Hello, and welcome to the Cint year end report 2022 presentation. My name is Elliot, I'll be coordinating your call today. If you'd like to register a question during the presentation, you may do so by pressing star one on your telephone keypad. I would now like to hand over to Tom Buehlmann, CEO. The floor is yours. Please go ahead.
Thanks very much, Elliot. Good morning, everybody, to our Q4 2022 results presentation. If we could move on to the agenda slide, please. You will see here on the left-hand side our kind of traditional agenda. For this Q4, we're gonna talk about the highlights, the Lucid integration financial update, of course, and then summary, and of course, we'll leave plenty of time for Q&A as well. In terms of presenters, as you'd expect, you've got Olivier Lefranc, our CFO, and myself. In addition, we've got Patrick Comer, Chairman of the Board, who is dialing in from the U.S. A very early good morning to you, Patrick.
The purpose there is to kind of give a sense of continuity given some of the changes that have been announced more recently. If we just move on to the introduction slide four, please. I do wanna recap this because I think it is important. You know, we are a global platform leader in the connected consumer insights market research space. As just to refresh all our minds, you've got Cint there in the middle. We're an automated platform. We connect, you know, brands or companies who wanna ask questions on the left-hand side with respondents who've opted in on the right-hand side. You will see there a nice uptick both in B2B customers and in connected consumers.
We'll talk about that in more detail when we get to our operational KPIs as we typically do. Then Cint at a glance, we are one of the world's largest consumer networks. We've always had the ambition to be the number one. you know, perhaps a little bit, you know, kind of a sort of temporary pause, but we have had a very strong track record of profitable organic growth. Of course, the acquisition of Lucid end of 2021 created the number one platform. We continue to believe very much strongly in the growth and synergy potential of the larger combo.
You can see there on the right-hand side of the bottom, net sales by region now, you know, very much a U.S. business, 60%, with EMEA, 30%, a little bit over 30%, and then 10% in APAC. If we just move on to the Q4 highlights, slide six, please. This, you know, we've talked about this in the 2nd of February trading update that we gave. Q4 net sales coming in basically flat on a constant currency basis year-over-year. As we said there, you know, we've got, you know, unexpectedly weak demand for the macroeconomic reasons.
We have had, and we'll talk about this more in a couple of slides' time, a significant increase in our reversals. Increase of 4% pro forma year-over-year in terms of our gross profit for the quarter. Then, you know, somewhat encouragingly, we've got an adjusted EBITDA margin of 16.8%, which is a little bit higher than we had in Q4 of 2021. Also encouraging, I would say, is improved cash flow following a bunch of initiatives that we talked about or initiated in Q3, and we continue to deliver on in Q4.
Then, of course, you know, given everything that's going on, we decided to do an impairment test and do a non-cash impairment amounting to the SEK 341 million. You know, that's kind of us in our Q4 in a nutshell. I do wanna give a little bit of a voiceover at this point because, you know, my, my sense is there's a bit of a, there's a bit of a feeling of doom and gloom, at least from the outside, looking at, looking at Cint. And at least in my opinion, I think that is a little bit overdone. Yes, Q4 was flat in terms of revenue, absolutely. I would say the reasons for that are very clear, at least in our mind.
We've got the macro, we've got the reversals that we're gonna talk about in some more detail. I think it's also fair to say that we've got some, you know, integration distractions that, you know, with a lot of our colleagues having two jobs, you know, their day job and the integration. I think there is a little bit an element of that as well. Number one, I think we're very clear on the reasons, at least in our mind. Secondly, I think we have a plan. We have a plan to reduce the reversals. We have a plan to get back to growth. We will continue to drive the OpEx synergies and continue the integration work. You know, we do have a plan.
Then finally, and that's a little bit why I showed the slide right at the beginning, I do believe that our fundamentals remain strong, right? We are the number one marketplace. I think, you know, we will sort out the issues that we're going through right now. I do actually think that, you know, when the marketing spend recovers, we are gonna be really well placed to benefit from that, given our size and our suite of product solutions. I did wanna say that, it's my point of view. I believe that very strongly. So I think, you know, this a little bit of doom and gloom in my opinion at least is a little bit overdone.
Moving on to the next slide, if we could please, let's dive a little bit more detailed into what's been going on. Here you can see the net sales development by business segment, region, and customer type as we've typically presented. What we've done this time, in addition, is kind of show what the pro forma and the constant currency is, right? As you can see on the left-hand side there, what you can see there is that our marketplace business in Q4 was down 3% in constant currency, whereas the media measurement was up almost 20% again on a constant currency basis.
Just to kind of round out the picture for you, I think it's important to look at the regional split in the middle left. There you can see that, and I'm gonna go sort of bottom to top, is that APAC was 20% up on a constant currency basis. EMEA was up 5% and, you know, the area where we're really focusing is the Americas who were down 5% on a constant currency basis. On the customer types, just to kind of complete the picture there, we don't have the breakdown on a constant currency basis.
