Truecaller AB (publ)

Hi and welcome everyone who's listening in. I'm Alam Amedy and I'm the CEO and co-founder of Truecaller. With me, I have our CFO, Odd Bolin. We're very happy to announce our interim report for the third quarter of 2022. I will start with presenting financial and business highlights. I will then provide an update on some of the exciting things we have released during the quarter. Odd will then walk you through our financial performance in more details. Finally, I will wrap it up with a summary of the quarter and then we open up for Q&A. So let's get started with the highlights of the quarter. We closed Q3 with an average of 331 million monthly active users, a 14% increase year on year. Average daily active users grew to 261 million, an increase of 15%. This means that our DAO to MAO engagement remains strong at 79%. Our net sales continues to grow. We closed the quarter at 450 million Swedish crowns, 44% increase compared to the same quarter in 2021. Thanks to investments in our products and the growing problem our product solves, We've been able to grow our revenues and we'll continue to do those investments and initiatives which can further improve our effectiveness. And long term, I continue to see great growth potential for our services. And I'm pleased that we're in the strong position we are in compared to many other global tech companies. We also had a strong adjusted EBITDA of 181 million Swedish crowns, which is an increase of 54% year over year, and an adjusted EBITDA margin of 40.3%. We continue to have a very strong cash flow with 162 million Swedish crowns in net cash from operating activities in the quarter. During the quarter, we experienced a somewhat more cautious stance from some advertisers, which, for example, meant delayed investments. Overall, the demand continued to be strong, but in certain regions, the weakened macro and uncertainty could create spillover effects. And we cannot rule out that the increased uncertainty could, to some extent, impact our main markets. However, we're very proud to be a profitable high growth tech company and intend to continue so with solid profitability, great margins and strong cash flow. We continue to grow our user base across targeted regions and saw the highest growth rates in South America and Africa compared to the same period last year. India continues to be an important market for us, which saw the highest user growth in terms of absolute numbers this quarter. On the product side, we launched a couple of exciting new things this quarter, including the global launch of our new iPhone app and our improved subscription offering with the integration of Truecaller Assistant, which is now available on Android and iOS for subscribers in the US. I will cover these in more details in the next few slides. But we're also very excited that True Color for Business continues to grow. We now have customers in 34 different countries, and we're proud to share that out of the 10 most valuable brands in India, seven of them are now True Color for Business customers. Our user base continues to grow. Majority of our user growth is driven by strong organic growth, but we are also seeing our investments in user acquisition start to seed upcoming markets that are of strategic importance to us. We're also investing in staffing up the team that focuses on user growth. As we communicated earlier this week, we also appointed Ben Zhang as chief business officer. In this role, he will be responsible for all growth metrics. We closed Q3 at an average of 331 million monthly active users, which is up by 40 million from the same period last year, or a 40% increase. Our daily active user base is also growing at a healthy pace. We closed the quarter at an average of 261 million daily active users, which is a 15% increase from last year. We had a somewhat slower start this quarter when it comes to growth of new number of users. But during the last week of September, we started to see Dow and Mao growth ramping up. So we continue to see an overall healthy growth rate coming into the fourth quarter. While we are starting to invest more heavily in driving user growth, we're proud that most of our user growth is still organic, as this demonstrates the growing relevance of our services. The effect from the pre-installed deals announced earlier this year is still small as shipments can take some time, but the KPIs from shipments may continue to look very promising. Also, during the quarter, we saw similar development in India, as we recently have seen in the EU, where the Indian Competition Authority took decisions against Google, which clearly restricts them from pushing OEMs to favor Google's native applications. We anticipate that this over the long term will have a positive impact on our growth opportunity, especially on preloads. Lastly, we continue to see solid engagement and in Q3 we had 79% of our monthly active users being active on a daily basis. As a product-first company, we continuously invest in developing our offering to further improve the user experience. As usual, let's recap the product offering. There are two main areas where we focus on from a product perspective. One is the consumer product, which is available on iPhone and Android. As mentioned, 331 million users use Truecaller every month. And we're proud to be the leading global platform for phone number verification. Consumers use our product in order to have a safer and more efficient calling and messaging experience. It's their go-to product for their communication needs. The other side of this is our business product that we call True Color for Business, which allows businesses to verify through a KYC process and become verified businesses on our platform in order to increase trust in their communication with consumers, but also to prevent impersonation. They can also integrate their calling and messaging experience directly into our product so that they can grow their business more efficiently through features like call reason and much more. Now let's get into the highlights. As I mentioned earlier, Q3 was a very exciting quarter for us from a product development side. Some of the highlights this quarter include the global launch of our new and improved offering on iPhone. We also launched Truecaller Assistant to subscribers in the US on both Android and iPhone. We believe that these two investments establish the foundation for future growth in terms of both iPhone users and paying users. We also continue to work on our core products through initiatives that improve the user experience across AI identity and our communication offering. We also further developed our ads and enterprise products, and I will go into details on all of these areas in the next few slides. In late August, we launched a brand new version of the iPhone app for users globally. The iOS app was completely rewritten and offers a fundamentally better experience from end to end. The revamped version provides a much faster, smoother search experience and significantly better caller ID functionality compared to previous versions of the app with up to 10x improved spam and business number identification. We've already begun to see significant improvements in metrics from iPhone users in comparison to the most recent version. Key performance indicators such as daily active users on iPhone have increased by over 30% since the launch of the new app. The team's focus has been to build a great product, get engagement going, and later focus on optimizing the advertising side and premium offering on iPhone, which will be prioritized soon. Overall, we are very optimistic about growing our share of iPhone users in the coming years. Next, we want to share an update about our new offering for our subscribers, Truecaller Assistant. But first, a short video that showcases the product.

