Zedge - Earnings Call - Q3 2025

Executive Summary

• Revenue returned to growth, up 1.3% year over year to $7.76M, with GAAP EPS at $0.01 and non-GAAP EPS at $0.06; adjusted EBITDA rose 46% to $1.2M.
• Results materially beat Wall Street consensus: revenue beat by ~15.1% ($7.76M vs $6.74M*) and EPS beat by $0.08 ($0.06 vs -$0.02*). The beat was driven by higher ARPMAU, subscription growth, and improved ad CPMs as TikTok re-entered the market mid-quarter.
• Cost reduction initiatives began to flow through P&L (SG&A -6% YoY; restructuring charges $0.58M in Q3), supporting sequential profitability improvement and free cash flow, despite $~1.0M restructuring/retention cash payments.
• Management introduced new growth vectors: DataSeeds.AI (signed first AI dataset partnership) and impending rollout of AI audio generation within Zedge Premium—both potential catalysts for subscription/engagement and B2B revenue.

What Went Well and What Went Wrong

What Went Well

• Subscription engine: Active subscriptions hit ~896K (+37% YoY); subscription revenue grew 13.4% YoY; ARPMAU reached a record $0.099 (+32.7% YoY). “Average revenue per monthly active user increased by 33% year over year, indicating that we're monetizing each user more efficiently.”
• Profitability/FCF: Adjusted EBITDA +46% YoY to $1.2M; free cash flow of $0.8M despite ~$1.0M cash payments for restructuring/retention; GAAP op income swung positive to $0.2M.
• Strategic initiatives: “We launched DataSeeds.AI… [and] signed our agreement with a leading global AI technology company,” and “we are about to roll out an AI audio generator… positioning us as one of the consumer platforms to enable user generated audio content at scale.”.

What Went Wrong

• MAU down: Total MAU declined 20% YoY to 22.1M, reflecting mix-shift away from lower-LTV users; well-developed market MAU declined 13% YoY.
• GuruShots drag: Digital goods and services revenue (which includes GuruShots) fell 45% YoY as Zedge reduced UA spend pending “GuruShots 2.0” planning.
• Ad market disruption: TikTok ban impacted ad CPMs early in quarter; management noted demand/CPMs improved only after mid-February re-entry, limiting full-quarter benefit.

Transcript

Operator (participant)

Please continue to hold, ladies and gentlemen. Your conference will begin momentarily. Please continue to hold. Good day, and welcome to Zedge's Earnings Conference Call for the Third Quarter Fiscal twenty twenty five Results. During management's prepared remarks, all participants will be in listen only mode.

After today's presentation by Zegi's management, there will be an opportunity to ask questions. To ask a question, please press then 1 on your touch tone phone. To withdraw your question, please press 2. I will now turn the call over to Brian Seagal.

Brian Siegel (Investor Relations)

Thank you, operator. During today's call, Jonathan Wright, Zedge's Chief Executive Officer and E Sai, Zedge's Chief Financial Officer, will discuss Zedge's financial and operational 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 calls. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in Zedge's periodic SEC filings. 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 of the Zedge website and has also been filed on Form eight ks with the SEC. Finally, on this call, we will use non GAAP measures. Examples include non GAAP EPS, non GAAP net income and adjusted EBITDA. Please see our earnings release for an explanation of our use of these non GAAP measures. Now I would like to turn the call over to Jonathan.

Jonathan Reich (CEO)

Thank you, Brian. Good afternoon, everyone, and thank you for joining us today to discuss Zedge's third quarter fiscal twenty twenty five results. Q3 marked a return to revenue growth for Zedge, highlighting the resilience of our business despite an ad market that saw some disruption due to TikTok's absence from The US until mid February, along with tariff related uncertainty that caused macroeconomic volatility and expected softness at Gurushots, where we scaled back user acquisition to focus on what Gurushots two point zero will become. The $4,000,000 in annualized gross cost savings from our global restructuring and other cost reduction items also began to materialize during the quarter. The closure of our operations in Norway, the streamlining of the Guruschats team, and the associated decrease in discretionary spend, especially in lowering Guru Shots' marketing investment, helped return us to profitability on a GAAP basis and boosted our profitability on a non GAAP basis.

