Sinch AB (publ)

Welcome to the Cinch Q1 report for 2025. 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 key 5 on their telephone keypad. Now I will hand the conference over to CEO Lorinda Pang and CFO Jonas Dahlberg. Please go ahead.

Thanks very much. Hello, everybody. Appreciate you joining us here today. Let's quickly jump into things and move to slide two to look at the highlights for the quarter. I'm pleased to share that our first quarter results for 2025 demonstrate momentum across our key financial metrics and transformation initiatives. In Q1, we continue to deliver on our growth agenda with net sales and gross profit both increasing by 4% year over year. On an organic basis, this translates to 3% growth in net sales and 2% growth in gross profit. This marks our third consecutive quarter of organic net sales growth. We delivered organic growth and gross profit across all regions and all product categories, reflecting the improving execution in our business. Our performance metrics remain solid with a gross margin of 34% and an adjusted EBITDA margin of 13% in line with our midterm guidance range. Adjusted EBITDA increased organically by 8% year over year, driven by gross profit growth combined with reduced operating expenses, demonstrating our commitment to balancing efficiency with strategic investments. It also reflects meaningful progress on our transformation agenda across go-to-market, product integration, and operational excellence pillars. The efficiency measures implemented last year have not only successfully mitigated inflationary pressures, but are now yielding tangible operational improvements. This disciplined approach has strengthened our financial resilience in an uncertain macroeconomic environment while creating headroom for strategic investments in growth areas. Moving on to cash and balance sheet. Cash conversion was 50% for the last 12 months, positioning us in the upper part of our 40% to 50% target range. Cash flow from operations after investments was a negative 104 million krona, which was affected by a temporary working capital increase of 370 million krona, driven by a cost optimization agreement with one of our larger suppliers. While this agreement positively affects our gross margin and provides stability going forward, it has a short-term negative cash flow impact, which is expected to gradually normalize in the coming quarters. Our balance sheet continues to strengthen with our net debt to adjusted EBITDA ratio improving to 1.4 times, down from two times in Q1 of 2024. This gives us greater financial flexibility to pursue our value creation agenda. We've talked a lot about our transformation and integration agenda over the past year, and I'd like to pivot to talk about examples of the innovations we are driving. Email and RCS represent two prioritized growth opportunities, and in this quarter, we have launched new AI-related functionality for both Mailgun and Mailjet. We made RCS generally available in our conversational API product, and I'll come back to all of these later. Beyond our core product innovations, we have developed practical AI solutions that deliver measurable business impact. Our internally developed support chatbot now resolves 65% of customer email and messaging inquiries without human intervention. Similarly, our AI-powered agent assistance technology has improved live chat resolution times by 20% while enabling multilingual support capabilities for our engaged customers in EMEA. These innovations demonstrate how AI remains an integral part of our strategy to deliver growth, efficiencies, and enhanced customer experiences. Moving to the next slide, we'll look at the region's performance. Let me start with the Americas, which delivered solid results with 4% year-on-year organic growth in net sales, though gross profit growth was more modest at 1%. The region maintained a stable gross margin at 34%, and I'm particularly pleased to see gross profit increased across all product categories compared to the same time last year. Our network connectivity business, which is dominated by network voice services, showed notable improvements driven by new commercial agreements with both customers and suppliers. We are seeing traction in multi-product usage. One example is LiveVox, a leading contact center platform who implemented Cinch's elastic SIP trunking to unify their voice and SMS operations. This integration enabled SMS numbers for voice callbacks, streamlined channel management through a single dashboard, and enhanced the customer journey through seamless cross-channel communication. Turning over to EMEA. We previously mentioned that we expected to begin seeing underlying growth in EMEA API platform outpacing the negative impact of some fixed price contracts we exited in 2024. The improvements commenced in the fourth quarter and continued also in Q1. Overall, the region delivered 7% organic growth in net sales and 3% organic growth in gross profit. Gross margin was 31%, down slightly from 33% in the comparable period. We experienced divergent performance across our product segments with API platform and applications showing strong growth, while network connectivity was impacted by the timing of some project-based contracts, which are expected to normalize throughout the year. There was significant momentum in RCS and email wins, as well as partner-led growth this quarter, which positions us well for