Sinch AB (publ)

Thank you, everyone, for joining this Cinch Earnings Call for the third quarter 2023. My name is Thomas Higgs. I'm Chief Strategy Officer, Head of Investor Relations. And with me today is our CEO, Lorinda Pang, and our CFO, Roshan Saldana. With those opening remarks, I'll hand the word over to Lorinda.

Thank you, Thomas. A warm welcome to everyone today, and thank you again for joining our third quarter results. I'll first share some highlights for the quarter before Roshan covers the financial details. I'll then come back to discuss how we're shaping the organization going forward to reignite organic growth at Finch. Finch is pioneering the way the world communicates. With operations around the world, we support over 150,000 enterprise clients as they engage with their customers. In the past year, we have enabled more than 700 billion interactions via messaging, email, voice, and video. For the last 12 months, we have generated 28.5 billion krona in revenue with 33% gross margins and gross profit of 9.4 billion krona. Our adjusted EBITDA margins of nearly 13% resulted in 3.6 billion krona in adjusted EBITDA. Since mid-last year, we have been wholly focused on profitability and cash flow. We have executed well. This is our fifth consecutive quarter of stable gross margins and adjusted EBITDA margins, combined with strong operating cash flow. Our margins have been strong and slightly improving. For the third quarter, our gross margin was 33.5%, up 400 basis points sequentially, and up 700 basis points from one year ago. EBITDA and adjusted EBITDA margins were 12% and 13% Our leverage ratio continues to improve, and this quarter, our net debt to EBITDA ratio is 2.2 times compared with 3.2 times last year. In the quarter, we delivered 862 million krona in operating cash flow. During the last 12 months, we delivered operating cash flow of more than 2 billion krona, And after deducting investments, our conversion rate from adjusted EBITDA was 38% on a rolling 12-month basis. I'm very pleased with our profitability and cash flow performance. And as you've heard me say, we must return to revenue growth. The new operating model we announced a few weeks ago will enable us to reach our ambitions for growth. I'll come back later in the call to discuss this in detail. During the quarter, we were pleased to be recognized by Gartner as a leader in their first magic quadrant for CPaaS. Gartner calls out several differentiators for Cinch. Specifically, our global capabilities and geographic diversity bodes well in serving large and global enterprises. Also, our expansive product portfolio is rivaled by very few. This recognition comes on the heels of IDC and Rocco sharing similar perspectives. Focusing on enterprises and helping them innovate to serve the needs of their customers is what we do best. Let's go through a few examples. This quarter, we announced a partnership with AAA. For some of you, this may not be a household name. With over 60 million members throughout the United States, AAA provides drivers with peace of mind, meaning if they require assistance for any reason, an accident, a failed battery, a flat tire, AAA has a fleet of capabilities to assist. However, you can imagine this being impossible when in remote areas with no cell phone coverage. If you watched Apple's keynote this September, you will have seen how this works. Even without cellular coverage, iPhone owners can now ask for road assistance using the satellite hardware available in recent iPhones. Finch's role is to enable AAA to handle this new type of messaging. alongside other ways of communicating, and to supply the software that AAA staff uses to respond to emergencies. This also builds on a longstanding relationship with AAA, where we already enable their two-way SMS with automatic responses. Another exciting partnership is our work with Harrods and SAP. A prestigious and globally recognized brand, Harrods has been on a journey to digitally transform its customer experience. With an incredibly engaged customer base, Pirates knew they were missing an opportunity to capitalize on the customer data they were storing in silos and, in some cases, to begin capturing data from interactions they hadn't been previously. The objectives here were clear, to deliver a five-star experience at scale and to grow sales and revenue. In this transformation, Finch supported Harrods through the integration of their CRM with our contact center solution and intelligent routing capabilities to help deliver the five-star experience Harrods were aiming for. Since launch, they have expanded channels to include SMS, WhatsApp, and live chat, and are now exploring how chatbots and generative AI chat can help to further enhance the customer experience. Collectively, Harrods now has a single view of their customer across all systems from marketing to service. Before handing over to Roshan, I'd like to share a few of the product launches we announced during the quarter. While the use cases I just described are great examples of how we partner with large enterprises, these launches are scaled product features that will address the needs of thousands of users. Firstly, I want to talk about the improvements made in our email offering. As you will know, Mailgun is one of the world's best performing and most used email sending platforms. It allows businesses of any size to avoid the hassles of on-premise software deployment and leverage a state of the art cloud service for email sending. Not only does this reduce complexity and cost of ownership, but it also improves deliverability. Since we process hundreds of billions of emails each year, we gain data insights that we can leverage on behalf of customers to improve performance. We help ensure that emails hit the top of the inbox, the prime inbox, and that they show up instantaneously. So to the recent improvements. During the quarter, we have launched Mailgun Optimize, which is an evolution of our earlier inbox-ready product. Mailgun Optimize lets businesses build and maintain their sender reputation, which is a key component to improve inbox placement and email deliverability. It is now tightly integrated with the core Mailgun sending platforms and offers advanced monitoring, reporting, and visualization. We have also launched Mailgun Validate, which helps businesses verify email addresses on demand to avoid email being sent to faulty email addresses that trigger bounces. This again helps improve sender reputation, which in turn improves email deliverability. We've also launched new voice products that expand our addressable market. With the acquisition of IntelliQuint in 2021, we secured end-to-end control of the largest independent voice network in North America. We connect more than 300 billion voice minutes per year and can ensure the shortest possible route without relying on sub-suppliers, which ensures higher call quality at lower cost. But whereas these strengths are valued by customers who handle large volumes and have in-house expertise, IntelliQuint was not set up to serve less specialized enterprise customers or developers looking for self-service capabilities online. Our product development efforts within voice specifically address these opportunities. This quarter, we launched Elastic SIP trunking, which is a more flexible way to consume voice calling that scales to customer needs and is easier to integrate. Elastic SIP trunking is now available for developers via cinch.com. So with those product highlights, I want to hand over to Roshan to go through our financials.