Furthermore, adjusted EBITDA increased 46% year over year, and we generated $800,000 in free cash flow. Notably, free cash flow includes approximately $1,000,000 for certain payments made during the quarter, primarily severance related to our restructuring and a portion of the final installment of the retention bonus stemming from the 2022 Guru Shots acquisition. In Q4, the benefits to free cash flow should further improve, as we anticipate a total of about $600,000 in restructuring related severance and the final payout of the Guru Shots retention pool. We expect to complete restructuring related cash severance payments in the first half of fiscal year twenty twenty six, totaling approximately $200,000 Our balance sheet remains strong. We ended the quarter with $20,400,000 in cash and no debt, even after repurchasing 219,000 shares under our previously announced $5,000,000 buyback authorization.

Key business highlights for the quarter included, we grew the Zedge Plus subscriber base to an all time high of nearly 900,000, a 37% year over year increase. ZedgePlus subscription revenue grew 13% year over year, while deferred revenue, primarily representing future recurring subscription revenue, reached $5,000,000 up 83% year over year and 13% sequentially. And Zedge Premium revenue more than doubled, driven by expanding the offering to our web users, increased usage of our paint.ai image generator, and ongoing demand for three d parallax wallpapers. While monthly active users, or MAU, declined year over year, the narrative is more nuanced. For a while now, we have focused on attracting and retaining higher lifetime value, or LTV, users, which are reported as MAU in well developed markets in the supplemental tables of our earnings release.

The overall MAU decrease was the outcome of a mix shift away from lower LTV users globally to higher LTV users in well developed markets. These efforts to focus on higher LTV users who are more likely to subscribe, make purchases, and engage more often and more deeply with our content and features are bearing fruit, and thus we continue to focus on attracting and retaining this part of our base. Additionally, our focused investment in paid user acquisition plays an important role in this success across both Android and iOS, and the positive trends are clearly reflected in our key performance metrics. Average revenue per monthly active user increased by 33% year over year, indicating that we're monetizing each user more efficiently. Deferred subscription revenue continued to climb, with lifetime plans capturing a larger part of the overall mix.

For lifetime plans, the user prepays the full amount at purchase, requiring us to pay the entire App Store fee upfront. This allows us to recognize 100% gross margins on the deferred revenue as it is recognized monthly over the subsequent thirty months. And critically, key user metrics within well developed economies have started to stabilize, hopefully positioning us for a return to growth in the future and reinforcing that the product and monetization strategies we have implemented to grow our customer base of high LTV users who engage with our product regularly, and we're confident that our performance marketing efforts and product roadmap are assisting us in achieving these goals. Looking ahead, innovation across our platform remains key to driving growth. We recently announced the launch of dataseeds.ai, a B2B content marketplace that focuses on supplying enterprise customers in need of both on demand and off the shelf data sets, initially focused on images, enriched with detailed metadata for AI training.

Dataseeds.ai leverages our growing content library of over 30,000,000 rights cleared images, our prolific community of photographers and graphic designers, and our existing marketplace infrastructure and know how. We aim to become the go to source for pretraining and fine tuning AI data sets, meeting the needs of foundational model developers for high quality, authentic, and diverse rights cleared content at scale. Last week, we signed our agreement with a leading global AI technology company, validating both the market opportunity and the value of what we have to offer. This initiative opens up a nascent new revenue source with the potential for not only reoccurring revenue, but also potential recurring revenue streams for us, while also providing our creators with more ways to monetize their work. Looking ahead, we are exploring opportunities to expand our offerings beyond images and provide additional mediums, including video and audio, as well as other commercially viable data types.

We believe that this seminal business expansion supports our conviction that investing in and nurturing our vibrant artist community is a critical differentiator that will enable us to scale up quickly. We are also about to roll out an AI audio generator as part of Paint, our GenAI creation suite that allows users to harness the power of AI to generate custom ringtones and notification sounds with simple text prompts. This is a major milestone in our AI roadmap, positioning us as one of the consumer platforms to enable user generated audio content at scale. It also solidifies our leadership in mobile personalization. Emojipedia remained stable during the quarter and continues to evolve with the expected release of digital stickers, a new vertical on World Emoji Day, which is celebrated in July.

