Good morning. Welcome to the Fourth Quarter 2020 Results Presentation for LINK Mobility. My name is Tom Rogn, and I'm Head of Investor Relations. I'm joined by Guillaume Van Gaver, CEO, and Thomas Berge, CFO, who will present the results. Please post questions during the webcast for a Q&A session following the presentation. Guillaume, please.
Thank you, Tom, and welcome to all of you for this interim report of quarter four 2020. It is with great pleasure that I will start with actually two important points when starting this presentation, which will last roughly 30 to 35 minutes. These two important first points is that we are very happy to report that we have exceeded the guidance we gave in the context of the IPO in 2020, especially in Q4. Q4 was quite a demanding month with important sessions, in November and December with Black Friday and Christmas. We are very happy to bring this good news to you today. We are also very happy to confirm the acquisition of Tismi, which brings additional capabilities and products and growth perspective for LINK Mobility with this very unique company based in the Netherlands. We will cover that in one slide also later.
When we look at the results, we've been able to boast a very strong performance in terms of growth, achieving 18% in our enterprise segment. This is really important for us because that gives us confidence that in the mid to long term, we are going to be able to sustain a 20% growth of our revenues. We have also looked at a very strong overall growth of 18% and EBITDA growth of 25%. That also shows that we are able to translate a lot of this good growth momentum in our financials with 11% EBITDA to revenue percentage. If you look specifically on the organic growth, not taking into account WebSMS that we have acquired last year in November, then you can see that our growth rate is at 16%.
It's fair to take into account the fact that in our aggregatable business, which is high volumes and low margins, we had actually a small decline compared to Q4 2019. What is great at LINK is that we have strong growth in our customer base with 40,600 customers and a very good net retention rate of 116%. Another very good story for us, which is very important, is that we've been able to refinance the company with the issuance of a GBP 200 million bond, which is very helpful for us to actually lower interest costs, but also give us the weapons and the tools to continue our growth, especially through M&A. Yes, we have also some very good tailwinds.
We've expressed and presented this during the IPO process, we have all seen how many more companies are looking at expanding their digitalization, how much government need more digital tools in order to get in touch with their citizens. We've seen that mobile is at the center of those communication. What is great for us, moving from A2P to CPaaS, is that companies are coming to us for more and more conversation solutions. Really strong tailwinds helping CPaaS players in the industry. Let's have a look in a specific country how this could looks like. First, from a French perspective, we've seen that LINK Mobility acquired a significant position with the acquisition of Netsize in 2019. We are now rebranding LINK Mobility France, and we are definitely using LINK Mobility as our enterprise brand.
If you look at numbers in 2020, in France, the A2P market and the messaging market have actually grown by 11%. Next to it, LINK Mobility was able to grow by 33%, not only leveraging its product portfolio, its enterprise push, but also consolidating traffic through previous acquisitions. We have also deployed in 2020 more advanced solutions, software, and tools for enterprise to do more advanced communications. We've been also recruiting new campaign success managers who are helping brands to implement new complex marketing innovative campaigns, but also new customer experience flows. With those new tools and with those new ecosystem, we are actually able to drive the market with even an increased market share in the French setup.
If you look at France also, we have grown recruiting more enterprise sales team at the end of 2020, but we've also launched the new partner channel, which we presented to you, as well as leveraging our existing self-signup brands. All of this is definitely contributing and will contribute even further in 2021, 2022, 2023 to fuel the growth in the French market. Looking at France also, we have seen very good and positive signs on the launch of RCS, with the penetration rate now reaching 25% in 2021. At the end of 2020, we are seeing up to 15% penetration rate. What does it mean? It means that we can now offer much higher return for our partners in terms of marketing campaigns and customer experience RCS flows.
We do this with tools which enables first the use of RCS and a fallback solution with a web experience using the traditional SMS for those devices that are not RCS compatible. All of this is really bringing strong innovation in the marketplace, and as one of the operator mentioned, LINK Mobility has actually launched the most innovative campaign with one of its partner in 2020. More generally speaking, as we presented, we are in good shape when it comes to rolling out SSU, and also the partner channel. Both of them will contribute to this 20% mid to long-term growth objective we have. We've been launching in Sweden, SMS API, and the first results are exactly according to our plan, which give us confidence in continuing investing in self-signup.
