Good morning, and welcome to the first quarter results presentation for LINK Mobility. I'm Tom Røhn , head of Investor Relations. I'm joined by Thomas Berge, CEO, and Morten Edvardsen, CFO, who will present the results. Following the presentation, there will be a Q&A session. To ask questions directly, please see dial-in details in the stock exchange release. It is also possible to post questions online, and Q&A. Thomas.
Thank you, Tom, welcome everybody to LINK's first quarter presentation in 2023. LINK is the leading and largest CPaaS player in Europe. LINK started out over 20 years ago in the Nordics and have been part of building the messaging market in the Nordics to one of, if not the most, advanced messaging market in the world. LINK is using this expertise to fuel the development in less penetrated markets in Europe and in the U.S. Our strategy is dedicated to providing digital communication products to the enterprise market for them to interact with their end customers. We approach the enterprise market through a strategy of local touch points with our clients. We have sales reps, customer service, and customer success employees winning new contracts and operating existing clients in local language and culture.
This setup is creating a larger reach than many of our competitors who are having a more regional or centralized approach to the market. LINK's 51,000 clients, serviced by over 30 offices in 18 countries, are a result of the successful implementation of this strategy over many years. Group revenue during the last 12 months was recorded at NOK 5.5 billion. LINK has grown significantly over the last year with a revenue CAGR of 17%. Profitability has always been a key priority. LINK is growing the business while generating profitability and net positive operating cash flow. Reported adjusted EBITDA has more than doubled over the last four years or a CAGR of 21%, which is higher than the revenue growth due to LINK's scalable business model. The growth comes from both organic growth and growth from M&A.
In the current quarter, adjusted EBITDA ended at NOK 663 million on an LTM basis, up from NOK 625 million end of last year, or a growth of almost NOK 40 million in one quarter. Revenue is reported at over NOK 1.4 billion or an organic growth of 12% in fixed currency. The US had a very good quarter with a strong growth on both messaging solutions and critical events. New clients located in the northern parts of the US are broadening their geographical footprint and diversify critical event season with winter as their peak season. Winter storms triggers the need to communicate with end users. In Europe, the growth momentum is as expected, and this is the last quarter where we will face the headwind of high comparables caused by significant COVID traffic same quarter last year.
Gross profit is reported at NOK 398 million or an organic growth of 13% in fixed currency. Gross profit growth is higher than revenue growth due to the increased contribution from the US with higher margin products. Adjusted EBITDA is reported at NOK 181 million or an organic growth of 16% in fixed currency. OpEx reductions contributed with NOK 17 million in the quarter, which is according to plan. High-adjusted EBITDA and low non-recurring costs also positively impact cash generation. In Q1, net cash after CapEx and interest summed up to NOK 118 million. Solid cash generation and high-adjusted EBITDA brings down the leverage from 4.6 to 4.3 in the quarter. The NOK has depreciated compared to most other currencies with an impact on our P&L in the quarter.
For clarity, in the table on the right, we separate the organic growth on fixed currency basis and the currency effect for the main reporting lines. In Q1, LINK reports strong organic growth. The quarter was better than expected, also when we exclude currency effects. All-time high inflow of new contracts in the current quarter with 826 new agreements. Over the last two, three quarters, we are observing a significant increase in gross profit on new contracts for both new and existing clients. During last year, LINK recalibrated the commercial approach and execution. The ramp-up of one contracts are taken as a sign that LINK's commercial efforts are on the right path. Gross profit grew organically 24% in reported currency and 13% on fixed currency basis.
The US generated significant gross profit growth in the current quarter with an impressive momentum on both Critical Event and Messaging Solution. Messaging Solution revenue increased to $9 million in the current quarter, up from $4.4 million same period last year. Critical Event revenue increased to $1.4 million, up from $400,000 same period last year. Messaging Solutions in the current quarter are positively impacted by the high contract backlog into 2023. We closed several large agreements in H2 2022, and as these agreements are implemented, revenue and gross profit are recorded in the P&L. We are seeing an increase on both licenses, normal usage, and professional service fees in the current quarter as either the work is delivered or the solution is ready for client usage. In Q1, revenue from implementation of new contracts was higher than normal.