Introducing your new personal assistant. No, not like that. In your phone. Your assistant can screen your incoming calls, tell you who is calling and why.

Hello, this is Jennifer calling from the pharmacy.

It interacts on your behalf by noting down what the caller says and lets you decide the response to the caller. Hi, could you please explain the reason for the call? You can also decide to take the call, hang up, or block the caller, letting you focus on what's important. Customize the assistant voice to your liking. Choose between me and me and me and even me. And of course, you can choose when the assistant is active or not. Never take an unwanted call ever again. TrueCaller Assistant. Try for free in your TrueCaller app.

Thank you.

Great. We acquired Collier earlier this year and are very proud that we successfully completed a full integration of the assistance offering within months. The first version of Truecaller assistance was launched to the premium subscribers on Android and iPhone in the US at the end of Q3. We chose the US as our first launch market due to the high volume of unwanted calls in the market, as well as American consumers' familiarity with call screening and related services. Having that said, we're still in a very early stage, but excited about the future of the market. Also, we are in the process of testing assistance in other markets ahead of our further expansion. But preliminary data since the Assistant launch at the end of September indicates strong potential for the offering. We continue to focus on improving the Assistant experience before investing in user acquisition and marketing activities. And so the adoption of this new feature has been all organic so far, but is expected to start in Q4. The introduction of the digital assistant enabled by Cloud Telephony takes call screening to the next level. And we're looking forward to build more things around this technology in the future, such as virtual phone numbers and more. As the first product delivered from Truecaller's Cloud Telephony platform, Assistant establishes Truecaller's commitment to building out its capabilities and innovating further by leveraging such technologies. We continue to develop our core offering in order to provide users with a smarter, safer and more efficient experience across their communication needs. We continue to invest in AI identity, our artificial intelligence and machine learning powered caller ID and spam detection capabilities. Some of the identity initiatives in the third quarter have resulted in significant improvements in data quality in strategic growth markets, including the US, India, Indonesia, Nigeria and Brazil, to name a few. A large majority of true cause search results globally are now powered by our proprietary algorithm in combination with user profiles. We continue to work towards building even better data quality at a global scale through contextual information to deliver more value to our users. Now, partially connected to that topic, an effort is ongoing in India to modernize outdated laws surrounding telecommunication and data protection. We hope that a decision will be made in 2023 We are in favor of this development and welcome the initiative, which is aimed at providing a modern full-spectrum framework focused on innovation and user security that manifests consumers' right to know who is calling them. Based on the draft amendments available, we see no material negative impact on Truecaller's business model or earnings capacity. I know that there is sometimes a concern in the market that GDPR-like regulations in India and other markets could hurt Truecaller, but I think the risk is exaggerated. Like we've mentioned before, the absolute majority of our caller ID lookups are powered by consent-based data, business data, spam data, and now our AI-powered identity. Back to the product again. We introduced community feedback engagement points in previous quarters, and these initiatives have begun to show strong traction. Community feedback not only drives user engagement, but also serves as a source of additional input to improving Truecaller's data quality in terms of accuracy, in identification by identifying an unknown number as spam, potential scam or specific business. Community feedback is rapidly developing into a valuable asset for Truecaller. Since introducing this initiative earlier this year, we have processed millions of comments, up and down votes and other survey responses from users. And in Q3 alone, tens of millions of caller name suggestions were provided by users in Q3 alone. To reward these user contributions and building a stronger community feeling, we also enriched user profiles. Now users can view their personal in-app statistics and see the value that Truecaller brings to their communication in real time. Our advertising business continues to grow, driven by investments to improve our ad tech capabilities on both the supply and the demand side. On the supply side, we continue to collaborate with demand partners to test more innovative, performance-driven ad formats. Optimizations on the inventory side have helped us maximize yield per ad opportunity and efforts to improve render rates were also impactful as we delivered our highest render rate ever this quarter. On the demand side, we continue to strengthen our ability to provide a best-in-class experience for a growing range of demand partners and advertisers. Investments in the third quarter to improve our independent tech stack include the introduction of a yield model to optimize third-party demand, as well as the development of the capability to execute performance ads through the TrueCaller ad server. We also established an end-to-end demand side platform to extend our reach beyond the Truecaller ecosystem and widen the portfolio of use cases offered to advertisers. From a third-party programmatic perspective, we continue to scale new partners and introduce new integration paths in order to further strengthen the demand. And we're proud to be a chosen publisher for a wide range of leading brands across different industries. The improvements to the ad product that we made this quarter helped us to grow revenues, despite the macro headwind that we have faced in some of our markets during the quarter. We still have numerous opportunities to increase the engagement in our app and continue to improve our ad platform to be able to display ads to our users more effectively. We will continue to make improvements that can help us to increase our revenue per user, even if the external macro environment becomes even more challenging. Now, on the Truecaller for business, the demand for Truecaller's enterprise offering continues to grow at a strong pace. In the third quarter, Truecaller onboarded a number of notable brands in India across sectors, including Indigo, the largest airline in India, and LG Electronics, which is one of the top two consumer electronic brands in the market. Our relevance to the players in the financial sector is also very apparent, as we added a number of leading banks and insurance providers to our client portfolio this quarter. We also continue to expand True Call for Business in markets beyond India, most notably in South Africa, Kenya, Egypt and Peru. We continue to invest in Truecaller for Business from a commercial and operational perspective. We made substantial improvements to the Truecaller for Business website in order to provide an even more intuitive self-serve experience for both direct sales and resellers. We also restructured our engagement model to introduce value-based pricing tiers in India. The new pricing model also encourages customers in all markets to commit to longer term plans. We have seen great results from these enhancements. The number of True Coffee Business customers transitioning into quarterly or semi-annual or annual plans continues to grow, and the majority of new customers directly committed to tenured plans in the third quarter. We believe this indicates the long-term value delivered by the enterprise offering. We also made a number of investments to improve the business customer experience. We introduced a revamped analytics experience for business customers who can now take advantage of an upgraded analytics dashboard that delivers better data visualization and also allows for automated report generation. The new analytics platform sets the foundation for more valuable intelligence that businesses can leverage to make data-driven decisions based on pickup rates, time slots, analysis, and other critical scaling trends. Our partnership with Tanla to deliver business messages has now been scaled up. And in September, October, we reached higher levels of messages sent, delivered and read. B2C messaging is an interesting area for us and we'll continue to make investments into this product of True Colorful Business. And we're very excited about the opportunities with Tanla. We continue to explore new use cases and develop more value added services in addition to the core business offering. In previous quarters, we talked about early access programs, which allow selected customers to test new offerings in early stages of product development. In third quarter, two initiatives from the early access program matured into fully commercialized products. Video caller ID for businesses enables companies to deliver customized videos when they call a customer, introducing a new visual element that helps reinforce their brand, as you see here on the slide. Call me back enables users to show their interest in a business offering when they are not able to answer the phone and has already shown promising indicators of improving conversion rates. We continue to develop these offerings as well as other initiatives in the pipeline with the early access program to deliver even more value for both businesses and end users. Now over to all to talk about our financial performance.

