Truecaller AB (publ)

Thank you. Welcome, everyone. I'm Alam Amedy, and I'm the CEO and co-founder of TrueColor. And with me, I have our CFO, Odd Bulleen. We're here to announce our interim report for the third quarter of 2023. So we'll start with presenting financial and business highlights, then go into some developments on the product side from the quarter. Odd will then walk you through our financial performance in more details. Then we'll wrap up and open up for questions. So let's get started with the highlights of the quarter. In Q3, our user growth continued to be strong. We closed Q3 with an average of 368 million monthly active users and an increase of 11%. Average daily active users grew to 298 million, an increase of 14%. Our Dow to Mao ratio stayed at the high ratio, 81%. I'm very pleased with the increased growth, which lays the foundation for a long-term financial development. We closed the quarter at 399 million Swedish crowns in net sales, an 11% decrease compared to the same quarter in 2022. This was due to lower income from ads, while consumer subscription and True Gold for Business continues to grow steadily. We report an adjusted EBITDA of 146 million Swedish crowns and adjusted EBITDA margin of 37%. We continue to have a very strong cash flow with 189 million Swedish crowns in net cash from operating activities before tax payments. And in the quarter, we continued to grow our user base across markets and on both Android and iOS. Growth in rest of the world was an all-time high for the second consecutive quarter. And we see good traction in all our focus markets. The absolute majority of growth continues to be organically driven. Over the last year or so, we have focused on improving our subscription offering with new features that make communication smarter and safer for our paying subscribers. This has been paying off and the conversion continues to increase. And we see this both on Android and on iOS with a particularly strong development on iOS. The number of subscribers increased with 20% year over year and the revenue with 19%. The annualized revenue growth in Q3 was about 30%, which partly can be related to the launch of our AI assistant in India. We're currently doing some experiments with pricing and with the different options on how to further develop, but we see opportunities to increase the prices long term. Our growing enterprise offering, True Colorful Business, continues to grow at a healthy pace with revenues up 55% year over year. And we saw good growth coming from both the verified business offering as well as business messaging. And we continue to grow the customer base. In the quarter, TrueQuality for Business expanded into products related to fraud prevention and fraud protection. For us, this is an important continuation in our efforts to offer products to combat fraud and make communication more secure. The strategy to grow our recurring revenue streams, TrueQuality for Business and consumer subscription is paying off and it provides a growing stability to our revenues. I will cover these in more details in the coming slides. More on user growth, which accelerated in Q2 and has stayed on the same high level in Q3. For the second quarter in a row, we added 12 million monthly active users and 9 million daily active users. And we've seen a great boost thanks to a strong virality of organic growth the last two quarters, but expected to get back to a more normal level going forward. This demonstrates that Truecaller and its services remain highly relevant regardless of broader economic trends. Truecaller addressing a growing global issue as well. Increased number of users is the foundation for us to continue to develop well within our revenue streams. So I'm really pleased to see this development. The growth comes from all our regions with the strongest relative growth in rest of the world and with solid development both on Android and iOS. So let's shift focus and look at some of the improvements we made to our products during the third quarter. So in the third quarter, we focused on enhancing the user experience and continuation of the integration of our advanced AI technologies into our services. The goal was to provide immediate and practical benefits to users and prevent fraud. The strategy led to the introduction of additional AI-driven features, improvements in the premium user experience, and new app functionalities. Additionally, there was a significant enhancement in the ad server capabilities, leading to more dynamic and effective ad campaigns. We made significant improvements in our AI identity technology, which leverages artificial intelligence and machine learning models to provide an improved caller ID and spam detection experience that goes beyond names and spam reports. Enhancements made in this area increased AI identity coverage by over 50% during the third quarter. Other important improvements to AI identity include the new anti-impersonation features that indicates if someone is trying to impersonate another person or business using fake names. This new machine learning model protects consumers in a world where impersonation is rapidly growing. Our dedication to fraud protection was further emphasized through the enhancements of the messaging ID, like caller ID for messages, basically. This feature now includes an additional layer of protection, alerting users to the risk of sharing OTPs when they receive a message while engaging in a phone call. We've increased our efforts in proactive prevention to inform users about ongoing fraudulent activities, both globally and locally. By using Truecaller's own messaging platform, we've sent over a billion messages to users, alerting them about relevant and local fraud issues that are trending. We expect to be able to automate this in the future with the help of AI. For the past few months, we have conducted tests to assess