ZDGE - AMEX

Good afternoon and welcome to

Thank you, operator. In today's presentation, Jonathan Reich,

Good afternoon. Thank you, Brian and thank you all for joining us today. I'm going to start by briefly reviewing our second quarter results, which were generally in line with our expectations. Q2 revenue increased 1% from last year. The combination of geopolitical, economic, and industry-specific challenges resulted in lighter advertising spend compared to past years and lower discretionary spend by consumers. Additionally, GuruShots like most iOS apps, whose growth depends on paid user acquisition has suffered because of Apple's App Transparency Tracking Framework or ATT for short, making paid iOS user acquisition less efficient and more expensive. While Apple's release of its SCAD Network 4.0 in late 2022 is meant to alleviate some of this turmoil, it is taking time for various ecosystem providers to integrate this successfully into their tech stacks. Adding to the turbulent market is the decline in mobile phone sales in 2022 to the lowest levels in nearly a decade. Mobile phone sales are a growth factor for the

Thank you, Jonathan. Moving to our second quarter results, now, defined as the number of unique users that opened our

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. First question comes from Allen Klee with Maxim Group. Please go ahead.

Yes, good afternoon. You talked about GuruShots. When you originally did the acquisition, you had some potential commitments of how much you were going to spend on user acquisition spend, I think $5.3 million in year one, subject to getting good returns on that. Are you changing the plan of how much you'll be spending?

So Allen, this is Jonathan. We have until the end of March to spend $5 million, although we are not spending that amount of money. And we have found that when trying to ramp up user acquisition spend, the return on ad spend has declined. As I mentioned during my comments in large part, that is due to a combination of the App Transparency Tracking System, a framework that Apple had released and is causing major, major issues throughout the industry. As well as the macroeconomic and geopolitical risks that we are all experiencing on a global basis.

Okay. That makes sense. Could you -- I may have missed it. Did you disclose how much GuruShots contributed during the quarter? And I also heard you say that you thought that Apple was going to be rolling out something else in the future, which might help in terms of your ability to market. Could you review what that is? Thank you.

Sure. I'll address the second question first and for the numbers, I'll hand over to Yi. Apple has -- I think it was in November 2022, started to roll out their SCAD 4.0 ad network, if you will, and essentially prior to that rollout, the window in which advertiser was able to collect information about a user that has downloaded and installed their app was limited to one day time. And SCAD 4.0 opens up that window to three and potentially seven days with a little bit less accuracy. Although Apple had released SCAD 4.0 back in November, there's a lot of work that the entire ecosystem needs to undertake in order to comply with and integrate into that technology stack. And that is slowly, but surely unfolding in the industry, although it is not complete. Our hope and expectation is that with access to more information over a slightly wider period of time that advertising efficiency will kick-in allowing for publishers to better acquire customers that align with the particulars of what they're optimizing against. Yi, do you want to handle the financial breakout between GuruShots and other revenue sources?

Yes, sure. Hi, Allen. So, GuruShots contributed $1.25 million on the topline. On the income loss from operation, it shows that they have been $5,000 loss from operation, mainly because we had about $1.8 million contract expenses that helped reduce the loss from operations.

Does that answer your question Allen?

Yes. Thank you. I heard you guys mentioned that you developed a casual game that you're doing a soft launch on for that's a generative AI art, could you just expand on that a little bit?

Sure. The notion around this is to have competitions around creating generative AI art. And if you will -- if you were to take GuruShots, specifically the addition of GuruShots, Battles and as opposed to focusing on amateur photographers, which is a more limited audience, but open up that funnel to really anyone that can prompt, anyone that can type a character string in around a particular competition. That is what we envision. There will be set of in-game resources that is more -- those game -- we will have more in-game resources and we imagine that from monetization perspective that this will open the door for monetization through a combination of advertising as well as in-app purchases of particular game resources. Obviously, very, very early, as you've mentioned, this is in soft launch. We are doing a lot of iteration. And in the world of gaming, it's not atypical that you can have a game in soft launch for, easily a year. So, we're gathering information, we're fine-tuning, hand-tuning overall gameplay and doing this on a regular and consistent basis. However, we believe that this is very much in keeping with a theme that we had made at the point of time when we acquired GuruShots, which essentially was our ability to gamify other verticals that are focused around visual arts, if you will. So, we're looking forward to seeing how it unfolds. Clearly, there's been a tremendous amount of interest in AI generative art and we think that we have gameplay here that could be really attractive to folks that are avid players of casual games, if you will.

Got it. Thank you. And then--

I'm sorry I should mention one other thing, I think this is critical. We've done all of this with our existing employee base. We've been very, very clever around the code base and being able to take advantage of a lot of the tech stack that we have and expanding into this without having to increase the size of our employee base. So, that will likely continue to be the case. Of course, as the game evolves, assuming that the game begins to see great success, we may need to bring on some additional staff to scale with the game, but we don't see that as being an imminent short-term need.

That's very helpful. And then I heard you talk about -- you were impacted by the sales of smartphones, but that started to pick up. So does that imply -- I know, you're not guiding on this, but just that MAUs might sequentially have at least have a bottom and might pick up a little. And then on the rates that you get, is it reasonable to think that the level of this quarter is kind of a rated -- as good as you can tell, it will be at or that are the reasons that you might see pressure downwards or upwards? Thank you.

Okay. So generally speaking and per your comments, this is not guidance, but generally speaking, there is a strong correlation between handset sales and

Got it. Okay. And then you talked about a cost-cutting initiative of $2.5 million to $3 million. Is that something that -- how do you think about the time that it takes to implement that?

Sure. So I think that we started to undertake this initiative towards the tail end of Q2. And I think that for Q3, that will be more apparent in the financials. And we're really moving quickly in order to see to it that potential is met sooner rather than later. It's not that, this is back loaded, but rather this is something where boom, there are areas that we have cut back on cost, we've become more efficient and so on and so forth and that immediately benefits the entire business.

Got it. And just to clarify one more big-picture question, and I'd like to get into your groups, but when you say you're not expecting a return to growth in the near-term, do I understand that, that would mean that likely for your next fiscal quarter, your revenue growth will be down year-over-year?

Yes, I really prefer not to share projections at this point. I think that it's fair to say that we are doing everything within our power to see to it that we do not have a continued downturn in the business and we're doing whatever we can in order to preserve our cash and doing our best to try to operate the company at very minimum without losing money on an aggregated basis, on a comprehensive basis, that is.

Okay. In terms of your Premium Marketplace, what are your top priorities for the next quarter or two?

Yes. Top priorities are, we continue to evolve in the marketplace and offer content that our users or prospective purchasers would be interested in purchasing that continues to be the case. We have been very clear from the outset, especially during the hype of what had happened with NFTs, that our view of NFTs has been around a technology benefit for creators and purchasers, namely Providence and the ability to ensure that you've bought that one or that one of a set of that digital, that particular digital item, we did not play the speculative game in terms of being the next people and we believed then, and I think it's been proven since then, that we have been in the right in terms of taking that perspective. So we continue to operate within that regard, offering, whether it be NFTs through our NFTs Made Easy product, or non-NFT, non-tokenized content and availing that to our users at various points in their journey for a price.

Okay. Great. Well, I mean, you guys have been very disciplined and quite good performance in a tough market. So I admire, what you guys are doing. Thank you so much for answering my questions.

Thank you.