Truecaller AB (publ)

Callers, Q3 presentation for 2025. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Rishit Jinjanwala and CFO Adbolin. Please go ahead.

Hello, everyone, and welcome to our Q3 report webcast. I'm Rishit, the CEO of Truecaller, and with me, I have Aud Bolin, our CFO. Today, I'll talk about how we performed in the quarter in a few important areas, and then I'll hand over to Aud to talk about the financial performance, and then we'll open up for QA, as always. So let's get started with the highlights of the quarter. In Q3, while our recurring revenue streams continued to show strong growth, our ads business came in soft, being unfortunately affected by a few external factors. Our recurring revenue grew by 32% year on year, 48% in constant currencies, which is a number I'm very happy with. This has been an area where we've invested heavily over the years, and we continue to believe that our broader strategy of growing recurring revenue is falling into place nicely, and it sets us up for long-term by having higher quality and predictable revenues that are less affected by external factors. Truecall for Business continued growing in established markets and new markets. FX headwinds did have a material impact here, but we're clearly continuing to add more value to enterprises, and we will expand further in this area. Premium subscriptions are showing strong growth too. Multiple markets are showing strong performance. And in fact, we see some markets where we have a conversion of 5% to 8% versus our global average of 0.7%. Growth came from both Android and iOS platforms, with iOS specifically being up 20% quarter on quarter. Again, something I'm very happy about. In our advertising business, the quarter started out really well. But we had a few setbacks in the second half of the quarter. Our largest demand partner rolled out an unannounced algorithmic change related to click tracking on their platform, which affected several publishers, including us. Additionally, the ban on real money gaming in India affected overall demand as well. And this was all in addition to the uncertainty created by the tariff situation and the GST tax reforms in India. In the near term, we foresee headwinds given the factors mentioned above, but we're working harder than ever before to make sure that our ads business is resilient to such external factors. Now I want to talk a bit about our ads business in general and our strategy for it. Our ads business is fundamentally a sound business and will continue to be an important revenue source for us. But what got us this far will not take us to the next phase of growth. While programmatic has been the core of our advertising revenue historically, our strategy now is to create more sophistication in our own direct offerings, reducing the dependence on programmatic advertising. But what do I mean when I say more sophisticated? Firstly, creating proprietary ad products powered entirely through our own ad tech platform, as opposed to generic ads, which can be bought programmatically from ad networks at low CPMs. And to demonstrate how this is impactful, in Q3, more than half of our direct sales revenue came from such premium inventory formats, such as roadblocks, Truecaller masthead, and Truecaller play, underscoring the need and the growth opportunity for such ad products. Secondly, our ad tech stack will leverage our first party data, which is a very rare asset that we hold. We have signals that very few platforms in the world have because we are a global communication surface. And we're confident that we can deliver the best ROI to brands globally using our intelligence. And again, as an example of this, we've seen 50% higher click-through rates when our AI recommendation engine advantage was used in numerous proof of concept campaigns so far. And we're actively working on making advantage an important pillar of our ad tech stack. This therefore means less dependence on large programmatic partners and more emphasis on direct sales. And we have made progress on this too. Our two largest programmatic partners used to be 71% of our total revenues in 2022, and now it's approximately 45% in Q3 of 25. So we've diversified that a lot, but we still have more to do. Another important part of our ad strategy is our geographical spread. Truecaller is a household name in many markets addition to India. And those markets show great potential both in programmatic as well as direct sales. We've increased our regional efforts in these markets and have already started showing encouraging results for us. So all this we believe will create a more controllable, predictable, and high-quality ads business in the future, and one that is immune to external events that we spoke about earlier. We've been working hard to make all this happen, and I'm confident we'll get to a better stage very soon. Truecaller continued to show strong growth across the world in the third quarter. We recently announced that we hit 450 million users on Android globally. In India, we grew strongly in this quarter. And outside of India, we're very happy that we have multiple markets growing at over 20% year on year now. These are large markets that hold significant promise for the future for us. Many of them are in LATAM, Southeast Asia, and Middle East and Africa regions. And not only are we growing, but the engagement on the product continues to stay healthy with 86% of our users using the product daily. So we essentially add about 1 million users each week onto our platform, mostly organic, which very few companies in the world can achieve. We process 9 billion calls through our platform, which demonstrates how useful we continue to be in people's lives. And going ahead, we're going to continue to focus on user growth to lay foundations for long-term sustained growth. So that was a quick recap from my side on how we fared in Q3 and what are some of the priority areas and how we're thinking about it. I'll now hand over to Odd for the financial performance.

