OnMobile Global Limited (ONMOBILE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the OnMobile Global Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Jagtap E&Y Investor Relations. Thank you, and over to you, sir.

Thank you, Dipika. Good evening, and welcome to the Q1 FY '25 Earnings Call of OnMobile Global Limited. Representing the management today, we have FC, Executive Chairman and CEO; Radhika Venugopal, Global CFO; Bikram Sherawat, President and COO. The call will start with a brief update about the overall performance during the quarter and business activity by FC, then Bikram will address the investors, Radhika will update on financials, and then we will open the floor for Q&A session. I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties that we see. For a list of such considerations, please refer to the earnings presentation. OnMobile Global undertakes no obligation to publicly revise any forward-looking statement to reflect future or likely events or circumstances. Having said that, I now hand over the floor to Mr. FC, over to you, sir.

Thank you all for joining this call. Good quarter on the Gaming side. As you saw the results, 22.9% growth on the revenues of Gaming. To be honest. It was exactly what was planned. So I'm happy the team delivered exactly what we had projected in terms of growth. So we're right on the numbers finishing the quarter with 7.6 million subs, a nice growth there also. We view this growth going on during the next quarters coming as we have about 111 now live deployments from 101 last quarter. So we added 10 deployments this quarter. As we mentioned last quarter, what's really important is the number of optimized account marketing wise, so we can actually do the marketing. Last quarter, we had around 35 optimized accounts. Now we're up to 46 optimized account on marketing. And when I say optimized, it's not that we're at full capacity, it's that at least all the parameters are there to invest the marketing accordingly with scale. So this number, obviously, the goal is to optimize most of the accounts that we have, all the deployments. So as we grow, it's still our objective by the end of 2025 to aim towards, as I said, 200 accounts. There will not be 200 optimized accounts. But as we go there, we're really optimizing. So especially adding a lot of tools on the team and all what necessary to really be able to manage so many geographies and to so many accounts. So good performance from the team on that side. Also, I want to mention that we did optimize the Gaming teams, we brought them together. We brought the platform together also. So a good synergy on that side, which brought, as you can see, some cost saving this quarter, and then we'll see more cost savings in the coming quarter, both on HR and OpEx. So the Gaming unit, altogether really is on a good track to us promise this year be profitable. Radhika will talk about profitability and capitalization also that impacted this quarter. But in all, the reduction of costs to the profitability of Gaming was increased from last quarter to this quarter. And you will see this increase coming along in the next few quarters. Mobile Entertainment, which includes Tones and Video was stable. Many negotiations right now in RFPs on the table. So we should -- this revenue should grow, as I said in the past, there's no reason it doesn't grow. There's no reason it de-grows. So it's our job to make sure that we can grow this. We have new RBT deployments coming along also as announced before, and there's many strategic discussions right now also. So Mobile Entertainment unit should perform in the coming quarters. Now lastly, before I go, I'm going to pass the mic to Bikram, our new President and COO, I'm really happy Bikram accepted to join back. I say join back because Bikram was actually employee #18 back in the early days of OnMobile. He is the one that really showed the growth that brought us public back in 2008. So he's been a long time employee, had left for 3.5 years or a bit more, went to work for a key tech company in India. I think it's great that he got this experience also, has a lot of knowledge and lots of connections in the [ CXO ] levels with operator, has a mandate to drive sales. And I think it's essential to have somebody full time in the office with a position like this full time in Bangalore, and he's based out of Bangalore and be full time. So if he is not in Bangalore, he's going to be the customer. But when he's back home, he will be in the office. So it's great. So to this, I'll let the Bikram explain this first month on board with us and what it seems from the business. So Bikram?

