Hello, and welcome to today's Cint third quarter 2022 results presentation. My name is Bailey, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Tom Buehlmann, CEO. Please go ahead when you're ready.
Thanks very much, Bailey, and welcome. Good morning, everybody. Thank you for your time and for listening in today. As we start, move to the first slide, which is the agenda. Just by brief way of introduction, you've got myself here today in the Danske London offices. Thank you, Danske and Victor for hosting us today. You also have Britta Milde , who you will have met last time, as our Interim CFO. Let's get straight into it. If we move to slide number four, please. Just by very brief way of reminder, this is us. You can see us represented graphically on the top part of the slide there.
Really what we do is we match the kind of brands on the left-hand side, and companies wanna ask questions with respondents on the right-hand side who want to respond to questions and reply to questionnaires, and in a fully programmatic and automated way. As you all know, we are now the world's largest consumer network. We think of that as a major competitive moat, 252 million connected consumers at this point in time, and growing. Now, just a little bit of history. I mean, you all know that historically our ambition, in fact, both Lucid and Cint ambition was to be the number one platform.
Both companies, you know, strong profit growth, supported by some M&A in the years before the merger. Of course, with the acquisition of Lucid at the end of 2021, we did really create the number one platform. We really believe that you know, we've got very strong growth and synergy potential of the much larger combination. You know, it's we are talking about Q3. It is important. We'll go to that obviously. I do wanna kind of just start by zooming out a little bit and talking about you know, kind of the rationale for the merger and the direction of travel, which we see as extremely positive.
Just a quick recap on the bottom right-hand side there, we have become a very much an Americas-focused business, just a little bit over 60% of our net sales by region in EMEA now at a little bit over 30%, and APAC at 8%. If we go to the start, please, this is our recap of strategy at a glance. You'll be very familiar with these. You've got four kind of major sort of growth levers. We've got, you know, growing share with established insight customers. You'll have seen in the numbers that we're gonna show shortly, they have grown really well with us through Q3. Growing with the tech-enabled insight companies as well, of course.
New customer acquisition, that continues to be a really important and successful for us, growth lever and indicative of positive things to come in the future. Then of course, we are constantly evolving software platform product portfolio, really important, and we'll continue to do that. The M&A side, yes, it is there. We will continue to do it, but not right now and not for the time being since we're still very much in the integration of Lucid. In terms of financial targets, I absolutely stick to what we said when we did the combo. 25% annual organic net sales growth in the medium term and an EBITDA margin also of 25%.
I'm sure there'll be some questions and discussion around that which we'd very much welcome. If we now move onward to the next two slides and talk about Q3 specifically. Really, I would say here for me, I'm really happy with our financial metrics and I'm not happy with our organic year-on-year growth, right? You'll have seen that earlier. The Q3 net sales came in at SEK 24 on a reported basis, with 11% on a constant currency basis. Now that by way of context, if we look at year to date, so first three quarters on a constant currency basis, we are you know still growing at a very nice 18%.
You know, Q3 down at 11%, and that's the bit I'm not happy about. In my mind, there are two major drivers for that. One is the macroeconomic situation. It is making brands a little bit more cautious. We can talk about that a little bit later on in the Q&A session. But really what I'm seeing is that it's a little bit similar situation, if you like, as with COVID, where initially when that started, it was a little bit deer in the headlights kind of situation where brands were immobilized. CFOs in many brands kind of took over control of discretionary spend and kind of froze it on a temporary basis.
That's very much like, to me, you know, what happened in Q3. It feels similar to the very early stages of COVID. I think that's definitely one of the factors that influenced our organic growth. The second one is platform performance. Frankly, that's a known goal, right? We did have suboptimal platform performance during a very important integration project, and also on the platform side we had a delayed partner API integration which impacted revenue.
The way I think about that, and we've done some pretty thorough analysis, those two factors, the kind of internal one, like not the macro, the internal ones, I think have probably accounted or cost us, if you like, 3%-5%, I think, of growth in the quarter. You know, the way I think about it is, we're somewhere in the mid-teens, which not stellar, but I think in the overall context, I still do think that's pretty good. Gross profit. Now, moving on more to the financial metrics.
A nice increase on absolute gross profit, and very encouragingly, we've got our gross margin 63.4%, which is the highest level so far this year. You know, for us, this is a journey, right? As we get a little bit of you know kind of external softness on the revenue side, we have focused very much on the second part of our financial commitment, which is the EBITDA margin, of course. I think we've delivered a pretty good number here. You know, we've done a whole bunch of measures around sort of cash-focused initiatives and cost initiatives.
As a result of that, we're pretty happy to report 90% EBITDA margin for the quarter. Britta is gonna talk a little bit more about the sort of specific initiatives and metrics that contributed to that. In fact, if we could move to the next slide and talk about net sales development on a pro forma basis. What you can see here is the typical reporting that we do. We've got the business segments on the left-hand side. Media measurement is really, you know, sort of nice growth and really driven by our big customers, which I think is really encouraging.
