OnMobile Global : Q1 FY23 Investor's Call Transcript

"OnMobile Global Limited Q1 FY23 Earnings

Conference Call"

August 4, 2022

MANAGEMENT: MR. FRANCOIS-CHARLESSIROIS - EXECUTIVE

CHAIRMAN

MR. SANJAY BAWEJA - MANAGING DIRECTOR AND

GLOBAL CEO

MR. ASHEESH CHATTERJEE - GLOBAL GROUP CFO

MR. BISWAJIT NANDI - SENIOR VP, GLOBAL SALES

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OnMobile Global Limited

August 4, 2022

Moderator:Ladies and gentlemen, good day and welcome to the OnMobile Global Limited Q1 FY23 earnings conference call. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing '*' then '0' on your touch-tone telephone. Please note that this conference is being recorded.

I now hand the conference over to Ms. Asha Gupta from Ernst & Young Investor Relations. Thank you and over to you, ma`am.

Asha Gupta:Good day and welcome to Q1 FY23 Earnings Call of OnMobile Global Limited. Representing the management today, we have FC - Executive Chairman; Sanjay Baweja - Managing Director and Global CEO; Asheesh Chatterjee - Global Group CFO, Biswajit Nandi - Senior VP, Global Sales. The call will start with a brief update about the overall performance during the quarter given by Sanjay Baweja.

Asheesh will update on financials, which will be then followed by FC speaking on overall business activity and sharing his thoughts on future plans. We will then open the floor for Q&A session.

I would like to mention that some of the statements made in today's call may be forward looking in nature or may involve risks and uncertainties that we see. This list of such considerations, please refer to the earnings presentation. OnMobile Global undertakes no obligation to publicly revise any forward-looking statement to reflect future or likely events or circumstances.

Having said that, I now hand over the floor to Sanjay sir. Sanjay, over to you.

Sanjay Baweja: Hello and good day to everyone. I am glad to be with you all once again and hope you are all doing well. Let me take this opportunity to thank all of you as well as our customers and team members for your continued trust in us. The Results and Presentation are already hosted on our website and hopefully all of you had a chance to look at them.

At the outset, I would like to introduce to you Nir Efrat, who joins us as the CEO of ONMO. He has had an illustrious career of over 25 years as a software and product development leader, and in fact, he has spent his last 12 years in leading a gaming business across the globe, growing franchises, launching titles, and generating revenue in hundreds of millions. An engineer by training, Nir has also spent 6 years in the Israeli Airforce developing software for combat aircrafts. By education, Nir has an MBA from Kellogg School of Management. For OnMobile, he is a great addition to the team and we expect that he will really make a huge difference to our gaming foray. Nir, of course, will be an integral part of these calls going forward. Welcome Nir, thank you.

Now, I will give a brief update on our products and business and then Asheesh will talk you through the highlights of our financial performance.

Let me begin with the updates on the Challenges Arena:

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OnMobile Global Limited

August 4, 2022

Q1 FY23 was in fact our most successful quarter for Challenges Arena in terms of sales. Twelve new customers agreed to our terms for Challenges Arena taking our cumulative agreements to

38. Out of these, twenty are already live as of the end of Q1 FY23. We expect the momentum to continue and these cumulative agreements to reach around 46 by the end of quarter 2 driven by successful outbound sales efforts which will result in higher sales in FY23. In fact, as of end of July 2022, we already have 42 customer confirmations and if we split it geography-wise, Middle East and Africa lead the geographies with 20 customer confirmations followed by 14 in Asia, 6 in Europe, and 2 in Latin America. Further, out of these 42 customers - let me say that - 28 are actually new logos which is almost 67% out of that. And that in itself is a very significant achievement from a sales perspective and for our future opportunities perspective in terms of cross-selling other products also to them.

Challenges Arena contribution to the total revenue continues to go up. It has increased to 7% in Q1 as against 5% last quarter. Revenue, if you were to look at Q1 last year versus now, has increased by 11x from a year-on-year perspective which evidences strong traction for the product. Robust revenue growth is expected to continue in the future quarters as more and more new clients go live. We aspire the momentum in the coming quarters. I will, at this stage, like to reiterate the guidance shared last quarter that we are aiming for a decent double-digit growth for overall OnMobile revenue in FY 2022-23 which obviously we have not seen in the past few years to say the least.

In terms of usage and actual consumers, the cumulative gross paying subscribers at the end of the quarter stood at 6.7 million as compared to 4.4 million last quarter, a growth of almost 52% quarter-on-quarter. We are targeting to touch almost 10 million - about 9.8 million - customers in Q2 FY23 which will be our highest gross addition in a single quarter till date. We are continuing to see a healthy pipeline and expect to be live and sign many more clients in the coming quarters. Challenges Arena's net active base also doubled every quarter in FY22, and in FY23, the net active base increased to 1.66 million from 1.33 million in Q4 FY22. We are targeting to touch 2.57 million customers in Q2 FY23, which is an addition of over 1 million active subscribers from the current quarter numbers. Also, to achieve the base of 1 million active subscribers, we took almost 4 quarters; 1.33 million in Q4 FY22 like we earlier said, and now, we will be increasing the next 1 million in only 2 quarters so that really shows our strength and success in Challenges Arena.