The order backlog is expected to positively impact their P&L in Q2 and Q3 also. Not to the same extent as seen in Q1. For critical events, we're seeing a diversification in revenue generation as we have secured new agreements in the northern part of the U.S., which experience critical events during winter. Historically, critical event volumes have mainly been located in California and the Gulf of Mexico, which now is expanding to other areas of the U.S. In the current quarter, $1.4 million of revenue was booked, mainly due to winter storms in the northeast of the U.S. Critical event revenue is normally higher in Q3, Q4, and partly Q1, while Q2 is normally experiencing less critical events. Europe performed as expected with an underlying growth in gross profit of 10 million in fixed currency, which was counteracted by high comparable same period last year.
This is the last quarter with this effect. The COVID volumes connected to testing and vaccination of last year were immaterial from April 2022 and onwards as the world returned to normal. Therefore, from the next quarter, the reported growth rate in Europe will be equal to the higher underlying growth rate on gross profit. The performance in Europe was somewhat reduced by lower activity on mobile marketing campaigns in the retail sector in January and February, following a stronger Q4. Mobile marketing volumes for March was closer to a normalized level. In Europe, we have reported significant increase in the order backlog, which is expected to gradually be recorded in the P&L as the contracts are implemented and scale. It is too early for a material P&L impact in the current quarter, but this is expected to gradually increase the growth rates the coming quarters.
Cost savings are progressing according to plan. Total cost savings for the current quarter are reported at NOK 24 million. Looking only at OpEx, cost savings in the current quarter is reported at NOK 17 million. Total cost savings for 2023 is expected at NOK 105 million, in line with previous forecasts. The depreciation of NOK versus other major currencies have resulted in an increase in reported OpEx. The currency impact on OpEx is NOK 20 million for the quarter. The OpEx increase in the US is partly due to investments in UFDs last year and additional OpEx needed to operate the added customer base in Q4 of last year. Europe is reporting a modest OpEx increase of NOK 6 million or a 5% growth before currency impact.
LINK reports significant improvement in new business wins over the near term quarter based on the renewed focus and changes in commercial execution during 2022. The graph on the top right shows the estimated annualized gross profit on new contracts signed for the last four quarters. The numbers are extracted from our CRM system. The estimations are based on contractual arrangements or specific dialogue with clients. In the current quarter, gross profit from new contracts are 45% higher than same period last year. These numbers only contain new agreements for Europe. The U.S. is not included. Historically, about 75% of the gross profit is recorded in the P&L after 12 months. The company expects the higher contract backlog to benefit gross profit growth gradually during 2023.
LINK has a healthy sales pipeline in addition to the historical high number of new agreements. New contracts from more traditional A2P products grew with NOK 12 million on estimated annualized gross profit contribution year-over-year or a 55% growth. New contracts for CPaaS products are displaying a 12% growth rate compared to same quarter last year on estimated gross profit contribution. For these more advanced products, we observe longer lead times to scale and generate the estimated gross profit in the P&L. LINK has closed to 51,000 customer accounts and has attracted 3,600 new customer accounts organically compared to same period last year. Revenue churn is consistently low, for this quarter reported at 1.5% of revenue. LINK has signed 826 new contracts in the quarter, which is all-time high.
The full year contract value in gross profit is estimated at NOK 40 million, as we saw on the previous slide. The company is reiterating the forward-looking statement with a full year organic adjusted EBITDA growth of 12%-15% in fixed currency. This translates into an EBITDA target for 2023 or between NOK 700 million-NOK 720 million, assuming stable currency from the 2022 starting point of NOK 625 million. For 2023, LINK expects higher gross profit growth than reported in 2022 from the accelerated momentum in new business, lapse of high comparables for the previous periods, and increased profitability due to OpEx savings. That's it for me. I will be handing the word over to Morten.
Thank you, Thomas. I will now go through the first quarter financials for the group. LINK reports quarterly revenue of more than 1.4 billion NOK at 23% growth year-on-year. Revenue growth in fixed currency is reported at 12% with strong contribution from the U.S. in the quarter, with revenue growth of 119% in fixed currency. This growth came from higher entry speed and order backlog for messaging solutions and broader geographical exposure for critical event messaging. In the quarter, as for the previous quarter, strong winter storms drove messaging volumes and hence resulted in critical event messaging revenue of 14 million NOK. The European footprint was in line with expectations for the quarter and impacted by a strong comparable first quarter of 2022 related to high COVID traffic.