Thank you, Narendra. And a very good afternoon to all of you on the call. I will take you through the financials for the quarter. Let's begin by moving to page nine. Net sales for the quarter increased with 1% year over year to 7.2 billion kroner, helped by a currency tailwind of 5%. On an organic basis, net sales in messaging declined by minus 5% and voice by minus 4%. We saw growth in email. in the email segment of 7% and in the SMB segment of 13%. We continue to have strong customer intake in messaging, signing 45 new large business customers in the quarter. However, low volume growth on the back of the economic slowdown around the world, coupled with the change in traffic mix, affected net sales growth. In voice, growth was hampered by lower sales to operator customers, strong performance for number verification in the comparison quarter last year and the previously announced regulation of charges for American toll-free numbers. However, demand remains strong for Cintia's voice-based number verification services, which offer a competitive choice for global verification of phone numbers. Let's turn to the next page. Gross profit increased 3% on a reported basis to 2.4 billion Swedish kronor, This increase was helped by a currency tailwind of 5%. Looking at the individual segments, we see that the net sales decline is reflected in corresponding gross profit declines for messaging and voice. However, in messaging, we are seeing signs of stability with gross profit increasing plus 8% sequentially versus Q2 2023 in constant currency. For email, gross profit increased by 14%, driven by higher net sales and improved gross margins. The gross margin was 77% for the quarter for the email segment, and is mainly driven by the migration of new cloud infrastructure in 2022. In the SMB segment, the American market continues to perform well, with strong growth for simple texting and synced message media platforms. Gross profit increased on an organic basis by 13% year-on-year in the quarter, following the 10% year-on-year growth in Q2. Turning to page 11, where we show gross margin and EBITDA margin development for the business. Gross margin stability shows the strength in our product and pricing proposition towards customers. We believe we can improve this over time as higher margin products are growing faster. On an aggregated basis, gross margins improved by 700 basis points over last year and 400 basis points sequentially over the previous quarter. This change is driven by stable margins in messaging, voice, and SMB, increased margins in email, and higher margin products growing faster. EBITDA margin continues to perform strongly in the quarter, buffeted by the cost efficiencies achieved despite inflationary headwinds. The increase in sequential EBITDA margin by 150 basis points over the last quarter shows the high scalability in our business model as the sequential increase in gross profit flows through to the bottom line rapidly. With a shift in the key priorities to growth, we believe that we can use the scalability to deliver higher profitability. The gap between adjusted EBITDA and EBITDA reduced as integration costs declined due to completed messaging platform migrations. On page 12, we show the strong cash conversion from operating activities and after investments, which Lorinda referred to as well in her commentary. The variation between quarters in cash flow is caused by net working capital. As we have highlighted earlier, there could be large timing deviations between quarters due to payments from large enterprise customers and to our carrier partners ending on either side of a quarter. However, when we look at cash conversion from adjusted EBITDA on a rolling 12-month basis, as is shown in the graph to the right, we see a strong and steady performance. We have generated $1,375,000,000 in cash conversion cash flow from operating activities after investments over the past 12 months. Over the medium term, we target a cash conversion in the 40% to 50% range. This cash conversion is currently affected by the higher interest costs as we paid 159 million SEK in paid interest during the quarter, equating to an effective interest rate close to 6%. Despite this, we had a cash conversion of 72% for the quarter. On page 13, we illustrate our leverage development. Here we see the leverage ratio, which is net debt over adjusted EBITDA, excluding IFRS 16 related leases. We are glad to report the continued deleveraging as expected, with leverage now down at 2.2x. The KPI excludes the impact of IFRS 16 related lease debt on both net debt and adjusted EBITDA. and deleveraging continues to remain a focus area for CINCH. We expect this ratio to continue to decline through underlying cash per generation from operations and increase in adjusted EBITDA. Please turn to page 14, where we give details on our debt portfolio. Since we have received questions on this front, we are providing additional information, which is also available in our reports. As of 30th September, Sinch had total available credit facilities of 12.8 billion Swedish kronor. Of this, the company had utilized loans and credit facilities totaling 8.7 billion Swedish kronor. We also had cash and cash equivalents of 1.6 billion Swedish kronor and generated 1.3 billion Swedish kronor from operating cash flow after investment during the last 12 months. We have used this operating cash flow after investments to amortize 1.75 billion Swedish kronor of debt in the last 12 months. We maintain an ongoing assessment of our financing options and remain open to the possibility of refinancing all or part of the 2024 maturities if it aligns with our financial interests, but we are comfortable in the position that we have right now and in the strong cash flow generation from the business. Financial targets. Let's move to page 15 where we are reiterating our financial targets. Adjusted EBITDA per share measured on a rolling 12-month basis grew 31% at the end of the third quarter compared to a target to grow 20% per year. This is a result of our focus on cost control. Net debt over adjusted EBITDA was at 2.2x a full turn lower than a year ago. and well below our threshold, this is something that we continue to see deleveraging happen during the coming quarters as well. With those words, I would like to hand back to Lorinda to take us through the new operating model for CING and her closing remarks.

