Route Mobile Ltd Management Discussions

Financial Condition and Results of Operations

Overview

We are among the leading global cloud- communication platform service providers to enterprises, over-the-top ("OTT") players and mobile network operators. We offer omni-channel digital communication solutions, including messaging (A2P SMS, OTT Messaging, and RCS, amongst others), enterprise voice and email, to enterprise clients across the globe. We offer a comprehensive range of cloud-communication services and solutions to clients across diverse industry verticals including banking and financial services, aviation, retail, e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom. Further, we have expanded our enterprise solution suite to include digital fraud prevention and anti-phishing solutions. Our clients include some of the worlds largest and well-known organisations, including a number ofFortune Global 500 companies. Further, we also offer SMS filtering, analytics, SMS Firewall, SMSC, MMSC and SMS monetisation solutions to Mobile Network Operators globally.

Our MD & Group CEO, Rajdipkumar Gupta, was awarded the Most Promising Business Leaders of Asia for 2023-24. He was awarded the Trailblazer CEO award at the Corporate Leadership Awards 2024. He was also featured in the Top 25 Most Influential People in the ROCCO 100 - 2024 report.

We have been consistently ranked amongst the tier 1 application-to-peer ("A2P") SMS Messaging service providers, seven times over 2016-2023 and scored high rankings across metrics including reliability, customer service, technical expertise, understanding of the industry and quality of service amongst others. (Source: ROCCO Report). Further, Route Mobile (UK) Limited, our wholly-owned subsidiary in the United Kingdom, has consistently ranked as the fastest-growing company from 2018 - 2023 in the Technology & Telecom sector (Source: 10th edition of the Grant Thornton India meets Britain Tracker 2023, developed in collaboration with the Confederation of Indian Industry). TruSense Identity Limited (wholly owned subsidiary of Route Mobile (UK) Limited) received the ‘Best Mobile Authentication Solution award for our P2A-based authentication solution, at the Future Digital Awards 2024 organized by Juniper Research.

Route Mobile was incorporated in 2004 and is headquartered in Mumbai, India. In the fiscal year ended March 31, 2024, we serviced 3,000+ customers, including large global enterprises, as well as small and medium businesses. As of March 31, 2024, our global operations included 9 direct and 26 step-down subsidiaries serving our clients through more than 35 locations across Africa, Asia Pacific, Europe, Middle East and the Americas.

In July 2023, Proximus S.A. ("Proximus"), the leading telecommunications operator in Belgium, signed Definitive Agreements to acquire 5771% of the Expanded Voting Share Capital from existing promoters of Route Mobile Limited, and make a mandatory tender offer to acquire upto 26% of the Expanded Voting Share Capital, from public shareholders, as per SEBI guidelines. Proximus will effect the transaction through its wholly owned subsidiary, Proximus Opal ("Opal"). Opal also holds 100% equity in Telesign Corporation ("Telesign"), a leading CPaaS solution provider headquartered in Los Angeles, USA. The transaction creates significant synergies for Route Mobile and Telesign, as they will gain access to a wider market, with a more robust bouquet of solutions.

During the fiscal year ended March 31, 2024, we witnessed continued adoption of our new product offerings which help enterprises deliver an immersive customer experience and enhance customer engagement. Details of the same are captured in the following description of our operations. Our operations are internally aligned into the following business verticals: (i) Enterprise and OTT; (ii) Mobile Operator; (iii) Digital Identity and Security Services and (iv) Business Process Outsourcing ("BPO").

Enterprise and OTT: Our Enterprise and OTT vertical primarily provides cloud-communication platform services to enterprises. Our enterprise cloud- communication platform services and solutions include: A2P messaging that includes SMS, 2-Way messaging, and Acculync; enterprise email; RCS messaging; OTT messaging (also referred to as IP Based Messaging), and voice application services (which enable enterprises to, via the cloud, connect incoming and outgoing voice calls to their applications and systems). Voice services also include interactive voice response, Click2Call, missed call facility, outbound dialer. Our OTT messaging solutions which provide deep customer engagement through interactive communication - using chatbots and ability to integrate AI capabilities - have witnessed strong adoption by leading brands both in India and in global markets.