Thank you, Alan. Well, then it's time to look a bit deeper into the financial performance this quarter. As usual, we start with our revenue development, which I'm happy to say continues to be strong despite the challenging macroeconomic climate. We believe that growing our revenue by more than 40% with an EBITDA margin of 40%, considering the current macroeconomic headwinds, facing many companies with digital advertising revenues validates our business concept and market position. That the revenue growth rate has come down from the extraordinary levels we have seen in the past is expected and something we discussed already at the beginning of this year. The comps are getting substantially tougher due to the strong growth we have had during the last year, but in absolute figures, our revenue growth continues to be strong. The revenue growth is mainly driven by continuing satisfactory developments in advertising. This is an effect of the sustained growth in the number of users in many different geographies, combined with the continued growth of revenue generating ad impressions per user. CPM also increased 9% compared to the third quarter last year. But as you know, internally, we don't focus on CPM, but rather on increasing revenue per user. As Alan mentioned earlier, we also see continued positive trend for our B2B offering, True Cool for Business, which is growing nicely both when it comes to customers as well as revenue. And our subscription business has also stepped up and income is growing by almost 30% compared to last year. During this quarter, we have noticed a slowdown in ad demand in the Middle East and Africa region, although demand in India and the rest of the world has continued to be quite solid. What we do see is an increased uncertainty among advertisers, which may result in investments being postponed. The underlying drivers for growth in these markets are, however, unchanged. We are solving important problems which drives our user growth, and digital advertising is still at a considerably less mature stage than in Western markets. There are also a few other external factors outside of our control that affects our business. Exchange rates, of course, as the Swedish crown has been losing value towards both INR and USD, we see a positive impact on our revenue that we report in Swedish crowns. and our profits. Since we are paid by partners like Google in Swedish crowns and to some extent US dollars, we cannot quantify our actual currency exposure precisely, but we estimate that the currency effects have impacted our revenue growth rate by slightly more than 10 percentage points and strengthened our operating margin with slightly more than one percentage point. On the other hand, from a comparison perspective, we had a negative impact during the quarter from the fact that the Indian Premier League, the cricket league, contributed only to our second quarter revenue in 2022, while in 2021 it was spread over both Q2 and Q3, meaning that Q2 this year became relatively speaking stronger in terms of growth, while Q3 became relatively speaking weaker. As Alan said, our ads machinery is getting increasingly efficient, and this quarter we grew ads income by 40% compared to last year. The basis for increasing advertising revenue is, as always, more users and increased use of our app. But in addition to that, the revenue increase continues to be driven by factors such as increased ad volume, improved prices, increased direct sales, more demand partners, and an improved render rate. These are factors that we need to considerably extend control and we continue to make improvements to that product, which will help us grow revenue even if demand was to slow down due to macroeconomic factors. In combination with us being active in markets which have been generally less affected by the macro headwinds compared to the US and Europe, this puts us in a good position to continue our growth even as the global economy faces challenges going forward. We cannot, of course, not rule out the risk that India and other markets that are important to us will become more effective going forward, but we will certainly continue to be innovative and thereby increase the engagement in our app and continue to improve our platform to display ads to our users more effectively. As mentioned on the last slide, we have a positive effect from FX and a negative impact from the Indian Premier League when comparing quarters. If we were to exclude the Indian Premier League related income from Q2, we would have senior growth from Q2 to Q3, which gives you an idea of the magnitude that IPL related ads income had in the last quarter. When looking at our subscriptions, you can see that we grew our revenue by 28% compared to last year, which is the highest growth rate we've had for a while. The growth in premium users exceeding the growth in monthly active users. We see growth coming from many different markets. During the quarter, we tested different premium entry plans in India, which showed promising results. And we will continue to roll out these tests to other markets in the fourth quarter. True Call of Business is developing well with many new large enterprise clients. We are now present in 34 countries. And we continue to improve our capabilities. And as Alan said, more and more customers have longer relationships with us. We continue to improve our offering. And during the quarter, we launched more sophisticated price plans, which increased the opportunity to do upselling with more value-added services when the relationship evolves. When it comes to sales channels, new customers were quite evenly spread between direct sales, resellers, and inbounds, and during the quarter, self-serve and assisted closures reached an all-time high, which increases our effectiveness in this segment. Gross profit increased by 41% year-over-year, and our gross margin continues to be strong, but decreased by 1.7 percentage points compared to Q3 last year, and decreased somewhat more compared to the last quarters. The decrease has two main reasons. One is increased cost for service and hosting due to our larger user base. These costs do not scale linearly with the number of users, but rather stepwise. The second reason was increased cost transparency from advertising platforms that previously only reported the net figures to us. We now get some explicit cost of goods sold figures, which decreases our gross margins somewhat. The effect in Q3 is based on the accumulated figures for the entire year since we have been given similar infos over the first half of the year. Consequently, the gross margin effects in upcoming quarters will be smaller than what we see this quarter. If we now turn to costs, you have heard us talking about ramping up growth-focused investments. We have, however, increased these investments more slowly than we anticipated at the beginning of this year. We realized that we needed to focus more on building the right team and competence to have the capabilities internally to be able to get a good return on investment on the investments we do. We will continue to grow these investments based on a continuing analysis of both the strategic importance of seeding new markets and the return on investments we get in a shorter perspective. I want to point out here that we will see increased marketing costs during the fourth quarter. We have always been clear about the fact that we believe that growth-focused investments are important for us long-term. And in Q4, we intend to make a somewhat larger one-off investment, focused specifically on, one, growing our presence in Tier 2 and Tier 3 cities and villages in India, where we see a very substantial potential, and, two, expand our user base in the U.S. based on the new iPhone app and the rollout of the TrueCore Assistant feature. I expect those investments to impact our operating margin by somewhere in the order of 5% percentage points in Q4. In 2023, quarterly marketing costs on average will go back to and stay at the similar levels as we've had in 2022 as a whole. Preloads of our app on new smartphones continue to be an exciting opportunity for us and shipping of preloaded devices has started but is set to ramp up during Q4 in 2023. So this quarter is the first quarter where we have a full quarterly impact from the incentive program that we launched in Q2 this year. A reminder here is that this year's program included restricted stock units, RSUs, which results in higher costs being booked in the profit and loss statement than warrants or options. However, these costs will have no cash flow effect until 2024 at the earliest when we'll have to pay out social security fees for the value of the shares that are being given to our employees in Sweden at that time. The cost will also potentially be quite volatile depending on the share price development. As you know from the last quarter, in our reporting breakout, costs for incentive programs help you as investors and analysts to see the development both including and excluding the incentive programs. As we have previously stated, our tax rate will increase somewhat as our combined tax rate is a combination of the Swedish corporate tax rate and the Indian tax rate. This quarter, the tax rate was 23%, and I think it is reasonable to expect that to increase, to stay at this level or increase somewhat as we increase our profits in our India operations. The taxes we pay are based on our transfer pricing policy, of course. The purpose of the policy is to ensure that we pay tax in a correct manner from the perspective of both the Swedish and the Indian tax authorities. We've had this for a long time, and we've always paid our taxes due, and we're not subject to any tax fraud investigation. Adjusted EBITDA increased by 54%, and the EBITDA margin increased with three percentage points to just above 40%. If we were to exclude the cost for the incentive programs, we would have an even stronger margin at 42.5% for the quarter. As I mentioned on the last slide, I would expect some one-off effects on the margin in Q4 related to the larger marketing investments we do. So that is worth keeping in mind. Cash-wise, we continue to generate cash at a good rate. This is the quarter we had in cash flow from operations of 162 million Swedish crowns. And we now have close to 1.9 billion Swedish crowns in cash and short-term investments. And also, we still have the 400 million unused revolving credit facility. We continue to think this is an excellent position to be in at this point in time with a lot of macroeconomic uncertainty and falling valuations for tech companies that are not profitable and might have a tough time in raising capital. We are, however, mindful about always optimizing our financial position in order to give our shareholders the best possible return on their investments. And in Q3, the board decided to launch the repurchase program based on the decisions on the annual general meeting. to give a buyback mandate of up to 5% of the outstanding shares. During the quarter, we bought back 0.5 million shares. After the end of the quarter, we have bought back some more shares. And in total, we now have 1.4 million treasury shares, which have been bought back at an average price of 36.6 Swedish crowns. When we went in the silent period ahead of the Q3 report, we halted the repurchases in line with the rules for a repurchase program. From Monday, we again have the option to start buying back more shares to further optimize our cash and capital position. We also continuously scan the market for potential acquisitions. We are looking for both for companies that can add value to our existing business model through more data and or more users, and new functionality, and for investments that may give us new growth opportunities where we build on our customer base and distribution power. We continue to deliver on our financial targets with a strong growth and solid profitability, and year-to-date, our net sales growth has been 80%, and the year-to-date adjusted EBTA margin equals 43.7%. I think the targets are still valid and something we will continue to strive to outperform, but of course, there might be variation between quarters. With that, I will hand back to Alan to wrap things up before we start the Q&A.

