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

Welcome everyone. I'm Alan Mamedi, and I'm the CEO and the Co-Founder of Truecaller. And with me, I have our CFO Odd Bolin. We're here to announce our year-end report covering the fourth quarter of 2024. Today we will start with overall highlights from the quarter and then walk you through our financial performance in detail. We will then cover some developments on the product side before wrapping up and opening up for questions. So let's get started with the highlights of the quarter. I'm pleased to report that our user base continued to grow during the quarter. We closed Q4 with an average of 374 million monthly active users, an increase of 11%. Average daily active users grew to 305 million, an increase of 12%. This brings us to a strong DAU-to-MAU ratio of 81%, and we closed the quarter at SEK 425 million in net sales, 4% decrease compared to the same period in 2022. Our net sales result continue to be impacted by the slowdown in demand in advertising, but we see consumer subscription and Truecaller for Business continue to grow at a good pace. That said, we continue to operate [Technical Difficulty] with adjusted EBITDA landing at SEK 169 million at the end of the quarter and an adjusted EBITDA margin of 40%. We continue to have a very strong cash flow with SEK 229 million in net cash from operating activities before tax payments. We continue to grow our user base and in the fourth quarter, we achieved the milestone of hitting 300 million daily active users. Our user growth continues to develop very well. During the quarter, we saw higher relative growth in regions outside of India and the Middle East. Having that said, we're proud to have reached a new all-time high in our net promoter score in India, ending the quarter at an NPS of 62. We're also pleased with the development of our premium business. The number of paying subscribers increased by 19% compared to the fourth quarter of 2022, which is almost 2x the rate of our total user base relative growth rate. In terms of where this growth is coming from, we saw notable traction on subscriptions in India as well as on iPhone users globally. Truecaller for Business developed at a good pace throughout the year, and the fourth quarter was the strongest quarter for Truecaller for Business in terms of both the revenue and the addition of new customers. We continue to see healthy demand for our Verified Business and Business Messaging offerings. Our newest enterprise product Risk Intelligence was also strengthened with the integration of TrustCheckr, which we acquired during the quarter. We will cover these in more details in the coming slides, but on our user growth, the number of users is steadily growing. We closed Q4 at an average of 374 million monthly active users, which is up by 36 million from the same period last year or as I said before, an 11% increase. Our daily active user base grew at a slightly faster rate. We ended the quarter with 305 million monthly active users, 12% increase from last year. India and the Middle East are regions that we have penetrated fairly well. And as I mentioned earlier, we saw high relative growth in countries outside of these 2 markets. Majority of our user growth is still driven by organic growth, but the fact that we see fast growth rates in other markets is something we see as an indication that our investment in user acquisition are starting to pay off. As mentioned in Q3, a lower growth compared to the very strong development that we saw in Q2 and Q3 was expected, but we saw user growth start to pick up again towards the end of Q4, and we've begun 2024 user growth on a strong note. That said, we continue to see strong engagement with 81% of monthly active users using Truecaller on a daily basis. We see this as an indicator of our product stickiness and the growing relevance of our services. Now over to Odd.

