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Onmobile Global Ltd
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Ladies and gentlemen, good day, and welcome to the OnMobile Global Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] 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.
Thank you, Melissa. Good day and welcome to Q1 FY '23 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 of Global Sales.
The call will start with 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. Over to you, sir.
Thank you, Asha. Hello and good day to everyone. I'm glad to be with you all once again. And hope you're 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 posted on our website, and hopefully, all of you have 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 had an illustrious career of over 25 years as a software and a product development leader. And in fact he has spent his last 12 years in leading 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 Air Force, developing software for combat aircrafts. And by education, MBA -- Nir has a MBA from Kellogg School of Management. For OnMobile he's 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 by with updates on Challenges Arena. Q1 FY '23 was in fact our most successful quarter for Challenges Arena in terms of sales. Twelve new customers to our term for Challenges Arena, taking our cumulative agreements to 38. Out of these, 20 are already live as on the end of Q1 FY '23. We expect the momentum to continue and build 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 FY '23.
In fact as of end of July 2022, we already have 42 customer confirmation. And if you split it geography wise, Middle East and Africa leads the geographies with 20 customer confirmations by 14 and Asia, 6 in Europe and 2 in Latin America. Further, out of this 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 of now, aggregated 5% last quarter. Revenue, if you were to look at Q1 last year versus now, has increased by 11x from an year-on-year perspective, which evidences a strong traction for the product. Robust revenue growth is expected to continue in the future quarter as more and more new clients go live. We aspire the momentum in the coming quarters. But 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 2023, which obviously we've 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 FY '23, which will be our highest growth addition in a single quarter till date.
We are continuing to see healthy pipeline and expect to be live and sign many more clients in the coming quarters. Challenges Arena net activate base doubled every quarter in FY '22. And in FY '23, the net active base increased to 1.66 million from 1.33 million in Q4 FY '22. We are targeting to touch 2.57 million customers in Q2 FY '23, which is an addition of over 1 million active subscribers from the current quarter's numbers. Also to achieve the pace on 1 million active subscribers, we took almost 4 quarters, 1.33 million in Q4 FY '22 like I 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 we continue -- 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 have not seen exponential increase in multi active users for the segment.
Now let me also talk about profitability of Challenges Arena. As mentioned during our conversation in the last quarter, we are initially investing in growth through a disproportionately high marketing spend, especially 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 is a 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'm 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 FY '23, we had 12 customer confirmation, 3 of them are live and 2 of them actually just went live in May-June. So the impact of that revenue will start showing in Q2 itself. And then we are again going to see -- again seeing a lot of traction among 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 FY '23, to start awareness about our B2C products, we've 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, totaled 8 million plus impressions and the campaign had total 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 will shift focus 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 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, we have made great progress by optimizing our solution to handle more users per server. This will bring down the cost of hosting facilities considerably. We are also upgrading our streaming platform to be compatible with the vital 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 B2C front and the B2B front.
Let me also say at this state that all our other products, the legacy ones videos which is slightly down primarily due to Euro impact have showing growth -- and are stable and showing growth. So clearly the legacy products are showing stability and maybe little growth whereas Challenges Arena and ONMO will get us to more and more growth.
I would like to mention something on the cash on the balance sheet and fund raising. While we have invested in on product development, our intent is to ensure that the big spending on the B2C marketing will happen or start fund raising at an appropriate time. Till 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'd like to hand over the call to Asheesh to talk more about the financial performance. Thank you.
Thank you, Sanjay. A warm welcome to everyone on this call. I'll share the key highlights of our financial performance for this quarter ended June 30, 2022. We reported revenues at INR 141 crores, a growth of 5.9% on a sequential basis and 4.4% on a Y-o-Y 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 FY '23, there was an increase of 15.3% in manpower costs. Sequentially this increasing -- 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 an 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 FY '23, Challenges Arena, tones, games saw good uptake in segmental revenues as well as contribution to the total revenue on a sequential basis. While videos were 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 growth in revenues led by both new products; Challenges Arena and ONMO. We expect to have agreements with 46 customers by quarter 2 FY '23 for Challenges Arena. In terms of our balance sheet, our DSO was at 134 days. We have a strong cash balance on our book at INR 120 crores. During the quarter, we have incurred R&D on -- incurred expenditure on product development to a tune of INR 15 crores. We will continue to invest behind our gaming business, strengthen our position on the B2C gaming market as well as continue our foray into the B2B space.
