OnMobile Global Limited (ONMOBILE) Earnings Call Transcript

Good day, and welcome to Q1 FY '26 Earnings Call of OnMobile Global Limited. Representing the management today, we have FC, Executive Chairman and CEO; Radhika Venugopal, Global CFO; Bikram Sherawat, President and COO. The call will start with brief update about the overall performance during the quarter by FC. Radhika will update on financials, and then Bikram will share insights on operations. After that, we will 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 and may involve risks and uncertainties that we see. For such lists and 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 it over to the FC. Over to you, FC.

Thank you. Thank you all for joining this quarter call. Good quarter. I'm quite happy. Last year, we discussed the importance of signing important contracts. This quarter, we had both the traditional business growing, and we signed also important contracts with Buzzmo, which was our Enterprise Connect service, which is now renamed Buzzmo as a global product. So first big contract signed. And as you can see the results, Mobile Entertainment business up 13%. It's good because it's been many quarters that it's been dragging us. So to have this push -- as we said, it was stabilized. We felt the traditional business was stabilized. Now at least it's back on growth. So that's a good one for this quarter. Second of all, the number of subscribers on Gaming still growing. So that's great. We have some sales also coming on the Gaming platform. So that's also great. As I shared with you last quarter, we really focus on profitability and cashing in some assets that we have on our balance sheet. So you saw our cash position increase. We have other assets on the balance sheet that I see that we can capture and transform into cash. We also have an operating budget where we want every single quarter to be cash flow positive, generating cash every single quarter from this point. So we're past the stage where Gaming is needing a lot of money. Gaming is making money and Mobile Entertainment is, as usual, making money, but now with growth. And as you can see, it has an impact on our PAT, has an impact on our cash. And at least it gives us a good position to be able to look at opportunities differently now. But the focus for the coming quarters is really cash generation. One thing that you'll notice, I'm sure, is the DeOSphere revenues. We've decided to be precautious and defer the revenues on DeOSphere. We have a fundamental issue with their software. So it's one thing to book revenues, another thing to make profit, and it's another thing to have operational issues with software, obviously. So we really need to sit down with DeOSphere and align with this. And to be precautious, we -- as you can see, we -- to be cautious, we decided to defer the revenues. But as you can see, then have any impact on our profitability. To this, I'm going to pass it to Bikram and Radhika for the finance. So Bikram?

Thanks, FC. Good afternoon, everybody. I'm very pleased that our FY '26 has started on a strong note. We are actually growing in our key business. FC spoke about profitability. We are improving our profitability. When I talk about sales, we are building a pipeline that gives us confidence for the coming year. Our focus going forward is actually driving sustained growth of our Mobile Entertainment business and rapid scaling of our Gaming business. And we are going to enhance our margins through this diversified revenues, which come from both of these streams. Specifically on Mobile Entertainment, where we have grown by 13%, right, we have delivered a solid progress. This has been supported by new greenfield deployments in our Tones business. We have renewed our large customers on our Tones on multiyear contracts and we've had positive developments, where our business operations' focus across key markets has helped us increase revenues. Revenues grew strongly over Q4, and our Tones base stands at around 57 million right now. While we did experience a deal closure of one service for Tones closer to home, we still achieved a healthy expansion of our user base. Despite this and other regulatory challenges, our diversified portfolio and reach helps us maintain the momentum, and we continue to adapt and adjust our approach in the markets where we need to focus beyond the current ones, right? The same is demonstrated in our effort in the direction of license deal. FC just mentioned about one key deal. As I outlined in the last quarter also, license deals are a large lever of profitability. And yes, we have had one key win in Q1 for our enterprise communication offering, Buzzmo. It actually reflects a very big milestone in OnMobile's history. It's a 5-year deal with a Middle East operator, and we are having multiple more opportunities which are under discussion for this line of product. Coming to Gaming, Gaming continues to be our growth engine. Our subscriber base crossed 12 million, growing double digit, and it's up to around 58%, 59% from last year, right? The total Gaming ARPU has grown steadily since last quarter, with ONMO ARPU consistently leading the way. Gaming subscription has grown by 25.2% on the year, and it reflects strength of our content mix and our proposition as preferred to gaming partners for telcos. We touched upon and we showcased about the Gaming platform and our discussions with telcos. We are expanding this offering, and it's going to evolve into a full-blown gaming and digital content landscape, which is powered by tech. And there are many active engagements which are underway with Tier 1 telcos. In fact, we've got one win already for our Gaming platform. Looking ahead, we continue to focus on Mobile Entertainment. We will deepen our Gaming monetization, take our products to new geos and focus on securing multiyear recurring revenue streams on licensing as well. With a strong start in Q1 and a healthy pipeline, we believe FY '26 is going to be the year for faster growth and stronger profitability. Thank you. I'll hand it over to Radhika, who will take us through the financials.

