ZEDGE, INC. The following information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2022 (the "Form 10-K"), as filed with theU.S. Securities and Exchange Commission (the "SEC"). As used below, unless the context otherwise requires, the terms "the Company," "Zedge," "we," "us," and "our" refer toZedge, Inc. , aDelaware corporation and its subsidiaries,GuruShots Ltd. , Zedge Europe AS and Zedge Lithuania UAB, collectively.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words "believes," "anticipates," "expects," "plans," "intends," and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from future results. Factors that may cause such differences include, but are not limited to: (1) Economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price; (2) Our ability to successfully make acquisitions and/or successfully integrate acquisitions that we have made into Zedge without incurring unanticipated costs or without being subject to other integration issues that may disrupt our existing operations; (3) Delay or failure to realize the expected synergies and benefits of the GuruShots acquisition; (4) The impact of the Covid-19 pandemic on our employees, customers, partners, and the global financial markets; and (5)Russia's recent invasion ofUkraine , and the international community's response. For further information regarding risks and uncertainties associated with our business, please refer to Item 1A to Part I "Risk Factors" in the Form 10-K. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with theSEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including the Form 10-K.
Geo-Political and Macroeconomic Conditions and the COVID-19 Pandemic
We are subject to risks and uncertainties caused by events with significant macroeconomic impacts, including but not limited to,Russia's invasion ofUkraine , rising interest rates, actions taken to counter inflation, reduced consumer confidence, supply side disruptions, and the COVID-19 pandemic. The future and full impact that these factors may have on our business, financial condition, and results of operations is unclear. The risks related to our business are further described in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q and those discussed under Item 1A to Part I "Risk Factors" in the Form 10-K.
Impact of
We are closely monitoring the current and potential impact on our business, our people, and our users/customers asRussia's war withUkraine evolves. We have taken steps to comply with applicable domestic and international regulatory restrictions on international trade and financial transactions. Revenues associated with our users/customers inRussia andBelarus are not material to our consolidated financial results, and we anticipate that blocking Russian andBelarus users/customers' access to our mobile app and web platforms will not have a material impact on our business. Management and our Board of Directors are monitoring the regional and global ramifications of the continuing events. Overview
Zedge, Inc. ("Zedge") builds digital marketplaces and friendly competitive games around content that people use to express themselves. Our leading products include Zedge Ringtones and Wallpapers, a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones, and notification sounds which historically was branded as Zedge Premium, and GuruShots, a skill-based photo challenge game. Our vision is to connect creators who enjoy friendly competitions with a community of prospective consumers in order to
drive commerce.
19
We are part of the 'Creator Economy,' where over 1 billion people create and
share their content across social platforms, mobile, and video games, and
content marketplaces. Within this group of individuals, over 200 million
identify as creators, people who use their influence, skill, and creativity to
amass an audience and monetize it. Furthermore, approximately 12% of full-time
creators earn more than $50,000 per year, and 10% of influencers earn more than
$100,000 per year. We view the Creator Economy as an untapped opportunity for
Zedge to expand its business, especially as we execute by connecting our gamers
with our marketplace.
The Zedge Ringtones and Wallpapers app (which is named "Zedge Wallpapers" in the
App Store ), which we refer to as our "Zedge App," is a marketplace offering a
wide array of mobile personalization content including wallpapers, video
wallpapers, ringtones, and notification sounds, and is available both in Google
Play and the App Store . As of January 31, 2023 , our Zedge App has been installed
nearly 596 million times since inception and, over the past two years, has had
between 31.9 and 36.3 million monthly active users ("MAU"). MAU is a key
performance indicator ("KPI") that captures the number of unique users that used
our Zedge App during the final 30 days of the relevant period. Our platform
allows creators to upload content to our marketplace and avail it to our users
either for free or for a price, via 'Zedge Premium.' In turn, our users utilize
the content to personalize their phones and express their individuality.
