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 third quarter results, which were generally in line with our expectations. Q3 revenue increased 8% from last year. While there were still challenges related to the combination of geopolitical, economic and industry-specific issues, we saw some early signs of stabilization in advertising with a year-over-year declines in advertising revenue decreasing to 6% in Q3 from 19% in Q2. The combination of Emojipedia delivering high double-digit growth and

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

Good afternoon. Congratulations on your discipline to continue to run the business cash flow positive in difficult times. My first question is related to GuruShots. Your -- you had when you originally bought it, you’ve discussed some planned increased marketing spend. How do you -- talk about the amount of marketing spend that you're putting towards it, and how you feel those dollars would be -- if you're getting where you think you'll get a good return on that? And how we should be monitoring Battle and Learn and also maybe -- also moving, putting pictures on

Thank you, Allen. Marketing spend is a function of return on ad spend. So for every dollar that we spend on user acquisition, we have data from historical cohorts that we can compare in terms of the efficiency of that spend. And as discussed in my comments, with the resettling of the user acquisition space, post ATT, we've seen a decline in performance. Therefore, we are being exceptionally careful about waiting for new solutions to come out that will yield better return on ad spend. We are constantly testing, we are constantly investing in our infrastructure to improve the return on ad spend. And in addition to that, as mentioned earlier, we are investing in the product in order to open up new sources of revenue and new customer bases, that can generate that revenue, ultimately to yield a better ROI from the product. We believe that as the industry continues to develop and find an effective way to target customers, while preserving privacy according to the guidelines and rules that Apple has built into its ecosystem, that we will benefit from the advancements and be able to put money to work in terms of identifying those prospective customers, and scaling from there accordingly. In terms of Battles, as I mentioned, we are in the midst of releasing that in beta. And the goal with Battles is for us to open up more of the top of the funnel to engage users that are newbies that need to understand what GuruShots is, and the intention is to provide a more contained less heavily intensive game experience for these users to sample the GuruShots game. And then as they continue to enjoy Battles, we would then begin to bring them into the overall GuruShots competitive realm, if you will.

Okay, great. And the process of -- for pictures that people are submitting with GuruShots into competitions to move some of those pictures into being sold on your marketplace. Now what's the status of that.

So we've done some initial testing there. There's products work that needs to take place in order to avail that as a seamless, very easy to accomplish business goal, and that is still under development. Separately, and apart from that, we've talked about the notion of using some of the GuruShots expertise in gamification, to add gamification elements to the

Okay. Thank you. In terms of you mentioned that your monthly active users was close to like you had held it pretty stable, which in this environment is a positive. What would you attribute that to?

A combination of several factors. First of all, continued focus on seeing to it that our product is enjoyable, offers value, and is easy to use. And in addition to that, we've also been ramping up our user acquisition spend for the ringtone and wallpaper app specifically focused on Android. And we've seen attractive return on ad spend for that investment. That is one of the movers to the growth that we've experienced, particularly in Latin America. And we will continue to invest in paid user acquisition as long as the ROI is there to justify that investment.

Okay, great. What would -- you've been able to hold up your advertising rates despite a market where I imagine most other companies are seeing down numbers? What do you attribute that to?

Our ad ops team has, and continues to invest significantly in terms of everything having to do with the optimization of our ad inventory. And on a monthly basis, just to give you a frame of reference, we likely run several hundred different tests, where we slice and dice the inventory based upon geography, handset, and various other variables in order to ultimately deliver the best possible CPMs from that ad inventory. And as you know, that's been a never ending part of our business. And one which we continue to excel at.

Right. The new name -- new game that you're rolling out? I'm not sure if I got the name, AI, AI Art Master. Could you just tell us a little bit more of, I think it's a soft launch now, but what the plan is there?