Thank you, Bikram. Good evening, and thank you for joining us. I'll cover the quarter 1 performance -- quarter 1 FY '26 performance now. In quarter 1 FY '26, revenue was recorded at INR 127.6 crores, which is an increase of 1.2% year-on-year and up by 10.2% quarter-on-quarter, excluding DeOSphere revenues, which we deferred. EBITDA improved to INR 6.5 crores at a margin of 5.2%, and this is 7x year-on-year. Profit after tax came in at INR 15.6 crores. Gross margin expanded to 54.4% versus 51.1% in the current -- in the last year same quarter, reflecting the mix and cost discipline. Gaming continues to be a growth engine. Gaming subscribers reached 12.04 million, growing at 58% year-on-year and 13% quarter-on-quarter. Gaming subscription revenue was at INR 31.7 crores, up by 25.2% year-on-year. In June, Gaming subscription on a monthly run rate basis reached USD 1.3 million. Within Mobile Entertainment segment, revenue was at INR 95.6 crores, which is up 13% quarter-on-quarter, and we closed the quarter with a gross cash of INR 108.6 crores, reflecting positive operating cash flows and statutory refunds. Operating discipline remains a focus. Our costs, people cost, was INR 26.9 crores, which was down 9.7% quarter-on-quarter and 6.6% Y-o-Y. Marketing was at INR 24 crores, which is down 1.5% quarter-on-quarter and up by 5.6% year-on-year based on the subscription revenue growth. Other OpEx was at INR 10.67 crores, which was down 14.4% on a quarter-on-quarter basis. Our days sales outstanding stood at 106 days. As a matter of prudence, we have deferred revenue recognition from DeOSphere contract while we work with the partner to address software restriction concerns that affect SLAs. This does not change our commitment to quality of earnings and risk management. Our priorities are clear, which is profitable growth, higher operating cash flows, disciplined capital allocation and relentless execution. So we are executing a two-pronged growth plan, scaling subscriptions and monetizing Gaming platform. On profitability, we are focused on operating leverage. The step-up in gross margin and the reduction in OpEx sequentially are trends which we intend to sustain while reinvesting selectively in growth. Capital allocation will remain prudent. With INR 108.6 crores in gross cash, we will prioritize working capital discipline, business scale-up and product innovation. We will choose quality of revenues over speed as every -- as always. Quarter 1 demonstrates resilient top line, expanding margins and strong cash. With accelerating subscription momentum, a scalable platform and trusted telco partnerships, we remain confident in delivering growth and discipline through FY '26. Thank you, and I look forward to your questions. Over to you, Pratik.

Thank you, FC, Bikram and Radhika. [Operator Instructions] So we have our first question from the line of Deepak Poddar.

So first, I just wanted to understand, in this first quarter, our revenue mix from Gaming was 25% as compared to -- fourth quarter, it was 47%. So on an absolute basis, that means our Gaming revenue has declined quarter-on-quarter?

Keep in mind, we've deferred the revenues from DeOSphere, right, which was considered as gaming. So this is...

Okay. How much was the –- how much is the impact of this DeOSphere contract?

Radhika, you can answer this, the exact impact?

Yes, it is INR 43 crores.

Okay. So INR 43 crores revenue, I believe, would have come in first quarter if this would not have been deferred.

Yes.

Okay. So how do we see that going forward? Do you expect this revenue to come back and -- I mean what is the future of –- pace of action...

On DeOSphere?

Yes. Yes.

Yes. I mean, honestly, we really have to have a deep discussion with our partner here and realign. This is why we deferred the revenues as prudence. They have very big customers. We can do very big business. But we have to assess on the other front the issues that we have today, and it needs to make sense, right? Money is not just one piece of the equation. You need to be able to operate in a decent manner. And right now, this is why we've deferred and we can't answer more to your question because that's -- we really have to line up with our partner here and make sure that we can fix this situation.

Okay. But there is a possibility that in future this revenue doesn't come at all? I mean, is that a possibility also?

There's a possibility we decide not to continue in this modus operandi because it does create issues. And there's a possibility that we onboard their big customers and that we continue. So that's -- this is the situation right now.