Thank you. So now start to look a little bit deeper in terms of financial performance during the quarter. And as usual, we start with the revenue development. Our net sales, like Alan said, decreased by 4% compared to the same quarter last year, and the net sales for ads declined by 12%, while our recurring revenue streams continue to grow at a very material way. Consumer subscriptions grow by 23% in Truecaller for Business with 42%., so this strong growth continued. Now let's look a little bit in more detail on our 3 different revenue streams and let's start with the largest one of them, ads. It is clear that 2023 was a challenging year for ads compared to '22. In Q4, we saw a small seasonal uptick from Diwali that happened in October, but the general demand was lower than in '22. And this holds true for all players working with third-party programmatic ads as far as we know. The decline has been obvious and has multiple reasons. First of all, global macro and inflation which impacts the overall spending even among Indian advertisers. Pockets of advertisers that used to drive up prices and demand, for example, risk capital backed companies have significantly lowered their spend as they have been forced to focus on profit instead of growth. This has been a global shift and has also been clear in India, as in many Western markets. During times when demand decreases, suppliers as ourselves have increased supply to counteract the decreased demand in order to safeguard revenue. On a market level, this has further decreased pricing, stable spenders that can then choose to buy as many impressions as they have done historically, but at lower price. We spent the same amount and get more impressions. We continue to improve our platform through our tech improvements and the growth of the user base. We continue to optimize for revenue per user rather than pricing on fill rates. Particularly seen in this quarter where we choose to increase impressions at the cost of average prices, but with the benefit of reaching higher revenues than we otherwise would have. We also continue to increase impressions available to monetize within the existing slots. These improvements help us to marginally now, but more importantly, when demand bounces back, they will generate a significantly higher return, significantly higher return than what we saw before this slowdown in demand. We at this point don't see any material uptick in underlying demand. And we continue to focus on factors that we can influence, ensuring that we are in the best possible position once the macro situation starts improving again. In the near term, we do not see any signs of a demand recovery, but things can change fast in the advertising business. When looking at our stable subscription revenues, you can see that we grow our revenue by 23% compared to same quarter last year. This sequential growth in revenues also continues. The relative growth in the number of premium users is almost twice the relative growth in monthly active users, which is just very encouraging. Our strategy to add more functionality through the cloud telephony platform continues to pay off with contributions coming from the AI features Truecaller system and call recording, which yields much higher subscription prices. An important driver of revenues on subscription is our growing footprint on iOS where the conversion rates and willingness to pay is substantially higher than an Android. Truecaller for Business had a great quarter and continues to grow fast. Remember that this revenue stream started in 2021 in Q4 accounted for 12% of total net sales and also grew 42% compared to Q4 '22. We see many positive things happening here, net additions of customers, longer contracts and higher pricing plans. In 2024, we'll continue our focus on upselling on the existing client base as well as growing further. An important contributor to growth in the segment during 2023 and going forward has been Business Messaging where we have signed a new agreement with Tanla, our partner in India, but further will grow volumes and revenue this year. Our first customers for the new product lines within fraud prevention, fraud protection, and credit assessment have come onboard and are expected to add revenues from the second quarter this year and onwards. While ads has higher price volatility and cyclicality by its nature, we have over the last years continued to focus on growing our 2 recurring revenue streams; Subscriptions and Truecaller for Business. Here we have a strong momentum with sequential growth every quarter, and we are early in the development of their respective offerings. In 2024, we have a lot in the pipeline when it comes to becoming more advanced in our subscription offering, both when it comes to features and packaging and targeting, as well as looking into potential partnerships with the, for example, telecom partners and where we see potential in increased pricing. For our Software-as-a-Service offering Truecaller for Business, the offering is still young. We have passed 2,500 enterprises for verified businesses, but the potential is much larger. We'll continue to grow the customer base, but also to upsell on the current base and develop new products and features. We have a low involuntary churn and we look forward to what our risk intelligence solution and what our improved business messaging solution will add in the future. Today, the 2 combined, the recurring revenue streams grow with more than 30% and constitute about 25% in total revenues. The ambition going forward is straightforward, continued growth and increasing revenue, the recurring revenue streams, their share of the total revenues and thereby adding stability and diversification to our business. Our gross margin development continues to be very stable, and this quarter we had a small uptick given the efficiency work that has been done for costs related to servers, hosting, and verification costs. Now let's turn to cost development. As usual, costs are seasonally a bit higher in Q4 with some annual adjustments, but overall, as you know, we have been working on efficiency in technology and staffing in other areas given the overall macro situation that we see. The incentive cost is low this quarter due to the fact that we are not reaching certain performance criteria in the 2021 long-term incentive program. Efficiency is key in delivering solid margins, and Truecaller has a very high operating leverage. I think we have done a pretty good job here in 2023 in managing our overall costs. As stated many times before, we would not hold back on investments when we see -- we will not hold back on investments when we see long-term benefit for the company and the shareholders. Therefore, we are now doing selective, concentrated, and focused long-term investments with clearly measurable KPIs for each investment, which in the near-term will increase our operating expenses and thereby in the shorter term we'll see impact on margin. The investments which Alan will come back to you are made to boost growth in targeted geographical areas where we see long-term revenue potential and ability to further boost our user base as well as the continued diversification of our revenue streams and also the geographical mix. The investments are easy and quick for us to turn on and off depending on where we see the best results. As we have previously stated, our tax rate is a combination of the Swedish corporate tax and the Indian tax rate and that we have expected the tax rate to increase somewhat over time. This quarter the tax rate was approximately 26%, and year-to-date is about 25%. In the quarter, we also reported 40% EBITDA margin, and for the full year, the margin is at -- came in at 41%. I believe this is a great achievement given the stable -- given a stable or slightly decreasing revenues and our continued investments in our product offering. Compared to 24 -- Q4 '22, our EBITDA grew by 24% and earnings per share increased by 43%. Our cash flow was also strong and we continue to be in a favorable position with no debt and SEK 1.6 billion in cash and short-term investments as we continue to generate cash at about the same pace as we have been doing buybacks. During the quarter, we continued doing these buybacks and over the last 5 quarters, we have bought back shares for SEK 842 million and also done smaller acquisitions, but thanks to our strong cash flow and profitability, we have been able to keep the equivalent amount of cash in the balance sheet. With our strong financials, the Board has now decided to ask the next AGM in May to cancel the repurchased B-shares, which as of now is about 6.7% of the outstanding capital. And also ask the AGM for a new renewed mandate to have the option to continue to buy back shares. Now let's look then at how well we track compared to our financial targets that were set by the board in conjunction with the IPO in 2021. The medium-term financial targets were set in a different economic climate. Now in the current macro climate, the revenue growth target is as stated previously, clearly less relevant when evaluated on an annual basis. However, even though the financial targets are based on average results during the 2021 to '24 period, we and the Board still believe they make sense also on an annual basis, but in a more normal macro environment, which is not the case right now. So as mentioned in the last reports, with a shift in macro and with outstanding performance we had in '21 and '22; '23 was a more challenging year on a revenue growth basis. But with that summary, I will hand things back to Alan.

Cool. Thank you, Odd. Thanks to our focus on cost optimization that Odd mentioned. Throughout the year, we were able to reinvest in our product and make sure that we continue to serve our users' evolving needs. Now let's cover some of the exciting things that our teams have worked on to develop an even better product experience. The 3 areas we'll cover are the core product offering, Truecaller premium, and our ad-tech capabilities, and Truecaller for Business. We continue to invest in the core product to give users the best experience possible. We continue to prioritize performance optimization and improve the technical side of it. This is especially important as we grow our user base as we want to make sure that our product works smoothly on all devices, including lower end phones. Ongoing improvements to the core product have yielded positive results, and by the end of the quarter, we saw app engagement grow by 21% compared to Q4 2022. This helps us grow all monetization engines such as subscription conversion, ads impressions, and so on. We continue to build out our machine learning capabilities, not only to strengthen caller ID and search, but also to improve experience in other parts of the offering. One of these initiatives is our AI chatbot, which we went live with in Q4. We've already seen the volume of support tickets dropped by almost half. This means that we will be able to continue growing our user base without the need to grow our support team in the same speed. On the theme of machine learning, we continue to improve our data quality through investments in our AI identity technology, which leverages machine learning to provide users with the most relevant information about unknown numbers in real time. We're now identifying spammers even more accurately and are flagging over a million additional extra spam calls every single day. We continue to invest in building out our fraud intelligence capabilities in early Q4. As I mentioned, we acquired TrustCheckr service that verifies customer information and detects fraudulent activities. We're very proud that we've completed the integration of their models into our app during the quarter as well. This improves our ability to detect suspicious numbers and alert users in real time. We've also beefed up other initiatives to stay ahead of fraudsters. We continue to proactively inform users about the ongoing scam trends, and during the fourth quarter, we focused on ensuring that the alerts we deliver are locally relevant in terms of content as well as the languages that we offer. We see that the trend of fraudulent activities on mobile phones is becoming a more common problem globally. What makes this worse is that fraudsters are getting smarter and getting creative with how they execute their scams. This is why we're ramping up our efforts to fight this problem more aggressively. I want to show you a sneak peek of something in the works that we are very excited about with a combination of our data, our cloud telephony platform, and the way we actually use AI. We will soon offer something like this and we'll play this video for you now. [Presentation]

