Good morning, and welcome to the third quarter results presentation for LINK Mobility. I'm Tom Rogn, 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 during the presentation and Q&A. Thomas?
Thank you, Tom. Welcome, everybody, to LINK's third quarter presentation. We are happy to report organic growth in the high end compared to industry peers and good numbers for the third quarter. LINK is the leading and largest CPaaS player in Europe. LINK started out more than 20 years ago in the Nordics and has been part of building that messaging market to one of the most advanced markets in the world. LINK is using this experience to fuel the development in the less penetrated markets in Europe. 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 touchpoints with our clients.
We have numerous sales reps, customer service, and customer success employees on the ground, winning new contracts and supporting existing clients in the local language and culture. This setup is creating a larger reach than many of our competitors, who have a more regional or centralized approach to the market. LINK's 50,000 clients, serviced by our 29 offices in 17 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 5.9 billion. LINK has grown significantly over the last years with a revenue CAGR of 20%. Profitability has always been a key priority. LINK is growing the business while generating profitability and net positive operating cash flow.
In the current quarter, Adjusted EBITDA is reported at NOK 565 million on LTM basis, up from NOK 486 million reported end of last year, or a growth of NOK 79 million in nine months. The reported numbers are impacted by currency movements due to the depreciation of the NOK, but the growth momentum on the fixed currency basis for the third quarter and year-to-date this year are also strong, which we will see later on in the presentation. The NOK has depreciated compared to most other currency, with an impact in our P&L in the quarter. For clarity, in the table on the right, we separate out organic growth on a fixed currency basis and the currency effects for the main reporting lines. All numbers in this presentation are excluding Message Broadcast, which was divested in the beginning of November and is reported as discontinued business.
In the current quarter, growth levels are in the high end compared to industry peers. Revenue is reported at NOK 1.6 billion, or an organic growth of 17% in fixed currency. The enterprise segment in Europe is reporting a consistent growth and developing as expected. Global messaging is reporting a high revenue growth of 54% in fixed currency, but a more modest contribution on gross profit growth due to destination mix effects. Gross profit is reported at NOK 370 million, or an organic growth of 6% in fixed currency. The enterprise region is reporting a stable organic gross profit growth of 7% in fixed currency. Adjusted EBITDA is reported at NOK 147 million, or an organic growth of 16% in fixed currency. Year-to-date adjusted EBITDA growth in fixed currency is reported at 12%.
Adjusted EBITDA growth in 2023 has been supported by cost reduction initiatives implemented end of last year. As usual, we are signing a significant number of new contracts in the current quarter with 507 new agreements. The third quarter is normally the lowest quarter in the year when it comes to signing new contracts due to summer vacation. Message Broadcast was divested for $260 million at a highly attractive and significantly accretive multiple when compared to LINK's own valuation. Closing is expected during Q1 next year, subject to formal and customary closing conditions. LINK's leverage will decrease materially post-closing to 1x adjusted EBITDA, and the company's cash deposits will increase significantly, reigniting inorganic growth opportunities through M&A. LINK has a solid portfolio of M&A opportunities, consisting of profitable and accretive targets, both within Europe, in the US, and in other regions.
Gross profit grew organically 17% in reported currency and 6% on a fixed currency basis. The European enterprise market is experiencing a steady increase in the growth rates as a result of implementations of new contracts from the higher contract backlog over the previous 3-4 quarters. The growth rate for the enterprise segment is 7% on a fixed currency basis. We are observing a relatively stable market condition in Europe and improved margins year-over-year. That said, the current market conditions require harder work to attract new clients, as most companies in Europe are tighter on their OpEx spend due to inflationary environment. Global messaging is stable year-over-year on gross profit, despite higher revenue. In the third quarter, global messaging accepted volumes to specific destinations, lowering the gross profit margin temporarily.
