Zedge(ZDGE) - 2025 Q1 - Quarterly Report

PART I. Financial Information Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 FY2025 show a net loss of $339 thousand, total assets of $38.2 million, and $1.2 million in cash from operations Condensed Consolidated Balance Sheets As of October 31, 2024, total assets remained stable at $38.2 million, while liabilities increased to $8.1 million and stockholders' equity decreased to $30.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $20,196 | $19,998 | | Total current assets | $24,163 | $23,997 | | Total assets | $38,198 | $38,195 | | Liabilities & Equity | | | | Total current liabilities | $6,679 | $6,250 | | Total liabilities | $8,095 | $7,299 | | Total stockholders' equity | $30,103 | $30,896 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended October 31, 2024, revenues increased to $7.19 million, but the company reported an operating loss of $457 thousand and a net loss of $339 thousand, a reversal from prior-year income Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 FY2025 (Ended Oct 31, 2024) | Q1 FY2024 (Ended Oct 31, 2023) | | :--- | :--- | :--- | | Revenues | $7,194 | $7,081 | | Selling, general and administrative | $6,809 | $5,499 | | (Loss) income from operations | $(457) | $321 | | Net loss | $(339) | $(15) | | Basic and Diluted loss per share | $(0.02) | $0.00 | Condensed Consolidated Statements of Cash Flows For the three months ended October 31, 2024, net cash provided by operating activities was $1.17 million, while cash used in financing activities significantly increased to $804 thousand due to share repurchases Cash Flow Summary (in thousands) | Activity | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,170 | $1,260 | | Net cash used in investing activities | $(157) | $(445) | | Net cash used in financing activities | $(804) | $(10) | | Net increase in cash and cash equivalents | $198 | $620 | Notes To Condensed Consolidated Financial Statements The notes detail business segments and accounting policies, revealing Zedge Marketplace revenue growth to $6.55 million and an operating income of $0.9 million, while GuruShots revenue declined to $0.64 million with a $1.4 million operating loss - The company's business consists of the Zedge App (wallpapers, ringtones, pAInt AI tools), GuruShots (photo challenge game), and Emojipedia[25] Revenue by Segment (in thousands) | Segment/Type | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Zedge Marketplace | | | | Advertising revenue | $4,874 | $4,939 | | Paid subscription revenue | $1,182 | $976 | | Other revenues | $494 | $222 | | Total Zedge Marketplace | $6,550 | $6,137 | | GuruShots | | | | Digital goods and services | $644 | $944 | | Total Revenue | $7,194 | $7,081 | Segment Income (Loss) from Operations (in thousands) | Segment | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Zedge Marketplace | $934 | $1,654 | | GuruShots | $(1,391) | $(1,333) | | Total | $(457) | $321 | - The company renewed its $4 million revolving credit facility with Western Alliance Bank for a four-year term through October 28, 2028[72] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth driven by Zedge Marketplace, offset by GuruShots decline, and explains the shift to an operating loss due to increased SG&A expenses and user acquisition costs, while maintaining strong liquidity Overview Zedge operates digital marketplaces and competitive games like the Zedge App and GuruShots within the 'Creator Economy', focusing on monetization through advertising, subscriptions, and in-app purchases, while seeking platform synergies - The company's vision is to connect creators with consumers through friendly competitions to drive commerce within the 'Creator Economy'[94] - As of October 31, 2024, the Zedge App had 25.0 million MAU and approximately 698,000 active subscribers[95][98] - A key strategic initiative is to enable GuruShots players to become Zedge Premium artists and sell their photos, leveraging Zedge's large user base[105] Key Performance Indicators (KPIs) Zedge App KPIs show a 12.3% MAU decline offset by a 22.1% ARPMAU increase, while GuruShots experienced declines in both Monthly Active Payers and Average Revenue Per MAP due to user acquisition challenges Zedge App KPIs (Q1 FY2025 vs Q1 FY2024) | Metric | Q1 FY2025 | Q1 FY2024 | % Change | | :--- | :--- | :--- | :--- | | MAU (millions) | 25.0 | 28.5 | -12.3% | | ARPMAU | $0.0767 | $0.0628 | +22.1% | GuruShots KPIs (Q1 FY2025 vs Q1 FY2024) | Metric | Q1 FY2025 | Q1 FY2024 | % Change | | :--- | :--- | :--- | :--- | | Monthly Active Payers (MAPs) | 4,524 | 6,106 | -25.9% | | Avg. Revenue per MAP (ARPMAP) | $43.3 | $51.2 | -15.4% | Results of Operations Total revenue for Q1 FY2025 increased to $7.2 million, driven by Zedge Marketplace growth, but an operating loss of $457 thousand resulted from a 23.8% increase in SG&A expenses and a decline in GuruShots revenue - Zedge Marketplace subscription billings, a non-GAAP measure, increased 56.0% YoY to $1.78 million, indicating strong growth momentum in subscriptions[124][127] - Zedge Premium net revenue increased 141.7% YoY, primarily due to new AI generative features rolled out in the Zedge App[128] - SG&A expense increased 23.8% YoY, primarily due to ramping up Paid User Acquisition (PUA) for the Zedge App, while scaling back PUA for GuruShots[135] - Depreciation and amortization decreased by 50.8% YoY, mainly because of an $11.9 million impairment charge recorded in Q2 of fiscal 2024, which lowered the amortization base[138] Liquidity and Capital Resources As of October 31, 2024, the company maintained a strong liquidity position with $20.2 million in cash and $17.5 million in working capital, supported by $1.2 million in operating cash flow and an active share repurchase program Cash and Working Capital (in millions) | Metric | Oct 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20.2 | $20.0 | | Working capital | $17.5 | $17.7 | - Cash provided by operating activities decreased slightly to $1.2 million from $1.3 million in the prior year period[151] - The company repurchased 219,573 shares for approximately $782 thousand during the quarter as part of its share buyback program[155] Quantitative and Qualitative Disclosures About Market Risks As a smaller reporting company, Zedge is exempt from providing quantitative and qualitative disclosures about market risks - Smaller reporting companies are not required to provide the information required by this item[162] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of October 31, 2024, with no material changes to internal control over financial reporting during the quarter - 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 effective[163] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[164] PART II. OTHER INFORMATION Legal Proceedings The company does not anticipate any legal proceedings 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 condition[69][167] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended July 31, 2024 - There are no material changes from the risk factors previously disclosed in the 2024 Form 10-K[168] Unregistered Sales of Equity Securities and Use of Proceeds The company has an active share repurchase program, with an additional $5 million authorized in September 2024, leading to the repurchase of 226 thousand shares during Q1 FY2025 - In September 2024, the Board of Directors authorized an additional $5 million for the share repurchase program[169] Share Repurchase Activity (Q1 FY2025) | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Shares Purchased as Part of Program (thousands) | Value Remaining Under Program (thousands) | | :--- | :--- | :--- | :--- | :--- | | Aug 2024 | 219 | $3.56 | 219 | $6 | | Sep 2024 | 7 | $3.16 | - | $5,006 | | Oct 2024 | - | - | - | $5,006 | | Total | 226 | | 219 | | Defaults Upon Senior Securities No defaults upon senior securities were reported - None[172] Other Information No other material information is reported - None[172] Exhibits This section lists filed exhibits, including CEO and CFO certifications and Inline XBRL documents - Filed exhibits include CEO/CFO certifications pursuant to Sarbanes-Oxley Act sections 302 and 906, and various Inline XBRL data files[173]