A lot of operating metrics and data have already been shared in the presentation deck. I'm sure all of you have access to the same. Some of the metrics are being shared for the first time to give more visibility for the scale-up of Challenges Arena and ONMO. This may not be given in each quarter.
With this, I'll now hand over the call to FC. Thank you.
Thank you, Asheesh. Thank you, everybody, for joining this call. We shared with you last quarter the vision that we have, which is very important, right, is to grow to 200 operators with our gaming platforms. And we've geared up the whole company to get to 200 operators. Just for you to realize, 200 operators, one of our board members, as famous board member [ Sanjay Kapoor ], right, rightly said that he has never seen a product in the telecom industry get 25% penetration, right? There's about 800 operators in the world. But he really believes we're going to do it. And I believe we're going to do it. If you look at our numbers today, just on Challenges Arena, we don't give out normally the quarter 2 projections in quarter 1, right? In this case, we've done it once just for you to understand the numbers and where we're going. But we predict about 46 signed contracts going in Q2 and not only in Q2; Q3 and Q4 coming up. And really just to be live with 12 customers in 1 quarter, right, that's what we aim to have in Q2. It's very big.
And obviously the key is to continue that trend, that setup that we have today, we're all setup operationally to be able to deliver to our operators a quarter. And this is -- and this is just for Challenges Arena because we're doing the same with ONMO, right? ONMO now has 12 signed deal, 3 live, but signing a contract is one thing, getting setup and launching an operator is a lot of effort, a lot of cost and a lot of marketing launch.
So when you look at our results today, and you see the revenue growing, but you see the expenses growing and you look at it and profitability goes down, it's normal, guys. I just want you to understand the more we're going to sign and the more we go live, the more effort it is. It takes us 2 quarters to get back the investment on a launch with Challenges Arena. But after that, you get the profitability. So we're all geared up to go to 200 operators. So that's not going to stop. That's exactly what you see in quarter 1, quarter 2, it's coming in all the next quarters and to get to 200 by 2025, that's the next 12 quarters.
Now the good in this model is that you will see profitability coming up pretty fast. So that -- we're really excited about this. We have a double gaming product strategy for the operator. It's a great strategy for us also to get with our own servers. The fact that we have tones business that's been there for 20 years, having 3,000 servers installed on tones into operator, we have an awesome footprint and hyper-specialized team to deal with operator and maintain server, which makes sense for edge computing, as I mentioned last time, there's no shortcut in the world to do edge computing, which we need for low latency, especially for gaming, you need to install your servers into an operator. Even Amazon can't just take the shortcut and say, I'm Amazon. You have to go operator 1, 2, 3, 4, 5 and deploy their own servers and operators' network. That's exactly what we have as a competency, and that's what we plan to 100% leverage the whole tones department, leverage, installing gaming servers for ONMO.
So the Challenges Arena service is way easier to install than the ONMO service. That's why it's in front. But you see what we signed, most operators that we signed when you look 38 today, 46 projected by end of Q2, most of them want to sign ONMO also, it's a double product strategy. And they want to install servers in their network also. So it's really, obviously an awesome strategy that we have, really lucrative also all the way, and that's where we're focused. As I promised you also, we'll have the best mobile gaming service.
I want to come back to Nir, to have the best gaming service, you need to have the best team in the world. I'm really thankful that Nir has accepted joining and is here in my office with me. Just for you to understand, Nir was Head of Mobile gaming at Take-2. Take-2 just did the $12 billion acquisition of Zynga, Nir was involved. Nir has been involved in gaming in the last 12 years at all the big companies, King. So King Activision got sold to Microsoft. He was involved in all the mobile gaming back then. He has smaller companies like Dots, which he sold to Take-2. So he's done small, going big. He's done very big, going even bigger.
So if you want to have the best gaming service, you need the best team, and I thank Nir for joining out of New York. He knows all the best guys in the mobile gaming industry that can join us also. So we have a very good office in New York. And I can tell you, we're shooting very high. So I'm quite excited.
So to this, I'm going to open the floor for questions.
[Operator Instructions] We have the first question from the line of [ Neeraj Mendiratta ] from [indiscernible].
I have actually a few questions specific about the margins. So we have seen EBITDA margins actually have been falling over the last few quarters, primarily because of the increase in marketing spend as well as the employee costs actually. So we've seen the EBITDA margins actually coming down to around 5% to 6%. Historically it was in the range of around 12% to 15%. So what do you think will be the sustainable EBITDA margin going forward? That is one question. Second is in the challenging arena, you have guided for EBITDA guidance of 30%. Can you provide some guidance, EBITDA guidance, for the ONMO business also? That's the second question. Third is actually what is the cost of acquisition for each gamer and the repeat rate for the gamer?
