Sinch AB (publ)

This call is being recorded. Welcome to the Cinch Q2 report for 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing Star 5 on their telephone keypad. Now I will hand the conference over to Thomas Heath. Please go ahead.

Thank you very much, operator. Good morning, everyone. Thank you all for joining us for this Q2 results update with Cinch AB. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. With me today, I also have our CEO, Lorinda Pang, and our CFO, Roshan Saldana. And with those brief opening remarks, I'll hand the word over to Lorinda.

Thank you, Thomas, and good afternoon, everyone. Before diving into the details, let me first pause for a moment and reflect on the size and scope of our business. We connect more than 150,000 paying customers with their consumers across the globe, delivering more than 700 billion unique customer interactions per year. And we do this with a cloud-based and scalable offering that supports both established and new communication channels. Few companies match the scale of our business and breadth of our offering. During the quarter, this was again recognized by industry analysts at IDC who lauded Cinch as a leader in the IDC market scape for CPaaS. Please turn to page three. Our focus this quarter has been to deliver on the three priorities that we first presented in the second quarter of 2022 and which I reiterated when we met last quarter after Q1. First, I'm very pleased to see us successfully deliver our cost reduction program. Our second priority has been to maintain strong cash flow and continue to reduce debt. We've made solid progress in delivering, but cash flows tend to fluctuate between individual quarters. There are a few items weighing on Q2 that Roshan will discuss later in the call. Finally, we need to return to growth and have launched several initiatives to drive long-term improvements. Compared to Q1, we are indeed seeing better growth rates in both net sales and gross profit compared to Q1 this year. Let's turn to page four. First and foremost, we have successfully executed the cost reduction program that we announced in Q2 last year. You will recall that we targeted annual gross savings of 300 million Swedish kronor, and I am happy to share that we have exceeded that target. The program centered on messaging and central functions, which makes up about half of our cost base. We targeted a 10% gross reduction in that area, which corresponds to a 5% gross reduction measured on our full cost base. Despite offsetting inflationary pressures and annual salary revisions, our net cost base is down by 4% compared to Q2 last year. Secondly, adjusted EBITDA is 21% higher than last year. I'm very pleased with this performance and the efforts across CINCH to deliver this result. As you may recall, gross profit and adjusted EBITDA in Q2 last year was significantly affected by a non-recurring item related to reassessed reserves for traffic costs in messaging. Since that one-time items lowers the comparison base, our reported adjusted EBITDA growth is even higher, but the underlying improvement in constant currencies is 21%. While cost controls contribute significantly, We also delivered improved growth rates in net sales and gross profit. Gross profit for the group grew 4% over last year in Q2, a marked improvement over the negative 1% we posted in Q1. I'm very pleased to see growth in EBITDA reduce our financial leverage. Net debt to adjusted EBITDA is now 2.4 times down from 3.3 times a year ago and very comfortably within our financial leverage target. Let's now turn to page five for some operating highlights. As you know, we have significant revenue and costs in foreign currencies, so my comments here are made in constant currency to describe the underlying performance. Starting with messaging, we saw an improved gross profit development where the 8% decline we saw in Q1 reduced to 3% in Q2. Market conditions remain adverse as our larger customers remain cost-focused and volume growth is modest. As we note in our Q2 report, we expect the economic climate to remain this way throughout the year. This implies that we may not see the same seasonal improvement in the second half of 2023 as we have seen in earlier years. Seasonal growth is mainly due to marketing traffic, which tends to be more sensitive to the business cycle. However, attention to costs saw us deliver a 21% increase in adjusted EBITDA in messaging this quarter compared to Q2 last year. And our new sales continues to do well with 41 new large business customers signed during the quarter. In voice, we continue to see strong profitability with a 24% adjusted EBITDA margin. And despite the negative impact from 8YY regulation, we are again reporting growth in gross profit due to strong demand for our number verification products. We have extended our super network for voice with international IP connect and our entire voice offering is now available to customers under the Cinch brand. I'm also pleased to see T-Mobile deploy our location solution for 911 emergency calls in North America. We make it possible to determine the location of mobile handsets, including their vertical location, something that can dramatically reduce time in emergencies. Moving to our email segment, which continues to perform well with a 14% growth in net sales. Top line growth combined with the cost benefits of migrating to a new cloud infrastructure vendor late in 2022 generated 23% growth in gross profit year over year in email. We launched new security features in Mailjet and enhanced features to reduce spam and improve delivery performance. Overall, email volumes grew 23% compared to Q2 last year and customer intake is strong. I'm also pleased to see some early traction in cross sales where a handful of existing enterprise messaging customers have expanded their business with us to also use our email products. Our SMB segment lastly saw growth recover compared to Q1 with gross profit rising 10% over last year. Qlik Send launched eight new integrations that make it easy to use our platform together with cloud-based products like Pipedrive, Slack, and Airtable. As part of our ongoing integration efforts, we have rebranded to Cinch Message Media. So to summarize, we've had quite a busy quarter, and despite the headwinds caused by a weakened economy, we are seeing both operational and financial improvement throughout our business. Now let's turn to page six for a topic that I know many have been focusing on over the recent months. This quarter, we delivered several product updates where we leverage artificial intelligence to help brands deliver a better customer experience. We see AI as a core technology domain that dramatically expands the realm of the possible and lets us tackle new and more challenging problems. Our focus here is to translate the rapid advancements that we're now seeing into tangible products that solve customer pain points and enable us to run a more efficient business. While the interest in AI has grown rapidly over the past months, we have been active in AI for several years. Back in 2018, we saw how next-generation conversational messaging channels like WhatsApp and RCS were starting to become relevant for businesses. We envisioned a future where consumers would communicate directly with brands on the same two-way communication channels that many people had already embraced for private communications with friends and family. We also recognized that AI would be foundational for businesses to deliver this kind of personalized engagement at scale. That conclusion triggered our investment in ChatLayer, an advanced platform for conversational AI that offered chat and voice bot functionality with support for more than 100 languages. We then integrated the ChatLayer product with our own messaging platform and have gradually built AI features into more of our products in our contact center product, in the Cinch Engage suite we launched earlier this year, and most recently, we developed AI Assist for simple texting, which uses generative AI to make it easier to create SMS campaigns. Another product launched this quarter was Smart Conversations, a set of features for our conversation API that lets businesses use AI to interpret what their customers are telling them. As you can see, we are embedding AI both in our UX-based products and in the APIs that underpin those products and offerings. We are using our own proprietary models as well as large language models from other providers. I should also mention that Gartner recognized our efforts by including Cinch in the magic quadrant for conversational AI platforms. We were the only CPaaS company to make that cut, which is a clear point of differentiation. Beyond the customer-facing products, we also use AI within our company, and we'll be looking to leverage it further to create a more efficient and productive operation and to significantly improve our employees' experiences. Now, as you can understand from this overview, we have multiple active initiatives in the field of AI. To drive further alignment, increase the speed in which we deliver, and to ensure we are leveraging AI responsibly, one of my first decisions after joining as CEO was to institute a center of excellence where we coordinate these initiatives. Taking a step back, the advancements we now see in AI can really transform how businesses across the world engage with their customers. While we are still in the early innings of this development, we already see how AI can remove bottlenecks and assist brands to deliver personalized experiences at scale. We can see in our discussions with customers that AI clearly triggers interest, and they are looking for support in how to leverage these new technologies to differentiate the experiences they deliver to their customers and to grow both their top and bottom lines. With those remarks, I'll hand over to Roshan as we transition back to the financials.