Thank you, Roshan. Okay. So I joined Finch six months ago and have used this time as an opportunity to listen, to learn, and to assess our company by talking with customers, employees, ecosystem partners, and industry analysts. I'll take a step back to set some context and remind us of a few things. First, we celebrated our 15-year anniversary just a few months ago. We started with a pioneering business model focused on SMS aggregation. solving the communications challenges of wholesalers and large global enterprises. We grew the business organically and inorganically through market and geographic expansion. Importantly, we have been profitable from the beginning, and we are extremely proud of that fact. Pivoting to more recent times, we saw the landscape shift and recognize the evolved challenges of brands to digitally engage with their customers through multiple channels. In late 2021 and within a one-month period, we closed three large acquisitions to round out a comprehensive portfolio that would solve those multi-channel needs. We sought out these pioneering companies and their capabilities across email, applications, and voice. These three acquisitions alone more than doubled the size of our business. The economic environment was rapidly changing around us, so we did take the decision to operate these as standalone entities to protect the value of the acquired businesses. So where do we find ourselves today? We are in a fantastic and growing industry where Cinch is highly regarded throughout our ecosystem. We have a portfolio of capabilities that brands need and are willing to pay for. We have amazing customers who depend on and trust us. And we have extraordinary talent across the globe. While we have consistently delivered profitably and have continued to generate strong cash flow, our organic growth has indeed slowed. And since I joined, we have been examining how to unleash the power of this collection of assets and how to continue pioneering the way the world communicates. On October 26th, I announced an organizational restructure to reignite organic growth. We anchored to a few primary design principles. First, we needed to design around and for our customers. starting with a deep understanding of who are our customers, what problems are we helping them solve, and how easy are we for them to do business with. Second, we needed to efficiently leverage the scale of our global organization, meaning eliminating silos and duplication and harnessing domain expertise across the entire Cinch organization rather than individual business units. Starting January 1st, the new customer-facing teams will be accountable for supporting all customer segments across the entire Cinch portfolio of services and will be organized by geography. The enabling and corporate functions will be global. We are creating a single product organization, a single technology organization, and a single marketing organization, all to align strategy, delivery, and enablement for our commercial teams. This is a group who will also design and enable an end-to-end customer experience across the Cinch portfolio. The corporate functions will be consolidated to create standards and efficiencies while delivering expert support to their internal clients. They are also the groups who will be accountable for modernizing the foundation of our operations. This restructure is about getting closer to our customers. It's about injecting commercial velocity in everything we do future-proofing our operations, and making strategic choices that will inform how we allocate resources to the main opportunities for growth. These changes are complex and they won't happen overnight, but they are the right changes to unlock value. I look forward to providing more detail next quarter when we have progressed further with these efforts. Finch has all the ingredients we need to be a world leader. We're now mobilizing the organization to reach that ambition. With that, we're now happy to take your questions.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Predrak Savinovich from Carnegie. Please go ahead.

