Truecaller AB (publ)

Hi, everyone. Welcome to our Q2 report webcast. I'm Rishi Jhunjhunwala, the CEO of Truecaller, and with me, I have Ott Bolin, our CFO. We'll start with the overall highlights of the quarter and then walk you through our financial performance. After that, we'll cover product highlights and then open up for questions. So let's get started with the highlights of the quarter. We continue to show growth trends this quarter as well. our user growth, revenues, and profitability all remain healthy. Currency fluctuation did have an impact, which we'll talk about in detail. And therefore, we're going to talk both about constant currency as well as SEK converted numbers. Right, so in terms of user growth, we did an average of 427 million monthly actives in the quarter, which represents a strong growth of 15% year on year. This continues to be the cornerstone of our business and highlights our dominance in this space. We also had an average of 367 million non-iOS daily actives, which translates to a very healthy stickiness metric of 86%. In SEK, our net sales grew 9% to 496 million and our EBITDA excluding incentive cost grew 20% to 212 million. This translates to an EBITDA margin excluding incentive cost of almost 43%, which is a great improvement from last year. If we include incentive costs, this margin was close to 35%. Now, if we then look at numbers in constant currencies, which is basically our estimation of how financials would look like if we had the same currency rates as we did in Q2, 2024, then our net sales for the quarter grew 21%, crossing half a billion sec. Our EBITDA, excluding incentive costs, grew to 38%, grew 38% to 245 million, which is an EBITDA margin of 44%. If we include incentive costs, our EBITDA is almost 37% in constant currency. So we continue to operate very profitably, which as you know, has been a very conscious effort for many years now. Now let's go into more detail on users as well as our financials. We grew an incredible 55 million users from the same period last year, which represents 15% growth in our non-iOS user base globally. We therefore now have an average of 427 million people excluding iOS using Truecaller in Q2. Our daily actives also grew very well at 16%, and we hit an average of 367 million people using Truecaller each day. With that, I'll hand over to Aude for an update on our financial performance.

Thank you, Richard. So, let me walk you through the financials. As anticipated, the quarter was heavily impacted by the somewhat surprising, for us that have been around for a while, strengthening of the Swedish crown. Indirectly, we earn almost all our revenues in foreign currencies, so a stronger SEK has a substantial impact on us. And we'll get back to some of the details later on, but just in order to make it easier to understand the underlying development for our business, we will, as Richard started out, give you the net sales and EBITDA development in both SAK and in constant currencies this quarter. Constant currencies meaning the same exchange rates as we had during the second quarter last year. The constant currency figures are our best estimates based on the information available to us. We don't have full information about how partners like Google are managing exchange effects, which limits the precision we can achieve. The most important exchange rate for us is anyway the INR versus the Swedish crown as India is our largest market. SDK has on average strengthened 12% versus INR since Q2 last year, and with 8% compared to Q1 this year, which is a pretty major significant change for us. At the end of the financial presentation, I will sum up all the effects we see to our numbers from the FX fluctuation. But for now, let's look at the top line and then profitability. In Q2, our net sales grew by 9% in Swedish crowns. However, in constant currencies, net sales grew by approximately 21%. And we continue to see a strong underlying development for our recurring revenues, driven by a continuing strong demand for both trade quality for business, as well as a strong conversion to paying users. Our ads revenue saw a decline of 1% in Swedish crowns, but a growth of approximately 11% in constant currencies. All regions showed good growth in constant currencies with the strongest development continuing to be in the Middle East and Africa. We increase our partner network with more global partners during the quarter and we expect to continue increasing it further during the year. The underlying ads market was quite stable compared to last year, although we did see some impact in terms of demand softness in relation to the geopolitical uncertainty with the India-Pakistan conflict that we had some time ago, the Middle East situation, and from the continuing global tariff discussions. We did, however, not see any major price changes in the ad segment. For ads, an important part of our strategy is to increase our direct sales. And in Q2, we saw high relative growth, albeit from still pretty low levels. Apart from creating more stability and better visibility, an increasing share of direct sales also results in a better gross margin for us, as will be mentioned later. Subscriptions continued to trend well. We grew revenues in SEC by 35% and by approximately 48% in constant currencies. The growth rate increased gradually during the quarter as we saw strong subscription intake. Once again, all regions contributed to the positive numbers and we see a solid revenue trend on both Android and iOS, with iOS being somewhat stronger than Android. TrueCall for Business grew by 34% in Swedish crowns and by approximately 53% in constant currencies. The revenue in Q2 was marginally lower than Q1 in Swedish crowns, but grew by approximately 7% in constant currencies. All three revenue contributors within TrueCall for Business, namely verified business, business messaging, and a risk product contributed to the growth. Now, verified business is the most important part of our business revenues, and we are now starting to see good growth in markets outside of India, especially