What you do see there of pro forma is that, you know, kind of we're back to in Q4, the pattern that we've historically seen for much of the time, which is the tech-enabled growing a little bit faster than our established customers. You know, what conclusions do I draw from this? I would say the macro has impacted all business segments, regions, and customer types. However, that has been particularly acute, I would say, in the Americas, where, you know, it's, we've suffered, I would say disproportionately, in particular in the tail end of the quarter. With that, I would like to continue on with the operational KPIs.
As you can see here, we've seen, and I see this as a sort of positive picture. We've got an increase in B2B customers on the left-hand side. We've got an increase in connected consumers and, you know, encouragingly, we've also had a, you know, significant increase in the completed surveys, which is obviously the end product of B2B customers and the connected consumers. Now, some people might ask, you know, "Why hasn't the revenue increased in line with the completed survey increase?" Well, the key issue there is the reversals, right?
Because our platform believes that we've delivered the complete, customer says, "No, not a real respondent, so we're basically not gonna pay for it." That's why there is a difference between revenue and the sort of completed surveys. I think that's a good opportunity now if we could move to the next slide, please, to do a little bit more of a dive into this reversal point, right? Forgive me for sort of going into this in a bit of detail, but I think it's important. First of all, what is a reversal? During the survey fielding process, we send out, you know, kind of, surveys to respondents.
Sometimes we recognize that complete as genuine, and therefore that it's been delivered, but the buyer does not recognize it as valid. The buyer then removes those completes, and that results in a negative reconciliation, which is otherwise another word for that we use internally is a reversal. Give you a specific example. Imagine we're doing a survey. We think, or we want to do, the buyer wants to do 100 completes. O ur platform says, "Yep, we've done those 100 completes," the buyer comes back and says, "Actually, 15 of those we don't think are genuine, so we're not gonna pay for those." It is revenue that we think we had.
In that reconciliation period, which is typically 30 days, the buyer comes back and says, "No, actually, we're not paying for these." This is an industry phenomena, definitely. The normal sort of reversal rates that have been established and are accepted is sort of in the 5%-7% range. That's a little bit of what is a reversal. Next up, a little bit more detail if we peel the onion on reversals. There's really two types. One is unengaged respondents, and that really is, you know, where a consumer is maybe, I don't know, doing something else, watching TV, and just doing this by the by, and you can tell by the pattern of their responses.
Maybe they all, you know, if it's a 1-5 scale, they always click on five and go through it very quickly and don't bother with the open-ended questions, for example. You know, that is, that is defined as an unengaged respondent, and obviously, our customers don't want unengaged respondents. They want respondents who've been thinking, you know, carefully about the questions. That's one category. The second one, and this is the one that has been increasing substantially, is the fraud, which happens at the weakest link in the supply chain, and that generally happens when the links are manipulated, due to a vulnerability between the survey platform and the suppliers. Examples of this can be bot responses, where you get, you know, similar or identical responses for a whole bunch of respondents.
They come from maybe the same IP address. If they're doing open ends, often you get exactly the same verbatims or even the same typos. That, you know, bot responses are when somebody programs computers to kind of do this on an almost industrial scale. Duplicate responses, which is when you get identical open-end responses seen across multiple respondents. That, again, is a clue that somebody's trying to game the system. Then the very sort of complicated one is the ghost completes, which is an industry term, which is when a complete registers on the supply side, so the supply believes the complete that their respondent has done the complete, but not on the buyer side.
Basically what people do is they go into the system and they manipulate the links. Oftentimes that is due to a vulnerability between the survey platform and the supplier. As you can see is, you know, there's quite a complex sort of ecosystem between the person originating the survey, programming the survey, then there's the sort of survey platforms, there's ourselves, and then when the data is collected. There can be vulnerabilities in those interfaces and some people, you know, kind of make it their business to try and take advantage of that. If we could move please to the next slide. What are we doing about it?
First of all, and this is not an excuse, but it is true, quality and fraud are industry challenges, right? In our view, this is also talking to a lot of other folk, the macroeconomy has led to increased motivation for people to try and game the system. We are now the largest global exchange and we're a public company, and our view is that that puts us a little bit more into the spotlight. The other thing to flag here is that the major increase in reversals that we've seen, particularly in Q4, has come from the fraud kind of component. It's not the unengaged respondents that I talked about earlier. Impact on Cint.
First of all, I do wanna say these reversals are identified within a short time frame. The buyers, the clients, they have, typically 30 days to kind of say that these, you know, to kind of declare that some of the respondents or responses they've had, they deem to be inappropriate, and so they reverse. In other words, this is not something that can go back in time beyond about 30 days. Within 30 days of the end of a project, we know what the reversals are. Of course, then what we do is we report revenue net of reversals, and have always done that in the past as well.
In terms of quantum, what we've said in the trading statement, and I'll reiterate here, is that the increase in reversals in Q4 2022 compared to Q4 2021 has taken about 5 percentage points off our growth rate, right? So, you know, if we were, you know, previously at this, in this sort of 5-7 percentage points range, the reversals we had in Q4 were 11% for the group overall. So, you know, quite a high number. That's all well and good. I can hear you thinking, "What are we doing about it?" That, it's multi-pronged, which is why it's not an easy fix, and it's not entirely up to us.