With the acquisition of WebSMS in Austria, we get a unique access to the DACH region, with Germany and Switzerland having high potential. On the partner channel, we've been able to recruit partner managers in new footprints, when you look at the results, we've been able to actually recruit 12 new partners in Q4. If you look at the partner channels, they themselves contributed to the acquisition of 147 new customers, proving the case that partner is important for this CPaaS industry.
When we looked also at the market development for 2020, our investment case remains very strong, i.e., the countries where we have the highest penetration continue to grow with double digits, but the growth is even higher in countries like Germany, Spain, Italy, and others, where you can see that the growth rate is strong and enables us to actually continue this journey of pushing new CPaaS solutions all over Europe. If we look at LINK Mobility's position in the end of 2020, I told you in the French case that we have gained market share, and that actually is the case in a lot of other countries, and we are holding strong market one positions, not only in the Nordics, but in other countries in Europe.
Clearly, LINK Mobility has had a good 2020 when it comes to market share growth and positioning more advanced products. That's also illustrated by the wins we had in Q4. We like this slide a lot because it tells you how enterprise-focused we are. How diverse we are as a company, being able to win new customers in a lot of our footprint with some interesting products such as mobile identity, KYC products, SIM swap solutions. In this case, for instance, in Denmark, a plugin with Microsoft Dynamics. There's multichannel using Viber for debt collection in Bulgaria. When you look at the most important wins, they are very diverse from a geography standpoint and from a use case standpoint, which is great. Let's look at two specific cases. The first one is the Emirates College of Technology in UAE.
With this customer, and it's not often the case, we have won a bid to actually offer a range of new channels and conversation solution in one go for all of the students who have a complex interaction with university due to COVID, and we've implemented these tools, which enables them to book courses, to actually evaluate their courses, but also participate to a lot of the university events using WhatsApp, using SMS, using chat and conversation solutions. Really an interesting win for us that we have done in partnership with Oracle that gives you a good illustration that now more and more, even from the get-go, we get customers to buy the most advanced products. Another good progress we've made is regarding the LINK Mobility solutions implemented in customer service. We have not decided to build our own customer service software, but to partner.
We have signed a partnership with Conversation24 to expand in the DACH region solutions that mix chat and also mobile messaging channels. We are providing the mobile messaging channels, and we have a combined go-to-market strategy where they can propose additional channels to their chat customers, and we can embed their software, including chat, to also our customers. Together, these go-to-market plans have been put together to expand in DACH. This is a fantastic also illustration of our ways of working and the strategy that we want to implement for us. Let me finish with two important slides. One regarding Tismi. Tismi is definitely a great acquisition from LINK Mobility, acquiring unique capabilities because Tismi has operator license agreement in eight countries in Europe, which gives them the right access to technology, but also things like mobile numbers, up to 640,000 mobile numbers in inventory.
With fixed mobile numbers, fixed numbers up to 70,000. We've paid NOK 20 million in cash for the acquisition, but this is a company that has very strong growth momentum and will be able to complement our offering for enterprise, but also serve some large companies with unique solutions on mobile-originated and mobile-terminated messages of the likes of Google, for instance. For us, really some fantastic news. The last slide before Thomas presents the detailed financials is about our forward-looking statement. LINK Mobility has been in the market for long, and we've been always very pleased to announce us overachieving guidances and outlooks. Now we've decided that we will give you more specific dates when it comes to achieving the NOK 10 billion milestone, and that is something we are seeking to achieve in 2024 on a pro forma basis.
In 2024, we have the outlook of having a profitability of 13%-15%. Of course, that might be slightly influenced by the M&A pipeline and how much profitability our targets have. This reason for us being much more specific around the NOK 10 billion mark and the 13%-15% profitability is that we have three key elements that are pushing us in the right direction. First of all, strong demand in our products, go-to-market expansion, which is what we told our investors, that in the mid to long term, this will help fuel a growth rate of circa 20%. Second important reason, through scale, we can actually translate more of our gross profit into profit EBITDA, which means that this is going to fuel our profitability going forward. Last but not least, we can confirm to you that we still have a very strong pipeline on M&A.