Middle East and Africa, where we grew annual recurring revenues with more than 50% compared to last year. Ads still continue to be our largest revenue stream, and as already mentioned, we grow in constant currencies, but saw a small decline in Swedish crowns compared to Q2 last year. Our ad revenues per Dow decreased somewhat while the average price per impression was stable compared to last year. During the quarter, we saw a gradual improvement in fill rate, which contributed to a steady revenue run rate from third-party partners towards the end of the quarter. And as already mentioned, direct sales showed strong growth compared to last year with a growth of more than 50% from still quite low levels. Our new management of the ads team is working diligently on both ensuring good third-party business and in particular increasing direct ads revenues where we work directly with the end customers. The competency and experience we have on board now is already substantially improving both our product and services portfolio and our market positioning versus large ad buyers. We expect to see considerable effects coming out of these efforts over the next year. For subscriptions, all underlying metrics are pointing in the right direction and it continues to be a good revenue driver for us. We grew the number of subscribers by 28% and the average revenue per subscriber by 10%. iOS subscriber growth accelerated during the quarter and the number of subscribers grew by 25% on iOS in Q2 alone by more than 50% compared to the same period last year. iOS adoption in India started out slightly slower than some other markets, but gradually during the quarter, we started to see an increased adoption of iOS subscriptions in India too. True call for business also continues to grow at a good rate. The growth rate in Q2 was 34%, but in constant currencies, like I mentioned before, 53% year over year. Revenue churn continues to be low, and we see new business coming in both India and the rest of the world. Business messaging has had a good growth too. We have scaled up the volumes during the last year, but they have been quite stable during the last few quarters. This is primarily because we have been very focused on just sending the right kind of messages to our consumers and users and not allowing any unwanted messages. The next phase of growth in this area would come when we start also utilizing the business messaging outside of India to a larger degree. Additionally, we're slowly but steadily scaling up our risk products as a part of this vertical. Our strategy is to focus on recurring revenues, premium subscriptions and true call for business continues to do well. And the combined growth rate was 35% in Swedish crowns and approximately 50% in constant currencies. As mentioned before, business momentum continues to stay strong and we see much more growth waiting to be captured. Now, our gross profit grew by 12% year-over-year, and the gross margin improved year-over-year to 77.3%. We see positive impact on gross margin from increased share of direct sales, like I mentioned briefly, but also from increased revenues for true call for business, as well as some further efficiency gains when it comes to server and verification costs. Going forward, we expect the gross margin to be rather stable at around this label, with some possible variations between quarters. Now, time to move the focus to costs. As mentioned last quarter, in every Q2, we see the effect of the annual salary review. We have also grown the number of employees somewhat during the first quarter, and this combined increases our employee costs somewhat. Incentive costs increased compared to last year, but were lower than Q1 as the share price was more stable during the quarter compared to the strong trend we saw in the first quarter. Other external expenses increased somewhat compared to last year, but we were lower in Q1 where costs were higher temporarily, mainly due to the campaigns we did in relation to the IaaS launch. Our tax rate is a combination of the Swedish corporate tax rate and the Indian tax rate. This quarter, we saw some impact due to temporary timing effects. However, as we do an increasing share of our business out of India, primarily true for business and also direct ad sales, more of our revenue is being recognized here. And we see the effective tax rate gradually increasing from historical levels due to this. We're managing our tax exposure within the limits set by the transfer pricing regulations that we have to adhere to in order to ensure that we fulfill the expectations of both the Indian and the Swedish tax authorities. For incentive costs, the breakdown this quarter was 29 million in dilution costs and 10 million Swedish crowns in social security fees. The social security cost was much lower than in Q1 when the share price increased substantially, which directly impacts the social security fees. Now, again, like I've said before, it is important to remember that although incentive costs have a substantial impact on our bottom line, they do not give any material insight into our operational performance. Part of the cost are accounting figures that reflects a potential dilution that options and RSUs eventually may have. Part are accrued social security fees that only will impact cash flow when and if these instruments are in the money I exercise. Our operational performance and our operational leverage is best understood by looking at our profit excluding these costs, I believe. Now turning to our profit development, let's start with the profit development excluding incentive costs. Excluding those costs, EBITDA grew by 20% and our margin improved to 42.6%. In constant currencies, the growth was approximately 38%. As you can see from the chart, we continue to deliver quite stable profit margin, excluding incentive costs. When we look at the EBITDA included incentive costs, we increased EBITDA by 5% year over year. The margin was somewhat lower than last year, but improved compared to Q1. In constant currencies, the EBITDA growth was approximately 