Big customers continue to spend and continue to kind of measure their online effectiveness, which is good. Of course, you can see then on the marketplace, which is the kind of the bulk, the core of our business, the growth there as well. By region, it's a similar pattern, of course. You know, Americas is kind of leading the charge there, at least on a reported basis, but they've obviously also had a lot of currency tailwind.
We've got and landed during Q3 and also right now in EMEA some very nice large deals which are nascent for the time being but will contribute increasing revenue as we move forward into Q4 and into early next year. Finally, on APAC. Really, APAC is a story of key accounts and that's really good. We've refocused or are focusing on the big key accounts in APAC, and that is yielding some really interesting positive results here. I think for me, on this slide, the really interesting pattern here is on the customer type.
Here we've seen a flip of growth rates from the tech-enabled over to the established insights companies. Then that's just by way of reminder, we saw something similar in Q4 of last year. Really, I think this is interesting for the following reason. I mean, we've done a lot of digging and a lot of kind of market intelligence. Really, the conclusion we come to is the following, is that when things get challenging and very complicated out there in the world, brands are resorting more to the established insights companies. That's for two reasons.
Number one, it is the kind of spontaneous or ad hoc research that they are pausing or not running. What they focus on is ongoing trackers, which if you remember, is kind of measurement of certain brand attributes on a frequent basis, often multi-country over time. That is a lot of the bread and butter of the established insights companies. Tracker work is. Secondly, I think this is the interesting point, brands are looking for advice and consulting because they need to try and understand the very kind of convoluted things that are happening out there in the world right now.
that is, I think, a really sort of interesting trend because what that is showing is that things really are complex for all of us out there. Brands are now going back to saying, "Actually, I need some help. At this point in time, I don't want just a widget on my desktop to do some quick analysis. A kind of dipstick of what my brand or the competitive brand is doing, which is effectively what the tool guys allow brands to do.
What brands are now after, and that really is an indication of what's happening out there is kind of a consulting overlay to say, "Okay, here are the numbers about, you know, kind of my brand. Now, how do I think about those?" That's kind of our conclusion and hypothesis around that, which is actually, you know, kind of underpinned by many of the discussions that we've had with both end customers and our market researchers. If we go to the next slide and look at our operational KPIs, I think these are very solid. I'm happy about these. For convenience, I added in this one the respective numbers that we have at the end of Q2.
You can see there that we've got a very nice increase in number of B2B customers between Q2 and Q3, from 460 to 4,840. That really just, you know, kind of provides some data because I did say back in Q2 new business development activities were very positive and that will indicate that we continue to gain market share dynamically. I'm really pleased about that metric. On the connected consumer side, 239, too, good positive progress. Really encouragingly, in terms of annualized kind of surveys, 159 actually at the end of Q2 to almost 190.
Again, you know, ultimately that is the measure of what we are doing in terms of activity. It's the throughput between the supply and demand on our platform. 190 million surveys is really good. Again, this doesn't, to me, smell like a slowdown on the activity side there as well. If we move on to two slides, please, and talk about our integration. Really, I think we are in a really good. I've got two slides here. I've got one on the sort of overall integration. The next one, which we won't go into just yet, is again about the headcount. Here Lee, on the integration side, a lot is happening.
First up, I would say, in terms of people, process and systems, there's a lot happening. What we've done is we've launched an extended leadership team. That is not just kind of the ExCo. A few of us in ExCo, we've now nominated and handpicked the kind of next level leadership team to kind of both be our eyes and ears out there in the now enlarged organization, but also to kind of input to strategy and to help communicate what we're trying to do. That's really positive. That's a kind of a new step for both legacy companies to have that.
Secondly, we've now combined the people data into one HR information system, which is quite complex for those of you who've been involved in that, but we've now managed to do that. That is now up and running. We have done and will continue to harmonize a lot of the policies. I mean, it sounds silly, but it's really important to have a, you know, common travel policy, common, you know, common information security policy and so on. That is happening now, and that's gonna make everybody feel much more part of one Cint. Of course, also importantly, a joint CRM system project has now kicked off. That is really essential.
We're gonna be moving to Salesforce, which was what legacy Lucid was using. At, on the Cint side, we did not. Having a common view of customers, of leads and all the kind of important sales related metrics is gonna be really beneficial as we move forward. Next up on the commercial side, we've now re-enabled a lot of the cross-platform integrations, which is great because that means that the kind of the supplier pool will continue to expand, which we can dip into as the demand comes in. The go-to-market as one Cint is really happening now. So we are now presenting ourselves as one Cint.
That is, you know, kind of being positively received by the market. Then of course, also on the product side, integration work. Last couple of quarters, I was talking about spending a lot of time on thinking this through and planning. That will obviously, the thinking will continue, but now the integration work is actually starting in earnest. On the product side, that is now happening as well. That gives you a little bit of a flavor of what we're doing. If you look at the kind of just by way of reminder, we absolutely stand by that we're gonna have synergies, annualized synergies of at least EUR 40 million.