Thank you, Odd. Some concluding slides to wrap this up. I'm pleased to report this quarter that our business continues to develop positively. We have always been a product first company and always will be. We invested a lot in improving our core product offering. We're also incredibly excited about the launch of the new iPhone app and the TrueCall Assistant, as we see both of these as strategic investments that set the foundation for future growth. We continue to see stable, mostly organic user growth with the highest growth rates in South America and Africa, which are markets that we see as important for us moving forward. And we saw improved growth late in Q3, which is encouraging coming into Q4. We're proud that despite uncertain macroeconomic conditions, we have been able to deliver good results. We continue to deliver strong financial performance in terms of growth and profitability with growth in net sales of 44% year on year, combined with 40.3% adjusted EBITDA margin. As stated in the beginning of the presentation, we've also started to see some effects of the depressed macro and cannot rule out that it will impact our main markets to a larger extent going forward. On the other hand, we'll continue to grow the user base and we still have a lot of levers to improve our offering across the board. For ads, we'll continue to increase the effectiveness of our platform. For subscription, we have started to improve the offering and we'll continue that path. And lastly, the growth journey for True Color for Business has just started and we continue to strong demand for the service both in India and outside of India. Lastly, we're proud to be in an incredible position with solid financial, strong cash flow and strong organic growth. This puts us in a different position compared to other global platforms that have to cut staff and initiated different kinds of cost-cutting programs. Our strong position and our continued growth means that we still will continue to invest in talent in a healthy manner and even in a time of uncertainty, we will continue to take advantage of our strong position and find opportunities to continue growing. It goes without saying that none of this would be possible without our users, the great partners that we work with and the phenomenal TrueQuality team across the world. And with that, we're happy to open up the floor for questions.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of Frederick Savinovich at Carnegie. Please go ahead. Your line is open.