the potential impact on user lifetime or user retention in the event that we need to make adjustments to certain data in light of the new data protection bill or the new Digital Personal Data Protection Act in India. These tests involved presenting different search results to distinct user groups on a large scale. And with the help of our AI identity technology, The initial results are highly promising, as we barely observed any change at all in retention. This reinforces our previous statement that we do not expect the new regulations to impact either user experience or monetization. Moving on to Truecaller Premium. The third quarter marked a pivotal period characterized by substantial product launches aimed at enhancing monetization and user retention. The adoption of Truecaller Assistant has seen considerable growth globally, with subscriber numbers surging significantly, marking more than a 5x increase quarter over quarter, driven by the launch in India at the end of the second quarter. Specifically in India, the introduction of the assistant plan played a central role in revenue growth, as well as subscription growth, which grew with 39% year over year in India and with 20% globally. Preliminary tests indicate that higher pricing for such an advanced product as Assistant does not adversely impact conversion rates. This indicates that we are advancing in the right direction in terms of delivering a higher value offering for communication services, which renders the opportunity to charge a higher price. iOS has emerged as a key driver of growth in subscriptions this quarter, outpacing the growth in monthly active users with 13% increase quarter over quarter. Call recording introduced in the second quarter was launched in more countries during the third quarter. Plans are in progress for the introduction of new advanced features during the upcoming quarter as well as introducing new languages with the help of the new improvements made in voice transcription. Next, we'll explore ads in relations to product enhancements. But despite broader market challenges during the year, we have continued to diversify our access to demand by collaborating with a diverse set of partners, advertisers and agencies and pioneering new use cases and business models. We launched new proprietary ad formats, enhancing the diversity and impact of ad placements. These includes post click experiences, which is an innovation like click to video offer, which increases engaging content for user post engagement. The introduction of sponsored bubbles and animated ads on the after call screen provides dynamic and visually appealing content for users. And then we have brand sponsored icons and carousel ads, which offers a rich interactive experience, further enhancing the user engagement. In a recent initiative, we collaborated with Amazon Prime for the premiere of a major film. The campaign's objective was to increase awareness and foster user engagement through an innovative approach. The strategy involved a concentrated effort leading up to the film's release using the click to experience ad format. Insights from the agency and client led to the development of a custom audience segment targeting OTT users with semi-premium and top tier smartphones in India's top eight metros. The campaign resulted in engaging a wide and diverse audience while delivering a substantial number of impressions. The performance metrics focused on enhancing user engagement and creating a compelling experience. So shifting our focus to Truecaller for Business, since its launch in 2020, Truecaller for Business has emerged as a pivotal solution in secure business communication, now serving customers across 36 countries and standing as our most rapidly expanding revenue source with a 55% year-over-year growth. Notable new customers during the quarter were UNICEF India, Union Bank of India, Yes Bank, Bosch Bank, MISR, and Say Hi South Africa, among many others. Business messaging continues to redefine customer interaction, offering a secure messaging platform exclusive to verified businesses on Truecaller. During the third quarter, more than 2 billion messages were delivered from verified businesses to their customers on the Truecaller platform. This product stands out for its ability to support rich media content, extending beyond traditional text to include image and videos and documents. The platform is predominantly used for transmitting information like OTPs, service updates, and transaction summaries. Business messaging offers the extra security layer that is needed. We'll launch business messaging with more partners and globally during 2024 and are excited about the future opportunity here. In response to the rising incidence of fraud globally, the focus has been on developing a robust solution to safeguard businesses effectively as a part of the TrueCall for Business offering. The risk intelligence API is about to go public and is a scoring engine that provides enterprises with an assessment of risks associated with a mobile phone number using proprietary machine learning models to analyze patterns and anomalies in aggregated data from a mobile numbers activity. The product was built during the first half of the year with a commercial launch plan for quarter four. We're very excited about this product launch. Adjacent to this, in the beginning of quarter four, we announced the acquisition of a company called TrustChecker, a SaaS platform known for its efficiency in verifying customer information and assessing fraud risks. With the integration of TrustChecker capabilities, TrueCall for Business is set to offer unparalleled security insights, harnessing external and internal fraud signals. Safe communication is rapidly grow. It's a rapidly growing space and we see huge potential and are very excited about the future. Now over to all to talk about our financial performance.

