Sinch AB (publ)

welcome to the cinch q2 report for 2024. 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 pound five on their telephone keypad now i will hand the conference over to the speakers please go ahead

Thank you, operator, and welcome everyone to this Q2 earnings call with Cinch AB. My name is Thomas Heath, Chief Strategy Officer, and with me today I have our CEO, Lorinda Pang, and our CFO, Roshan Saldana. And with these opening remarks, I want to hand the word over to Lorinda.

Thank you, Thomas. Let's turn briefly to slide two, please. Cinch is pioneering the way the world communicates. Our customer communications cloud enables businesses throughout the world to reach and interact with their customers through all channels, including messaging, voice, calling, and email. We're built for scale and handle more than 800 billion unique customer interactions per year for more than 150,000 business customers. We are a global leader in our industry, and over the last 12 months, we generated 28.6 billion krona in net sales, 9.7 billion krona in gross profit, and 3.6 billion krona in adjusted EBITDA. Slide three, please. We'll cover some of the financial highlights in the second quarter. Cash generation reached an all-time high level as we generated more than 1 billion krona of operating cash flow in Q2 alone. This high level of cash flow is healthy even if we deduct around 240 million krona of payments that were received from some of our larger customers earlier than due. Looking at the last 12 months, the business has generated 3.2 billion in operating cash flow. Cash conversion from adjusted EBITDA, which again we measure on a rolling 12-month basis, is now at 72%. We're very proud of this performance, which well exceeds the 40% to 50% target range. Our strong cash generation also benefits our balance sheet and reduces our leverage. We repaid 881 million krona of debt in Q2 and a full 3.1 million krona over the last 12 months. Our net debt to adjusted EBITDA ratio is now 1.7 times compared to 2.4 times one year ago. Turning to our operational performance, I would characterize our overall performance as stable. Our gross margin continues to increase as our higher margin products grow faster and improve the overall mix. Our EBITDA margin is stable at 11% despite inflationary headwinds which affect our cost base. We recorded a slight organic revenue decline in the quarter with gross profit growing 2% on an organic basis. This low single-digit level is lower than we aspire to deliver on a longer-term basis. but it is the rate of growth we expect to see until our growth acceleration plan delivers results where customers, again, start to increase their investments in customer experience and digital communications. Our growth acceleration plan includes several initiatives across go-to-market transformation, product integration, and operational excellence. It is a transformation program for increased focus, higher commercial velocity, and improved efficiencies. Since the costs associated with driving this change are incurred earlier than the anticipated benefits, the timing of which is aligned with our plans, we are now offsetting with efficiencies that allow us to protect our overall profitability whilst executing on our transformation agenda. Unfortunately, these measures have meant that a number of colleagues were made redundant during the quarter. We have been able to execute faster than originally envisaged and realized gross savings of 58 million krona in Q2. This corresponds to 232 million krona on a full-year basis, and we are confident that we will reach the target 300 million run rate in the second half of the year. Executing on these cost reductions allows us to reallocate our spend towards growth initiatives and to offset inflationary pressures so that our overall profitability remains healthy. We have netted a 5% reduction in full-time equivalent headcount over the last 12 months. Behind these numbers are further movements as we are reducing even more headcount, but adding resources back in areas where we see greater growth opportunities. Let's pause briefly on slide four for an overview of our business mix. We changed from a business unit structure to a more integrated organization on the 1st of January, 2024. As required under IFRS, we updated our reporting to reflect this change in governance starting from the first quarter this year. The three regions, Americas, EMEA, and APAC, now form our operating segments, with Americas contributing more than 60% of total gross profit. We also introduced new product categories and now refer to our API platform, applications, and network connectivity. To add visibility into our cost base, we also now disclose adjusted objects by function, where R&D is the largest category. Let's now move on to slide five to look at performance by segment. In the Americas, we are reporting stable gross profit on a year-over-year basis in constant currencies. Lower campaign activities compared to the comparison period in 2023 caused growth in applications to slow. The year-on-year growth rate slowed also for the API platform, but we have reduced the rate of decline in network connectivity. During the quarter, we were again recognized as a global leader in Gartner's updated magic quadrant for CPaaS. EMEA recorded a 4% decline in gross profit on an organic basis compared to Q2 2023. This is an unsatisfactory growth rate, but an improvement compared to Q1 that's due mainly to the API platform. Our commercial focus in EMEA is now focused on RCS and the cross-selling of messaging and email. I also want to highlight the strong development of our network connectivity offering in EMEA. The product mix here is focused on software for mobile operators rather than voice interconnection services, and I'm very pleased with our performance here. Turning to AsiaPac, lastly, which recorded a very strong quarter, net sales were up 7% organically and gross profit growth was at 19%. We