Thank you, FC. Good evening, everybody. Like FC mentioned, I've just joined back OnMobile, and it's been great meeting all colleagues. From my perspective, some key updates continuing on what FC mentioned specifically on the Tones line of business. We believe that we will be in a position to maintain and grow the business. There are a few key areas where we want to focus on this line of business going forward. Number one is service pricing. What we have seen, especially in the emerging markets, you take India, for example, customer ARPUs are being repriced. And what we've seen is the operator ARPUs are increasing. We have already started having some discussions with key partners on repricing the service. You had some initial impact already coming in one of the key markets in South Asia for this where you are seeing the impact on the revenue. In addition to the service pricing, we are also in discussion with operators to start bundling the service with various chambers for this. So that's something which we will be continuing with our operator partners. In addition to this, there is another strategic area for this, which we want to focus on is on channel. Channels #1 for acquisitions and channels in the way we charge and build the customers. So for acquisitions, we are looking at self-care integration for the service. That's something which we have worked with one large telco already. But what we are seeing is the kind of engagement the service is able to drive. We want to focus on providing our SDK to the operators. There are a couple of channels for charging, which we have not explored so far in Africa, for example, mobile money as a service. So in some markets, the regulators have started opening mobile wallets for services like Tones that's something which we want to explore in the coming quarters. The third major aspect for this line of business is we want to relook at renegotiating some of our customer contracts with our key customers. Some of them are organically coming up for renewals. And what we believe is there is a potential for us to renegotiate the terms upwards in line with the customer ARPUs which the telcos are making. So with all of this, we believe that we should maintain and grow this line of business. I will hand over to Radhika, who will tell us about...

Thank you, Bikram. A warm welcome, and thank you, everyone, for joining this call. I will share the key highlights of our financial performance for the quarter ended June 30, 2024. Before moving to financial highlights, I would like to welcome our new COO, Bikram Sherawat to OnMobile. We are thrilled to have you join our team, and are excited to -- excited about the expertise and the vision which you bring. Looking forward to achieving great milestones together. Now coming back to financial highlights. In terms of Q1 FY '25 performance, we reported revenue of INR 126 crores, which remained flat compared to last quarter. Gaming revenues increased by 22.9%, and the subscriber base -- active subscriber base -- the Gaming active subscriber base increased by 13.6% (sic) 13%. Gross profit stood at INR 63 crores, which is 51.1%, and it is down marginally by 1.9%. On the cost front, OpEx, we saw a reduction in OpEx around 15.9%, as compared to the previous quarter. Manpower is 9.5% down if we exclude the capitalization on a normalized basis. EBITDA for the quarter stood at INR 9 million, which is down sequentially on a Y-o-Y basis, but current quarter EBITDA includes a charge-off to the P&L, amounting to INR 5.6 crores, which was earlier being capitalized. Considering this INR 5.6 crores over the last quarter, there is an improvement in profitability. We reported a net loss of INR 15.3 crores in the overall P&L at PAT level. And this is after the charge-off of the capitalized OpEx -- which was -- the OpEx which was capitalized in the earlier quarter amounting to INR 5.6 crores. And also additional depreciation on account of ONMO CapEx, which is in our balance sheet. So there is a total of around INR 10.9 crores on this account, and despite that our EBITDA remains positive. Overall DSO is at 91 days as compared to 94 days in quarter 4. This is the best in the last 12 quarters. During the quarter, we also incurred some R&D and product development costs amounting to INR 3.8 crores, which -- in the current quarter, which we continue to capitalize, and this is for our development into Gaming space. Our cash balance increased to INR 68.8 crores versus INR 63.7 crores in quarter 4. We anticipate further performance improvements throughout the remainder of FY '25. And as FC mentioned, with reduction in cost and all the improvement in revenues, we expect the Gaming P&L to be profitable by the end of this year. And we are seeing a lot of action in that direction, both in terms of revenue as well as curtailment of cost. With this, I now will open the floor for Q&A session.

[Operator Instructions] The first question is from the line of Danish Jain, S.E Capital.

Sir, I have two basic questions. Sir, my first question, can you provide the next year guidance in terms of the revenue growth? And second, can you provide the next 2 year guidance on the EBITDA growth in terms of the percentage growth? Sir that will be very helpful.

So growth on revenues, as you can see this quarter, the Gaming is growing by 2%, sub base is growing by 13%. We're putting a lot of efforts on marketing to optimize way more accounts. I see the trend -- this trend continuing for the rest of the year. I mean that's our target. Obviously, we'll have an impact because, as I said in the past, once you remove -- once Gaming becomes profitable and that the Mobile Entertainment business grows, you have two positives instead of one negative and then one positive. So I mean, profitability-wise, it will have a big difference between this quarter and Q4, let's put it this way. Radhika, you want to add something?

Yes. So as I mentioned, Gaming is set to be -- set to turn profitable by the end of this quarter. If you see last year, we spent around -- last quarter, we spent around INR 15 crores in Gaming, which has come down to INR 9 crores this quarter, which will further come down and we are optimizing the cost while signing up for large deals, that is what we are planning for the rest of the year in the Gaming space. Apart from that, we also foresee, as Bikram mentioned, renegotiations in Tones, and adding more customers wherein we expect Tones revenues, which are highly profitable in the current quarter and also in the past, the legacy revenues, which are highly profitable. So with these renegotiations and additions in our deals, we expect the overall company profitability also to improve. Bikram?