Thank you very much, Lorinda, Roshan, and Thomas as well. I want to start with the comment around repositioning towards more growth. Does this mean that you will need to take up more underlying costs to achieve this? I mean, I can understand there's going to be a one-off tied to this. Can we expect that you can do this positioning without necessarily growing the OPEX at the higher rate?

Yes, for Jack. Sorry, I thought you were going to ask a second question. So it's Lorenta. And, you know, as part of this, you know, clearly when I talk about efficiencies, we're bringing together a lot of different organizations and going through an actual integration. So we will be eliminating duplication and overlap in that process. And so we do expect to gain efficiencies and synergy through that process. So we do, however, expect to reinvest that back into the business and point our investments to, number one, the big bets for growth. What are the areas that we know are going to outpace the growth that we've seen? And then also to invest in some of the, again, the modernization of the operations environment that we work in today. Okay.

okay thank you and then another one on the same topic if you could remind us on the process of integration because given this refocus you are launching a new organizational structure i would assume that you are getting closer to integrating your business generally speaking i think that's kind of what you hint at also as you you mentioned the centralization of r d which would suggest this some other things you said in the closing remarks so where are we on on that kind of timeline

Yeah, so the integration that we've done over the past couple of years have really been more on the messaging platforms themselves in the past. And we do have a couple of acquisitions that are still outstanding, particularly in Latin America. But we have never taken on the actual integration of the operations, the administrative operations within the business. So as you think about finance organizations coming together and different reporting units coming together, there's a consolidation that takes place. But there's work to be done to harmonize and consolidate processes and data and ultimately systems. Same can be said for the HR environment, for the CRM environment. So there's work to be done there. We have been, you know, really without adding additional effects, we have been working on the data structures and the process harmonization work for the last six plus months. And, you know, and we expect to continue to do that work and progress and share with you what those outcomes are.

That's brilliant. And just a final quick one. What is your idea about hosting a capital markets day or analyst day given a lot has happened in the past two to three years? You have been in the business now for a little bit and you're obviously improving the business generally from the last quarter and you have quite a few initiatives in the coming year or so. So to give us a C&D basically. That's my final question. Thank you.

Sure. Yeah, no, we understand, absolutely. And, you know, certainly that's a consistent request. As we noted, you know, there is a lot of work that's going on. To your point, we're calling out some very specific initiatives, but there's a lot of work underneath of that. And so we're doing a couple of things right now is to, you know, continue to progress that work and identify what are the key metrics and, you know, the KPIs and the progress or the mechanisms we will give to all of you to be able to account for the progress and to hold us accountable, and also, of course, how we're going to measure success. We hear you on the CMD. We're certainly in discussions about that, and we will certainly communicate as soon as we've made a decision.

Brilliant. Thank you so much.

Thank you.

The next question comes from Akhil Duttani from JP Morgan. Please go ahead.