continue to see healthy growth in India and successfully leveraged partnerships to win new customers across the APAC region. You will recall we have referenced our integration with the Adobe ecosystem in the past, and our collaboration with TPG, the Australian telecom operator, is also developing well. Slide six looks at the financial development by product category. Whereas we see our API platform and applications offerings as our future-oriented growth drivers, the network connectivity products are managed more for profitability. Organic growth in gross profit was 5% year-over-year for both our API platform and applications this quarter. This is a lower growth rate than in Q1, and for applications and applications It has to do with some larger marketing campaigns by specific customers which contributed to last year's Q2 but did not make a corresponding contribution in 2024. For the ATI platform, we continue to see a slow market for SMS, which is a large contributor to gross profit in that category. Offsetting some of these pressures is a positive development in network connectivity, where the rate of decline has been significantly reduced for our Americans-based voice interconnection products, and the EMEA-based software business is performing really well. Roshan will add some further details to this development in a minute when he reviews the financials. Next slide, please. We recently published primary research where we interviewed hundreds of consumers and businesses in the U.S. to hear their view of what it takes to build meaningful and long-lasting customer relationships. You're familiar with the adage, you never get a second chance to make a first impression. First impressions last, and more than three in four consumers say one bad experience can end their relationship with a brand. Effective communications is a key component of a positive customer experience. For more than 54% of the consumers we surveyed, convenience is what makes the biggest impact. 20% of the consumers want to work with a company who is easy to work with. 11% say the company should provide more useful information. 13% expect a quick start or delivery. Trust also appears to be a key factor in making a positive first impression, with 30% of our respondents citing reputation as the main focus. A brand's reputation and their ability to build trust is a constant quest. Which brings us to slide eight for an update on RCS and the new features that Apple are adding to their next version of iOS. Shown on this slide is a screenshot from the public beta version of iOS 18, which Apple released a few weeks back. It will be made generally available this autumn and add a range of new features to existing and new iPhones. As you can see, Apple is adding support for RCS messaging, and importantly, for RCS business messaging. Since this is a carrier service, it will be made available for users when supported and switched on by each mobile operator. Already now, this service is enabled for iOS beta users by Verizon, AT&T, and T-Mobile in the U.S., and by a range of mobile operators across Europe. As we've mentioned before, Google made RCS enabled by default on the new Android phones back in August 2023. This means that the share of RCS-capable mobile handsets is now rising steadily, which is a development that will accelerate further when iOS 18 is made generally available. RCS will greatly improve the messaging experience when iPhone and Android users are texting each other. For businesses, there are even more benefits, which are showcased again here on slide 9. The ability to send messages from a branded and verified sender is a clear improvement compared to SMS. Businesses can send images and video in high resolution and benefit from improved analytics as RCS messaging supports read receipts. A brand can also include clear calls to action with pre-populated action buttons to trigger phone calls, open websites, or maps app on the phone. Add to this the rapid development of generative AI, which enables brands to engage in personalized one-to-one interactions with every unique customer. We have invested in technology for conversational messaging over several years, and we're excited about these prospects. However, it's important to recognize that RCS adds tangible value also to a more straightforward use case like text notifications. On slide 10, we share one such customer story. Easy Park Group is a global leader in digital parking, serving millions of users in over 20 countries. Before partnering with Cinch, Easy Park faced significant challenges in delivering SMS parking reminders and one-time passcodes across diverse markets. Managing multiple vendors led to inconsistent delivery rates and a lot of time spent troubleshooting, which negatively impacted the user experience. To streamline operations and enhance service quality, EasyCart consolidated their messaging infrastructure with Cinch. This move allowed them to maintain high delivery rates and simplify their processes, which greatly improved efficiency. RCS has offered opportunities to build on this partnership. Sending messages as RCS instead of SMS allows EasyPark to enhance security with verified senders, boosting user trust and engagement even further. Today, 40% of EasyPark's messaging is in Germany or sent via RCS, achieving an impressive delivery rate of 97.4%. This success has encouraged EasyPark to plan the expansion of RCS to more markets. They're also exploring other opportunities with RCS, such as enabling users to chat with support or extend their parking time without opening the app. This case shows how Sentient's messaging solutions, and in particular RCS, can transform user experience and operational efficiency. Our reliability and scalable technology not only meets but exceeds the evolving needs of our clients. It's partnerships like these, that drive our success and solidify our leadership in the CPAS market. With these remarks, I want to hand the word over to Roshan.