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Ladies and gentlemen, good day, and welcome to the Affle India Limited First Quarter FY '22 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.
Yes, hi. Thank you, Shankar. Good morning, everyone. On behalf of Dolat Capital, we welcome you all to the Q1 FY '22 conference call of Affle India Limited. I take this opportunity to welcome the management of Affle India Limited, represented by Mr. Anuj Khanna Sohum, the Chairman, Managing Director and CEO of the company; and Mr. Kapil Bhutani, who is 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 may be forward-looking in nature and may involve risk 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. Over to you.
Good morning, everyone, and thank you for joining the call today. I trust all of you are keeping in good health. We celebrated our second IP anniversary on August 8, 2021, and what better way to mark the anniversary than to conclude the quarter with our highest revenue, highest conversion, higher CPCU rates 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 plan of 41%, which is well above the industry average growth plans. We attained INR 120 crores plus quarterly revenue and further strengthened our position in the ecosystem with enhanced platform and product capabilities across the global emerging markets. Our Affle 2.0 strategy anchored on the 2Vs is enabling us to unlock innovative vernaculars in deal experiences in partnership with mobile OEMs and operators across emerging markets and driving deeper verticalization for our advertisers across the EFG hedge industry verticals. As a result, our direct customer contribution has grown to 71% of our revenue in Q1 FY 2022. Our investments across products and platforms are performing very well, contributing meaningfully to overall growth and enabling us to consistently stay ahead of the curve by fortifying our market position. Our scalable platforms have consistently delivered profitable outcomes, resulting in healthy margins and cash flow positive operations. The world is undergoing a paradigm shift with accelerated connected experiences, redefining the digital priorities of advertisers globally and especially across emerging markets. We are optimistic of the emerging industry trends, and we continue to disrupt both traditional and digital marketing business models by leveraging Artificial Intelligence and Machine Learning capabilities to drive user engagement and conversion across the connected devices. We pride ourselves for our differentiated ROI linked CPCU business model. And to elucidate this, we also included the overview of 3 emerging markets state studies in our earnings presentation for India, Indonesia and Malaysia. We look forward to taking you through our platforms and case studies during the Analyst and Investor Day that we plan to organize later this year itself. Affle delivered a broad-based growth coming from both India and international markets. Our CPCU business model and business noted a strong momentum, delivering 31.5 million users conversion during this quarter, an increase of 85% year-on-year at a healthy INR 42 CPCU rate. Our India and International contribution balanced at about 50%, 50% each will see a change in favor of International from the next quarter due to the consolidation of JEM and our greater on-ground presence in LatAm. Our efforts towards enhancing our team globally and building local on-ground presence in key international geographies are paying off well and will augment the next level of growth in the long term. As in this quarter, while India faced the devastating second wave of COVID-19, the resilient nature of our business enabled our positive growth trajectory. I'm extremely grateful to all the Afflers, who not only ensured continuity of growth business plans, but also helped the company provides support to local communities during such times of crisis. Affle is committed to nurturing a culture that drives innovation, heart leadership and collective growth. Keeping with our record and trends of recognition in Accelix, Affle, which is already a great place to work, also received a special badge of honor, commitment to being a great place to work. We are focused on our strategic goals, executing on our long-term priorities and investing wisely. We are also proactively adopting ESG to deliver all round sustainable growth to all our stakeholders. With that, I now hand over the discussion to our CFO, Kapil Bhutani, to discuss the financials. Thank you, and over to you, Kapil.
Thank you, much. 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 its QIP. Our strong cash flow and balance sheet with higher cash balance as of date will ensure that the company continues to invest to drive long-term sustainable growth to innovation, market expansions and consolidations. In Q1 FY '22, the company reported revenue from operations of INR 1,525 million, a growth of 69.8% year-on-year. Our EBITDA for the quarter stood at INR 351 million, an increase of 56% year-on-year. And in terms of OpEx and inventory and data costs was at 58% of the revenue from operations, in line with previous annual trends. You would have noticed that our employee cost sequentially increased by 40.5%. This trend continues from past few quarters as we are enhancing our teams to deepen our access across global emerging markets. We have made additional investments during this quarter in our strategic minority investment, which continues to do well, and we have recorded gain on fair valuation of our investment during the quarter. To provide clarity on our business operations, we have normalized profit after tax for the onetime items in our earnings presentation uploaded on the stock exchanges. Our profit after tax for the quarter stood at INR 357 million and year-on-year increase of 90.3%. Normalized profit after tax, after adjusting the gain for investments, was INR 295 million, an increase of 57.2% year-on-year. We remain focused on working capital management. Even during the second wave of COVID, our collection efforts were resilient. Our cash flow from operation was INR 396 million, and the operating cash flow to PAT ratio was 134.2%, which shows quality of our customers and robustness of our operations. With this, I would like to end my presentation -- our presentation. Let's please open the floor for questions.
[Operator Instructions] The first question is from the line of Rahul Jain from Dolat Capital.
Congratulations on a strong quarter and also touching the record CPCU rates and conversions. So I would like you to enlighten us on how our business is shaping on popular dimensions such as changing previous policies, increase shift of media budgets towards digital. Any specific vertical within EIGH that is driving your momentum? And also the pricing trend, both in terms of our CPCU rates and inventory costs across key markets.