We expect somewhat lower activity and margins returning to historic levels in the coming quarters for that segment. The graph at the bottom of the slide displays the margin impact from the different segments. The enterprise segment in Europe is reporting an increase in margins, lifting total gross profit margin with 0.3 percentage points. Global messaging is lowering total gross profit margins with 2.3 percentage points in the current quarter. LINK reports significant improvements 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 shows the estimated analyzed gross profit on new contracts signed for the last five quarters. The numbers are extracted from our CRM system, and the estimations are based on contractual arrangements and specific dialogue with client.
In the current quarter, gross profit from new contracts are 13% higher than same period last year. The third quarter is normally the quarter with the lowest amounts of new contracts due to summer vacation. Historically, about 75% of gross profit is recorded in the P&L after 12 months. We therefore expect the higher contract backlog to benefit gross profit gradually during 2023 and 2024. LINK has a healthy sales pipeline in addition to new agreements won, and expects a higher level of gross profit from new contracts in the fourth quarter compared to the current quarter. That said, the fourth quarter of last year was on the high side and a tough target to match. LINK has over 50,000 customer accounts. Organic growth of new clients, accounts is reported at 530 accounts versus same period last year.
LINK has signed 507 new contracts in the quarter, an increase of 21% year-over-year. Revenue churn is low, for the quarter reported at 2% of revenue, of which 0.8 percentage points is explained by churn aggregate decline within the global messaging segment. The enterprise segment has a consistently low churn of approximately 1.2% of revenue. Net retention in stable currency is reported at 114%. LINK is, with the disposal of Message Broadcast and large cash deposits, post-closing of approximately NOK 3.5 billion, ideally positioned for 2024 and beyond. Organically, we are seeing an uplift in gross profit growth for the enterprise region in Europe.
Churn is stable and low, and we have been reporting a material increase in the contract backlog over the last four quarters, which indicates growth momentum going forward. On top of this, LINK's expanding product portfolio creates significant upsell opportunities as market demand is shifting towards more advanced multi-channel and two-way communication, supporting the growth momentum over the next 2- 3 years. In addition to organic growth opportunities, the company is well-positioned for inorganic growth through M&A. LINK has the competence, the historical track record for value creation through M&A, and a solid pipeline with potential M&A targets. Since 2015, LINK has closed over 30 acquisitions, of which the majority have been a great success, generating significant value and growth.
LINK divested Message Broadcast with an EBITDA multiple of over 14x, and we will use parts of the proceeds from this transaction to acquire companies within and beyond Europe for a significantly lower multiple. Historically, most acquired companies have been transacted on an EBITDA multiple of between 6-8x, with some exceptions, around 10x EBITDA. We are reverting back to our historically successful M&A recipe by acquiring profitable companies with a diversified customer portfolio and a low-risk approach. We will make sure to preserve enough liquidity to partly pay down a significant portion of the outstanding bond in connection with refinancing closer to the tender in December 2025. The current bond of EUR 370 million will be significantly smaller when refinanced closer to the due date.
I want to emphasize LINK's global ambitions are unchanged, and we're looking to expand to other regions outside Europe. The US is still a prioritized market. We will, however, reenter through an acquisition more similar to LINK's European business, hopefully sometime in the future. The divestment on Message Broadcast voids the forward-looking statement for 2023, which was communicated in the previous quarters, as it was including the US business, which now is reported as discontinued business. The company will not give a new detailed forward-looking statement, but rather point to LINK's stable historical performance and high cash generation. We expect LINK's European business to continue to display a high single-digit gross profit growth rate. Additionally, we expect the Adjusted EBITDA growth rate to be higher than the gross profit. That was my part of the presentation, handing the word over to Morten and the financial section.
Thank you, Thomas, and good morning to everyone on the call. I will now take you through the third quarter financials for the group. As previously communicated, our third quarter financials have been reworked, and the U.S. entity is reported as discontinued business in the P&L, while it is still included in full in our balance sheet and cash flow statements. LINK reports quarterly revenue of NOK 1.6 billion, at 30% reported growth year-on-year. Revenue growth in fixed currency was 17%, with a strong contribution from the global messaging segment, growing 54%. For the enterprise segment, we report 6% organic growth in fixed currency, in line with expectations in a seasonally low quarter, supported by the improved contract backlog over the previous quarters. Total volume for the quarter was 4.2 billion, or a growth of 15%.