It does require product-based solutions, and it requires collaboration across the entire supply chain, right? Because it's when we do sort of technical or heightened security between us and survey platforms, that obviously requires the survey platforms to play ball as well. It's not entirely in our control. We do have things that are in our control. We have tightened up our current existing security features. We've re-scanned the market. We have a whole bunch of third-party tools that we're currently using. We've re-scanned the market and looking at what's available, and see if there are additional tools that make sense. We're actually also developing and testing an in-house AI-based methodology to identify fraud.
As I hopefully gave you a sense earlier, there are some patterns in fraudulent behavior. We're in the process of testing that to kind of pick that out much earlier and before a client says that there's a reversal. Importantly, we're now working on building the server-to-server solution, which is gonna be much more secure than it is currently. That again requires industry cooperation. Importantly, because this is an industry situation, we're organizing a quality forum and using our contacts with the industry associations to bring everyone together to help solve this problem. It's I think it's fair to say, Patrick, you're leading the charge on this.
The first meeting I think you've got is at an industry conference in, I think it's in two or three weeks. This is actively happening right now. We can come back to this. What I'd like to do now is head on to slide number 12, please, and just give an update on the Lucid integration. Q4 was a high-intensity quarter with respect to the integration, I would say. We, you know, worked very hard to get a common platform for people, processes, and systems, as well as launching company-wide sales and go-to-market messaging platform as well. Importantly, we started the implementation of this new unified product roadmap.
Now that is not an overnight fix, but it's absolutely essential for our future success to have a common platform, a unified platform. I think it's fair to say that this is gonna consume substantial time and resources also in 2023, particularly on the product side. We, in terms of the synergies, we absolutely remain on track on the particularly on the OpEx side. We've made, continue to make, and have done since the beginning actually very good progress on the OpEx side of things, 'cause those are directly in our control.
We reiterate that, you know, in terms of the integration costs, we're gonna stick to SEK 40 million that we said right at the beginning. And that will end at the end of this, the end of this calendar year. So far, I think we've taken just over SEK 21 million. Yeah. Just over SEK 21 million during 2022, of which about SEK 5 million in Q4. With that, I'm gonna now hand over to Olivier to take us through the financial update.
What you can see here is that our net sales were at SEK 83 million in the quarter, which is like a pro forma growth of 6.6% versus last year that was at 75.4%. As Tom said earlier in the introduction, 0.1% growth on the constant currency basis. Moving to gross profit in the middle. Our gross profit in the quarter was at SEK 48.7 million versus SEK 46.7 million last year. A 4% growth compared to pro forma. Our gross margin was a little lower than it was in the last in Q4 2021.
We are at 60.6% versus 62% last year, reflecting an underlying change in products mix, as well as some price pressure in some geographies. In terms of the adjusted EBITDA, our adjusted EBITDA was at 13.5% for the quarter, a growth of 18% compared to pro forma 2021. Our adjusted EBITDA margin was at 16.8% versus 15.2% in Q4 2021. Primarily driven by good cost control of the OPEX and also the integration synergies that Tom talked about earlier. Next slide, please. Here you can see the full year numbers.
Net sales for the full year at on a reported basis are at $295 million, which is the pro forma growth of 21% versus last year, 13% on the constant currency basis. Pro forma growth has been driven by some positive currency tailwind, so the strengthening of the dollar, and also some positive business development because we grew like 13% on the constant currency basis. We've seen the highest growth rates in Asia Pacific, 25% on the constant currency and EMEA at 18%. Americas, despite the fact that Americas was down like 5% in the last quarter, it grew 9% in the full year.
Moving to the middle, our gross profit for the full year is at SEK 183 million, pro forma growth of 22% versus last year. In terms of gross margin, we are slightly relatively stable, slightly below compared to last year, again, due to some price pressure and product mix. Our EBITDA is at SEK 48.8 million, pro forma growth of 35% compared to last year. Our adjusted EBITDA margin is at 16.5% versus 15.1% on a pro forma basis last year, primarily driven by scale and the synergy benefits. Next slide, please. In terms of the Q4 margin, Q4 margin has been impacted by lower than expected sales, but again is higher than last year pro forma.
At 16.8% in Q4, it is lower than it was in Q3, 19%, and Q2 17.7%, and higher than it was in Q1 at 12.1%. We have some seasonality, Q1, generally speaking, is a lower quarter than Q2, Q3, and Q4. As Tom mentioned earlier, we've done like an impairment of the goodwill for an amount of like SEK 341 million. This was largely triggered by the market reaction to the trading statement. Also, we had to take into consideration the macroeconomic slowdown and also the increase in interest rates. Next slide, please.