So yes, like Radhika mentioned, on Tones specifically, we are focused very specifically in engaging with our key customers, top customers, either to improve the service pricing and also look at renegotiating the contracts, whichever are coming up for renewals and expect a higher share. So that's what we are expecting and the target is for the [indiscernible].

Okay. So by end of FY '25, can we expect at least 10% to 12% EBITDA margin mainly on the Gaming platform business?

As given in the investor deck, the steady state EBITDA margin -- steady state contribution margin for Gaming would be around 25% plus. That has been going forward, but not at the current -- currently, we are expecting this to turn positive by the end of this quarter, though we would not be able to give you an exact margin percentage or an EBITDA percentage now.

The next question is from the line of [ Prakash Ramaseshan from Pragya Consulting FCE ].

This question is to FC and Bikram. We are right now at about 50 accounts optimized, and we are going towards the 200 number. EBITDAs are looking to stabilize at 25% at steady state, 35% plus for the Gaming business. Do we see in the year '24, '25 that we will get to 25% EBITDA on 100 accounts optimized some number like that?

You mean this financial year? So...

No, '24, '25, we are basically going to creep towards normalcy. Let's say, we look at next year '25, '26. Do we see a steady state EBITDA of 25%, 30%? And then accounts -- optimized accounts of about 100?

Yes, that's exactly the plan. Now when you combine this to the Mobile Entertainment business, which obviously has less EBITDA margin, but in the blended rate, yes, you'll have 2 positive as I'm explaining. So you should have in 2026, as we discussed, a 25% EBITDA margin on Gaming. And Mobile Entertainment should yield between 14% and 18%, right? So that's exactly the goal with at least 100 accounts, right? I mean we signed 150 contracts so far. We're deployed in 111. By the end 2025, we'll be signed 200 agreements, we will deploy that same 150 and optimize about 100, right? I mean that's pretty much what's going to happen. So obviously, if you take these numbers and you just make a simple math, right? with the current run rate, it will bring important profitability.

And our key deliverable on optimizing accounts, basically, it's the ability to exploit these relationships strategically. That's the change that you're making?

No. The problem we have -- let's say, in a specific country, we need to tune the Google ad and all the parameters for marketing acquisitions so that the marketing action works, right, in line with the parameters that we have with the operator in the billing system. And the way we actually do the acquisition flow and acceptance flow with the customer. Sometimes this chain -- if you have one thing in the chain that doesn't work, your cost of acquisition can go up to 10x the normal amount. So the more marketing that you put, you're just wasting money, right? So that's why in some cases, we saw our cost of marketing really going high because we tried to accelerate marketing and the actual flow and marketing parameters were not done properly. So it takes about a good -- in some cases, it could take 3 to 6 months. Some other cases, it can be longer, 6 to 9 months to optimize an account. But once it's optimized, then we can draw to a specific size of cohort, right, and you get, let's say, 100,000 users, right, acquisition flow that you have. Now to go from 100,000 users to be able to go to 500,000 or even 250,000 users, then it's not all the same parameters, right? You can just -- it's not just about the money, right? It's about optimizing every single variable. A lot of companies in digital marketing have a lot -- way bigger teams than we have. What we're trying to do is actually put all the tools in place and the AI in place so that we have way stronger metrics coming out, so that we can optimize this -- imagine doing this in 100 geographies differently, right? It's very tough to hire people and have them do this job, right? So with all the [ events ] and AI, I really believe we can get AI to support us and be the equivalent of a team of 100 people instead of hiring so many people. So that's what needs to be done right now.

[Operator Instructions] The next question is from [ Bhavesh Patel from Patel Investments ].

In fact, I'm liking the way you are strengthening the leadership. Excited about the future. Do want to know, however, from your perspective, is the revenue impact flat because of we losing Vodafone account last year? And that's not coming up Y-o-Y. And the second question is, again, more strategic. I mean, by when would you have kind of a vision for next 3 to 5 years, getting into much better than just being overall profitable?

