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.

And with that, that marks the end of our prepared remarks.

We're ready to answer questions. To cover as many participants as possible, we ask that you limit yourself to one or two questions. And you may, of course, re-enter the queue with more questions if you wish. With that, operator, may we have the first question, please?

Yes. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question is from Mohamed Malawala from Goldman Sachs. Please go ahead.

Thank you. Good afternoon. I had two questions, if I may, and hi, Johan. The first one was just an improvement in the organic gross profit growth. We saw it in both messaging and voice, kind of back into kind of positive territory. How should we think of this? Is this a kind of normalized rate of growth for these segments? And more broadly, taking a step back at the group level, the 8% that you sort of reported, Is this sort of likely to be the normalized growth rate for the kind of near term as you still focus on sort of cost cutting and cash flow? And how long does it take before you get back to kind of the double-digit growth, which is kind of the market growth but also implying kind of market share gains that you expect to reach? The second question was on OPEX. Obviously, OPEX still decreased on a constant currency basis 4% versus Q2. I know that you have the benefits of the cost-cutting and cost-saving program coming, but is there anything else you can do over and above that around the cost base? Thank you.

Hi Mo, this is Roshan. I can start off and maybe you want to compliment. I think on the organic growth, yes, I mean, you know, I think first of all, we see the growth in Q3 as a proof point of the underlying market and the strength in the underlying market. uh as you know we we already said in q2 that in messaging we had a a large uh customary negotiation which affected growth by by around nine percentage points and that effect remains of course you know for for for q3 as well i think you know our view is that we're not satisfied with the growth as it is today Yuan has come in and I think Yuan will speak a little bit more himself, but I think he has started to take actions. Of course, it takes some time before that is reflected in the numbers and it's not seen, I think we would not expect those actions to be reflected in the numbers during 2022. uh on on the second point i can just start off by saying that you know i think the the yes the opex has decreased i mean marginally by four percent i would say uh this is you know a result of some of the actions that we took earlier this year in terms of introducing new processes to control the cost increases. The cost reduction program is not reflected in the current figures. Our first focus here now is to execute on the cost reduction program, and that's what we want to secure delivery of at this point in time.

Yeah, and I think adding to that, this is Johan Hedbergh, We're not pleased with the current growth rate. We have initiated several initiatives, mainly based on providing an integrated product offering and customer experience. And I think this is just enabling all our products in all our go-to-market notions and geographies. And we're not there yet, but this is something that will gradually be rolled out over the coming years, and I think we will see effects in 2023.

Got it. Thank you.

The next question is from Akhil Dittani of JPMorgan. Please go ahead.

Yeah. Hi. Good afternoon. Thanks for taking the questions. I've got two follow-ups, please, if I may. um both related to the financials um the first is you've commented through the presentation around um not being satisfied with the growth and obviously the ongoing cost improvements that you will see from the quarters i wondered if you could maybe just help us better understand the scale and shape of that so i mean i appreciate you might want to micromanage the app uncertainties we've had over recent quarters any sort of color on how we should think about sequentially how things evolve from here would be useful particularly if there's any big items to call out and then the second thing which i guess is linked to that is um you know we've not had in the cpas space operators typically giving guidance year to year there's typically been you know midterm targets around the outlook As you've obviously gone through the changes you have this year, how are you thinking about that as we get into 2023? Are you likely or contemplating potentially giving specific targets for 2023 just to restore confidence and help us understand the recovery? Or is that something you'd still prefer not to do? Thanks a lot.

Hi Akhil, Roshan here again. I'll start off on both of those questions. I think on the first one, I think the call-outs that we can make is, of course, what we said regarding the cost reduction program, number one, which is that we are executing towards a 300 million Swedish kronor annual run rate reduction compared to the second quarter on a gross basis in the messaging and central function. segments. We expect that a third of that saving will be actualized already during Q1, and the full impact will come in during Q3 2022. A part of that saving is, of course, related to us reducing staffing. Yvonne talked about that on both employees and consultants, and it's also related to as you know migrating platforms and integrating systems especially within the messaging segment right now I think in the short term, while the macro continues to be uncertain, what we can say after Q3 so far is that we still see a continued demand for our services and we don't see any change in that consumption pattern so far. Then I think we have to watch how the market develops and we're exposed to that as any other company. On the target discussion, I think the, you know, we have the financial progress that we have and thus far I don't think we have anything new to say on that front.