We're also inching toward the introduction of a full site redesign to improve user experience and engagement. As discussed last quarter, we are ideating about what Gurushots two point zero can and will be. Part of the undertaking revolves around the core game, including onboarding, progression, the voting mechanic, and reward dynamics. At the same time, we are also thinking about how to better meet the needs that we envision are critical for dataseeds.ai to scale effectively. As expected, Guruschatsa's revenue declined year over year, primarily due to our decision to materially decrease our paid user acquisition spend.

Fortunately, the investments we have made are yielding customers with attractive ROAS profiles, but we want to keep much of our powder dry until we're ready for prime time with Gurushots two point zero. Across the company, we've identified five core strategic priorities for the remainder of the calendar year: AI innovation, mainly expanding the rollout of tools like our AI audio generator and embedding AI across all departments in the company, including design, engineering, quality assurance, marketing, monetization, and finance. Creator community empowerment, by strengthening our creator community with opportunities to make money, gain recognition, and improve their skill base user and subscription growth with a particular focus on high value users Gurushot's two point zero that is, imagining what the next generation of Gurushots can be in order to drive stand alone growth in concert with meeting the needs of dataseeds.ai. And finally, B2B expansion, scaling dataseeds.ai, and exploring new enterprise content licensing opportunities. We believe the structural improvements we've made will continue to become evident in Q4 fiscal year 'twenty five and be fully visible as we move into fiscal 'twenty six.

When combined with continued product innovation and strategic discipline, we are positioned well to deliver sustained growth, higher margins, and long term value creation for shareholders. I would now like to call on Yi to provide insights into our financial performance. Yi?

Yi Tsai (CFO)

Thank you, Jonathan. Total revenue returned to growth in the third quarter, up 1.3% to $7,800,000 Revenue growth was restrained due to the partial quarter of TikTok returning to the advertising market and the continued expected declines at Guru Shots. Third quarter subscription revenue was up 13.4% from last year And our net active subscriber growth trend continued to improve, up 37% year over year and sequentially for the straight quarter. As Jonathan mentioned, we also saw a shift towards lifetime subscription, which provides recurring revenue source for two point five years following sign up. Our deferred revenue, of which the vast majority is related to our subscription revenue, was $4,900,000 Deferred revenue has grown by 111% over the past seven quarters and has a 100% gross margin.

Zedge Premium's gross transaction value grew 4% versus last year. However, Zedge Premium's net revenue more than doubled this quarter. As Jonathan mentioned, the shift towards higher lifetime value or LTV users is important as subscriptions and higher Zedge Premium sales combined with our expertise at optimizing cost per impressions led to a record average revenue per monthly active user of $0.10 up 33% from last year. Gurushot, which is reported under digital goods and services revenue, remained a challenge, down 45% from last year. Remember that as part of our cost savings initiatives, we cut user acquisition spending at Guru Shots, while Guru Shots two point zero is in the planning stage.

So this decline wasn't unexpected. Cost of revenue was 5.8% for the quarter, roughly flat year over year on an absolute basis despite the pickup in revenue. SG and A decreased by 6% to $6,300,000 during the quarter. This decrease was mainly driven by our restructuring initiatives and lower marketing spend at Guru Shots. We had restructuring charges of $600,000 related to our announced restructuring activities in late January and early February versus no restructuring charges or asset impairments in the year ago quarter.

GAAP income from operations was $200,000 for the quarter compared to negative $100,000 last year. GAAP net income and EPS for the quarter was $200,000 and zero one dollars compared to $100,000 and $01 respectively, last year. Non GAAP net income and EPS were $900,000 and $06 compared to $500,000 and $03 in the prior year. Cash flow from operations was $900,000 and free cash flow was $800,000 for the quarter. As Jonathan mentioned, cash payments related to the restructuring and the retention bonuses tied to our 2022 acquisition of Guru Shots negatively impacted free cash flow by about $1,000,000 in aggregate.