Thank you, Alan. It's time to look a little bit deeper into our financial performance. And as usual, we'll start with the revenue developments. Our overall revenues decreased 11% compared to the same quarter last year. And that was a consequence primarily of lower demand for digital advertising during 2023 compared to 2022. We are, however, very pleased with improvements coming from our two other recurring revenue streams, consumer subscriptions and Truecall for Business. that both delivers good growth in a challenging macro environment. We continue to develop our premium offering, and we see a steady increase in the number of subscribers across platforms and geographies, and a higher conversion and income grow both on a year-over-year basis as well as quarter-over-quarter. For true quarter for business, which consists of our verified business solutions and the business messaging product, income grew strongly on a year-over-year basis, as well as quarter-over-quarter. Now, looking a little bit more in detail on our three revenue streams, and once again, we'll start with the largest one, ads. 2023 continues to be a challenging year for ads compared to 2022. The general demand is lower than in 22 and muted, but stable during 2023, apart from IPL that took place during the second quarter. And apart from IPL, the demand situation continues to be slow and muted, but it is stable. It's not getting worse, but it's so far no obvious improvements either. The increased demand in the second half of the year that we previously believed was due to happen based on our communication with many other advertising partners and platforms seems to take longer than previously anticipated. 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 or fill rates. We continue to increase impressions available to monetize within the existing ad slots. And these improvements taken together help us marginally now, but more importantly, when demand bounces back, they will generate a significantly higher return. We don't yet see any material uptick in underlying demand, and we continue to focus on the factors that we can influence, ensuring that we are in the best possible position once the macro situation starts improving again. When looking at comparison numbers, remember that the general slowdown in demand that we see now started to impact us from mid Q4 last year. So we are still comparing ourselves to a much better demand situation back in 2022. Our expectation for the last quarter of this year is that the general ads demand continues to be muted compared to 2022, meaning that we expect to generate lower income from ads than we did in Q4 2022, but higher than for Q3 2023 due to seasonal trends. Well, looking at our subscriptions, you can see that we grew our revenue by 19% compared to last year and faster than that when annualizing the development in Q3. The relative growth in the number of premium users is exceeding the relative growth in monthly active users, which is encouraging. Our strategy to add more functionality through the cloud platform has started to pay off with the contributions coming from the AI features, true call resistance and call recording, which yields higher subscription prices. As mentioned earlier, we are currently evaluating to increase pricing further, going forward in certain markets over time. TrueCode for Business continues to grow the customer base and the trend with longer and deeper relationships with clients continues. We keep on developing more products to integrate tighter with our clients. The new product lines within fraud prevention, fraud protection and credit assessment are expected to slowly add more revenues from 2024 and onwards. During the third quarter, business messaging also continued to contribute to the revenue growth year over year. Our gross margin development continues to be very stable, and that is our current projections going forward as well. We still see some negative effects year over year on increased costs for servers, hosting, and verifications, but costs have stabilized during 2023. Let's now turn to cost developments. Our overall cost base is lower than Q3 last year. We have increased staff costs due to some more FDs and due to the annual salary review that came into effect from Q2. But for other expenses, we continue to report lower expenses than we had last year. As macro has made it tougher on the revenue side, we have increased our focus on the efficiency and we'll continue to keep a close eye on costs, but at the same time, executing on our growth ambitions. This is important and is helping us to continue to deliver a good profit margin. As mentioned in the last presentation, costs from the incentive program decided by the AGM this year started to impact costs from Q3. And as we have previously stated, our tax rate is a combination of the