Sure. So AI Art Master is really focused around offering a competitive opportunity for users to create AI images, and then compete to see who has the best AI image around a particular theme. Could be anything from cute pets to next generation automobiles and anything that you can think of. The gameplay is such that we have a small audience competing against each other, over a short duration of time, and users will go in and the core game mechanic is that they will begin voting based upon side by side views of various images specific to that theme. The user that garners the most votes will get ranking. There's also a meta game associated with that, where the user will be able to open up an art gallery, and the intention is to bring visitors into their art gallery, the more visitors that they bring in, the more credits that they receive, and rank higher, and so on and so forth. From a monetization perspective, we expect that the game will have a combination of both advertising as well as a token based economy, very much following the trend in mobile gaming, which is this hybrid casual model. And so far as the soft launch, over the course of the last quarter we have and will continue to fine tune, or I should say tune and fine tune the gameplay, while at the same point in time ensuring that we have no bugs or in a potential logical errors in the game. And after that, we will begin to take a look at retention graphs, marketing and seeing to it how do we expand into other markets. We are really working in a very iterative and fast paced environment, taking our learnings in real time in tuning the game and fine tuning the game in order to see to it that when we do go out to commercial launch, that we have a very, very attractive game mechanic, which will ultimately yield a good retention curve, good engagement statistics and opportunities to generate revenue.

Great. Your offering of pAInt where you can do AI wallpaper generation. Any update on that?

First, so, I think that when you take a look at where we are investing effort, we are very much investing effort company wise in riding the explosive AI market. And, as you'd mentioned, we've got pAInt, which is an AI wallpaper image generator. We've got the AI Art Master game, we're also using AI in terms of anything from marketing needs to our tech stack and things of that sort. And we're one of several companies that are publicly traded that offer an opportunity for investors to benefit from the explosive growth that's taking place in this market. Specific to pAInt, we are doing several things there. First of all, we are continuing to refine the product, we are improving the onboarding funnel to draw more users in and we are offering users the ability to have a continuum of pAInt opportunities when they become subscribers. As mentioned earlier, we've invested in our subscription offering. And in May we rolled out a subscription offering that has chock full of value ads in it aside from just what had been our ad free offering. And one of those is offering pAInt so that users can paint with large volumes without having to clip the ticket every time they created image.

Interesting. So following up on that, on subscriptions, you commented, so it was down year-over-year but you had very positive comments on what you just said the May offering of a new offering for Android, and you're also rolling it out for iOS. Does -- how -- maybe if you could just remind us what is being added. You just [commented on] [(ph) pAInt. Anything else that or what you believe is added that you think is causing this to improve, or whatever is causing it to improve?

Sure. So the core offering is an ad free experience coupled with the ability for users to paint and large volumes of opportunities for them to paint without having to pay for each individual image, as well as

That's great. Last -- on last quarter's earnings call you mentioned, you were doing -- you were implementing a $2.5 million to $3 million cost cutting initiative. Was -- has that -- has all the [indiscernible] whatever that is already been done, or and how much of that was the impact of that reflected in the April results?

Sure. So the annual goal is to get to that $2.5 million to $3 million bracket. And we have taken steps forward in order to achieve that. And we're on track, I would say to meet that goal. And it really addresses -- or the way in which we are achieving this is really taking a look at all areas of the company where we are able to either renegotiate rates, where we're able to measure ROI and say, hey, we're not getting the ROI that we needed from this, let's pull back on it, and so on and so forth. And there may be some additional pieces that will not kick in until contract expire. But nonetheless we are generally tracking to meet those numbers accordingly.

Okay. So, if I take everything I heard today, from what you know today, would this suggests that may be the bottom, the business has stabilized at a certain level with some potential of improving, it's something still right.

I mean, listen, I think that last quarter, as I said, last quarter was a much more complicated quarter. We have seen some stabilization. I don't think that the jury is fully out yet in terms of what's happening at a macroeconomic/geopolitical level. And in terms of the industry specific challenges that we are facing with respect to ATT, some of the major players, let's say Facebook is planning on releasing their solution to this over the summer. When that comes out, you can be rest assured that we're going to do everything within our power to benefit from it and scale on the GuruShots side and on the

Great. Thank you so much.

Thank you.