future growth in the region. I will come back to both RCS and partners in a moment. But one compelling example of the value we are adding to the customers is the European Commission. They partnered with us to implement a chatbot solution for their Discover EU program, which provides 24 by 7 automated support to young travelers across Europe. The AI-powered solution we developed together with implementation partner Campfire is built on Chat Layer by Cinch and resolves more than 80% of requests without human intervention. This successfully addresses the challenge of supporting inexperienced young travelers who need immediate assistance during their train journeys throughout the EU. Turning to APAC, we saw mixed results. Overall, we had 4% year-on-year organic decline in net sales driven by a reduction of low-margin SMS revenue in India. This was partially offset by strong growth in the rest of Asia-Pac as our investments in enterprise sales in the region are beginning to bear fruit. The region delivered a solid 5% organic growth in gross profit. The gross profit growth was primarily driven by an improved product mix and higher gross margins, demonstrating our ability to adapt to market conditions and focus on higher value offerings. One demonstration of the success we are enabling in the region is Ozmobiles, a leading Australian mobile phone retailer who implemented Cinch Engage to optimize their SMS marketing strategy. They selected Cinch for our seamless platform integration with their existing tech stack, including Shopify and Klaviyo CRM. This implementation delivered exceptional results, including a 3,000% ROI on targeted campaigns like their Valentine's Day promotion and meaningful annual marketing cost savings. Overall, I'm encouraged by the performance in each of the regions this quarter. The product mix improvements and commercial initiatives are starting to yield results, creating momentum as we move further into 2025. Next slide, please. Cinch is profitable and cash generative. We are focused on profitable and sustainable growth organically and through M&A. As such, our value creation agenda is underpinned by three essential components, growth reacceleration, EBITDA margin expansion, and active capital allocation resulting from continued strong cash generation. We'll cover aspects of each of these throughout the call. As a reminder, we are targeting 7% to 9% organic growth in both net sales and gross profit with adjusted EBITDA margins of 12% to 14% by the end of 2027. These growth rates reflect an ambition to grow faster than the market in each product category. Additionally, our financial leverage policy states net debt over time shall be below two and a half times adjusted EBITDA measured on an LTM basis. Now I want to take a moment to reiterate the inputs to unlocking our growth reacceleration. Enterprise expansion, self-serve capabilities, RCS and email, as well as partners and ecosystems. I'd like to share some of the strong activity and tangible results in each of these areas. So let's move to the next slide as we talk about enterprise expansion. The number of large enterprise customers increased by 5% year over year. Our definition of large enterprise consists of customers representing more than 2 million krona in gross profit annually. The growth in large enterprise customers is important for several reasons. First, enterprise customers typically provide superior customer lifetime value than smaller customers. They provide stability and predictability to our revenue streams with a longer contract terms and higher retention rates than smaller accounts. Second, these relationships typically expand over time as enterprises deploy our solutions across additional use cases, geographies, and business units. This land and expand approach drives organic growth with lower customer acquisition costs when compared to complete greenfield customers. Third, enterprise customers help validate our market position and technology leadership, making us more attractive to other potential large customers and strengthening our competitive mode. Moving to the next slide, where we'll discuss self-serve. When it comes to self-serve, it has emerged as a powerful growth driver, evidenced by the 13% year-over-year gross profit growth in Q1. There are tens of thousands of customers in this category, generating high gross margins and representing more than 15% of GP. It is easy to think of self-serve as primarily an SMB motion, but self-serve capabilities has become a key purchasing criteria for enterprise customers as well. Technical as well as business decision makers do a lot of self-discovery and testing before engaging with potential suppliers. Further, increasing self-usage rates demonstrate strong product market fit and indicate lower friction in customer onboarding and expansion. This translates to improved unit economics as customers can discover, implement, and scale our solutions with reduced dependency on our customer success or sales resources. Let's now look at RCS on slide seven. I'm excited to share the momentum we're seeing with RCS, which represents a transformative opportunity for both Cinch and our customers, with the potential to turn every message into an experience. I mentioned in the intro that in Q1, RCS was made generally available in Conversation API, and we also launched our RCS business enablement service. This new offering helps carriers seamlessly