Fair. So now on the back of -- assuming this DeOSphere contract doesn't come through and -- so earlier, we were -- I think earlier we were guiding for about 50% growth in our Gaming revenue. So I mean, last year, it was around close to INR 207 crores. So 50% growth. So how should we look at this guidance right now in terms of Gaming revenue growth?

Putting aside DeOSphere, I still see -- the Gaming subscription business, as we've given, right, we target to be at USD 2 million a month by end of March in 2026. So in the next 8, 9 months, 10 months, we will be at a run rate of basically $24 million a year. Now -- if you take the 1.33, we're basically at $16 million a year on subscription revenues, right? So I really see the subscription revenues growing from $16 million to $24 million, which is 50% growth.

So on an average, maybe this year, we might look at $20 million kind of a number?

Yes, exactly. If you take the average between $16 million run rate and then going to $24 million, yes, around that...

So around INR 180 crores, INR 190 crores as compared to what we did about [indiscernible]. And what sort of margins one should expect in the Gaming this revenue...

You see, the margin is really increasing. Just to highlight, the marketing cost that we had last year, right, we mentioned it a lot, right, because we activated so many accounts. It was really costly to launch a new account, start the marketing. So our cost of marketing was very high. Now if you look year-over-year, right, our marketing grew by 5%, but the revenues grew by 25%. So this is because we optimized the marketing, right? I really view that from this point, we can optimize the marketing more so that the growth that's coming is bringing way more profit than what we have as a base. We still target a good 25% EBITDA margin on Gaming, and I don't see why it should not be at least that amount.

25% EBITDA margin. And this is something which we can achieve this year itself? Or this year it will be difficult because of smaller scale?

Honestly, now we're still deploying new customers, right, we're still optimizing. So I'm saying within the next 12 to 18 months that this is the target.

Next 12 to 18 months. And what is our EBITDA margin currently in this Gaming? I mean this INR 32 crores revenue that we did in first quarter, what was the EBITDA margin we saw in first quarter in Gaming?

Gaming was breakeven.

Breakeven. Breakeven at INR 32 crores kind of a revenue.

Keep in mind, we're investing still in new gaming products, right? We're still developing the Gaming platform. We still have many aspects to it. So all this development right now is covered in our operation. We don't capitalize.

Okay, okay.

When we built ONMO 3 years ago, right, we invested a lot of money that went into capitalization. So now the advantage -- 2 things that happened, right? So now our revenue base is obviously bigger for all the Gaming service, and everything that we build, we reuse for our new service. So the additional development, although it's costing a bit of money, is nothing compared to the investment that we had to do to build our Gaming infrastructure. And now the critical mass is attained so that we still grow and make the investment in Gaming and start making profits. So now we're basically breakeven on Gaming and all the next phase of growth is going to be profitable.

Fair. I got it. And on the traditional business side, Mobile Entertainment, now that we have seen growth and some new contracts are coming through, so what sort of growth target we have for this year, FY '26 as a whole?

It was 5%. We grew this quarter at 13%. It's a license -- it's both, right, the base business that grew a bit and this new contract with Buzzmo. This new contract is license-based. So obviously, it's more lucrative than just the base business. We have -- as Bikram was mentioning, right, we've put a lot of efforts on their sales team to really push big contracts. We have a lot of big contracts in the pipe. So now our expectation is that every quarter, we have a good line of contracts that adds to our core business. And these contracts have a bit more margin than what we have in the core business.

So yes. So what's the growth range we are looking at in this Mobile Entertainment?

I would say 5% for now. It could be higher than 5%. But for now, just to be conservative, on a yearly basis we aim at 5%.

Okay. So that's very conservative, right, I mean 5% growth that you're referring.

Of course, now we just did 13%, right? But we have to continue the trend, right?

13% is now quarter-on-quarter growth. What's your Y-o-Y growth in this first quarter of Mobile Entertainment?

It's actually -- Radhika, we're down, right, year-over-year?

Right. 4.9% down year-on-year.

So 4.9% we are down. So in that terms, the run rate we are down, I mean.

On the last 12 months. But the next 12 months, we're going to be up 5%, at least.

5%. Okay, okay. Now I understand. And what sort of -- this is my last question. What sort of margin range we are expecting in the traditional business?

Well, traditional business has always been running at a 15%, 18% EBITDA margin. Now that was on a stable or declining base, right? It's very tough to make profit when you decline, right? You're just eating up your profit because it's always like the contract, the most lucrative one, that you lose. So it's just -- to be honest with you, with a good growth of 5%, 10%, that could go back also in the 20%, 25%. But for now, the target is 15% to 18% on traditional.