That will continue to be driven by the OpEx side of things. We'll move on to that in a second. The non-recurring integration fee will stick with the EUR 40 million that we've said. So far, first nine months, we've made 15 of that. You know, we're kind of we're spending, I would say we're spending appropriately on that as we move forward with the integration. Now, last time I talked about headcount, and I'd like to move to the next slide, if we could, please. As you can see here, we've held we had a big step down in headcount from Q1 to Q2. Talked about that last time.
Really the message now is, you know, we are staying at this kinda level, stayed at that level for Q3, and that's, you know, very deliberate. It doesn't mean that we've got the same folk in the same jobs. Absolutely not. We continue with the synergy delivery in selected areas. Of course we are adding again in selected areas, you know, notably commercial product engineering, as well. It's not, you know. We're not frozen in time, not by any stretch. We continue to be thoughtful about how we reinvest.
Part of what is happening there behind the scenes, of course, is also process harmonization between the two companies. You know, we'll take decisions, continue to take decisions as we go in terms of kind of you know which positions we still need going forward, which we no longer need, and which additional positions we need once the processes have been harmonized. Net net, approximately static overall headline headcounts between Q3 and Q2. I'll be back a little bit later on in this presentation. For now, I'm gonna hand over to Britta to take us through the financials.
Thanks a lot, Tom. Also, welcome from my side. Could we please flip to slide 14? As Tom already highlighted, net sales grew by 24% on a pro forma basis. Gross profit development was in line as gross margin almost stayed unchanged. The focus on the profitability is clearly reflected in the development of our adjusted EBITDA, which is very favorable. We increased the EBITDA by 58% on a pro forma basis, which is very impressive. We are very happy about this. We have an adjusted EBITDA margin of 19% in Q3. The margin expansion was driven primarily by scale and synergy benefits in this case. We have a detailed slide on this as well. Could you please move on to the next slide?
As you can see, we have strong OpEx control, so we have three quarters in a row with constant OpEx. This was primarily driven by headcount management. Also, as presented at the beginning of the year, we have seen the low margin Q1 increase in Q2, and have another increase now in Q3, which is very favorable. We expect a further increase and improvement in Q4 as well. Could you please move on to slide 16? Because there we have the increased focus on the strong cash generation, as Tom already indicated. Last time, we got a couple of questions on our net working capital and on our cash generation. You can see that we have strongly improved the operating cash flow, and we have a material cash flow contribution from changes in working capital. That's correct.
We also have a deep dive slide. We will present the next step. Net cash flow materially improved at SEK 50 million for the quarter. Consequently, also, the cash position improved significantly, which is a very favorable development and is driven by a couple of initiatives we have taken. Could you please move on to the next slide? As already indicated in the Q2, we have launched a couple of initiatives that materialized in the Q3. We have reviewed overdue customer invoices, we have harmonized and improved the payment terms for customers and suppliers likewise. We have worked on the payment discipline and improved payment schedule for the payables. We see a really strong positive impact by this, which has clearly affected the ratio.
What we did here was, we had, we calculated the ratio of the total customer spend to the net working capital, and you can see a massive improvement in Q3 for this. We also see improvement in the accounts receivable. This work still needs to be intensified, but this is a change story, and it's a kind of also educational effort. We are very positive that we continue on this journey. Overall, handing over to Tom for the wrap-up.
Yep. All right. Thank you, Britta. Yeah, so if we're on the key attractions summary slide. What I really wanted to say here is, you know, we said when we talked to you guys about the combo, we want to be a Rule of 50 business, right? Absolutely, kind of we're reasserting that. We've said that throughout, and we're reasserting that again today. I believe our trading fundamentals continue to be very strong. Getting a lot of market share in a lot of areas, and we're doing really good progress.
I think our underlying performance is very solid, especially in the context of, you know, kind of a lot of integration work that is happening right now. I think there are definitely macroeconomic and geopolitical trends that are impacting our industry. Really what we've decided to do is focus even harder, I would say, on the profitability and cash generation. I think you can see that reflected very much in our numbers.
What we're gonna do is keep a really close eye on the macro side of things, and of course, you know, kind of continue to seize revenue and commercial opportunities, which we have done so far. You know, in the current very turbulent macro situation, which really is a little bit out of our control, what we are doing is doubling, tripling down on the financial metrics. Again, always with an eye on this Rule of 50. That's kind of a little bit of context at the beginning, the end to kind of our numbers.
With that, Bailey, I'm, you know, we'll close the formal part, but very happy to take questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. As a reminder, if you are using a speakerphone, please remember to mute your handset before asking a question. Our first question today comes from the line of Predrag Savinovic from Carnegie Investment Bank. Please go ahead. Your line is now open.