We expect these payments to materially decline in Q4 to about $600,000 and then be immaterial in FY 'twenty six, which is when the full impact of all $4,000,000 in annualized cost reduction initiatives should start to show through. Adjusted EBITDA for the quarter increased 46% to $1,200,000 Note that depreciation and amortization decreased 61% or about $350,000 compared to last year due to the impairment of capitalized software and technology development costs. From a liquidity standpoint, we finished the quarter with $20,400,000 in cash and cash equivalents, which was up 2% sequentially despite buying back 219,000 shares for about $530,000 Fiscal year to date, we have repurchased nearly 700,000 shares. Thank you for listening to our third quarter earning call, and I look forward to speaking with you again on our year end call in October. Operator,

Operator (participant)

back to you for Q and A. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the star keys. To withdraw your question, please press star two.

At this time, we will pause momentarily to assemble our roster. Please proceed.

Allen Klee (MD, Equity Research Analyst, TMT)

Yes. Hi. Good job on this quarter, definitely. So congrats on that. Some questions, when I look at your advertising revenue that did well, and there's different pieces of that, is there a way to kind of say like if you had to rank the different pieces that go into that, how you would rank the ones that had the biggest impact?

Jonathan Reich (CEO)

Hi, Alan, it's Jonathan. Thanks so much for the congratulations. We pursue advertising as a comprehensive effort on our part. So it's kind of hard to answer that question with precision. And a recurring theme is that we consistently broadcast is that we've got an outstanding team focused on optimizing CPMs that is cost per thousand the metric that is used to value our inventory.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay, and but you said during, you said that TikTok came back at some point during the quarter. Does it feel how much of the quarter because you had your best advertising, your best, I'm going always say this wrong, ARP MAU you've ever put up and it was up like 33% year over year, but their support of the overall market wasn't there for the whole quarter. Could you give us a sense of how long it was there for? And are you hearing anything about like any because we are hearing from some other that advertising might be a little challenged, but just whatever you could tell us would Thanks.

Jonathan Reich (CEO)

Well, as you recall, there was a ban of TikTok in The US that was not listed until mid February. When it was lifted, it took a little bit more time for the numbers to come back for TikTok to get back into the market and so on and so And they are and continue to be in the market very present. I cannot venture to speak to whatever policy decisions are made at Washington. Having said that, they continue to buy in the market and remain ever present across advertising and marketing and all of the other initiatives that they are involved in.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay, but I'm still not understanding why they came back, but they didn't come back for the full quarter, maybe less than half.

Jonathan Reich (CEO)

Remember, quarter started February 1. They were not in the market for the entire quarter because the ban was not lifted until mid February.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay, so

Jonathan Reich (CEO)

what happened was both Google and Apple were not availing users of or new installs of the TikTok app, and TikTok was therefore not investing marketing dollars in trying to get users to download their app. When the government reversed the ban, TikTok began to invest in user acquisition once again.

Allen Klee (MD, Equity Research Analyst, TMT)

And that has such a big factor on the market. There a Yeah,

Jonathan Reich (CEO)

can't quantify specifically how much of this is TikTok, but TikTok is obviously one of the leading mobile apps in the market. They spend a lot of money on marketing. And Zedge has time and time again proven to be a very good user acquisition platform for them. With their reentry into the market, being that we monetize a good portion of our revenue through programmatic advertising, which is a marketplace, buyers and sellers, supply and demand, then pricing increased. Having said that, I also want to underscore what we had talked about with our focus, particularly from a marketing user acquisition perspective, being on catering to the users in well developed economies, those well developed economies carry more weight in terms of the CPMs that they can bring to the table.

So that was also a significant piece of the overall improvement. Yi, do you have anything you wanna add?

Yi Tsai (CFO)

Yeah, I mean, one that come to mind, Alan, was we added addition to FLOBAL, we added FMOB as our mediation platform, and we're constantly testing different FLOMA and try to get higher CPM for inventory. Hope that answered your question. I mean, in addition to the reason what Jonathan mentioned.

