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.