[Operator Instructions] [ Slade ], you can unmute yourself and ask your questions.

So I just wanted to follow up on an investment that had been made earlier. So the start-up, the Chingari investment, you all had mentioned last time that now this is kind of a write-off, it's just a pure VC play. So how much do you all expect to recover from this investment, firstly? And also going forward, now with the cash balance, are you all looking at any kind of investments in start-ups or anything? Because I think initially that QIP that had been talked about, half of it was also for M&A kind of purposes and half was for the CapEx. So I understand the QIP has been put on hold for now, but you all were intending to look at some acquisitions, right? So I just wanted to know if that is still on the table.

Yes, thanks for this [ Slade,]. Yes. Chingari, clearly, as I said last time, and it still remains, right, it was -- we had some synergies that we thought we could have with ONMO. There's no synergies. We are in discussion with them and with potential buyers to sell our investment. It's not closed yet. Hopefully, in the coming quarters, we'll be able to dispose of our investment. Our target is to at least get the value that we have on books today. So the value that we have today on books should be -- that's part of the assets. When I say we have assets on books that we want to convert into cash, that's one of the assets that I want to remove from our book and make my -- it's going to stay in our books, obviously, but in the cash section, not in the investment section. Investment in start-ups, to be honest with you, my view is we're not a venture capital and needs to have a lot of synergies. So my view of M&A is not buying a start-up. My view of M&A is buying a company that's been out there for multiple years that's making profit and that we together could make even more profit because there are synergies, right? So that's the kind of M&A I see that we could do. Obviously, having a positive cash position and the possibility to do a QIP to finance the acquisition helps. Raising debt is always a bit difficult on a global level because most enterprise that we deal with -- we deal in multiple countries in Africa and Asia and other countries where it's a bit difficult to raise debt. So it's probably equity. So to have a cash position that's healthy and being able to do a QIP to do an M&A is something that would make it feasible. Now we just have to make sure that we find the right acquisition and that it makes sense and that the risk is reduced by buying them, not increased, right? So it's all a question of risk management. But yes, it's still a possibility that we, in the next 12, 18 months, close on an M&A that could be significant.

[Operator Instructions]

No other questions?

As of now, none.

Simple results, eh?. That's good. It doesn't bring questions when it's simple.

There is one question in the chat box from [ Tarun Kumar ]. So he's asking, can you show some of your products?

Yes. And thanks. I had promised this, that we would show -- actually, we have a new product that I want to show you, but we're waiting -- we're negotiating right now with some key operators, and we want at least to have one sign before we show our future product. What we're going to try to do, the next meeting -- I'm not going to wait the quarter, because next quarter is actually in November. We have the AGM that's coming up on the 23rd of –- is the -- I think it's the 23rd of September. So at the AGM, we'll use the opportunity to showcase the products, the gaming platform that we have in our updates on ONMO and CA so that you can see the products. And hopefully, if we can sign a term sheet with one of our key customers on the new product, we'll be able to show them of the new product also. So thanks for your patience. I know I said that we would showcase the products, but let's wait another month for the AGM to do so. And I promise on the AGM, we'll showcase some products.

Anyone has any question? Okay. So there are 2 questions now in chat box. First one is, can you -- from [ Tarun ], can you bifurcate how can cash -- how cash has increased this year -- this quarter?

Radhika, you want to comment on this?

So around INR 62 crores was pertaining to -- INR 60 crores was pertaining to income tax refund. The rest from operating cash flows.

Hope that answers your question, [ Tarun ]. The second question is from [ Arun Kumar ]. Are you exploring any new opportunities outside of Gaming and traditional Mobile Entertainment business?

To be honest with you, I've looked at many opportunities, but I like to focus. I really think that already by serving the operators on both Mobile Entertainment -- which can be large, because in Mobile Entertainment, we have our communication platform also, Buzzmo, right, and Gamize, which is touching a bit of gaming, but a bit of SaaS-based engagement. So when we add this plus the Tones business, plus the news videos business, plus all of gaming, I think -- honestly, I think we are well diversified. And that's -- the key is really to capture the gaming market. As you can see, the gaming market is really big. We have huge opportunities. All the operators in the world needs a gaming strategy. If you look in the App Store, 60-plus percent of the revenues in the App Store, Google and Apple is gaming. So that's a huge opportunity for mobile operators, and we see it, right? The more we pitch gaming, the more business we get. So again, our subscription revenue is going up, it's one thing, the Gaming platform that we start selling as a license, but also capturing part of the in-app purchase and the advertising also. 50% of the mobile gaming revenues is advertising. And we were not doing any advertising. So now we're starting to push advertising also in gaming. So to be honest, I think we have enough business lines. So no, I'm not planning to add anything from this point.