The volume growth was lower than top-line growth in fixed currency from increased average price per message year-over-year. Moving over to the next slide on the gross profit. Gross profit is reported at NOK 317 million, or a reported growth of 17%, with positive impact from currency effects, resulting in a gross profit growth in fixed currency of 6%. We are pleased to report steady gross profit growth momentum in the enterprise segments at 7%, in line with the previous quarter and slightly higher than revenue growth from improved gross margin year-over-year. Implementation of contract backlog wins support this growth together with organic growth from existing customer base. Gross profit contribution from the global messaging business was marginally down year-over-year from unfavorable traffic mix isolated to the third quarter.
The global messaging business fluctuates more when it comes to volumes and margins than our enterprise business. In some cases, we drive higher volumes to get access to new routes, which also benefit our enterprise traffic. This affected the third quarter negatively, but we expect margin to normalize back to historical levels going forward. If we look at the lower graph, we observe a margin improvement in the enterprise business of 0.3 percentage points year- over- year to 26.2% from positive mix effects year on year. Margin levels within enterprise have remained stable around 26% over the last five quarters. Then to the next slide on Adjusted EBITDA. Adjusted EBITDA is reported at NOK 147 million, or a reported growth of 26%, or 16% in fixed currency.
Growth is driven by gross profit growth year-over-year and further contribution from a 1% decline in OpEx, driven by the cost reduction initiatives. These initiatives have been delivered according to plan, and the positive year-over-year P&L effect on OpEx was NOK 14 million in the quarter. Year- to- date, Adjusted EBITDA growth was 12% in stable currency. The Adjusted EBITDA margin remained stable year-over-year in stable currency. Enterprise margin improved 0.6 percentage points to 15.8% from positive mix effects on traffic and lower OpEx to sales ratio, while the high activity in global messaging had a negative impact on the margin. Moving on to an overview of the P&L. In the previous slides, I've covered the development down to the Adjusted EBITDA.
In the quarter, we report non-recurring costs of NOK 27 million, consisting mainly of share option cost of NOK 25 million, while restructuring and M&A costs were NOK 2 million in total, reflecting lower M&A activity and the completion of the cost initiatives. This quarter's costs include quarterly incentive program cost of NOK 15 million, RSU-related cost of NOK 5 million related to the last tranche vested in October this year, and recognition of a social security tax component of NOK 5 million. The incentive programs had no cash effect in the third quarter. Cost of depreciation and amortization is reported at NOK 113 million, up from NOK 102 million last year, mainly from currency effects of NOK 7 million and finalization of development projects.
I would like to note that D&A related to excess values of Message Broadcast held at group level are still recorded in D&A related to acquisitions until point of divestment, and represents NOK 30 million for the quarter and NOK 89 million on a year-to-date basis. Net financial items are reported at NOK 2 million. Net currency gain of NOK 35 million, mainly reflected variance in the U.S. dollar to NOK on IC loan to the U.S. entity and changes in the euro to NOK. Rates related to the bond loan. The positive currency gain were offset by a net interest cost of NOK 35 million related to the outstanding bond, including amortized transaction costs, partly offset by interest income on the cash balances. Then to the balance sheet. The financial positioning still includes the U.S. entity until closing, and figures are affected by FX movements year-over-year.
The US entity represents NOK 2.9 billion of non-current assets. The total goodwill represents NOK 6.1 billion, of which NOK 1.9 billion is related to the US business. Remaining goodwill, excluding the US, is tested on a continuous basis, and no impairments are recognized in the third quarter based on updated discount rates. Cash reserves were reported at NOK 1.1 billion or up NOK 188 million year-over-year from improved cash contribution from operations, partly offset by negative FX effects on cash balances of NOK 21 million. Receivables increased by NOK 281 million, and payables increased by NOK 306 million, and was impacted by currency effect of +58 million and +54 million respectively. Underlying increase was driven by organic growth as well as timing effects related to collection and payments.
