Sinch AB (publ)

thank you very much operator good day everyone and welcome to cinches q3 2022 results presentation my name is Thomas he I'm chief strategy officer and head of investor relations with me on the call today is our co-founder and CEO you won he had bag and our CFO Rochambe Saldana with those opening remarks I'll have the word over to you on thank you thank you Thomas and good afternoon Next slide, please. For those of you who don't know SYNCH, we help some of the largest global brands, enterprises, and hundreds of thousands medium and small businesses and developers around the globe to engage with customers through cloud communications. The marketplace is driven by digital transformation across multiple verticals. Our services are embedded in business processes and consumed by billions of people every year. This is a stable base to stand on. Our strategy has been and still is organic growth combined with acquisitive growth. Over the past few years, the company has undergone a major transformation from a single product business, SMS, into a cloud communications full suite offering, including messaging, voice, email, and more products. Our total addressable market has expanded significantly with the platform acquisitions made in recent years. Since our IPO in 2015, our compounded annual growth rate exceeds 60%, both for sales and gross profits. For those of you who don't know me, I'm Johan Hedberg and one of the co-founders of Cinch. The business was founded back in 2008 and last quarter I stepped back in as interim CEO. We founded the business just months before Lehman Brothers crash. Since that's been bootstrapped, we have always been profitable and generated positive cash flow. We used external capital only for M&A. We IPO'd the business in 2016, did our first large acquisition in North America in 2016. I moved to the U.S. in the role as CEO to oversee the integration and U.S. expansion. And since 2018, I've been working with corporate development on many of the acquisitions we've done in the recent years. Next slide, please. Our near-term focus is on consolidation and profitability and cash flow. After this very aggressive growth period, it is now time to allow for a successful integration of acquisitions and execute on synergies, getting margins and cash flow up. We launched the following three priorities in relation to our Q2 report. Cost control, cash flow and growth. Next slide, please. To all stabilize the cost base, we launched several initiatives to immediately get cost under control. In constant currencies, we have stabilized the cost base in Q3. This is shown in the organic green graph in the chart. The cost control initiatives will remain in place until the budget 2023 is approved by the board. and implemented in the organization next page we launched a cost reduction program in q2 targeting gross savings of 300 million cx the program has been communicated with within the organization during this quarter we estimate one third of the cost savings to show in q1 and full effect in q3 2023 The restructuring cost will be around 120 million SEK. Some have been taken already this quarter, but most will impact Q4. It was a difficult decision to launch the cost control program, the cost reduction program. Most importantly, I want to thank every signature of today and those who worked with us over the years. Your commitment in good and in challenging times makes the difference. Next slide, please. In this quarter, we are focused on cash flow. We have a strong cash flow of 726 million SEK driven by strong results. In addition, we have a positive working capital development driven by decreasing accounts receivables. DSO down from 68 days in Q2 to 62 days in this quarter. We now have focus on cash flow and DSO, and we are off to a good start. I want to send my thanks to the finance team and the SACE team for hard work. Roshan will speak more about this in his section of the presentation. In this quarter, we show progress on free cash flow to deleverage the balance sheet. The primary reason is to have the flexibility to continue our combined organic and acquisitive growth journey. Next slide, please. I wish to send one important message. When we talk about growth here, we mean profitable growth. We will not go into all the details in this quarter, but here are some of the highlights. Three out of the four business units has increased growth in the quarter, including our two largest business units, Messaging and Voice. Next slide, please. We are a global leader in cloud communications. We have a large, stable and diversified customer base in growing marketplace. We are winning new customers every day for our sales team and our online presence. In recent years, we rapidly changed the product mix to have both the depth and the width. We have the largest core network for many of our products, and we have a full suite of products to sell to our customers. Focus long-term is to provide an integrated product offering and customer experience. This will allow us to reach more customers, grow with our installed base, and enable faster sales cycles. Organic gross profit pro forma grew 6% this quarter, We are positive to see the improvements since Q2, but they're not pleased with this number. It is our intention to grow faster. Focus for this quarter has been on profitability and cash flow, and we'll talk more about growth in the coming quarters. Next page, please. We continue to evolve the management team, recruiting top talent externally and internally. I'm glad to welcome Sean and Brett to the team. We now have three out of four business unit heads in North America. This is a fast growing market and have many international businesses. And then, next slide. Good, and with that handing over to our CFO, Roshan.