Great. When it comes to phone fraud, there's one thing that's always there, no matter what, and that's the human voice. It's like our own personal fingerprint. This is where voice biometric and sentiment verification comes. In instead of waiting for something fishy to happen, this take -- keeps an ear out for imposters in real time. It's like having a virtual bouncer at the door, basically, making sure to always keep you protected. And the more calls that our service can protect, the better it becomes at learning the different patterns and how they change in behavior. And in a world where cybercrime is running rampant, having super secure and lightning-fast ways to verify authenticity and purpose is a must. We're building on products right now to both combat fake voices and to detect fraudulent patterns, and we'll make them available to all our users where it's possible. Now, moving on to our progress for the product on iPhone. As our base of iPhone users' grows, we of course continue to invest in making sure that our Truecaller experience on iPhone is topnotch, to ensure the best search and call ID experience in all markets. iPhone has previously been under-monetized platform for us, but our investments in the platform have driven substantial progress in revenue growth on both the free and the paid version of the app. On the free version, we have improved our ads monetization by introducing inventory in new formats. This has scaled very well and has started to pay off as we saw advertising revenue from iPhone Pro by 76% compared to Q4 last year. On the subscription side, we've been working on some targeted monetization initiatives that are also starting to show promising results. In the fourth quarter, we saw an increase in our iPhone subscriber base, which grew by 41% compared to last year. Recurring revenue from iPhone users is getting a nice boost as well, especially in markets where pricing works in our favor. On the subscriptions product more broadly, meaning for paying users on both Android and iPhone, we continue to invest in developing the offering to ensure that we give subscribers the most value for their experience. We continue to improve the Assistant, Truecaller's personal call screening and virtual Assistant. In the fourth quarter, we rolled out some major upgrades, thanks to the integration of large language models into the premium experience. This lays down the groundwork for deeper integration and even smarter features. During the quarter, we also took the call recording feature to the next level by integrating LLMs. This model or these models work behind the scene to transcribe your calls and then condense them into precise summaries and bullet points. It's like having your own personal note taker, but way, way smarter. With this feature, you can instantly capture the essence of your calls, turning lengthy discussions into byte-sized insights. It even generates subject lines for ease references. Over time, the integration of LLMs into Truecaller's Assistants could enable other exciting use cases, for example, live language translation during calls. Truecaller Assistant and call recording are now available in 7 markets. The response from subscribers in these markets has been very encouraging, and so we will continue to focus on improving the offering and bringing them to even more markets in the coming months much faster. Further supporting our subscription growth, we continue to build out our user monetization engine, our scalable in-house tool that helps us segment and target users for better chances of conversion. In the fourth quarter, we expanded the capabilities of the engine to focus not just on conversion, but also to improve retention. In the fourth quarter, we witnessed a notable increase in conversion and saw revenue grow by 23%, and the subscriber base grew by 90% compared to Q4 last year, as mentioned earlier. On the ad-tech side, we continue to build out our capabilities in order to deliver an even better experience while providing better monetization opportunities for the long-term. We continue to invest in our in-house ad server with a focus on evolving into a comprehensive full stack advertising solution partner that caters to a wider range of use cases across funnel. A growing focus area for us is our capabilities in performance ads, which helps advertisers improve return on their investments for different outcomes. For example, driving app installs, closing sale transactions, and capturing prospect leads. As we grow in this area, we will be able to offer more customized solutions to help advertisers solve their specific business needs. Our investments in these capabilities have scaled well and we've already delivered meaningful impact. For example, Games 24x7, one of India's leading gaming companies, engaged us to support their user acquisition efforts during the fourth quarter with a focus on driving lower funnel marketing objectives, we offered custom targeting, consistent optimization, and customized creatives. This ultimately resulted in over 50,000 installs translating into 2x growth as compared to previous campaigns executed prior to our partnership. So this is fantastic, and these are the initiatives that we continue to work on, and we'll continue to invest in these initiatives, which will improve our effectiveness and monetization potential, which will put us in a very strong position in the long-term. Truecaller for Business developed at a good pace throughout the year and this quarter. We grew not only our revenue, but also portfolio. As Odd mentioned, this quarter, we reached a milestone of serving over 2,500 large business customers. What's noteworthy is that the shift towards long-term plans indicating the stickiness and continued relevance of our offering. This trend is reflected not just in India, but also with the majority of our business customers in other markets, also committing to long-term plans, which is signaling a robust growth in markets beyond India. Demand for our flagship product, verified business caller ID, continues to develop very well, particularly among large enterprises. We also broadened our network of reseller partners. We have previously only worked with CPaaS resellers, but in the fourth quarter, we expanded our network to include telecom operators as well. So with Tata Tele as our first verified business reseller in space, we're very excited about what's about to come. Business Messaging, our service delivered in partnership with Tanla, helps businesses distribute messages to end consumers in a more reliable and cost-efficient way. We saw Business Messaging scale significantly throughout the year. In the fourth quarter alone, we delivered over 2 billion messages throughout the platform, which is over a 100% growth in volume compared to the same period last year. The success of this partnership has, as mentioned, further strengthened our collaboration with Tanla, meaning that we can expect Business Messaging volumes to grow as we have the opportunity to serve other partners and business customers via Tanla's network. We also continue to enhance the offering itself. So in the fourth quarter, we fully integrated rich media capabilities, which enable more dynamic interactions with end users. This is expected to drive more relevant experience for users as well as increased engagement for the businesses. Last quarter, we talked about the Risk Intelligence, our newest offering for businesses. Risk Intelligence is a scoring engine, as mentioned, that uses our own machine learning magic to assess the risk associated with a phone number. In the fourth quarter, we have been beefed up the effectiveness of our risk assessment, making it even more powerful and informative for business customers. Right now, our risk intelligence offering is available to a few business customers who are part of our early access program. The early results from our pilots are encouraging, and we've already secured 2 deals before we fully commercialize the product in the first quarter. And now to wrap things up, we continue to grow our user base as mentioned and saw this development very well, not the least in markets outside of our core markets. Our advertising business remains affected by macro conditions as well as the impact of an increased digital ad inventory in the Indian market. We've seen promising results from the initiatives we've invested in on both the supply and demand side, and we see great potential in more direct sales, which makes us optimistic for strong recovery when conditions finally will improve. Our recurring revenue from both subscription and Truecaller for Business is developing very well, and we continue to innovate our offering in both areas in order to serve the growing subscriber base as well as the evolving needs of enterprise customers. Quickly, I also would like to highlight that during the fourth quarter, a new telecom legislation was adopted in India, where previous provisions that would legislate a requirement for telecom operators to display the caller's name were removed together with a decision on the new data protection legislation taken in 2023. The new regulatory frameworks within which we will operate in, our largest market have now been established, creating continued favorable conditions for us to grow our business in India. Overall, I'm proud of what we have achieved this quarter despite continued challenging operating environment. We continue to be in a good position with solid financials, strong cash flow and strong organic growth. Our strong position in our continued growth means that we will still continue to make strategic investments. And even in a time of uncertainty, we will continue to take advantage of our strong position and find opportunities to continue growing. I will also share a quick update. On the start of 2024, we had a strong start in terms of user growth. This year, we expect to continue to see organic growth as well, and also expect our investments in the acquisition and preloads that will continue to ramp up. In terms of advertising market, we expect a muted demand and therefore lower pricing in India to continue in the near term. Other markets are off to a strong start, but given the scale of our presence in India, we do not expect this to offset the trend that we were seeing in India in the near term. But on the enterprise side, we're very pleased that our collaboration with Tanla is about to be extended and we expect to see growth in this area in terms of both volume and revenue as the partnership continues. We continue to work hard on premium offering and will continue to expand the Assistant and call recording products to other markets. And as Odd mentioned, the Board has also mentioned, has decided to ask the AGM in May to cancel the bought back shares, which is currently 6.7% of the capital, and ask for a new mandate to be able to buy back after the AGM. But our focus in 2024 is to continue to grow our user base to further invest in AI-based fraud prevention and to increase the share of recurring revenues in our revenue mix. To achieve medium-term recurring revenue growth, we are doing targeted growth investments at the beginning of this year. As Odd mentioned, these efforts have already begun to yield positive results, such as an 8% increase in subscription revenues in the U.S. in January 2024 compared to the previous month, and an increase of more than 50% compared to January 2023. The investments we're making will have a short-term negative impact on our profitability, but are important to broaden our recurring revenue base and strengthen our position both geographically and product wise. Our goal is to achieve a balance between good profitability and growth of predictable revenues over time. With our robust financial position, we expect to continue our long-term growth initiatives while having the opportunity to continue share repurchase. As always, a big thanks to our users, the great partners that we work with and the phenomenal Truecaller team across the world. And now we're happy to take your questions. Thank you.

