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.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. Next question comes from Eric Lindholm-Rogessel from SEB. Please go ahead.

yes good morning and good afternoon um two questions from me if i may i might come back to the third one later but i want to dig a bit deeper on the discrepancy here between organic net sales growth and gross profit growth in the quarter it looks like sort of the main difference is in api platform in apac and america i mean is there anything to to call out here on the operator side of the equation that is driving this cross margin improvement or is it maybe a mix effect? And is it fair to say that organic gross profit growth is likely to be a bit lower if organic net sales growth doesn't improve? I'll start with that and then come back.

Thanks, Eric. So I think, first of all, the difference in GP and organic growth is really the effect of product mix as well as customer mix. So both email that we called out had a fantastic quarter. Our voice interconnect business also had higher gross margins. and has been growing faster in the quarter. So both of those and email of course has higher gross margins. So both of those had a positive impact on gross profit. We also had a change in business mix in API. So we had less lower margin SMS business, which again has a positive impact on gross profit. In terms of moving forward, you heard my comments on the lower net sales piece being something that we have to get better at, right? At just 2% organic growth, that's not where we want to be ultimately. And that is what ultimately will drive sustainable gross profit growth go forward.

All right, that's fair enough. And then I wanted to follow up on the OPEX growth as well. So organic OPEX, adjusted OPEX growth accelerated quite sharply compared to Q1, and the average number of employees, I think, was up 5% year-over-year. I mean, is there anything to call out here, or is this just an effect of the growth investments you have taken over the recent months, or should we continue to see similar organic OPEX growth add? Thank you.

Sure, I'll start and then ask Jonas to help out here as well. I think as far as OPEX growth is concerned, we did signal last year that we would continue to make investments in the strategic areas that we needed to. And we effectively self-funded that for the most part. We do have inflation and the merit increases to make sure that we're keeping our employees up against market in a competitive way. So you should see that basically the EBITDA margins go forward will be similar to that of the first half. But we do expect that gross profit will grow as well. So Jonas, do you have anything more to add to that?

Not really. I think that's a fair description.

Thank you. All right. Great. Just a final question, if I may, on the AI piece. It's a really interesting topic, of course. You highlighted this as a sort of structural catalyst for the sector. I mean, is it fair to say that this is already a factor that is showing up in your growth today, or is it more of an accelerator in the years to come? Thanks.

Yeah, Eric, to your point, I think, yes, it is structural. It will fundamentally change the way that both humans as well as agents communicate. And ultimately, we're of the belief that all of these agents that are starting to grow across all business and industry, they have a need to get to an end consumer at some point. They need to communicate with something on the other side. across all channels, whether that be messaging, voice, email, video, et cetera. And, you know, Cinch is well poised to play very well in that, right? We have the underlying infrastructure and we have all of those channels of communications. But it is something that, again, we're embedding within our product portfolio. We're seeing a little bit of that at this point, but we do think that there's opportunity in the future.

Thank you.

Next question comes from Predrag Savinovic from Carnegie. Please go ahead.

Hi, Lorinda. Hi, Jonas. Thanks for taking our questions. I also want to ask a little bit on growth to try to understand the trend better. It's quite a good improvement from last quarter. It looks like it's broad-based. I mean, I note the comments you have on net sales, but then again, you call out positive mix shifts, email specifically, RCS as well, which are on a higher margin level. So I'm thinking how consistent can this mix be for the remaining two quarters of the year? And if that is so, can the gross profit growth potentially continue on a similar level? towards the end of the year even if the net sales would lag then I understand over time these should converge but for the near term or the next 12 months even

Hi, Bridget. Thanks for the question. I think maybe a way to think about it is, first of all, you mentioned RCS as being a driver for growth. It's actually not. We are seeing good progress in RCS. We're seeing great volume increases in RCS, but it's actually not impacting the financials just yet. And the reason being is, at this point, it's effectively substituting SMS. So we're not seeing an uplift there yet. But we do have an expectation and ambition for that in the future and over time. But to your point, you called out email, you know, we did have, you know, different parts of the business that did grow, we saw good strong partnership growth, we saw self serve growth. But if you heard, I mentioned that enterprise growth in terms of the number of enterprise customers is stable from Q1. We've seen good leading indicators there where we have one new business, some really nice logos to be quite honest, but it does take time for that revenue to actually ramp. The way that I would characterize if you're thinking about second half, I think it would be safe to say that if you look at first half in the aggregate, that's probably a good way to think about second half. I would not extrapolate gross profit growth in Q2 as the new baseline. I think it comes in fits and starts. It's a good, steady movement up. But, you know, I would rather us think about the average of the first half.