Allen Klee (MD, Equity Research Analyst, TMT)

Got it. Okay. Thank you. That's good color. Then in terms of your monthly active users, should we expect that to just to continue to kind of grind down?

Is anything what can you do to stabilize that and then grow it?

Jonathan Reich (CEO)

Great question. So we are working on stabilizing it. And the focus is really on the well developed markets. We have seen some improvement, I think, May to May year over year, we were flat. And we continue to refine and optimize our user acquisition spend to bring on high value users in those markets.

We love users from all markets, but clearly we're prioritizing our focus on users that can provide a disproportionate impact to our overall revenue stream from the well developed markets. And to that end, we have expanded our investment in user acquisition for the Zedge marketplace over the course of the last quarters with attractive return on ad spend users. And that ultimately drives more revenue for the company, even though we have lost users in less well developed or developing economies. Emerging markets and the like.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay, got it. In terms of I see you had written with the Mojipedia as one of the things was the new feature of the Mojipedia sandbox. Could you comment on that? What you're doing there? Yeah, the

Jonathan Reich (CEO)

emojipedia has been testing new features such as create your own emoji with AI or some mini emoji games. We are really focused on the upcoming release of digital stickers, which will be an adjacent vertical. And we plan that for World Emoji Day, which takes place in July. It will be our foray into a brand new content type, which is not emoji driven. And our hope is that based upon the similarity in terms of use of emojis and stickers that that will drive additional interest, traffic and engagement to the platform.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay. Great. In terms of Zedge Premium, the marketplace, what last quarter, you talked about kind of you rewarded video usage and you had good conversion rates. Any commentary on kind of the factors affecting the marketplace and GTV this quarter, you're thinking year over year?

Jonathan Reich (CEO)

I'm sorry, was hard to hear. Can you repeat the question?

Allen Klee (MD, Equity Research Analyst, TMT)

Just commenting on your Zedge Premium, how you thought about it, how it performed, and the main things you're working on there related to it.

Jonathan Reich (CEO)

Zedge Premium continues to be a core part of the overall marketplace and our thought processes to continue to bring on new artists and provide them with tooling that will enable revenue creation for them. The major thing that has happened over the course of the last couple of months has been that we've also made Zedge Premium content available on web. And that opens up a new channel for customers to ultimately purchase that content. So with that in mind, that will continue, That is that investment in terms of our community will continue to be a piece of this. And then separately, although we've not you haven't asked about it, we look at our creator community on a comprehensive basis, both in the Zedge Marketplace and in Gurushots as being a very strategic asset that we can turn to for content on demand needs that come to light because of dataseeds.ai, the new business to business marketplace that we had announced last week, focusing on curating and creating content to meet the needs of foundational AI companies in terms of refining and tuning their respective models accordingly.

Allen Klee (MD, Equity Research Analyst, TMT)

Yeah, that sounds very powerful. In terms of the so for data seed, Justin, when do you think I mean, you've announced the transaction, but how do you think about how this gets rolled out?

Jonathan Reich (CEO)

So we are actively in the market building relationships with prospective customers. And in addition to that, we have also published a research paper in conjunction with Pearl dot ai and Emmett research demonstrating that our data set has advantages for automated recognition system, visual recognition systems. And that is a marketing effort clearly to get our name out there. We've been very highly ranked on hugging face since we published that paper. And with any new B2B product for us, this is really brand new, we're now seeding the market, no pun intended, and building those relationships so that we can meet these bespoke needs.

One of the problems that we have come to recognize is that many of these foundational models are not able to source these unique needs that they have with materiality and in a short period of time. And the promise that we bring to the table is being able to fill that need. So clearly, if we just look at images on the Guru shop side of the house, if a model has a specific need of unique content that is not something that they can readily get their hands on, we can reach out, we can launch a competition, or even engage with our photo enthusiasts in our community in order to amass volume associated with that particular need. Of course, we can't handle every request that is on the market. But by way of example, we're not providing photographs of internal organs, which are really important for AI models and how diseases are recognized and discovered and so on and so Yet, there are many, many use cases.