Thank you for your question. Rahul, privacy policy, as I have mentioned in our, I think, Jain specific investors all that also happened, I think there was a good amount of discussion on that. We see this as a long-term trend, which has already got some history to it. If you see the Personal Data Protection Act in -- or GDPR, it's been around for several years. And what these regulations do is provide the consumers the opt-in and opt-out mechanism at any point in time, the digital ecosystem must honor and comply with from regulatory requirements perspective. When will we see further the previous policies and what is the impact and what's happening on the larger internet specific ecosystem, say, what's happening on iOS or what's happening on Android, what's happening on the browser and the cookies, I think what we need to look at is, first and foremost, the fundamentals of this business. The fundamentals are like this. The consumers are on digital screens. The advertisers are shifting the budget comprehensively towards digital. The regulation comes in and says, please, all ecosystem players, you need to respect the consumers' data and deal within an enough proper responsible manner, take consent, store it properly, share it properly and do not misuse it, right? So this is the overall framework within which Affle takes a certain stance and says, "Okay, what are we going to do with respect to the cookies on the browser?" And Affle took a stance on that many, many years ago. Google also responded many years later, and Google has still not done anything on the cookies yet. But the ecosystem is responding for sure to these kind of larger sense. And Affle's business is deeply insulated from anything to do with the browser or anything to do with cookies on the browser, because our business is not dependent on that, right? While our privacy policies and all are fairly comprehensive and they'll cover it, but the investors need to know that Affle's business is deeply anchored on the in-app ecosystem, deeply anchored on emerging markets where the consumers are decisively using Android as the platform of choice and iOS impact on emerging markets is miniscule. So overall, Affle's business is deeply anchored on the on-device and the in-app ecosystem. The on-device ecosystem works in partnership with OEMs and carriers, and there is a fair amount of control and emphasis that the OEMs and carriers also have beyond just accepting a standard version of Android, because they have control over the version of the OS and the experience and what happens on the device. And we are deeply partnering with operators and OEMs around the world to make sure that we have that shared influence on the ecosystem play and our position is strong there. We also -- looking at the Android ecosystem very closely and seeing that, hey, let's look at how has Google responded on the cookies, which has been an issue that's been around for many, many years. And we know that the cookies on Android or Google ecosystem is only going to have some variation or change in 2023 or so. Now what's going to happen on the devices? And what is already happening on iOS? If you look at -- Apple rolled out certain changes that requires a much more clearer consent from consumer on iOS devices. And we have seen that the digital ecosystem, whether it is a larger company, the most optimal reported results already have actually done phenomenally well. And they're all anchored in a market like North America, where iOS contribution is almost 50% of the total market share. So what we are seeing is that the digital spend of the advertisers are continuing to grow in developed markets as well as in emerging markets irrespective of the need for greater consent. Affle's overall position and outlook is that every single jurisdiction in the world and every single platform, digital platform wouldn't need to comply with service regulation. And we are already showing signs that Affle that we have got our platform, the credited access Singapore standard with respect to the Personal Data Protection Act and other aspects, and we are ready for these regulations to come across emerging markets as well. I mean, whether it's India, Indonesia, Africa, LatAm market, it's all of these jurisdictions in the next 3, 4 years, we have regulatory policies as well as some opt-in mechanisms on iOS and Android, but the fundamentals of business are like this. The consumers have a choice, do I opt in and take ads and take -- enjoy an app or a service for free or do I reject ads and be willing to pay. And I think the balance of trends would lie in favor of a lot of the consumers, especially the reviews as well as the rural consumers who are going to continue to -- for the next billion devices or the next several billion devices, will necessarily, in my view, go for opting in. And so the trend will continue to see that the advertisers and consumers will both go for digital advertising and provide the necessary options and compliances. In terms of digital budget shifting, I think I've already answered. I think the consumers are clearly mattered to connect the digital devices. Advertisers will necessarily need to shift. In my view, at least 50% of the total ad spend must happen on digital devices across emerging markets as well. And we will see continuous CAGR growth on digital advertising spend growing. In terms of our focus on which verticals will deliver better growth, our view is, overall, in the top 10 verticals that Affle has anchored over 90% of business on, which is category CSDS, we've seen consistent growth across these verticals and advertisers, large and small in these industry verticals adopting digital much faster than what we have seen in the previous times, and that's reflected in our growth. I mean it's clearly the advertisers are bringing in more budget, wanting more. And we have also seen the innovations that we are delivering that it's not just online conversion. It's not just new online conversions, but repeat online conversions. We're also seeing off-line conversions, and some of the case studies overviews that we have shown in our earnings presentation will give you some flavor of what's happening. So that gives you a sense of where this is headed. In terms of CPCU trend, achieving INR 42 CPCU, which is our highest is actually very comforting, given the fact that volumes are growing and volume is obviously growing, because record number of conversions that are notionally higher, but still important to see that it's INR 42 CPCU, and it's not INR 40. And as we grow our business into more international markets as well as make a decisive and vertical focus impact on developed markets, I think the CPCU rate will see a positive upward lift progressively just because of the market dynamics and mix. And we are in a value-driven business. We're not a cost plus business model. We look at ROI linked pricing. We look at ROI linked value creation for the advertisers, and we are fundamentally adding value to our customers and therefore, we command a fair share of that back. And as volumes continue to grow, we keep pushing and nudging our ability to extract higher CPCU rates from advertisers as well. So I'm pretty bullish about the overall sense and the sustainability of our growth and bottom line performance over the long term.
Mr. Jain, do you have any further questions?
Yes. Yes, sorry. So, just on this CPCU kind of, of course, through higher international exposure will definitely increase. Will that be applicable to Jampp integration as well?