The next question is from . I'm sorry, are you?

Yeah, yeah, we were done. Sorry, go ahead.

Okay, I'm sorry. The next question is from Predrag Savinovic of Carnegie Investment Bank. Please go ahead.

Thank you very much, operator. Afternoon, Joanne, Roshan, and Thomas. So wondering on Pathwire and the write-down, if you could reason a little bit what triggered this. And also in looking at these figures, I mean, they are quite strong down compared to Pathwire history, but we know there's a migration which hurts gross margin so so that can return but the organic growth is 20 plus still so uh thinking of what triggered this this write down uh and is there anything you see you know now post that i mean leading into q4 that would trigger something like this and then uh on the general growth uh question we see uh given the growth in messaging volumes versus the organic you post versus the gross profit and on revenues, it's safe to assume that you are overall improving pricing on messaging. And finally, if you can share some flavor on the seasonal effects into Q4, where you usually have some support. I mean, that's usually a quite good quarter and how that can pan out. Thank you.

Maybe I can start with the goodwill write-down question, Roshan, here again. As you know, Pathwire was a company that we acquired in September last year. I think there was a quite different macroeconomic environment at that point in time. The enterprise value at acquisition was estimated to 16.6 billion Swedish kronor. that was paid through a cash component of 925 million US dollars in cash, and then a certain number of shares, which at the time of that agreement were valued to a billion dollars. So total compensation of 1,925,000,000 US dollars. The shares were delivered in February and May, by which time already the value had declined. What we do is we test the goodwill on our balance sheet on a regular basis and we're performing exercises. Of course, data and information available at every point in time needs to be considered and we don't do long-term forecasts on a quarterly basis. So when we look at the long-term forecast, when we look at how the external market environment, when it comes to valuations, as well as interest rates and volatilities in our segment, I think all of that led us to the conclusion that we made and which we announced that an impairment of 5 billion was necessary. um now if you look at email as a segment i think you're absolutely right i mean we have i think we have a revenue growth of around 22 in the quarter on a former basis and a gross profit growth of 17 This is impacted by the migration of platforms, which is expected to be concluded during Q4. And hence, we hope that margins will improve and which would lead to, you know, gross profit growing faster than revenue as we sort of improve margins, right?

uh this is a good level of growth and we're happy and satisfied with the development within the email business but of course it's a lower level than than what what what that business has enjoyed during the last year and i think i i want to add here pathwire was a strategic acquisition of an email asset of size and also if you compare the relative valuation between the businesses at the point of acquisition we paid a we paid a fair price

I think just to close off, I think you had a question on the other segments and acquisitions. Again, in the assessments that we perform, we see no such risk at this point in time, and therefore we have not made any impairments. We have sufficient headroom within the other segments. Again, this is something we will continue to evaluate and follow how the market and our business is developed on a continuous basis. I think then there was a question on pricing.

Pricing, seasonality, generally in Q4 and that's usually a strong quarter. And have you managed to get prices on messaging volumes overall up? I mean, it looks like that from the figures you posted.

I think pricing in general is business as usual for us. This is something we we live with in different markets. So for example, in Brazil, we had operators increasing prices. In other markets, we get higher volumes and prices decrease. So this is business as usual for us. I think on seasonal effects, Q4 is normally very strong quarter for us. So we see increased activity. due to for example black friday around christmas shopping and that has a positive effect on on our with more transactions through our systems i think this year with the uncertainties that affect everyone and all businesses i think we are a little bit more careful we we don't do we do not understand what the effects of our business will be from these If I can add there as well, Thomas here, we talked in Q2 about a price negotiation with one of our largest customers. Bear in mind that that customer has a relatively large share of traffic in the fourth quarter, which means that the impact from that price negotiation will hit a little harder in Q4 than it did in Q2 and Q3. So for Q3, the impact is relatively similar in absolute terms compared to Q2. But this could have a few percentage points, detrimental impact just on the fourth quarter in this year.

So some uncertainties to be aware of as we head into Christmas season.

Super. Thank you very much.

The next question is from Laura Matyre of Morgan Stanley. Please go ahead.