We have continued, like, to focus on cash, and this has had like a positive impact on our numbers. As you can see here, we had some positive cash flow in the quarter from changes in working capital of SEK 7.2 million. We had also some positive cash flow from operating activities of SEK 5.1 million. Net, net, our net cash flow was down like SEK 1.1 million in the quarter. The amount of cash and cash equivalent at the end of the quarter was at SEK 62.6 million, versus SEK 65.8 million at the end of Q3. The total net debt amounted to SEK 56.4 million versus SEK 65.9 million at the end of Q3.
Next slide, please. We have seen some continued working capital improvement. Several initiatives were launched in the third quarter, including like a review of the overdue customer invoices, harmonization and improvement of payment terms for customers and suppliers, and more payment discipline and improved payment schedule for the payable. We have pursued this initiative in Q4, and the total net working capital position continue to reduce for the second quarter in a row. What you can see is that we're at SEK 38 million in terms of net working capital at the end of June. That reduced to SEK 24 million at the end of September, to SEK 21.5 million at the end of December. I'm really expecting and looking forward to see further improvement in the coming quarters.
It's important to keep in mind that we have some pretty complex invoices. We need to go like into the weeds, so there are no quick wins. Definitely, we are moving in the right direction. I'm really expecting to see some continuous improvement in the coming in the coming quarter. Our accounts receivable have increased by 3.8%, but this is largely due to the sales seasonality. You might have seen that our net sales in Q4 were at SEK 80.3 million versus SEK 74.3 million in Q3, which is like a 8.1% increase. I think that's it for the financial part.
Yeah. If we could go to the next slide, please. Just to kind of pull everything together. You'll be familiar in terms of strategy and short-term priorities, strategy you will be familiar with, and it's obviously centered around one reversal reduction. That is a big focus for all of us. I'm sure that we'll get the question, you know, so how long is it gonna take? The answer is we don't know, right? We don't know for two reasons. One, it requires industry cooperation and we're gonna do our absolute best to kind of harness our colleagues to help with that.
Secondly is, you know, this particularly the organized fraud is a little bit of a technological arms race, right? And it has been over the years that I've been in the industry, and I was chatting to Patrick, and he said it's been the case for even longer, which is all the time he's been, which is, you know, they some... You know, the dodgy people, they find a loophole, they exploit it, we pick it up, we close that, and so on and so on. We're definitely at reversal rates way above where we want to be and where we will be. It's really difficult to give a specific time on that.
It is an absolute top priority for us. Secondly, commercial acceleration or re-acceleration. You'll be familiar with the kind of four red circles in terms of our commercial strategy. I'm very confident that those will continue to be, you know, the levers that will drive our future growth as they have been the levers that drove the growth of both legacy Lucid, legacy Cint in the previous several years. What we are doing is, as I said earlier, applying a very intense lens to the Americas because that's where we absolutely need to and are focusing. What we've done there specifically is made a couple of made some leadership changes. Those are already done.
secondly, we're doing a complete replan, if you like, of the year to kind of really do a thorough bottom-up commercial plan, sales plan, which I think is. Which I've seen the first version of, which is really good. you know, we're sharpening the pencils and the commercial activity really where the opportunities lie. thirdly, we are engaging and hiring, gonna be hiring some commercial resources to go after the direct-to-brands opportunity. We talked about that I think in Q2 or Q3 last year as a pilot. That's proven to be very positive for us.
I think it's partly actually driven by the macro weirdly, where brands are also, obviously, are also under a lot of cost pressure on all dimensions, raw materials, et cetera, et cetera, et cetera, and are looking at ways to be more cost-effective with their market research as well. We've had some good success with the direct-to-brand pilots that we did in the middle, started the middle of last year, and we're planning to roll that out starting with the Americas and the U.K. actually now. The final piece obviously, and I've talked about this a little bit already, platform integration and roadmap, really important. Big focus will definitely take all of this year and probably some into next year.
You know, really important because getting from the current, you know, kind of legacy platforms to one integrated one is very important on lots and lots of dimensions. That's a sense of our short-term priorities and strategy, which I think is a nice segue into the final slide, if we please. Which is, you know, and I'm gonna restate where I started, which is I really do believe that we've got very solid fundamentals. Yes, we've got some hiccups and some stuff to get through, but I'm really convinced we will do, right?
When we do, I think we're gonna be able to, you know, really take advantage of this very large underlying market. We've got this structural shift, digitization, that's unchanged and will continue. I think we're gonna be really well-positioned, especially when we have, you know, the integrated platform to take advantage of the uptick in marketing spend when I'm sure it will come. We've got these additive and complementary value props that we've talked about, particularly measurement, which continues to do well, as we talked about right at the beginning. And we will get back to delivering profitable growth. I'm utterly convinced of that.
As I've said, you know, we are on track with the synergy delivery, and that will then play out in a strong bottom line performance, because we've mentioned this in the past, you know, we're quite a sort of a relatively fixed cost business model, and therefore, when we get back to growth, that will then, of course, also benefit the bottom line as well. With that, Elliot, I'm gonna pass back to you to orchestrate the Q&A.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Daniel Ovin from Nordea. Your line is open.