Okay, now that's very clear. And a follow-up to that, you have spoken a bit about macro and some cautiousness in your CO remarks and so on, but are you seeing anything specifically that suggests challenges ahead in the volumes right now, or is this more you anticipating this could happen? Remember, something could happen in H2 that could affect us.

Yeah, we're not necessarily seeing too much at this point. There's, you know, with any, you know, we've seen geopolitical changes, wars over the years. We've seen pandemics over the years. And what we know to be true is that It does have an impact traditionally on marketing use cases. Enterprises tend to be cautious in their spending, so they may slow down or they will look for cost efficiencies and look for concessions in terms of what they already purchase. So we haven't seen a lot of that just yet. We are being cautious and we are being pragmatic because as you know, this is a very, it's a volatile environment and it's very difficult to predict. So our message is that, you know, we're watching it carefully. We will continue to be prudent with regards to our expenses so that we can protect our profitability.

Okay, brilliant. And then just finally to Jonas, you have been guiding previously around the 40 to 50% conversion to free cash flow from EBITDA. You said it today also, but if you could elaborate maybe on what kind of levers you could pull in the future. Can this level improve? And if so, how and why?

As the business looks today with, you know, current level of adjustment items, current tax rate, this is roughly where we will land, 40 to 50%. It could be go, you know, theoretically, if all stars aligned north of 50 to maybe 55% or so with the definition we have of cash conversion. But what I feel confident about is the 40 to 50% level over time. There will continue to be swings in working capital. We will try to smoothen that and to be better at working capital management. But over time, it's the 40 to 50%. Again, what I want to remind you about is the 700 million tax provision we've taken and that's the cash that has to leave the company on the other hand we have a positive going in the other direction not with the same amount but still a meaningful contribution from this you know supplier agreement we talked about in Q1 it's around the half of that amount so 700 million out 350 in somewhere over the next few quarters.

Okay, super. Thank you so much.

Next question comes from Ramil Coria from Dansky. Please go ahead.

Hey guys, thank you for taking my questions. Just trying to reconcile things a little bit. If the operating margin is supposed to be flat in H2 versus H1, and one is to extrapolate H1 organic GP growth, that would imply a fairly, not going to say material, but an acceleration in the OPEX organic growth. So could you talk a little bit about, could you break that down a little bit? Why is organic OPEX growth gonna accelerate into H2 versus Q2? I don't think, yeah, go ahead.

Sorry, I was gonna say, hey, Ramil, thanks for the question. First of all, we take merit increases in the third quarter. So that would have an impact on OPEX growth. Anything else, Jonas?

No, I was just about to say that on a sequential basis, you will see an increase due to merit, basically inflationary effect on personnel costs. But you shouldn't anticipate an acceleration of OPEX. You shouldn't do that. We should be able to defend our margins, our adjusted EBITDA margins, we believe.

Okay, okay, makes sense. And then on the topic of AI, just curious to hear a little bit about the monetization opportunities you have in the space, so to say, I can see why the conversational solution would drive sort of volumes. And that's one way of monetizing. But I was also thinking about the MCP, is that going to be a part of like an embedded part of the infrastructure that you provide moving forward? So more of a sort of a differentiator or Is that something you can monetize isolated perhaps towards app clients?

I think the way we should all probably think about MCP is that it's the standard, right? It's the USB for AI effectively. And so I don't necessarily think it's a differentiator. I do think it's a requirement in order to play in this space. Um, and your, your thoughts about how to monetize the, um, you know, because we have the infrastructure, I think that's right. Volumes will increase, um, because the amount of communication flow will increase and, um, and a lot will be coming through machines as well as in a hybrid way, right across between both humans and machines. Um, but ultimately, as I mentioned earlier, they need to, they need to transmit and get to, um, an end user in some way. through some channel of communication. And again, you know, we're well positioned given the large infrastructure, but also the different channels that we support.

