AFFLENSENovember 29, 2021

Affle 3i Limited

9,230words

70turns

11analyst exchanges

3executives

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Management on call

Anuj Khanna Sohum

Chairman, Managing Director

Kapil Bhutani

Chief Financial & Operations Officer

Aniket Pandey

Prabhudas Lilladher

Key numbers — 40 extracted

104%

highest CPCU rate, highest EBITDA and PAT till date. We delivered revenue growth of approximately 104% y-o-y and 80% q-o-q and achieved Q2 Revenue CAGR of 65.7% over the last 3 year period, much ahead

80%

te, highest EBITDA and PAT till date. We delivered revenue growth of approximately 104% y-o-y and 80% q-o-q and achieved Q2 Revenue CAGR of 65.7% over the last 3 year period, much ahead of the indu

65.7%

elivered revenue growth of approximately 104% y-o-y and 80% q-o-q and achieved Q2 Revenue CAGR of 65.7% over the last 3 year period, much ahead of the industry growth trend. Our CPCU business noted a s

48.7 million

, much ahead of the industry growth trend. Our CPCU business noted a strong momentum delivering 48.7 million user conversions during the quarter, an increase of 73.3% y-o-y at an INR 51 CPCU rate. Our gr

73.3%

ted a strong momentum delivering 48.7 million user conversions during the quarter, an increase of 73.3% y-o-y at an INR 51 CPCU rate. Our growth was broad based across our top industry verticals and

INR 51

m delivering 48.7 million user conversions during the quarter, an increase of 73.3% y-o-y at an INR 51 CPCU rate. Our growth was broad based across our top industry verticals and from both India and

66%

to build local on-ground presence in newer international markets. The contribution stood at about 66% International and 34% India in this quarter. Our focused execution on Affle2.0 strategy has ena

34%

nd presence in newer international markets. The contribution stood at about 66% International and 34% India in this quarter. Our focused execution on Affle2.0 strategy has enabled us to drive deepe

74%

ry verticals. This has strengthened our moat and our Direct customers contribution has grown to 74% of our revenue in H1 FY2022 vs 57% in FY2020. Our Consumer Platform propositions, tech IP portfol

57%

ed our moat and our Direct customers contribution has grown to 74% of our revenue in H1 FY2022 vs 57% in FY2020. Our Consumer Platform propositions, tech IP portfolio and all our organic and inorga

Rs. 2,747 million

ar-on-year strong growth momentum - In Q2 FY2022, the Company reported Revenue from Operations of Rs. 2,747 million, a growth of 103.6% y-o-y. Sequentially, Q2 revenue increased by 80.2% q-o-q. We have seen grow

103.6%

- In Q2 FY2022, the Company reported Revenue from Operations of Rs. 2,747 million, a growth of 103.6% y-o-y. Sequentially, Q2 revenue increased by 80.2% q-o-q. We have seen growth in revenue coming a

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Guidance — 20 items

Anuj Khanna Sohum

opening

“We delivered revenue growth of approximately 104% y-o-y and 80% q-o-q and achieved Q2 Revenue CAGR of 65.7% over the last 3 year period, much ahead of the industry growth trend.”

Aniket Pandey

“Do you expect to repurpose this talent and realize some cost at this moment?”

Anuj Khanna Sohum

“That within this financial year with two more quarters to go, we hope to bring it up to high single-digit contribution.”

Anuj Khanna Sohum

“Going forward into the next year, then build it to mid-teens and further closer to 20% in the coming years.”

Manish Poddar

“Can you help me understand how this cash book would be at the end of this year or for some time next year?”

Kapil Bhutani

“If we may decide to make further investments in expanding the business, that will be a cash-out but there cannot be future guidance on that.”

Kapil Bhutani

“Positively, there will be an incremental cash increase in the balance sheet from the operations.”

Manish Poddar

“To understand that better, post that our cash on books will be around the Rs.”