Very good discussion with companies who are intending to join LINK Mobility to help them move from an A2P to a CPaaS provider. With these M&A discussions, of course, we will fuel LINK Mobility growth and also expand beyond Europe as we want to be a worldwide leader in CPaaS. Thank you very much for this quick introduction. We're now going to look in more details to Q4 numbers with Thomas. Over to you, Thomas.
Thank you, Guillaume. Let's start with the financial section with a more detailed summary of the outlook given for 2020. The company is happy to report that the outlook for the full year of 2020 was overachieved. For comparability reasons, I will start explaining a change in accounting policies. Revenue recognition from gross revenue to net revenue bookkeeping was implemented in the fourth quarter regarding direct carrier billing in Romania, Bulgaria, North Macedonia. The change was based on a yearly assessment together with our auditor. As a result of the review with the auditor, LINK decided it was more prudent to perform a net revenue recognition based on the underlying client agreements and IFRS 15. Net revenue recognition means that LINK will report gross margin as revenue instead of reporting billed revenue and connected COGS separately.
In the attached table, the impact is reported at minus NOK 61 million on revenue full year 2020 and minus NOK 14 million in the fourth quarter. Revenue versus the outlook on a comparable basis ended at the high end of the scale at NOK 3.576 billion or exactly NOK 3.6 billion, including acquired entities on a reported revenue basis. Over delivery on EBITDA with an organic adjusted EBITDA of NOK 384 million plus NOK 14 million more than the outlook. Adjusted EBITDA, including acquisitions on a reported basis was NOK 391 million. Regarding pro forma figures, a revenue of NOK 3.682 billion and an adjusted EBITDA of NOK 435 million, including WebSMS for the full year of 2020.
This does not include the most recent acquisition of Tismi, which is expected to generate approximately EUR 7 million in revenue and EUR 3.5 million in adjusted EBITDA for 2021, continuing the high underlying growth of the company.
Some growth metrics on the next slide. Strong performance in the enterprise segment with an organic growth of 18% as the graph on the lower left side show. The growth rate is increasing over the last quarters. The enterprise segment is at the heart of LINK's strategy, and it is this segment which is going to take the company to the mid to long-term revenue growth target of 20%. LINK is investing in go-to-market initiatives and rolling out new products in new markets. Although these investments on the commercial side are boosting growth levels through 2020 and will generate growth going forward. Global messaging and aggregator revenue are diluting total revenue organic growth to 16%. Aggregator revenue is low margin traffic from other players in our industry that do not have direct connections to the relevant mobile operators.
This traffic is price sensitive, and it's more volatile compared to the stable and sticky enterprise segment. LINK accepts low margin aggregated volume as it enables discounts from the mobile operators, thereby fueling profitability in the enterprise segment. In the fourth quarter, LINK had achieved many full year discount arrangements and therefore consciously decided to accept less aggregated volumes as it was not needed to achieve the discounts. The fourth quarter is mobile marketing heavy due to the Christmas season. This year, we observed a smaller negative effect on volumes due to government restrictions on retail stores, mainly in Western Europe. Other sectors experience growth like logistics and e-commerce, but the net effect for LINK was a three percentage point reduction in growth rates compared to a quarter with normal seasonality.
Going forward, LINK expects large volumes from the retail sectors as societies open up for normal activity, hopefully during 2021. The next slide shows growth rates for regions. Looking at Northern Europe, we see a high and increasing growth rate driven by a strong intake of new clients, together with a good momentum on upselling activities or more advanced products and use cases. This region has also experienced less government restrictions in the fourth quarter. Same trend for Central Europe, where logistics, e-commerce, and the financial sector is growing rapidly, observing softer volumes in the fourth quarter from the retail sector in this region.
The retail sector constitute a lower portion of the revenue base compared to, for example, Western Europe, so the impact is minor. In Western Europe, the new channel like RCS and WhatsApp are attracting a growing interest in the market, as Guillaume mentioned.