In fiscal 2022 we introduced several new customer facing product features
including 'NFTs Made Easy' and social and community features, all meant to
improve customer engagement, MAU, and revenue growth over the long term. In
addition, we migrated to a new ad mediation platform - Applovin MAX. Applovin
paid us a one-time $2 million integration bonus and their performance has been
on-par or better than our prior platform.
The Zedge App's monetization stack consists of advertising revenue generated
when users view advertisements when using the Zedge App or surfing our website,
the in-app sale of Zedge Credits, our virtual currency, that is used to purchase
Zedge Premium content, and a paid-subscription offering that provides an ad-free
experience to users that purchase a monthly or annual subscription. As of
January 31, 2023 , we had approximately 654,000 active paying subscribers.
In late 2021, we introduced NFT functionality to a limited number of Zedge
Premium creators via 'NFTs Made Easy'. Over time we believe this product
enhancement has the potential to drive significant artist growth and revenue
production. 'NFTs Made Easy' is an eco-friendly platform that enables artists
and consumers to sell and purchase NFTs within the Zedge App even though they
may lack deep knowledge and proficiency in the crypto space. All transactions
are made using Zedge Credits.
InApril 2022 , we acquired GuruShots, a recognized category leader focused on gamifying the photography vertical. GuruShots offers a platform spanning iOS, Android, and the web that provides a fun, educational and structured way for amateur photographers to compete in a wide variety of contests showcasing their photos while gaining recognition with votes, badges, and awards. We estimate that the total addressable market of amateur photographers using their smartphones to take and publicly share artistic photos is 30-40 million people per month and that the market is still in its infancy. Every month, GuruShots stages more than 345 competitions that result in players uploading in excess of 1 million photographs and casting close to 4+ billion "perceived votes", which are calculated by multiplying the number of votes that each player casts by a weighting factor based on various factors related to that user. To improve engagement, GuruShots has adopted a set of retention dynamics focused on individual, team and community dynamics that create a sense of belonging, inspiration, recognition, improvement, and competition. Today, GuruShots utilizes a 'Free-to-Play' business model that leads to strong monetization with the purchase of resources that are used to give paying players an edge while still maintaining a fair and competitive experience for all participants. Over the past six years, the monthly average paying player spend has increased in excess of 11.2% annually to more than$50.1 per player. As we look to the future, we are advancing several initiatives that we expect will drive user growth, increase engagement, drive in-app purchases, and advance our in-game economy. Some of these include: ? On-Boarding. Revamping the customer onboarding experience in order to maximize first time purchasers by immediately drawing new players into simplified photo competitions that are limited to a small audience taking place in a short time duration.
? Economy. Evolving the game economy by maturing the game's progression
mechanics and features, earn and spend dynamics, and introducing soft and
premium currencies tied to resources and benefits. Furthermore, we hope to
introduce an advertising layer in the monetization stack in the future.
20
We market GuruShots to prospective players, primarily via paid user acquisition
channels, and utilize a host of creative formats including static and video ads
in order to promote the game. Our marketing team invests material resources in
analyzing all attributes of a campaign ranging from the creative assets, offer
acquisition channel, and platform (i.e., iOS, Android, and web), just to name a
few, with the goal of determining whether a specific campaign is likely to yield
a profitable customer. When we unearth a successful combination of these
variables we scale up until we experience diminishing returns. Ultimately, we
believe that the efforts we are making to advance the product coupled with the
investment in user acquisition can significantly increase GuruShots' player
base.
Beyond our commitment to growing both the Zedge App and GuruShots on a
standalone basis, we believe that there are many potential synergies that we can
capitalize on that exist between the two businesses. Specifically, we plan to
enable the ability for GuruShots players to become Zedge Premium artists and
sell their photos to our audience of 30+ million MAU as standard digital images
or NFTs. In addition, we look to benefit from the experience that the GuruShots
team possesses and test gamifying the Zedge App. We believe that successful
gamification can contribute to increasing engagement, retention, and lifetime
value, all critical KPIs for our business. Longer term, we believe that there
are complementary content verticals that lend themselves to gamification.
