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 will start by briefly reviewing our fourth quarter results which were generally in line with our expectations. Q4 revenue decreased 10% from last year. While we encounter challenges stemming from the combination of geopolitical, economic and industry-specific issues, we observed ongoing stabilization in advertising with ad revenue remaining flat sequentially, even during the traditionally weaker Q4 period. Furthermore, in Q4 of fiscal year 2022, we had a onetime $4 million accounting benefit, skewing year-over-year earnings comparisons. Other positive highlights from the quarter included 7% sequential growth in subscription revenue as our new iOS and overhauled Android offerings contributed to positive momentum. Additionally,

Thank you, Jonathan. Starting with our fourth quarter results. Now for the

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is coming from Allen Klee from Maxim Group.

Our thoughts are with your employees at GuruShots. I wanted to start with Apple's pricing rules now and the actions that big sites like Facebook are using. How do you think about how this is going to play out in terms of the potential timing of the effectiveness of the advertising to improve over time?

Allen, thank you for your thoughts. We appreciate that. In terms of timing, that's I think the $64,000 question but the $64 million question. As far as we're concerned, until platform is like Meta or Facebook have fully implemented a working version of Scan 4.0 [ph], it is going to be complicated to scale effective advertising without having new data there to drive better marketing decisions. I think that you know that Meta had rolled out a version of Scan 4.0 [ph] for almost probably around 1.5 months, 2 months ago and then quickly had to reverse Beta. Reading between the lines, it was likely not yet ready for prime time. And I can only imagine that this is amongst one of the highest priorities for their business. Having said that and as I described during the call, we are using other mechanisms in order to optimize, whether it be rapidly and materially increasing the number of creatives that we have, using all sorts of different creative styles. So as an example, UGC BDOs [ph] or promotional videos and things of that sort. Coupled with spending based upon where we are seeing an appropriate return on accident. I can assure you that as soon as Facebook is -- or Meta is ready to implement this at scale that we will jump on that bandwagon and begin to capitalize on the introduction of Scan 4.0 [ph]. I also think it's important to mention that we have become what I will call, managed account customers of both Meta and Google meaning that there are dedicated account managers with subject matter expertise that are overseeing our accounts, working closely with our team in terms of helping us expand the marketing initiatives that we have and an ROI or ROAS-positive fashion. And I would just underscore in light of the downsizing that Meta had undertaken this year. I view that as -- due to the fact that we are "have this managed the account status" that is indicative of how interested they are in our business and how we can scale with them. I hope that answers your question.

That was great. You mentioned a lot of initiatives for fiscal '24. What would you say are kind of the top ones that you think would potentially have an impact on '24 and '25 financials?

Sure. So let's take a look at each of the business units. The flagship

Thank you. In terms of -- last quarter, you mentioned that you were initiating a $2.5 million to $3 million cost-cutting initiative or that's what the benefit you would get annually, I think, is any -- has that happened already? Or any update on that?

Sure. So we had announced this -- was not last quarter. I think it was quarters ago. And yes, we had -- we had acted on that, including a host of different initiatives from SaaS infrastructure to staffing. As you know, we've got employees in different regions of the world, different price points and the like to our marketing investment and so on and so forth. And -- we have acted on that and we will continue to keep in mind, we want to be in a position where, ultimately, our cash position continues to grow and that we're not getting too far ahead of ourselves in terms of expanding the initiatives or seeing -- having SG&A grow at an unsustainable pace. I just want to underscore, I think it's very important when taking a look at SG&A to remember that within SG&A, we have both our marketing expense as well as the percentage that whether it be Google or Apple keeps when a user spends money on their platform. So SG&A is expected to grow but that is tied to marketing and that growth is something that we can expand or contract based upon ROAS. The other thing that I think it's important to talk about when considering marketing in our growth plan is the fact that marketing is a much different animal than it was 3, 4 years ago because of all the privacy stuff, whether it be AT&T with Apple or soon to be Google's Privacy Sandbox. And that will mean that it will take more time to get recurring results that one can then I'd say with confidence, hey, we can expand or this is not the right thing to optimize yet. However, as I have also mentioned in my recorded remarks, we have prioritized for the entire company, the notion of really building out this full stack marketing team and seeing to it that we address not only paid user acquisition expertise but also things like app store optimization, search engine optimization, branding, product marketing just to name a couple of those components. So that is what we believe to be critical for the growing success of our business.

For fiscal '24, I think historically, the first quarter is a seasonally slower quarter. Would you agree that, that's most likely? Maybe talk about just the seasonality, how that typically plays out in the quarters? And is there anything you wanted to comment on financial outlook or goals of just any type of financial goals for fiscal '24?

Sure. So we've historically not provided projections. I will say that seasonality because we have a very, very large percentage of revenue coming from advertising is tied to ad spend typically in the holiday season. So our fiscal Q2 which is November, December, January is typically the strongest quarter of the year. And then when you get into calendar, let's say, calendar Q2 -- or one, I should say, you begin to see a downturn. So although we're technically a month off, generally speaking, seasonality for ad spend aligns with what happens in a typical ad-driven business. And -- that generally hold up. It's not 100% the case but that generally is an indication of how our business is impacted. We are fortunate because we do have other diversification or we have diversification with the subscriptions in there and so on and so forth. And that subscription revenue, as you know, is amortized over the life of that subscription. So going back to my earlier comment, our ability to continue to have success with our overhaul subscription offering for Android or the newly introduced iOS subscription offering is something which is really a key part to our ability to diversify revenue and have some insulation there, if you will.

One of the other things you mentioned was -- as an initiative for fiscal '24 is building out your marketing capabilities. Could you maybe just expand a little more on that on what you meant by that?

Sure. Prior to the acquisition of GuruShots,