Sinch AB (publ)

Thank you very much, Operator, and a warm welcome to everyone for this Q2 earnings call. My name is Lorinda Pang, CEO of Cinch, and I'm calling in today from the U.S., while our CFO, Jonas Dahlberg, is calling in from Stockholm today. Let's turn to slide two to look at the highlights from the quarter. I'm pleased to share that our second quarter results for 2025 demonstrate our continued resilience and steady progress, even as we continue to navigate an uncertain macroeconomic environment. As we begin, I would call out the large FX swings we experienced in the quarter for net sales, gross profit, and costs due mainly to the weakened US dollar. As we always do, we will point you to organic changes, which normalize these FX swings and is a consistent representation of the underlying business. Reported net sales was 6.6 billion krona, corresponding to a 2% organic growth rate when adjusting for the effect of foreign exchange movements, which was nearly 600 million krona in the quarter. Organic net sales growth is an important guidepost to the underlying performance of the business, and 2% is lower than our ambition. While mixed shift will help drive improved profitability, we need to do both, higher top line growth in net sales and shifting our mix. our gross profit showed a robust six percent organic growth reaching 2.3 billion krona positive organic growth was delivered by all regions and across all product categories reflecting solid execution and our focus on higher value offerings this is reflected in our gross margin expansion to 35 percent this quarter We also demonstrated solid performance in adjusted EBITDA. Although flat in nominal terms and on a reported basis, adjusted EBITDA increased 8% organically to 869 million krona. EBITDA grew organically by 4% to 760 million krona. The efficiency measures we implemented earlier this year are contributing positively, strengthening our financial resilience and creating headroom for strategic investments in key growth areas. Moving on to cash and balance sheet, free cash flow was 523 million krona in Q2. Cash conversion was strong at 60% in the quarter, while our rolling 12-month cash conversion was just below our target range due to the working capital item we mentioned last quarter. We paid down 480 million krona in debt, and our leverage ratio is now 1.3 times net debt to adjusted EBITDA. And last night, we announced the board of directors has activated the share buyback program after the AGM mandate was provided in late May. These results reflect meaningful progress on our transformation agenda across go-to-market, product integration, and operational excellence pillars. Also, we are delivering improved connections for our customers through platform innovation, artificial intelligence, and strategic partnerships. For instance, we recently completed our 10-DLC or 10-digit long code connection in the US, making Cinch the only provider that has full direct two-way connectivity to all tier one US carriers for 10 DLC SMS. Why is this important? Messaging continues to be our core business. These exclusive two-way connections reduce the need for customers having to rely on other CPaaS providers to act as another intermediary to connect with our carrier partners. And it gives our customers lower latency, greater reliability, and enhanced compliance through direct control of registration, delivery, and carrier policies when partnering with Cinch. Our position in artificial intelligence continues to strengthen as highlighted with the last four product innovation points noted here. Our advancements in holistic AI capabilities remain a core driver of our strategic progress as we'll explore next. If you move to the next slide, please. As you've heard me say before, AI is not new for Cinch. For years, it has been an integral part of how we drive innovation, optimize our operations, and deliver enhanced value to our customers. Today, I want to show you how we are building on that foundation and accelerating our efforts, presenting examples of our holistic approach to AI capabilities across our platform. We believe AI is fundamentally transforming how businesses communicate, and Cinch is pioneering this evolution through a comprehensive strategy that integrates AI across our entire portfolio. Our MCP implementation across core messaging, email, voice, and verification products is a foundational step. It enables AI agents to autonomously discover and execute communications across Cinch's global platform. This is significant as it codifies decades of our communications expertise and best practice, drawing from over 900 billion annual interactions and turning them into AI understandable protocols. We're live with Claude and are actively expanding the capability to other leading AI frameworks. Next, our in-product AI innovation is delivering tangible value. We've introduced conversational solution packages, which are pre-configured AI enhanced bundles for use cases such as payment reminders, shopping assistance, and lead capture that help our customers achieve proven ROI quickly. Mailgun Inspect is revolutionizing email quality assurance with AI-powered optimization and compliance features. And our Contact Pro AI is enhancing customer interactions with new cross-channel summarization and auto translation capabilities in 24 languages and seamless voice to video escalation, ensuring seamless multilingual and multimodal support. Our AI ecosystem expansion is crucial. We are embedding Cinch's powerful communication capabilities directly into the platforms our customers use every day. Through strategic integrations like Salesforce AgentForce, our SMS powers autonomous agents for predictive engagement and intelligent lead qualification. Similarly, our integration with Microsoft Dynamics Customer Insights enables AI orchestrated customer journeys at scale. This strategy ensures our AI solutions meet customers where they already work, accelerating adoption and expanding our reach. Finally, the market is validating AI's importance and our leadership. In our own flagship research-driven state of the customer communications report, 97% of surveyed businesses state that they are adopting AI for future communications and underscores the urgency and opportunity in this space. Our recognition as an Omnialita with a 95 percent innovation score for ai enabled conversational messaging is a strong testament to our cutting edge solutions and strategic vision in summary we're not just adding ai features we're building a comprehensive intelligent communications platform that delivers real business outcomes backed by proven infrastructure and strategic partnerships these efforts are underpinning our execution against our broader cinch strategy for value creation which we will revisit next 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 re-acceleration, EBITDA margin expansion, and active capital allocation resulting from continued strong cash generation. 