Kapil Bhutani

“The next tranche is not too heavy, it will be in the near range of around USD 8 million.”

Anuj Khanna Sohum

“We expect to maintain a continuous good cash position and a strong balance sheet.”

Risks & concerns — 3 flagged

There is an impact of about 4% to 5% coming only from Jampp, in our consolidated 11 Affle (India) Limited November 12, 2021 financials.

— Kapil Bhutani

The nervousness or risk around the chain is behind us because we have crossed that hurdle with strong outcomes.

— Ruchi Burde

There is no undue pressure or stress even if have cash sitting there, let us do something or we have the bandwidth, so why don’t you do something?

— Anuj Khanna Sohum

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Q&A — 11 exchanges

Thank you. Congrats Anuj on Affle’s great performance. I have a couple of questions. What is the revenue contribution and margin profile of the Jampp acquisition in this quarter?

Kapil Bhutani

We have a revenue contribution of about 30% on the consolidated basis and a little more than 10% PAT contribution, coming from Jampp. Once Jampp’s tech platform gets fully integrated with Affle’s platform, will there be any redundancy between Jampp and Affle employees who are completely engaged in the R&D process? Do you expect to repurpose this talent and realize some cost at this moment? The integration of Jampp was successfully completed in the last four months post the acquisition was concluded. We are confident that the integration that we have done and the plans that we had prior the acq

Hi Anuj. Congrats on the good performance. Two questions. Firstly, if we look at our base revenue excluding Jampp, we were at Rs. 1,350 million in Q2 last year and now we are at, let’s say around Rs. 1,900 million this quarter organic basis. So, despite that the operating leverage in the business level didn’t much kick in. Could you help me understand if we are passing out the incremental pricing to get more volumes, to achieve higher scale?

Kapil Bhutani

Our gross margin is quite stable, excluding the dip in the gross margin which is reflective of the Jampp acquisition and consolidation. The leverage of the efficiencies which you are not seeing, is because it is getting invested in our human resources to expand our markets and broaden our growth pace. We will continue to invest whatever leverages we are getting into the expansion of the business. We have consistently maintained that Affle is a growth organization and we will continue to invest in its processes as well as manpower to continue our growth momentum. 6 Affle (India) Limited Novembe

Thank you for taking my question. In terms of margins of the previously acquired businesses, starting from Mediasmart. Can we get a rough idea of how and where are they in terms of their progress of margin improvement? Also, with respect to Jampp, our current profitability is around 5%, which is on PAT or EBITDA?

Anuj Khanna Sohum

As mentioned earlier in my discourse, if we look at the pattern of the acquisition that Affle has done, we acquired companies when they were at their break-even level or just at the cusp of turning towards profitability. Then, we have a clear path to bring them to a high single-digit level of profitability in Year 1 and to mid- teens in Year 2. By the time we are in Year 3, we want them to be at the same quality of unit economics that we enjoy in our organic business. With respect to Mediasmart as well as Appnext or any prior acquisition, the phased plan to improve the bottomline contribution

Thanks. The first question is on the recent case filed against Google by a group of interested parties in Texas where it is alleged that Google's demand-side platform has an unfair advantage and it engaged in anti-competitive practices. In the context of India, what is your current opinion on this issue, if you could 9 Affle (India) Limited November 12, 2021 elaborate it? As a follow-up to that question, assuming that the level playing field is created as a result of this litigation, can you explain this scenario by taking us through a hypothetical campaign where Affle can benefit from this fa

Anuj Khanna Sohum

I will take the opportunity to share with all the members on the call that Affle has sixteen years of experience in the ecosystem focused exclusively on mobile marketing unlike other companies, I can proudly say that we have not pivoted or needed to pivot our business model. Mobile marketing has been an anchoring focus and interesting regime of the company till now. The ecosystem has gone through tremendous changes and adaptations over these sixteen years, right from when we started. It was before Google had acquired Android, before Apple had launched anything on the iPhone, Nokia was then the

Congrats on a good set of numbers Sir. In our previous interaction, you had mentioned that inventory and data cost will be in the range of 55-60% of the sales while in this quarter and half year, this ratio has increased. Can you throw some light on how should we look at this ratio going forward? Also, why there is an increase in the inventory of data cost? Lastly, what is our strategy for the same going ahead?

