Sinch AB (publ)

Thank you, operator. Welcome, everyone, to this Q3 earnings call with Cinch AB. My name is Thomas Heath. I'm Chief Strategy Officer, and with me today, I have our CEO, Lorinda Pang, and our CFO, Roshan Saldana. And with those opening remarks, I want to hand the word over to Lorinda.

Thanks, Thomas, and good afternoon, everyone. Thanks for joining us today. Let's briefly look at slide two. Cinch is pioneering the way the world communicates. Our customer communications cloud enables businesses throughout the world to reach, connect, and engage with their customers, to break through the noise and interact through mobile messaging, voice calling, and email. We handle more than 800 billion unique customer interactions per year for more than 150,000 businesses across the world. Over the last 12 months, we generated 28.5 billion krona in net sales, 9.6 billion krona in gross profit, and 3.6 billion krona in adjusted EBITDA. Let's move to slide three, please, where we summarize some of the key financial highlights. Overall, I would describe our performance as stable. Gross profit grew 1% in the quarter organically in constant currencies, with a similar gross margin compared to Q3 last year. We recorded an EBITDA margin of 11%, and an adjusted EBITDA margin of 13%. This outcome matches the lower end of the expectations we outlined in Q2, where we said we expected low-digit growth in gross profit. And you will recognize the headline figures from our pre-announced results as we notified the market that we would record an impairment to goodwill ahead of today's planned earnings release. Looking ahead into Q4, We expect flat to slightly negative growth in gross profit on a year-on-year basis. Slower momentum in the Americas is a key contributor. A weak end to 2024 also means we expect a slower start to 2025. We also expect our operating expenditures to increase somewhat during the year as we execute on initiatives that drive growth in 2026 and beyond. Turning to cash flow, we continue to generate strong cash figures with operating cash flow at 437 million krona, despite the reversal of 240 million krona of early payments, which benefited cash flow in Q2. We think the best way to understand our cash generation is to look at performance on a rolling 12-month basis, and we conclude on this horizon that our cash generation from adjusted EBITDA is at 61%, which is above our targeted 40% to 50% range. Continued cash generation is also a key contributor to the reduction in leverage, with net debt to adjusted EBITDA now at 1.6 times down from 2.2 times one year ago. While we continue to deliver healthy profitability and strong cash flow, we are clearly not delivering the growth rates we aspire to in revenues and gross profits. This brings us to the topic of transformation and execution of our growth acceleration plan. You will recall that the plan covers three areas, with initiatives around go-to-market transformation, product integration, and operational excellence. Our initiatives around operational excellence focuses on our internal efficiency. As we transitioned into our new operating model from the 1st of January this year, We targeted initial run rate savings of 300 million krona by the end of 2024. I'm pleased to report that we have exceeded this ambition as of Q3, as our realized savings of 84 million krona translates into 335 million krona on a full year basis. We see opportunity to unlock future efficiencies in future years as we strengthen our internal tooling, harmonize our processes, and decommission legacy IT systems. Work towards these objectives is progressing already today, but it's phased over multiple years, and it will take some time before we can attain further efficiencies. Let's pause briefly on slide four for an overview of our business mix. On the 1st of January, we transitioned from a business unit structure to a more integrated organization. The three regions, Americas, EMEA, and APAC, now form our operating segments. with the Americas contributing more than 60% of total gross profit. We have 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 OpEx 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 a slight increase in gross profit on a year-on-year basis in constant currency. Gross profit has helped this quarter by a timing effect in our cost of services sold, where 40 million krona related to Q1 and Q2 of this year is benefiting the third quarter. As anticipated last quarter, we have reduced the rate of decline for our network connectivity products, but this improvement is offset by weaker performance in our API platform. In EMEA, We report a 3% decrease in gross profit on a year on year basis as the improvements we are seeing in our applications offering is offset by the decline in the API platform and network connectivity. We are optimistic though, that EMEA will see improved performance in future periods as a negative growth impact from exited fixed price contracts in our SMS business will ease from Q4. In APAC, We are recording stable revenues and 12% growth in gross profit. The improved gross margin relates to change in mix, with India a continued contributor to gross profit growth. Looking at our commercial activities in the quarter, we hosted the inaugural Cinch RCS Innovation Day together with Google at their campus in Mountain View, California. This was one of the multiple joint events around the world we hosted with Google during the autumn. as we collaborate to drive awareness and interest around RCS. In EMEA, we cooperated with Mind, a Dutch medical technology company, to develop an innovative AI solution that helps pre-triage patients. And in APAC, we announced a partnership with Singtel, where we are the first cloud communications provider to provide RCS messaging services to businesses in Singapore. Let's move to slide six, please. Slide