Thank you, Rishit. So let me, as usual, walk you through the financials for the quarter. This quarter has been characterized by three major factors or trends, namely a continuing very good growth for our recurring revenues, some substantial ads headwinds, and then currency effects. Like before, to make it easier to understand the underlying development for our business, we will give you the net sales and EBITDA development in both Swedish crowns and in constant currencies this quarter. 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 and managing exchange effects, which limits the precision we can achieve. That should be kept in mind. Now, in Swedish crowns, our net sales grew by a meagre 2%, but looking at it in constant currencies, growth was 14%, a decent figure considering market conditions for ads. EBDA decreased by 2% in Swedish crowns, but grew by 14% in constant currencies. The EBDA margin was 34.7% in Swedish crowns, but slightly higher, 36.6% in constant currencies. What I really want to emphasize here is the continuing strong growth of our recurring revenues. While the currency effect was substantial in particular for Tukor for Business, recurring revenues grew by 32% year-over-year or 48% in constant currencies. Considering the size of this business now, this is a growth rate that we are very, very happy with. Now our ads revenues who are 10% decline in Swedish crowns, 1% decline in constant currencies. This is obviously something that we are fundamentally unhappy about and like Rashid has described, we are taking a number of actions to mitigate this both short and long term. However, let me just reiterate the main causes for the weak ads revenue. Our largest ad demand partner in mid-August, August 13th to be specific, made a change to their ads algorithm, meaning that our click-through rates via that demand partner tanked. We are in the process of mitigating this change in a number of ways, but the final outcome of this is still uncertain. It, however, further strengthens us in our belief that we should continue diversifying our demand partner network and decrease dependency on a few large players that tend to set and change the rules as suits them. Secondly, the ban on real money gaming in India reduced auction pressure on demand in the overall ads market, thereby reducing both fill and prices. This then came on top of the general uncertainty that we have seen since the present tariff controversies that were initiated that very much involves India. Now, like I've already mentioned, we are on a path to become less dependent on external factors outside of our control. We work on geographical diversification and expand, for example, in the Middle East and Africa and as well as in Latam. In Middle East and Africa, our sales grew by 12% in constant currencies during the quarter. We also work diligently to increase our direct sales. We onboarded 27% more new customers in the quarter than we've done in previous quarters, including logos like Apple, Honda, and Swiggy. We also expand our footprint in industry verticals where we have had a weak presence previously, such as travel, retail, and auto. Importantly, we started monetizing both Mastered and Truecaller Play and did our first six successful campaigns based on these products. Last, but certainly not least, we did full-scale testing of our advantage AI ads targeting platform tool, where we could see a 50% increase in click-through rates based on our better user targeting. Now over to our premium subscriptions. Subscription revenue grew by a very good 55% in constant currencies, 43% in Swedish crowns. I apologize for there being a slight error in the report where we say that we reached 87 million Swedish crowns during the quarter. That was unfortunately the second quarter number. The actual number for the third quarter is 96 million. meaning that we grew like I said 43% in Swedish crowns versus the same quarter last year. Now we reached 3.3 million users on average with the conversion rate increasing from 0.59% to 0.69%. Although this figure still is small, we continue to believe very strongly in the growth potential in this business and aim to grow the conversion rate substantially over time based on ever more important functionality for our users. Monthly revenue per user also continues to grow with more iOS users being a contributing factor. So for subscriptions, all underlying metrics are pointing in the right direction this time. We already have a strong product market fit, which is obvious from our growth rates on both iOS and Android. The geographical revenue distribution is healthy, with all regions growing well. We see good growth rates in markets with high potential, both short and long term, such as Nigeria, Colombia, Brazil, and the US. We also have a number of markets where conversion rates already are up to between five and eight percent, such as the US, Chile, UK and Indonesia. This motivates us to work even ever harder in order to increase conversion in markets where it still is very low. It is obvious to us that our product is such that the potential for the monetization continue to be very large. IOS revenue growth continued to be good, 65% year-over-year during the quarter. Now, True Cool for Business also continues to grow at a good rate. The growth rate in Q3 was a healthy 39% year-over-year in constant currencies, although in SEC it came out at 21%. True Cool for Business gets all its revenues in INR and USD, which has been hard hit by the strengthening of the Swedish crown. Revenue churn continues to be low, while all revenue streams within True Cool for Business continue to do well. The growth in True Cool for Business revenue comes from good growth numbers for all revenue streams. Verified business is growing in India, but also rapidly outside of India. This quarter, the growth rate outside of India was 75%. We also launched True Cool for Business in Europe in October. We are in the process of creating a full customer experience platform where we manage a larger share of our customers' user interactions. 