As Thomas touched upon, we observed a somewhat softer start to the quarter in European retail volumes following the strong fourth quarter of 2022. The Global Messaging segment contributed positively with strong revenue growth reported at 45% for the quarter. Total volume growth for the quarter was 8% and lower than the reported revenue growth. The main drivers for this variance is, as for the previous two quarters, the higher share of non-messaging revenue, like licenses and professional services, especially related to the U.S. In the Global Messaging segment, volume mix towards destinations with higher price per message continue in line with trend from the previous quarters. Moving over to the next slide and the gross profit development.
Gross profit is reported at nearly NOK 400 million or a reported growth of 24% with a positive impact from currency effects of 11 percentage points, resulting in a gross profit growth in stable currency of 13%. Growth in gross profit year-on-year was, as for revenue, positively impacted by the strong top-line growth in the US at high margin. While growth from the European enterprise regions was negatively impacted by strong comparable quarter last year with high COVID traffic. Following the strong Q4 2022, the European footprint performed as expected in the quarter. In the lower graph, we have bridged out the development in gross margin year-over-year. The reported gross margin expanded by 0.3 percentage points to 27.7%.
Enterprise segment contributed positively to total margin expansion by 1.1 percentage points, mainly from higher share of total revenue deriving from the US. Gross margin in the US was somewhat diluted by the added customer base compared to previous quarters. In the European enterprise regions, margins remained stable except for in Central Europe, which was impacted by a negative traffic mix effect, as high-margin COVID traffic was replaced by revenue from large global clients at lower gross margin levels. In the graph, we also see the margin dilution effect related to the Global Messaging segment, representing a larger share of total group revenue and slightly lower margin level compared to same period last year. To the next slide on OpEx and adjusted EBITDA.
Total reported OpEx growth at 21%, negatively impacted by currency effects in line with top line and gross profit of 11 percentage points, leaving an underlying growth of 10% in stable currency. The cost initiatives are delivering according to plan and contributed with a direct year-on-year positive effect of NOK 13 million in stable currency in the first quarter. The main contributor to higher OpEx was the commercial investments in the US through 2022 and additional resources to operate the customer base added in Q4 2022. Adjusted EBITDA is reported at NOK 181 million or a reported growth of 27% or 16% in stable currency, summarized through strong and higher than expected contribution from the US and managed OpEx level to the communicated cost initiatives. Moving on to the P&L overview.
In the previous slides, I have already been through the P&L down to adjusted EBITDA. We report non-recurring costs of NOK 14 million in the quarter, consisting of share option cost of NOK 7 million, restructuring cost of NOK 4 million, and M&A cost of NOK 3 million. The steep reduction in restructuring costs compared to the previous quarter was mainly linked to the majority of cost initiatives being executed during the fourth quarter. Only a small tail of initiatives remains to be executed on this year. Remaining non-recurring costs declined following vesting of the second tranche of RSUs and lower activity on M&A. Cost of depreciation and amortization is reported at NOK 108 million, in line with the previous quarter, whereof NOK 83 million relates to the depreciation of assets deriving from purchase price allocations of acquired companies.
Net financial items are reported at negative NOK 71 million, impacted by net currency loss of NOK 32 million, mainly related to variance in USD to NOK and EUR to NOK rates. Interest cost of NOK 39 million related to outstanding bond of EUR 370 million, including amortized transaction costs. To the balance sheet. Balance sheet obviously impacted by FX movements while we have limited contribution from M&A. Cash reserves reported at NOK 964 million or NOK 137 million quarter-on-quarter from improved cash contribution from operations and NOK 29 million from currency impact. Receivables increased by NOK 413 million year-on-year, payables increased by NOK 388 million. Balances are impacted by currency effects, while remaining movements reflect the organic development and normal fluctuations of working capital related to collection and payments.
Net interest bearing debt is reported at NOK 2.9 billion, calculated in accordance with bond agreement and related mainly to LINK's one outstanding bond. The bond has a low fixed coupon of 3.375% with no maturities or covenants before December 2025, securing LINK an attractive long-term funding. The last slide of my section, showing an overview of cash flow. Net cash flow from operating activities, including non-recurring costs for M&A and cost initiatives, is reported at NOK 549 million on an LTM basis or NOK 147 million in the current quarter. Which was negatively impacting by working capital movements of NOK 27 million related to release of accounts payable. Taxes paid was zero in the quarter from repayments of too much taxes paid related to 2022, offset by paid taxes for the quarter.