Thank you, Johan. My name is Roshan Saldana and I'm CFO for Synch. Operator, can you please give me page 11 on the webcast? And here we just want to start by pointing to the key highlights for the third quarter. As Johan mentioned earlier, our focus is on cost control, cash flow, and then profitable growth. And we're happy to report the progress on cost, where we see that our actions to control the increase in cost have resulted in a stable cost base during Q3. where on a constant currency basis, cost is about 4% lower than the second quarter. Again, our efforts in cash flow have resulted in improved cash flow from operating activities at 727 million SEK, and also then the resulting effect on our leverage ratio of net debt to adjusted EBITDA at 3.2X. finally while we well we don't have a significant impact from new growth initiatives it is pleasing to see the market continuing to be strong for services that cinch provides and we see good growth in several of our segments, as well as a gross margin stabilization at 33%, which is up 4% from 2022 and stable compared to the performer gross margin from a year ago in the same quarter. Turning to page 12, which shows the gross profit evolution for the business. A significant part of our revenues, especially within the messaging and messaging segment, are passed on as cost of goods sold to mobile operators. And hence, we focus within that segment, especially almost exclusively on gross profit when we assess and steer our business. Consolidated gross profit rose by 164% during the quarter to 2.361 billion SEK. Gross margin, as I said earlier, improved as well from 23% in the third quarter last year to 33% this year. This change is mainly driven by the higher margin businesses that were acquired during late 2022. The SEC weakening against major currencies helped growth by 85 million or 9%. and the acquired companies, IntelliQuent, Pathwire, Message Media and Messenger People contribute 147% of the increase. Hence, organic growth in gross profit in local currency and in comparable units was at 8%, which is a positive change in the trend compared to the last quarters. also on a perform organic cross-profit base which means if we were to include the acquisitions as though they were part of the base last year and in local currency again we can see that there is a growth of six percent on gross profit specifically within the segments then uh looking to messaging we see a gross profit growth of 15 of which organic growth in local currency was at four percent And adjusted EBD over gross profit in the messaging segment came in at 32%. In voice as well, we see a pro forma organic growth of 3% positive, which was negatively affected by the 8YY regulation change that we have talked about. And in email, we see a gross profit growth on a pro forma organic basis of 17%. Finally, in SMB, we see a pro forma organic growth of 11%, where in the SMB segment, growth in the US market continues to be strong, but offset by slower growth among larger customers in Australia. Turning to page 13, where we show the margin development, here you see both gross margin and adjusted EBTA margin. Gross margin is affected by mix, but relatively stable at a group level. The dip in the second quarter of 2022 was because we took an additional cost of $162 million related to reassessment of results through traffic costs in the messaging segment. Also, OPEX control contributed to improving adjusted BDA margin during the third quarter of 2022. Our cost reduction program and focus on scalable growth is expected to improve both these KPIs over the next 12 months. Please turn to page 14 for the income statement. Here you see the full income statement and, of course, currency effects or increasing net sales, gross profit, and EBITDA. The depreciation and amortization row includes a non-cash amortization related to acquired entities, as well as a 5 billion Swedish kronor goodwill impairment related to the email segment. The consolidated net sales grew by 83% in the quarter to 7.2 billion, which was, of course, affected by acquisitions and FX. The organic growth of net sales in local currency and excluding acquisitions was 13%. On a full-performer basis, including the acquisitions in the third quarter last year, growth would have been 10%. EBITDA was 808 million SEK for the quarter. Diluted adjusted EBITDA per share was at 1 kronor and 4 öre for the quarter versus 33 öre during the same period last year. On a rolling 12-month basis, adjusted EBITDA per share increased to 1.79 kronor. The EBIT came in at 254 million SEK versus 185 million SEK in the same period previous year, excluding the goodwill