Truecaller AB (publ) (TRUEB) Earnings Call Transcript & Summary

Hi, and welcome, everyone who's listening in. My name is Alan Mamedi, and I'm the CEO and Co-Founder of Truecaller. Today's presentation will be presented by me and my CFO, Odd Bolin. We're very excited to announce our first quarterly report as a listed company. Since this is our first quarterly report and we have many new investors on board, we wanted to spend some time on our product and introduce it to you. Then after that, we'll go through some of our quarterly highlights, then a product update on some of our highlights in Q3. Then Odd will walk you through our financial performance. Then I will quickly go through the summary and then we open up for Q&A. So let's get started. So our product is divided into 2 different buckets. One is our consumer offering, where Truecaller is a leading global platform for phone number verification and call blocking, and consumers use our product in order to have a safer and more efficient calling and messaging experience. The other side of this is our business product that we call Truecaller for Business that allows businesses to verify themselves and integrate them into our product so that they can grow their business more efficiently. We'll go through these in details. On the consumer side, we offer a full suite communication experience where users come to make calls, identify unknown callers, block unwanted calls and manage their SMS message experience from businesses using our intelligent AI system that highlights important messages. On top of this, we provide many other features around communication in order to make your calling and messaging experience safer and more efficient such as call recording functionality and much more. Truecaller for Business is our enterprise side of the product offering, which enables businesses to communicate with their customers in a much safer environment by becoming verified on our platform so that consumers can rest assured that they are actually speaking with their bank, for example. Besides that, we have also built ways for businesses to integrate into our product such as call reason, which makes it possible for our users to know why a certain company is calling you. But we don't stop there. We're building many things on top of this, such as call feedback, which is a seamless way for businesses to survey their customers after each call they make. The calling space is huge, and we have just entered it through our sales team but also through our CPaaS partners who upsell our products to their customers. In our near future, we will also utilize our messaging channel to help CPaaS customers reach their customers more efficiently. [Presentation]

Great. So let's go into the quarterly highlights. We had an outstanding quarter and closed Q3 at 292 million monthly active users, a 20% increase. We also grew our revenues with 129% and closed Q3 at SEK 312 million. And we had a strong adjusted EBITDA of SEK 117.7 million and a margin of 37.6%. We had a very strong growth in consumer advertising, driven by increased demand from advertisers, especially in India. On the business highlights, we're happy to mention that Truecaller for Business is showing a strong development with great interest from businesses in several markets, and we've also initiated a strategic partnership with Tanla, who's one of the largest CPaaS companies in India. To start with, we'll make Tanla's customer verified on our platform. Lastly, in Q3, we started to initiate branding campaigns in focused markets where we see a large future potential like Indonesia and Malaysia. We have also continued our investments in India and then, of course, in Sweden, where we went public earlier this month. We had a very strong development on user growth side and grew our MAUs to 292 million, a 20% increase. And on our daily active user side, we grew to 229 million, a 21% increase. And we continue to see a steady and strong organic growth. Recently, we started to grow our user acquisition efforts, which are showing good returns on our ROAS. The number of incoming calls that our users are receiving continues to grow strongly. And in Q3, our users received 275 billion phone calls, which is a 22% increase from last year. On the product update highlights in Q3, we've divided them into 3 different categories: enhanced core offerings, our AI development and our ads and Truecaller for Business platform. We're super proud to announce that we're now launching real caller ID for iPhone through our newly built tech stack that will make this experience possible and similar to the Android experience. This is now being rolled out to our premium customers in the U.S. And while we're rolling it out, we continue to fine-tune it before it goes -- gets rolled out to our larger subscription base in the U.S. We've done many improvements on the text messaging side to highlight even more important messages and extract relevant information for our users. These improvements will, of course, also benefit our business customers once they start using our platform for messaging communication. On the machine learning side, we've made huge improvements in the last quarter, and our users are already now enjoying some of these features, such as our phone graph that will not only tell you who the person is that is calling you, but also if you have friends in common with him or her and if it's a trusted person. All these intelligent data-driven points, we call it AI identity. On the ad tech side, we made a lot of progress in the last 12 months, but some of these things we've done in Q3 have already started to show results and enabled us to scale on the demand side. We built automated yield optimization systems to support a larger mix of programmatic partners, and we have a lot to do here, and we're very excited to continue our investments into our AdTech platform that will make our ads monetization play even stronger in the future. On the Truecaller for Business side, one of the big accomplishments for Q3 has been the development of our automated onboarding system to scale Truecaller for Business with more customers without a lot of manual work. This sets us ready to grow faster in the future with very limited manual touch. So we've -- we're super happy that we've been able to onboard many more customers in Q3, and over 100 customers have integrated our call reason APIs into their systems as well, which increases the pickup rate even further. One example is the top 3 private sector bank in India who became a customer in February this year and has then increased their call pickup rate with 41%. And we have many trusted customers on board who see a healthy growth in pickup rates. Lastly from my side, before I give the word to Odd, our strategy going forward is pretty straightforward. We'll continue to invest in our core offering and remain the leading platform for trusted communication. We will continue to invest in our proven revenue streams, such as the AdTech platform, but also on our consumer subscription side. And also going forward, we're going to continue to invest and unlock the new growth opportunities such as Truecaller for Business but also invest and grow in new and upcoming markets. Over to Odd.