Yes. Okay. Thank you, Neeraj. Clearly, like I said, there is this investment that we are making in marketing expenses, especially together with the launch of the operator, with the operators all across the globe. So you're right, we've had -- for example, we had 100% expense growth as far as marketing is concerned, if you were to compare it to last year, year-on-year, and about 15% quarter-on-quarter. While this will stabilize going forward, the revenue growth will continue. So our aim is that you will very quickly start seeing the numbers that you quoted in terms of the EBITDA percentages.
So Challenges Arena, like we said, is a good -- in a mature state, 20%, similar will be the case on a mature state for the B2B side of ONMO. Clearly that's what our focus is to get to that level. So we will see sustained new revenue getting added, which is highly much more profitable than our existing product. The change in the gross margin, you must be seeing already, and we believe that will get further accelerated over the next 3 quarters, let's say. So come our exit for Q4, you will have a very different set of financials to look at in terms of profitability.
Does that answer your question?
Yes, yes. It does help actually. And any update about the thing, the cost of acquisition for each gamer and the repeat rate for the gamer?
So basically as we kind of made everyone aware, we've started with a gamer campaign that will teach, the last complete quarter was dedicated to create awareness among users [indiscernible] a lot of visitors to the product. So we've been tracking cost of acquisition, but it's initially being tracked at the registration level. So initially we were at close to $1.3 plus range per registration, and we've steadily been able to build it up [indiscernible] of that. And we are continuously focusing on to bring it further up.
And that's the B2C side.
Yes, that's the B2C, of course.
As far as B2B is concerned, it's a very different metrics altogether.
Yes, so on the B2B side, you see, we are kind of a global company, we're present with this product with Challenges Arena in roughly about 17 to 18 countries. So it varies from country to country, the acquisition rate for a player. So it would vary from, let's say, average if we take across Asia, Middle East and Africa, it will be close to $1. While in Europe, it would be in the range of EUR 12 to EUR 15, that would be the range. And especially in India, it will be about INR 50.
And any guidance on revenue contribution from India maybe in the next few years since now you're actually focusing on the India business plan really?
So no, our focus is global. India has -- is actually now a smaller part. It's about 15% to 17% of our revenue overall. And like we mentioned and we gave you the geographical breaking. It is primarily we are global. So India will remain a small part. It is doing well. India is doing well. I must add. The Indian customers are doing well, and we are, therefore, experiencing good growth in India also. But from an overall perspective, it will remain in the same ballpark. We don't see any significant change happens, because we believe that the global customers will continue to contribute in a very large number as far as our revenue is concerned.
Okay. Then just a couple of questions. For the OnMobile B2C business, I mean, what is the kind of money which you plan to raise? And would it be to update other equity issuance? Any guidance on that?
So we are flexible in our approach. And at an appropriate time, we'll let you know. But the overall thought process or strategy, in this is that we will expand a significant portion of money only once we raise big orders for the B2C business. As of now, the focus is B2B, where we don't need funding to grow or from an investment perspective. And as far as our product development is concerned, that will continue with our own funding. So to that, we don't need any funding. We will continue to find the product. We'll continue to do growth business as far as B2B part of the -- ONMO business is concerned and which, like we said, is scaling up very, very well.
So but whenever we do this and we will come back to right at an appropriate time in terms of quantum and the timing of it. We are talking to various stakeholders, but we'll come back at the quantum when it is appropriate.
Just one last question. Is there any impact of the negative news on the credit token collapse on the investment in Chingari? Plus, I mean, do you think this has cost any kind of -- I mean could be any kind of provisions in the diminution of the investment in the coming quarters?
No, on the contrary. I mean, like not -- we cannot average the numbers that they are looking at. But they're looking at the next round of funding going forward. And it will be a substantially higher multiple of number at which we've invested. So let me not say beyond that. But we will not have any -- there's no question of the question of how many times the value will increase.
Okay. So the credit token collapse will not have any impact?
It is not that we are aware of as of now.
[Operator Instructions] We have the next question from the line of [ Kamal Sodi ], an investor.
One of the things that strikes me most signs is that companies with great transparency and outlook towards integrity, et cetera, do declare some numbers of acquisitions, sales, et cetera, on a monthly basis. For example, the automobile industry, the telecom industry. Since you're getting into this business, where you've kept an ambitious target of targeting 25% of the global telecom operators, and you now have some, I would say, reasonable success is in a short span of time. Don't you think it's time that you start issuing a monthly -- how should I put it? Input to the universe out there, which says that these are the numbers of contract signs, et cetera, active users or paid users or subscribe, subscriptions received, et cetera. That's Number 1.
