Good day, and thank you for standing by, and welcome to the year-end report 2021. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you need to press star and one on your telephone, or you can also submit your questions via the web. We do ask that you please limit your questions to one to two questions at a time. Please be advised today's conference is being recorded, and if you need any further assistance, please press star zero. Now I'd like to hand the conference over to your speaker today, that's Thomas Heath. Please go ahead.
Thank you very much, operator. Warmly welcome everyone to the Sinch Q4 2021 conference call. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. With me as presenters today, we have our CEO, Oscar Werner, and our CFO, Roshan Saldanha. With those introductory remarks, I'd like to hand the word over to Oscar.
Thank you, Tomas, and thanks for everyone listening for the interest in Sinch. Without further ado, let's move into the slides. Operator, if you go to slide number two, please. This is, as you know, a transformative quarter for us, with closing three large and one small acquisitions at the tail end of the quarter. We're very happy to close all of these acquisitions, and we think it puts us in a very strong position going forward. On net sales past 12 months, up to SEK 616.2, the Adjusted EBITDA being past 12 months, you know, SEK 1.3 billion.
We are now 4,000 or a little bit above people, 62 countries, and we're a global leader and truly a global leader in cloud communications and mobile customer engagements. We now have over 150,000 customers, adding the strong customer base from both Pathwire, with strong developer go-to-market and MessageMedia with a strong SMB go-to-market. We're a scalable cloud communication platform for messaging, email, voice, and video, and we can say we're a true leader in all the first three of those. We do more than 600 billion engagements per year, if we count the messages, the email, and the voice calls on the number of calls.
Mind you, if you do an average on the number of touches we do to touch mobile phones on the planet, we touch every single mobile phone on the planet roughly 80 times per year. On average, touching every single mobile phone 80 times a year on average. That's a really strong statistic, and I think it shows how strong this market is. This is really a market which is the communication between every single consumer and every single enterprise or business on the planet. We also serve eight out of 10 largest U.S. tech companies, and we have been profitable since our foundation, and we continue on that track to drive a strong and profitable business. Operator, if you go to the next slide, please.
Really significant for this quarter, I mean, the biggest event is closing these transactions and really transforming us into a global leader. If you look at the Gartner approach, major vendors within CPaaS, they would put us, Twilio, and Infobip as the mega providers in this business. Then there are a set of smaller ones. You can probably go into a couple of regions and add a couple of names there. Then there are smaller players, you know, hundreds of them, local or regional competitors, which there are quite a lot. Mind you, this is a very, very large market.
We believe that being one of the top two providers in this market really puts us in a very strong positions with the world's largest enterprises. We believe offering global CPaaS services across all channels at scale at the global level with a unified application or SaaS layer on top to global enterprises will be, you know, few players that can actually take that position. Right now, we're definitely, you know, one of the, you know, very few that can actually do that, and we're happy with that. You can also see this in our gross profit and global product mix. I mean, 2020, we did, you know, SEK 2.1 billion gross profit 2021, 4 billion, and 2021 pro forma is close to 8 billion SEK, basically.
You can also see the diversification of our business being on a pro forma basis, 11% on the SMB side, 11% on email, 32% on voice, and then 46% on the messaging, including our applications business. All of these businesses are strong and profitable and growing in their own right. You can see a strong diversification, and you see both on the gross profit and the growth side, but also on the profit mix. We're very happy with the position we have taken into this market. That said, operator, go into the next slide, please.
If we jump into the shorter term, that was the kind of long-term really strategic position we take. If we talk into the shorter term, looking at the fourth quarter, again, we've strengthened the position as a global leader in CPaaS. Net sales growing 74%, gross profit 69%, Adjusted EBITDA 25%. Adjusted EBITDA SEK 475 million and operating cash flow of SEK 462 million for this quarter. Transformative acquisitions and positioning things as a leading profitable CPaaS company. A full year pro forma of SEK 23.1 billion and a GP of SEK 7.7 billion. I think that's a very strong position we have taken. Now Q4, we have a set of factors affecting organic growth. First, we should all know it's a strong comparison quarter.