Adding back non-recurrent costs, which is mainly related to M&A and the cost initiatives, the cash flow from operations was NOK 642 million on an LTM basis or a ratio of 97% compared to LTM-adjusted EBITDA. The CapEx run rate level reduced positively impacted by cost initiatives, and CapEx for the quarter declined year-on-year by NOK 15 million. After payment of CapEx and interest, LINK generated a free cash flow of NOK 337 million on an LTM basis, or NOK 118 million in the quarter. Leverage or net debt to adjusted EBITDA, calculated in line with the bond agreement, reported at 4.3, down from 4.6 in the previous quarter. We reiterate our deleveraging plan to within the financial policy of 3.5 medium term. That completes the financial section. Over to Tom and Q&A.
Thank you, Morten. We are then ready to start the Q&A. Please dial in to ask questions directly or post questions online. Operator, can you please help us with the Q&A?
Thank you. If you do wish to ask a question, please press five star on your telephone keypad. To withdraw your question, please press five star again. We will have a brief pause while questions are being registered. As there seems to be no questions on the telephone line, I will hand the call back to the speakers.
We will continue with the posted questions online. The first question is regarding the growth in Europe and some additional comments on how COVID comparables influence that, and pricing and competition.
I can start answering the question. The pricing is stable in Europe. What we see moving in Europe, it's a fairly stabilized environment besides the higher comps created by the COVID volumes, which ended after April when the world normalized. Of course, we see some more volatility, as we mentioned also in the slides, in the retail industry. Other than that, it's fairly stable, and we also see that we're able to accelerate new contract wins. Europe is performing as expected.
We have a question regarding the US business and the catch-up effect, which we saw in the first quarter, how that will play into the second quarter.
As I said, in the presentation, we have somewhat elevated revenue from implementations of new contracts in the first quarter. Which we wouldn't expect to be as high in the second or third quarter. We still have a solid contract backlog that we are going to implement. We haven't given any specific details regarding the different expectations for the revenue streams in the U.S. We're still expecting solid over-deliveries compared to the numbers, for example, for the second quarter of last year, compared to what we expect this year.
There's an additional question on the U.S. business. There was a slight margin dilution this quarter. Any comments on that?
yeah. Morten can take that question.
I think we see that the dilution effect predominantly coming from inclusion of the customer base, which is more typical A2P business. There are no indications of any margin decline in the other parts of the Message Broadcast business.
We have a question on the record new contract signings of 826 in the first quarter. If there are any more color on which markets they relate to and segments, and also if it relates to smaller or bigger clients?
It's diversified, basically. We see a good momentum in most markets. There are, of course, exceptions as there always are. There are a few markets we are working more closely with to ramp up their commercial performance. It's not isolated to any specific sector or any specific use case or size of the clients. It's diversified as and reflecting, I guess the customer base that we are having with 51,000 different customers.
We have a specific question from Martin regarding the net debt calculation in the bond agreement.
We provide a net debt calculation as part of the APM section in the financial report. The net debt figure here is presented as defined in our bond loan agreement, where we're using the average rates for the last 12 months, which is then aligned with the pro forma adjusted EBITDA, which we present. We believe this is a fair view on the leverage, and the presentation is also stable over time. Over the last quarters, we're using the same definition.
We have a broader question given the strong first quarter results, how that could potentially impact the full year guiding of the company.
We have kept the forward-looking statement just the EBITDA growth on the fixed currency basis between 12% and 15%, which translates into an EBITDA figure on a constant currency basis, assuming the average rates in 2022 of between NOK 700 million and NOK 720 million. As I said, especially the US in the first quarter went better than expected. Europe was as expected, but we have not raised the forward-looking statement in connection with the Q1 performance. But I guess it's fair to say that with Q1 being delivered somewhat over what we expected, gives some more security into reaching the range that we have indicated.
All focus is on continuing the good momentum also in Q2 and Q3 and Q4. Let's talk again when we meet up in August and discuss the Q2 numbers, the status then.
We have a question from Martin regarding the non-recurring items which came quite significantly down in the first quarter and how we could look at going forward with that level.
No, I think as we also guided on, we expected the non-recurring items to come significantly down as we reported quite high level due to most of the cost initiatives being implemented during the fourth quarter. That was expected to be in a much lower level than in the previous quarters. We have some initiatives that remains to be executed on, but we don't expect the level to increase. What we have guided on for M&A is around NOK 5 million, but that depends on the activity level that we have on M&A. Right now it's quite low.