In August 2021 , we acquired the assets of Emojipedia Pty Ltd ("Emojipedia"),
including Emojipedia.org the world's leading authority dedicated to providing
up-to-date and well-researched emoji definitions, information, and news as well
as World Emoji Day and the annual World Emoji Awards, and Emojitracker, which
provides real time visualization of all emoji symbols used on Twitter . In
January 2023 , Emojipedia receives approximately 44.9 million monthly page views
and has approximately 10.4 million monthly active users as of January 31, 2023
of which approximately 52% are located in well-developed markets. It is the top
resource for all things emoji, offering insights into data and cultural trends.
As a voting member of the Unicode Consortium , the standards body responsible for
approving new emojis, Emojipedia works alongside major emoji creators including
Apple, Google , Facebook, and Twitter.
We believe that Emojipedia provides growth potential to the Zedge App, and it
was immediately accretive to earnings. In the past year, we have made many
changes to Emojipedia including migrating to a new ad mediation platform,
redesigning the Emojipedia website, and introducing localized versions of
Emojipedia in eighteen different languages aside from English. We will continue
to enhance this offering and are exploring new features including a native
mobile offering as well as additional monetization opportunities.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted inthe United States of America , orU.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Form 10-K. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management's most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, business combination, intangible assets and goodwill, capitalized software and technology development costs, and stock-based compensation. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management's Discussion and Analysis of Financial Condition and Results
of Operations in the Form 10-K.
Recently Issued Accounting Standards Not Yet Adopted
Please refer to Note 1 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
21
Key Performance Indicators (KPIs)
Zedge App-MAU and ARPMAU The presentation of our results of operations includes disclosure of two key performance indicators - Monthly Active Users (MAU) and Average Revenue Per Monthly Active User (ARPMAU) from our Zedge App. MAU is a key performance indicator that we define as the number of unique users that used our Zedge App during the previous 30-day period, which is important to understanding the size of the user base for our Zedge App which is a main driver of our revenue. Changes and trends in MAU are useful for measuring the general health of our business, gauging both present and potential users/customers' experience, assessing the efficacy of product improvements and marketing campaigns and overall user engagement. ARPMAU is defined as (i) the total revenue derived from Zedge App in a monthly period, divided by (ii) MAU in that same period. ARPMAU for a particular time period longer than one month is the average ARPMAU for each month during that period. ARPMAU is valuable because it provides insight into how well we monetize our users and, changes and trends in ARPMAU are indications of how effective our monetization investments are.
MAU decreased 11.3% in Q2 of fiscal 2023 when compared to the same period a year ago. Over the past several years, we have experienced a continuing shift in our regional customer make-up with MAU in emerging markets representing an increasing portion of our user base. As ofJanuary 31, 2023 , users in emerging markets represented 77% of our MAU, the same percentage from a year ago. This shift impacts our business because emerging markets do not monetize as well as well-developed markets due to lower effective cost per thousand ad impressions ("eCPM") and lower monthly and annual subscription sales in these regions coupled with lower priced subscriptions SKUs. ARPMAU for the three months endedJanuary 31, 2023 declined 13.0% when compared to the same period a year ago. The following tables present the MAU - Zedge App and ARPMAU - Zedge App for the three months endedJanuary 31, 2023 as compared to the same period a year ago: Three Months Ended January 31, (in millions, except ARPMAU - Zedge App) 2023 2022 % Change MAU- Zedge App 32.2 36.3 -11.3 % Developed Markets MAU - Zedge App 7.4 8.5 -12.9 % Emerging Markets MAU - Zedge App 24.8 27.8 -10.8 % Emerging Markets MAU - Zedge App/Total MAU - Zedge App 77 %
77 % 0.6 % ARPMAU - Zedge App$ 0.0523 $ 0.0601 -13.0 %
The following charts present the MAU - Zedge App and ARPMAU - Zedge App for the
consecutive eight quarters ended
[[Image Removed]] [[Image Removed]]
22
GuruShots-MAPs and ARPMAP
Monthly Active Payers ("MAPs").We define a MAP as a unique active user on the
GuruShots or GuruShots.com in a month that completed at least one in-app
purchase ("IAP") during that time period. MAPs for a time period longer than one
month are the average MAPs for each month during that period. We estimate the
number of MAPs by aggregating certain data from third-party attribution
platforms.