Let me add that this is also clearly a lead indicator for the revenue generation that we are likely to see. Not to mention something that you already know that this is a subscription business and as we continue to add subscribers, revenue will have a multiplier effect. We are confident actually that going forward, we will see significant revenue growth coming from Challenges Arena. I would like to reiterate that we continue to see good traction here. We are noticing an exponential increase in multi-active users for this segment.

Now, let me also talk about profitability of Challenges Arena:

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OnMobile Global Limited

August 4, 2022

As mentioned during our conversation in the last quarter, we are initially investing in growth through a disproportionately high marketing spend, especially in the new geographies or operators that we are continually going live with. We expect this to settle down by the next quarter leading to a much better profitability from Q3 onwards. CA - the product which intrinsically has a significantly higher EBITDA as compared to our existing products, at a steady state, we expect the product to generate an EBITDA of more than 30%. Also, this will reflect well on our overall profitability of the B2B business. As you all must have noticed, our gross margin has already started to improve on a quarter-on-quarter basis and we expect this trend to accelerate in the coming quarters.

Coming now to ONMO:

I am happy to inform you that ONMO B2B business has started generating revenue from this quarter. The amount as of now is very small but has given us tremendous confidence in the power of the product. We are already looking at growing this B2B revenue by more than 4x in Q2 itself. Our confidence comes from the fact that at the end of Q1 FY23, we had 12 customer confirmations. Three of them are live and two of them actually just went live in May-June. So, the impact of that revenue will start showing in Q2 itself. We are again seeing a lot of traction among the prospective customers. I would like to reiterate that we expect ONMO B2B to follow the revenue trends of Challenges Arena with probably a steeper growth trajectory.

During Q1 FY23, to start awareness about our D2C product, we launched our marketing campaign in India, which got a very positive response from everyone. In terms of numbers, we reached 3.5 million people on our key social platform, total 8 million plus impressions, and the campaign had a total of 6 million plus views. We are also seeing good early traction on the product with our campaign bringing in 2.1 million new users on ONMO. Importantly, we also saw 22% registrations coming from Chingari in the month of June, although we expect this to be much bigger in terms of numbers going forward.

We would continue to see growth in the coming quarters and increase all critical KPIs quarter- on-quarter. Going ahead, we will be doing more campaigns to create product and brand awareness. We are continually tracking performance of our campaigns to optimize them over time and with the shift focused towards getting engaged users on ONMO. These optimizations are also focused on bringing down the cost of acquisition for us.

Another important area of focus for us is to improve the product and platform performance. On the product front, we are focusing on delivering a great onboarding experience for users which ties with our goals of increasing player engagement. Simple features like "Just Beat It" help a lot in this direction. We will soon be delivering our social suite of features which are a core part of our proposition and loved by our telco partners as well, which will add to our overall B2B adoption.

On the platform front:

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OnMobile Global Limited

August 4, 2022

We have made great progress by optimizing our solution to handle more users per server. This will bring down our cost of hosting the service considerably. We are also upgrading our streaming platform to be compatible with a wider game library which will help us quickly onboard a vast set of games targeting consumers across different age groups. So, the next quarter is actually going to be really exciting for both ONMO on the D2C front and the B2B front.

Let me also say at this stage that all our other products:

The legacy ones except videos which is slightly down primarily due to euro impact are stable and showing growth. Clearly, the legacy products are showing stability and maybe a little growth whereas Challenges Arena and ONMO will get more and more growth.

I would like to mention something on the cash on the balance sheet and fund-raising. While we have invested on product development, our intent is to ensure that the big spending on the D2C marketing will happen post our fund-raising at an appropriate time. Until that time, it is our endeavor to keep enough cash which will get augmented through our profitability which is likely to get better in the coming quarters. With this, I would like to hand over the call to Asheesh to talk more about the financial performance.

Asheesh Chatterjee: A warm welcome to everyone on this call. I will share the key highlights of our financial performance for this quarter ended June 30th, 2022. We reported revenues at INR 141 crores, a growth of 5.9% on a sequential basis and 4.4% on a YoY basis. The growth was primarily driven by Challenges Arena, tones, games, and infotainment. The traditional business, as Sanjay mentioned, continues to be stable and growing. We today have approximately 100 active operator relationships globally, which will form the base on which new businesses like Challenges Arena and ONMO will be scaled up in the coming quarters.

On the cost front:

In Q1 FY23, there was an increase of 15.3% in manpower cost sequentially. This increase was primarily due to investments on upscaling. Our marketing cost grew by 15.7% quarter-on- quarter primarily due to increased investments in new products and other digital products. EBITDA stood at INR 7.8 crores with a margin of 5.8% for the quarter. The drop in EBITDA was majorly due to increase in marketing investments. We should see improvements in margins as revenues from Challenges Arena scale up and marketing costs normalize.

Our profit after tax was INR 4.1 crores with a margin of 3%. From a product perspective for Q1 FY23, Challenges Arena, tones, and games saw a good uptick in segmental revenues as well as contribution to the total revenue on a sequential basis. While videos was stable, the small decline is only on account of FX conversions.

In terms of geography:

India registered the highest growth of 23.6% on a quarter-on-quarter basis during the quarter. As Sanjay mentioned, I would echo the same that going forward, we would expect to see a decent

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