Thank you very much, Operator Grafton and Alan and Odd. So my first question is one you get every quarter, so apologies for that. But in terms of appetite, business momentum, customer behavior, market sentiment, all these things, you mentioned some potentially for the long run or for 2023. But could you give any flavor on the start of the fourth quarter? And then also you mentioned some positive seasonal effects into the second quarter. which created some headwinds into Q3, but are there any specific events of this character we should be aware of for the fourth quarter?

Should I start? Yes. All right. Cool. Thanks for the question. I think so far what we've seen is in general, the economy is good in our markets. It's not on the same level as we've seen in some parts of the Western world. But that uncertainty, of course, spreads where people might put certain investments on pause for later during the year. We have so far seen a pretty good development, I would say, even though we do hear some softer sentiments. But I would say in general, we are not seeing what other ad-based companies in the Western world are seeing.

Not on that scale. Okay.

And then on CPM, and I know this is not your main KPI, but still, what is your idea now of the price that you take compared to other similar platforms in India? And I know we've spoken before, if we take Instagram, Pinterest, Facebook, these guys, that they have rates several X higher than what Truecaller takes. And if there's still a big gap here, do you think we should expect to see price uplift as a continued driver over time?

I think, first of all, it's important to look at ads businesses with similar type of ad units, which are not like video based or, you know, in a content sort of like content products where you digest ads in a different way. But if we look at peers with similar ad units, I would say we're still very much behind them, which means we do have a lot of room I think what is interesting and exciting to look at is how did we perform on CPM in India in Q3 compared to Q3 last year, where we actually grew with 15%, even though we had IPL in Q3 last year. So that says a lot about the improvements that we have done. And we're on our way to improve that further. But we're nowhere close to where some of our peers are with or 20 years of experience building out their platforms. And I'm, of course, referring to the big ones. But we'll get there.

And to add to that, Predag, we obviously don't have an exact measure of our pricing versus the pricing of people like Facebook or Google. But what we do see, what we have said and seen before is that they are, as you said, a number of X times higher than we are. We said five to 10 times. Our CPM has only increased 10%. marginally as compared to that so far. So the general conclusion is still the same. We are behind those and we are in the process of catching up, but there's a lot more that we can do.