Average Revenue Per Monthly Active Payer ("ARPMAP").We define ARPMAP as (i) the
total revenue from IAPs derived from GuruShots and GuruShots.com in a monthly
period, divided by (ii) MAPs in that same period. ARPMAP for a particular time
period longer than one month is the average ARPMAP for each month during that
period. ARPMAP shows how efficiently we are monetizing each MAP.
The following table shows our MAP and ARPMAP for the three months ended January
31, 2023 and 2022. Please note that we acquired GuruShots on April 12, 2022 , as
such, information for the three months ended January 31, 2022 is presented below
as pro forma and is only used for comparative purpose.
Three Months Ended January 31,
2023 2022 % ChangeMonthly Active Payers 7,943 9,333 -14.9 % Average Revenue per Monthly Active Payer $ 52.4
$ 61.8 -15.2 %
The following charts present the MAP and ARPMAP - GuruShots for the consecutive
eight quarters ended
[[Image Removed]] [[Image Removed]]
Our KPIs are not based on any standardized industry methodology and are not
necessarily calculated in the same manner that other companies or third parties
may use to calculate these or similarly titled measures. The numbers that we use
to calculate MAP and ARPMAP are derived from data that we generate internally.
While these numbers are based on what we believe to be reasonable judgments and
estimates for the applicable period of measurement, there are inherent
challenges in measuring usage and engagement. We regularly review and may adjust
our processes for calculating our internal metrics to improve their accuracy.
23
Results of Operations
Three and six months ended January 31, 2023 Compared to Three and six months
ended January 31, 2022
Three Months Ended Six Months Ended
January 31, Change January 31, Change
2023 2022 % 2023 2022 %
(in thousands) (in thousands)
Revenues $ 6,983 $ 6,915 1.0 % $ 13,883 $ 12,943 7.3 %
Direct cost of
revenues 632 342 84.8 % 1,264 652 93.9 %
Selling, general and
administrative 5,871 3,106 89.0 % 11,697 5,838 100.4 %
Depreciation and
amortization 815 360 126.4 % 1,608 758 112.1 %
Change in fair value
of contingent
consideration (1,793 ) - nm (1,943 ) - nm
Income from
operations 1,458 3,107 -53.1 % 1,257 5,695 -77.9 %
Interest and other
income, net 77 14 450.0 % 112 27 314.8 %
Net gain (loss)
resulting from
foreign exchange
transactions 160 (85 ) nm 84 (95 ) nm
Provision for income
taxes 89 711 -87.5 % 16 1,247 -98.7 %
Net income $ 1,606 $ 2,325 -30.9 % $ 1,437 $ 4,380 -67.2 %
nm-not meaningful
Revenues
The following table sets forth the composition of our revenues for the three and
six months ended
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 % Changes 2023 2022 % Changes
Zedge App (in thousands) (in thousands)
Advertising revenue $ 4,630 $ 5,718 -19 % $ 9,120 $ 10,598 -14 %
Paid subscription revenue 875 953 -8 % 1,766 1,913 -8 %
Other revenues 230 244 -6 % 420 432 -3 %
Total Zedge App revenue 5,735 6,915 -17 % 11,306 12,943 -13 %
GuruShots
Digital goods and services 1,248 - nm 2,577 - nm
Total revenue $ 6,983 $ 6,915 1 % $ 13,883 $ 12,943 7 %
nm-not meaningful
Advertising revenue. Advertising revenue decreased 19% and 14% in the three and six months endedJanuary 31, 2023 , respectively, compared to the three and six months endedJanuary 31, 2022 , primarily due to the decline in MAU in well-developed markets and lower effective advertising rates which have suffered due to the downturn in the economy. 24 Paid subscription revenue. We offer users of our Zedge app a subscription option where they can pay a monthly or annual fee to remove unsolicited ads when using our Zedge app. We employ a regional pricing strategy in order to improve conversions.The United States constitutes our largest subscriber base and we generally charge$0.99 per month and$4.99 per year. Pricing in other markets is based on local conditions. We generated$0.8 million and$1.7 million in gross prepaid subscription revenue in the three and six months endedJanuary 31, 2023 compared to$0.9 million and$1.8 million in the three and six months endedJanuary 31, 2022 . The 8% and 7% decline in gross prepaid subscription sales for the three and six months endedJanuary 31, 2023 when compared to the same periods a year ago was primarily attributable to the decline in MAU in well-developed markets between the comparative periods. We expect that from time to time the prices of our subscription in each country/region may change and we may test other plan and price variations.
