Release Date: February 13, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sinch AB (CLCMF, Financial) reported strong cash conversion at 66% for the last 12 months, delivering SEK905 million in cash flow from operating activities in the quarter.
- The company achieved SEK352 million in gross savings on a run rate basis, surpassing their original target of SEK300 million.
- Sinch AB (CLCMF) maintained a leverage ratio of 1.5 times net debt to adjusted EBITDA, showing improvement from previous quarters.
- The company reported positive developments in each region, with significant customer wins and partnership momentum.
- Sinch AB (CLCMF) is leveraging AI to enhance product capabilities, drive automation, and improve internal efficiencies, positioning itself for future growth.
Negative Points
- The company faced a SEK700 million onetime historical tax provision, impacting EBITDA margins for the quarter.
- Gross profit in the Americas region declined by 5% due to weaker performance in the API platform, specifically SMS.
- APAC experienced a 5% decline in net sales, driven by a decrease in lower-margin SMS revenue in India.
- The company is facing pricing pressure in the SMS business in both the US and India, affecting margins.
- Sinch AB (CLCMF) anticipates a slow start to 2025, with ongoing challenges in certain markets and product segments.
Q & A Highlights
Q: Laurinda, you mentioned that Sinch's performance exceeded short-term targets. Can you elaborate on what drove this and what it means for future projections?
A: Laurinda Pang, CEO: The Q4 performance was slightly better than expected, with a 1% growth in gross profit. This was primarily due to strong execution. We see momentum from enterprise wins, which take time to translate into gross profit. While we anticipate a slow start to 2025, we remain focused on achieving our midterm targets of 7% to 9% growth by 2027.
Q: Regarding the SEK700 million tax provision, can you clarify if this will lead to price increases for customers and how it compares to competitors?
A: Roshan Saldanha, CFO: We will pass on taxes and fees to customers going forward, which may result in changes to the fees they pay. This is not necessarily a new charge, as we already apply taxes in many jurisdictions. Our contracts allow us to adjust for taxes without renegotiation. We aim to standardize our approach across jurisdictions, but we cannot comment on competitors' practices.
Q: Can you explain the SMS weakness in the US and India, and how it affects your gross margins?
A: Roshan Saldanha, CFO: In the Americas, we face pricing pressure in the SMS business, but this is not universal across all customers. In India, while SMS volumes grow, customers are becoming more cost-conscious. We see potential in newer messaging technologies like WhatsApp and RCS, which are growing from a low base.
Q: How sustainable are the current levels of cash generation and working capital movements?
A: Roshan Saldanha, CFO: While there may be short-term fluctuations, we have several drivers for strong cash flow, including reduced interest costs and shorter payment cycles in our self-serve business. We remain confident in our ability to maintain good cash flow despite potential quarterly noise.
Q: Can you provide insights into the development of the API platform in EMEA, considering the new segment reporting?
A: Laurinda Pang, CEO: Gross profit in EMEA grew 13% year-over-year, but net sales growth of 2% is more representative of underlying performance. The growth reflects the tapering of low-margin contracts and a shift in customer mix. The 13% growth is partly due to a weaker comparable period last year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