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 two and a half times adjusted EBITDA measured on an LTM basis. A few words on progress in each of our four growth drivers before I hand over the word to Jonas. Starting with enterprise expansion, the customer base remained stable since Q1. On an LTM basis, we're up 5%. As a reminder, this is the number of customers spending more than 2 million krona in gross profit annually. We've clearly seen expansion in gross profit this quarter, but our new large customer wins have not ramped to this threshold yet, but we are expected for them to do so in the coming quarters. Next, self-serve capabilities. There are tens of thousands of customers in this category generating high gross margins and representing more than 15% of gross profit and growing at double digit rates as evidenced by our strong gross profit growth in Q2. We are continuing to build momentum in RCS. In the quarter, we delivered nearly 800 million RCS for business messages, which was a 27% increase over Q1. We're also increasing the number of customers who are actively sending over 1,000 RCS messages per month. These along with other KPIs we are tracking are positive signs of growing adoption around the world. Email had another stellar quarter where we delivered double digit organic growth in net sales and profitability. I'm also really pleased with the acceleration we're driving through smarter email functionality with AI built into our offerings. The Mailgun Inspect product I mentioned earlier being just one example. Finally, relating to partners and ecosystems, deepening the relationship with existing partners like Salesforce, where we are natively integrating SMS into agent force. and Adobe, where we're supporting RCS for business messaging in their journey optimizer suite, continues to be an important part of our growth strategy. Looking ahead, our continued expansion is focused on innovative solutions. We are excited about our partnership with Authvia, which is powering payment-enabled messaging across North America. Cinch will become Authvia's default messaging provider, and with RCS messaging as a key focus, the collaboration positions Cinch and Authvia at the forefront of mobile innovation, making interactions more seamless and efficient for consumers. These integrations and collaborations are vital. As I said, they meet our customers where they already work, accelerate adoption, and they expand our addressable market with high efficiency and low incremental cost, reinforcing our commitment to profitable and sustainable growth. With those remarks, I'd like to hand the word over to Jonas to take us through some more detail on the financials.

Thank you, Lorenda. so in a nutshell this is a solid quarter with positive organic development but obscured by currency effects and i guess currency effects is the story of the quarter for many companies so you've heard it before but there are different types of currency effects that may hit companies differently so before diving into the details of the financials i'd like to talk about the currency effects impacting cinch and what's not impacting cinch So the material currency impact for Cinch is translational, meaning it's all about a reporting currency. If we would report in US dollars, it would look different. But the fact is, we would still make as much money. speaking of the us dollar it's around 50 of the revenue and almost the same in terms of cost so we are currency match and this also goes for other currencies like the euro which is the second most important currency while the krona is a minor currency for us and that's why we really have significant translational effects but profitability metrics remain intact because really it's about translation With that having said, let's move into revenues. Revenue in the quarter came in at 6.6 billion SEK, which is a 2% organic growth, and it's the fourth consecutive quarter of organic revenue growth. All regions contributed positively to the organic growth, with Americas growing 2%, EMEA 3%, and APAC 2%. on product level application and networks demonstrated organic growth which is important as they are the most profitable product areas in particular we continue to have strong growth of our profitable email products and hence even though organic net sales growth does not impress we continue to have a positive mix shift contributing to the increased profitability and more of that later normally though net sales is down six percent in the quarter due to the mentioned translational fx impact moving over to gross profit Gross profit in the quarter amounted to 2.3 billion SEK, and that's a 6% organic increase with about an equal contribution from net sales, positive mixed shift and increased profitability to propel the growth to 6%. And this is the seventh consecutive quarter of organic gross profit growth. So we're very pleased with that. now again reported numbers are down and for gross profit it's three percent due to translation translational currency impact looking closer at a product and regional level we can see that we have a very broad based organic gross profit development basically mid single digit growth or above for most both regions as well as product categories with APEC being the exception and there is an important story behind that and we'll come into that on the next page so let's look closer at the regional development Americas, which represents 63% of our revenue, came in with a 2% organic net sales growth and a gross margin increase of 2 percentage points. The gross margin is supported by messaging and email. This translates into a positive organic GP development in APIs and applications looking at the product category level. Moreover, we have positive development in networks due to price adjustments supporting the continued turnaround of networks and providing a positive development of the GP margin. Moving over to EMEA, we had a 3% organic revenue growth. Also here we had a positive gross margin development. And we have solid growth in the core messaging business. At the same time, we have reduced the share of fixed fee contracts. And this reduction has both contributed to the improved margins and improved cash flow. now what's very positive here also is the strong growth of rcs which is the next generation of sms if you will providing much more interactive features for a richer