Mobile Operator: Through our own communications platform and managed services, we provide software and service solutions to mobile network operators globally. Our main service offerings in this segment include A2P SMS filtering, analytics, monetisation, and hubbing solutions. In addition to the AI/ML based A2P SMS firewall and filtering solutions, we also offer SMSC, MMSC solutions to MNOs. Through this approach, we are able to address the MNOs requirements across the full stack required for effective A2P SMS monetisation.

Digital Identity and Security Services: We launched TruSense (https://trusense.id ), a digital identity and security suite that secures digital transactions through a reliable ecosystem, enabling businesses to authenticate the end user in a frictionless way. The vision for the solution suite is an ecosystem free of digital fraud where no consumer faces risks related to identity theft, forgery, SIM swap, phishing, SMishing, social engineering, account takeover and online fraud. These solutions are extremely critical, to thwart identity theft in real-time to prevent loss of revenue, in a world with continuously growing digital transaction volumes. These solutions ensure that customers do not fall prey to frauds and are not inconvenienced with another layer of security through their online journey.

ii. Financial performance of MR. Messaging was adversely impacted in FY 2023-24 due to geopolitical issues in Europe and a specific client undergoing industry consolidation.

iii. The sharp devaluation of the Naira affected the revenue earned in the Nigerian market.

MRM EBITDA decline led to :

• Fair value gain of R65.07 crore (in FY 23-24) towards contingent consideration payable to the erstwhile shareholders of M.R Messaging FZE

• R21.69 crore (in FY 23-24) towards impairment in the value of Goodwill

• Drag on Route Mobile consolidated EBITDA to the tune of c. 60bps in FY 23-24

Naira Devaluation

Nigerian currency (NGN) has sharply devalued twice in FY 23-24 (c. 64% drop compared to last year). Our revenue was impacted by c. R26 crore (in FY23-24) and c. R11 crore (in Q4 23-24), due to NGN devaluation.

Provision for an onerous contract

In Q4 FY23-24, provision of R26.54 crore was accounted for an onerous contract. However, the terms of the contract are being re-negotiated, on grounds of geo-political concerns and changes in market dynamics therein as per the provisions of the contract.

Reconciliation of Consolidated Profit before tax (PBT) to EBITDA (Non-GAAP)

Depreciation and amortisation increased from 781.60 crore in FY 2022-23 to 786.05 crore in FY 2023-24.

Finance costs stood at 72725 crore in FY 2023-24, compared to 720.45 crore in FY 2022-23. The increase in the finance cost primarily relates to increase in interest on borrowing from banks from 73.85 crore in FY 2022-23 to 716.56 crore in FY 2023-24.

In Q4 FY 2023-24, provision of 726.54 crore was accounted for an onerous contract. However, the terms of the contract are being re-negotiated, on grounds of geo-political concerns and changes in market dynamics therein as per the provisions of the contract.

PAT increased from 7333.11 crore in FY 2022-23 to 7388.84 crore in FY 2023-24.

Consolidated Balance Statement Summary and Key Financial Ratios

Trade Receivables have increased in FY 2023-24 reflecting growth in revenue from operations. Days Sales Outstanding has increased from 62 days in FY 2022-23 to 80 days in FY 2023-24. The Company has implemented initiatives to normalize Days Sales Outstanding towards previous levels over the next year, by focusing aggressively on collections.

Current Assets increased from 71,786.69 crore in FY 2022-23 to 72,130.38 crore in FY 2023-24, whereas Current Liabilities increased from 7783.16 crore to 71,035.25 crore over the same period.

Despite increase in the interest from borrowing from banks, Interest Coverage ratio stood at 16 in FY 202324, compared to 18 in FY 2022-23. Interest coverage ratio is calculated on the basis on Earning before Interest and tax (EBIT) divided by finance costs, for the relevant fiscal year/ period.