Number two, have you noticed that the past year or so, there have been a great amount of traction as far as investor needs are concerned. Now I would ideally like to believe that the information that you give them is already existing in the public domain through your quarterly investor call. However, it would be nice to see you also published the presentation to the exchanges that is made to these investor analyst meets. I don't think this is difficult for organizations that transpires to be a global company with the seal success coming to one in the future on the platform side.
And my own experience for the past 10-plus years as a shareholder is that you've always been evasive and shy in terms of giving guidance and even when [ Rajiv Pancholy ] around -- and the gentleman before him, I don't forget his name -- I don't recollect his name rather. You used to talk about giving EBITDA guidance for the next quarter. And that happened for a quarter and then it drizzled out. So you've never really up the game as far as your ability to give guidance is concerned. So if you're not able to give guidance, at least can you publish a monthly report as requested under is my point 1? Your comments, please.
I just want to be clear on this one. And I don't know if you're reading the same presentation that we gave out to the market, but it's very clear on Slide 7 of the presentation now on challenge arena, we have actually given projections for next quarter on how many net active subscribers that we're going to get, 2.57 million projected. So I mean, I don't know…
No. So let me interrupt you here. I have gone through the presentation. And you're right, it's available on a quarterly basis. I am asking for a monthly report after the month is over, like the automobile industry or the telecom industry issues to their shareholders and make changes, et cetera. So this way, you know, like yes, the company is doing something in that direction…
I have many public companies and here in America, like Stingray, for example, a music business, and we have subscription. And it never gave out monthly I mean, quarterly. I mean I want to be very transparent on a quarterly basis, but…
Well, let's not get into that kind of a subjective argument who does it and who does not. I think organizations that want to really stand out and really want to show the universe what they are made up of in terms of metal, they would consider it. So I think I would not like to get into a subjective conversation. Some number of people do it and why number of people don't do it. Is the requirement, if you think that your company is geared to meet and your company wants to move to the next level of transparency? Up to you.
Okay. But I just want to come back on the information we're going to give out the same information for challenge arena and ONMO when we sign up operators, and we're giving out the number of contracts signed, the live customer and then the number of subscriber as a basis, quarterly or monthly. But is that okay with you? You're missing some…
No, it's not my requirement. The reason I made this request is because 2 reasons primarily. I'm happy to see a lot of investor companies coming and meeting you and you going out and reaching out to them and you have a certain target in mind for a marketing expense of $100 million over the next few years for which you're raising, hopefully, you would raise private equity for your subsidiary very soon. And I wish you all the best, as a shareholder for more than a decade now.
It just gives a lot of your investors, the stakeholders, a lot of confidence and the month has passed and on the first or the second of every month, you come out with the numbers saying ONMO so many acquisitions agreement sign, Challenges Arena, so many acquisition customers bought on so many made live. This is just like a monthly update. We're not asking you for something you haven't done. This is something that you have done, delivered banked and not just informing us on a monthly basis, not on a quarterly basis. It just raises your level of transparency out there.
I mean, look, frankly, I don't want to say this because this is something way back from the past. But the past hasn't been very full of integrity and I'm talking about [ Arvind Rao ] and the period thereafter. This is not a point to you. So I think it's time you reverse the cycle a bit.
So okay, we will think for this. But as we stand today, frankly, very clearly, we will like to give quarterly data. But yes, it's a good suggestion. We think about it. And as far as the presentations, et cetera, to the investors is concerned and we meet them. We actually take them through some of the things that we've uploaded on our site. So we don't necessarily go any further than that. We generally talk to them about our vision, which we've very category, in fact, last time put on our website early and in fact, s talked about it in terms of 200 customers and all that.
So I think very clearly, when we talk to the people, we tell them what is our game plan and where are we aspiring to reach, which we, in fact, have seen put it out in his core also. So the intention is to give everybody similar data. We don't intend to camouflage anything or give anything differently. We openly talked about the mature state profitability of the new products. We've said it here, we will say to the investors that we meet. They do their own mathematics like you are wanting to do based on the monthly numbers. They also -- everybody does their extra position in that sense and does take their calls on the investment criteria, et cetera.
