Sinch AB (publ)

Warmly welcome everyone to this Cinch Earnings Call for the fourth quarter 2023. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. And with me today, I have our CEO, Lorinda Pang, and our CFO, Roshan Saldama. And with those opening remarks, I'll hand the word over to Lorinda.

Thanks very much, Thomas, and a warm welcome to everyone who's joining us for today's call. I'll begin with some overall highlights and comments around our performance in the fourth quarter. I'll then ask Thomas to take us through some of the recent and very exciting developments in the global messaging market, and then to Roshan, who will guide us through our financials. I will then introduce our growth acceleration plan and some of the many concrete measures we are taking to improve our business and accelerate our growth. Before we dive into the fourth quarter, please turn to slide two for a brief introduction to our business. We at Cinch are pioneering the way the world communicates. We are helping businesses throughout the world to communicate with their customers, leveraging cloud-based technology to interact with each unique customer in a timely, relevant, and convenient way. Our customer communications cloud powers more than 700 billion unique customer interactions per year, on behalf of more than 150,000 paying customers. We are present in more than 60 countries and serve businesses of all sizes. In the full year 2023, we recorded revenues of 28.7 billion krona, gross profit of 9.5 billion krona, and adjusted EBITDA of 3.6 billion krona. We have been profitable and cash generative since our foundation in 2008 and generated 1.8 billion krona in free cash flow over the past 12 months. We build our strategy around profitable growth and look to lead our industry both through our organic efforts and inorganic expansion. Please turn to slide three where we capture the most important developments in the fourth quarter. First and foremost, we are maintaining healthy margins both at the gross profit and EBITDA levels. Our gross margin in the fourth quarter was 33.5%. This is the same level as in Q3 and a 0.7% increase over Q4 last year. Gross margins are stable across each of our four financial segments, but we do have a structural tailwind at the group level since the higher margin areas are growing faster. Our EBITDA margin was 11% and our adjusted EBITDA margin, which reflects underlying profitability on a comparable basis, was 13% in the quarter. Our leverage measured as net debt to adjusted EBITDA continues to decline. The ratio is now two times, down from 2.2 times in Q3 and from 2.7 times at the end of 2022. Turning to cash flow, we again report a robust quarter with operating cash flow at 727 million krona. The conversion of adjusted EBITDA into cash flow reached 58% in the quarter, which is a ratio we calculate after both interest costs as well as CapEx. Looking at the full year 2023, our operating cash flow totals 1.8 billion krona. We repaid 2.3 billion krona of debt during the year and have recently extended several debt maturities. This is an area that Roshan will cover further in the call. Our third area to highlight relates to what we've dubbed our growth acceleration plan. A foundational piece of this plan is the launch of our new organization, which we introduced back in October and which went operational as of the 1st of January. We have designed our new organization, what is really our new operating model, to increase our focus on customers, unlock cross and upselling, and leverage our company's global scale in product and R&D. We have gathered all customer facing teams into a regional structure, and we have created global functions for product, technology, and our support functions. This new structure will drive two important outcomes. First, it allows us to remove duplication and to free up resources, which we can then reinvest into growth initiatives. Second, it allows us to draw on our full capabilities and sell the entire breadth of our product portfolio when we interact with customers. This removes barriers to cross and upselling, supports net expansion, and benefits organic growth. We said in October that we would share more details about the costs and benefits related to these changes. These are captured on the slide we are now reviewing. We expect IT transformation spend to reach 350 million krona over three years as we modernize our internal systems landscape through investments in CRM, ERP, and data. We expect total integration and restructuring costs to reach 300 million krona in 2024, and we expect to realize 300 million krona in gross OPEC savings on a run rate basis by the end of 2024. I want to reiterate that we intend to redeploy the majority of these savings into growth initiatives. With those remarks, I now want to hand the word over to Thomas to go through recent developments around RCS, or rich communication services, which is the heir to SMS and now on track to become a new global standard for messaging.

Thank you very much, Lorinda. Please turn to slide four for some of these recent developments. Now, before we dive into RCS, let's spend a moment reflecting on why SMS is so widely used, both for private and business messaging. What truly sets SMS apart is its ubiquity and efficiency. It's installed by default on every mobile handset and nearly every person on the planet is a trained user. It doesn't offer a wide feature set, quite the opposite. But it's a proven way to break through the noise and reach someone where all other options fall short. Newer chat apps like WhatsApp and Telegram have added valuable features like group chat, read receipts and high quality media sharing. They gain tremendous popularity and are often the go-to apps to communicate with friends and family. But although these proprietary apps have gained dominance in select geographies, none have reached the global ubiquity that we associate with SMS. This has long been the promise of RCS, or rich communication services, to combine the ubiquity of SMS with the richer feature set that we associate with chat apps like WhatsApp. RCS is a standardized messaging protocol that builds on the strength of SMS and addresses its key shortcomings. Whilst progress this far has been gradual, We're bringing this up today due to two distinct developments that materialized this autumn. In August 2023, Google made RCS enabled by default on all new Android phones where the Google Messages app is used for text messaging. This is an important change from how things worked previously when users would need to know about RCS and actively turn it on in their phone settings. Then in November, Apple announced that it intends to bring RCS support to the iPhone in late 2024. This marks an even greater change that will radically improve messaging interoperability between iPhone and Android users. An important part of the GSMA RCS standard is the feature set around business messaging. This is the part that's most relevant to Cinch, and our planning assumption is that Apple will support the full standard as laid down by the GSMA in future versions of iOS. The chart on this slide shows how important Apple is from an ecosystem perspective due to the high iPhone market share in some of our largest markets. With Apple on board, RCS can approach the ubiquity we associate with SMS. Today, RCS has over 1 billion monthly active users across the global Android ecosystems. This figure continues to rise as newer Android handset sets have RCS enabled by default. Apple's support will add close to 1.5 billion new RCS users, which will bring the total RCS user base up to 2.5 billion. By comparison, WhatsApp currently has around 2 billion active users. Please turn to slide five, where we illustrate some of the many benefits that RCS messaging brings to businesses and their customers. The slide shows how RCS can be used to deliver a digital train ticket. It leverages many of the key selling points of RCS with attractive branding, rich media, and suggested replies. It's also sent by a verified sender that is registered and vetted by a mobile operator, which adds an additional layer of security and provides comfort to end users. Now, although it's always exciting to grapple with new technology, the value to customers will arise only when that technical capability is leveraged in an application that solves a real use case. So to see how RCS is adding real customer benefits already today, I want to hand the word back to Lorinda.