AFFLENSEQ1 FY2022September 1, 2021

Affle 3i Limited

8,779words

71turns

9analyst exchanges

3executives

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Management on call

Anuj Khanna Sohum

Chairman, Managing Director

Kapil Bhutani

Chief Financial & Operations Officer

Rahul Jain

Dolat Capital Market Private Limited

Key numbers — 34 extracted

70%

anchoring our continued focus on sustainable long term value creation. We achieved approximately 70% year-on-year revenue growth in Q1, comprehensively beating our Q1 CAGR growth trend of 41% which

41%

mately 70% year-on-year revenue growth in Q1, comprehensively beating our Q1 CAGR growth trend of 41% which is well above the industry average growth trends. We attained 152crore+ quarterly revenue

152crore

Q1 CAGR growth trend of 41% which is well above the industry average growth trends. We attained 152crore+ quarterly revenue and further strengthened our position in the ecosystem with enhanced platform

71%

the E, F, G and H industry verticals. As a result, our Direct customers contribution has grown to 71% of our revenue in Q1 FY2022. 2 Affle (India) Limited August 09, 2021 Our investmen

31.5 million

ing from both India & International markets. Our CPCU business noted a strong momentum delivering 31.5 million user conversions during the quarter, an increase of 85.0% y-o-y at a healthy Rs.42 CPCU rate. O

85.0%

ted a strong momentum delivering 31.5 million user conversions during the quarter, an increase of 85.0% y-o-y at a healthy Rs.42 CPCU rate. Our India and International contribution balanced at about 50

Rs.42

ivering 31.5 million user conversions during the quarter, an increase of 85.0% y-o-y at a healthy Rs.42 CPCU rate. Our India and International contribution balanced at about 50:50 each, will see a chang

Rs. 1,525 million

market expansion and consolidation. In Q1 FY2022, the Company reported Revenue from Operations of Rs. 1,525 million, a growth of 69.8% year-on-year. Our EBITDA for the quarter stood at Rs. 351 million, an increase

69.8%

n. In Q1 FY2022, the Company reported Revenue from Operations of Rs. 1,525 million, a growth of 69.8% year-on-year. Our EBITDA for the quarter stood at Rs. 351 million, an increase of 56.0% year-on-y

Rs. 351 million

rations of Rs. 1,525 million, a growth of 69.8% year-on-year. Our EBITDA for the quarter stood at Rs. 351 million, an increase of 56.0% year-on-year. In terms of Opex, Inventory and Data cost was at 58.0% of Rev

56.0%

growth of 69.8% year-on-year. Our EBITDA for the quarter stood at Rs. 351 million, an increase of 56.0% year-on-year. In terms of Opex, Inventory and Data cost was at 58.0% of Revenue from Operations,

58.0%

351 million, an increase of 56.0% year-on-year. In terms of Opex, Inventory and Data cost was at 58.0% of Revenue from Operations, in line with the previous annual trend. You would have noticed that

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Guidance — 20 items

Anuj Khanna Sohum

opening

“We achieved approximately 70% year-on-year revenue growth in Q1, comprehensively beating our Q1 CAGR growth trend of 41% which is well above the industry average growth trends.”

Anuj Khanna Sohum

opening

“We look forward to taking you through our platforms and case studies during the Analysts & Investors Day that we plan to organize later this year.”

Anuj Khanna Sohum

opening

“Our India and International contribution balanced at about 50:50 each, will see a change in favour of International from the next quarter due to the consolidation of Jampp and our greater on-ground presence in LATAM.”

Anuj Khanna Sohum

“The advertisers will need to shift at least 50% of their total ad spends on digital devices across emerging markets and we will see a continuous CAGR growth in digital advertising spends.”

Anuj Khanna Sohum

“In terms of our focus on which vertical will deliver better growth, our top 10 resilient verticals across the E, F, G, and H category on which Affle has anchored over 90% of the business are seeing consistent growth.”

Mohan Kumar

“Firstly, as we had a strong Q1, what is the organic growth rate that we can expect for this year?”

Mohan Kumar

“Can we expect a larger growth rate over that over the next year?”

Anuj Khanna Sohum

“We aim to grow Jampp better than what they did last year on top-line as well as improve the bottom line substantially.”

Anuj Khanna Sohum

“Also, some guidance was given on the same in our Jampp specific call last time, mentioning our ambition and roadmap on this.”

Mohan Kumar

“Can we expect an announcement of a deal over the next quarter or a 8 Affle (India) Limited August 09, 2021 sizeable acquisition in the near term?”

Risks & concerns — 7 flagged

Just because we have cash from QIB, there should be no added pressure to go ahead and deploy it.

— Anuj Khanna Sohum

Mostly, we are working with large enterprises and with a long chain of customers, but Affle operates with a comprehensive risk management framework.

— Anuj Khanna Sohum

Before we take bigger business or volume and the growth from any customer, a risk assessment is done on the creditworthiness of that customer.

— Anuj Khanna Sohum

We know that the risk is not as large in the android ecosystem as the iOS ecosystem but are we hedging our best through creating an alternative mechanism in case Google adopts something like that.