So there is next question in the chat box from [ Tarun ]. Can you explain in detail about DeOSphere contract? And it is such a big revenue component.

Yes, it's a big revenue component because they were -- they are -- we have a deal where they actually leverage on our global network, right? So all the global networks we have, they get access in each POP. They can -- they have servers and they can deploy their software. And this is the exact problem, right, because we give them access to all the global network that we have, which is basically some cost for us. To operate, we have a global network. And that's what we realized talking to DeOSphere is that we could actually monetize this. Now again -- that's why I'm saying monetization is one thing, profitability is another thing, and software, the way the software operates, is something totally different, right, software operation. And right now, we're in a situation that's kind of awkward, right, where their software is being deployed globally on our servers, and that causes problems that we need to address with them. So that's why, as you can see, we've deferred the revenues till we can really solve the problems we have with DeOSphere.

So the next follow-up for that is, what happens if it doesn't go through?

To be honest, guys, I really believe in synergies, right? We've done this not just to make money, right? We've done this because there were synergies with Gaming, and that's why we booked them in the Gaming revenues. The way it is right now, we don't see synergies. Again, I see a problem, but I don't see synergies. So I need to address the problem and make sure we see the synergies, right? So if there's no synergies with Gaming, there's no point for us to really go deeper. So we really need to understand that component, which was the initial component why we've done that deal. So I mean, if it's not there, to be honest with you, we have so many opportunities in Gaming. Focus is key, right? We can't just do everything. So let's focus. And that kind of revenues will get -- and I'm not worried with the new products that we're talking to operators right now. This is the kind of revenues we have anyways elsewhere. So it's -- I'm not feeling like we're losing anything here, so.

So there are 2 more questions in the chat box. So from Mithun Aswath. He is asking what was the reason for the share fall in the Q-o-Q revenues? Also, when will be the Gaming business become a significant part of business so margins become meaningful? Also, cash went up Q-o-Q sharply. Is it sustainable or a blip?

Okay. Let me address the first point, right? The only reason that the revenues went down quarter-on-quarter is because we deferred the DeOSphere revenues. Putting aside the DeOSphere revenues, we grew 10% quarter-on-quarter. That's the first one. So there's actually growth, just that we deferred the DeOSphere revenues. The cash, as you can see, there was a great increase. I still see an increase on monetizing assets that we have on our balance sheet. As I was mentioning earlier, we have the investment in Chingari. We have other assets on our balance sheet. And we have a policy in this year's budget now that Gaming is breakeven and that all the additional growth is actually bringing profit -- the traditional business was making profit and with growth is bringing more profit. We have a budget where every single month, or every quarter for us, the cash position will grow. So it grew quite a bit in this quarter. So I'm not expecting this kind of growth every quarter, although if we do monetize our position with Chingari, it will grow again by pretty much the same amount. So that -- but in the next quarters, yes, this cash position will grow. That's the goal. And our -- and the profitability or the cash position that we have every -- on the operation will grow. What was the question in between? Sorry, I missed one.

Yes. It was basically when will the Gaming business become a significant part of the overall revenue so that your margins will expand and become meaningful.

So as planned, right, we finished last year -- as you remember right, we invested USD 35 million, right, in ONMO. So a lot of investment went into CapEx. So the capitalization was there. This year, we stopped capitalizing. All the development that we're doing is within the current P&L. So there's no confusion, right? There's no, "Oh, we did that much profit, but we capitalized all this, and the cash position is going down." That's why you see the cash position going up. That's why you see the PAT going up. And the actual Gaming business is big enough to absorb all the development we're doing, right? So basically, right now, we're on a run rate, as I was saying earlier, of USD 16 million. Sorry, I like to work on U.S. It helps me a bit. So USD 16 million. We still plan to grow by March, April next year to $2 million a month, which is a run rate of $24 million. So all this growth from $16 million to $24 million is very lucrative because it goes on top. And all the development right now is paid in the current 16 base, right? So all our costs are covered. So right now, we're breakeven on Gaming. And the profitability that's coming along is mostly profitable, all the growth coming along profitable. And the Entertainment business was profitable and is even more profitable with growth, right? So if you ask me when do we start seeing big, big growth in Gaming and profitability, obviously, in the next 12 to 18 months, that's where I think we're going to be able to show a good 25% EBITDA margin.