Well, absolutely. I think Jampp is largely present in LatAm and America in certain verticals. And we, as our own platform would comprehensively enhance their capability to go for deeper funnel conversions, deeper ROI linked business model. And that would necessarily help not just improve the CPCU rate, but Jampp's own margin profile and profitability over time. So as we continue to do what we have already done very well with Appnext and Mediasmart, which is not just acquiring, but fundamentally adding value at a platform level, at a business model level and at an operational level to be bottom line and margin-centric and focused. I mean, our organization is deeply focused. I mean we don't leave if possible even a single cent on the table, right? I mean we are going to negotiate. We're going to be tough, and we're going to not just fight for growth but also for defending margins and delivering cash flow positive performance, as you have seen consistently from us. So that is what we will impact into the lives of Jampp, and we will see great outcomes, I'm sure, in the current financial year itself.
The next question is from the line of Mohan Kumar from JM Financial.
Congrats on a great set of numbers. I have a -- my first question is threefold. We've seen a really strong first quarter. What is the organic growth rate that we can actually expect for this year? Will Jampp actually have now a better run rate than they had last year given that they've finished like 1 month of having Jampp with us? Can we have some clarity on whether the revenues would be higher than last year? And the final question is with respect to the Connected TV apps that you have, you guys have signed a couple of clients over the last couple of months. And with Jampp not giving growth to the U.S. where Cat is a bigger ecosystem, can we expect a larger growth rate over the next year or so?
Great questions. Thank you. Indeed, Q1 has been a fantastic quarter for us. And typically, if you see our quarterly growth trends, organic growth trend, you would find that Q3 is generally the peak of our performance in any given financial year. So Q1, then Q2 is higher, and then Q3 is the highest and the Q4 is somewhere between Q2 or Q1 were. And so overall, within this year, we should see very healthy organic growth without Jampp. And then when we look at Jampp getting added, you're absolutely right in inferring that with Affle onboarded, we will definitely look at, first of all, unit economics of Jampp, at what CPCU rate can they sell, what kind of conversion can we drive and extracting higher value on unit economics and sending it fundamentally profitable at each unit economic sort of assessment and then pressing the accelerator for growth, right? Because we, as an organization, are looking for all round well-balanced growth, not just driving revenue growth and revenue growth and not impacting the bottom line profitability in connection. So we will, first and foremost, focus on Jampp's unit economics, and then there'll be accelerator for growth, and that's our strategic execution part. My aim would be to grow it better than whatever they did last year on top line as well as improve the bottom line substantially. And I've given some guidance on that in the Jampp specific call the last time in terms of what our ambitions are with them. With respect to Connected TV, thanks for bringing it up. This has been our organic investment into the Connected TV product, because we have already verified and done the feasibility in partnership with certain customers and campaigns to ensure that this is already revenue generating and that we can run it profitably. And doing that in emerging markets where Connected TV is at a very, very nascent stage today. I can safely say that we have thought leaders, first movers in breaking this out for the advertisers and the partners in the ecosystem. So our focus will continue to be on Connected TV across emerging markets spread, because that has always been our first execution ground, and we've got a very emerging market focus. When should we take this -- these new initiatives on to Jampp? I think we will give it some time. Let us first ensure that the core business that is upgraded with the Affle 2.0 strategies on verticalization, going deeper on vernacular, going on operator OEMs and verticalizing it in order to get the CPCU business and the margin profile going. Once we solve and put Jampp on that growth trend, we can also incrementally add whether with Jampp or our own on-ground presence and develop markets on Connected TV. But let us build the Connected TV success in emerging market first as part of our strategy. That's how we are executing. This is our home ground. This is where we are strong.
Just a follow-up question. So you mentioned that in cash on the books is highest it has ever been. You still have some proceeds left from the QIP. Can we expect an announcement of a deal over the next quarter? Or I don't want to put you in a situation you've got to say something you cannot -- that you don't want to, but can we expect a new announcement of an acquisition [ perhaps in Q1 ] and the near term. And we've been reading a lot about the Indus OS battle that has kind of based out. I just want to kind of hear some things on boxes now on where are we there? And are we actually planning to buy the -- buy the Indus OS company. If there's something you can't share, I'm more than happy to kind of land the slide.
Well, having a strong balance sheet is important. I think it builds confidence not just of investors, but also of the team that you always know that you have options. You can do things. But if you look at the history of our company, all our investments have been largely funded through internally accrued cash flows. And I love the discipline of the way the organization has executed on that. And just because we have cash from QIP, there should be no added pressure to go ahead and deploy it. But the reason why we did the QIP was because internally, we already knew that Jampp was breaking up, and this would be useful to have done at that time. And the timing was perfect. We raised the QIP in the first week of May, and we announced the Jampp agreement signing on 9th of June. So you can see that we raised money just in time and deployed it with efficiency in a deal that was very sensibly balanced. So is there any other deal that will come in the future? Certainly. Is there any time horizon this financial year, next financial year? We'll wait and see. But what I want you to know is that we are only doing strategic transactions, very carefully calibrated, and we are deploying this money as if it is generated through internal approvals and cash flows, very, very careful in terms of how we saw any investment, either internally on our products or externally on inorganic acquisition. With respect to Indus OS, given that this is an Affle India Limited call, let us all be absolutely clear that Affle India Limited has fully exited its position with respect to Indus OS. Any battles that are being pursued are strictly being done by the promoter group companies, the Affle Global Private Limited, and I am not authorized to speak on that. It would suffice to say that Affle India is clear, there is some industries that is absolutely [ 0 less ] with respect to any legal tussles that are going on. And in business, not everything would go as planned.I guess Indus OS could have been scripted as a different story, but it is what it is. And I mean, Affle is going to be tough. It's going to continue to focus on its own business and let Affle, Google do what it must do and let the cause of -- the laws of the land decide where it falls eventually. But that's all I would like to say for now. It will suffice to say I'm quite happy with where things are overall.