— Rishit Parikh

Hence, they are trying to de-risk from the cookie to have an ID that works together and the same applies to companies like Criteo.

— Anuj Khanna Sohum

Wanted to know the margin compression in the international business Q-o-Q.

— Onkar Ghugardare

Is there too much change in the geographies mix Q-o-Q leading to this kind of margin compression or what is it like?

— Onkar Ghugardare

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Q&A — 9 exchanges

Congratulations on a strong quarter and touching the record CPCU rate & conversions. Could you enlighten us on how our business is shaping on dimensions such as a change in privacy policy and an increasing shift of digital media budget? Also, is there any specific vertical within the E-F-G-H category that is driving our momentum and the pricing trend both in terms of our CPCU and the inventory cost across key markets?

Anuj Khanna Sohum

Thank you for your questions. Our privacy policy has been mentioned in the Jampp specific investor call also and we had a good discussion on the same. We see this as a long-term trend, which has already got some history to it. The personal data protection act in Singapore or GDPR in Europe has been around for several years. These regulations provide the consumers with an opt-in and opt-out mechanism at any point in time, which the digital ecosystem must honor and comply with it from regulatory requirements perspective. When we further see the privacy policies, their impact and what is happenin

Congrats on a great set of numbers. My question is threefold. Firstly, as we had a strong Q1, what is the organic growth rate that we can expect for this year? Will Jampp have a better run rate than they had reported last year ? The final question 7 Affle (India) Limited August 09, 2021 is on connected TV apps, we have signed a number of clients over the last couple of months and with Jampp giving us in-roads into the US where connected TV is a bigger ecosystem. Can we expect a larger growth rate over that over the next year?

Anuj Khanna Sohum

Great questions. Indeed, Q1 was a fantastic quarter for us. In our quarterly organic growth trends, Q3 is generally the peak of our performance in any given financial year followed by Q2 and then Q1. Q4 is somewhere between Q2 or Q1. Thus overall within this year, we should see healthy organic growth without Jampp. With Jampp getting added, first and foremost we will look at the unit economics of Jampp, next at what CPCU rate can they sell, what kind of conversion can we drive, extracting higher value on unit economics and turning Jampp fundamentally profitable at each unit economic assessment

Good morning. Thanks Anuj, for a great set of numbers and congratulations to your team on delivering a consistently good outcome. A small question on what is the churn rate of our customers?

Anuj Khanna Sohum

Let us answer that with two lenses. Affle has an ROI-linked CPCU business model which means we work with customers and campaigns with a clear disclaimer to drive their campaign to the extent, healthy conversions with consumers are seen. If any advertisement campaigns are on board and Affle keeps advertising them but the consumers are not getting converted for that particular advertiser, Affle would go back to the advertiser and can refuse to run their business as there aren’t enough conversions with consumers happening. As we are a consumer platform company, we have a wide base of access and r

Congratulations on good numbers. Few questions. One is on the Appnext ecosystem, the acquisition of DiscoverTech and investment in Bobble AI. Could you please help us understand what is happening in those areas? When can we expect traction from these acquisitions? Also, any color on monetization strategy would be helpful? I have follow-ups too. Anuj Khanna Sohum: When we look overall at Affle’s business, I made two very distinct points and would like to revisit them. One was on-device engagements with consumers as part of our customer platform. What does on-device engagement mean? It means tha

Rishit Parikh

Do we have any revenue numbers from these investments or it is largely something which may come, let us say in Q2 to Q4? The numbers are currently not significant. When they will become significant, we will update them. Overall, all these platforms are seeing great adoption in the ecosystem with partners. Most importantly, when compared with companies like 12 Affle (India) Limited August 09, 2021 Digital Turbine, Iron Source, or any private companies in this space, Affle can stand tall and vouch that our products and platforms address the end-to-end consumer platform and the consumer’s journey

Thank you for taking my question. Congratulations on a great performance. My question is on the margin. Is the margin weakness purely attributable to the increase in employee count because even our CPCU rates have improved? Could you shed some light on the margin weakness on Q-o-Q and Y-o-Y basis?

Kapil Bhutani

The EBITDA margins are about 2% down from the previous quarter and approximately 1.5% margin impact can be attributed to the employee expense. While our Gross Profit margins were stable, the primary contributor is the increase in employee cost. What would be the equilibrium level of margins going ahead. Any qualitative guidelines on the same? We believe we should be able to sustain at the current level of margins i.e. about 25% EBITDA without adding inorganic numbers into it. Organically, we are comfortable with 25% of the EBITDA margin. What is the latest employee count? It is around 420 plus

Congratulations on a great set of numbers as well as the consistent delivery of your promises. Wanted to understand the broad perspective of the open internet to walled gardens as it can be seen playing over the next 5 years. Are we seeing increased momentum in the open internet market when compared to walled gardens especially since the last 3 years of Apple’s privacy policy? Also, if it is true that the open internet space is gaining momentum, and since you consistently talk about the huge 10 billion connected devices opportunity for Affle over the next 10 years. Do you see the existing digi