24%, including the incentive costs. Our cash flow conversion continues to be good with no financial costs and a working capital that develops in a manageable way. As our direct ad sales and true call for business growth, more of our revenues comes from end customers and partners other than Google, Apple, and Meta. This increases our DSO since payment terms in most of our markets generally are longer than what we have with Google, et cetera. However, we work very hard to ensure that both payment terms stay reasonable and also low from a market perspective, and that we're receiving payments on time. It is unfortunately not unusual for customers to try to use us as a bank, but we tend to be able to convince them that paying us on time and not losing our services is a better option. This is, however, a never-ending struggle that only can be managed through hard and consistent work. Fortunately, we have a strong credit control team and a good understanding from our business managers. During the quarter, we saw an uptick in working capital due to the fact that the incentive profits paid to our Swedish employees in June are associated with employee taxes and social security fees that we pay in July and that are booked as a liability in working capital by the end of June. We still have no financial debt and approximately 1 billion Swedish crowns in cash and short-term investments after the dividend of almost 600 million that we did during the second quarter. Our revolving credit facility of 500 million Swedish crowns is not being utilized, but available for interesting M&A opportunities. We have recently agreed with our bank on an extension of that facility from 2026 to 2028 in order to keep our options open. We have been and we continue to act in a position of strength with this strong cash flow and the financial profile of the company. And like I've already touched on, the strengthening of the Swedish crowns. Now, like I've already touched on, the strengthening of the Swedish crown had a material impact on both revenue and profitability this quarter. To summarize, in constant currency, the revenue growth rate would have been approximately 21% instead of 9%, and EBITDA, excluding essential costs, would have been grown by approximately 38% rather than 20%. Now, considering the indirect nature of our currency exposure, we cannot, like I pointed out already, quantify the currency effects as precisely as we would like. We have to make certain assumptions as to how the actual exposure looks, as Google, et cetera, they don't give us a full insight. However, based on the total information that we do have, these numbers are our best estimates, and they give a reasonable view, I think, of not only how currency fluctuations affect us, but also how our business is performing operationally, how we succeed and compete in local markets. So with that, I'll hand over back to Richard again.

Thanks, Odd. Now let's take a look at a few significant product updates during the quarter. Through the quarter, we made significant progress in three main product areas. I'll talk more about these three areas. Firstly, fighting communication-based fraud is an important part of Truecaller's mission. In Q2, we deployed new models that significantly improved our fraud call detection capabilities. These new models were rolled out across all our focus markets, leading to millions of additional fraud calls being accurately identified every single day. Fighting fraud is also a multi-pronged effort, and one of the initiatives is educating our users about new and different types of frauds that may be used to target them. Scam Feed, our initiative in this area, saw important product improvements last quarter that increased engagement by around 87%. The Truecaller community of 450 million users worldwide is our biggest strength, and this gives us a unique advantage when it comes to collecting feedback and data points associated with numbers. This feedback is received in the form of user reported names, comments, spam, fraud reports, and many other signals. In the previous quarter, we combined this user feedback with the power of large language models to accurately summarize community feedback and show this as contextual information alongside the name on important screens such as the caller ID, the aftercall screen, and other screens. Within a few days of launch, we were showing 500 million such LLM-powered summaries every week, highlighting Truecaller's unique scale and strong AI capabilities. Last quarter, we also fully rolled out a brand new revamped calling experience for our Android users. This major update focuses on a modern, intuitive, highly functional user interface featuring a simplified design that prioritizes essential information. In addition to details like the name of the caller, users will clearly see vital details like business identity, potential spam risk, priority of the call, and so on, allowing them to make informed decisions about the incoming call. The redesign also significantly improves accessibility, offering both light and dark themes, enhanced support for smaller screens, larger fonts, and various display sizes for consistency experience across devices. A key new feature is the floating call screen, which keeps your active call accessible even when you're navigating other apps. Underpinning these improvements are substantial performance gains, particularly noticeable on entry-level and older phones where speed has improved by up to 20%. This update solidifies Truecaller's commitment to delivering simple, reliable, and thoughtfully crafted communication experiences. Now let's talk a bit about ad tech, a very critical area for us for long-term monetization and growth. Our relentless focus remains on delivering highly valuable and attention grabbing properties for our advertising partners. During the past quarter, we are particularly excited to have advanced our offering with two significant offerings. Firstly, I'm thrilled to introduce Truecaller Masthead. This is a truly premium advertising property strategically positioned right at