Zedge(US:ZDGE)2022-06-14 20:15PART I. Financial Information Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Zedge, Inc. show revenue growth but decreased net income, influenced by acquisitions and increased operating expenses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2022 | July 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $17,095 | $24,908 | | Total current assets | $20,322 | $27,613 | | Total assets | $55,667 | $37,477 | | Total current liabilities | $13,929 | $4,177 | | Total liabilities | $16,538 | $4,322 | | Total stockholders' equity | $39,129 | $33,155 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 | Nine Months Ended April 30, 2022 | Nine Months Ended April 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $6,230 | $5,252 | $19,173 | $14,328 | | Income from operations | $1,342 | $1,979 | $7,037 | $5,590 | | Net Income | $803 | $2,449 | $5,183 | $5,772 | | Diluted EPS | $0.05 | $0.17 | $0.35 | $0.43 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended April 30, 2022 | Nine Months Ended April 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,314 | $7,737 | | Net cash used in investing activities | ($18,807) | ($593) | | Net cash (used in) provided by financing activities | ($225) | $12,518 | | Net (decrease) increase in cash | ($7,813) | $19,804 | Notes To Condensed Consolidated Financial Statements The notes detail accounting policies, revenue disaggregation, acquisition specifics for GuruShots and Emojipedia, and changes in intangible assets and goodwill Disaggregation of Revenue (in thousands) | Revenue Type | Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 | Nine Months Ended April 30, 2022 | Nine Months Ended April 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Advertising revenue | $4,526 | $4,227 | $14,532 | $11,612 | | Paid subscription revenue | $910 | $899 | $2,823 | $2,358 | | Other revenues | $794 | $126 | $1,818 | $358 | | Total revenues | $6,230 | $5,252 | $19,173 | $14,328 | - On April 12, 2022, the Company acquired 100% of GuruShots, Ltd. for $18 million in cash at closing and up to $16.8 million in contingent earnout payments over two years, accounted for as a business combination5051166 - On August 1, 2021, the Company acquired substantially all assets of Emojipedia for a total purchase price of $6.7 million, accounted for as an asset acquisition68 - Goodwill increased from $2.3 million at July 31, 2021, to $11.0 million at April 30, 2022, primarily due to $8.9 million of goodwill recorded from the GuruShots acquisition73 - The company recognized $1.29 million in stock-based compensation for the nine months ended April 30, 2022, a significant increase from $488,000 in the prior-year period82 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business overview, strategic acquisitions, geopolitical impacts, and key performance indicators, highlighting revenue growth, MAU decline, and increased SG&A expenses - The company's portfolio, consisting of Zedge App, Emojipedia, and GuruShots, served 41 million monthly active users as of April 30, 2022109 - The company acquired Emojipedia on August 1, 2021, and GuruShots, a leader in the photo gaming space, on April 12, 2022109120121 Key Performance Indicators (Zedge App) | Metric | Q3 FY2022 | Q3 FY2021 | % Change (YoY) | | :--- | :--- | :--- | :--- | | MAU (millions) | 32.1 | 34.5 | -7.0% | | ARPMAU | $0.0523 | $0.0485 | +7.8% | - The decline in MAU is attributed to a forced app upgrade, the company's public support for Ukraine impacting users in certain regions, and seasonality132 Results of Operations Comparison (in thousands) | Line Item | Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $6,230 | $5,252 | 18.6% | | SG&A | $4,064 | $2,694 | 50.9% | | Income from operations | $1,342 | $1,979 | -32.2% | | Net Income | $803 | $2,449 | -67.2% | - SG&A expenses increased significantly by 50.9% for the quarter, primarily due to $860,000 in transaction costs for the GuruShots acquisition, higher compensation from increased headcount (93 vs. 52 YoY), and higher stock-based compensation147149 Quantitative and Qualitative Disclosures About Market Risks As a smaller reporting company, Zedge, Inc. is not required to provide the information for this item - The company is a smaller reporting company and is not required to provide the information requested by this item179 Controls and Procedures The CEO and CFO evaluated disclosure controls and procedures, concluding their effectiveness with no material changes in internal control over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective180 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls181 PART II. OTHER INFORMATION Legal Proceedings The company is not subject to any legal proceedings expected to materially adversely affect its financial condition or results of operations - The Company does not expect any legal proceedings to have a material adverse effect on its results of operations, cash flows or financial condition88184 Risk Factors This section outlines new and updated risk factors, primarily concerning the GuruShots acquisition and geopolitical instability, including integration challenges and economic disruption - Risks related to the GuruShots acquisition include failure to attract and monetize a sufficient number of paying players, improper management of the in-game economy, and potential inability to successfully integrate GuruShots' operations into Zedge186188192 - The company may be unable to meet its user acquisition spending commitments for GuruShots if Zedge's core business experiences a material downturn, exposing it to liability191 - The acquisition may fail to yield expected growth opportunities and synergies, and the company may need to issue stock for earnout payments, causing further dilution to investors193194 - Russia's invasion of Ukraine has created substantial political and economic disruption, which could have a material adverse effect on the company's operations and business outlook195 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None197 Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None197 Mine Safety Disclosures This item is not applicable to the company - Not applicable197 Other Information There is no other information to report for this item - None197 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files