amortization. Adjusted EBIT was 774 million SEK. Finance net for the quarter was 142 million SEK, whereas tax net was negative 92 million SEK. Effective interest rate was at around 2.5% and the effective tax rate was at around 27.5% for the quarter. Let's turn to page 15. On slide 15, you will see a bridge from adjusted EBITDA to cash flow before changes in working capital or after changes in working capital and also including our investments in property plant and intangible assets, so all capex. As you can see from the page, our cash flow is affected by realized currency effects on financial items. This is reported within the other items row, and that impacts the third quarter by a negative 158 million Swedish kronor. On the bottom line, we see a cash conversion from adjusted EBITDA of 62%. For the quarter, on a year-to-date basis, we see a cash conversion of around 50% after considering changes in working capital and capex. Please turn to page 16 for the full cash flow statement. Cash flow from operating activities was at 727 million Swedish kroner. during the third quarter and 1,535,000,000 for the three quarters here today. We see that our actions have resulted in improved working capital, primarily driven by reduction in accounts receivables. Net debt decreased as well during the quarter by 272 million Swedish kronor, despite the fact that a portion of our debt is denominated in US dollar, and the US dollar strengthened further versus the Swedish kronor during this quarter. We can also see that we have a strong financial profile with a diversified earnings pool, which is reflected in our consistent cash flow generation. Please note that working capital can of course be a bit lumpy from quarter to quarter as we have large enterprise customers. Turning then to page 17, where we see the net debt to adjusted EBITDA and how that has developed during the last few quarters. As you know, we closed three large acquisitions during the fourth quarter last year, and we reported a net debt to adjusted EBITDA of 0.9 on a full performer basis. There are essentially three components which affect net debt to EBITDA, and one is EBITDA growth. What we can see in this quarter is that our EBDA on a performer basis compared to last year has improved, which has not been the case in the second quarter and the first quarter this year. So that is a welcome change in trend. um secondly uh second factor impacting uh this kpi of course is our cash generation and and here again uh we're happy to report that we have a a strong uh underlying cash generation in the third quarter as we had in the first and as we had in the second uh and and and and you know strong cash generation so far year to date And then, of course, the third factor impacting this KPI is currency movements since we generate a large portion of our profits in in non-swedish corner denominated currency but we also have about 40 of our debt in denominated in us dollars that creates an impact in the sense that we revalue our debt immediately but the impact on profit comes in failing over a 12-month period We expect, of course, to continue to deleverage from this position from earnings growth and cash generation. In addition, we would like to point out that we have, during this quarter, extended maturities on about 3 billion Swedish kronor of debt that was maturing in 2023 by year 2024, and under normal circumstances, we would expect to pay off these debts before they come for maturity the next time, and therefore not need to extend them. Turning to page 18, where you see we are reiterating our financial targets. The two financial targets that the company has is adjusted EBITDA per share to grow 20% per year and net debt over adjusted EBITDA to remain at below three and a half times over time. We're happy to say that in the third quarter, our adjusted EBITDA per share grew 83%, measured on a rolling 12-month basis, and pro forma net debt over adjusted EBITDA was at 3.2x, excluding the IFRS 16 related lease impacts. With that, I would like to hand that over to you, Juan, for final comments.

let's see here may operating may we have the law slide here slide 19 please so we are executing on the plan and we are on track financially costs are getting under control we enjoyed improved profitability and strong cash flow In addition, we are seeing organic growth improving, which is a proof point of the strong underlying market and the strong position we have in that market. We are, however, not done yet, and we will continue to execute on our plan. It is necessary, but unfortunately, some colleagues have been giving notice in the wake of the cost saving program.