Good morning, Tom and Olivier, thank you for taking my questions. My first question is a bit on what happened in the second part of Q4. When you reported Q3 in end of October, you seemed pretty optimistic regarding October, and you also talked about having a visibility of six to eight weeks. Now, you only grew 0.1% in local currency, and even if these reversals were only known afterwards, the organic growth would have been around 5% in local currency, which is still below the 11% in Q3. Can you just explain a little bit more what went wrong here and, maybe visibility is not as good as you mentioned then or, just help us to understand this first bit, please? That's my first question. Thank you.
Hey, good morning, Daniel. You're right. I was more optimistic during the Q3, which in hindsight has proven to be wrong, obviously. Really what happened was a couple of things. I mean, we don't talk about monthly revenue in detail, but I can say that both October and November were up fairly nicely year-on-year. But we had a big dip in December, and that was particularly in the Americas.
Two things happened there, really. One was, generally, we f or this spend it or lose kind of approach have, that has, you know, driven a lot of work for us in kind of in November and in December over the past, you know, many years, and there was almost none of that. That has completely dried up, talking to the commercial guys. The second thing is that particularly in December, we got a real spike in reversals, much higher than in the previous months. Those two things really impacted the overall quarterly numbers. It was just those two.
Okay. Yeah. Okay. One question on the reversal side of it, just to understand how it works here. If you then get a reversal from your customers, do you get also a refund from the platform guys then or the one that provides you with the respondents or does it have an impact on the margin? Maybe you can just understand a little bit what happens in the value chain when you have these reversals?
Well, we think we've delivered the complete. Yeah, we think we've delivered the complete. The customer says no. What generally happens is then in most cases, it's the supplier who ends up paying out the to the, you know, to the bad actors some money. In a very, in some small number of cases, we manage the incentives, but in general, it's the suppliers who lose out.
Okay. It's not a negative margin impact, it's more of a top-line impact on your side.
It's a revenue problem because, you know, if 'cause we think we've delivered the 100, which is what the buyer wanted, and then the buyer says, "Actually, you didn't deliver 100, you delivered 85." Right? For example, and then the project is closed and finished, and therefore we can't go back and say, "Well, have another 15.
Okay.
Broadly, it's a missed revenue opportunity. It's worse because we think we've delivered what the client wanted, right?
I'm just thinking about the two different models of Cint, and then you have the Lucid more auction- type model. Is it mainly related to one of the two models, or is it broad-based across both different models? If you can just talk a little bit around that.
No, it's across the board. I mean, what I would say is again, it's definitely an industry thing. We've actually, we have some, you know, some sort of friends in the industry and they have found videos on the dark web, which kind of give instructions on how to kind of game the market research industry, including us. I mean, there are videos how to do it, right? We're obviously, you know, taking steps and all the rest of it. It's pretty broad-based right now.
Okay. Then just one last question here on net debt levels here and the covenants, et cetera. Is there any risk around that? Can you mention anything on where there are, so we get a better understanding? Any comments around that would be helpful. That's the last question. Thank you.
I think we have some covenants in place in the end of, like, 2021, back to the time of the acquisition of Lucid. We have always met our covenants already, including, like, Q4 2022. We continue to monitor, like, the situation, like, on a regular basis.
Okay. Perfect. That's all my questions. Thank you.
Thanks, Daniel.
Our next question comes from Sara Starovlah from SEB. Your line is open.
Hi. Good morning. Can you hear me okay?
We can. Yeah. Good morning, Sara.
Hi. Good morning. Okay. I think I'd like to pick up there where we left off on the sort of exit rates in December, and you said there was no budget flush effect this season or this year. Firstly, why do you think that is? Secondly, I guess if December was that weak, if October and November looked good, that implies that we're going into Q1 with a rather weak momentum. Is that what you're seeing so far into the quarter? If you can comment on that, please.
Why do I think there was much less or almost no, you know, spend it or lose it? I think that's because, what I've said in previous quarters, I think CFOs are getting a much tighter grip on budgets, on particularly marketing budgets. I think, you know, that's what's impacted. I think brands, you know, anecdotally need to get high-level approvals from their kind of financial colleagues and it makes it, you know, much less discretionary spend that they've got to push that out the door at the end of their fiscal year, I think. I think that's been the real, that's a real factor, which is all, again, tied into the macro and brands being, you know, more careful with their marketing spend.
Okay.
The second part was, you know, kind of beginning of this year. What I'd say is what I said in the report. You know, I think the macro situation is definitely continuing for the foreseeable future as far as we can see, at least. You know, the other big point is the reversals. We will get a handle on them, but that's gonna take a while.
Okay. You talked a little bit about the plan that you have for Americas specifically. What is it actually that happened in Americas? Because I've heard some companies describe that something negative happened with the ad cycle in Americas in Q4 that had already happened in Europe, a couple of quarters prior to that. Is this just sort of an effect of the U.S. being behind us in the sort of ad cycle? Or can you specify where you expect the macro to turn in the Americas specifically, if that's where the most effect is? Secondly, on the sort of plan that you have, could you give us any details on what that includes? Because, I mean, I'm wondering how much can you actually do if most is tied to macro in Americas?