So clearly, we take your point. We will think about it. But like I said, quarterly, we will definitely give. Monthly, we will -- see, I don't know whether you've been attending our call regularly. But over the past, at least 8-9 quarters, we have tried to increase the transparency level and we will continue to do that. Having said that, there is some -- because there are very less competition involve in this, we don't necessarily want to immediately divulge some of the numbers. I'll be honest with you.
I have been attending the call for around a decade now.
Lovely. So good to…
The point here is I believe that you're not very confident as an organization in giving guidance. So a monthly report card is not exactly a bad idea to reach out as a communication, right? And it's not about whether you divulge anything concrete or specific to only a handful of investor analyst meets. It's about your intent backed by demonstrated behavior bringing everybody on the same page. Like the fact that we talked about targeting 25 telecom operators globally is a wonderful news. And this is the first time I'm hearing something like that, that makes me want to engage with you because I've been a very quiet listener, I would say, for at least 4 out of the 5 calls that I attend. I just come attend and walk away.
So it's about you. I mean, are you giving us the confidence in the question? I mean, yes, I'm sitting on it for 10 years, I made no money, there's no doubt. But I might want to buy more in the company, say versus some other investments that I'm considering when I get -- when a Maruti or Tata Motors or Mahindra and Mahindra or Airtel, Vodafone, Jio, even retailers nowadays get their monthly sales numbers. We're not asking you for sales numbers. We are asking you just consider putting out a dashboard out here on a monthly basis. So what you achieved? ONMO signed on, ONMO went live, Challenges Arena signed on, went live like, new strategic alliances, whatever you think you want to do. But at least that's the form of an engagement. And that's like the always hanging fruit you have, right?
Yes. No. Taken --- point taken.
And if I have to really get into a subjective argument and sell you the idea of how to engage with somebody who is out there looking at upping their investment or coming in. I think this is a great way to build some credibility at least. It shows movement, it shows progress and you've got some good things going. Why wait for a 90-day cycle to come on a call and then share of PPT and then we trade that on the call.
Mr. Sodi, this is the operator.
Yes, point taken. Kamal, we'll consider that. Thank you.
[Operator Instructions] We have the next question from the line of V.P. Rajesh from Banyan Capital Advisors.
Congratulations for a good set of numbers on Challenges Arena, the trajectory looks extremely promising. Just a question ONMO B2C side. I think you had mentioned that you will start giving us a separate P&L for that. So if you can just share some numbers as to what was the marketing cost which is embedded in this or just ONMO B2C?
So actually, as of now, we are still at the beta stage and therefore the separate P&L is not happening as of now. The moment the B2C revenue starts to happen, we will start giving that data separately, like you said. As far as marketing is concerned, there is not much, like I said, we've made -- we've kind of done an awareness campaign, but that's not something we'd like to talk, but overall numbers you've seen, it's -- these are small numbers, maybe between INR 1 crore and INR 2 crore, somewhere.
Okay. So majority of this is focused on Challenges Arena and ONMO B2B?
And ONMO B2B, yes. But mainly Challenges Arena is the biggest number so to say.
And, Sanjay, if I heard you right, you're saying by Q4, you see the EBITDA margin turning around. Did I hear that right?
Yes, you heard that right. Yes. So movement will happen every quarter. But Q4, it will really -- you will see the numbers that we saw in some quarters away, maybe 3-4 quarters before this or 5 quarters before. We'll start seeing those numbers back and then obviously, it will get better. Because as more and more of Challenges Arena and ONMO revenue comes in, the profitability numbers on an overall basis is set to improve.
And any just on the B2C side, now that we have new on board, is there a change of strategy from how we were approaching the market for scaling up B2C any initial thoughts?
FC?
No. Honestly, there's no change of strategy. The goal is to have the best gaming service. And when I say the best, I mean, from an end user perspective, the most engaging, where they spend the time, they like it, and involved. There's a lot of features coming in on that's changing. We talk about the cost of the service engagement, but all the life features, the social features that not just us want, but the operators are asking for, right, to go to our 200 operator road map. Most operators that have signed contracts right now and all the ones coming, they all want to see the social features, meaning -- and then just for you to understand the social feature is that, when you play a game, you only see your game play. In the coming months, I assume that anybody plays a game, they'll be live streamed live and you'll be able to jump on anybody's game and see their live game on your phone. And eventually co-play live with them. So a lot of interactions coming along, which will change the whole engagement all metrics, right?