Hi, thank you for taking my question. Two questions please. So one, you've seen an organic gross profit acceleration in the messaging segment. Could you comment on whether you've seen any changes in the market trends and specifically have you seen a decrease in the level of competition and price aggressiveness in messaging over this quarter? And then second question is about cost savings and R&D. Could you please comment on what is the plan for R&D spent specifically and the integration of your offering? Do you plan to increase or decrease R&D in the next few quarters? Thank you.

Hi, Laura. I can take the first question. On the organic GP acceleration, I think if you If you look at it by segment, I think if you look at the messaging segment, we've made, I would say, three significant call-outs during the previous quarters. We talked about India, where we had a deceleration in growth, and we've said that we expected that to recover, and we've seen that recover then in Q2 and Q3, and now over 20% growth in the Indian market. We talked about the single customer renegotiation. I think Thomas commented on that as well. So we can leave that one. And then the third one I would say is Brazil, where we've talked about um you know a a a competitive market situation where we are the market leader uh and um uh you know while we haven't seen a worsening of the trend in brazil i wouldn't say that we're we're completely recovered yet so so so there is there is still still uh some way to go uh besides that i think on an overall basis uh we we don't see uh you know we don't see any changed significantly changed competitive behavior i i think you know i i hope that the the the kind of focus on on you know profitable growth and cash flow is is not limited only to us but to but to many other companies in in this in this market environment and and and uh you know that we're we're making kind of responsible decisions about about uh about growth uh going forward But we don't see any changes in practice. It's not an increased competition or significantly decreased, I would say, besides for the specific call-outs that we have made.

I think on the cost saving on R&D investments going forward, maybe... Yeah, I think right now we do not want to comment specifically on R&D. I think the new... growth philosophy for us is really coming back to profitable growth. That's our roots. So it will, you know, as GP increase, we will have also increased OPEX, but at a slower pace.

So profitable growth is how we think about growth.

The next question is from Stefan Goffen of DNB. Please go ahead.

um yes hello um first on the uh on the gross margin in messaging um that improved 1.1 percentage point uh quarter over quarter and you mentioned uh a little bit better performance in india so if if price increases in india and also the end of the sixth volume contract. Is that the main reason why we see the gross margin improving? And is this a level we can expect going forward? Secondly, on the voice business, it seems like the non-intelligent business had a stellar performance. What is driving this, and should we expect continued strong performance from that business?

Gross margins on messaging first, and then voice, I think, was the second question. I think on messaging, there are several contributors. As we mentioned already when we saw the deceleration back in Q4, we've always expected to recover. We had gross margin pressure driven by a very specific regulatory change with the implementation of digital edge of technology, which would take us some time to pass on to customers. And we're happy to see this play out as expected. And we're now back to 20% plus growth in India. Brazil also, as we commented back in Q4-Q1, more uncertain, a deterioration driven more by competition, where we're no longer seeing a worsening, but as Roshan said, not an improvement either. Back to the gross margin, there are several contributors. Of course, India is one of them. But of course, a general focus is profitable growth. It also comes into the individual customer discussion and to how you assess a particular opportunity in the marketplace. So where we've had some large volume deals at relatively low margins, we've taken a careful look and looked through the full P&L and the cash flow and been a bit more disciplined. You see that in gross profit developing well with a slightly lower increase in transaction volumes as we focus on profitable growth. On voice, there are several contributors. uh it's you know continued financially very sound business strong evta and cash flow generation uh despite the uh you know the the uh regulatory reform uh which we call out uh we're seeing organic growth um you know a large part of this comes from the development where we do more intelligent voice services. We combine messaging and voice services for number verification. This is a business which we've been active in also before the acquisition of IntelliQuint, the former voice and video segment, which is now performing really well. And we're combining, you know, a niche asset with some great strengths, you know, layering that on top of North America's leading network assets, you know, creating some really, really strong results, which is pleasing to see.

The next question is from Andreas Jolson of Danske Bank. Please go ahead.

Good morning all. First, a quite simple question on the effective interest rate that we should expect going forward. I think you said, Roshan, that it was two and a half percent in the quarter. And then secondly, maybe on sort of lifting the view a little bit. Can you say anything about what you see in terms of benefits from now being a lot broader with a broader product offering? what kind of customer discussions you have and maybe potential revenue synergies from these acquisitions that you have done, that you have seen now when it's been almost a year that you've had these assets. Thanks.