75% of our larger customers have now added Call Reason to the services they buy from us, and both Call Me Back and Video Caller ID is gaining traction. Customers using these add-on services almost doubled year over year. A number intelligence product offering continues to scale up well, so far primarily in India, but we're also having initial discussions on international expansion. Business messaging is about to enter its next phase of growth through international expansion. Our gross profit grew by 1% year over year, while the gross margin decreased somewhat to 75.7%. This was an effect of a larger share of our ads traffic coming through partners where we recognize revenue growth since we have full information on the fees paid by the partners and a lower share from partners where you have to recognize the revenue net due to lack of information on the fees kept by those partners. We also saw slightly higher server verification costs during the quarter. Moving to the cost side, let's start with the incentive costs that came down materially during the third quarter. Although what I like to call the dilution cost increased as an effect of the new incentive program that was set in place by the AGM in May, the decrease in the share price meant that the social security bookings for our incentive programs were negative in Q3. It is important to remember that although incentive costs have a substantial impact on our bottom line, they give limited material insight into our operational performance. Part of the cost are accounting figures that reflects a potential dilution that options in RSU eventually may have. Part are accrued social security fees that only will impact cash flow when and if these instruments are in the money at exercise. Our operational performance and our operational leverage is best understood by also looking at our profit excluding these costs, and we therefore present both those numbers. Apart from incentive costs, employee expenses decreased somewhat due to more vacation taken during the Swedish holiday season. Vacation earned during the year is mostly used in Q3, which decreases our cost base. Other external expenses, including user acquisition, preloads, marketing, et cetera, were other stable versus previous quarters. The year-to-date tax rate was 27.9% in line with our continuing message that as more revenue originates and is recognized in India instead of Sweden, the group's blended tax rate increases. We're managing our tax exposure within the limits set by transfer pricing regulations in order to ensure that we fulfill the expectations from both the Indian and the Swedish tax authorities. EBITDA, including the incentive costs, decreased 3% year over year. However, in constant currencies, we saw a 14% increase, once again showing how the strengthening of the Swedish crown has been punishing us this year. The margin was somewhat lower than last year, a direct effect of the ADS headwinds during the second half of the quarter. EBITDA excluding incentive costs decreased by 1% year over year. However, in constant currencies, we again saw a 14% increase. The EBITDA margin excluding incentive costs came in at still healthy 39.8%. The margin was somewhat lower than last year, a direct effect of the ADS headwinds during the second half of the quarter. 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 sales and true call for business grows, more of our revenues comes from end customers and partners other than Google, Apple and Meta. This has increased our DSO compared to the situation 2-3 years ago since payment terms in most of our markets generally are longer than what we have with Google etc. However, we are in good control of our accounts receivables and they are not growing any faster than revenue from those customers and those partners. Last quarter, we saw a brief uptick in working capital due to the fact that 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 was booked as a liability in working capital by June 30th. This obviously had a corresponding impact on cash flow this quarter when we paid those taxes. We still have no financial debt and approximately 1 billion Swedish crowns in cash in short-term investments. Our revolving credit facility of 500 million Swedish crowns is not utilized, but still available for interesting M&A opportunities. We continue to actively evaluate such opportunities, either when we get inbounds coming our way or due to the fact that we see areas where we could further strengthen our product and services portfolio and reduce time to market for important initiatives if we can find the right fits. Now, reflecting on our financial targets, it is quite clear by now that we are unlikely to fully achieve the financial target for 2025 as it was defined back at our IPO in 2021. namely an EBITDA margin, including both FX effects, incentive costs, et cetera, of 35%. 2025 has obviously had its challenges for us, primarily in terms of ads volatility and currency headwinds. Disregarding those currency headwinds, we are actually likely to not be that far away from achieving our target of an EBITDA margin of 35% in 2025, but including those effects, that seems to be an unlikely outcome of the way things look today. Back at the time of the IPO, we set a revenue growth target for 21 to 24, followed by a profitability target for 25 onwards. This implied that we by now should have reached a point where profitability was a more important metric for us than continued growth. That is not the case. We continue to see a huge growth potential ahead of us, both for existing products and services and for potential new products going forward. We have one of the largest digital user bases in the world, and we intend to continue growing our revenues based on that at a strong pace. We continue to invest in our SaaS business because we see that we are not yet close to reaching the full potential of that revenue stream. However, digital advertising is and will continue to be a volatile business. We therefore put even more emphasis on our recurring revenue streams, premium subscriptions and true corporate business. Considering the huge potential that we see based on our user base, we will continue to invest in both products and marketing that may have an impact on our profitability from time to time. The operating leverage we have in our business model is such that we are confident that an EBITDA margin of 35% is more than achievable over time, but some years we may be below that level, some years we will be above. The bottom line is that it is still far too early to predict when we could reach a point where we will put more emphasis on profitability than growth. From a shareholder perspective, we believe that we should work very diligently to continue fulfilling that potential that we see in the market ahead of us. Now, considering where we are today with more than 450 million Android users and a rapidly growing iOS premium user base, we see that the organic growth rate of our Android user base is quite satisfying, as is. This is not least true in geographies where we see a huge medium to long-term potential for all our revenue streams. Like Rashid pointed out, we see 20% year-over-year growth in many of those regions. but where we at present monetize less effectively than we do in some of our largest markets. We therefore consider investing less in accelerating that user growth through user acquisition for the time being. Instead, we will increase our investments in new products and functionalities that benefit our existing user base and customer bases in order to create even more value and increase our monetization potential. With that, I will hand over to Rashid again.