Thank you very much, operator. Good morning, Tom and Britta. Starting with the organic growth, if you could elaborate a bit on this and the drop. I mean, macro is obviously something you cannot control, and the other two things from the platform side. Tom, I think you said 3%-5% drag from the internal challenges. The underlying number could be up to 14% then on a like-for-like basis. Is that something we could expect comfortably for Q4? Then with what you know today, reasoning around the growth level for 2023, when you think of the macro headwinds and this API and migration being done, your current deal wins and customer discussions, et cetera. Not a firm guide, but just a general momentum kind of expectation thinking for 2023.
Thank you.
Hi, Predrag Savinovic. I think you've given a good summary. I mean, the way we think about it, I mean, I saw some of the numbers talking about 9% year-on-year. I mean, I think that's excluding Lucid. My view, that's not the right way to look at it. I look at it on a like-for-like basis, and that gets to 11%. You know, add three to five on top of that, you get to mid-teens. You know, again, it's not, as I said earlier, it's not stellar, but it's okay. I think it's pretty good in the current environment.
I really do think that we had a repeat or are having a repeat of this deer in the headlights situation where CFOs are kind of taking over or controlling brand spend, i.e., cutting it in the early stages of big uncertainty, which is what happened in COVID. My instinct is it's exactly the same again now. What I do expect I need to say, I mean, otherwise I'll be told off after this. I have to say, we're not giving quarterly guidance, but I will give some more commentary.
For Q4, what I do expect is to start coming out of the deer in the headlights phase, and brands to say, "Actually, we need to know what is going on." Because they do. I mean, that's just. That's similar to the pattern that happened, you know, last time we had a situation like this, number one. Number two, we saw a substantial uptick on political polling work for the Americans obviously at the end of September, and that is continuing into October, which is good as well.
The third piece I would say is, you know, the headline increase in B2B customers. I think it's about 200 or thereabouts. I mean, those guys are, you know, ramping up spending. As we've said in the past, you know, you get a new customer, they try you out, and then they start ramping up spending. Out of that cohort, we're starting to see some really good spend coming through as well. All of that makes me, despite, you know, the macro nonsense, despite all of that makes me, you know, very, very optimistic about Q4. In terms of 2023, I mean, I think that's gonna be a story of the macro, to be honest.
From our own internal, kind of view on that, we're getting really positive signals. You know, A, I can't say the name, but a major customer, really major customer, has just committed through a purchase order to double their spend in next year versus this year, which is phenomenal. Equally our enterprise pipeline is really good. As I said, the new B2B customers that have come and are coming on stream makes me really confident. It is gonna be 2023 really is gonna be about the macro in terms of what that is doing to overall sentiment, I think. Does that help?
Yeah, that's very helpful, very encouraging. Thanks. Thanks for that. Just one question also on cash flow, which obviously reverses very nicely this quarter. I wonder if there's some level that you would say is representative. I'm thinking of the cash flow, you know, before the working capital changes and any details you can give, you know, further down, of course, also interesting.
Well, what I would say, and I'll pass on to Britta in a second, is I mean, the sort of cash-focused initiatives that we started. We're obviously not gonna stop now that we've got some early positive results. I mean, it is early results, and we're gonna absolutely continue doing that. I think I said in Q2 that we, I think, took our eye off the ball is perhaps a bit harsh, but with lots of integration stuff happening, you know, kind of the core, some of the core sort of functions and tasks were maybe not as top of mind to us as they should have been, but they are now. That absolutely is gonna continue.
I'm gonna give pass over to Britta to give a more sensible answer.
No, thanks, Tom. That answers a large part of it also already. Thank you very much. As you have seen the accounts receivable, we managed to get down the overdue amounts quite significantly. We are working on further improvements. We are not yet there, as Tom stated, so we are continuously working on this. We might have had some kind of slightly one-time effect with regard to the accounts payable, because we reviewed the payment terms and aligned the processes and the terms among Cint and Lucid. This might not be as massive in the following quarters, but overall, this will definitely be something you will see in the future as well.
Fantastic. That's all for me. Thank you.
Thank you.
Thanks, Predrag Savinovic.
Thank you. The next question today comes from the line of Daniel Thorsson from ABG. Please go ahead. Your line is now open.
Yes, absolutely. I think that you answered the first question I had very, very good here. I was just trying to understand how the organic growth developed throughout Q3 to understand Q4, but you helped out very well there, Tom. I jump to the next one on the synergies here, the EUR 40 million. Can you give a ballpark figure, or just for us to understand how far you have come if you are annualizing the effect here in Q3? Are we like 25% through now, or do you see it materially differing from that assumption?
We did talk about that specifically, but I'll give you some directional guidance. What we said was, if you remember, no synergies in the first six months, and then pretty much linear from now through to the end of next year. That's kind of what we said. I can say with high confidence that we're well ahead of that. It's for now, primarily driven by OpEx. We're obviously working a lot on this, on the commercial synergies. We're starting to get a lot of the cross-sell that we talked about, principally on the measurement side. That is starting to come through.
It's good on the customer, on the contract side, but it's not yet translating into very meaningful revenue because these things, you know, they ramp up over time as we've said. We're very comfortably ahead on the OpEx side because that's something that we've been very focused on right since the beginning because it's directly in our control.