Kapil Bhutani

As you would have seen in our earnings presentation, we consolidated Jampp’s business with Affle’s and that is reflected in our consolidated financials. It was mentioned in Jampp’s acquisition call in July that gross margins for the standalone Jampp business are significantly lower than Affle’s organic margins. There is an impact of about 4% to 5% coming only from Jampp, in our consolidated 11 Affle (India) Limited November 12, 2021 financials. Excluding Jampp, as mentioned this point earlier also, there is no impact on the gross margins on the Non-Jampp business of the company. We have increa

Good Morning and thank you for taking my question. I would like to understand that the average CPCU has been in the range of INR 41 to 42 and this quarter it has spiked to INR 50+. Wanted to understand the reason behind the same.

Anuj Khanna Sohum

Typically, the CPCU is balanced basis the function of business composition between India and the international markets. The international markets have a higher rate compared to what we see in India. This quarter, because our contribution from international business is higher, consequently the CPCU average has gone up to what I believe you have mentioned now. We believe that we can sustain this level of contribution. As India and international mix stabilizes, we will see the CPCU rate stabilizing too. Also, as we improve the verticalization strategy across the newer markets where we are executi

Thank you for taking my questions. Congratulations on a great set of numbers. I have 3 questions primarily. Firstly, if you could give the converted users in the organic business and what was the contribution from Jampp in the converted users this time?

Anuj Khanna Sohum

The contribution from Jampp on converted users has not been published in our earnings reports but it will be sufficient to say that in international market, the CPCU rates are higher and the number of conversions is not so high. In terms of the contribution from organic businesses, it is more than 80%, actually hovering close to 90% is coming from organic business conversions and 10% to less than 20% is coming from the inorganic. The focus of the company as we go forward will continue to be on the converted and conversion-based ROI focussed business models as we execute and expand our business

Congratulations to the team for the excellent numbers. Several questions starting with the US policy changes. Though this forum has discussed it a lot but, we get a lot of questions on this. In the US with the iOS policy changes, we saw diverse impact on the businesses of the small advertisers, wherein the Android system benefited a lot in terms of rate increases. Did we also experience the same, any comments on that?

Anuj Khanna Sohum

Two comments on this. One is - Affle strongly executes in the emerging markets which consequently makes us very strong on Android and secondly, the fact that we had done the acquisition of Jampp. At the time of acquisition, if we look back, when iOS 14 rolled out, we mentioned that we want to take the opportunity heads-on and grow in that segment at the back of our credentials, that Affle is very strong on Android. When the advertisers became shaky on what will happen to iOS and looked for partners who are very strong in Android, we came out and said, hey, we are the strong players in emerging

Thanks for the opportunity and congratulation on a great set of numbers. Most of my questions have been answered. Just couple of minor things that I would like to clarify. Firstly, Jampp was well explained in terms of outlook but from a more sustainable point of view, given the kind of market it is playing in and with the cultural shift that we spoke about, what are the ideal growth rate it should aspire for because the market opportunities could be a little different from what we have, 25%-30% kind of a mindset at the corporate level. So, any inputs on that?