We had a really strong quarter last year in this, the comparison between Q4 2020 is strong, and that's both on the gross profit level, and it's on the Adjusted EBITDA level since we were holding OpEx in order to be on the safe side on the COVID effects. We were holding OpEx in the middle of the year, therefore, we have a lower comparable OpEx growth rate in that quarter, basically. Both strong on EBITDA and gross profit. The other big factor affecting organic growth in this quarter on the gross profit side is, we had a minimum commitment to one multinational mobile operator, where you commit to a certain set of volume in order to get a certain set of price.
A couple of things turned bad in this deal, so we had a lower traffic volume. This had a SEK 34 million negative effect on gross profit in Q4. That's around about a 5 percentage point in growth if we would not have had this deal. This is a one-off deal, and it's a time-bound deal. We believe we have reserved all the negative effects for this deal in this quarter, but it's obviously hard to know exactly. In any case, this deal is ending in June 2022. Doing this type of deal is a small part of our business. Sometimes you do it when you see a good opportunity. We believe this was a good opportunity, but it obviously turned the wrong way for us.
We have seen very few of those mistakes earlier, but in this quarter, we did. We had another effect, in this specific quarter, which is a bad debt relating to one customer, adding SEK 37 million to OpEx in Q4. This is another one of this. We have been good in managing bad debt and relatively, you know, and historically have had very low bad debt numbers. In this quarter, we had a significant bad debt, and we reserved SEK 37 million for that, in order to, you know, account for that. Also one of these one-offs, which we have not seen before in this quarter, one of those customers slipped through and affecting this quarter's performance. We also do see in the market, effect of competition.
We had, as we previously communicated, price adjustments to larger customers, as a result of the strong market competition. We believe we in general stand strong. This is a market with very high volume economies of scale. We have the largest volumes and have very large economies of scale. This quarter, we have, as you've seen, had high revenue growth, but lower gross profit growth. Keeping market share, but being lower on the gross profit growth side, as a result of the competition in the market. This is something we're gonna look at going forward on how do we keep gross profit growth at a good level. Focus areas for 2022. First, capitalizing on the strong market position to drive growth.
We have a very strong position and large cross-sell opportunities. In principle, every single messaging customer we have has an email provider and really doing cross-sell there. Same thing on the email side. They also use messaging in various forms. Same thing on the voice side. How can we cross-sell all of these different customer bases? How can we utilize our joint offering in order to really be a more full service provider to the largest enterprises? That's something we're very positive about and looking forward to. Obviously, and needless to say, we also need to do cost control in messaging and group functions to ensure that costs do not grow faster than gross profit. We have a strategy of growing OpEx in line with gross profit.
Now in this quarter, it's sometimes hard to time exactly, you know, how the gross profit and OpEx will look. OpEx you can time, but gross profit is a little bit harder to time. Therefore, we have a little bit of a mismatch between OpEx and gross profit growth in this quarter, and that's something we will adjust going forward in our messaging business and in our growth in our group functions, going forward. Obviously, this quarter is always hard. I mean, we're doing a large scale-up, so it's in that it was a little bit of a special quarter where we had to take cost in order to make sure we close these transactions and get them in a set of group functions.
It's a tough quarter to keep OpEx at the reasonable level when you're actually doubling the business in the same quarter. Needless to say, we have strong focus on that going forward. We also have a new operating model with full P&L responsibility for the business unit's presidents, which we believe will drive a lot of cost consciousness. We're also very happy on being able to operate the business into five business units that can fire on, going from firing on one cylinder to basically firing on five cylinders with leaders of each one of them. Operator, if you go to the next slide, please.
On the gross profit side, if we break that down, as you see Q4 2020, and then we had an organic growth of 5%. You see the various factors of acquisitions moving up to the 69% total gross profit growth for the quarter, and you see the buckets they fall into. Again, like we said, in Q4, tough comparables to Q4 2020. One is one of the reasons, the other one is the minimum commitment to this one global mobile operator. It's a time-bound thing. We think we have reserved everything, but the contract is actually ending in June 2022. Without that, we would have had a 5% more gross profit growth, being at 10%.