So that's exactly why Nir is coming on board to get the best in the industry so we can ensure we have the best gaming service. And keep in mind, the B2C service is the exact same one that we sell to operator. In the past when we use operator based services, they were different. They were white label and the actual service was not the same for each operator. In our case, the B2C service in the exact same service that we offer each operator and it's with our brand. And actually, the subscribers that we acquire on operators will be able to play with other subscribers from other operators also from the B2C, right? So that's why it's so important to really have the best service as a core on ONMO, and that's the strategy.
And on the cash side, is there a minimum cash that you want to have because we see each quarter, it is coming down. So what is the minimum cash you want to make sure you have on the balance sheet?
Yes. So we already have a difference of INR 120 crores on the balance sheet. That will always keep a healthy balance of around $10 million on the balance sheet. We'll start soon start having good amount of EBITDA, as Sanjay explained. And our B2B business is not going to require the significant amount of CAD that's just working capital. And then we generate enough money in the coming quarters to large people fill our cash needs.
[Operator Instructions] We have the next question from the line of Pulavarthi Saikiran from Pulavarthi Advisors.
Just quickly to give you can just help us understand why net active subscriber growth has been very weak this quarter, in spite, the [ cross-engines ] were very strong that when you have got more customers getting signed up? If you can just help us explain that, that will be really helpful.
So if I understand your question, you're saying, why have the -- why the net adds have increased?
No. I'm just referring to the Slide 7 of the presentation. If I look at on the left-hand side, what gross -- during the quarter is almost like 2.32 million subscribers, is really healthy even if I look at on a quarter-on-quarter basis versus 1.8x million in Q4. But if I look at the net active subscribers, the growth has been very weak. That's moved from 1.3 million to 1.6 million. Is there any challenge on the retention side? Or what is this gross additions, not what adding up to the net subscriber active growth?
Yes. Okay. So I'll explain that. So today, the use -- the only mode of payment for the users is their telco wallet, right? So they have the prepaid wallet or their postpaid bill, right? That's where we charge a user to use the service, correct? So since most of our business right now on Challenges Arena in the emerging markets of Asia and Middle East and Africa, the most of our customers are on prepaid. So what you see on the left-hand side of the gross adds is what subscribers have added for the quarter. And the next graph tells you what customers have retained for the quarter, right?
And the difference that you see, 95% of that users have dropped out because of not able to pay for the service because they don't have enough balance on their wallet, right? And only 5% voluntary activate the service. So it is primarily a payment issue rather than users voluntary deactivating the service, and we are looking at options to how to solve that problem, right?
So for example, one of the options could be that we could integrate standard digital wallet in different countries where the user doesn't have any balance on the telco wallet, they could pay from the digital wallet, right? That's an option that we're evaluating. So, that's an important area for us team, and we are working on that.
So generally, just to Biswajit Nandi said, this is something that we have to work together with the telecom operators. A lot of times, the telecom operators insist that the usage has to be from their wallets. But now we've seen some traction in a couple of customers who are talking to us saying, no, you can actually start using the consumer and actually go ahead and use any wallet, which he might -- any digital wallet, for example, in India, if we were to give an example support somebody has a PhonePe or somebody other PayTM and they could use that also to make payments for our service.
That's something that is what we are exploring. Hopefully, we should see some activity there where these things open up. And then, of course, the element of people going off because they don't have money in the in the telecom wallet will not be there.
And then just follow-up question. You guys have actually guided for very strong revenue growth in the coming quarters. So if you can just help us understand the cycle of revenues coming OnMobile from the customer sign up to become active and the revenue growth. How is this true? If you can just help us understand that will be really helpful as well.
So from a customers' perspective, there would be people who will subscribe to the service, there will be an element which will come as a revenue to the telecom operators, and there will be a revised where we will get our share. That's essentially it. From a time the customers subscribe it, our revenue flow is immediate.
No, I understand that. But I'm just asking say, for example, you have given a very good data in terms of the next quarter, probably you are seeing active customers will be there because you already have 26 customers as of June 30, and 12 customers have been signed, they might go live. So I'm just trying to understand, sir, once they go live, -- what I can say -- how the revenues will start to move in? In the sense like in the first 2, 3 months, how much revenues might kick in? Or if any drivers for that revenue, if you can help us understand that, that will help us to model the numbers.
Yes. I mean it will be difficult for us to tell you because 12 customers going live will be -- somebody will go live in July, somebody in August, somebody in September. By the end of September, we expect 12. So revenue could be for 2.5 months, could be 4.5 months, could be 15 days, we don't know yet. So it would be wrong on my part to give you a sense that you should model it on that basis. I would rather say that the modeling, if at all, you can take an average number of sales [indiscernible] they will be there for half a quarter, and then one half of that will be revenue. But what I think is important is it sets up so beautifully for the next quarter. So for example, today, when we have 20 customers at the end of June, all 20 of them will give us revenue for Q2.