[Operator Instructions] The next question comes from Predrag Savinovic from Carnegie.

And Alan, first 2 on growth and I appreciate the final comments you made on some outlook for 2024, but if we assume then that CPM falls a little bit more in the first quarter, then you have consistent trends in business and subscribers, it sounds like. Then this positive organic growth you are talking about, you should see that already in the first quarter. Is that a fair assumption?

I'm not sure I followed. Can you repeat that?

Can you give us a little bit of a summary here at the end of your presentation saying you expect to see organic growth, to see strong user growth and other markets are off to a good start?

Yes.

You expect a lot of good things from the business side and so on.

Yes.

So if we assume and try to blend all of this, you also said CPM could fall a bit more, but is it a fair assumption to assume that the growth will be positive already in the first quarter of 2024?

On the user growth? Is that what you're referring to?

Revenues, group revenues.

Revenues. I think that would be premature to say we are still not halfway through the quarter and there are a lot of things that can change either way. The advertising market is very fast moving. We do see continued very good momentum in Truecaller for Business and subscriptions, but we are not at the position where we would like to give you any sort of guidance for the quarter as usual. So we'll have to pass on that one. Sorry, Predrag.

Could you quantify maybe then a little bit more on the investments for Q1? Maybe walk us through the balance here. So you will take up some costs, but at the same time that could potentially lead to you growing a little bit more, which improves then the margin. So how should we think about this phasing for Q1 and Q2? And you did mention it might come at the expense of margin, but how much you can give clarity there?

