Zedge(ZDGE) - 2026 Q2 - Quarterly Report

User Engagement and Growth - Zedge reported 20.4 million monthly active users (MAU) as of January 31, 2026, a key performance indicator for the Zedge App [111]. - The Zedge Marketplace generated revenue through advertising, in-app sales of Zedge Credits, and a subscription offering, with approximately 1.2 million active subscribers as of January 31, 2026 [114]. - Zedge introduced pAInt, a generative AI wallpaper maker, in fiscal 2023, enhancing user engagement through text-to-image and other creative functionalities [112]. - The Creator Economy, which Zedge is part of, is estimated to be worth between $191 billion and $250 billion globally in 2025, presenting significant growth opportunities [110]. Financial Performance - Total revenues for the company increased by 18.3% to $8.254 million for the three months ended January 31, 2026, compared to $6.979 million in the same period last year [143]. - Subscription revenue for the Zedge App increased by 32.5% to $1.634 million for the three months ended January 31, 2026, compared to $1.233 million in the same period last year [144]. - Average Revenue Per Monthly Active User (ARPMAU) for the Zedge App increased by 47.5% to $0.1146 for the three months ended January 31, 2026, driven by higher advertising prices and strong subscription revenue growth [130]. - Advertising revenue for the three months ended January 31, 2026, increased by 18.3%, primarily due to higher average prices per advertising impression [150]. Operational Challenges - The company recorded a non-cash impairment charge of approximately $3.7 million to reduce the carrying amount of the Emojipedia assets group due to competitive pressures from AI developments [108]. - GuruShots, acquired by Zedge, has faced revenue decline and is undergoing a restructuring plan to improve user acquisition and retention [121]. - Zedge's operations are significantly impacted by geopolitical tensions, particularly in Israel, which may affect business performance and workforce availability [106]. Cost Management - Selling, general and administrative expenses decreased by 6.2% to $6.683 million for the three months ended January 31, 2026, compared to $7.126 million in the same period last year [143]. - Stock-based compensation expense decreased by 54.4% to $275,000 for the three months ended January 31, 2026, compared to $603,000 in the same period of 2025 [169]. - Direct cost of revenues increased by 25.5% to $561,000 for the three months ended January 31, 2026, compared to $447,000 in the same period last year [143]. Subscription Metrics - Active subscriptions at the end of the period reached 1,175,000, reflecting a 48.5% increase from 791,000 in the prior year [147]. - For the six months ended January 31, 2026, subscription revenue increased by 30.6% to $2,415,000 compared to $1,850,000 in the same period of 2025 [157]. - Subscription billings, a non-GAAP measure, increased by 2.0% to $1,908,000 for the three months ended January 31, 2026, compared to $1,871,000 in the same period of 2025 [148]. Loss and Impairment - Net loss for the company increased by 36.3% to $2.289 million for the three months ended January 31, 2026, compared to a net loss of $1.679 million in the same period last year [143]. - The company recorded an impairment charge of $3.7 million for the quarterly results ended January 31, 2026, due to anticipated reduced traffic and revenue from changes in search engine results [124]. - For the three months ended January 31, 2026, the Zedge Marketplace segment reported a loss from operations of $2.1 million, compared to income of $41,000 in the prior year, primarily due to impairment charges of $3.7 million [188][189]. Cash Flow and Capital Management - Cash and cash equivalents stood at $19.1 million as of January 31, 2026, with working capital of $15.3 million, compared to $18.6 million and $14.7 million, respectively, at July 31, 2025 [193]. - Net cash provided by operating activities was $1.7 million for the six months ended January 31, 2026, reflecting a net loss of $1.5 million adjusted for non-cash items of $4.4 million [196]. - The company maintains a revolving credit facility of $4 million, including a foreign exchange contract facility of up to $7.5 million [193]. Customer Concentration - One large customer represented 34% of total revenue for the six months ended January 31, 2026, compared to 31% in the same period of 2025 [205]. - At January 31, 2026, two customers represented 33% and 19% of the accounts receivable balance, respectively, compared to 48% and 13% at July 31, 2025 [205]. Workforce and Restructuring - Global headcount as of January 31, 2026, totaled 85, down from 106 as of January 31, 2025, indicating a reduction in workforce [169]. - The GuruShots segment's loss from operations decreased by 65.6% to $777,000 for the three months ended January 31, 2026, compared to $2.3 million in the prior year, attributed to lower SG&A expenses [190].