New channels are growing rapidly in volumes, and more advanced solutions and use cases are emerging in this region due to the richer feature set of the new channels. An organic growth rate of 9% in the fourth quarter, showing a negative effect due to closed or materially restricted public access to stores and shopping malls. The industry expects an uplift in communication and messaging volumes from the retail sector when societies are open and operating more normally. Moving over to some KPIs. Year-over-year, the customer stock has organically increased with 3,800 customer accounts. LINK now has over 40,000 customers. Net retention rates for the enterprise segment increasing over time and is reported at 116% for the fourth quarter. Net retention is positively impacted by wider product portfolio and go-to-market initiatives, driving upselling of new solutions and use cases to existing clients.
The next slide is about gross margin one and EBITDA. Stable gross margin development over the year with a reported margin of 25.3% for the fourth quarter. Gross margin growing organically 14%. All-time high adjusted EBITDA of NOK 119 million, which is a NOK 24 million increase compared to the same quarter last year. Organic growth on adjusted EBITDA basis was 18%, higher than both organic revenue growth and the gross margin growth. LINK is operating a very scalable business model, where a large amount of revenue can be added with only modest OPEX increases. An all-time high gross margin to EBITDA conversion of 45% documents the scalability in the business model. The P&L full year revenue reported was NOK 3,539,000,000 , or a growth of 22%, and organic growth of 18% for the full year of 2020.
Gross profit at almost NOK 900 million. Organically, gross margin grew by 14% for the full year of 2020. Adjusted EBITDA at NOK 391 million, organic growth of 21%. Non-recurring costs at NOK 97 million for 2020 due to M&A costs, cost in connection with the IPO and synergy realization programs. Net finance cost for the full year 2020 was minus NOK 427 million. Interest cost was high in 2020 due to the previous credit facility, with higher debt levels and almost twice the interest rate compared to the current bond financing.
A net non-cash currency cost of NOK 101 million and amortization of transaction cost related to the previous credit facility of NOK 74 million are increasing the net finance cost. As I said, these two last elements have no cash impact. Over to the balance sheet. Solid balance sheet after the IPO.
Total balance sheet is at NOK 7.6 billion, with an equity ratio of 55%. Working capital is negative, meaning that LINK Mobility's clients and vendors are financing the organic growth. LINK Mobility secured a bond placement in December with a fixed coupon of 3.375%, thereby almost reducing the interest cost with 50% compared to the old financing arrangement. Yearly interest cost is estimated at NOK 70 million, assuming no new uptake on debt. Leverage as of December 31st is calculated at 2.7, being significantly reduced compared to 2019 due to primary proceeds from the IPO in October. Moving over to a cash overview on the next slide. Cash flow from operating activities at NOK 161 million, positively impacted by improvement in working capital of NOK 54 million. Cash out on M&A is connected to the purchase of WebSMS.
Interest cost in Q4 paid for the last six months reduces net cash flow in the fourth quarter. That was, of course, a similar upside in the third quarter, which we informed you about. Non-M&A cost is mostly due to the implementation of the option scheme and other costs directly related to the IPO. That's all for me. Thanks for listening in. I'm handing the word over to Tom to take us through Q&A.
Welcome to the Q&A session. First questions come from Predrag Savinovic. The first question he has is on FX effects on the growth in the revenues.
Thank you, Predrag, for the series of questions you have raised and the first one regarding the FX. LINK Mobility, since the IPO process, is reported in NOK, and we have decided that we will stick to this NOK reporting. It is obvious that the NOK reduced to the EURO just a year ago, that has an impact in the reported growth rates, whether organic or non-organic.
The next question from Predrag is related to the growth in the new channels and the trend of the revenue share coming from CPaaS solutions in 2021 and 2022.
Yeah, Predrag, very good questions, especially on the notion of more conversation. Now, we use already conversational solutions for our customers. For instance, for customer survey solutions where we ask and we collect answers from customers. With the growth of new channels such as RCS, these use cases will grow, and we believe that we will have conversational solutions reaching in the region of 5%-10% of our total use cases going forward.
The final question from Predrag is related to the Payment Services Directive, the PSD2, if there's any update on that from LINK.