We don't give you any more details in that, but what we can say is that these are investments that are aiming at short, medium, and long-term improvements and advantages for the business and the shareholders, some of that will materialize fast. Like Alan pointed out, we've seen a considerable growth in number of subscribers in the U.S. month over month. Those are the sort of short-term effects that we hope to see, continue seeing. And then there are medium-term effects that will have more of an impact on the profit and loss account. And then of course there are long-term effect that we will have, believe will have a strong impact on our strategic positioning. Now, we haven't given any details on the investments we are making apart from that we are making them in markets and in product lines that we see considerable potential in. What we can say though is that we give you this heads-up for the same reason we gave you a heads-up in Q3 in 2022 when we said we were going to do certain marketing investments in Q4. And we wouldn't do that unless we felt that it was a reasonable thing to do given the amount that we are planning on investing or that we are investing as we speak.

I think the big difference this time is that now that it's very targeted performance marketing campaigns, we can track these in real time and see the effect of them. And hopefully the ambition is of course to provide a premium product or users that they will keep for a very long time, which makes the revenues compound in the future. So that's the investments and bets we're doing and obviously it would've been fantastic to do these investments in a better ads environment to not affect other financial metrics. But we think that there's an opportunity here that we want to do and given the company is in such a great shape with a strong cash flow, we believe that this is the right thing to do to give back to the shareholders in the long-term.

Yes, no, for sure. I agree. And I think it makes -- I think it makes perfect sense. Can I just ask a final one on TrustCheckr? I think that product on paper, it seems to suit a lot of your business customers. And if you could reason a little bit about the interest here from your customer base, what's the pipeline like and so on? Are these fast sales? Have you seen that already in the fourth quarter, is something that builds up gradually over the year? Generally speaking, that would be interesting to know.

Yes. No, it's we do have an exciting pipeline I should say. But the sort of audience of customers is smaller than what we see on Truecaller for Business with verified calls, but the monetization potential on this product is much higher. So you can get fewer customers but make significantly more in revenues. And it's an earlier product, but we're already getting good signals from customers who wants to sign up. And I think just like you rightfully said, many of our Truecaller for Business customers and actually advertisers are in need of something like this. So it makes a lot of sense for us, but we shouldn't expect 2,500 large enterprise customers as we have on Truecaller for Business with the verified calls a smaller size, but higher revenue per customer.

The next question comes from Stefan Gauffin from DNB.

If I could follow up on the previous questions. So you stated a 50% increase in use of subscription revenues in the U.S. January versus January '23. Could you just provide some comparison numbers for Q4 so that we can see what kind of a step up this represents? And then secondly, you talk about regular user growth picking up as well. So could you just give some magnitude if we compare Q4 versus Q2, Q3? Should we look more at the level that we saw in Q2, Q3?

Let's start with the second one. The user growth that we see is strong generally speaking, but it varies a little bit up and down. After there were strong Q2 and Q3 last year, we indicated that we believe Q4 was going to be slightly lower. Q1 has started out very well. It is a little bit premature to say how the quarter is going to end. There is nothing at this point indicating that the growth rate that we see right now is about to change, but those are the variations we see are within the normal variations that we expect quarter-to-quarter. So we had a slightly slower Q4, now we believe we are at a growth rate that is a normal growth rate for us.

On the first question regarding the subscriber base on iPhone in the U.S., we started to do this performance marketing activities late Q4. So the comparisons are not really relevant in that sense, but otherwise you would probably see in a single digit growth or something like that without these initiatives or like low hence.

Annually that is.

The next question comes from Akhil Dattani from JPMorgan.

I've got a couple, please, if I can. Can I maybe start by digging a little bit further into your advertising revenue trends? You've obviously highlighted strong ongoing customer growth on MAU and DAU, so I think the momentum is clearly still very impressive. But as you've highlighted, the issue more seems to be around CPM and I was interested in some of the comments you've made around some of the macro pressures, but also some of the supply-driven structural issues you're talking about. So maybe if you could help us better understand what you think the mix is between those 2 effects? And I guess what I'm trying to get at is that if I look at industry data, it seems that globally ad revenue trends are rebounded strongly over the last couple of quarters. So we're back to double-digit global ad growth on digital platforms. The challenge is obviously there's not a huge amount of Indian-specific data. The only data I have seen is from Apple, and Apple seems to be talking about pressure related to huge supply increases in the Indian market, and they seem to be saying that's more the issue. So I guess I'd love to understand better from you how you think about that mix. Is it more macro, is it more structural? And if it's structural and supply-driven, what can you do to weather those supply-related issues just to better understand what you can do to reestablish top line growth in the ad business? So that's the first question. The second one, and I appreciate, obviously you're not guiding here today.

Akhil, if you don't mind, let's answer them one by one. Otherwise, we are going to end up being super confused about your questions. So let's start with the first one and then we can please go to the next one.

So good question, Akhil. I think there's no news that companies are focusing on reaching breakeven or profitability, which means that companies have taken down their marketing spend especially on the branding side, which has affected us. And there are also certain industries that have stopped advertising overall, which is also affecting the industry in general. Now, there are certain industries like the FMCGs that are still doing some branded advertising, but they're focusing on other channels, which are video like type of channels. These are areas that we don't historically have had a big play in or any play at all. So what we've done in the fourth quarter, which I mentioned in the letter, is that we've been elaborating a bit on this type of video ads format because we do see a CPM that is 10x higher. So there's still pretty good demand on that side. And that's what some of these other companies with video ads or video formats you could say that are helping them to drive the growth basically. So that is one aspect of it that we've been working on, and hopefully at some point we'll see more product improvements that can generate a more natural way for us to actually display video ads. So we've done some of these experiments in the fourth quarter as mentioned. But in general, when it comes to the regular type of ads, the banner type of ads, when we look at, you mentioned Apple, which is actually a very different business because they're on the other side of it and most of their businesses outside of India. But when we look at peers in our industry, like other consumer apps in India, they see a similar trend when it comes to this. And what we can do going forward is work closer with the agencies work to win trust with some of these verticals like the FMCGs build out the natural type of engagement in our product to serve video ads and also innovate more on the existing ad format that we have with the large advertisers. Like during Valentine's Day, this month, we actually did an interesting ad together with Amazon to drive more conversion. So we're working on these things while we do hope and expect the regular ads market to come back at some point. That's my assessment of it. And as you rightfully mentioned, most of these consumer apps or products with similar ad formats like us in India, they're not public companies, so you won't get that type of information. But we are friends in the industry and we speak with them to get an understanding of is it us or is it the industry or what is it actually? And there is a more supply than there is demand. And that has been the case for quite some time, which is creating this this catch '22 for not just us, but also the Google and the Facebooks where you increase inventory basically to compensate that.

