made with respect to data capture and the technology around that accordingly.

Speaker 4

Okay, got it. All right. Well, thanks for taking my questions. I appreciate it.

Speaker 2

Sure. Thank you.

Operator

Your next question is coming from Allen Klee with Maxim Group. Please proceed your question. Your line is live.

Speaker 5

Yes. Hi. Two quick questions. One, how do you feel about the returns that you're getting from paid advertising? And second, how do you feel about how you might manage your operating expense growth relative to revenue growth in the next fiscal year?

Speaker 5

Thank you.

Speaker 2

Hi, Alan. Thanks so much for the question. So one of the accomplishments that we had undertaken at the in fiscal year 2024 was a commitment to building a world class marketing team. And that not only includes the ability to create great ads and lots of great ads, but also the ability to closely monitor how those ads are performing and dialing up when we have a winner and dialing back when an ad does not perform well. And then how do we spend our test budgets so that we're very, very specific and precise in terms of utilizing that money to the best of our ability without having a lot of wasted.

Speaker 2

And the marketing team is a very, very analytical team. So everything from attribution to create a funnel to conversions to monetization is being looked at. And we have actually seen just by way of focusing on the Zedge app, we've actually seen that we have been able to reduce our CPI cost per install and do that by spending actually less money, but even seeing an improvement in terms of the number of installs. So long story short, that is core to how that team operates today, looking at not only those KPIs, but also dealing with incrementality, which is essentially by way of example, we are highly ranked in the world of personalization. One goes into Google Play, just naturally our app ranks at the top.

Speaker 2

And then what does one do in order to ensure that when it comes back in the 1st or second spot, there's also not an ad there. So is it the fact that the ad is promoting an install or is it the fact that we are just so highly ranked? That notion of incrementality is also key to how we measure and better manage our budgets to provide for improved return on ad spend. And overall, I feel pretty good that we're being very efficient in terms of how we're spending money and that will continue to improve over time. It's almost the complement to what we've done with respect to ad optimizations in the ad stack and the like.

Speaker 2

So that is, I think, really critical to how we operate. In terms of managing expenses compared to revenue, that is an area of a great focus for us. We are very, very much committed to ensuring that we're not racking up the expenses unless the ROI is there. However, if the ROI is there, then we want to pursue it. And I was just by way of an example in a meeting yesterday where we were having a conversation about a particular marketing endeavor and we want to ramp up, we want to accelerate, but marketing team had said, let's be a little bit more patient right now in terms of what this specific goal was.

Speaker 2

We're in Q4 and we don't want to get too far ahead of ourselves and then extend the payback period to a point where we're taking on more risk than we choose to. I think that there will be seasonality in that regard. And like I said, and I've said this now for the last couple of quarterly calls, we are managing our business based upon return on ad spend with ever increasing and ever improving tools to measure what the impact is of a particular ad unit, particular platform, a particular message and so on and so forth, such that we can be efficient with how we spend money. And then when we have success, how do we add to that success by throwing more dollars there, but at the same point in time, looking for that point of optimization where throwing more money, the law of diminishing returns just doesn't make sense. So I hope that that answers your question.

Speaker 2

And if you have any others, please feel free to ask away.

Speaker 5

Thank you.

Operator

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

Powered by Quartr
Earnings Conference Call
Schneider National Q4 2024
00:00 / 00:00