We have a couple of follow-up questions on the U.S., so one specifically on the critical events, if that was a normalized level in the first quarter, and another, if there is any color on the underlying performance in the U.S. excluding the new customer base.
I guess, I would define it as normalized based on the new contracts that we have implemented and broadened geographical reach. Around $1.4 million should be within the normalized range for critical events in Q1. That's for Q1, because this follows a certain seasonality. Could you repeat the second question, Tom?
Yeah, that was relating to the new customer base. If there is any color on the figures excluding the new customer base. In the organic figures in the U.S.
Well, the customer... No, this is merged completely with the Message Broadcast business in November, December of last year. We're not able to carve it out. The numbers, when you look at Message Broadcast, I wouldn't define it as material. Maybe Morten has some more color on it.
It's a quite small acquisition based on the numbers we provided in the last quarter. It doesn't have a real huge effect on the U.S. numbers, I would say. Like you said, Thomas, we're not able to sort of isolate it completely because of it's fully consolidated into the systems of Message Broadcast and the financials as well.
Yeah. We can just confirm there is a question regarding the gross profit contribution from the new agreements, if it excludes the U.S., and it does exclude the U.S. We have a question on the headcount, which is going down, and if that will be offsetting, salary inflation and effects, and how you should look at the OpEx year-over-year.
I can leave that question for Morten and add some comments on it, if, needed. Morten?
Yeah, I think, we expect some underlying growth in OpEx. There are, as mentioned here, the inflationary items which are impacting us as well. So we expect some underlying growth as we also saw in the first quarter for also for the full year. But that will be, of course, to a large degree, will be positively impacted by the cost initiatives, but there is still expect some underlying growth in OpEx, especially also linked to the US, where we have increased OpEx related to managing the customer base and also the investment that we did commercially through 2022.
Yeah. My only commentary, I guess, regarding the OpEx development that it is in line with our expectations, and it is in line with the forward-looking statement that we sort of gave on EBITDA. For us, this is developing as expected. That comment is on constant FX. We didn't sort of. The increase due to the elevated FX rates. It's difficult for us to give any commentary around that sort of develops with the FX and how that will be in Q1 or Q3, we don't really know.
We have some forward-looking question regarding the, on the commercial refocus, and that is in a quite large increase in contract backlog. If you have any colors on how we can see this into April and May?
As I said, we have a strong pipeline. The pipeline indicates that the won contracts going forward should be higher than what we've seen historically. If we're able to have new signed contracts at the same level that we saw in Q1, I would view that as a good outcome. Q2, we have Easter, which normally brings down the signed contract somewhat. Then Q3, due to summer vacation, is normally lower on new contracts. Then Q4, it's normally the highest quarter in the year. Just so you have that as a backdrop.
There is a specific question related to the global sales teams focusing on larger customers. Is there any specific comments on their progress?
If you remember back in Q3, we had the hyperscaler that we spent some time explaining, and we also said that volume would go down as we got position and traction on higher gross profit products. This is developing nicely. We are seeing a higher and higher gross profit from implementation of this high profitable products. The password traffic, it's remaining at the lower level in Q4 and in Q1. That's not our main interest.
Yeah. I have a question just on the churn, and that is at a low level, if you expect any changes on that.
No, we don't expect any changes on that. It normally varies between 1% and 2%. It depends a little bit on specific which specific customers are churning. It's 1.5% in the current quarter. We do not have any reason to expect any deviations from that going forward.
Yeah. There was just a clarification that with fixed FX and our guiding of 12%-15% growth in EBITDA, that will translate into NOK 700-720 adjusted EBITDA at fixed FX. Just to clarify that that's the assumption behind that. Then we have another follow-up also related to FX, given what the leverage would be if you apply market rates. Obviously, that would influence both net debt and adjusted EBITDA. Maybe, Morten, if you have anything to add on that.
Obviously, then if you want to make a fair comparison, you need to go back and recalculate all the adjusted EBITDA numbers based on the average rates for the previous periods. We haven't really done that exercise. We believe how we present it is a fair comparison over time, and it shows that, and the focus is to deleverage according to that. Obviously, the FX has an impact if you, if you apply that back on both adjusted EBITDA and the net debt.
We have no further questions. Please post any additional questions on the.