And just to mention one that we've come across, there's a entity that's trying to build a model that will render shadows accurately? That's a very complex issue, just take as by way of example, you're sitting in your office, the curtains are open, you've got overhead lighting, how are shadows rendered? That's the sort of stuff that we can generate lots and lots of images in a relatively short period of time in order to help refine that model.

Allen Klee (MD, Equity Research Analyst, TMT)

That's very interesting. Okay, thank you. In terms of your talk about rolling out an audio AI. What would that look like? Is that like a ringtone?

Or is it how should that and when are you thinking that coming out? I think it's somewhat near term.

Jonathan Reich (CEO)

We're gonna be rolling it out on a limited basis before the June. And then we will scale and based upon iterative feedback and so on and so it will be a feature within the Zedge marketplace. And just as with GenAI imagery today, a user will essentially be able to go in and create a ringtone or and the ringtone doesn't necessarily mean that it's strictly music. It can be a funny sound just by way of example, but a user will prompt. And based upon their prompt, they will get the content that or they will create the content that they have prompted.

Allen Klee (MD, Equity Research Analyst, TMT)

So this would be somewhat of a premium price versus like a

Jonathan Reich (CEO)

reasonable Well, yeah, the business model is something where I imagine that it will be somewhat available in our subscription offering. And for those users that do not subscribe, we may put up some sort of a paywall or advertising paywall. That's all being worked on as we speak.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay, but this could just help with the momentum you already have with subscriptions?

Jonathan Reich (CEO)

Yes, that's correct. In addition to that, from a timing perspective, audio is still rather nascent in this type of consumer offering in the marketplace. And we are hopeful that we can benefit from entering at an early point in time, which could lead to more users coming to us to engage with this new feature. That's we're hoping for.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay. That's great. So just what I heard you say, one of the things you said you think year over year improvement in bottom line metrics could become more visible next quarter with what you've done in the cost structure, taking into account traditional seasonality. The next quarter is a little slower because of the summertime? And could you remind us what you said about the restructuring or the Guru retention costs that you said will happen in fiscal fourth quarter?

Jonathan Reich (CEO)

Sure, so for the specific numbers, I'm going to have E answer your question in terms of, let's call it seasonality in the business. As I think, typically, our Q4 is a little bit lighter because of the summer. It's the month of May, June, July. Our fiscal year begins on August 1. At the same point in time, we are still very, very focused on making sure that we're growing the business.

Allen Klee (MD, Equity Research Analyst, TMT)

When you say growing the business, are you including the top line?

Jonathan Reich (CEO)

That's correct.

Allen Klee (MD, Equity Research Analyst, TMT)

Okay, great. Then But

Jonathan Reich (CEO)

I'll just I'll underscore the obvious as was very clear from both these comments and my comments. Our cash flow has and will continue to be outstanding. The restructuring certainly is helping us. I think that we said that there could be up to another like $4,000,000 of cash flow because of the restructuring. The restructuring has unfolded very, very well.

The fact that the Gurushot retention bonus is almost completely behind us from a payout perspective. And the fact that we have tailed or not tailed, but cut back on user acquisition spend for Guru Shots while we get our hands around what our shots two point zero will ultimately be. All of those are contributing to our improved cash flow. So from a cash flow perspective, I would underscore that we're doing really, really nicely. You may wanna get into some of the more specific numbers about the retention bonus and other. Yes, is interested in.

Yi Tsai (CFO)

Right. So the tail end of the restructuring charges in Q4 would be about 325,000. This is because the accounting standard, we can only expense and pay out during the period, during the retention period, it's still with the company. So after July, it will be gone in terms of charges, but then some severance payment will be paid throughout the next five months after year end. And in terms of retention bonus, we have charged everything to the P and L, but the cash payment, the last payment was actually in May with the April payroll, if you will, which was about 323,000.

So Q4 accounting for cash flow will be about 600,000 related to retention bonus and related to restructuring charges. I hope that answers your question.

Allen Klee (MD, Equity Research Analyst, TMT)

Thank you. Okay. I'm trying to think if I think I hit most of the things I wanted I think those were my questions. Well, this was a very good quarter. So thank you and congrats.

Jonathan Reich (CEO)

Thank you, Al.

Operator (participant)

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