Yeah, I understand that.
Daniel, does that help?
Yeah, absolutely, that's helpful. Secondly, linked to that one, how important is it for you to come back to 25% organic growth again to be able to reach the 25% EBITDA margin midterm? I guess that is obviously a fair, pretty large share of the assumption to reach that margin target. We'll see if it happens in 2023 or if it comes later. How important is it?
No, it is important because, you know, a lot of our, I mean, the way our business model works is, it's, I wouldn't say it's a fixed cost model, but there is a, you know, there's a high degree of efficiency that comes with scale, as we've talked about in the past. We always said, you know, once we crossed the SEK 100 million threshold on Ascend standalone basis, we started to kind of reap benefits. That is absolutely true. Yes, we do need. Actually we want to, right? I mean, it's not just a kind of a model thing, it's also a desire thing, right?
I mean, we're in a market of, in a directly addressable market of SEK 3.5 billion, as we've said, which is, you know, companies spending money to access respondents for market research. That's SEK 3.5 billion. We're maybe, you know, less than 10% of that. I mean, it would be unimaginable that we don't wanna grow as fast as we possibly can, to access that. It's partly intent and desire and partly economics and business models. Yes, it is important.
Yeah. Makes sense. The last question is on the annualized completed surveys here, the 190 million that you showed. That is growing 19% over Q2 on an annualized level. Does it mean the price per survey or the mix of longer, shorter surveys has affected you negatively in Q3 here, or is that a trend that you see or something that has happened with the current market environment, or?
It's. No, you're right. What is happening or what did happen, I don't yet know because it's too short a period to be able to extrapolate, is that surveys got shorter and in some areas the price came down. That is something that did happen. Yes, you're right.
Yeah
Whether it's a trend to queue for, don't know.
Okay
Sorry, I interrupted you. Go ahead.
No problem. I just want to confirm that you were still able to defend your gross margins. It wasn't a problem to pass on the lower prices on lower costs for the suppliers anyway.
Exactly. I mean, you mentioned pricing. No one, no one's asked yet about inflation and what we're doing about that. I mean, we do have, as I said in Q2, we've got a very active series of pricing projects. Now, we obviously don't wanna price ourselves out of the market, but in selected areas and where we think we can, you know, we are taking pricing measures absolutely. As you can see in our gross margin, so far so good.
Excellent. Thank you very much, Tom Buehlmann and Britta Mittler.
Thanks, Daniel.
Thank you. The next question today comes from the line of Sara Ståhl from SEB. Please go ahead. Your line is now open.
All right. Hi, good morning, everybody, and thank you. I would just like to rest a little bit on the organic growth. So in terms of cyclical exposure, could you elaborate a bit on where you would expect a potential recession in 2023 to affect you most in terms of business segments, customer splits and geography, if you have a perception of that? I think tying into that question as well, I understand that 2023 will be a macro story mostly, but do you have an idea of where the sort of cycle bottom could be for your organic growth? Are we talking quarters with potentially negative growth? Because we've seen that in more traditional firms. Do you have another view of that? If you could elaborate a bit, that would be helpful.
Yeah. Hi, Sara. How about let's talk about that. Negative growth quarter-on-quarter, no. I don't expect that at all, no. I mean, that's, let me just knock that on the head. I can't imagine a scenario where that happens. In terms of kind of peeling the onion a little bit, which you asked about, in terms of where the impact was, or we expect that to be, I think, the measurement business, just from a kind of business model context, because the measurement business measures online ad effectiveness for brands. As we've seen in some of the other big companies reporting at the moment, you know, there is a pullback in online ad spend.
Now having said that, I mean, we are, for the time being, a tiny player in that. As you can see, you know, we still grew nicely. To answer your question, I mean, the measurement piece is something we are keeping a very close eye on. The other thing that we do keep a very close eye on is new logos, new business development. So far, that has not slowed down at all. Quite the contrary. It continues to be extremely robust.
Because generally, what you find in kind of tricky times is that brands kind of stick to people they know, and kind of spend money with them just for reasons of trust and so on. That was not the case for us during the COVID times. We continued to land new logos, and it continues to be the case today. I think that the reason for that is that brands, when times are tough, they need to save money and become more efficient, and that is part of our value prop, right? It's a core part of our value prop. That makes me kind of optimistic.
The final piece is what I said is I do think we're in the deer in the headlights phase of this current crisis. I think marketing people will convince their CFOs to loosen their purse strings as they've done in the past, in the weeks and months and quarters that come. To answer. You know, your specific question was, you know, when can I call the bottom? You know, my gut says it's probably around now because of this deer in the headlights thing, and I think things will pick up from then, for us at least, in our space. That is my personal view.
Okay. That's encouraging. I had a more sort of a specific question on this quarter. There's been some M&A activity in the sector on the supply side, and I was just wondering if it's possible to quantify if there's been an effect at all from that, from revenue streams pausing from those particular suppliers.