The following table summarizes subscription revenue for the three and six months
ended
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 % Change 2023 2022 % Change
(in thousands, except revenue per subscriber and percentages)
Revenues $ 875 $ 953 -8 % $ 1,766 $ 1,913 $ -8 %
Active subscriptions
net (decrease)
increase (20 ) (1 ) nm (38 ) 10 nm
Active subscriptions
at end of period 654 762 -14 % 654 762 -14 %
Average active
subscriptions during
the period 665 765 -13 % 674 762 -12 %
Average monthly
revenue per active
subscription $ 0.44 $ 0.42 5 % $ 0.44 $ 0.42 $ 5 %
Zedge Premium. Gross transaction value (the total sales volume transacting through the platform), or "GTV," increased 0.9% and decreased 1.7% in the three and six months endedJanuary 31, 2023 compared to the same periods a year ago. Net revenue decreased 5.0% and 2.8% respectively in the three and six months endedJanuary 31, 2023 compared to the same periods a year ago. The decline in GTV and net revenue can be attributed to the decline in MAU in well-developed markets.
The following table summarizes Zedge Premium gross and net revenue for the three
and six months ended
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 % Changes 2023 2022 % Changes
(in thousands) (in thousands)
Zedge Premium-gross
revenue ("GTV") $ 438 $ 434 0.9 % $ 750 $ 763 -1.7 %
Zedge Premium-net
revenue $ 229 $ 241 -5.0 % $ 416 $ 428 -2.8 %
Gross margin 52 % 56 % 55 % 56 %
Digital goods and services. GuruShots recognizes revenue at the time of purchase
because the overwhelming majority of users purchase game resources when they use
them at a rate that exceeds the rate in which they earn them for free through
participation. Game resources revenue were $1.3 million and $2.6 million for the
three and six months ended January 31, 2023 , respectively.
Direct cost of revenues.Direct cost of revenues consists primarily of content hosting and content delivery costs.
Three Months Ended Six Months Ended
January 31, January 31,
(in thousands) 2023 2022 % Change 2023 2022 % Change
Direct cost of
revenues $ 632 $ 342 84.8 % $ 1,264 $ 652 93.9 %
As a percentage of
revenues 9.1 % 4.9 % 9.1 % 5.0 %
25
Direct cost of revenues increased 85% and 94% in the three and six months ended
January 31, 2023 , respectively, compared to three and six months ended January
31, 2022 . The increase in the direct cost of revenues is a result of GuruShots'
infrastructure costs and the addition of analytical tools.
As a percentage of revenue, direct cost of revenues in the three and six months
ended January 31, 2023 was 9.1%, compared to 4.9% and 5.0% in the three and six
months ended January 31, 2022 . The higher percentages in the current year
periods were primarily due to higher infrastructure costs related to the
GuruShots.
Selling, general and administrative expense. Selling, general and administrative
expense ("SG&A") consists mainly of payroll and benefits, stock-based
compensation expense (as discussed below), paid user acquisition expenses,
third-party payment processing fee relate to in-app purchases, marketing,
consulting, professional fees, software licensing ("SaaS"), recruiting fees,
facilities and public company related expenses.