Super, that's very clear.

And just one final, give some information on the gross margin from hosting and from accumulating costs from our channel partner in this quarter. So it sounds as if the gross margin should improve again in Q4. And if that is true, could you help us or give us an idea of what kind of gross margin improvement we can expect in the fourth quarter?

I think that is a bit too specific to talk about at this point. But what we did say at an early stage was that we expected our gross margin to stay above 75%. and even between 75 and 80%. And that's where we are. And that's where we think we're going to stay. We did see some gross margin improvements over the last year. That was due to the fact that more traffic was channeled through partners that didn't give us full transparency in terms of costs. But the basic conclusion that we draw almost already a year ago

uh with the gross margin staying at or above 75 is is still valid okay that's great thank you very much thank you our next question comes from the line of akil tani at jp morgan please go ahead your line is open yeah hi good afternoon thanks for taking the questions um

Can I start, please, with a question on your macro comments through your introduction? I guess I just wanted to understand a bit better exactly the things that you're seeing. You've talked about postponed investment plans and general uncertainty, but I guess I was trying to understand how that's really translating. And I guess sort of the thing I'm trying to understand is whether this is just some cautionary comments from you or they're actually seeing anything hard in your business. And the question really is that When we look at digital platforms in the developed world through the previous recessions, actually recessions actually helped digital platforms gain market share because there were more effective tools for marketing and advertising than traditional ad platforms. And obviously, if you look at your markets in emerging markets, I'd assume digital penetration rates are still very, very low. So I guess it's really just to understand, how are you thinking about these various moving parts? Is it just more rhetoric and commentary or do you expect this could genuinely impact and drive a slowdown in the business? Maybe I'll wait there and then I'll ask my next question afterwards.

I think we have yet not seen any material impact of macroeconomical change in our markets. But we're highlighting that it's not impossible. It could happen. And that is based on that we've seen some companies who are putting certain things on delay because they don't know what to expect. They just hear what's going on in the rest of the world. And that could, of course, spark some uncertainties. Having that said, we should also remember that during times like this, when demand might go down, it actually creates opportunities for well-funded companies like ourselves to actually acquire customers much cheaper. And we saw that in during the early period of covid in 2020 where we saw opportunities to purchase to acquire users much cheaper than than previously so i think you know there are opportunities that will rise we are well funded to take those opportunities when they come but we're not seeing these these sort of material uncertainties that you see with some of the other companies. We are not there.

Great. Okay. Thank you. The second one was just on this new chief business officer appointment that you mentioned. I just wonder if that's a new role or whether it's just a change in the organization. And just if you could maybe give us a bit of a flavor of the reasons for doing that. Is there a change in focus, a change in strategy? Is it with the iPhones? If there's any sort of commentary on that would be very helpful.

Yeah, that's a good question. So I would say previously or since the beginning, growth has always been under myself and my co-founder Nami. And Ben has been working with us through his role at Sequoia for a couple of years. He was also part of helping us during the IPO process. And we realized that he has a very strong understanding for growth drivers, what metrics to look at. So he has a good nose for that basically. And we felt that here's an opportunity to bring someone in that can actually take things off our plates basically. So I see this as a great opportunity to strengthen our bandwidth.

Great, thanks. And just a super quick last one. In your results release, you mentioned some discrepancy on customer number reporting from Google and that you've said you've sort of identified the problem and it should get addressed in Q4. I just wanted to say, is this just purely an impact on the customer numbers? I think you're saying it's like a 2 million impact and there's no financial impact. Just if you could maybe just help us understand how we think about it. Is it just pure KPIs or does it have any other impact?

That's a good question. So we did find that there was a bug with a certain part of Android on a new version that was rolled out slowly to certain devices during the year. So it wasn't easy for us to actually discover this early on. So we saw it later in the journey during the year. What it did mean was that certain logging events to know whether the user is active or not were sort of not sent to the server side. So the only thing that has been impacted is the DAO and MAO numbers to around 2 million.

Great. Thanks so much. Thank you. Our next question comes from the line of Yemi Falana at Goldman Sachs. Please go ahead. Your line is open.

Thank you. Good afternoon, Alan and Odd. Thanks for taking my questions. The first one's on kind of the interaction and usage on the application. Clearly your feature rollout has been strong, but you're continuing to drive ad monetization. So could you maybe talk about how ad engagement, how engagement, sorry, on the platform has evolved through the year? How often are daily active users interacting with the app now relative to a year ago? Or perhaps maybe a time on app is a better metric. How has that evolved through the year?