And yes, thanks for the questions. Roshan, again, I'll take the first one and hand over to you one for the second. I think, you know, for me to try to predict, you know, interest rate development, but suffice it to say that it will head upwards, right, in the short term. And then we'll see what happens. We feel comfortable that we have a good interest coverage, you know, which is trending up to almost 16 times, I think. So, yeah. And also that we have a good portfolio of debts where we have good terms. So besides that, let's see where the market kind of ends up. Alain, over to you for the second question.

Yeah, so the focus long term is to provide a much more integrated product offering and experience for our customers. So this will allow us to reach more customers, grow with our installed base, selling more products to same customers and also faster sales cycles. I think so far we had some wins on cross-sell, but they've been more driven by individual performers than systematically driven. And I think now we're moving into have a systematic approach to this, and we think that will start resulting in higher sales during 2024-2023.

Perfect. Thanks.

The next question is from Daniel Thorsen of ABG. Please go ahead.

Yes. Thank you very much. Daniel here from ABG. So first question, looking at the organic GP, drivers in segment messaging you have already talked quite a lot about it but do you see any specific customer groups or any specific customer that drove volumes in q3 here and then secondly on the working capital which is moving quite a lot between quarters i'm more interested in the longer term view of normalized working capital to sales case say something on the level that you target or what you think is reasonable for the business thanks yeah i'll start with the first one on customers and

I think it's worth thinking about individual drivers.

The company is becoming quite large and diverse.

Our largest customer is less than 5% of gross profit and we've seen a broadening both of our growth and of our base. So with that in mind, the development is relatively broad-based, which is of course a positive development compared to previous years.

I think just maybe one final comment on that one is also that, you know, if you look back to the last couple of years, of course, we've had, you know, one of the contributors has been, you know, some amount of communications related to COVID, right, whether that's come from health authorities or governments and that segment is not existing now. I think on the working capital, you know, I'd say that what we aim to, of course, firstly, is reduce our overdue receivable situation, right, to a level that is more acceptable. I think, you know, we've made some progress, but I do believe that there is more potential within overdue receivables, even if that's most likely not going to end up at zero. I think what we can help you there is to say that our goal and what we strongly believe is that we can generate cash or convert about 40% plus of the adjusted EBITDA to cash. after working capital and after CapEx. I think, and that is excluding then any release of working capital, you know, build up that we've had in the past.

Okay, that's clear. Thanks.

The next question is from Vikram Kumar of Kuvari Partners. Please go ahead.

Yeah, thank you. Just to follow up on that question on the working capital you talked about dso's coming down i don't think we had a sort of q2 breakdown receivable so i just had a couple of questions on cash as a whole when you talk about receivables coming down when i look at it from the year end actually un unbilled receivables has gone up from to 2.1 billion from 1.95 billion and i think your account receivables is up from 3870 to 4311 so i just wanted a point of clarity of what you refer to when you talk about receivables coming down in that working capital On the flip side, the thing I do see is the benefit of accrued expenses, which seems to have gone up from 2.8 billion to 3.7 billion, which I presume is kind of including the estimate of what you pay the carriers, et cetera. So maybe you could just clarify for me the drivers of that working capital improvement you've seen, which on a rolling 12-month basis is 300 million odd in the quarter, was a 200 million odd release, given those breakdowns that I see in the statement. And I've got a follow-up.

Thank you. I'll start off and let Roshan fill in. I think firstly, with the growth we're seeing in the business and the changes, the best metric to look at, of course, is DSO. And as you saw in the presentation, DSO is consistently coming down throughout this year. So that, I think, is the most forward-looking metric you can look at. When you look at the Krona denominated levels of accounts receivable, of course, you will recognize that the absolute levels rise on the back of organic growth and a currency tailwind. The Swedish Krona is weakened versus the US dollar, so that's probably what you should expect. In terms of disclosure, you have the full disclosure in our Q2 results presentation, which is available online, and which you can compare to the notes added in our quarterly report.

Thank you. And on the accrued – no, sorry. Sorry, I hadn't finished on that. On the accrued expenses point, in terms of why that's gone up as much as it's gone up within the working capital.

I think we'll have to look at, let me, let me. I think, I mean, you mean, you mean, do you mean accrued expenses and prepaid?