Three Months Ended Six Months Ended
January 31, January 31,
(in thousands) 2023 2022 % Change 2023 2022 % Change
Selling, general and
administrative $ 5,871 $ 3,106 89.0 % $ 11,697 $ 5,838 100.4 %
As a percentage of
revenues 84.1 % 44.9 % 84.3 % 45.1 %
SG&A expense increased 89.0% and 100.4% in the three and six months ended
January 31, 2023 , respectively, compared to the three and six months ended
January 31, 2022 . GuruShots accounted for the majority of the increase. The
remaining increase can be attributed to higher compensation costs resulting from
additional headcount, higher stock-based compensation as discussed below, and
higher professional fees, partially offset by reductions in certain
discretionary expenses.
As a percentage of revenue, SG&A expense in the three and six months ended
January 31, 2023 were 84.1% and 84.3% respectively, compared to 44.9% and 45.1%
in the three and six months ended January 31, 2022 , primarily due to the
addition of GuruShots which has higher SG&A expenses relative to its revenue
base.
Global headcount as of
SG&A expense also included stock-based compensation expense including equity grants to employees and consultants, as well as stock issuances to pay for board compensations and 401(k) matching contributions. The following table summarizes stock-based compensation expense for the three and six months ended January
31,
2023 and 2022:
Three Months Ended Six Months Ended
January 31, January 31,
2023 2022 % Change 2023 2022 % Change
(in thousands)
Stock-based
compensation expense $ 788 $ 489 61.1 % $ 1,378 $ 808 70.5 %
Stock-based compensation expenses increased 61.1% and 70.5% in the three and six
months ended January 31, 2023 , respectively, compared to the three and six
months ended January 31, 2022 . The increase was primarily attributable to the
amortization of the restricted stock (with a grant date fair value of $4
million ) issued in connection with the GuruShots acquisition. Certain stock
options, deferred stock unit and restricted stock grants are more fully
described in Note 8 to the unaudited condensed consolidated financial statements
included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
Depreciation and amortization. Depreciation and amortization consist mainly of
amortization of intangible assets in connection with business combination and
asset acquisition as more fully described in Note 5 to the unaudited condensed
consolidated financial statements included in Item 1 to Part I of this Quarterly
Report on Form 10-Q, and capitalized software and technology development costs
of our internal developers on various projects that we invested in specific to
the various platforms on which we operate our service.
Three Months Ended Six Months Ended
January 31, January 31,
(in thousands) 2023 2022 % Change 2023 2022 % Change
Depreciation and
amortization $ 815 $ 360 126.4 % $ 1,608 $ 758 112.1 %
As a percentage of
revenues 11.7 % 5.2 % 11.6 % 5.9 %
26
Depreciation and amortization expenses increased 126% and 112% in the three and six months endedJanuary 31, 2023 , respectively, compared to the three and six months endedJanuary 31, 2022 . This increase was primarily attributable to the amortization of intangible assets related to the acquisition of GuruShots which were$467,000 and$934,000 for the three and six months endedJanuary 31, 2023 , respectively.