They're definitely a great set of numbers, and all the best of your key products...
Just to clarify, I think your one question was just -- there is no revenue from Jampp reported in this quarter. Jampp consolidation will happen only from 1st of July. So the question was making a sense that we have 1 month of Jampp in our results. There is no Jampp inclusion in our results.
So I get that. I was mentioning that we had done -- we closed it at the end of June, and we've got 1 month to get some clarity on how Jampp is going to play out for the rest of the year.
The next question is from the line of Rishit from Nomura. [Operator Instructions]
Maybe we can take the next question and come back to Rishit later.
Sure. As there's no response, we take the next question from the line of [ Rikash Mantri ] from [ Montfort Ventures ].
Thanks, Anuj, for a great set of numbers, and congratulations to your team. You are delivering consistently good outcome. I have a very small question that what is the churn rate of your customers?
Well, let me answer that with the 2 lenses. We are an ROI-linked CPCU business model business, which means that we work with customers and campaigns with a very clear disclaimer to them that, look, I'm only going to drive your campaign to the extent that I'm seeing healthy conversions with consumers. And if any advertiser's campaign is onboarded and we keep advertising and the consumers are somehow not converting for that particular advertiser, Affle would essentially go back to the advertiser and say, look, I can't be running your business. I'm not getting enough conversions with consumers. So we are a consumer platform company. And as a consumer platform company, we have a very wide basis of access and reach to consumers. The advertisers whose campaigns are performing well with us are seeing clear ROI linkage. And therefore, there is an extremely high recurrence and retention rate.Having said that, we do not promise any particular customer any minimum conversion on a recurring basis because of the nature of our business model. We basically go for driving the campaign and see how the consumers convert and respond and optimize from maximizing that, but there is absolutely no minimum commitment with an advertiser or something like that. So the advertisers who have been benefiting on the ROI that they generate by the conversions that we drive have been necessarily working with us multi-years, quarter-on-quarter and so on. And we are seeing a very, very strong retention trend. We haven't given out any specific numbers.But you would see this particular time, we have given one very important trend, which I think is a megatrend in our industry, and it's a very important trend to not -- even for us, and we monitor it rather closely, which is related to the direct customers' growth primarily, which is powered on the [ ESCS ] categories. What this means is that the number of advertisers who are working directly with Affle, not through some other intermediary or agencies, and therefore, their data and the first-party data that we're receiving from these advertisers is direct with that is 71% of our revenue. This is -- this used to be in FY '20 about 57%. And before we went public, FY '19, it was much higher. So I think the -- over the last 2.5 years, we have seen a systematic shift where we are able to work directly with our advertisers, and the trend has been even more clearly established during the COVID times where the advertisers are coming direct and working with our platform. This is a very, very healthy trend, and this should give you an indication with respect to the quality of customers. And also, the cash flow should give you an indication that we are largely collecting a significant amount of our profit. It's getting collected in cash flow. So it's a very, very good quality of business overall.
That's right. But still, can you give me the number of retention? It's over 97%, 98%. What is about it? Can you give this?
Let me work with the approval of our Board and see when do we start revealing it on a consistent basis with respect to customer retention and cohorts and so on. But at the moment, we are where we are, and I try to give you the answer so that you can derive comfort from the numbers that are already reported.
That's right. Thanks, Anuj, for making such a great company from -- at least from India. And only last question is that how many of our customers are we see funded and others are normal?
Okay, this is a great question. I can [ give you the time ]. So most of the times, we are working with larger enterprises and we also work with a long tail of customers, but it will be fair to say that our company has always been done with a very comprehensive risk management framework. So we don't take deep exposures with customers who are depending on the next round of funding or something like that. Most of our customers are large customers or a significant part of our revenue is coming from those customers, which you and I would qualitatively assess that these companies would still be around for the next 5 years.So I think we have a very safe profile of customers. And before we take on bigger business or volumes, growth from any customer, we do this risk assessment on creditworthiness. So you can be assured that Affle is -- when it reports revenue, it is doing it with the lens of collecting it.
Thanks a lot, Anuj, for doing the great work and listening thoroughly, and we are really a beneficiary of that.
The next question is from the line of Rishit from Nomura.
Congratulations [ for this quarter ]. So a couple of questions, right? One is related to the Appnext ecosystem. And obviously, you've done a couple of acquisitions and -- one acquisition and one investment, right, which is Discover Tech and Bobble AI. Could you just help us understand what is happening in those areas? Do we expect traction to come from these acquisitions? And any color on monetization strategy? Would it be a surprise for them? That's for now. I have a couple of follow-ups.
