Zedge, Inc. 2026 Q4 Earnings Call

Thank you, operator. During today's call, Morris Berger, Zedge's newly appointed CEO, Jonathan Reich, Zedge's President and Chief Operating Officer, and Yi Tsai, 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 call. 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 8-K with the SEC. Finally, on this call, we will use non-GAAP measures. Examples include non-GAAP EPS, non-GAAP net income, free cash flow, 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 Morris.

Thank you, Brian, and good afternoon, everyone. I am happy to be back at Zedge. For those who may not know my background, I was involved with Zedge very early in its history. In fact, I was the person who founded the company in Norway when it only had two employees, and I served as CEO for over four years. I've spent much of my career building and operating businesses across media and technology, including IDT Entertainment and Zeno Media. When Howard approached me about returning, what caught my attention was the opportunity for Zedge as a whole, and specifically, what Jonathan and the team had identified and begun developing with DataSeeds.AI. Zedge has an established business that generates cash, a strong balance sheet, and a collection of assets and capabilities that can be applied to various growing markets.

Through DataSeeds, we have already demonstrated an ability to turn some of those capabilities into a commercial offering, securing repeat business and expanding into new services. What I find particularly compelling is that we are building on a foundation that already exists within Zedge. We are not starting from scratch. We have established creator communities, experience developing and operating digital platforms, and an infrastructure that can support specialized data production. Of course, DataSeeds is still early in its development, and there is considerable work ahead. My initial focus has been on getting to know the team and the business, understanding our customers, and identifying where additional investment can have the greatest impact. Howard’s increased involvement and the recent capital investment give us additional resources to pursue the opportunity.

I have worked with Howard before with much success, and I am looking forward to working closely with him, Mishi, Jonathan, and the rest of the multinational team. I believe we have an opportunity to build DataSeeds into a substantial business over time with high enterprise value, and I am looking forward to helping make that happen again. With that, I will turn it over to Jonathan.

Thank you, Morris. It is great to be working together again, and good afternoon, everyone. I will begin with a DataSeeds update, then review our fiscal 2026 performance, and then more about the opportunities we see across the company and our priorities for fiscal 2027. DataSeeds is our primary growth initiative and the area where we see the largest opportunity to create additional value for Zedge stockholders over time. AI developers increasingly need specialized, purpose-built data tailored to particular models, applications, and edge cases. Much of that data cannot be scraped from the internet or acquired from an existing library. It must be produced subject to a detailed technical brief. Zedge entered this market with meaningful advantages, including creator communities, content libraries, and extensive experience building technology that can attract, engage, and mobilize contributors.

During fiscal 2026, we combined these assets with new production capabilities and enterprise workflows, enabling us to deliver data sets to leading technology companies. That foundation produced meaningful commercial traction, including repeat orders from existing customers, our first six-figure engagement, and an expansion into model evaluation. Revenue will likely remain uneven in fiscal 2027 because assignments vary in size and timing, and we are still in the early stages of this endeavor. But the early progress reinforces our conviction in the opportunity. Our ability to invest in DataSeeds is supported by the performance and cash generation of our established businesses. So let me turn to our fiscal 2026 results. Fiscal 2026 was a year of meaningful financial improvement following last year’s restructuring activities. Consolidated revenue increased approximately 8%, subscription revenue grew nearly 30%, and we delivered substantial gains in profitability and free cash flow.

Yi will provide a more detailed review of our financial results shortly. Zedge Marketplace remains our principal source of profitability and cash flow. It also contributes a scaled creator community, and by nature of operating that business, we have developed expertise in user acquisition, creator onboarding, engagement, consent management, and payments that are critical for DataSeeds' growth. In the fourth quarter, Marketplace average revenue per monthly active user increased year-over-year by more than 30% to $0.121, and active subscriptions increased 35% to approximately 1.3 million. Those gains more than offset the revenue impact of a 17% decline in monthly active users. Reversing the MAU downward trend remains a priority while improving monetization across the audience we retain. Zedge Marketplace on iOS continues to perform well, supported by strong product acceptance, effective marketing, and subscription growth.