Alan, can I just ask one quick follow up before I get to my other question, which was just you mentioned obviously video is one potential route to providing richer ads that could increase your CPM. And you mentioned the CPM being 10x higher given this oversupply issue, is that something that you are looking to maybe reduce the total volume of ads you are pushing through, but creating richer ads that create much more CTM and obviously you've anecdotally given us a few data points, things you are doing, how quickly can you pivot the platform to do these sorts of things? How can we try and understand how quickly you can reshape your strategy here?

Yes, so I mean, we're not really optimizing for CPM, but we're trying to find a fine balance here. But the things we're doing, so usually we have weekly releases. So we release new updates every week, so it can take us a couple of weeks before a new update has reached a couple of 100 million users. So it can go fairly quickly and to give you an example of the things that we're experimenting with so we know that in India, the willingness to pay for subscription services is quite low. It's around 0.5 percentage, while in the U.S. it's double-digit percentage. So we know that we have certain premium features that people might want, but they won't be able to pay for it for several reasons. For those uses, we could have various incentive video ads, for example, where you can earn certain hours or days of premium offering. This is one example of the things that we're elaborating on. How quickly can we build out these functionalities? It can go fairly quickly. It won't happen in a month due to the fact that we have release cycles and distribution and so forth. But fairly quickly, I would say. I hope that explain.

No, it does. It's very useful. And then the last one, I guess, is probably quite hard for you to answer, but maybe I'll ask it anyway, which is just around the shape of 2024. I appreciate you don't want to be drawn on quarterly guidance, which is understandable. But I guess I'm just trying to think big picture. If we look at where consensus is, consensus modeling, very low double-digit ad revenue growth for '24, and stablish margins. I just wondered if maybe you could comment on some of the puts and takes, even if you don't want to necessarily comment too, explicitly on those numbers. Just how should we try and think about, what are the key moving parts, to try and help us better and think about, the 2024 numbers?

If you look at the recurring revenue streams, we don't see any reason to believe that the trend that we've been seeing lately is going to change in any material way this year. The birth of Truecaller for Business and the subscription business is reasonably predictable, because the revenues are much more recurring than in the ads business. And we have nothing that indicates at this point that the trends -- the positive trends that we've seen lately will change in any material way. The ads business is, of course, much more difficult. You all know probably by now, as well as we do, that visibility into the ads business is very low. It's a fast-moving business. Investments come up and down, go up and come down very quickly. Like we saw at the end of the first quarter 2022. Most likely investments are, or whenever they come back, is going to increase pretty much as quickly, as they decrease them. But it is very difficult, or I would say impossible to know, when that's going to happen. Whenever we have a situation in India, where Indian companies in general, Indian companies that do digital advertising, feel that the inflationary pressure has not only stabilized and decreased, but become more predictable. And we all know that at this point, there are still some variation in the inflation trends that, makes them slightly uncertain. Whenever they can become more predictable, input prices become more predictable. I believe that we will see quite a few of these Indian potential customers to us, starting to invest again in advertising in a way that we don't see right now. But once again, when we when that will happen, I'm sorry, I don't -- we don't have a better insight than anyone else. We can speculate, but speculation doesn't -- isn't of much use in a situation like this. So we'll refrain from that. Cost wise, the underlying costs that we have are stable and semi-stable costs in terms of employees, et cetera. Nothing is -- nothing dramatic is about to change there. We are very careful when it comes to recruitment, given the situation overall. We don't refrain from doing certain critical recruitments, but we don't do any large numbers of new employees. We do, and we will continue, as long as we see good returns, strategic growth investments, like we have spoken about during this call. We will continue to do them as long as they are useful for our shareholders, short, medium and long-term. That's the most detail I can give you, Akhil.

[Operator Instructions] [Technical Difficulty]

Just firstly on this extra performance driven spend. I'm sorry, Odd, but we have to go back to our spreadsheet. So I just sort of wonder whether you can sort of put your bad cop hat down for a second and help us a little bit, please, with estimating what this is, the magnitude of this. I mean, for example, consensus expects other external costs to be up 26% in 2024. Do you think that estimate absorbs what you are planning to spend extra during the first half of 2024, please?

Well, first of all, talking about the strategic investments, growth investments we are doing and we're evaluating them continuously. But as long as they keep giving us the results, we're looking for, we are open to continuing them as long as we feel they are useful for the company and for the shareholders. So there is no explicit time limit, as to when we would stop doing those investments. Now, I'm not going to comment on the percentage numbers, no matter how much you would like that, John. And I know your Excel sheets and I'm not going to be able to help you with the details. But let me put it this way. We did give you a market heads up in Q3, 2022 that we were going to do investments. And those were more temporary investments, of a different kind than what we do now. But we gave the market a heads up, because we felt that was material enough to justify such a heads up. And we do give a heads up now too.

Then moving on. Do you think that the gross profit margin that you've achieved in the fourth quarter is a good base for the full year '24?

Say again, which margin?

Gross profit margin.

The gross profit margin.

Yes.