Sure. So when we look at Affle's overall business, when I was answering all the earlier questions, I made 2 very distinct points, and I would like to revisit them. First was on-device engagements with consumers as part of our consumer platform. What does on-device engagement mean? It means that we work with OEMs. We work with operators to make sure that our software and our ads and content and recommendations to consumers can be deeply integrated on the on-device experience of the user at multiple touch points across the journey of the consumer on the device even before the consumer has gone and launched a specific app that they have installed and is used by them on their device. And then the second part of the ecosystem is what is called the in-app ecosystem. The in-app ecosystem is when we are reaching and engaging with the consumers while they are using one or the other app on their device, which means that we now need to work with the app developers through ad exchanges, programmatic traffic or premium app developers through direct integration of our SDKs or through API server-to-server integration. So we have the entire technology stack to then work on the in-app ecosystem. Now both of these ecosystems are very closely linked because the same consumer is on the same device, and it actually continues daily. You open your device, you navigate through your device, you find an app and you use the app, you close that app, you're back on the device. Again, you go to another app and some other folder and so on. So as the consumer journey is the natural interconnect between on-device experience and in-app experience, back to on-device experience and in-app experience. In the Appnext ecosystem, overall within our plan, we are very clearly focused on the OEMs, handset manufacturers around emerging markets, and we are working with them to integrate our technology at various touch points on the device. And the monetization strategy for both these ecosystems is actually very similar.So as far as the advertiser is concerned, the advertiser is being sold, conversion, ROI-linked conversion, and it does not matter to the advertiser whether the conversion is happening on the device, whether it's happening on this touch point or that touch point. As long as we deliver a conversion, which necessarily happens within the app of the advertisers, that's when we earn our revenue. So the monetization strategy is common. The reaching out to the consumer strategy is either on the device or in-app, and it is blended perfectly on the device. And I think this is where our strategic differentiation lies.Your question was also about Discover Tech, which is a small acquisition that we did in Jan 2021 this year; and the Bobble AI minority investment, which we have doubled down on in the last quarter at the same time, and we have invested in the acquisition of Jampp. I think both of these are strategic, and we are seeing great momentum there. We have exclusive monetization capabilities into our platform on Bobble, and we are increasingly seeing greater monetization happening there. With respect to Discover Tech, I mean we are -- this is still very, very small, but we are already seeing impact because we already had launched our global OB platform product in January this year, and it was done before the completion of Discover Tech acquisition itself. So these are growth areas for us. And then we are very, very bullish, and I expect to beat the industry average growth trends progressively and consistently with all of these investments in products, which are already proven to generate revenue. We just have to consistently scale it one step at a time.
So sir, the revenues as well as [ trying to restart ] coming from, do we have anything in the numbers from these investments? Or it's largely something which will come in, let's say, Q2 of this year?
It is not significant. This is -- the numbers are not significant. And I think as they become significant, we will certainly update. But I think overall, I think that all these platforms are seeing great adoption, great adoption in the ecosystem with partners. And we -- most importantly, if you look at companies like, let's say, Digital Turbine or you look at IronSource or even any private companies that are in this space, today, you can absolutely certainly stand to all and say that Affle products, platforms are addressing the end-to-end consumer platform opportunity and the end consumer generally both on-device as well as in-app like no other platform. And we are so deeply focused on emerging markets while none of these companies are anchoring on the emerging markets. So we have extremely strong mode and competitive advantage on these products and platforms for emerging markets.
Okay. And a mandatory question on the privacy policy, right? Just wanted to understand 2 parts to that story. One, do you foresee that a lot of these investments could shift towards areas where they've got first-party data? That is one. And second, when you look at one of the largest peer in the U.S., right, or probably the largest pricing in the ad tech space, right, they've talked about investing in creating their own UID, right? While obviously, for us, given Android ecosystem, maybe the risk is not as large as the iOS ecosystem, right? But sir, are we hedging our bets through creating an alternate mechanism where we are still ring-fenced so that in case if Google adopts something like that, we still have a play at a much larger scale?
See, the best way to get first-party data is to be directly connected with OEMs and operators, directly connected with the advertisers. And we are -- I think we are in a very, very strong footing there as a company. So that's as far as first-party data is concerned. So I think our company is in a very, very good position with respect to first-party data, both with the advertisers and publishers. Now most of these players that you're talking about, they get first-party data largely from the publisher side only, not from the advertisers because they are not on the conversion business model. And this biggest player that you're referring to, I believe it is the Trade Desk that you are alluding to, and they're launching their own UID and so on. And let me tell you why there is a urgency for them to do that is because a lot of their business is still on the PC, on the browser. Even if it is on mobile, it is still -- like a lot of the business is still browser and cookie-enabled. So they are trying to derisk from the cookie to have an ID which works together. And the same goes for companies like Criteo.So I think the UID side of this, I mean we have investments like internally within our platform. We have a unique identifier for each device. Are we going to open it up for the ecosystem? Or are we going to do something bigger on that front? I think I'll reserve the options for later. It would suffice to say that in terms of first-party engagements with both advertisers as well as on publishers, we are in pretty good stead. And I don't see budgets necessarily shifting in one direction or the other. To be broad-based, digital advertising spends are going to grow in every single bucket of digital advertising that one can see globally.
Okay. And can I squeeze in one more? Is that okay? Just if you were to look at, let's say, employee expenses, right, we've expanded a fair bit over the last, I think, 3 to 4 quarters, right? We're expanding on ground presence across every one of these markets. When do you expect the benefit to start coming of those investments? That's it.
So the benefit is already there. I mean what you're saying is when you start investing and putting people on the ground in different markets or in different products, you start seeing that showing in the OpEx of the company on the P&L, but you would also increasingly start seeing those markets delivering greater revenues over time. So I think within this financial year, second half of this financial year, it will support the organic growth strength by having people on the ground. So you would see a consistent pattern in our company, a good balance between investing organically internally as well as doing consolidation opportunities on fair value and attractive valuation basis as and when the opportunities come. So I think summary point is that all our investments are done in a very carefully calibrated manner. And they are done with a view not just for long-term returns, but within the financial year itself, we want to see turnarounds. So it's a good balance of immediate outcomes as well as long-term returns on a sustainable basis.