Looking ahead, we expect to more tightly calibrate paid user acquisition spend with return on advertising spend or ROAS. This may result in a more measured rate of Marketplace growth while maintaining our disciplined approach to investment in user growth. We continue to believe in the Zedge Marketplace and are investing in product development. Over the past year, we introduced features designed to improve retention and engagement, including alarms and task-driven reward activities, and introduced new content verticals including watch faces, dynamic wallpapers, and battery charge screens. Marketplace is a valuable asset both on a standalone basis and as a driver for DataSeeds, and maintaining its profitability and cash generation remains paramount. At Emojipedia, revenue continued to decline and weighed on our consolidated growth rate. The business nevertheless continues to generate very high margins because it has minimal fixed and variable operating costs.

We will continue to manage Emojipedia for cash generation while evaluating opportunities to slow the decline without significant investment. GuruShots and DataSeeds are now being managed as one business. GuruShots contributes an established photography community, an extensive image catalog, and experienced visual contributors who can support DataSeeds collection, annotation, and evaluation work. We are also designing new consumer products with technology that can connect to DataSeeds, and we have redirected an innovation team to DataSeeds initiatives. These efforts create reusable technology and capabilities for the enterprise business. I will close by returning to DataSeeds and explaining how we plan to build on the foundation established during fiscal 2026. Depending on a customer's needs, we can use existing content, mobilize contributors through our communities, develop mission-specific data collection applications, or deploy professional resources through our DataSeeds Production Cloud. We manage rights, consent, metadata, compliance, and quality assurance throughout the workflow.

Combining these sourcing and production methods gives us flexibility to meet highly specific customer requirements without building every capability from scratch. The opportunity now extends beyond training data. DataSeeds began with rights-cleared image datasets and has expanded into multimodal data, including audio and video. We are also building services across annotation, enrichment, and model evaluation. Our first commercial model evaluation engagement with Bria demonstrates that expansion. Bria needed to assess subtle quality differences in AI-generated images that automated systems could not evaluate reliably. Through GuruShots, we mobilized experienced photographers who routinely evaluate and vote on images. Multiple evaluators independently reviewed the content using a process designed around Bria's requirements, demonstrating how expert human judgment can complement automated evaluation methods. Our model evaluation offering combines an established community of visual evaluators with the workflow and quality controls required to produce consistent, usable enterprise results.

On a demo for another client, we tested our evaluation capabilities on a customer's AI-generated images and found that our solution was able to provide value-added insights regarding the image quality of their model, particularly when judging for nuanced variables like dim lighting conditions. That result illustrates how DataSeeds can expand existing customer relationships and the synergies between GuruShots and DataSeeds. Physical AI and robotics are another promising area. These applications require specialized video datasets that capture how people interact with physical environments. That can include egocentric video recorded from a participant's perspective, exocentric video recorded from external viewpoints, and the associated synchronized sensor data. Much of this content must be collected specifically for the task being modeled. Our experience developing mobile applications and managing distributed contributors gives us a strong foundation. We are developing collection capabilities now, although this business remains early.

In fiscal 2027, our priorities are to expand our technical and production capabilities, deepen customer relationships, broaden and grow the pipeline, and add the people and processes needed to manage larger, more complex engagements, all while remaining disciplined as we invest. Individual projects can vary considerably in size, scope, and timing, and our objective is to turn the early traction into a larger, more diversified, and more consistent business. The investment Morris referenced gives us the flexibility to move faster and not miss out due to resource scarcity. Our focus now is to deploy those resources with discipline and align customer, technical, and organizational priorities that can build a durable business and deliver outsized value. Our established businesses provide the cash flow, communities, content, and operating expertise behind this strategy.