six looks at the financial development by product category. Whereas we see our API platform and applications offering as our future-oriented growth drivers, the network connectivity products are managed more for profitability. Organic growth and gross profit on a year-on-year basis was 6% for applications and 2% for our API platform this quarter. For applications, this means that we are seeing a slight improvement compared to the second quarter, but for the API platform, this implies a slowdown. Improved year-on-year performance in email is offset by weaker performance in SMS, and the large relative contribution of SMS causes a lower growth rate overall. The development in network connectivity has continued to improve as we have slowed the decline compared to the first and second quarter of this year. Gross profit for this product category contracted 5% this quarter. and Rosham will share some more commentary specifically for the Americas region in a moment when he reviews the financials. Before that, let's turn to slide seven for a brief commentary on recent developments in RCS, the new messaging standard designed to succeed SMS. Earlier this fall, Apple introduced iOS 18. This latest version of the iPhone operating system introduced support for RCS messaging. a long-awaited development that dramatically improves the default messaging interoperability between iPhone and Android. With iOS 18.1 released on the 28th of October, Apple added support for RCS business messaging, or RBM. Compared to SMS, RBM adds a range of new features that business benefit as well as their customers. Features like branded and verified senders, rich media, read receipts, carousels, and suggested replies. These features will roll out gradually as Apple introduces RCS on a market-by-market basis and conducts interoperability testing with each mobile operator in each country. This will not happen overnight and progress will be gradual. But the key message that I want to convey to you is that RCS is happening and it is happening now. The default messaging experience available on every new phone is getting a significant upgrade. We're excited about the value it can create for our customers and the value it can create for Cinch as we execute towards this opportunity. Driving awareness is a key part of that effort, and you can see on this slide some footage of our joint activities with Google during the fall. With those remarks, I want to hand the word over to Roshan to take us through the financials.

Thank you, Lorinda, and a very good afternoon to all of you on the call. Let me start by reviewing our financial development for the quarter and move us on to page nine. Net sales for the third quarter were up organically 2% year-on-year. This can be compared to a year-on-year decline, organic decline in net sales of 1% in the previous quarter. We see volumes picking up in our cold products driving up net sales. Looking to the regions, Americas grew 5% and APAC was flat, whereas EMEA was down 4%. Organic net sales decline in EMEA has reduced during the year as the impact from us exiting some fixed price contracts reduces sequentially and is completely rounded off in comparable periods from Q1 2025. Reduced revenues from the 8YY toll-free reform affected the network connectivity product category in the Americas region by 12 million kroner in the quarter, Within network connectivity, sales to operators of voice products have seen continued decline in volume as observed during last year. However, our actions on pricing have meant that revenues rose year on year during the quarter. Please turn to page 10. Gross profit declined 1% on a reported basis, but increased 1% organically in constant currencies to 2.4 billion kroner. Growth in the Americas region was up 1% versus a flat Q2. EMEA was down 3%, whereas APAC grew at 12%. If we look at the GDP growth in the APAC region, where India continues to perform well, we're seeing a lower growth rate now than we did a year ago. It is a competitive market. However, we have a strong position and we remain positive to its long-term outlook. In EMEA, as we said earlier this year, messaging development is hampered by us exiting certain fixed price contracts that we had last year. This is something we expect will diminish in Q4 and then completely round off in the first quarter of 2025. In Americas, we continue to see good growth in the applications product category and continued decline in network connectivity. I will come back to network connectivity in a moment. However, looking more into the API platform product category, this is where we are currently experiencing higher competition in the market, affecting our performance and ability to drive gross profit growth. Regaining momentum here is a key focus to a mix of near-term actions, as well as focusing on our growth acceleration plan and new technologies such as RCS. Please turn to the next slide, page 11. One of our main product categories is network connectivity, which accounts for 20% of gross profit for the group in the quarter. Specifically, network connectivity in the Americas accounted for 17% of gross profit for the group and consisted largely of products within the US voice business targeting telecom operators. In Q1 of this year, we informed you that the reason for the 18% decline that you see on this page in year-on-year gross profit was related to a combination of the 8YY reform impact, increased network costs for voice connectivity services in the US, as well as reduced demand from operators. We were able to reduce this decline in Q2 to minus 12%, and now again, further in Q3 to minus 4% due to good progress in our negotiations with those operators and pricing actions. Above all, we have reduced the risk for large increases of costs going forward. We're also reducing reliance on legacy connectivity through service