Can I ask a follow-up to that, Lorinda? I mean, clearly you having, you know, a lot of interactions to build your data set on vis-a-vis smaller players and MCP becoming somewhat of a hygiene factor in the future. You know, how do you think the competitive environment will change in the near to mid-term considering all the technological improvements we are seeing with incumbent players here?

I think, again, I think it's AI in general. Again, this is not about MCP specifically, but AI in general is going to change and increase the amount of communications. that's happening. Agents are going to be asked to achieve objectives. They're not going to be dictated and told the way in which they need to facilitate actions or workflows. So agents ultimately will choose and what is going to be important for us is to be able to make sure that our capabilities, our services and our infrastructure is easily discoverable and can easily be consumed. by these AI agents, but that's also true for developers because everybody is going to have to get more efficient and be more precise in terms of the actions that they're taking. So I think for Cinch, it really means that the infrastructure that we have and the core of our business is so fundamental to this new world that AI presents. And we have to ensure that we are being excellent in delivery of the core in order for us to play a role in this new kind of future world of AI. And that's what we're focused in on is to ensure that the core delivers seamlessly and that we, through the likes of MCP technology, allows AI agents as well to be able to find us and to use us.

Interesting. Okay, thank you guys. And then just a final, if I may squeeze it in. I know I'm directing the question to the wrong audience, if you will, but just trying to understand for modeling purposes, how should one think of buyback magnitude and indications on that would be super helpful.

The mandate we got from the AGM, and this is aligned with the resolution of the board, is that we can buy up to 10% of outstanding stock. The board will from time to time evaluate what they think is in the best interest of the shareholders and also given our financial position. So basically, you'll see. That's the message. The board will do what they think is in the interest of the shareholders.

Okay. Thank you so much, both.

Next question comes from Laura Metier from Morgan Stanley. Please go ahead.

Hi, thanks for taking the questions. Two questions for me, please. First one, you said that profitability has improved at product level. Do you mind just going into what products you saw like better profitability and put this in the context of, I remember you talking about competitive pressures that you were seeing in the U.S. for the messaging segment. How is that evolving and are you seeing any kind of improvement there? And then secondly, if you could give us an update on the integration of the different business units and the impact you're seeing on cross-selling. Thank you.

Sure. Yanis, you want to start with the profitability question and then I'll take the cross-sell?

Yeah, so we have an improvement of the profitability in the traditional messaging business because we're increasing sort of the high value part of that business and reducing some of the commodity business. And so that's one. Another one is the profitability improvements we have on the network side because of price adjustments in the US. But it's really broad based across the portfolio, the margin improvement. So it's a combination of commercial discipline and better operational execution also providing the gross margin improvement.

And Laura, on the integration of the other businesses or the businesses as it relates to cross-sell, we are seeing quite a bit of cross-sell take place. I mentioned last quarter, those two large email customers that we highlighted, those were originally SMS customers that we're now selling very large volumes of email too. We're seeing enterprise customers on the messaging side starting to buy some more traditional voice services. We're seeing email customers starting to purchase messaging. It's more anecdotal at this point. I haven't given you hard KPIs on it. But as we look at the pipeline and also in the customer wins that happened in Q4, Q1, predominantly, those were, for the most part, large cross-selling opportunities.

Thank you.

Next question comes from Frederick Little from Handelsbanken. Please go ahead.

Thank you very much. Thank you for taking my questions as well, and congratulations to a nice report. I have one maybe a little bit longer-term question, Lorinda. If you are trailing at a certain percentage of the margin, which is sort of your 2027 mid-target really, and you're struggling a little bit with your top-line growth ambition. So would you see it as a tool in your toolbox to increase your optics on sales and marketing in order to drive it or maybe take some of your adjusted EBIT margin for that purpose would be an interesting question. on the 10DLC situation. What does that actually mean for you going forward? Have you sort of taken out some of the . Thank you.

Sorry, I don't know if that's me or if that's Frederick. Could you hear?

It's Frederick's line.