Yeah, I just mean like crudely when I look at it and I look at working capital release, most, the biggest delta I see in the balance sheet is accrued expenses going up from 2.8 to 3.7, which is, I think, in business terms, kind of the estimate and reality of what cash you pay out to the carriers in particular, right? Which presumably has to come out of the cash at some point, doesn't it?

Yeah, in the same vein, as we generate traffic on the back of a growing business, of course, we generate more cost of goods sold with carriers, which is what you should expect. So as we continue to show organic growth and also see the krona weakening towards the USD, when you look in Swedish krona denominated values, you should of course expect an increase in that line item as well, just as on the other side. The relevant forward-looking metric we should look at here is, of course, DPO, which you can calculate. And DPO is not the contributor to cash flow in the third quarter. The strengthening you see has to do with improved DSO.

Okay. And then the last thing I had on free cash flow, just to clarify, on the EBITDA, I think it was 228 of other income. And then on the free cash, you had 222 of? reversal of other items is that is that nearly the same items and what does that refer to the increase in other income and then on the free cash for the minus two two two

uh so so i think they're not they're not the same item uh so the other income is of course uh a mix of a mix of different things i mean partly it is also compensation received uh for costs incurred uh for for uh uh from the acquisition where we had certain retention bonuses that that had to be paid out that were covered by sellers so so we have the costs on the cost lines, and then we have the corresponding sort of repayment from the sellers in the other operating interest. On the cash flow, the other items is a mix of adjustment items, and there we also have the realized currency effects of financial items that we have called out in our report presentation with the amounts given there.

Thank you. Okay, thank you. Next question, please.

The next question is from Daniel Gerberg of Handels Banken. Please go ahead.

Thank you, operator, and hello, Joanne, Roshan, and Thomas. Yeah, most questions asked. Could I go into the S&B side? The growth, the growth there was 11%, I think, from 2013. We came to Australia. My question is really, since you said somewhat good growth level in the US. Can you perhaps comment on that? Isolated and also isolated, and also on the transmission expectancy of apples to apples when looking at Australia. Thank you.

Thank you. The line was a bit poor, but we'll do our best. I think the question related to the growth trend in SMB, Australia versus the US, um as we talked about before and also you know when announcing the acquisition of message media that business you know the growth is primarily coming from smb customers signing up online with our web-based communication tools that continues to be the case very healthy growth in the us on the base of products offered under the message media click send and simple texting brands There is also a part of that business unit selling to larger customers in Australia, more of an enterprise-type customer base, where we're seeing a weaker trend compared to H1. This has partly to do with comparables, the second half of last year. As you may recall, Australia had pretty severe lockdowns on the back of COVID, which extended further than in many other countries. which means that this time last year, you had some traffic volumes which were COVID-related, which tailed off in the beginning of the year. So a little bit harder comps here in Q3 and Q4 for SMB, which would get a little bit easier starting next year.

Thank you. And if I may ask you also on, you're still working on migrating and SGI and wave it to your Finch. It's called the Super Global Supernova platform. When will this be ready in full and what kind of benefits should we expect? And also, what has been the key hurdles that society has thought should be ready by now?

Thanks, Daniel. Roshan here.

I think the, you know, I mean, again, the integration of platforms is typically 18 to 24 month journey. So that's what we've always said. I mean, it's quite a large amount of work that needs to be done to move customers and also build incremental features on our Nova platform to be able to support sort of the customer requirements or demands. We're happy to say that, you know, post the third quarter here, we have executed upon a large migration of SDI customers to our central platform. That is not all of the customers. So there is still some work to be done during Q4 here and in the beginning of 2023, but we expect to be completed with that migration early 2023. And on the Wavy and the TWW platforms that were acquired in Brazil during where the Wavy acquisition was completed in February of 2021, the work is ongoing and we expect to complete those migrations as well during 2023. Now, as Johan, I think, alluded to earlier, we see a potential for improving margins within the messaging segment. And of course, these system migrations or platform migrations are a key driver or enabler for us to be able to reach the efficiency levels that we expect.

Correct.

This concludes our question and answer session. I would like to turn the conference back over to Thomas Heath for closing remarks.

Thank you very much, everyone, for listening in to this results presentation. We hope to keep you updated on any further news, of course. And if not before then, of course, with the fourth quarter results coming up early next year. So thanks for tuning in today and have a good day.