Zedge achieves mid single-digit revenue growth, driven by record subscriptions and strategic initiatives despite temporary pressures on free cash flow

Sam. Good day and welcome to Zedge's earnings conference call for the first fiscal quarter of 2026. During management's prepared remarks, all participants will be in a listen only mode. Should you require assistance, please signal a conference specialist by pressing the Star key followed by zero. After today's presentation by Zedge's management, there will be an opportunity to ask questions. To ask a question, please press star then one on your touchtone phone. To withdraw your question, please press star two. I've now turned the call over to Mr. Brian Siegel. Sir, the floor is yours.

Thank you, operator. During today's call, Jonathan Wright, Zedge's Chief Executive Officer and Esai, 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 8K 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'd like to turn the call over to Jonathan.

Thank you Brian and good afternoon everyone. It has only been about six weeks since our last call, but we have continued to demonstrably execute against our stated priorities with discipline, focus and a strong sense of momentum. The themes we outlined last quarter remain the same ones guiding us today and form the strategic foundation for fiscal 2026. The early results of this quarter reinforce that our approach is sound and that our operating model is gaining strength. Of course we will modify our course if things change materially. We delivered a solid start to fiscal 2026 with a return to mid single digit revenue growth and continued progress across our strategic priorities. What stands out to me this quarter is the quality of that growth for the Zedge marketplace. Subscriptions remained a powerful engine with active subscriptions reaching a record 1.1 million, up more than 50% year over year. Average revenue per monthly active user increased again supported by healthy CPMs, higher value users and continued optimization and improvement in our ad and subscription stacks. This all happened while management was navigating through the anticipated declines at emojipedia and Guru shots. The important takeaway is that strength across the rest of our ecosystem more than offset those headwinds. Our core business is healthy, resilient and strengthening. I am encouraged by the traction we are seeing with DataSeeds. While the number of closed deals remains small, interest from world class companies is growing. Recently we received a second order from an existing customer, a leader in the AI sector. The new order size was approximately 25 times the value of the original order placed in Q4FY25. This follows the B2B playbook where the prospect places a modest initial order that is graded and accepted based on our ability to meet their technical specifications. Assuming we fulfill these requirements, the customer then scales order sizes and we deliver custom, fully rights cleared image, video and audio data sets at spec. Our pipeline is robust with dozens of prospective customers and order sizes that start at thousands of dollars and grow from there. Although it is early and we will not close every opportunity, the strength of engagement speaks to the confidence customers are developing in our ability to execute. A key part of our value proposition is the dataseeds Production Cloud or dpc. This is a managed global network of professional photographers, videographers and graphic artists who produce high quality, purpose built data sets on demand. Rather than relying solely on a static catalog, we can fulfill bespoke customer briefs that require controlled and consistent inputs with precision. This asset allows us to deliver rights cleared, ethically sourced and consistent data sets which are essential for training advanced AI models. The DPC gives us a capability that is difficult to replicate and becomes more valuable as customer requirements become more specialized. We are also seeing meaningful confirmation of the broader market opportunity. For example, Reddit recently announced significant licensing agreements that allow major technology companies to use its content for AI model training. These deals demonstrate that enterprises are willing to pay for rights cleared and high quality human generated data at scale. That trend reinforces the demand environment we are serving. While Reddit provides access to broad conversational data, DataSeeds is focused on producing custom and highly structured visual and audio data sets that align with each customer's exact technical needs. This positions us well as companies look for reliable and legally sound sources of training data. Turning to Tape Deck, the pilot continues to progress and early artist feedback remains positive. Tape Deck is designed as a music service that gives independent artists a transparent and attractive economic model and the ability to earn more from their work than they would on traditional streaming platforms. The foundation of the service is in place and our next steps focus on expanding the catalog, increasing listener engagement, and refining the features that deepen the connection between artists and their audiences. As we evaluate performance metrics, we will determine the timing for expansion across Android and Web. Our approach remains disciplined. We want to ensure that Tape Deck scales in a way that delivers value to artists and listeners while maintaining a clear path to financial return. I also want to highlight continued progress from our product innovation team. Our framework allows us to validate demand before writing code and then leverage AI driven development tools to accelerate build cycles. SynCat was the first example of this approach and we expect to introduce additional Alpha products throughout fiscal 2026. Each concept is designed to be small, focused and capable of scaling if it demonstrates early product market fit, more shots-on-goal with low initial investment, give us meaningful optionality while maintaining strong financial discipline. As I often remind our team and our investors, Rovio failed more than 50 times before launching the multi billion dollar Angry Birds franchise, so iteration and experimentation matter. Before I turn the call over to E, I want to address free cash flow because several expected factors influenced our results this quarter. Free cash flow this quarter reflected the timing of restructuring related compensation tax payments which have now largely been completed. We also reinvested part of our restructuring savings into high potential initiatives including Dataseeds, Tape Deck and our Innovation Pipeline. In addition, we experienced some quarter specific movements in receivables and payables. These items created temporary pressure, but they do not change our expectation for strong cash generation across the remainder of fiscal 2026. This is fully aligned with the operating framework we discussed last quarter and the restructuring actions we executed earlier this year. Stepping back, we entered fiscal 2026 with a leaner cost structure, a more efficient operating model and multiple growth vectors that span both consumer and enterprise markets. We have a strengthening marketplace with a subscription engine that continues to scale, an emerging enterprise business with data seeds and a pipeline of new products designed to broaden our reach. We also maintained our disciplined approach to capital allocation. During the quarter we repurchased 240,000 Class B shares and paid our first quarterly dividend, which reflects our confidence in the long term value creation potential of the company. We are executing from a position of confidence, discipline and momentum. Our focus remains build products people love, scale the ones that perform and allocate capital in a way that expands long term.