Yeah, hi, good afternoon. Thanks for taking the questions. I have a few, please, if I can. Maybe if I can start firstly on cash flow and debt. You obviously had a very good cash flow quarter in Q3, but I guess I was hoping for some help in understanding how you think about the full year. A few opening remarks. You've commented a few times on the 12-month rolling number of about 1.3, 1.4 billion. So I just wondered if that was a sensible proxy for how you think about this year. So any sort of comments and thoughts around Q4 cash flow? The second one is on leverage. As you said, you made some pretty strong strides on deleveraging the group this year down to two and a half times. But if you look at mining consensus numbers, that pace continues and you should hopefully end next year at one and a half times. So I just wanted a good comment on how you think about balance sheet priorities once you get to those sort of obviously much more prudent balance sheet levels. And then the very last one is just on organic growth. You've mentioned in your releases and in your comments that comps were tough in Q3, but I'm mindful that comps are a lot easier when we get into Q4. So I just wondered if you might comment on how you think about Q4 growth trajectories. Thanks a lot.

Akhil, I'm going to ask Roshan to take your first two questions around cash flow and leverage, and then I'll circle back on the organic growth piece.

Hi, Akhil. So on cash flow and, you know, obviously, as we've always said, you know, we have a bit of lumpiness in working capital. So, you know, Q2 was weak. We said we would see a recovery in the second half. Happy to see that being realized in Q3. um you know on a more midterm basis i would say that you know we we are we are aiming to have a cash conversion from adjustability of between 40 to 50 percent um you know obviously this can wear a little bit but but um you know for me q4 there's no reason why why we shouldn't be able to to um you know to generate a consistently good cash flows with the exception of some lumpiness in individual quarters. So that's kind of where we'll stop it now without giving a specific forecast for Q4. On the debt side, which is your second question, definitely we're happy about 2.2x. I think you said 2.5, but I think we're at 2.2x in terms of leverage. That's a full turn lower than a year ago, third quarter 2022. You know, again, with the organic cash flow generation and increase in adjusted EBITDA, I think there's good potential for us to continue that journey. And definitely the levels that you indicated, you know, of 1.5 is something that we would be happy to see during 2024. Now, you know, the question is what do we do from there? And I think that is, you know, a factor as much of what opportunities are available to us, you know, and in terms of if those opportunities are financially disciplined and attractive and do add value to our customers and to our overall offering. So I think it's a little bit, you know, it's a little bit premature to speculate, but suffice to say that, M&A remains and will continue to remain an important part of our overall strategy. So we will evaluate that over time. With that, back to Lorinda.

Okay. Thank you, Rishabh. So, Keogh, back to your last question around organic growth for Q4. Obviously, I'm not going to give you a forecast for Q4 at this moment in time, but I'll give you a couple of maybe data points and reference points for you to conclude. your point q3 of 2023 certainly was a very uh tough comp for us um you know it was a very positive quarter um in of itself and um it was really midway of q4 where we started to see the market change particularly as it relates to messaging um so in q3 this current uh for 2023 we did see messaging year over year decline on an organic basis at 7%, but we would note that since the second quarter, we've seen organic growth for messaging at 8%. Now, also, we also have to reference the fact that the second half of the year does tend to be a bit better than the first half just because of seasonality, but we were pleased to see this sequential improvement. It gave us you know, a nod towards stabilizing in the messaging space. The other piece, parts of the business, you know, we've note that the SMB business accelerated growth. We're very pleased with that. Email did slow. And we do have a number of initiatives underway. When that growth returns, you know, at an accelerated pace, you know, remains to be seen. But it is certainly something that we're working on. Voice, I would remind you that the 8YY reform continues to impact us from a comp standpoint. So while it ended this quarter, when you look at fourth quarter, you're going to have to contemplate that step down from 2022. Great.

Thanks a lot.

Yeah. The next question comes from Daniel Thorsen from ABG Sundal Collier. Please go ahead.

Yes, thank you very much. Two questions, please. Geographically, can you say something on organic growth rates at the moment and also differences you face out there in the different regions? And then secondly, more specific on the US market and the US tech sector, which you have a high exposure to. We see some lower tech layoffs in the market. We see some positive sales revision, some positive momentum in the sector. That was a tailwind for you in 2020, 2021, more of a headwind in 22, 23. Should we expect the US tech sector to be a growth driver for you in 24, you think?