the heart of the Truecaller experience, which is in connection with an incoming call. Imagine the power of the moment with the user's full undivided attention. With Masthead, we are offering advertisers an unparalleled placement, reaching billions of brand moments every single day. This high-impact format will begin hitting the market during this current quarter, and we have strong early interest already. Secondly, we just launched Truecaller Play. This represents a productification of all of Truecaller's video advertising capabilities. It's designed to highlight our innovative, engaging elements and is exceptionally well positioned to capitalize on the upcoming festive demand periods where brands seek deeper connection with customers. Play will also begin its phase rollout during this quarter. So both mast and play are more than just new ad units. They are concrete demonstrations of our strategic dedication to capturing greater market share in advertising. These formats enable us to offer deeper commitments to our partners, leading directly to higher gross margins for Truecaller. Now, moving on to premium offering, I'm delighted to report another great quarter for us, very strong performance, particularly driven by accelerating sales on iPhone. In May, we hit a very significant milestone. We crossed 3 million premium subscribers globally and iOS passed 1 million subscribers. The growth on iOS was very strong. We registered 25% quarter-over-quarter growth and an impressive 50% year-on-year growth. This robust growth underscores the increasing value proposition of Truecaller Premium on the iOS platform as well now. Beyond iOS, we continue to see strong uptake on Android, demonstrating the widespread appeal of our premium features across our entire user base. Our consistent delivery of crucial functionality within our internal tools has been instrumental in driving these sales. We've also significantly enhanced our spam blocking capabilities on iOS and observed a very positive interest in our new improved blocking options on Android as well, further reinforcing the core value of Truecaller Premium. And now moving to Truecaller for Business, which continued an impressive growth trajectory in the previous quarter as well. In the quarter, we introduced a truly unique and crucial product, secure calls. Our aim with secure calls is to drastically reduce the prevalence of spoofed calls. For our business customers who integrate with us via the API, we now offer an automatic signing of all their outgoing calls. This is a game changer for trust and authenticity in communication, directly addressing a major pain point for both businesses as well as individuals by ensuring that the verified call is truly from the caller it claims to be. We're also pleased to see strong and consistent interest in our Call Me Back functionality. Feedback from several of our business customers highlights a compelling, strong ROI when utilizing this feature. This truly demonstrates the comparative advantage we possess through our unparalleled device presence and direct connection with our user base. Lastly, Number Intelligence, Truecaller's solution that aims to provide businesses with information to help in areas such as fraud detection and customer onboarding, continue to show healthy and steady momentum in bookings and revenue buildup, with API consumption increasing multifold during the quarter. Right, now to wrap things up a bit, just a summary of the second quarter. We continue to be on the growth path, firstly. Our user base continues to grow at a strong pace and mainly being organic. Growth continues in India, but we also grow in many other markets globally. We're increasing our efforts in those markets as well by putting boots on the ground. We're localizing our product more and we're increasing our sales efforts in those regions too. The relative growth rate in markets outside of India continues to be stronger and we will continue in the same manner going forward as we strengthen those efforts. As Ott described in detail, while our financials were impacted by the strengthening of the SEK, the organic growth underlying was strong across all our revenue streams. In ads, for example, we saw high growth in direct sales and we launched two new package products, which makes it easier for our advertising customers to buy our inventory directly. We've also been focusing a lot on the baseline for programmatic advertising revenues to stabilize, and we saw a positive impact in the latter part of the quarter, which is promising for us for the future. We will continue to add more partners for the rest of the world to further increase price and inventory competition in these markets, where our presence has increased a lot during the last few years. Subscription growth accelerated in constant currency. We've had a very good subscriber intake as well. We continue to develop more capabilities that our community loves and are willing to pay for. And we also expand even further on iOS, where this quarter alone, we grew the subscription base by 25%. Truecaller for business, we had a great quarter two, where we continue to expand our suite of offerings while expanding on our existing customer relationships as well. So overall a healthy quarter with growth on all fronts. I think we've already highlighted it, but we continue to deliver on the strategy that we've set out, which contains user growth in all revenue streams with an extra focus on growing our recurring revenues, which now makes up a third of our revenues. And they've also doubled in the last two years time. We continue to see multiple avenues of sustained growth for all of these revenue streams. Of course, all of this is backed by a highly profitable business model, and we believe that's the right way to grow the business as well. So as usual, a huge thank you to the phenomenal Truecaller team, the people who love and use Truecaller in their everyday lives. We're very excited at what lies ahead, and we will continue executing on the vision that we've set out. With that, we can take some questions.