Okay, all right. I don't know if we've lost him, but for the purposes of the rest of the audience, I'll try and answer at least the first question. I heard something about 10 DLC, but I don't know the context of it. So as far as top-line growth is concerned, you rightfully call out the fact that we're not pleased with how we're performing yet there. And we do have an expectation that that continues to grow. Clearly, we have an ambition to get there such that we can deliver 7% to 9% sustainable year-over-year growth by the end of 2027. So we have a little bit of a hill to climb there. excuse me, between now and the end of 2027. You know, protecting our EBITDA margin is a very large priority for us. You know, we have said very clearly in terms to, in order to deliver value, we need to have sustainable but also profitable And so, you know, we're comfortable in that 12 to 14% range that we've regulated, and we will make sure that we manage within that range. In terms of, you know, being able to put more funds towards revenue growth, you know, we will see. We will make investments where we think is necessary, and where we think we will get strategic opportunities in front of us. and where we think we'll get the appropriate returns but we're very conscious of the fact and committed to maintaining profitability and i don't know frederick if you're back yeah i'm back i'm back you said i lost you for a second there in the beginning yeah you said something with regards to 10 dlc but we didn't hear your question

Okay, okay. The 10DLC, the situation there, is that something that will lead to that you are taking over traffic from other competitors or what will that sort of drive or what will happen from your unique positioning there?

Yeah, so it's, you know, our competitors have some of the connections. We are just the only one that has all of the connections both ways in terms of mobile origination and mobile termination across all of the US carriers. So, you know, there's competition in certain areas and not in others. And what that means is that in those certain unique circumstances that other competitors will have to go via cinch in order to connect to a particular carrier. But at this point, you know, it's, I wouldn't say it's going to materially change the environment. This is a large, complex ecosystem, and we all kind of depend on each other in certain circumstances. but we feel like at this point for customers to come directly to Cinch in these cases, it will improve their quality of service, their reliability, but they could go through other carriers if they wanted to or other aggregators, but they would ultimately need to ride across Cinch's infrastructure in certain circumstances.

Okay. Fair enough. Can I just have a follow-up on the description and your comments in the report about 500 large enterprise customers, that group of customers, and it was flat in Q2 of a quarter, but you expect that sort of you have on borderline, you will start to see traffic from a few new accounts. Is that positive for your sort of gross margin, or will it be a burden in the initial phases on your gross margin?

No, I don't see it being a burden in the initial phases. These are, you know, large enterprise customers, you know, sold at good margin. And as they onboard, it will just be incremental to gross profit. But, you know, again, we're maintaining our discipline in terms of winning business.

Okay, very clear answer. Thank you for all the answers.

Thank you very much, Frederic.

Next question comes from Thomas Nielsen from Nordia. Please go ahead.

Thank you for taking my question. Can you elaborate on your M&A pipeline and whether valuations in the market have now adjusted enough to reactivate bolt-on acquisitions opportunities?

Hi, Thomas. Thank you for the question. Listen, I would reiterate what I've said in the past, which is the fact that, yes, we see M&A as a part of our strategy long term. But at this point in time, we continue to be focused in on the business inside of Cinch through all of the acquisitions and the integrations that we have going on. That being said, we do continue to evaluate the market. Jonas, do you want to add anything more to that?

No, I think that's fair. And maybe the most attractive M&A opportunity now is the Cinch share. So that's the capital allocation that the board has decided on short term. Longer term, in particular when it comes to AI, it may be important to add strategic capabilities to develop our offering. And in addition, this is an industry that will continue to consolidate. So medium to long term, it's definitely on the radar. But with M&A, and this is important, it's not just adding to shopping cart. Opportunities come when they come. So timing is always uncertain.

Okay, thank you. Thank you very much, Fred. And one final question, if I may. Are the specific verticals driving more of your growth, such as tech, finance, retail? And how do you see this developing going forward with growth from specific verticals?

Yeah, so as you know, the vast majority of our business does come through those verticals that you just mentioned, tech, finance, and retail or e-commerce. I think we're starting to see some good movement in healthcare as well. But in general, I would say those three.

Okay, thank you very much.

Thank you, Thomas.

There are no more questions at this time. Thank you, everyone, for attending the Cinch Q2 report for 2025. Have a nice day.