Human Resources

RML employs 1,376 employees (at a consolidated level) as on March 31, 2024. Of this, Call2Connect has a headcount of 576. RML has deployed 1,082 resources in India, and 294 resources across multiples global locations. The Technology team comprises 344 resources, focused primarily on developing new capabilities within the messaging platform, and creating next generation messaging solutions which address enterprises communication requirements and solutions to optimize monetisation for Mobile Network Operators. RML closed FY 2022-23 with a headcount of 1,112 employees (at a consolidated level), of which Call2Connect employed 390 resources as on March 31, 2023.

Standalone Income Statement and Key Financial Metrics

Revenue from operations increased by 24.50% in FY 2023-24 on the back on several large new customers on-board in the domestic market.

Other income includes Dividend declared by subsidiary company of R39.28 crore in FY 2023-24.

Employee benefit expenses decreased from R62.89 crore in FY 2022-23 to R54.28 crore in FY 2023 24, primarily due to reversal of Employee stock option expenses in FY 2023-24. Excluding which Employee benefit expenses increased by 1706% Y-o-Y.

Other Expenses increased from R24.63 crore in FY 2022-23 to R36.31 crore in FY 2023-24 primarily due to increase in costs associated with travel and conveyance, Business promotion, legal and professional fees and advance and trade receivable written off during the year.

EBITDA increased from R49.68 crore in FY 2022-23 to R70.41 crore in FY 2023-24. EBITDA calculation are provided in the table below.

Depreciation and amortisation increased from R14.98 crore in FY 2022-23 to R17.11 crore in FY 2023-24. Finance costs decreased from R2.15 crore in FY 2022-23 to R2.08 crore in FY 2023-24.

PAT increased from R89.57 crore in FY 2022-23 to R126.33 crore in FY 2023-24.

Standalone Balance Statement Summary and Key Financial Ratios

Human Resources

Route Mobile Limited employs 492 employees (on a standalone basis) as on March 31, 2024.

Risk and concerns

Principal risks and uncertainties: There are a number of potential risks and uncertainties, which could have a material impact on the companys long-term performance and could cause actual results to differ materially from expected results.

Liquidity risk

The Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseea ble needs a nd to i nvest cash assets safely and profitably. External funding facilities are managed to ensure that both short-term and longer-term funding is available to provide short-term flexibility whilst providing sufficient funding to the companys forecast working capital requirements.

Credit risk

The Company extends credit to customers of various durations depending on customer creditworthiness and industry custom and practice for the product or service. In the event that a customer proves unable to meet payments when they fall due, the company will suffer adverse consequences. To manage this, the company continually monitors credit terms to ensure that no single customer is granted credit inappropriate to its credit risk.

Competitor risk

The Company operates in a highly competitive market with rapidly changing product and pricing innovations. We are subject to the threat of our competitors launching new products in our markets (including updating product lines) before we make corresponding updates and development to our own product range. This could render our products and services out-of- date and could result in loss of market share. To reduce this risk, we undertake new product development and maintain strong supplier relationships to ensure that we have products at various stages of the life cycle.

Competitor risk also manifests itself in price pressures which are usually experienced in more mature markets. This results not only in downward pressure on our gross margins but also in the risk that our products are not considered to represent value for money. The company therefore monitors market prices on an ongoing basis.

Internal Financial Controls, their adequacy and Internal Auditors

The Company has established a robust framework for internal financial controls. The Company has in place adequate controls, procedures and policies, ensuring orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. During the year, such controls were assessed and no reportable material weaknesses in the design or operation were observed. Accordingly, the Board is of the opinion that the Companys internal financial controls were adequate and effective during the FY 2023-24.

The Board has appointed M/s Pipalia Singhal & Associates, Chartered Accountants, Mumbai as the Internal Auditor of the Company to conduct the internal audit basis a detailed internal audit plan which is reviewed each year in consultation with the Audit Committee.

Disclaimer -

Management uses the Non-GAAP financial information, collectively, to evaluate its ongoing operations and for internal planning and forecasting purposes. Non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with Indian Accounting Standard (Ind AS), and may be different from similarly- titled non- GAAP measures used by other companies.