Working capital build during the quarter was reported at NOK 83 million, as per normal seasonality, which is expected to normalize over time. Net interest-bearing debt before divesting the US is reported at close to NOK 3.1 billion, calculated in accordance with our bond agreement and related mainly to the one outstanding bond, fully maturing in December 2025. Leverage post-closing of the US divestment is expected, as mentioned, at approximately 1x adjusted EBITDA, and we expect a cash balance of approximately NOK 3.5 billion after the divestment, as previously communicated. Further, on my final slide, we have presented an overview of the development in cash flow from the European business last five quarters.
The figures exclude non-recurring costs and US-related cash flow items such as working capital, CapEx, tax, lease payments, and interest paid on the bond tap issue of EUR 170 million, done in June 2021, related to the acquisition of Message Broadcast. European business generates a steady and solid cash flow, with stable working capital over time and modest CapEx to sales ratio, resulting in an average conversion rate from adjusted EBITDA to cash of 43% over the last five quarters. The last 12 months, free cash flow, NOK 248 million, is positively impacted by the commercial refocus and the implemented cost initiatives, and contrary, impacted negatively by LTM working capital development of NOK -48 million. The working capital effect is expected to normalize on an LTM basis, but was negatively impacted by the high activity in global messaging in the third quarter.
The expected cash balance after closing of the divestment of the U.S. business, expect NOK 3.5 billion, and will be deposited in order to maximize interest income, offsetting payable bond loan interest. That completes the financial section. Now back 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, please, can you help us with the Q&A?
Yes. We'll now start the question and answer session. If you do wish to ask a question, please press five star on your telephone keypad. If you wish to withdraw it, you may do so by pressing five star again. There'll be a brief pause while questions are being registered. As there are no questions in this call, I'll hand it back to you, Tom, for any online questions.
Thank you. We have a few questions, posted online. The first question is related to comments regarding the bond refinancing, if there's any color to add to what was communicated during the call.
I can start with that. Not really, actually. What we said during the call was that, of course, we need to refinance it when, when we are closer to the due date of December 2025. Sort of exactly when we're going to do it, it depends on, various factors, including sort of how the bond market is. But, we perceive, the refinancing to be a very low risk, so, we do not have any sort of. We don't see a lot of benefits from doing it too early either, so we will sort of wait, fairly closer to, to the due date, so we have a, a good structured process and, and can refinance, the bond with a, with a, successful process.
Then we have a question regarding multiples for acquisitions and referring to LINK's own multiple, lower than 10, while the Message Broadcast was sold for 14. So when we are saying lower than accretive multiple, do we mean relative to the 14 or the 10?
We mean, accretive relative to LINK's valuation at the time we do the acquisition. So, for example, at the current time, we would not do M&A, which is not accretive on the current multiple for LINK.
We have a question regarding the M&A strategy. If any color on what type of targets we are looking at, bolt-ons or larger transactions as well?
I think both transactions are relevant. We have both targets in our M&A pipeline, and we are aiming for doing both several small bolt-ons, but also we might do a level up case if sort of the right opportunity arises. What is important to us is that the acquired target, when you look at our M&A recipe that we have been pursuing since 2015, we need to see that we can have local market leadership, when we enter a market, either that the acquisition is sizable in that country or that we can see we can combine it with another acquisition later on. The only exception here is the U.S., of course.
We do not perceive that we can be big enough in the U.S. to have local market leadership. Second is that the target needs to be profitable on both EBITDA and cash positive. We want to have cash flowing into LINK from day one. Thirdly, the targets need to have solid customer portfolios and long customer relationships. We're not very interested in acquiring a company with a very concentrated customer portfolio. The technology needs to be good and of high quality. It doesn't need to be innovative, because we have those products ourselves and can fairly easily export them to the acquired entity. And we also need to see that we can have good telecom operator relationships in the country where we enter through an M&A opportunity.