And therefore, when we say that by Q2 end, we'll have 32 customers but I think the way you should model it I think all 32 will continue for Q3. And that's the better way of doing it rather than trying to nitpick in terms of how somebody will contribute for half the quarter, somebody will contribute for only 15 days. So I would rather like you to do that way.
And based on the net active subscribers, that will be a fair thing to look at in the sense like the numbers [ from you ]?
Sorry. I didn't understand the question.
No, I mean to say that the revenues are highly dependent on the net active subscribers. Is it a fair assumption to make?
That's correct. The net adds. See, no. The growth adds also, like Nandi mentioned, the moment somebody comes in, he will subscribe to a month and then maybe gets charged out but the month is over. So this will be a rolling thing where the subscriber comes in, puts in the money for a month or 2 and then at any point in time, if it is revenue or if it is money in its wallet is not then it would turn out. So this is an ongoing cycle. The moment people come in, they pay for it.
[Operator Instructions] We have the next question from the line of Abhishek Banerjee from ICICI Securities.
Just one question from my side. Would you give us some clarity on -- I mean how the currency movements in the last quarter have impacted your revenue and bottom line?
Yes. So largely, the Europe business was affected on account of the euro depreciation versus the rupee. So I think that marginal impact but as the European crisis improves, that should basically get nullified in the coming quarters. So we had roughly a small around the INR 2 crore debt on account of ForEx in the video part of the business.
And also in the Challenges Arena the contract that you have with your operators, those are denominations in what currency? Is it local currency?
Most of these people would be on local currency. So I mean, we will -- various countries, people will have local currencies because that's what the rate -- see, we understand that we are on a revenue share model most of the time. So once they are in the local currency, they will pay us from a share perspective then. So mostly we are on the local currency mostly.
So there would not be any higher translation there because most of the currencies are falling more, right, compared to rupee?
Yes. So hopefully, yes, we've already seen at the brunt of it, let's hope things get better from here.
We have the next question from the line of Sunny Gosar from MK Ventures.
Basically, what I would like to understand is what is the breakeven level of revenue on Challenges Arena, like in terms of -- at what scale do you break even? And basically, at what is the revenue range at which you start making the intended EBITDA margins?
So let me say that, that when we launch the particular telecom operator, I think within a couple of quarters, we start making it positive EBITDA. And let me put it that way. And that's the whole point. Now that we have got a substantial base the new additional numbers of new customers coming in just continue to add and overall profitability will continue to continue to grow.
So I wouldn't call it in terms of per subscriber or something like that. But I would say the first couple of quarters, the second quarter, within the second quarter, we start kind of towards the end of the second quarter, we start making money.
Right. And in terms of the cost structure, like what would you ascribe the major cost hedges? Because a lot of the content development has already happened and the -- it is already there. So incrementally, on deployment of a new customer, what are the major costs that are involved?
So the main cost is marketing. And so that also is largely upfront when we acquired the customer and starts normalizing, as Sanjay mentioned, immediately from the second quarter itself. So it's largely marketing. Content cost as we add more operators and some of these costs will start getting amortized over a large customer base. So that's not the cost it's only marketing.
We have the next question from the line of Mithun Aswath from Kivah Advisors.
I just wanted to understand, in terms of your legacy business, what sort of growth are we looking at this year? And what are the agency margin deterioration despite revenue growth quarter-on-quarter? And I think last quarter, you had guided for improved revenues and margins for FY '23. So I just wanted to understand if you can touch upon that. That's my first question.
So from an overall perspective, as we said, we continue to maintain that revenue growth will happen. And like I said, towards the end of the year, we'll see profitability improving and we maintain our position as of now. The revenue will continue -- the robust growth in revenue will continue. We've seen in Q1, we've given you in fact we've given you a lead indicator of Q2. So that will help you look at Q2, Q3, Q4 in terms of how -- what is the trend trajectory we are expecting in terms of revenue growth. Profitability, like I mentioned, as more and more customers come in, we will see a robust increase because if you noticed, you might have seen. The gross margin already started to look up if seen, we were at about 48.9% or something or that, and we are now at 51 point-something percent, so 51.5%. So clearly, that improvement is happening. It will further increase over the coming quarters. And therefore, in Q4, there will be a different picture altogether.