Yeah, good question. I mean, it's a very broad question with a long answer, but I will try to keep it short. In general, all our engagement numbers have more or less gone up, some of them quite significantly. But in general, I think what we need to continue to do, and that obviously drives more ad impressions and more revenues. But our ambition is not to drive engagement up because we want to make more money. It's just a result of building a great product. And so all these engagement metrics has gone up the last year or two. Historically, I would say they have always gone up. But we know that there is much more to do on the engagement side. And this is all about building our product much better, making it cleaner, easier for people to use. And we've noticed that entering new markets means that we need to work a lot more on the onboarding part of the product so that people know what to expect, what's the value proposition and the promise. In a market like India, for example, or South Africa, or nigeria people know what they get when they download your code they don't really care about what we say but in new markets that has a big difference on retention so these are the things that we were focusing a lot on i would say um and i'm looking forward to 2023 because i don't think our internal kpis has been this clear before very helpful and then maybe a couple more so on the subscription side we saw a large rise in subscribers this quarter

Could you maybe talk about the dynamics there? I would expect consumers are less willing to subscribe with time, just given the macroeconomic context. Are you pushing the product more aggressively? I know you mentioned some optimization that you're doing in India. Any color there would be great and how you expect that dynamic to evolve. And then finally, maybe just on regulation, clearly, as you've outlined, this iteration of the Indian policy, So telecom regulation appears relatively benign in terms of the impact on your business. But on a forward looking view, given you've got much kind of greater insight in terms of the regulatory direction than we do, do you see any risk that data centric businesses like your own may be more costly to operate going forward? Any kind of on those points would be really helpful. Thank you.

All right. Thank you. So on the last question, I don't think so. I haven't seen any indications that would show that. But on the subscription side, and in fact, both consumer subscription and true colorful business has, we have not seen any signals at all that would show a certain uncertainty amongst the individuals or businesses buying a service from Truecaller that provides so much value so we haven't really seen those signals yet one sort of data point we have is that Early 2020, when COVID happened, we could definitely see how ads revenues started to soften because businesses were uncertain about what's going to happen in the world. But on the user subscription side, that actually just continued. It was basically as nothing had happened. And I think that's a really good data point for us internally to be aware of that long-term subscription is an important revenue stream and we should invest more. But there are many factors around that, such as, you know, how people are used to paying for subscription services, which we cannot really control, but markets are maturing and people are getting used to paying more and more for premium functionalities.

Thanks very much. Very clear.

Our next question comes from the line of Yestervan Hotch of Red Eye. Please go ahead. Your line is open.

Hi, guys. Thanks for taking my question. So I'll just start with some questions around the geographical development. So Middle East and Africa grew only by 9% year on year, despite Africa being the fastest growing region in terms of users. together with South America. So could you just talk about what is driving the weak performance in the Middle East? Is it only the weak macro environment or is there anything else?

Yes, that's what we believe, yes.

That it is macroeconomic.

Okay, good. And then, I mean, you went into it a little bit before, but could you also talk about your progress on building an ecosystem in the rest of the world and Middle East and Africa? I mean, considering that you're growing the user numbers well, but monetization hasn't really spurred, I mean, except the macroeconomic effect that we're seeing right now. sorry the question is on advertisement or no so your progress on like building an ecosystem in like the other regions except for india you mean a critical mass in the user base or when you say ecosystem yeah i mean like you're you're away from like going from from user growth to monetization, basically.

Well, we do monetize our customers everywhere, as is, our users. And we do also, for True Call for Business, have exposure to 34 different countries. So we are monetizing the user base in many, many different markets. What we usually look at is our penetration rate. How many... how large percentage of the smartphone users in this particular market or the phone users or true caller users because that gives us a good indication on where we are on our growth trajectory whether there still is a need for seeding that market or whether it's a primarily an organic growth market going forward now of course india is our largest market in absolute numbers but it's not our largest market in terms of penetration ratio we have other markets where we have more A higher percentage of the users being true caller, a higher percentage of the smartphone or phone users being true caller users. So when you say ecosystem, if I interpret that way, I think we have come very far in many, many other markets outside of India.

I think just to add to that, of course, I do believe that having a stronger local presence with people on the ground, more people on the ground, working with more agencies and so forth in those regions would probably help us grow those revenues. But at this point of time, we haven't really prioritized putting people on the ground there because the TAM on these markets are not on demand. similar levels as in India, for example, where we feel it's worthwhile. But for next year, we're looking over these growth regions that we find exciting, where we also believe that we can improve our local presence. So that will come in a near future.

Great, thanks. And then also about... Sorry.

Did that answer your question?

Yes, it does. And so also about the daily number of ad impressions per DAO, that was like unchanged quarter on quarter. And it's basically unchanged from the end of last year, despite you saying that the render rate being at an all time high. Is this like only because like the demand side has gone down or could you just talk about the dynamics?

I would say, you know, we control this on a day-to-day basis and we optimize it based on demand and supply, basically. So, and it does, you know, it could be a high season like in Q2 with IPL and all, where demand is extremely high, but we might pull back on inventory, for example. So it's... It's not super straightforward, to be frank. But we should also add that we haven't really introduced new ad units either, which we obviously could do. That would increase fill rates or impressions and so forth. But we have seen, I mean, during the last 12 to 18 months, we have seen a growth on the inventory and impression side through improvements that we've done. That's for sure.

Okay, good. That's all for me. Thanks.

Thank you. Thank you. And we have one further question on the phones. That's from the line of John Kouridis of Numis. Please go ahead. Your line is open.