Mm-hmm.
If you're able to quantify it or not?
Yes. Yeah, you know, good knowledge of our industry. Yes, there have been two particular M&A activities by with bigger market research companies buying smaller supply partners. Maybe they're taking a leaf out of our playbook that we started. Yes, we did have a short-term impact on that. The kind of, I would say, commercial agreements are reestablished now. We're kind of back on track. That definitely had an additional kind of and temporary negative impact on Q3, yes.
Is it possible to say how much at all?
Probably EUR 1 million-EUR 2 million, I would say, revenue.
All right. Cool. In terms of just what you're seeing so far in the quarter and also what you saw, can you tell us anything about exit rates in Q3 and October? Because I'm thinking usually there's a budget flush during Q4. Just wondering if you have any input on that.
Sorry, what do you mean by exit rates? Sorry, I'm not understanding terminology.
Are you seeing sort of people dropping off from the platform or any changes tied to so far in the quarter tying into the fact that usually, if we go back to the whole CFO spending, the pattern is that there's usually sort of a budget flush at the end of the year. If you expect any-
Yes.
Pick up from that. Yeah.
No, definitely. I mean, Q4 is, as you might well know, you know, kind of 35% or more of our annual revenue. We have a big spike in Q4 historically, and I fully expect that to repeat. I mean, it's partly driven by just there's a lot of seasonal events, you know, Thanksgiving, Christmas, you know, New Year sales already starting in December and so on. There's a lot of retail-driven activity, consumer-driven activity, and seasonal festivities. There is absolutely the kind of spend it or lose it phenomenon that a lot of brands still have.
Historically at least, you know, the result has been that Q4 has been very good for us. You know, on top of that, if we're talking on the positives, we've got the midterms in the U.S., which I talked about earlier, which are giving us tailwinds. You know, the only thing, and obviously, the temporary platform issues, we've addressed those, that goes without saying, but I'll just say it. You know, kind of the headwind, if you like, is this, the macro, right? Which is really hard to predict.
Okay. All right, great. Those were my questions. Thank you.
Thanks, Sara.
Thank you. The next question today comes from the line of Charles Brennan from Jefferies. Please go ahead. Your line is now open.
Yeah, thank you. Just a couple of questions from me. Firstly, can you talk about the level of visibility that you've got into your business? Back at the Q2 stage, I think you were optimistic that growth was gonna accelerate in Q3. That's clearly not happened. Can you just talk about the visibility that you've got? In light of that visibility, can you just run through the building blocks of your confidence for Q4? You've talked about the midterms. Are you able to quantify the benefit you're gonna get from that in Q4? With the platform performance issues, is that just lost revenue from Q3? Or do you get a catch-up effect in Q4 that supports your optimism? On an unrelated matter, can I just talk about the competitive dynamics?
I was looking at one of your customers, YouGov, the other day. They talk about a lot of similar terminology as you do, with a connected data platform for market research. To what extent are they referring to capabilities that you provide them? To what extent are customers like that developing their own competing capabilities? Thank you.
Well, yeah, thanks, Charlie. Let me start with the final piece in terms of the customer. YouGov are the customer, and you know, we sit in the middle of the qualitative market research ecosystem. In other words, we don't do any advisory on how to set up questions and questionnaires, and nor do we do any kind of consulting around that. We do the next stage, which is then linking the right questionnaire to the right respondent. Then again, we do not do the next, the final stage, which is collecting and analyzing the results and advising the brand.
YouGov are much more on the provision of services to the end client stage, or part of the ecosystem, whereas we're just very narrowly focused on the middle, kind of linking the right response to the right questionnaire. YouGov is a customer. I mean, you know, it's just as on the more tech-enabled side, we've got SurveyMonkey, we've got Momentive, we've got, you know, loads of customers on the kind of delivery side, on the tech-enabled. Equally, you know, we've got Kantar and GfK and Ipsos and all these valued customers also on the more traditional side. I see YouGov, to answer your question specifically, as they're an important client.
That's what they do. A lot of these folk, you know, they decide what they wanna be the best in the world at. It's often either developing, you know, kind of the software that sits on a brand desktop, think Qualtrics, think Zappi, or providing very smart consulting overlays in terms of designing the right questionnaires and then interpreting the results in a smart and effective way. Neither of which we wanna get into, right? I see that as a complementary part of the ecosystem, in fact, an essential part of the ecosystem for YouGov and others to do their thing. That's on the competitive side.
You talked about catch up or not from the platform issues. Unfortunately not. No. That is, you know, the way that the research often works is brands wanna do it in a certain time. And if we, for whatever reason, can't serve them with the right respondents at that time, that is unfortunately lost revenue, which is highly irritating, but that's the way it works. Next question. Sorry.
I was gonna say, just in terms of your general level of visibility, though, because you were optimistic about accelerating growth in Q3 and that hasn't materialized. Like, what are the tangible building blocks that we can hang our hats on for your Q4 performance?