Yeah, I'm very impressed by the depth of your research on the PSD2 elements. I would say that for us in general, two-factor authentication is a growing market and is growing by more than double-digit. If you look specifically at PSD2, I would say that we will have a growth, which is similar to the A2P traffic growth, but not necessarily as strong as CPaaS in general, because in certain countries where SMS price was high, you also saw the effect of bank implementing application authentication. Now, in general, as your research showed, there is more and more situations, so to say, where authentication with SMS and also voice can be a very good and growing use case.
In general, we are very positive on two-factor authentications and also on the impact of directives like PSD2, because the world is needing authentication solutions as there is more and more payment worldwide.
Next questions come from Øystein Ludgaard, and the first is, can you say something about the historical growth for Tismi?
Øystein, very good question. Tismi is a company that is growing actually in line with the kind of CPaaS growth rates. You know that there is a difference between CPaaS growth rates, which are closer to 30%+ and A2P growth rates, which are closer to 10%. We are LINK Mobility, a company that is moving from A2P to CPaaS, but Tismi is already kind of a CPaaS company growing above 30%, if you look at the 2020 numbers.
Øystein has a follow-up regarding the EBITDA for Tismi and revenues in 2020 and what to expect for 2021.
I think for 2021, we are expecting, as Thomas was saying, roughly EUR 7 million of revenues and EUR 3.5 million on EBITDA. We know that this is a company that will also bring some benefits in the rest of LINK Mobility's business on enterprise, for instance.
We have a question from Julian Serafini. The first one is back to Tismi and the rationale for the acquisition.
Julian, of course, the rationale is that you will see that Tismi brings these CPaaS capabilities that are going to be very useful for LINK Mobility in general. Let me give you a few examples. For those operator licenses, Tismi would have more than 620,000 mobile numbers and around 80,000 fixed numbers that we can use for certain use cases when short codes are not the right solutions. For instance, it's used for number masking when you have deliveries from a driver that is seeking to confirm the presence of the person who received the parcel, then we are using number masking, and Tismi has such capabilities with voice, but also for two-factor authentications. We have unique solutions that are used with Tismi and with blue-chip customers using the technology from LINK now that we have acquired Tismi.
Clearly, Tismi brings mobile originated, mobile terminated two-factor authentication voice solutions that are very in high demand in the CPaaS industry. For us, it's a very good and strategic acquisition.
Julian has a further question on the volumes currently from the new channels, RCS and WhatsApp.
As you know, said those volumes remain slow and low below the 5% worldwide. There are many reasons for this. First of all, RCS has, for instance, in the most advanced countries, only a penetration rate of 15%. You need to get further expansion into the latest Android software alliance in order to expand on RCS. The use cases from WhatsApp are starting mostly on customer service from a very low base. We also have a little bit of delay with the changes of the WhatsApp policy regarding more commercial usage of WhatsApp going forward, which has been pushed to May 2021. All in all, it remains small, but there is a very high growth rates and a lot of conversation with our customers to have a multi-channel approach that is one of the foundation of CPaaS.
Yeah. Julian has a follow-up regarding the revenue per message, that it's been increasing and the reasons for that.
Yeah. Do you have an increase in revenue per message overall for the company? It's a very good question. Due to several factors. First of all, as we said, there's more advanced use cases commanding a higher price per message, number one. Number two, we've implemented also some price increases in certain countries, especially in the Nordics. Number three, in our mix, especially due to things like COVID, we have had higher growth in less impacted countries, which tend to have a higher price. That is the case, for instance, in the Nordics. Last but not least, that's clear that on the revenue per message, when you look and we report the numbers in NOK, you will have also the currency effect.
All in all, the underlying trends, which is what is important for us, is that we are capable of increasing the revenue per message due to more advanced CPaaS solutions, and also the fact that we are deploying more and more complex solutions within our enterprise customers.
The next question comes from Petter Kongsli, and it's related to the assumption behind the guiding for 20% organic growth in the mid to long term.
Petter, we believe that we are in the right trajectory to deliver in the mid to long term a 20% organic growth rate. That is on the basis of our focus on enterprise. The fact that we are launching new CPaaS propositions with more conversation, more OTT, more RCS. We have also a very ambitious plan that is coming together, which is related to go to market where we make investment in self-signup in several countries, and also in partner. You can see that these investments that we have started in Q4 2020 will bear fruit in 2021, but most importantly, in 2022 and 2023. They're going to drive also the growth rate from Link Mobility going forward.