That's sort of like the highlights of our sort of M&A recipe.
Then we have a question related to Apple adopting the RCS standard, and if, how that will affect the LINK.
That's difficult to say how the impact will be on the industry. I can sort of start with that. Apple is opening up only for person-to-person traffic. They're not opening up for application-to-person traffic. There's no requirement from any authority either that I am aware of, which have indicated that such a demand will be placed on Apple. So this is only P2P traffic, which means that the impact on the industry, until Apple does a different decision, is going to be minimal. If Apple opens up for RCS, also on application-to-person traffic, I think there will be both opportunities and some threats. LINK has a strategy where we want to be present local, and we have many different kind of clients. We have smaller and medium-sized clients.
We also have some very big clients, but in the end, sort of all of these clients, they have chosen LINK because they want to have a local vendor. So me, personally, I believe that that strategy will mitigate the threats for LINK. We sort of will make sure that we are in a position to pursue the opportunities if and when Apple decides to open up on RCS for application-to-person messaging, also on the RCS standard in iMessage.
We have a question regarding the excess cash position, and if LINK will consider buying back own shares.
The bond agreement limits our ability to do that. So, as it stands now, it can only be an immaterial amount of shares that we can buy back. So, that's how this sort of is at the current stage in time.
Then we have a question regarding artificial intelligence, and if LINK is considering any M&A targets related to that?
Our plan A is to partner up when it comes to artificial intelligence. Acquiring companies in that space with the valuations that we are seeing now, that would be kind of complicated and unnecessary to spend so much money on it. It would be, in my mind, easier and more practical to do a partnership.
We have a follow-up on RCS, and if there's any margin difference between RCS and other OTT channels.
I think Morten can answer that question.
Yeah, typically there is a high margin, usually about 50% on RCS, but this varies also from country to country and from client to client, depending on their size and their volume. But there is, we observe a higher margin level on RCS due to the richer feature set it contains. Yes.
Then we have another financial questions regarding working capital, and if there'll be any less volatility in that after Message Broadcast is divested.
Yeah, we see that in the quarters where Message Broadcast has grown a lot on typically professional services, very high-margin products. We have some impact of that, of course. Working capital is a bit lumpy because we have 50,000 clients and also a multiple number of operators invoicing different timing every month and quarter. So, it will still be some fluctuations between the quarters, but of course, the rest in US has some positive impact to the level of lumpiness, so to speak.
Then there's some broader question regarding Western Europe with the relatively good results and organic gross profit growth, if that's a trend we expect to continue, or if the market is still uncertain.
I think, Western Europe, we do expect them to grow in the future also, but not necessarily to the extent that we've seen in the third quarter. The growth momentum there were fairly high. We hope that the Nordics will improve their growth momentum. They're struggling a little bit in the third quarter, and we do expect that to pick up during 2024. So, yeah, that's my high-level sort of feedback on the performance on the regions.
Yeah. Then on the other hand, probably you would add something on Central Europe, Thomas?
Sorry, could you repeat that?
You want to add some comments on Central Europe specifically, or you covered it as part of the Western Europe question?
No, I think, what we see in the third quarter for Central Europe, that would be in the sort of low end of what I would expect, as performance going forward.
The question regarding potential dividends, if you have anything we can add to that.
Yeah, dividends is also restricted in our bond agreement, the same as buying back shares. I think I forgot to say last time, of course, due to the very low interest that we are having on the bond agreement of an interest rate of 3.37%, it's very easy for us to invest the excess cash on as close to risk-free assets as possible with a much higher sort of return. So we will generate a net profit on the investment there, compared to the interest cost on the bond.
LINK announced advanced partnerships with Meta and Microsoft in the summer. Any updates on that?
No, not really. It's being implemented. These are complicated and sticky partnerships, so it takes time to develop them. But we have a lot of faith in these partnership creating a lot of value for us going forward.
We currently have no further questions. Please post any additional questions, online.