Anuj Khanna Sohum

The underlying assessment for any acquisition that Affle does and it is our internal assessment which I am sharing with you as not only does it apply to Jampp or our earlier acquisitions, but also in future if we do any further acquisitions. The 17 Affle (India) Limited November 12, 2021 playbook is clear. One, we will only acquire those businesses that we believe we can continue to build and grow with the kind of growth momentum that we expect from Affle overall which is to beat the industry growth trend. With about 25% to 30% CAGR growth that we see from a broad business base of digital adve

My congratulations to Mr. Khanna Sohum and the rest of the team on an excellent set of numbers. Will just limit my question to one and it is slightly elaborate. This pertains to Affle’s future growth narrative. So far, the company has been largely focused on visual advertising as a medium. But today we see advertising through voice-based mediums is doing as well and we see for example, Spotify provides voice-based ads in it is a free version before song streaming. We are also seeing conversational e-commerce ads are growing rapidly. Therefore, bearing this in mind, do we foresee this is as a b

Anuj Khanna Sohum

That is a great question. Thanks for your references to our 2Vs strategy of Affle2.0 as well as our voice-based podcast patent that was granted to us in the US. It is right, that this is a growth opportunity for us. When we look at connected households and connected devices. I am elaborating to give a vision or an intense view of how consumers and all of us would behave going forward. The household will have voice-based devices, our wearable devices will have voice commands and we will be changing the lights and the fan speeds and the A/C turn-off using voices. Thus, home automation is expecte

Thank you so much for joining the call today. I would like to congratulate all our shareholders and also those who are interested in evaluating Affle as an investment. Q2 result is a landmark performance and a validation of our entrepreneurial culture, innovation and continued execution focus on the Affle2.0 strategy. We look forward to updating more as we progress in the next half of this financial year. All the best and take care. Thank you.

Management

Speaking time

Anuj Khanna Sohum

Moderator

Kapil Bhutani

Aniket Pandey

Manish Poddar

Divesh Mehta

Alisha Mahawala

Rahul Jain

Samir Choksey

Arun Prashant

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Opening remarks

Aniket Pandey

Thank you Janice. Good morning everyone. On behalf of Prabhudas Lilladher, we welcome you to the Q2 and H1 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 Chief Executive Officer of the company and Mr. Kapil Bhutani, who is Chief Financial & Operations Officer of the company. Before we begin with the questions, I would like to remind you that some of the statements made in today’s conference call may be forward looking in nature and may involve some risks and uncertainties. Kindly refer to slide 21 of the Company’s earnings presentation for a detailed disclaimer. I will now hand over the call to Mr. Anuj Khanna Sohum for his opening remarks. Thank you and 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. Affle delivered a landmark performance anchored on our entrepreneurial culture, tech innovations and continued execution focus on sustainable value creation powered by our Affle2.0 strategy. We concluded the recent quarter with highest revenue, highest conversions, highest CPCU rate, highest EBITDA and PAT till date. We delivered revenue growth of approximately 104% y-o-y and 80% q-o-q and achieved Q2 Revenue CAGR of 65.7% over the last 3 year period, much ahead of the industry growth trend. Our CPCU business noted a strong momentum delivering 48.7 million user conversions during the quarter, an increase of 73.3% y-o-y at an INR 51 CPCU rate. Our growth was broad based across our top industry verticals and from both India and International markets. Powered by our ROI-linked CPCU business model and unique position in the industry, we continue to grow as the preferred mobile mar

Kapil Bhutani

Thank you Anuj. Wishing everyone a good day and hope you all are keeping safe and well. Continuing our year-on-year strong growth momentum - In Q2 FY2022, the Company reported Revenue from Operations of Rs. 2,747 million, a growth of 103.6% y-o-y. Sequentially, Q2 revenue increased by 80.2% q-o-q. We have seen growth in revenue coming across the verticals, platforms and geographies. Our H1 FY2022 revenue stood at 4,272 million, a growth of 90.1% y-o-y. Our EBITDA for this quarter stood at Rs. 521 million, an increase of 51.1% y-o-y and 48.6% growth q-o-q. EBITDA margin stood at 19.0%. Our EBITDA margin is lower than the previous period on account of the business combination of Jampp. Going ahead, we are confident of further optimizing the business model and the platform of Jampp, to enable margin expansion over time. We will continue to invest in our teams to deepen our market penetration and enhance our tech capabilities. We have recently floated our Employee Stock Option Scheme (ESOS

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