First of all, in terms of well, on a specific point, I mean, look, in my opinion, the world has changed since Q2, right? I mean, it really has. I mean, I'm not, you know, trying to hide behind the macro, but I really do think the world has changed dramatically. You know, I stand behind what I said in Q2 based on what I knew then. But the world really has changed. Now, to get more specific, you said visibility. There are two kind of levels of visibility. There's actual bookings in our platform, which is, you know, customers saying, "We wanna do this project," then and all the rest of it. That is relatively short.
That's sort of 6-8 weeks, I would say. That is pretty short in terms of very tangible outlook. What we do have is we have business meetings with our customers, many of whom have been with us for years. The average is, you know, 7 years I think now. There is a cycle of research that these, that our customers go through every year. We know what that is, and we're talking to them about, you know, kind of providing the respondents for that on a regular basis. That then gives us not contractual visibility, but it gives us kind of, you know, outlook visibility, I would say.
Then the final piece is our, you know, multi-year contracts with our larger enterprise customers. That is, you know, as I've said in the past, it's multi-year agreements typically with a minimum spend agreement. You know, that's that obviously. It doesn't say exactly which quarter that will fall into because that we don't specify. It's on an annualized basis. There we do get some, sort of, comfort around that. Generally speaking, in terms of potential kind of booking visibility, it's relatively short. It's relatively short, which is why it makes it quite challenging to give a prediction for a quarter when things are really topsy-turvy as they are at the moment.
Just lastly from me, and I'll let you move on, but that makes it sound as though July must have been a decent month because you at least have some short-term visibility. The exit trends through August and September must have been materially weaker, and I guess that's why a lot of us are asking about the exit momentum into Q4.
Yeah, look, I think the situation did change substantially between Q2 and Q3, right? In other words, as I said, it's the macro is definitely impacting the industry. To me, the biggest indicator of that is the flip in growth rates between tech-enabled and established. Yes, we saw a similar pattern in Q4, but it was much less pronounced than it is now. We're really seeing a pullback of spend by brands for the tech-enabled guys. As a result, you know, kind of, then the more established guys doing their consulting and doing well with that.
That, to me, is a real indicator of how turbulent brands feel things are out there.
Perfect. Thank you. Good luck. Good luck with the quarter.
Thanks, Charlie.
Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from the line of Viktor Höglund from Danske Bank. Please go ahead. Your line is now open.
Hi. Good morning. So could you help us with deciphering the gross margin, EBITDA margins, between Cint and Lucid? The gross margin was strong now in Q3. Was that more of Lucid being a higher revenue in the mix or anything positive on the supply squeeze which have affected you in the past couple of quarters? Just a bit more granularity between the two assets, that would be perfect.
No. We don't split out Lucid-Cint anymore because we're now one business. What I can say is that we have been focusing on the kind of gross margin side pretty actively. It's a result of kind of all the bits of work that go into that. We don't split out kind of Cint and Lucid separately.
Okay. The performance was decent in both, I would assume?
Yeah. Yeah, yeah.
If you were to say that.
No, absolutely. Yes.
Okay. You also said you landed, actually upgraded contract with two of your global customers. I think you might have alluded to one of those now during your call with one of those customers doubling their committed volumes for next year over this year. What does this mean in reality in terms of numbers? If you could quantify it a bit. Did you see any effect now in Q3, or will it come in Q4 already, or will it be more in 2023?
No, it's gonna be 2023, but it's SEK millions. It's multiple SEK millions. The increase. I mean, it's big. They're a customer already now, and they're ramping up their spend as well. The kind of specific kind of commitment was for 2023.
What kind of work does it entail? Is this something you worked on for a long time, or were you approached by them? Just to get a feel for underlying customer-
No. They're an existing customer where we have been in discussion with a new division, which started off giving us SEK 2 million this year and now dramatically increasing it next year. It's a new division that our sales team have been knocking on the door on and getting some success in, and now we're, you know, we're really through there. We're in there.
Is this within the established or the tech-enabled customer?
I'd rather not say, 'cause it's gonna narrow it down. I'd rather not. It's
Fair enough.
I wanna be cautious.
In terms of OpEx, been rather flat the past couple of quarters. Is that to be expected or in Q4 as well? Any seasonality balanced with the cost measures that we should think about?
No. I mean, we're continuing to keep a really close eye on that. As I think I said in one of the earlier calls this year, OpEx will be reasonably flat for the year and therefore we expect to be, you know, kind of in really good shape on the EBITDA side in Q4. That's the plan. I think we will hire a few more people just to kind of prepare for next year, but we'll be very thoughtful about that.
On the new logos added, 180 customers seems like a very high number. If I recall correctly, your previous rule of thumb, where when you didn't own Lucid, was roughly 500 new customers per year. That would be a good-
Correct.
Good development. As a rule of thumb, 180 now. What would you say the new rule of thumb would be, give or take, to keep the business momentum?
Um-
To come up to the target level of growth?
I'd probably say 800-1,000 on the combo basis per year.