Yeah. So in terms of, you know, predicting where the macro cycle is going, That's needs somebody smarter than me to be able to do that. I wouldn't wanna try and predict that. In terms of the plans, what I will say is, I think, you know, you're right. Some of it is, you know, a lot of it even is macro-related. I do think we can be more effective in terms of our sales execution, particularly in the U.S., which is why we kind of made the changes that I talked about.
I think there is an opportunity there, and just to kind of sharpen our sales effectiveness, number one. Number two, there's definitely an opportunity on the direct-to-brands, right? Which is a function of brands wanting to be more cost-effective with how they spend their marketing research money, and therefore being, you know, a little bit more open to, you know, a proposition like ours rather than going through their, you know, through the traditional way that they've sourced market research. I think it's those two things.
Ok ay. Just two more questions from me. You talked about headcount reduction. I think you talked about it that since Q2, I'm just wondering, has there been a sort of loss of any seniority in the organization? Is the headcount reduction sort of to blame or partly to blame for the deceleration in organic sales growth? Is that how you would view it, or would you describe it differently?
No. No, I don't think the headcount reduction is related to the deceleration at all, actually. I think the headcount reduction was we took that early in end of Q1, I think, beginning of Q2, something like that. It was where we had overlap, right? Duplication was the key kind of the areas where we focused. No, I don't think that's a factor. What I do though think is that the and this is more qualitative, is that the ramp up of integration effort in Q4, I think has been a little bit more of a distraction than we wanted, than I wanted.
With, you know, with people getting pulled into, including some of the commercial folks into, you know, integration work streams. You know, by way of example, we're in the process of rolling out, you know, Salesforce as a common tool across both legacy companies. That obviously, and there's a big lead-to-cash project as well, which obviously impacts the commercial folks as well. I don't think it's the headcount reduction. I think, you know, if anything, it's more the ramp up of integration efforts. Again, it's hard to put a specific number on that.
What we're doing now is trying to, you know, rather make a larger number of people do a little bit of integration, kind of reduce it and say, "Right, you're gonna be doing integration for the next couple of quarters." Fewer people, more full-time is kind of the approach that we've or the shift that we've done.
Okay. Finally for me, I just like to dig a little bit deeper on the working caps, because you've talked about accounts receivables also for two quarters now, and you said that was a key strategic priority in Q2 in the report, and that we should see effect from debt collection from the overdue accounts receivables already in Q3, was the message. We haven't really seen that in neither Q3 nor Q4. I'm just wondering, is there any sort of credit loss risk there on that front? How far along are you in that process, and what can we expect for the rest of this year?
Yeah. I would say two things. In terms of genuine bad debts, I mean, it's not like in the market research industry in general, I mean, we have, like, a very few, like, genuine bad debts. I've not seen much of this, like, at Kantar, at Ipsos or at Cint. We are, like, in an industry where the default risk, like generally speaking, is pretty limited. Also we have a very large number of clients, so we are not depending, like, on one or two clients. I'm not too concerned about, like, default risk from on the client side. We have, like, a very complex...
We have many clients, we have some pretty complex invoices because we have, like, a lot of completes. We have a lot of items. We are not, like, sending to our clients some invoices with just one line. Our invoices are complex, and therefore they take a lot of time to be digested, I would say, by our clients. If you look at the indicators on slide 18, you will see that they're really, like, moving in the right direction in terms of the net working capital to consumer spend.
You will see that our accounts receivable are a little higher than they were at the end of Q3. This is mainly due to the seasonality in sales because they increased by 3.8% when our sales increased by 8.1% in the last quarter, versus Q3. Again, as I said, like, earlier in the presentation, we are definitely moving in the right direction. It's not going to be spectacular. I mean, we have to go, like, into the weeds, and it's going to be, like, a gradual and progressive improvement quarter after quarter. We have what we need in terms of resources for debt collection efforts.
Okay. All right. Thank you. That was all for me.
Thanks.
Our next question comes from Predrag Savinovic from Carnegie Investment Bank.
Thank you very much, operator. Morning, Tom. Morning, Olivier. Another one on the reversal rates. I was thinking, what if you implement certain changes to the reversals and frauds, but then the frauds, there's readapt and the rate sticks at, what did you say, 11% for November? Is there a risk this could be the case, do you think?
Y ou're right in the sense that it is a little bit of an arms race. I would say the... You know, 'cause if I think about back to over history, and Patrick, maybe we'll come to you to get your, kind of, even longer perspective in a second.
The way this tends to work is that it, you know, there's a, we plug some vulnerabilities. That obviously improves the overall system ecosystem security. You know, over time, we're plugging more and more gaps, right? It's not that we plug one and we unplug another, right? As our tech sophistication and security sophistication increases as an industry, it just becomes harder and harder. It's not that there's, you know, kind of new stuff that's or new gaps that we're making. It's. They may find some additional gaps, but we'll keep plugging those. Over time, I think our security levels will increase and therefore the fraud rates will go down. Patrick, if you're still on, do you wanna comment on that?