Yes, we did see a slight improvement last year because we managed to decrease -- primarily because we managed to decrease our verification costs for new users. We have implemented new channels, or new ways of doing that verification. Those are not going to change. Of course, there are always a possibility of unknown, unknowns happening. But at this point, we don't see any reason to believe that the gross margin will change in any material way.

Okay. Then the next one. I think you've introduced a third word to describe the impact on FX to sales. So it used to be minor and limited. And now you've included somewhat to this. So I know you're guesstimating it, by virtue of how the revenue model is. But can you give us an idea, of understanding the sort of magnitude of the negative FX impact on sales in the fourth quarter, please?

Yes, that one isn't that difficult, actually, as most of your other questions. Most of the, or the lion share of currency exposure or currency effects in Q4 came from certain Middle Eastern African markets, primarily Egypt and Nigeria, where the local currencies tanked. And that impacted us. As you can see in our report, that had a pretty material impact on our revenues in that region. And I can just put it this way. Most of that, or pretty much all of that impact came from currency effects. And those were the currency effects that had had some impact in Q4. Right. The [indiscernible] dollar wasn't having much of an impact that quarter.

Yes, sir. But -- so if the currencies hadn't tanked, the revenue have been SEK 10 million higher, SEK 20 million higher. What would you say on the sales number?

I think, we are going to see. We would have seen a fairly flat development year-over-year.

On the sales number?

Yes, in that region in the fourth quarter.

In that region in the fourth quarter. Okay. And of course that has repercussions for CPM for those who look at that as well, right, by definition?

Absolutely. Absolutely correct. But that gives you - by looking at that -- that region, you can get a pretty good view on the entire currency effect, what we call somewhat this quarter.

So Q4 versus Q4 last year and that is the impact. And then one more niggly point. And then I need to ask about the digital personal data protection bill. But the niggly point, is that you've had 2 years now of albeit small, but nevertheless working capital inflow, despite the fact that Truecaller performance is increasing. And I think you had sort of signaled that, because of the latter, you would have working capital outflow. What's going on there, please?

Well, it is primarily an effect of the fact that we realized at a fairly early stage that we would have working capital outflow in general as a trend due to the increasing business we do within Truecaller for Business and also direct sales in India in the advertising business. So we took action in order to counteract that at an early stage. We have a team working particularly -- only -- with credit control only, which is, I would say, is somewhat early thing to do, given the size of that business at this point. But we did that, because we felt that it was better to do it, a little bit too early than too late. This team has been working efficiently and has managed -- to still as a trend, you would see capital, working capital outflow, but quarter-to-quarter like last quarter. We given the effectiveness of the team that are working with credit control, certain quarters, we can still see things going the other way, because they are bad guys when it comes to collecting the money. I'm in charge of them.

They deserve a bonus. Excellent. And then can I ask on the digital Personal Data Protection Bill, although we know what it is, we don't actually in my right thinking that we don't have explicit guidance, about what the implications will be, on a sort of day-to-day basis and how that may, or may not affect your business. If that's the case, other than imminent, is there anything you can say about when we'll get this?

Well, I think the latest information which actually came out yesterday from the government was that the sort of practical rule sets around this, will be announced post the election, which is going to be mid this year. And then there will be a transition period of 6 to 12 months for companies. But what we do know is, the sort of law is, it's formed, it's approved and established. So we know what framework we have to work within. And this framework, even though some details will have to be set, we have, like we did in the in the last quarter, done several tests during a longer period of time with certain data that, could be affected by the new law. And we've seen, you know, retention that is basically the same, as at the current stage. So most of our data is, as I've mentioned before, is either consented or of personal interest or public interest where its businesses, scammers, fraudsters, et cetera. So we don't expect any changes in the user experience based on the ongoing sort of A/B test that has been running for many months now. But there might be some operational adjustments that, we'll have to do, which are, during that transition time. But it's nothing that will affect our day-to-day operations.

The next question comes from Bharath Nagaraj from Cantor Fitzgerald.

I have a few to start with. I was just wondering if you can help me understand. I do note that the U.S. consumer subscription growth has been pretty good. But I was just wondering, given the material part of your platform, advantages of your platform comes from more users that happens to be in India and certain other regions of the Middle East. How is it that you're able to grow U.S. subscription revenues? What is your pitch to the U.S. consumers? And like the follow-up on that is like, why do you think it's a good use of cash from an ROI perspective?

Yes, good question. So I mean, we've been, you know, we've been available in the market for 15 years. And we've been, the community that we've built up during all these years, have actually improved the data over time. And data is also available to partner up with through other companies and purchase. So #1, is we need to have a great search experience. And that we have in the U.S. today, in order to sort of grow our user base based on that. Second thing is, the retention is something that we track on a day-to-day basis. When we do these performance marketing activities through other channels, we do target them, users to download our app. And we do track them during their lifetime on our platform. So we do see exactly, how many percentage of those users that we acquire, is actually converting into becoming premium subscribers. And of course, the return of investment have to make sense for us in order to do that. The difference between the U.S. and maybe some other markets is, as I said before, the willingness to pay is quite high. So the math sort of works for us. Now, we've been scaling this and it's yet to see how it scales the more we invest into it. But that's in short, how we're measuring it, and the foundation that we have. Then lastly, I should just say that U.S. has a huge issue with spam calls, fraud calls, calls from unknown numbers. I would almost say that, the scamming of older people and these type of tax frauds were actually invented in the U.S. So it's a great product market fit, so to say. And you've probably heard of these scams and so forth.

Yes, that makes sense. I was wondering, like, based on the answer that you've just given, that means you have like a good identity kind of database there as well in the U.S. then, is that right?

Yes, yes. I mean, that's expected. Otherwise, this model wouldn't work.