Let's see, Daniel, thank you for the questions. I'll take... I'll take part of one and two, and Roshan maybe can give a little bit more detail around regional differentiation from a margin standpoint. First of all, to your point, global business, we certainly see market dynamics differ across the globe. Our India market continues to perform really well in messaging very specifically. Our SMB business, particularly around click send and simple texting, as well as message media, is performing extremely well in the U.S. You know, the self-service models across both SMB and email are performing very well. And then I would also note that the voice business, which is predominantly U.S.-based, the programmable voice components and some of the verification use cases that are coming through the voice portfolio continue to perform well. And, you know, so we're very pleased with the performance thus far in the Americas. And to your point, you know, I can't comment on the tech sector and what they're doing with regards to their layoffs. But certainly, you know, if we look at the strategic accounts in the U.S., they have hurt us in the past. They do seem to be performing relatively well at the moment. And, you know, we're excited to put this regional structure in place so that we can be more focused in on, you know, the local domain and these local markets and these local verticals, quite honestly. So tech sector certainly being one of them, financial services being another. Prashant, anything to add on the regional piece?

No, I mean, you know, I think Arinda summarized that quite well. If you look at, you know, outside of the U.S. market, I think we have had challenges in LATAM for a while. Again, you know, relative size is important. I mean, the U.S. market is more than half of our total revenues. LATAM is, you know, a couple of percentage points or thereabouts. But from a relative price perspective, that continues to be a challenge with LATAM. But we're seeing, on the other hand, good growth in India continue to be the case, more or less similar, slightly larger than LATAM in terms of revenue share for CINCH. And Europe as well is performing, I would say, in a stable way.

uh so so that's kind of more the the uh the regional breakdown excellent can i follow up with a quick final here i saw in the new organization lorinda that you have recruited julia fraser from your former employer lumen technologist head up the america's region here from first of january what will she bring to the table here and what did she accomplish at lumen that you liked

Sure. Yeah. So first of all, she went through quite a rigorous interview process here at Finch. So it's not just me, but I think we had some very good consensus around bringing Julia on board. Her most recent experience at her prior company was all around enterprise transformation and customer success. So she is very much focused in on customers and thinks customer first. She has been through a number of integrations and migrations in her career. She actually started off in software and wireless. She's got an interesting background there. But even when she was at her most recent prior company, in addition to the prior role, she also had a variety of functional experience, both in sales as well as access procurements. so dealing with the operators in Europe. I forgot to mention she's global. She's actually British, living in the U.S. right now. So she has supported enterprise customers in different parts of the world. She's also an empathetic leader, a very strong data-driven and high-performance-driven leader with a tremendous amount of empathy. So I think she's a terrific cultural fit, She's got a lot of the experience we need to apply here at Finch. And the most important piece is as we put ourselves on this journey to be much more customer-centric, she has that domain expertise and that natural bias is towards customers.

Yep. Sounds promising. Thank you very much.

Thank you.

The next question comes from Victor Hogberg from Danske Bank. Please go ahead.

Hi, good afternoon. So just a question on email. The organic growth took a step down sequentially. You have taken some measures. Could you help us? What kind of measures you have taken? And of course, you can't commit to the timing of the effect from those. And also on email, could you say something about the

terms of cross the down trade if you would call it that from sms to email now in q3 in these numbers another follow-up on that one afterwards okay hi victor thank you for the questions um first of all in terms of the initiatives around email you know again we saw a couple of things happen within email one of which is just the the buying behaviors of our enterprises whereby You know, historically, we would have seen some overages charged to customers because they would have expanded beyond their thresholds. The way the business model works in email is, you know, it's not a per email price point or per email model. It's rather a bundle pricing, right? So you get a certain amount of email for a certain price. Historically, we would have seen more and more customers expand beyond those thresholds and therefore accountable for overage costs that they would pay to cinch. We've seen customers change and optimize more of their spend so that they're staying within their thresholds more often than not. That's one aspect. The second aspect is that we have lacked or we saw a slowdown rather in terms of the new net ads, new sales. And the actions that we took was we changed out the sales force, not in its entirety, but certainly at the leadership level and then some key positions within that team. That leader has been on board now for, I believe, about three months or so. And we're seeing some very promising outcomes with the leading indicators in that business. Traditional activity and performance management. And we're seeing some nice results. And we're also seeing some very good cross-selling opportunities with our messaging customers now issuing RFPs to us for e-mails. and some good enterprise-grade opportunities that we're excited about. And I'm sorry, I didn't really understand your second question, Victor. Something about messaging and email.