Yes. First thing, yes, we did lose Vodafone, we discussed about it. Obviously, all the numbers would look great if we would have kept this account. And I'm not excluding the fact that we can do more with this customer in the coming year. But for now, yes, it did impact our numbers. Now we add a marketing budget also [ an acquisition ] that we shifted on many other accounts, right? The difference was that this marketing budget was all optimized. Now we have to re-optimize it. But to be honest, the quarter is somewhat flat with a great growth on Gaming because some accounts in Tones and Videos, the accounts are big and you get a small hiccup, it makes a big difference, right? So all the growth that we have on Gaming is absorbed by a small hiccup somewhere into an agreement, right? And those hiccups are -- when I say hiccup is, we didn't lose a contract, it's a billing issue or it's a specific issue in the country, right? And then it has an impact on the results, right? Now those can go the other way also, right? There's a lot of upside in the Mobile Entertainment business, and there's a lot of things that can be done to actually increase the revenues and compensate for any hiccups coming along in the future. So the last year, as you know, we really put the focus on Gaming. And I think by doing this, it had an impact. I mean, it really had an impact on our traditional business. Now we have to do both, right? We have to grow the business while we still put an emphasis on our traditional business, [ which is material ] and can really generate profitability. So that's what explained this quarter, right? And that's why, I mean, there's a very slight growth, but it should have been bigger considering the growth on Gaming. Now for the future on the 3-year plan or 5-year plan, I totally agree. The plan is way larger than just what we're discussing here. I want to be careful on the sharing vision and sharing dreams. We do have a great vision for the company. I just think we need to deliver this for now and make sure the investors understand that we are solid, that what we're saying we're doing. And once this is [ obtained ] and the actual Gaming business is producing the EBITDA that we discussed and the profitability that we discussed, well, I would be more than happy then to start sharing the vision and dream here.

I appreciate, FC, your personal involvement as well moving to Europe and getting Bikram on board, excited and all the very best.

The next question is from the line of [ Pradeep Rawat from Yogya Capital ].

I'm pretty new you to the company, so I have some basic questions. So how much revenue do we generate per subscription, Gaming and Video segment? And what is the number of paying users?

Radhika, I'll let you answer this one.

Yes. The Mobile Gaming revenue generated this quarter is around INR 25 crores. And the paid user is around 42,000 approximately.

That's for Gaming. And what is for the Video segment?

I just want to clarify on the Gaming. So the paying subscriber base is 7.6 million. That's what we disclosed, right, the active base. Just to be clear, those are subscribers that we have in the billing system. So sometimes they can take -- we bill them in a month, it can be two months, it can be longer. But you understand those are those that we bill. The ARPU on Gaming is around, [ depends ] per region, right? So Radhika, you want to give the general ARPU which is?

In Gaming around INR 27 to INR 28 is the ARPU in Gaming and the Mobile Entertainment is also close to around that INR 21 -- INR 15 to INR 21 is the ARPU. Sorry, my bad, the active subscribers or the paying subscribers are 7.6 million, which is given in the investor deck too, for Mobile Gaming products.

Okay. And what is the daily and monthly active user count?

Just a second, we are pulling out the data.

We don't disclose the actual active users. It depends the multiple ways. We have multiple definitions. But that's something that we should start disclosing. So in the future calls, we're going to put it in the investor deck. And just for you to understand, right, the notion of active users is very different, right? On Tones, we have like 55 million active users. Now what's really particular on Tones, right? I'm paying for the service, but I'm not using it for you when you call me, right? So they're all active users because they all receive calls, right? Although they're not actively changing their [ phones ] every month, right, but they stay active users, whereby in Gaming, you actually have to log in and start playing a game, right? So the engagement level is very different. On Video service, number of videos watched. And also on the ARPU, just for you to understand, we have a big -- that's why I'm sharing also we have a big contract here with operators in Spain. The ARPU is, in some cases, EUR 5 per week. EUR 2 to EUR 5 per week, depending on the service. So the range of service and the range of price really goes from INR 20, INR 25 to $10, $20 a month.

Yes. Sure. Understood. And with regard to the Gaming segment only. So how much of the games are developed by us? Or are the games -- like out -- third-party games, and we just put it on our platform?

Yes. The strategy is really to get the best games, and especially for our more cutout, the last moment of the best game. So we don't develop games on that side. On the HTML5 side, we have developed some key games, which are most popular games. So to optimize the cost on content providers. So we have developed very big games on HTML5, but our focus is really to work with game developers. It's not to do -- develop games.

And the difference between the gross margin and EBITDA margin on the Gaming segment. So what is the cost between these 2 figures? And is it just that we pay the game company who have the games and provide the service platform? So is it that or is it -- is there something else in that cost?