Swedish corporate tax rate and the Indian tax rate. And as we have expected the tax rate to increase somewhat over time, this quarter the tax rate was approximately 29%, and year-to-date it's about 24%. In going forward, we expect the year-to-date rate to be the best guide for future tax rate. In the quarter, we reported 37% EBTA margin with a year-to-date margin of 41%. The operating leverage we have in our businesses is continue to be very good. And thanks to our lean machine, we're able to deliver solid returns even in a tougher macro. And the leverage when demand comes back is at a broader scale is very substantial. We also continue to have 1.6 billion Swedish crowns in cash and short term investments. And as we continue to generate cash at about the same pace as we have been doing buybacks at the same time. We continue to believe this is an excellent position to be in at this point in time with the macroeconomic uncertainty. During the quarter, we bought back shares to trim the capital position further, and the board has a mandate from the AGM to buy back 10% of the outstanding shares, including the ones already bought back. Share buybacks continue to be a tool that we use, that we can use when appropriate, and we will also keep scanning the market for further potential acquisitions. Let's then take a look at how we track comparator financial targets that were set by the board in conjunction with the IPO in 2021. The medium-term financial targets were set in a very different economic climate, and in the current macro climate, the revenue growth target is, as we have stated previously, clearly less relevant when evaluated on an annual basis. However, even though the financial targets are based on average results during the period of 21 to 24, we and the board still believe they make sense, also on an annual basis, but in a more macro, normal macro environment, which is not obviously the case right now. As mentioned in the last reports, with the shift in macro and outstanding performance we had in 21 and 22, it is fair to say that 23 will be a more challenging year on a revenue growth basis. But we intend to continue to deliver well when it comes to profitability ambitions. When it comes to the ads business, it is difficult to assess when we will see the demand pick up again. And in the meantime, we focus on safeguarding the profitability and making sure that we are in a better position once the general demand in the market increases again. And as mentioned earlier, we are very pleased with the continued use of growth and growth in our recurring revenue legs, subscriptions and true corporate business. With that, I will hand it back to Alan to wrap it up before we start the Q&A.

Cool. Thank you, Odd. To wrap this up, I'm happy to see the continued steady growth of users. In 2023, our efforts to expand our presence beyond the growing regions, India and MIA, has taken off, and we continue to see the growing need for our services. During the year and going forward, our focus on fraud and fraud prevention is increasing as we see a world where digital fraud is on the rise. This goes for both the developed and the emerging part of the world. Finally, we have a decision on the new data privacy rules in India and implementation is expected next year. Every day we improve our data sets with the input from our huge user base and with more information in our machine learning and AI models. With these improvements, the tests that we have done with different data sets, depending on the interpretation of the new rules, indicates none to very small difference in retention of our users, even in a worst case scenario. And what we've seen with our tests is less than one percentage point in retention difference after 28 days. Our advertising business continues to be affected by macro conditions, as mentioned before, and demand and prices are stable, but at a lower level than we experienced during 2022. The growth opportunities here will be huge when the market recovers. Our focus on the other revenue streams are paying off, and we expect them to continue to develop further. It adds stability and comes with great value for both consumers and businesses. Finally, we've always prioritized efficiency and engineering excellence, but an enhanced focus and investments enabled us to deliver lower cost with a growing business without cutting down on staff. This helps us keep a solid track record with nine out of the latest quarters with an EBITDA margin above 35%. Overall, we're proud that we continue to be in a strong position with solid financials, strong cash flow and strong organic growth. Our strong position and our continued growth means that we still will 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. As always, a big thanks to you, 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.