Third thing we talked about is we have had high price increases in Brazil and India. We have been unable to pass those on to customers immediately. That has an effect on the gross profit level since we have a lower gross profit per message in those markets right now. It also has an effect. If an operator is increasing prices by 30%, even if we get back to the same gross profit level on an absolute gross profit per message, then the percentage gross margin will be a little bit lower, which is important to remember, even though the business is just as sound as it was before. Price adjustments we talked about continuing to lower margins.
We will work on this going forward, both in working with the targets on the sales teams. How much are they prioritizing top-line growth versus gross profit growth and gross margin keeping? That's one thing. Working on the cost level with various operators is obviously another. The third big area which we think is very strong going forward over time is working on a customer level, upselling the customers to more software services, other services, since we now have a very broad portfolio in the group. We see good opportunities for increasing gross margin on a per customer basis by just adding more services to each customer. Taking that into account, you would have had a 10% underlying GP growth in local currencies, excluding the impact of pre-commitments.
Operator, go to the next slide, please. OpEx, looking at OpEx, it's a little bit hard when you look at the trends, because there are so many things happening when you drive a company at this, you know, very high growth level, including acquisitions. If we start at the left, we had SEK 480 million OpEx Q4 as reported. Now, that only took in when we closed SDI in that quarter, it didn't take in the full OpEx run rate or SDI since we only closed it for a set of the weeks there. If you would have had SDI into the OpEx in the entire quarter, just taking the actual OpEx for the entire quarter, the OpEx would be SEK 524 million.
Going into Q4, you add other acquisitions coming in there is primarily Wavy and the yellow bar there, so you can see the growth in that. You see the OpEx growth from Q1, Q2, to Q3. You see Q4 adding a part of the OpEx from the new acquisitions in the yellow bar, only a subset of the month there. All of the yellow bars are obviously combined with gross profit additions as well. Looking at the green bar, growing really from SEK 524 million to SEK 649 million, which includes the SEK 37 million bad debt. If you would exclude the SEK 37 million, since we typically have low bad debt, the OpEx, underlying OpEx growth would grow with around about 17%.
The 17% is obviously, as you see, a mismatch versus the GP growth. That one we will correct. It also has an impact from the scale-up, of course. Remember that we are actually doubling the business in Q4. In order to take in those transactions, we have added quite a bit of OpEx in order to scale group functions to be able to handle it. All of that OpEx in Q4 is weighing the messaging business, even though it's actually related to acquisitions, 'cause we hadn't closed the acquisitions in Q4. So that's a little bit unfair, if you will, to the messaging business. Had we not doubled the business, we would not have grown the size of group function in this way, because we wouldn't have had the need to, of course.
Again, if we go in the commentary, we also have a slower OpEx growth in 2020 Q4 due to the COVID outbreak and being cautious there. That's one of the factors. We have increased OpEx base in 2021 on a run rate basis due to sales and product initiatives, preparations for the large acquisitions, and then obviously businesses. Yeah, we have the SEK 37 million one-time impact. That's if you see the OpEx growth, but 17% on the line OpEx growth including the scale-up. Then now we need to time OpEx to gross profit as our strategy is to grow those in line. Talking about that, we should think about we have several different business units.
We're talking about the messaging business with the central functions, which is where we think we have a mismatch. In the other business units, they may grow faster or slower, and we time the OpEx growth to gross profit growth in those individual units going forward. We need to see that as a business unit model. All right. If we then, operator, go to next slide, looking at the new incoming acquisitions and just orient you on the scale and what they are doing. Inteliquent transaction closed ninth of December. Adjusted EBITDA in Q4 is SEK 325 million, implying a 26% margin. Very, very strong diversification, very strong and stable profit engine to Sinch Group.