And as a follow-up to the question, I think, was asked earlier, I know you answered this, FMCG companies though they increased advertising in Q4 last year for their brands. But you didn't necessarily see the benefit of that, because of increased supply of digital ad inventory. I was just wondering who the main, let's say, competition is. I think you alluded to it by saying it's other consumer apps. But is there anybody you can point to specifically? And then what would be the top, let's say, 4 or 5 sectors, the verticals that you typically do advertising for?

Well, I wouldn't say there are certain competitors. It's a general macro challenge for everyone. But then, of course, you have the 2 big companies that has the lion part of the revenue, the ads market. And those are the companies that I think everyone, is competing against in one way or another.

In terms of their top 3 sector verticals that you typically do advertising for?

Well, I think it's a pretty even distribution amongst the categories. But what I do see and what we know is, that one category that really stands out that is not, as big as it should be is the FMCG category, which could be the... Maybe I shouldn't mention the companies, but the category consists of a lot of larger companies. And those are the -- that's the category we're looking at. But on top of that, of course, there are other verticals, education, e-commerce, OEMs, et cetera. We want to build a better product so that they spend more of their ads dollars on our platform. And that's something that we constantly work on.

Just this last one for me then. In terms of the click-through rates for your ads, would you be able to like tell us how that's trended over the years? And then with your investments into your performance advertising, firstly, how much more investment is needed? And secondly, have you seen an improvement in the click-through rates?

I didn't get all of that. But let's start with the part that I got, how much more investments are needed? I mean, our total user base is less than 10% of the total smartphone, number of smartphones on the planet. And since pretty much every smartphone is a potential customer of ours, or user of ours, every smartphone owner, there is a lot of market share for us out there. That is still waiting for us to come and help them. We need to do performance marketing in order to introduce ourselves to people that don't know about us. From that point of view, we will keep investing in growth pretty much forever, like every other company in any growth market. I don't know if I misunderstood your question, but.

I think what's worth adding to Odd's answer is that there is a network effect in Truecaller. And there's a reason why 90%, 95% of our growth has always been organic. And that's what we're always focusing on, building things that people love so they tell their friends. And sometimes you need to nudge people to start discovering that in new markets. And that's something we've been doing for more than a year, in several markets. What we're doing now is more narrowing it to certain strict KPIs, basically, which are ROI on subscriptions and so forth, amongst other growth.

Just to rephrase a little bit on what I asked you, investment for your own ad tech stack that you're building in terms of reaching full capability. So how much more investment is needed is what I was trying to get to, sorry?

Okay. Sorry about that. I mean, it's hard to say. It's more about time, honestly. We have the competence. We have the people. We have the roadmap. It's more about executing. And as you can see in the report, the revenues from our ad server continues to grow. And that's where we want to go long-term, basically, that we serve the ads and have the most attractive performance-driven ad model. So it's more about time, to be honest, than anything else. I think we have a very strong team in place.

And the first part of my question, which I think I wasn't clear on, was the click-through rate that you've seen for your ads. What are they trending at over the years?

Okay. Sorry about that. So the click-through rate on the ads that we serve on our platform, is actually going in a positive direction. We know that we are, if not on an industry standard, depending on which vertical, in certain we're actually slightly higher as well. So I think we're doing pretty well there. And that's also why advertisers come back every year, the large ones.

The next question comes from Jesper Von Koch from Redeye.

So first I'd like to start with the Digital Markets Act or the DMA. Do you see any effect from it, like margin subs on subscribers, like enablement to accelerate your database growth from enhanced search, and possibly also interoperability enabling new click-through functionality?

Yes, it's a good question. I think there are certain areas in this that could be to our advantage that we rather not talk about here today, but there could be some potential advantages to us. We don't see any disadvantages, which is great news. But I think there are other industries, and companies that see more benefit in this. But given our user base is mainly outside of Europe, it's less of an interest. But usually what gets pushed through in Europe usually reflects in some other markets as well. So we'll have to wait and see.

And then also I'd like to touch on the introduction of high taxes on online gambling. How much of the demand issue for the ad business, how much has come from the introduction of that tax and the lesser demand from those players?

From the gambling companies?

Yes, exactly.

Yes, so we actually don't allow gambling on our platform. We've never done that either. So there was some news last year about some gambling companies pulling out of India. We never actually took any money from them, so it didn't affect us. What you might be referring to is the fantasy gaming companies, which are usually relevant for us during the IPL season in Q2. And the GST tax change is affecting these companies. But to what degree, we don't really know. And I think no one in the market really knows, how that will affect their marketing spend during the IPL season. So unfortunately, we don't have an answer on that. But we'll have to wait and see. We should probably expect it to be lower than it has been in the past. But to what degree, we'll just have to wait and see.

And then just either if you could give us an update on your possible pipeline for M&A. And also I think Odd mentioned in an interview with that like if you don't find any like big enough acquisition that, would use all of your cash, it would be time for dividends. So what would be the timeline for, okay, now we've searched for long enough, and now it's time for a big dividend?

We haven't or I haven't and we haven't ever said that we're -- there is a particular time when we're going to do a dividend. What I've said over the years, is that if we haven't found any, any major acquisition targets that, would need us to have this substantial cash pile that we have, and the market has stabilized, become more transparent, then we would look at ways of distributing money back to our shareholders. Now that can be done in different ways. We already used one of them. We have bought back shares for SEK 840 million so far, which is a pretty substantial amount of money for many companies. We are asking for a new mandate, to buy back more shares. Whether we would be willing to do anything else is a question that will have to be discussed internally with the Board and then eventually decided in AGM. But it's, at this point, we're not, it's too early, or not a good point to say anything about that because no such decision has been made.

There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

All right. Thank you, everyone, who dialed in and for all the great questions. And thank you, everyone, for listening in. And we look forward to seeing you at our next earning call. Thank you.