experience for users and as you know we are very bullish on rcs as the next s curve of messaging growth and we see rcs growing more than two times from last year and overall for the group we had actually a 27 quarter on quarter growth of rcs traffic so good momentum but it's important to say that it still will take some time before rcs will provide a material contribution to our pnl but so far so good lastly apac here we also have an organic net sales growth of two percent and organic gross profit growth of three percent which also translate into a margin increase apac is still on a solid trajectory even if the organic growth numbers look muted this quarter and it's mainly because apac is up against very tough comparables in this specific quarter Now what's encouraging in APAC is actually that we see stability in India and hence we are confident that also APAC is on a solid trajectory for the future. Looking closer at the margin development both gross margin and EBITDA margins are up in the quarter. We see gross margin up 1.2 percentage point compared to the same quarter last year and about half of this is from improved mix and the other half from increased profitability on product level. And looking at adjusted EBITDA margin, we're up 0.8 percentage point to 13.1%. And also non-adjusted EBITDA is up 0.5 percentage points to 11.5%. Looking a little bit closer at cost. So operational expenditure is up 5% on an adjusted basis. This in combination with the gross profit growth of 6% then translates into an adjusted EBITDA growth of 8%. And we continue to be disciplined on cost at the same time as we continue to extract synergies from being one cinch. If you look at the organic increase of OPEX of 5%, it's large about personnel cost. And we continue to remain vigilant if there will be a weaker market development to make sure that we protect our profitability. now as we report adjusted numbers i'd like to put some attention to the adjustments and the message here is the main adjustment items in the quarter is integration cost and the second is fx and the fx effect here is losses on operational assets predominantly working capital important to note here in the quarter is that restructuring costs are marginal And if we compare to last year, we conclude that we have an increase in the quality of earnings despite higher adjustments. And the foundation for this claim is basically that the integration and restructuring cost is 42 million lower than last year. And really what's up in this quarter compared to last year is the FX effect on operational assets. last year we had a positive gain from that and this year it's a it's a negative gain but if you believe that fx will normalize over time this is basically a wash over time so enough on adjustments let's look at cash flow cash conversion in the quarter was strong with a cash conversion of 60 percent measured as free cash flow to adjusted IPTA on an LTM basis also solid touched the lower end of our guidance range we guide for 40 to 50 percent cash conversion over time and we were at 39 percent We continue to have some variability in our cash flow, and this is mainly driven by fluctuations in working capital. And this is also the driver behind high cash conversion in Q2, swinging back a bit from Q1. Still we have slightly higher working capital than normal and we can actually look at the next page on that. What you see here is net working capital, the solid line here, within normal variations. In fact we have a negative working capital and that's what you should expect from us. But on a sequential basis, you note here that we're slightly higher than what we've been the last few quarters. And this is because of this temporary supplier agreement that we talked about in the first quarter that we expect to normalize within the year. The thing I just want everyone to be reminded about when it comes to cash flow is we took a provision in Q4 of 700 million SEK for tax charges and we expect some of that to be paid at the end of this year and then the full 700 at some point to be paid next year. So that will have an impact on cash flow. But rounding off, very positive development of the balance sheet. We continue to strengthen our financial position. We improved our leverage ratio with another notch during the quarter and landed net debt to EBITDA at 1.3. And this is an improvement driven by a combination of the cash flow, but also translation of debt in foreign currency. As we have some Euro and USD debt and this is now depreciated against CX. So this is the positive effect of currency in the quarter. And given the solid financial position and solid trajectory of cash flow, the board of directors has resolved to activate the share buyback mandate given by the AGM in May, and that we pressed release yesterday. And with that, I'm handing over to Lorinda to summarize the quarter.

Thank you very much, Jonas. Before we take questions, let me summarize the quarter. Cinch delivered continued growth and stable margins in the second quarter. This is the fourth consecutive quarter of year over year organic net sales, and we delivered organic gross profit growth in all regions and product categories. We improved gross margin and adjusted EBITDA margins with adjusted EBITDA increasing 8% organically year over year. These figures highlight our focused execution and the positive impact of our efficiency measures. Our financial position continues to strengthen and we remain committed to disciplined capital allocation and have now activated our share buyback program. While we are pleased with our progress, we maintain a prudent outlook for the remainder of the year given the prevailing market conditions. We are making meaningful progress on our transformation agenda, solidifying our leadership position and accelerating our momentum in AI. These AI efforts are not isolated initiatives. They are embedded in our core strategic priorities and directly support our value creation agenda. We remain focused on executing our plans and winning in the areas we have a right to win. Enterprise expansion, self-serve, RCS and email, and partners and ecosystems. And as you've heard throughout today's presentation, we're making consistent progress against each of these strategic priorities, translating our efforts into tangible market advantages and customer successes. Our Q2 execution was another important building block towards our midterm guidance of 7% to 9% organic growth in net sales and gross profit by the end of 2027, a journey we continue to approach with steadfast focus and realistic expectations. Thank you very much for joining us today. So let's now open the call for questions, please.