Sure. Yeah. In my experience, that's exactly right. There'll be a spike in reversals, and then all the players in the space will make the appropriate changes to limit those reversals back to a more normalized rate of 5%-7%.
What's interesting is that all the players, the suppliers, the marketplaces or the survey platforms are all innovating with technology over time. As those innovations continue to grow, new gaps in security may arise and a new type of process will occur where a bad actor can create a higher rate of reversals than normal. What I haven't seen is implements changes to security be implemented and then all of a sudden, you have a new spike. It generally takes quite a long time for the market, as it were, the bad actors to figure out how to, A, get around technology, but more importantly, as technology improves and different players are innovating across the industry where those new gaps are created. It's the new gaps that they find more likely than an historical fix that a company has made.
Brilliant. Thank you. Another one on the macro, also tying that to reversal rates. Do you think that it could be so that you're less impacted by macro and that it's more that your customers might be pausing certain surveys because of reversal rates spiking? I think you mentioned this is a industry phenomenon. I mean, are there similar levels in some of your sector colleagues, I don't know, maybe at PureSpectrum or Dynata, are they on similar levels, would you say?
We don't know for a fact about other people's reversal rates because they are not public companies. The anecdotal evidence and Patrick y our perspective will be helpful here too. The anecdotal evidence and the discussions we have are absolutely, right now, it's an industry spike. That will be supported by, you know, some of the videos I was talking about. I mean, they don't single out Cint. They talk about the industry. You know, they mention, you know, Cint and other companies, but they, it's a how-to guide for the industry rather.
Therefore, I think we've not seen, you know, significant, you know, pausing or cancellations of projects due to quality because it is an industry challenge right now. I mean, Patrick, how has this sort of played out in the past? Does that mirror with historical patterns?
That's exactly right. Reversals tend to rise together across all players in the industry and also come down as the fixes that are implemented, some of are internal to a company and some are across companies. That's why you'll see very quickly our industry peers coming together to create those fixes between parties versus just those fixes internal to a party. Essentially, as reversals are somewhat tied to macro, it's not surprising that the reversal rate across the board is growing with all players.
Okay, that makes sense. A final question to Olivier. I think you said you expect significant improvement in the cash flow. Would it be possible to either quantify this or maybe put this in relation to EBITDA, as in how much free cash flow compared to EBITDA we could expect, is it 40%, 50%, whatever percent to get a figure on that? Thank you.
I mean, it's difficult, like, for me, like, to make some prediction, like, in that regard because by far and large, like, we are, like, a fixed cost business, so it will depend, like, on the revenue momentum. Generally speaking, we are not, like, a very capital, like, intensive business, so we should see, like, some very good conversion from EBITDA, like, to cash flow. There is no reason. We are a pretty, I would say, like, linear business in many aspects.
Okay. Super. Thank you so much.
We now turn to Daniel Thorsson from ABG. Your line is open.
Yes. Hi. Thank you very much. Lots of question on the increased reversal rates. Obviously, I think it's a vital question for the market as everyone else, of course. Very short one on that one. Do you see a risk for that to increase further in Q1 here?
It's possible. I mean, I can't sit here and say it's impossible. It is possible 'cause we're in the process of getting to grips. We've made some about... Several weeks ago, we made some changes which were very positive from our point of view already in our system. It's really impossible to predict the peak. What I would say is, you know, this has happened in the past, and we will get to grips with it, right? It's a matter of a little bit of time and a lot of effort, so.
I see. Okay, that's fine. Second question to you-
Patrick, I mean.
Yep.
Sorry, just to on that timing. I mean, Patrick, do you have any sense of how long, if you like, the spikes of reversals are historically? Is it, or does it differ from time to time?
I don't have a good sense of exactly how long the spikes were. What I can say, it's pretty clear that we and other companies have reacted pretty quickly. I think, you know, as Tom just said, we've seen good benefit from that.
F air enough. Second question related to the goodwill write-down here, which I think is quite large. You mentioned that it is a result of higher interest rates and inflation obviously, also weaker macro. I guess that you have reduced the growth assumption in that impairment test to arrive at such large write-down, but yet, you do not change your financial target of growing organically more than 25% a year mid-term. My question is basically how much have you lowered assumed growth rate in Lucid affected the goodwill item? And how should we think about your target of coming back to 25% organic growth again? Is that still reasonable?
Yeah. So we are not looking at Lucid like separately. I mean, we have just like one cash generating unit, so we are looking at the business as a, as a whole. Yes, I mean, we are not changing our medium-term guidance. It's just that it's going to take longer to get there than we thought like six months ago. This is, as you can imagine, this is having like an impact on the model. Yes.