There's a further question from Petter regarding the 13%-15% EBITDA margin guidance and the drivers for that, and specifically how M&A could potentially impact that.
Yeah, Petter, we are looking at acquiring companies that are from the A2P space, also from time to time also bringing solutions that are very important for us from a CPaaS perspective, which was the case of Tismi. You know that when you acquire a company, they can have different profitability profiles. It depends on those profitability profiles when we look at the guidance on 13%-15%, whether we've been acquiring a lot of A2P customers with lower EBITDA ratios in the region of 10%, which is kind of a norm in the industry. All in all, we feel confident that in aggregate level, we are going to be able to scale our business. The gross margin conversion to EBITDA is continuing to grow due to the fact that we don't need to invest as much, being fueled by the tailwinds of our industry.
Maybe, Thomas, do you want to add a few elements on this guidance also?
The way I understand the question from Petter is basically if you look at this organically, it's 13%-15%, the interval that we estimate the EBITDA margin for 2024, the answer to that is no. If we look at organically, we do expect that the scalability in our business model will have a larger improvement on EBITDA, that M&A will reduce it. As you said, Guillaume, the A2P players, which we will acquire a lot of, they have lower margins, usually 10% or below, that will dilute the total margin. This is sort of the best estimate, including M&A.
The next question come from Mads Rosendahl. He is looking into the competitive situation with Sinch regarding if LINK is winning customers from Sinch or if LINK is competing in the same region as Sinch, for example, Sweden.
Very good question, Mads. Thank you. We have continuous competition, of course, in the market. This is an industry in general with low churn, so we don't have any customers to report which we have lost against Sinch or customers that we would have won against Sinch specifically in Q4. Again, there's a lot of growth from our customer bases. We acquire new customers, and for the time being, we don't see a significant competitive risk, nor do we see that we have a magnificent benefit in capturing all of Sinch customers, let's put it this way.
Øystein Ludgaard has a further question regarding the timing of the increase guided in the underlying growth in 2021 compared to 2020.
If I understand the question, we are basically looking at 2021 with a lot of elements in our minds, of course, versus 2020. First of all, in 2020, you would have had some exceptional weeks and circumstances. For instance, in March 2020, we used LINK Mobility service for informing society in general for the implementation of lockdowns, and we have had weeks with massive growth compared to normal run rates. This will not happen in 2021. In general, when you look at 2021, first of all, we are expecting in the second half of 2021 a positive impact because a lot of our customers will need to reinject marketing activities, engagement with customers to regain the normal run rates of their own business, and that's where LINK Mobility solution will be on high demand.
We believe that 2021 will be favorable in terms of growth rates versus 2020 on the line because of the return to a more normal situation and the fact that our marketing use cases are very strong. That is one of the elements why we are more confident in 2021 from a messaging volume perspective versus 2020. We are also looking at the expansion of go-to-market initiatives. We are starting to bring some fruit in 2021, even if more of the growth is expecting in 2022 and 2023, and also the expansion of more CPaaS products, as explained. All that combined gives us confidence that the 2021 growth and underlying kind of usage of our products will grow.
We have a question from Ramil Koria. He is asking regarding two-factor authentication if that's a volume business with low margin and how that fits with the strategy towards more CPaaS.
Ramil, two-factor authentication is done currently with things like SMS, but we are, with the acquisition of Tismi, for instance, going to be able to offer two-factor authentication with voice and other solutions. We are going to have a more multi-channel offering, which also commands at a higher price because we come to our customers with a range of solutions. I just highlighted in our customer wins that a dunning company is using Viber in Bulgaria to actually collect more payments. You can see that CPaaS is coming to the market in two-factor authentication and also in other business areas. For us, CPaaS means growth in marketing, in customer experience improvement in flows, in customer service, but also in two-factor authentication. We expect really some positive momentum on that product specifically.
Thank you very much. This concludes the Q&A session. For further information, please contact Investor Relations.
Thank you.