Anuj Khanna Sohum

That is a great question. Thank you for keeping the emphasis on long-term strategy and bringing the 10 billion connected devices vision and goal of our company in line to the Affle2.0 strategy for this decade. Let us go with the definitions first, what is open internet and walled garden? The walled garden was a term that was coined with the respect to the value-added services where operators were saying that only if the product is on our WAP site or the operator's portal, only then the consumer can use/consume/purchase it or the billing will also be controlled by the operator. It was meant for

Congratulation on a strong set of numbers. My question is about your direct customer business. Could you explain the factors that are driving this particular trend of elimination of ad agencies? A follow-up to that is will this trend manifest into more sales and marketing efforts for Affle?

Anuj Khanna Sohum

Great question. Looking at the positives of this trend set which are: having a direct integration with your customer, invoicing them directly, contracting them directly and collecting from them directly has huge advantages in itself. Agency business is a very important business and a different proposition. A lot of the large global companies are mandated to work with agencies. They have to use the agencies for all their advertising touchpoint. Therefore, the agencies are important partners for Affle. We are a neutral entity as far as this trend is concerned. We are receiving this trend with op

Wanted to know the margin compression in the international business Q-o-Q. It was mentioned that it is due to the employee cost but there is a significant more than 50% drop in the international business Q-o-Q. Any reason for that?

Kapil Bhutani

International business is an aggregation of different geographies. Different geographies have a different margin span. As the cyclic effect of all those geographies happens, there is a certain amount of compression on the margin in certain geographies and that will improve over time. Is there too much change in the geographies mix Q-o-Q leading to this kind of margin compression or what is it like? It is not only the cyclic effect but also certain campaigns that give higher margins or higher ROIs or lower margins. It is a combination of all. We believe them as fair numbers at the moment and we

Thank you everyone for joining today and for your detailed questions. I would like to conclude this meeting by stating that your company Affle is stronger, not just in terms of the financial outcomes of this quarter, but fundamentally and strategically with a long-term view. Also, we are much stronger on our product, platforms, people, balance sheet, cash position and all of it together including corporate governance. We have adopted the ESG proactively and taken all the efforts that are necessary to be a well-governed company and deliver all-around sustainable growth to all our stakeholders.

Kapil Bhutani

Thanks everybody and stay safe.

Speaking time

Anuj Khanna Sohum

Moderator

Kapil Bhutani

Rishit Parikh

Mayank Babla

Onkar Ghugardare

Rahul Jain

Mohan Kumar

Vikas Mantri

Rajamohan V

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Opening remarks

Rahul Jain

Thank you Stanford. Good morning everyone. On behalf of Dolat Capital, we welcome you all to the Q1 FY2022 conference call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited, represented by Mr. Anuj Khanna Sohum, who is Chairman, Managing Director and CEO of the Company and Mr. Kapil Bhutani who is the Chief Financial and Operations Officer of the Company. Before we begin the discussion, I would like to remind you that some of the statements made in today’s conference call maybe forward-looking in nature and may involve risks and uncertainties. Kindly refer to slide 21 of the company’s earnings presentation for a detailed disclaimer. I will now handover the call to Mr. Anuj Khanna Sohum for his opening remarks. Over to you, Anuj.

Anuj Khanna Sohum

Good morning everyone and thank you for joining the call today. I trust all of you are keeping in good health. We celebrated our 2nd IPO anniversary on August 8, 2021 and what better way to mark the anniversary than to conclude the quarter with our highest revenue, highest conversions, highest CPCU rate and highest cash on our balance sheet anchoring our continued focus on sustainable long term value creation. We achieved approximately 70% year-on-year revenue growth in Q1, comprehensively beating our Q1 CAGR growth trend of 41% which is well above the industry average growth trends. We attained 152crore+ quarterly revenue and further strengthened our position in the ecosystem with enhanced platform and product capabilities across the global emerging markets. Our Affle2.0 strategy anchored on the 2Vs is enabling us to unlock innovative vernacular consumer experiences in partnership with mobile OEMs and operators across emerging markets and driving deeper verticalization for our adverti

Kapil Bhutani

Thank you Anuj. Wishing everyone a good day and hope all of you are keeping safe and well. I would like to thank our investors for supporting the company during the QIP. Our strong cash flows and balance sheet with highest cash balances as of date will ensure that the company continues to invest to drive long-term sustainable growth through innovation, market expansion and consolidation. In Q1 FY2022, the Company reported Revenue from Operations of Rs. 1,525 million, a growth of 69.8% year-on-year. Our EBITDA for the quarter stood at Rs. 351 million, an increase of 56.0% year-on-year. In terms of Opex, Inventory and Data cost was at 58.0% of Revenue from Operations, in line with the previous annual trend. You would have noticed that our Employee cost sequentially increased by 14.5%. This trend continues from the past few quarters as we are enhancing our teams to deepen our access across the global emerging markets. We made additional investments during this quarter in our strategic min

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Affle 3i Limited

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