launch, operate, and monetize RCS for Business, addressing previous barriers to adoption. Our enhanced CinchBuild dashboard now allows businesses to create, test, and deploy RCS agents in just a few clicks using our upgraded provisioning wizard. This democratizes access to rich messaging capabilities that were previously complex to implement, opening the technology to a much broader market. Our strategic presence across key industry events, including Mobile World Congress in Barcelona, Enterprise Connect in Orlando, Adobe Summit and Shop Talk in Las Vegas, and our Google partner, New York Showcase, has amplified our RCS market positioning. We showed carriers how to monetize, enterprises how to enhance customer engagement, and technology partners how RCS integrates seamlessly into existing marketing stacks. These events further established cinch as the connective tissue in the RCS landscape, driving both awareness and pipeline growth. In Q1, the number of RCS messages exceeded 600 million, which meant an approximate 50% increase versus the last quarter of 2024, and activity continues to accelerate. Let's turn to the next slide, please. Our email business continues to demonstrate exceptional strength and innovation, validating our multichannel strategy. We've delivered 165 billion emails in Q1 alone, corresponding to double-digit volume, revenue, and gross profit growth. This continued growth reflects both market confidence in our email solutions and our success in expanding customer relationships. This is particularly noteworthy in a mature market segment. Please note that our self-serve email business is captured in our self-serve category in our financial reporting, which has been a key driver of predictable revenue growth. But email is more than self-serve. As an example, in Q1, we successfully completed onboarding of two major enterprise customers in the retail and transportation sectors. These implementations alone represent more than 100 billion annual email messages, demonstrating our ability to win and implement large-scale enterprise deployments. They also demonstrate cross-selling success as both clients were originally large SMS-only customers. From a partnership perspective, Mailgun has teamed up with Redshift to expand the email security offering to include free domain-based message authentication reporting. This enhancement addresses growing concerns around email security and deliverability, providing our customers with enterprise-grade protection without additional cost, which is a compelling differentiator in the market. Our product teams have delivered significant innovations this quarter, which I mentioned earlier. First, Mailgun's Open Source Model Context Protocol, or MCP, transforms how businesses access email analytics. instead of leveraging complex dashboards or technical queries users simply ask questions in everyday language to get the insights they need this means anyone from marketing teams analyzing campaign performance to developers troubleshooting delivery issues to customer support teams investigating message status can immediately access powerful email insights without technical expertise Second, Mailjet has introduced AI-powered content tools that make email creation dramatically faster and easier. Users can automatically generate professional templates, create compelling content in nine different languages, and track performance with enhanced analytics, all without specialized design or marketing expertise. For businesses, this means faster campaign deployment, consistent brand presentation, and more effective email programs, ultimately strengthening customer relationships, all contributing to higher customer satisfaction and stickiness. Moving on to slide nine, where we'll talk about partners and ecosystems. We are experiencing strong momentum across partners and ecosystems. We've seen solid growth in partner driven new local acquisition, demonstrating the effectiveness of our collaborative approach. Our partner driven business meaningfully outperformed overall GP growth in the first quarter, highlighting the leverage and scale our partnerships provide. Our ecosystem strategy continues gaining industry validation through prestigious recognitions, including Adobe's Technology Partner of the Year Award for the third consecutive year, HubSpot's Essential App designation, and expanded SAP collaborations. These partnerships position Cinch as the embedded communications layer within enterprise technology stacks, delivering measurable value through seamless integrations and enhanced customer experiences. We are actively pursuing a further expansion of our partner network. Our approach is targeted, focused on expanding partnerships in prioritized markets and verticals to maximize impact. Our partnership with OneReach.ai exemplifies our strategy to simplify access to and benefit from AI in customer communications, opening up new avenues for innovation and value delivery. This strategic collaboration enables businesses to rapidly build AI agents that handle complex interactions using real-time data across systems, dramatically accelerating time to value. It is an example of a leadership position we are moving towards empowering the next generation of agentic AI with enterprise-grade architecture, scale, and global presence. Now, with those remarks, I'd like to hand the word over to Jonas to take us through more details on the financials.