You think that customer potential is there, or over time to unlock by yourself? Or is the opportunity there for you to grab? What do you need to do-
Oh-
in order to land those numbers?
It's salespeople on the ground. So, no, we absolutely. The opportunity is absolutely out there. So, you know, if you just look at market share, we're 10% or less. Now we are obviously going after the bigger customers, so it's not linear in terms of our customer market share. But there I mean, there's a ton of opportunities. What we've actually done is, in both EMEA and the Americas, given our kind of bigger size now in the combo, we've got fully dedicated new biz teams now that are really kind of incentivized according to that and led according to that and act according to that, to really go and get new logos in.
It's working, so which is great.
Okay. Just to repeat on the receivable side, because the major thing in the working capital release was on the accounts payable. Should we expect a sequential improvement in Q4 on the receivable side? Or anything that could mask the underlying development in the overdues so that we get
Yes
the level of the ratio of receivables to sales to come down?
No.
Is that to be seen in Q4 already?
No, no. Yes, of course. As we just stated, we just kicked off all of those initiatives. We see that the collaboration between the sales teams and finance is increasingly progressing and getting better. We would expect a very positive impact from this side as well.
In the Q4 already?
Yes.
Okay. Thank you very much. That's it for me.
Thank you.
The next question today comes from the line of Sam Morgenstern from Danes Industry. Please go ahead. Your line is now open.
Thank you. Yes. I wonder, there was, there's been news that Google Surveys is folding. They're closing their operations. I wonder, does that affect the competitive dynamics for you, or are they in a different segment? Also, I'd like to know what, if you can elaborate on the accounts payable, what specifically happened there, in the quarter? Thanks.
Sure. I'll take the Google Surveys one, and then I'll pass on to Britta. Yes, Google Surveys has been shut down. It was one of their sort of trial initiatives that Google do in all sorts of different areas. What I would say is Google are a client, as you know, and they're a very valued client. We've always said that what brands are after are, you know, is kind of impartial research in the sense of nobody affiliated to any kind of big marketing services institution. You know, we provide those impartially sourced respondents from lots of different areas.
I mean, we think that is an opportunity. We'll kind of treat that accordingly. I mean, Google Surveys, to be fair, wasn't. It wasn't a major force in the market. We rarely. I think I can ever recall hearing about, you know, our sales teams coming up against them as a customer saying, "Well, we're gonna choose you or Google Surveys." It is kind of. We read that as, you know, kind of the market wants independent providers in the marketing service space, so we see that as positive.
Okay.
I'll pass on to Britta. Sorry.
That's okay. Oh, sorry. Can I just ask a follow-up on your business? I was also curious to hear about this client intending to double their spend. I wonder, maybe you have that information somewhere, but could you say roughly how large a share of your revenues that your X-largest clients account for, like your five largest customers, how much of revenue they account for?
Yeah, I think we did talk about that in, let me just check, while Britta speaks on the accounts receivable. I think it's something just over 20% for the five largest, something like that. But let me check that. I'll come back to you at the end of Britta's question.
Yeah. Okay. Now to the AP, to give Tom the time to get the numbers retrieved. As we said, as part of the integration process, we have reviewed the processes and the procedures with Cint and Lucid. We have improved payment patterns. We are more disciplined. In the past, we had the tendency to pay upon receipt of the invoice. Now we are paying the invoices on the right date. This will mean that in the upcoming quarter we will have some kind of normalization effect. There was definitely some kind of one-time effect in this quarter. Overall, this disciplined approach towards paying as well will also continue.
Yeah. It's...
So that's-
Sorry. Just to come back on Sam. Yeah, I was right. 22% of the five largest. So.
Okay, that's great. Thank you. One question, and that might be a silly question. Do accounts payable, does that include, that includes payments to, respondents, right? Panelists, as it were.
Let's check, and we get back to you. Yeah.
Okay. Thank you.
Yeah.
Yeah, absolutely.
Sorry, Brit, if you wouldn't mind going on mute. Yeah, just to kind of elaborate on that a little bit, 'cause Brit, as you know, is interim. Panelists are paid by suppliers for the most part, because we don't contract with panelists ourselves. In general, it's. We work through panel companies. It's the panel companies who, and the panel owners who pay the respondents. Yes, that is included in what you asked about.
Okay. Thank you.
Thank you. There are no further questions registered at the moment, so I'd like to pass the call back over to Tom Buehlmann for any closing remarks.
Thanks, Bailey. Thank you all for attending. I totally get the acute focus that you guys have on kind of organic growth and outlook. Trying to kind of really share what my views are on that as best I can. As I said, and I don't wanna hide behind this, but I think our fundamentals are definitely there. We will continue to grow as best we can, but I think 2023 is gonna be the year of macro. You know, as we go through this, absolutely convinced we will continue to our journey towards the Rule of 50 business.
Thank you very much for your time and attention today. I know we're gonna be speaking to several of you in the coming couple of days. I look forward to that as well. Thank you. Bye-bye.
This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.