Yeah. Can you say something on how you have reduced the growth assumptions in Lucid? Because the goodwill is obviously related to Lucid, and when you acquired it, you increased your target of growing from 20% organic growth to 25%. You obviously assumed it to grow very fast, and now you have reduced the growth rate. Can you say something about that change?
What I would say is that we've not changed like the growth rate, in the medium terms, but like in our model, it's just that things are going to take, it will take like longer than expected, to be back, like, to this, like, 25%, which is what we have, factored in the model. I cannot be, like, more specific than that because I cannot, like, give a, like, guidance about, like, 2023. As you can imagine, because of the impact of the macro, we had to factor that, into the model. When you factor that, into the model, it makes a significant impact. Yeah.
Yeah. I see. Okay. Fair enough. Thank you very much.
Thanks, Daniel.
We now turn to Andreas Joelsson from Danske Bank. Your line is open.
Yes. Good morning, thanks for taking my question. A follow-up on that goodwill question. I think you mentioned that it was also a response to the market reaction from the trading updates. Is that correctly understood? If so, how does that impact goodwill? Secondly, on reversals, even though it's hard to say how long a spike can be, can you say where the spikes have peaked before? If you're at 11% now, is that in line with where spikes have peaked before? Thanks.
I'll take the reversal one first and then pass on to Olivier. The 11% from what I can remember is higher than we've had in the past. I think we, yeah, the 11% is at a higher level. What that means, I don't know exactly. It's hard to say, but it is higher, so.
Coming back, like, to the goodwill, I mean, it's always something, it's not like always like an exact science, as you can imagine. So it's something that we are looking at, like, from different angles. One of the angle that we are looking at is the goodwill versus market value of the company. The reaction to the trading statement that we made, like, on the 3rd of February, was a 50% reduction in the share price. So it created, like, quite a gap between the amount of the goodwill and the market value of the group, which I think triggered the review.
Okay, thanks.
Thanks, Andreas.
As a reminder, any further questions, please press star one on your telephone keypad. Our final question today comes from Charles Brennan from Jefferies. Your line is open.
Perfect. Thanks for letting me on. Maybe I'll start with you, Tom, and start with congratulating you for your contribution here and wishing you well for the future. Can you maybe just start by giving us some background to your reasons for leaving and maybe specifically, when did the board actually start the process of searching for the new chief executive? What sort of skills do you think the new chief executive are gonna bring that perhaps you didn't?
I don't know when the board started the search 'cause that's their job. I was only involved as I think I said right in December. Had a dinner with Giles. I don't know when they started. What I can say is I had very soft conversations with the board, you know, several quarters ago and said, "Look, at the right time, if you find somebody or when you find somebody, it will be good to pass on the reign." Can't give you time on an exact time when they started. It was several quarters ago when I started having a very soft chat to them.
In terms of my rationale, look, it just felt that, you know, five plus years is quite a long time. It's a pretty full-on demanding job as many of our jobs are. You know, I felt that, you know, somebody else would be well-placed or better placed to take on the reins. Nothing, you know, kind of nothing more than that. In terms of Giles, I mean, I've been working sort of side by side now with Giles for several weeks. I think he's gonna be excellent. He's clearly a seasoned CEO.
I think what he brings, more than what I have been able to do is a very thoughtful approach. He's much more product and engineering led than I am. I'm more on the commercial side. Not to say that he's not commercial, but he definitely brings some skills and experience on the product side, and I think that's gonna be very good for the company at this current phase. You know, as I talked about earlier, I think product integration and platform integration is gonna be absolutely crucial. As is, you know, kind of the whole all the, you know, sort of business models and delivery set up and so on.
I think it's gonna be very good.
Perfectly. Maybe I'll just end with one last question. I think one of the best ways to get some confidence back into the Cint story will be to have some nearer term expectations that you can meet. I appreciate you've got the medium term targets out there, something closer to the here and now I think would be useful. Is there anything you can say about the shape of 2023 that would be helpful? If I listen to you talk, you're expecting a continuation of weak macro. That sounds like organic growth close to zero in the first half of the year might be appropriate. At the same time, you're talking about higher integration and platform costs. You're talking about costs to get on top of these reversals.
Is there a scenario that costs go up and EBITDA can be down year-on-year, or is that too bearish?
look, we've taken an approach policy of not guiding to the near term, which includes this year. I can't be drawn on that, unfortunately.
Okay, fair enough. as I say, good luck with the future.
Thanks, Charlie.
This concludes our Q&A. I hand back to Tom Buehlmann, CEO, for any closing remarks.
Okay. Thanks, Elliot. Look, thank you all for your time this morning. Hopefully, we've given you a bit more color around what we think is going on, which is mostly around the macro and the reversals. Hopefully, I know there were some question marks or questions around the reversals. Hopefully, we've been able to give you more color and an explanation of A, what they are, and B, how they are impacting us. Importantly, I hope you're going away with this with a kind of a continued, at least from our point of view, a continued sense of optimism about our medium term, 'cause we really do believe that and we will get through the current situation. With that, thank you for your time. I look forward to meeting many of you over the next couple of days. Thanks again.
Today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.