Yeah, exactly. The affordability of SMS versus email, if you could see a cross-sell opportunity. I think you have historically some customers going by cheaper emails than SMS, not the same return on investment. Maybe, but in some cases it is. Just if you've seen that in the context of the slowdown in Q3.

Thank you, Thomas. I think what we've seen over the past year, not really changing from Q3, but during this year, is businesses paying more attention to optimize their spend on communications. However, most businesses would leverage different channels for different uses. If you think about email, it has some core characteristics. For example, it's searchable, right? It's permanent. So if you have an invoice or you're making a hotel booking long in advance of time, it's very convenient to have it by email, whereas messaging will outperform when it's in breaking through the noise and when you're at the airport with luggage in both hands and being notified about a gate change. So there are use cases. We talked about verification before where you can swap the one for the other. But I think that broadly speaking, the different channels have their strengths, their relative strengths, the different use cases, and that's typically how businesses will use them. We, of course, have a huge opportunity to educate here and to drive more cross and up selling within our base customers. Most of the customers we have today have gotten to know just a part of Finch and are still just consuming a part of our total product offer.

Okay, thank you. Final question, just potential price hikes, if you're discussing or discussing that across the product portfolio, not just in messaging. That's it for me. Thank you.

Yeah, thanks, Victor. Listen, you know, pricing is part of our business as usual. It's not an episodic event. It's not something that we plan, you know, months or quarters in advance. It's something that we manage on a regular basis. So we do see it across the business, you know, depending on what the market will bear.

Thank you.

Thank you.

The next question comes from Fredrik Lithell from Handelsbanken. Please go ahead.

Thank you very much. Thank you for taking my questions as well, Lorinda. If we could again talk a little bit about your new plan and sort of the reorganization we are standing in front of and what you do there. I have some maybe follow up if you could give us some more color. uh you you talk about accelerating growth uh you have the platform for that if the macroeconomics if that backdrop is not improving how how do you see the trade-off between your margins and sort of your investments into establishing this accelerating growth is there any thoughts around that and and then also it seems like this is a fairly sizable change you're doing on many levels and includes maybe pooling together platforms and more, are there any EU charges we should expect going forward maybe, you know, for 2024 or something like that? Would be interesting. Thank you.

Okay. Thanks, Frederic. Yeah, let me try and take both of these. First of all, yes, it is all around accelerating growth. What's important to know is that we did not start with the organizational model change. We actually have been doing a lot of work over the past, I'd say, three to four months, first starting with customer segmentation and understanding who our customers are, not just based on what they do with us today and what they spend with us today, but really where were the opportunities for expansion. growth within those customers so we started there we moved over to product strategy product product rationalization to understand where we are spending our money both in terms of development resources investment in platforms etc and thinking about how can we harmonize the really the duplication of some products that existed within or that does exist within the Cinch portfolio and trying to make some decisions around that. The organizational redesign is an output from that work, right? So starting with our customers, knowing that we need to be more customer-centric, but knowing that there's lots of opportunities to become much more efficient and aligned in support of those customers and in support of these commercial teams. As far as the macro is concerned, this work that we're doing inside of Cinch, quite honestly, doesn't have anything to do with the macro. It really is about how does Cinch get better at serving the customers. We learned from our customers that they appreciate and are willing to pay for the value proposition of pulling all of these portfolios together. And so we know that we can do that better. We can move faster. We can make decisions faster. This org structure is intended to do that. And we do expect to get synergies and efficiencies. I mentioned that, I think, in the first set of questions. We do expect to get synergies. that we will put back into the company and focus it based off of where the bigger growth opportunities are. We do not expect to sacrifice margins in this process. I want to be very clear. We have been focused on profitability. We will continue to focus on profitability. You've seen our margins expand over the last year slightly. That's as a result of the growth areas. being higher margins, right, at the end of the day. And so we expect for when we are in this model and when we are settled and starting to execute, that we actually will start to see expansion. So that is the intent of this. As far as the fact that these are sizable changes, yes, they are. As far as whether or not we will have charges, etc., We are doing that work now, and we will plan to communicate anything. But at this point in time, we do anticipate that the savings and the synergies that we do get through the model, that we're able to put that back and invest in the areas that we need to grow.

All right. Thank you very much for the clear answer.

Thank you, Frederic.

The next question comes from Laura Metier from Morgan Stanley. Please go ahead.