Thank you very much. Good afternoon. I've got three as well, please. The first one is I think Odd was a little bit too fast for me when he was talking about the impact of other operating costs on the fourth quarter and next year. Specifically for the fourth quarter, apart from the one-off spending that you talked about impacting the margin by five percentage points, are there other reasons why the margin quarter-on-quarter should be down by more than five percentage points for the fourth quarter? And then secondly, as far as this issue is concerned, I'm sorry, but I completely missed about what you said we should expect about other operating costs in 2023 versus this year.

All right. Well, thanks for your question, John. But I didn't actually speak about the other operating costs as such in 2023. What I said was that marketing costs in 2023 will be at a level that is similar on average to 2022. And I said that partly in order to re-emphasize the fact that the investments we are making in India and the US in the first quarter this year are one of the effects that will bring up our marketing costs quite substantially versus a normal quarter, so to speak. What we will see, though, in 2023 is increased preload costs. As more and more phones are being sent out to buyers, the preload costs will increase, which is according to plan. But we do not expect marketing costs as such to be substantially different in 2023 as compared to 2022. We will see a further increase in user acquisition cost according to plan, but that is a fairly opportunistic cost factor for us. We only invest when we see that there is a need and a good return, but our plan is to increase our user acquisition costs somewhat also in 2023. Apart from that, there's nothing in particular that we foresee will have much of an impact. We are still planning on growing our employee force somewhat over the year. But that is, of course, something that is, to a certain extent, depending on what we see in terms of macroeconomic climate. We're not going to grow our employee force just in order to do that. But we do that because we see a need, when we see a need in our organization for more resources. We still have an issue with finding the right people. We only... We only focus on recruiting the very best people in their fields and they're not easy to find. And that is putting a limit on what we can do in terms of recruitment. I hope that gives you some food for thought.

Yes, it does. Thank you very much. The second question is, we're sort of dancing around the issue of GDPR coming into effect or a version of that in India. And to date, you've sort of said that, sorry, first of all, I assume that the impact of that is that you'll have to sort of get rid of all the data that you have of non-users if it's possible to confirm that that will be the main impact. And if it is, Just for the sake of argument, at least, I know you've said that their data is sort of mid-single percent of your entire data lake. What would happen to your business if tomorrow morning you have to sort of wipe out this data that you have today, just so that we can get to the final point? stage of this argument or this discussion we're having, please.

Thanks for asking the question, John, and being very clear about it. So first of all, there's nothing that indicates in the drafts that has been floating around that that would be the case, that we would have to delete anything. So I just want to make that clear. What we've been talking about is, you know, if it would expand even further to that extent that we would have to delete, which is not the case. But if that would be the case, we've seen that in a market like India, only around 11% of the hits, so 9 out of 10 calls, we would still be able to identify with the data that would... not be covered by such regulations, which means that users would actually not even notice anything.

And just to add on that, we are obviously present in Europe, we are obviously present in in both the market where you are and where we are. And we have half a million users in Sweden. We have never focused on the Swedish market, but we have half a million users that are very happy with the service that we can give them. And we are obviously working within GDPR here. So I think that gives you a good indication that our service creates a fantastic value for users, even in such a regulatory environment.

Excellent. Thank you. And then And thirdly, regarding your treasury shares, I find it sort of quite intriguing that you're not canceling them. Could you sort of maybe enlarge a little bit on your thinking, please? And I appreciate that one day, if the stock is fairly valued, you might choose to use them as currency. But at what point do you say enough is enough? We have all these shares. let's cancel them now and therefore reduce the share count.

That's an interesting question. You could say that at this point, sorry, we are over.

I don't have any water.

Can I have some water, please?

Thank you.

You caught me by surprise.

No, but we'll see if it works. Hopefully it does. You could say that we're overcapitalized at this point with the 1.9 billion we have. We think that's a very good position to be in right now. But the repurchase program that we're running right now isn't really about making any fundamental changes to that capital structure that we have is more symbolic. To be frank, we want to show everyone that the company, the board, the management thinks this is a good time to buy shares. But of course, we want to be able to use those shares, as you indicate going forward, as a currency when doing potential M&As. The mandate we have is for 5% of the outstanding shares. We're not close to that number as of yet, at least. And I don't see any reason why we should change our thinking at this point and start cancelling the shares because we still have, there are still potential opportunities out there for us to make acquisitions where these shares could come in very handy.

Right, but don't you open yourself up to criticism that if you do use it as currency, you might be giving a sort of undervalued currency to the vendors of an acquisition target going forward if you were to do it, you know, in a week or tomorrow?

I mean, that would never happen, obviously. It depends on time and, you know. What we do, just having the flexibility and option gives us more power to do what we want. We have money in the bank. We have shares as well. So there is a combination of things we can do. At some point, we might decide to cancel them. Who knows? But at this point of time, we're keeping them because we believe they are undervalued.

Thank you. If you need anyone to try TrueCall or digital assistant in the UK, I volunteer. Thanks very much. Thank you, John.

Thank you. And there are no further questions from the phones at this time, so I'll hand the floor back to our speakers.

Great. Thank you. And thank you, everyone, for listening in. We're extremely proud of a great quarter. We're excited about the future and we look forward to see you at our next earning calls. Thank you.