The next question is from the line of Mayank Babla from Dalal & Broacha.
Congratulations on a great performance. Sir, my first question was regarding the margins. So while you had commented that you've increased the employee or employee count on ground, could you shed some light on the margin weakness despite improvement in CPCU rates?
Kapil, I would like you to take the question, and I'll just take a breather for a moment.
The voice was not clear. Can you repeat the question, please?
Sir, the margin weakness is purely attributable to the increase in employee count on ground because even our CPCU rates have improved. So could you shed some light on the margin weakness Q-o-Q and Y-o-Y?
It is that the EBITDA margins are about 2% higher from the previous quarters. Largely 1.5% is coming because of the employee expense is majorly attributed to that. And there is some support to other expenses, which are also taking on it, right? And our GP margins are almost similar, which are also happening on the cost side of the data inventory. Primarily, the contributor is the increase in the employee cost.
Sure. And sir, if you can, what would be the equilibrium level of margins going ahead? If it's possible for you to get some qualitative line.
We believe that we should be able to sustain the current level of margins about 25% of EBITDA without adding the inorganic numbers into it. Organically, we are comfortable with 25% of EBITDA margin.
Right. Sir, related just on number -- what would be the latest employee count?
It's around 400 and -- well, 425 plus. Exact count is not on top of my mind. It's 425 plus.
Okay. Sir, and just last question on...
So I'll just help you with that. 425 plus is based on the full-time contracts -- I mean the full-time employees who are under direct employment contract with the company. But we also have certain functions where we have people on contract or outsourced and so on. So it's not the full reflection of the workforce, but it is -- the employee count answer can be best given to this extent right now.
Right. And just my last question directed towards Anuj, sir. Sir, in the Jampp call, you had mentioned that Jampp, you will convert from this cost per impression model to the current CPCU that we model that we have. Sir, I just wanted your views on the -- what is the process and challenges in this conversion of business model?
So the -- I'll correct your question. So there's the cost per install was -- how it was being framed in the analyst -- I mean the call that we have on Jampp. And moving towards CPCU business model essentially means that going to the advertisers and taking the ROI-linked, deeper-funnel KPI, and the advertisers would then necessarily need to share deeper first-party data with respect to conversions. And so it requires a few things. One, that educating the entire team on how to sell, how to position it. And then it requires certain integrations on the cloud computing side. On the tech side, how do you receive that data? How do you process that data using the data science algorithms? How do you optimize it towards greater outcomes? And so linking it to Affle's core platforms and the core cloud computing efficiencies with which we manage such higher volumes of data and optimization. So those are the 2 broad things that need to be done, and that's pretty much it. And once we do that, then it's about execution, execution, execution. And then optimizing it one vertical by one vertical, one market by one market and -- so within this financial year, I expect to achieve that with Jampp. So we acquired -- we completed the acquisition on 1st of July, so 9 more -- 9 months of the financial year from 1st July, we should be able to achieve that. And we will then see good outcomes with respect to not just growth, hopefully, but also on the bottom line for Jampp on stand-alone Jampp basis. We're not going to reach the kind of bottom line performance that Affle has already optimized itself forth, but they will definitely show clear signs of improvement versus their own previous trends.
The next question is from the line of [ Raja Mohan Venkataraman ], a professional investor.
Congratulations on a great set of numbers as well as consistent delivery on your promises. Tell me, Anuj, I wanted to understand your broad perspective of open Internet to walled gardens. As you see it playing over the next 5 years, are you seeing increased momentum in the open Internet market when compared to walled gardens, especially since the last 3 years of Affle's privacy policy?And if it were true that the open Internet space is gaining in momentum, though you consistently talk about the huge 10 billion connected devices opportunity for about the next 10 years, do you see the existing virtuous cycle to become more structurally pronounced, especially after the pandemic? And in this light, are you more confident of hitting 10 billion devices than when you were when you initially set this target?