Thank you. Well, as Alan has pointed out, we had a really, really good third quarter revenue-wise. We grew our revenue by almost 130%. The main reason comes from the ads revenue side, and we see a continuing strong increase in monthly active users, which creates a foundation for our revenue growth, but combining that also with a growth in our revenue generating ad impressions and stable prices has taken us to where we are this quarter. It's worth mentioning here that there has been some discussion lately on the changes that Apple has made to their systems and how that may impact companies like us, but we have most of our users on Android, and we believe that the impact of the Apple changes will be very minor on our business. Looking a little bit more on revenue by service type. As I said, most of the growth this quarter comes from the advertising revenue side, where we have grown by almost 160%. The number of ad impressions that we've been able to utilize have grown substantially. And as Alan mentioned, we have made investments in our AdTech platform, which has increased the efficiency and monetization ability we have on the product. Our price, the CPM, has grown on the programmatic side. We have done some testing with new ad formats that has taken down the overall CPM slightly temporarily, but the core business is still seeing increasing prices based on increasing competition for our ad space. The consumer subscriptions continue to grow pretty much in line with our user number. We've had some issues this year because the Reserve Bank of India made changes to their -- to some of the rules and regulations that affected Google and then indirectly affected us. Those issues have now been solved, and we think we're back on a similar growth track that we were before this. The other revenue, which is mostly Truecaller for Business, has had an exceptional development during the quarter or over the last year with a 500% growth in revenue. Obviously, we're starting from low levels since we started this business at the end of last year. But in absolute terms, we think that the business is developing extremely well. Our gross profit margin or our gross margin improved by 10 percentage points versus the same quarter last year, primarily driven by operating leverage in the hosting and SMS verification costs, in combination with changes in our sales mix towards more direct sales and more sales through partners with lower commissions. As you may have noticed, Google recently announced that they will lower the commission on the Google Play sales which will benefit us in our subscription business, which will -- and that will have an impact from 2022 onwards. Some -- a few words on our OpEx and also the adjustments we make to our reported earnings. We report adjusted EBITDA where the adjustments includes everything that is related to the IPO and also what we call synthetic NPE options. That is really a deferred payment for an acquisition that we made back in 2019. That has impacted the quarter by a total of SEK 77 million this quarter. And we will have some further IPO costs coming in over the next quarter, but the synthetic options or history, we will not see any more effects on the P&L based on the synthetic options. Adjusted EBITDA increased to almost SEK 118 million. We're very, very happy about that, obviously. We see compared to last year a growth of 8 percentage points, which is the -- coming from the growth in the gross profit and gross margin with a slight offset from the fact that we have increased our marketing efforts and also our user acquisition this year. So -- and also, if you look at the numbers this quarter versus the second quarter this year, you also see the effects of this increased marketing and user acquisition investments in the shape of a slight lowering of the EBITDA margin. Looking into the future, we have communicated very clear financial targets. We have had an exceptional year so far, and we have through the work that has been done in our -- on our AdTech platform, in our ad revenue business, we have come to a new baseline. We have communicated that we have a financial target of growing by -- revenue by 4% to 5% per year on average. And we think that from our new baseline, that is a target that we are very comfortable with. We also say that in the medium to long term, we will be able to achieve an EBITDA margin of about 35%, which we also stick to. Alan?

Thank you, Odd. So in summary, we had an outstanding quarter in terms of growth and profitability with 129% top line growth combined with a 37.6% adjusted EBITDA margin. In January to September, we had a growth of 141% combined with an adjusted EBITDA margin of 37.5%. Strong user base growth with monthly active users growing with 20% to 292 million monthly active users. We're still a product-first company. We will continue to invest, and we've made a lot of investments in the machine learning and on the data analysis side, including our AI identity as well as the new advanced caller ID for iPhone and so on. We have had strong development on Truecaller for Business. It's scaling according to plan on both customer and revenue sides, and we're looking forward to scale this even further. And now we're opening up for Q&A.

[Operator Instructions] We have 1 first question from Mr. Yemi Falana from Goldman Sachs.

It's clear you continue to innovate on the product side, but could you provide some color on how user engagement has evolved through the year, particularly the rising ads -- rising ad impressions have been a tailwind to the growth?

Thank you. So in general, we continue to see increased engagement inside the product. And that is also one of our focus areas for the coming year, to build even more innovation to drive more engagement. But in general, we continue to see strong growth there.

[Operator Instructions] We have another question. Can you please identify yourself and ask your question?

This is [ Fahad ] here. I wanted to know what is the effect of IPO in the next quarter. How much -- what is the cost that we are talking about on the balance sheet?

We do have some costs that still needs to be paid for the IPO, of course, and we think that a reasonable amount should be below SEK 25 million.

We have no other questions. [Operator Instructions] We have another question from Mr. Yemi Falana from Goldman Sachs.

I thought I might jump back on. Just on the subscription side. Can you provide any color on when you think that the issues that you've had, given the Royal Bank of India (sic) [ Reserve Bank of India ] judgment, might inflect? And what do you expect from the kind of subscription user base over the kind of next 1 to 2 years? Is kind of half of 1% of users subscribing a reasonable level to get back to when these issues resolve? How are you thinking about that?

So the issue on the RBI and Google side has been solved as of end of September. And we don't expect notable impact on user growth and so forth. So now since then, everything is back to normal, which is something that has, of course, affected all businesses. But we don't see anything noticeable. And going forward, we believe that the growth on subscription side will come from 2 different angles. One is, of course, the innovation and improvements in the product offering that we continue to work on to make sure that we build things that people -- that attract a larger amount of customers to start paying for it. And this is an ongoing product development, I would say. The other side of this is, of course, the fact that in the markets that we play in, the willingness to pay for subscription services are low, but they are also growing. Just like we've seen in the Western world the past couple of years, a similar trend we do see in these markets, whether that's going to be a certain percentage next year, we're not going to comment at the moment on. But obviously, if we have 292 million customers, we have a huge base to work from.

[Operator Instructions] We have no other questions by phone.

Okay, great. Thank you, everyone, for listening in. And we're super proud of this quarter that we just presented and looking forward for the upcoming quarters. Thank you, everyone.