Hi, Lorinda, Roshan, and Thomas. Two questions for me, please. The first one is a follow-up on the new operating model. Could you give us a sense of how long you expect it will take to implement this new operating model and when we should expect to start seeing benefits on organic growth? And then the second question is, I read in the report that you mentioned that there is an adverse effect this quarter from a change traffic mix in messaging. Could you please give us some more details on this, please? Thanks.

Hi, Laura. Thank you. I'll take the first one, and then I'll ask Roshan to take number two. As far as the timing to implement, you're rightfully calling out the fact that this is a large change, and it will take some time. We plan to be in the structure itself by January 1st. There's work going on right now to get us ready for January 1st. But once January 1st happens, that doesn't mean that everything is working perfectly, that our sales teams have complete visibility to the entire portfolio or their new customer bases, et cetera. I expect that through the first quarter, A lot of that go-to-market transformation is done. And what that means is, you know, territory assignments, quota assignments, customer account assignments, incentive plan redesign, CRM transformation and visibility, a lot of work and mechanics that need to get operationalized over the first quarter. Having said that, though, we do already know, because we started with customer segmentation, we do already know out of the hundreds of thousands of customers that we have, who are the most critical for us to address immediately? Who are the ones with the most buying potential and the most potential across products that we need to address initially? And so we will... It won't be smooth and slick by January 1st, but it'll be very clear as to who those customers are and what the expectations are of the sales teams that are assigned to those customers. And we will be program managing those very tightly and have expectations clear with those sales teams. That being said, Again, very large transformation in organizational redesign. A lot of people are moving. Managers are moving. Customers are moving the tools that they use to operate in today. So there's learning that has to happen here. And, you know, this is a process that, you know, will traditionally take, you know, six-plus months. You know, some would even extend it beyond that. But I think what we've said in the press release last week or two weeks ago was we will expect to see some results in the second half. But that's really a combination of efficiencies that we can reinvest as well as leading indicators around growth. And then, sorry, Laurie, your second question. Yeah, Roshan.

So you asked about the comment that we have in the report regarding adverse change in traffic mix affecting both net fails and gross profit for messaging. You know, what that comment refers to is the fact that we have transaction volumes in the quarter in messaging increasing by 6% year on year. But this is a mix of volume increases in India, which make a positive contribution, and having adversely affected by an economic slowdown in the rest of the world. So in India, while we have gross margins are comparable to the rest of the world, the revenue per message and gross profit per message is lower. than the rest of the world, especially compared to India and North America. And therefore, you know, kind of that mixed change means that revenue and gross profit do not grow as much as transaction volume in the quarter. Thank you.

The next question comes from Stefan Gawfin from DNB. Please go ahead.

yes hello I just have a question regarding the slowdown in email I understand the the issue and I understand that you have that you have initiatives to reignite growth but could could you just comment on when we could expect improvements to be visible. Should we expect this kind of slowdown to continue for several quarters?

Hi Stefan, I can try to answer that one. We try to stay away from forecasting individual segments on a quarter to quarter basis. If you look at kind of, and Lorinda outlined this earlier, we have a number of initiatives. We have obviously made changes on the sales side and the customer success side, where the leading indicators are definitely turning green. but this takes a bit of time before, you know, kind of it actually converts to revenues. You know, we've always seen pricing, which is, you know, again, a delicate balance to hit the right pricing, but it can have more of an immediate impact in terms of customer conversion and, you know, kind of revenue impact. We are also, you know, kind of email has a fantastic customer lifespan value, email customer to us. And hence, we are also increasing, you know, kind of on balance the marketing investment given the high return on investment that we're seeing in this area towards VML. And that can also have a kind of more direct and earlier impact. And finally, we are making, you know, kind of the right adjustments in our product development strategy. So we're putting more product resources towards kind of growth initiatives. If you remember, we We did quite a large, you know, kind of call migration last year, which did consume a lot of the product resources. And, you know, kind of there's some realignment of resourcing towards growth in the email segment. And that, you know, again, has slightly longer kind of time to realize things, right? So it's a mix. You know, I think our ambition is to get back as soon as possible. I will stay away from kind of my forecast in the next quarter.

Okay. That's fair. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you to everyone for your questions and for attending today's call. We very much appreciate the interest and we look forward to continuing the dialogue and sharing our progress the next time we're together.