That's a great question. Thank you for asking that and keeping the emphasis on long-term strategy and bringing the 10 billion connected devices vision and goal of our company for Affle 2.0 strategy for this decade. Let's go with the definitions first. What is open Internet? What is walled gardens? Now these are -- I mean these were not standard terms. I mean walled garden was a term that was coined with respect to the value-added services with their operators were saying that only if your product is on our [ WAP ] side or the operator's port and only then the consumer can do it or the building is also controlled by the operator. This was actually for that industry. The same terminology has now been applied by several people on Facebook, Google, Apple and the ecosystem and saying these guys are closed or they have more walled gardens and so on. And then the companies like -- some of the other companies who don't work with Google, Facebook are head on trying to go and compete with Google, Facebook in their space, specifically, let's say, Trade Desk, I mean they coined the term open Internet and we support open Internet and so on. And the way I see it is with more fundamental lens, where is the consumer? This business is not about where the advertiser is and where Google, Facebook are or where -- it's really about where the consumer is. And if the consumer is spending time on a device or it is spending time within apps or it is spending time within certain apps which are now being labeled as walled gardens, it is the consumer's prerogative, it's the consumer's choice. Depending upon where the consumer is spending more time, the advertising budgets would normalize over there, eventually, right?I mean let's say the -- or let's say, all of us decide we'll only go with walled gardens, we'll only use Google and Facebook and nothing else. What will happen? The advertisers' budgets will necessarily gravitate on the walled gardens only. If the consumers decide, no, I mean, not in Google, Facebook. I'm like spending a lot of time on, let's call it, the open Internet apps and the experiences, then the budget would shift over there.Now what has happened over these years is that, especially, let's say, emerging markets lens, Indian consumers, largely demographic profile is either heavily youth-oriented or there are increasingly rural audiences that are coming up. They don't have any specific affinity towards, let's say, a Facebook or a Google per se. I mean WhatsApp continues to remain important, but things will change. In the next 5 years, there could be something else that becomes more exciting for the consumers and their attention and time would shift.Affle takes a very holistic stance on this, right? We are -- most of our business is coming from the open Internet side or the non-Google, Facebook side, but we are also having a very clear open path where we are integrated with Google and Facebook and on WhatsApp and so on because if the consumer is there, why should I stop going to the consumer there? We have a consumer platform. Why should I say that I'll only target the consumer when he comes out of the walled garden? And I'll stop targeting if he goes in the walled garden.Affle doesn't have that view. We are consumer-centric. We're saying wherever the consumer was right from the first time the device will be changed to another device, wherever they go on the device, I will strive to make sure that Affle's platforms are able to reach and convert the consumer on all of those touch points without having any negative bias one way or the other. And I mean that's how we run our business. In terms of how the trends are evolving and our goal towards 10 billion connected devices, we have taken some clear strategies on that front. One, we are going deeper with the vernaculars. Actually, we're going deeper with OEMs and operators and partnering and investing in that space. We are also really clear on going beyond the mobile device to other connected devices such as Connected TV. I mean we have invested in that very early. I mean I think we're one of the first people in India and in other emerging markets to bring Connected TV as a product and a proposition that advertisers can actually come and adopt together with us, and we are ahead of the curve there. We also launched something called household ID internally. I mean we don't open it up in a big fashion. But what this means is that the advertisers can come and say, I want to target certain location and certain households, which means there could be 10 devices within the household, 2 laptops, 5 mobile devices, maybe 2 Connected TVs over time. And this could be a phenomena where we're saying that we want to go after targeting a certain household for a certain kind of product and proposition.So I think these are capabilities that we have invested in organically. And I'm pretty confident that in the next 5 years, you will see a massive lift in the direction of reaching out to more connected devices, launching into other emerging markets like Africa, LatAm and strengthening presence in other emerging markets. We're also trying to see when we should make some foray into China and so on.This is all lined up towards 10 billion connected devices mark. In our earnings report, you would also see that there is a research report that's mentioned, which talks about how by 2025 itself, there will be 6 billion new connected devices that will come. And so I think that this is -- my confidence is high and the commitment is strong towards achieving the Affle 2.0 goal of 10 billion devices over time.
That's a great answer on the issue, Anuj, and quite a confident answer, too. The second question is you mentioned like...
I'm sorry to interrupt. Mr. [ Venkataraman ], may we request you to come back in the queue for a follow up, please?
There's one final question which I had.
Sure, go ahead.
If I can squeeze in. Coming to operating leverage, let me take this question first, finally, and close it out. You have indicated to a natural scope of improving CPCU through internationalization and developed market penetration. Will this create opportunities for a serious operating leverage improvement? And also, I want to understand operating leverage in your existing businesses, which have been at about 25%, 26%. Can you say that you have reached the maximum in operating leverage in your existing businesses? Or is there a scope to further improve it?
Great questions. So I'll answer very quickly. And not everybody may have done this study, so let me give you a sense quickly. The unit economics of our business is if take $100 of revenue, we are roughly investing about $60 of that $100 in what we fully expense out in our data and inventory cost. Now this is fully expensed out on the P&L, but I want all the investors here to know that a good part of this, the data part of it is actually an investment, which is not reflected on the balance sheet, but we are consistently investing so that we have deeper vernacular, verticalized insights into our platform so that we consistently keep on going for greater growth and deeper growth going forward, right? So this 60% is a consistent investment that we are making and we expense it outright.Then comes the 40% plus that is left, within that, we see all our operating expenses and also with the taxes and so on, we typically see a profit after tax in that range of 19% to 20-odd percent and so on. Have we maximized on the operating leverage for our organic business? The answer is no. As we continue to scale, we will always see that the operating expenses will not grow as fast as the revenue growth organically, and therefore, there will be margin expansion. However, because of the acquisitions that we have done, inorganic acquisitions and all of those companies, whether it was Mediasmart, Appnext or the prior one, all of them when we acquired them, they had one thing in common: they were not profitable. They also have another thing in common: they were just breaking even. So they were not burning, but they were also not adding to the bottom line. And Affle acquired them at the appropriate valuation, which was obviously very good transaction for them and for us. And we have consistently worked on turning it around on the unit economics once they're there at the time and making them profitable in year 1, more profitable in year 2 and so on and so forth, to bring them to the same level of efficiencies as Affle's core businesses.And with these acquisitions as well, you have seen that our PAT margin has been consistently in line and appropriately balanced because the organic business was expanding the margin, the inorganic one was averaging it down. And the same thing will happen with Jampp now in this year. And Jampp is a bigger transaction. You will see the mathematics of it getting added up. But if you take a 3-year view to it, we will bring every single business to the highest possible extraction possible with respect to margin and value creation. So you will see expansion over time. But whenever there is any inorganic transaction, the math of it would add up and a new balance would be formed. And from there, we will then set up again towards 25% EBITDA and higher.
[Operator Instructions] Next question is from the line of Ruchi Burde from BOB Capital.