Right. That's good to know. The other question I had was on the ONMO business. There was talk of you housing it separately and maybe these B2C play that you are embarking upon on that. So just wanted to understand what are your thoughts on that? How would you focus on the operator level ONMO opportunity that you seem to be looking at right now. So just wanted to your take on that because that would have implications on the P&L as well. So if you could just highlight it.
So the entire business actually per se the IP for that business and otherwise is going to be housed in a separate subsidiary or line. That is out of New York ONMO Inc., is the company that we have there in the U.S. So that is correct. But the business, see our business is such that it runs all across the globe. So the revenue will accrue a lot of times the revenue accrued in the local subsidiaries. And so we look at business and a business vertical entities don't necessarily differentiate or need any difference for us. Our focus is to look at businesses in the analysis and not necessarily a entities.
Entities have become relevant now, and that is only that one entity, which is ONMO Inc., which is in the U.S., which will really house the B2B or the ONMO business as a whole. And whatever happens between, let's say, the subsidiary -- let's say subsidiary in Africa versus the U.S., there will be a mechanism of transfer pricing, which will be very transparent and robust, which will enable the profitability to be housed and where it appropriately belongs. But at the global level, at the composite company level, it will not make a difference at all.
No, my question was more on the funding that you required for this B2C play that you are looking at. At the ONMO level where are you in the journey towards that with the cash pile obviously, quarter-on-quarter is coming down. So how would you fund that? Are we close to maybe unlocking value there and trying to get some investor because it's been 2 or 3 quarters since we've spoken about that. So just wanted to know whether we are still embarking [Technical Difficulty] we would maybe pivot towards more a B2B play even within the ONMO opportunities?
Yes. I just want to say that we have so much traction on the B2B side and the same product, right? So marketing wise, is a big gain of launching with operators first, getting subscribers, and it's our same brand, right? As long as the product is really good. So investor-wise to look at this, and we were trying to fund only the B2C side, right? But to be honest with you, the investors look at this and they say, wow, you're making so much money on B2B, we want to be part of the B2B side, right?
So that becomes a matter of metrics, right? Where do we -- how do we account and that's why essentially we're talking about ONMO Inc., and how do we do the cross between the B2B, which is provided by OnMobile versus a pure B2C player, right? Because right now, we're really -- we're having a very particular model in the sense that it's really a B2B and B2C play combined.
So to be honest with you, we're discussing with investors right now, where do we split the value and how should we do a deal? And what's the quantum, right? How much money should we raise them for what. So that's the discussion right now. Sanjay, do you want to add anything?
No, I think you've beautifully put it across. Clearly, I mean, to put it more custom, we are actually very flexible in our thought process because a lot of it, like FC said, the investor community is also keen to take a part of this substantial gain that we see coming up in the B2B side of our business. And they say that, okay, we're ready to -- I mean, somebody would be ready to invest in B2C, but they want to have the gain of B2B. So we are looking at that, and there will be flexibility from our side and depending on how the investor is confident.
So will we see any sort of monetization in the next couple of quarters? Is there any time line that you have in mind?
So we are working towards it. We want to put in a date to it, but yes, we are working on that.
We have the next question from the line of Naman Bhansali from Perpetuity Ventures LLP.
I just have 2 quick questions. The first is on marketing costs. So how much is the marketing cost as one-off I see a few customers are going live? And my second question is on more B2C business, so when can we expect to see revenues kick in? Because I think as you have guided you would provide some disclosure on the ONMO. And is this a case where we are not seeing the revenues to be scaled up or are we being for proper disclosures for ONMO?
Yes. So the ONMO revenues I have already started, although when we see more significant jump in those B2B ONMO revenues in the coming quarters as Sanjay explained. As the marketing cost, the entire increase that you see from a Y-o-Y perspective largely on account of Challenges Arena and ONMO. So it's basically the investment behind these new products, which we're also adding to the top line.
And into the disclosure, starting next quarter, you will see the ONMO revenues exactly the same step that you see for Challenges Arena. So you'll be able to compare the ONMO growth path on the B2B side compared to challenge arena.
Ladies and gentlemen, that was the last question and we will now close the question queue. I would now like to hand the conference over to the management for closing comments. Please go ahead.
Well, thank you very much for joining on this call. Again, I just want to reiterate that I'm quite excited about our plan, and we're gearing up the whole company to get to our 200 operator plan by 2025. And that's what you will see in the coming quarters. So thank you all for joining the call, and I look forward to see you next call. It's going to be in November, the second week of November. So thank you all, and see you in November.
Thank you, members of the management. Ladies and gentlemen, on behalf of OnMobile Global Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines. Thank you.