So the gross margin will have only the content which is reduced from the revenues. And also the hosting cost, which is there in the direct costs. But to arrive at the contribution margin and EBITDA, we reduce the marketing cost and also the direct [indiscernible] cost, which is -- who are involved in the Mobile Gaming service revenues. So that's the brief of the costs, which are included in the P&L to [ whatever ] contribution margin.

Yes. And my last question is regarding.

Sorry, just to clarify on this point for you to really understand the business. So when we launched marketing, the actual ratio marketing to revenue should be around 50%. When we launch, sometimes it goes up to 75%, right? It's more expensive than we optimize it to 50%. Once we really optimize, we can go even below 40%. Some gaming companies actually operate sometimes at even 30%, I've seen 27%. I mean that's the lowest, depends really on really the brand recognition and the virality kicking in. But a good metric is between 40% and 50%. So if you take 40% or 50% is marketing, gross margin, cost of content and the hosting, we try to keep it at 10%, right, gross margin of 90%. And the rest is about manpower. That's where we aim for a 25% EBITDA margin.

Understood. And with regard to our revenue share from Gaming, so it was 18% in first quarter of '24, then it reduced to 16% in the fourth quarter of '24. So what could be the reason for the fall in revenue share?

Half of the revenue is coming from the contract we lost in India was from Gaming. So that's why we had a down there, which we cut back up.

Sorry, i didn't understand.

So we have a key customer that we -- that for financial reason had to stop every content provider, not just us, all the -- everybody using the wallet, which right now, almost 100% of our revenues come from wallet use. They blocked -- they changed the price impact. So we could not use the wallet anymore, so we [ lost ] these revenues very rapidly. So half of that was Gaming. The other half was our other service, like Tones and Content services. So that's what happened, right? So because the share of Gaming was bigger on that customer that we lost, that's why you see the decline here.

[Operator Instructions] The next question is from the line of [ Prakash Ramaseshan from Pragya Consulting FCE]

Sir, just a follow-up question on Chingari. We had made a strategic investment in Chingari, because that time, we were looking to follow a retail strategy for the Gaming business. Now we've gone back to our strategy of B2B to C. So are we looking to divest Chingari investment? How are we placed today on the investment and what are the plans going forward? If you could just give us any thoughts?

Yes. Chingari actually switched their model and they went on the App Store in the last year, and they got a pretty good growth on the App Store. I mean, a surprising one because, as you know, in order to make App Store revenues, starting at 0 and growing is very tough, and they actually made that switch very well done. Chingari is planning to raise money in the next 6 months. Obviously, because of the Gary [indiscernible] has an impact on the Bitcoin pricing. I mean their profitability all with crypto money, right? As crypto rises, it rises the value of the company. Everybody, all the influencer on the platform get paid with Gary, right? So that's obviously -- that's the intrinsic value of the platform. Our view, clearly, I mean, we did not get the synergies that we're expecting with ONMO. As you said, we focus on B2B instead of B2C, but even on B2C level, the way Chingari operates and the way ONMO operates, I cannot say it was a direct profitable deal on that side. On the investment, though, we're not worried. We have -- we're very secure on the investment. Valuations that are in discussion right now are higher than the invested capital that we have. So yes, the strategy would be that in the coming year, we will... [Foreign Language] Can you hear me?

Yes, I can hear you, sir.

Okay. Sorry. Yes. So I was just mentioning that by the end of the year, on the next [ raise ], we will aim to do a secondary and accept our position.

[Operator Instructions] The next question is from the line of [ Chetan Dhruva from Chetan Dhruva ].

I just had one question on this margin bid that you talked about earlier. So you were guiding for an EBITDA margin of 25%? Or was it the contribution margin, which is 25%? Because I think the CFO mentioned that only the direct costs included in the contribution margin. So the EBITDA margin would also have the indirect costs and therefore should be lower. So what was the guide, 25%? Was it contribution or...

25% upwards is for the contribution margin, which will include all the direct plan per cost. So if I include allocated plan part that is when I arrive at the EBITDA margin.

Okay. And how much would it reduce it by? I mean, at least what would be the EBITDA margin for next year?

Yes, these will be all allocated percentages. So it will not be much, a few percentage here and there. As of now, I would not have an accurate number for this.

Okay. So would like 25% go down to 23% or something like that? Is that reasonable?

A few percentages down.

[Operator Instructions]

Let's proceed with the closing comments then.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you. Thank you all for joining. Next call is in November, beginning of November. So I look forward to give you good results. And thank you for joining this call.

On behalf of OnMobile Global Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.