Congratulations for a very strong set of numbers. I have one question, Anuj, on your direct customer business. Could you explain us what are the factors which is driving this particular trend of elimination of agencies and intermediaries? And a follow-up to that, will this trend manifest into new sales and marketing effort for Affle?
Great question. So I would look at the positives of the strength there and the positives of this trend are that you are having a direct integration with your customer, you're invoicing them directly, you're contracting them directly, you're collecting from them directly, and that has huge advantages in itself. Having said that, when we talk about the agencies business, agency business is a very, very important business from a holistic cross-channel, media, traditional or digital, and there's a really different proposition. Now a lot of the large companies, global companies, are mandated to work with it. And they have to use it, the agencies, for all their advertising touch points. And therefore, the agencies are super important partners for Affle.So we are a neutral entity as far as this trend is concerned. We are receiving this trend with open arms as it comes in favor of digital direct advertisers wanting to work with tech platforms directly like Affle, and we have been a beneficiary of the trend. But have we been a catalyst to make that trend happen? The answer is no. We continue to be best friends with the agency groups, and we would never create channel conflict that, hey, we are with the agency, and we'll try to tell the advertisers, hey, why are you with bases? Nothing like that, right?So we are neutral. And when we work with the agencies, we treat them as our direct customer. When we work with the end advertisers as the direct customers, we respect that relationship just as well. Does it mean we have to invest more one way or the other? Well, in some cases, yes, because we work with agencies. You convert 1 agency, there will be like 10, 15 or 20 apps of their customers that they are promoting. And when you work with each one of them directly, you've got to contract it differently.But having said that, even when the agencies work with us, the end campaign is for the advertiser, and we necessarily mandate to our team to ensure that the relationship is twofold because some advertisers may go and say, we'll work with agencies once they get bigger or some advertisers may say, we don't need the agency now, we're going to work direct. So we need to make sure that the end relationship with the customer as well as the intermediary agencies is very, very strong. So we have been investing both ways, and I don't see any dramatic change in the cost structure with respect to sales and account management for direct customers versus the agency-based indirect customers.
The next question is from the line of [ Omkar Gugardare ] from [ Shree Consultancy ].
I just wanted to know the margin compression in the international business quarter-on-quarter. Sir, you alluded to the fact that it's more to do with the employee cost. But there is a significant, more than 50% drop in the margins in the international business quarter-on-quarter. Any particular reason for that? Even the Jampp is not included in this quarter.
With regards to the...
Kapil, over to you.
Yes. So international business is a different aggregation of different geographies. We have certain aggregate -- or I would say, different geographies have a different margin spend. So as the [ slight lead ] effect of all those [ data ] things happens, there is a certain amount of compression on the gross margins on certain geographies, which will improve over a period of time.
But is there any -- I mean, is there too much change in the geographies mix quarter-on-quarter that is giving this kind of margin compression? Or what is it like?
It is not only a cyclic effect, but also certain campaigns, which give higher margins -- or higher ROIs on lower margins on it because the combination of all is there. And we believe that the fair numbers are these numbers only at the moment. And we have an endeavor to increase the margins in the international markets. You have to appreciate that we have to -- we are not fully grounded on our feet in the international markets. There is a need to invest by giving away some margins in certain geographies.So those investments are built into the margins in international geography as we try to expand in those geographies. So as we are very well grounded in India, we are not very well grounded in all markets. That is where the employee expense are being incurred to improve our presence on those geographies to improve the margins. So these combining factors, you have to take it forward.
So the current margins in this quarter are sustainable, you are saying, and which you will try to...
Yes, we are -- they are sustainable margins, and we look forward to expanding our market reach in international markets.
Which is assumption of volume. As we get more -- as we increase our volume in international markets, as we increase our scale, we will see greater efficiencies coming in. And when we go to, let's say, certain new markets or within existing markets, if you open a new vertical, we work with the advertisers and we drive the conversions for those advertisers in those verticals, and we need to invest.I think I mentioned that earlier, the data and inventory costs that we expense out every quarter has a good element of investment in that. I would say even like close to 10% of the total data and inventory cost is actually not because it is driving a convergence, it's being invested to learn, to optimize, so that we can deliver greater growth going forward. And so there is a good element of investment in the P&L itself, which is fully expensed out. And as we expand to new verticals and new geographies where we still maintain an overall balance in terms of our business, but we are clearly not running the company for just maximizing the bottom line, we are investing where the investments are well deserved. And that will show over time. As we scale our business in more international geographies, we will actually see the margin profile moving back, and then you'll see greater operating leverage coming on a consolidated basis.
Okay. Just one small clarification I need -- have you been talking to the exchanges regarding this ASM issue?
With regards to this, there is -- the exchange don't discuss on ASM issues. They have -- they don't give transparency on the ASM issues, though we have reached out to the exchanges. But they say they have automated systems, which lags out certain parameters. They have about 8 to 10 parameters, and they work around with that parameters. So we don't have full transparency on the ASM issues from the exchanges.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thank you very much, everyone, for joining today and for your very detailed questions. I would want you to leave this meeting knowing that your company, Affle, is stronger not just in terms of financial outcomes of this quarter, but fundamentally, strategically, with a long-term view, much stronger on its products, platforms, people, its balance sheet, its cash position and all of that together. And also on corporate governance, I think we have adopted proactively the ESG to go ahead and take all of those efforts that are necessary to be a well-governed company to deliver all-around sustainable growth to all our stakeholders.With that, thank you for your time, and I look forward to our next engagement.
Thanks, everybody. Stay safe.
Thank you very much, sir. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.