Interest and other income, net.Interest and other income, net in the three and six months endedJanuary 31, 2023 increased significantly when compared to the prior periods due to higher interest rates earned on our cash balances. Three Months Ended Six Months Ended January 31, January 31, (in thousands) 2023 2022 % Change
2023 2022 % Change Interest and other income, net$ 77 $ 14 450.0 %$ 112 $ 27 314.8 % As a percentage of revenues 1.1 % 0.2 % 0.8 % 0.2 % Net gain (loss) resulting from foreign exchange transactions. Net gain (loss) resulting from foreign exchange transactions is comprised of gains and losses generated from movements in NOK and EUR relative to theU.S. Dollar, including gains or losses from our hedging activities. Three Months Ended Six Months Ended January 31, January 31, (in thousands) 2023 2022 % Change 2023 2022 % Change Net gain (loss) resulting from foreign exchange transactions$ 160 $ (85 ) nm$ 84 $ (95 ) nm As a percentage of revenues 2.3 % -1.2 % 0.6 % -0.7 % In the three and six months endedJanuary 31, 2023 , we realized gains of$185,000 and$64,000 , respectively from NOK and EUR hedging activities, compared to loss of$127,000 and$117,000 in the three and six months endedJanuary 31, 2022 due to the strengthening of the US dollar in current periods, as more fully described in Note 4 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Provision for income taxes. The tax expense consists of federal and state taxes based on taxable income and allocated net worth and certain income taxes payable in foreign jurisdictions where our subsidiaries reside. Three Months Ended Six Months Ended January 31, January 31, (in thousands) 2023 2022 % Change 2023 2,022 % Change Provision for income taxes$ 89 $ 711 -87.5 %$ 16 $ 1,247 nm As a percentage of revenues 1.3 % 10.3 %
0.1 % 9.6 %
The Company's tax provision or benefit from income taxes for interim periods has
generally been determined using an estimate of its annual effective tax rate
applied to year-to-date income and records the discrete tax items in the period
to which they relate. In each quarter, the Company updates the estimated annual
effective tax rate and makes a year-to-date adjustment to the tax provisionas necessary.
The Company's annual effective tax rate for the fiscal year endingJuly 31, 2023 differs fromthe United States federal statutory tax rate due to certain factors with temporary differences primarily related to equity compensation expenses. As ofJanuary 31, 2023 , the Company had$3.5 million of deferred tax assets for which it has established a valuation allowance of$1.9 million , related toU.S. federal and state taxes and for a certain international subsidiary. The Company is subject to taxation inthe United States and certain foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The material jurisdictions where the Company is subject to potential examination by tax authorities includethe United States ,Norway ,Lithuania
andIsrael . 27
Comparison of our Segment Results of Operations
The following table presents the results for our Zedge App and GuruShots segment income (loss) from operations for the three and six months endedJanuary 31, 2023 and 2022: Three Months Ended Six Months Ended January 31, Change January 31, Change 2023 2022 % 2023 2022 % Segment income (loss) from operations: Zedge App$ 1,563 $ 3,107 -49.7 %$ 2,935 $ 5,695 -48.5 % GuruShots (105 ) - nm (1,678 ) - nm Total$ 1,458 $ 3,107 -53.1 %$ 1,257 $ 5,695 -77.9 % For the three and six months endedJanuary 31, 2023 , our income from operations related to the Zedge App decreased 50% and 49%, compared to the three and six months endedJanuary 31, 2022 primarily due to lower revenue coupled with higher operating expenses. The decline in revenue was largely due to the decrease in MAU, particularly in well-developed markets. Higher operating expenses can be attributed to additional headcounts as well as our investment in the paid user acquisition in Zedge App. For the three and six months endedJanuary 31, 2023 , our loss from operations related to the GuruShots was$1.9 million and$3.5 million , respectively, primarily due to lower revenue coupled with higher operating expenses. Lower revenue can be attributed to current macroeconomic condition which resulted in lower MAP and ARPMAP when compared to prior periods.
Liquidity and Capital Resources
General
AtJanuary 31, 2023 , we had cash and cash equivalents of$17.5 million and working capital (current assets less current liabilities) of$14.2 million , compared to$17.1 million and$11.2 million , respectively, atJuly 31, 2022 . We expect that our cash and cash equivalents on hand and our cash flow from operations will be sufficient to meet our anticipated cash requirements for the twelve-month period endingMarch 17, 2024 . We also maintain a term loan and a revolving credit facility of up to$11 million in aggregate, including a foreign exchange contract facility of up to$6.5 million withWestern Alliance Bank , as discussed below in Financing Activities and in Note 11 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
The following tables present selected financial information for the six months
ended
© Edgar Online, source