Thanks a lot, Lorenda. And although I joined Cinch just the first day of the second quarter, it's really my pleasure to present the team's results of the first quarter. So let's jump straight into it. Starting with the top line, revenue growing 4% year over year. And this three percentage point was organic. Good news here is the third consecutive quarter of organic growth. And as you also can see, we've now passed the previous all time high on revenue on an LTM basis. Moving over to gross profit, next slide that is. We had a similar 4% growth in the quarter, of which 2% was organic. What you can see here also is a longer trajectory of positive development on an LTM basis. And this is driven by a gross profit margin expansion, which I will come back to in a bit. Positive here in the quarter, if you move over to the next page, is that the gross profit growth is driven by basically all regions and all product categories. The biggest gainers in the quarter was APAC with a 5% organic growth year over year, as well as applications in the product categories. Now, what's also good to see here is that network connectivity is back with a 2% organic GP growth. And I actually want to double click a little bit on the network connectivity business. So in particular network connectivity Americas, which is predominantly network voice in the US. So what you can see here is a development where we had a few tough quarters, but now we're getting back to growth. And I'd like to explain a little bit more what's going on here. So we had a decline for a few quarters due to two reasons. The first one was a reform of toll-free interconnect. by the FCC and this had an impact on pricing. This is washed through the numbers now, so it's done and over with. And the second thing is a phase out of legacy TDM, that's time division multiplex technology in the infrastructure, which has impacted our cost as suppliers increased cost quite a bit. Now what's going on here is we've renegotiated with suppliers, we've renegotiated also with customers and we're shifting out this technology for IP. And what you can see here is the positive developments of basically those two trends reversing. So very good news regarding network connectivity. Leaving gross profit and move over to EBITDA. So we have first looking at OPEX, adjusted OPEX. You can see that adjusted OPEX is essentially flat in the quarter in fact if you look at a currency adjusted basis adjusted opex is down one percentage point year over year and this is a result of the cost savings program we had last year as well as integration efforts paying off with higher scalability in the business as we take out synergies from our integrations And what I'd like to say is we don't see any visible market weakness following the macro uncertainty from the tariff discussion in the US. But we stay very vigilant when it comes to cost and we will manage this very carefully as we continue to monitor the development in the marketplace. But important to say we don't see any weakness. And now The positive effect here is the GP improvement we had in the quarter essentially fully drops down to adjusted EBITDA. So 4% GP growth translates into 12% adjusted EBITDA growth and 8% of that is organic. Again, I'd like to double click a little bit if we move over to the next page so you can see the bridge between adjusted EBITDA and EBITDA. and as said we had a strong improvement of adjusted ebitda 95 million compared to the same quarter last year the important point here is that integration and restructuring cost essentially is unchanged if you look at that in combination it's just one million increase compared to last year And really the swing factor here is FX effects. It's revaluation of balance sheet items that impacts nominal EBITDA. And last year we had 43 million positive on EBITDA and this year a negative 67 million. So the swing is 110 million. Important, I think, just to get clarity where the difference is coming from. Leaving EBITDA, moving over to the margins. As you can see here, the positive trend in gross margin. And this is to a large extent due to positive mix effects. So our applications have higher margins and they're growing faster than the rest of the mix. as an example and also APAC stronger margins and this has a positive impact on gross margin and this also translates to improvements of adjusted EBITDA margins as you can see from this chart moving to the next page now going into more of balance sheet items we continue to strengthen the balance sheet net debt to ebda 1.4 in the quarter that's down from 1.5 end of the year and in line with our capital allocation strategy uh the board has uh asked agm for a mandate for share buybacks and i think this is a testimony of the strength of the balance sheet really uh Next page looking at the cash conversion. It's at the upper end of our cash conversion target. 50% cash conversion over last 12 months. So that's very positive. But we have a bit of a working capital swing which impacts cash flow in the quarter. And I'd like to go a little bit more into detail into that as well. So you get comfort that this will normalize. So next page, what you see here are both the current asset and current liabilities items of working capital. and the first thing i'd like you to pay attention to is the solid line in the middle which shows that you know our working capital over time is essentially nil but there are some swings and the swing we have now seen over the last quarter is within normal variations in fact if you look at the counter receivables it's actually a positive development So the swings really come from two factors in the quarter. The first one is we had a very high level of payables in December and that now swung back. And the other thing is a temporary increase of other receivables. This is a prepayment to a supplier of 370 million which is related to this improvement that we saw in the network boys business we expect this to normalize over the year and we don't see any structural shift in working capital and hence we are confident about work cash flow also going forward And with that, I'm handing back to Lorinda for some final remarks and then Q&A.