virtualization, and we'll use pricing as a further lever to manage profitability, which is the key focus area for this product. The year-on-year impact of the 8YY reform on network connectivity in the Americas was a decline of 11 million kroner in the quarter. Looking forward from Q4 and onwards, there is no year-on-year growth impact from the 8YY toll-free calling reform. All in all, we expect gross profit from network connectivity in the Americas for the second half of 2024 to be roughly the same as for the first half year. This means we will expect a year-on-year gross profit decline also for this product category in the Americas in Q4. Please turn to the next page. This slide shows gross and EBITDA margin development for the business. Gross margin was stable and increased slightly by 10 basis points over the same period last year. The reason for the slowing growth in gross margins is due to the decreasing margins within network connectivity as explained previously in this presentation. We still see strong gross margins in both the applications and the API platform product categories. EBITDA margin at 11% is down 1% year-on-year by currency movements, driven by currency movements, and lower cost for share-based incentive programs. Compared to previous quarters, EBITDA margin continues to be flat. While we have reached the initial cost savings that were envisaged due to our change in operating model, we expect... ...to increase slightly in 2025. EBITDA adjustments are primarily related to integration costs, share-based incentive program costs, and currency effects. Looking specifically at integration and restructuring costs, they are at 222 million kroner on a year-to-date basis against the 300 million that we had guided for the full year. So we believe we are on track to that guidance. Operating expenses excluding adjustment items are flat year-on-year and declined over the previous quarter of Q2, despite merit increases on personnel costs, which is, of course, the largest part of our operating expenses. We expect to reinvest the savings that we have realized into our transformation programs, substantially self-funding those programs. Adjusted VDA for the quarter came in at 923 million kroner, which is 2% lower than the same period a year ago due to cost control activities mitigating the gross profit decline. Adjusted VDA margin remained stable year-on-year at 13%. Please turn to the next page. Here, we show the continuous strong free cash flow after investments, generating 293 million kroner in the quarter, and 2.2 billion on a rolling 12 months. Our cash conversion is helped by unlocking working capital to the tune of 221 million kroner during the rolling 12 month period ending at Q3. As you may recall, cash flow in the previous quarter Q2 was helped by pavements of 240 million kroner that were received from a few large customers earlier than due. This negatively burdened change in working capital for Q3, which came in at minus 255 million kroner as these payments reversed. In the graph to the right, we show cash conversion from adjusted VDA on a rolling 12 months basis, which was at 61% from adjusted VDA. While we still believe that our target range is 40 to 50%, we are delivering above that range due to optimization of working capital. Our business continues to operate in a very asset-like fashion with negative net working capital at quarter end. We paid 117 million kroner in paid interest during the quarter, equating to an effective interest rate of just above 6%, including fees. Interest paid during the quarter declined compared to the second quarter due to the successful continuous deleveraging, which actually brings us to the next page, page 14, please. Here we see the development of the financial leverage ratio for CINCH, which is net debt over adjusted EBITDA. We are glad to report a continued deleveraging as expected with leverage now down at 1.6 turns compared to 2.2 turns a year ago and 1.7 turns at the end of the previous quarter. The KPI is measured excluding the impact of IFRS 16 related lease debt on both net debt and adjusted EBITDA. We have paid down debt by 2.5 billion kroner during the last 12 months. Re-leveraging continues to remain a key focus area for Cinch, and we expect this ratio to continue to decline through underlying cash flow generation from operations and increase in adjusted EBITDA. Please turn to page 15, where we give details on our debt portfolio. We had cash and cash equivalents of 1.1 billion kroner at quarter end in addition to the unutilized credit facilities of 4.6 billion kroner and short-term overdraft facilities of 900 million kroner that you see on this page. As you see on this page, our available cash and committed credit facilities at quarter end more than exceed any maturities during 2024 and 2025 of 3.2 billion kroner. And that is even before considering any further cash flow generation from the business. After the end of the quarter, the corporate bond of 673 million kroner, which you see on this page with maturity in November 24, was prematurely redeemed in October, partly using proceeds from a 500 million kroner bond issued during the quarter. On page 16, we are reiterating our financial target of adjustability per share measured on a rolling 12-month basis which decreased 1% at the end of the quarter compared to a target to grow 20% per year. Our change in operating model and growth plan is intended to accelerate growth and thereby achieve margin expansion. Lorinda will provide an update on progress in this area shortly. Net debt over adjusted EBITDA at 1.6 turns, excluding the effect of IFRS 16-related leases, is well below our leverage policy of 2.5 turns. And this is an area that we expect to continue to deleverage. With those words, I'd like to hand back over to Lorinda to take us through the growth acceleration plan for Siege.