We are very happy with this diversification, both from a financial perspective, because I think it really gives us a strong base with a very strong profit engine, which is good, especially in these times. It's also very good to add the largest voice network in the U.S. to the group and being able to cross-sell and upsell and drive the growth on the voice side as well. These two things we're super happy with. Inteliquent had a 7% organic net sales growth and a 7% organic gross profit growth in local currencies full year 2021. Looking at Inteliquent, they have a healthy underlying growth driven by enterprise demand for programmable voice. Looking at the segments driving that, it has a good solid growth. You should also understand here that COVID impact on Inteliquent is relatively large.
When COVID hit, they had a 30% or about increase in traffic volumes over 1 week. That has gradually tailed off to maybe be 10% of that level. Growth levels in Inteliquent is kind of a little bit distorted by a COVID hike in 2019 and 2020. That's why you see definitely an impact on that. We also have a regulatory reform on 8YY number, and 8YY, what we mean by that, basically calling 1-800 numbers. We're the largest providers of 1-800 providers in the U.S. There's a regulatory reform, which basically means the money Inteliquent makes for each call on a 8YY number is a little bit less than it was before.
Basically, just the revenue per transaction is going down after this regulatory reform. This is something we knew when making acquisitions. We calculated that into the purchase price, et cetera. No news to us. Obviously, that will tail off and make the revenue per transaction a little bit lower, which will impact gross profit growth on the reported basis in Inteliquent going forward. Still very happy with the business. We knew it when we acquired it. Still a very strong profit machine, but it will show a little bit lower growth than it would have done without these impacts on the reported basis.
MessageMedia, transaction closed fifth of November, Adjusted EBITDA of SEK 100 million in Q4 2021, implying a 26% margin, 25% organic net sales growth, and 28% organic gross profit growth in local currencies in full year 2021. Very strong and solidly founded business with a diversified customer base, around 65,000 customers. 7,000 new customers started using the web-based product in Q4 2021. This is a business which basically sells subscription-based services, you know, paying to the local hairdresser, signing up using the web-based tool, paying EUR 100 a month, EUR 200 a month, EUR 500 a month, something like that. Driven by a lot of customer acquisitions online, signing up online with a very diversified customer base.
I think this is a very strong. I'm very happy with the growth and very happy with the profit engine, also diversifying base and giving us a strong online web-based go-to-market to the SMB space, which we believe can continue to grow for a large number of years going forward. MessageMedia has also started integration with the Sinch Conversation API. They basically sell a subscription-based service of the web tool. Primarily, the channel they use today is messaging, but they see great opportunities of adding both Conversation API, conversational messaging, and email and voice to these services underlying and then increasing the revenue they can take per customer. Pathwire, another very strong acquisition. The transaction closed seventh of December.
Adjusted EBITDA in Q4 2021 of 113 million SEK, implying a 37% margin at a 32% organic net sales growth and a 30% organic gross profit growth in local currencies in full year 2021. A strong year. You know, this is a high velocity developer go-to-market, over 100,000 paying customers, so also a good diversification. The strongest, we believe, email developer go-to-market machine that there is. In this area, looking at us versus Twilio, we definitely rival or, in the Pathwire team's view, actually, you know, think are very strong on the developer go-to-market versus even Twilio on the email side. Adding that muscle to our business is very, very strong.
We are very happy to see a strong early-stage pipeline of cross-sales to Sinch customers. We have closed the first cross-sale transaction, and we have a strong pipeline already, only a month or two after the acquisitions of good-sized customers that also want to consume email. If you look at it, I mean, we believe 100% of our messaging customers have an email provider, and we think we have a good opportunity of addressing that base with the Pathwire offering. How this is made is very concrete. You know, basically making a list of 100 customers on the Sinch side.
We open the door, and then we bring in the Pathwire team in order to sell to those Pathwire experts on email in order to sell to those customers. We do the same thing on the other way. We open you know making a list of the 100 you know most attractive Pathwire customers, and we open up the door from the Pathwire account manager and bringing in the sales messaging Sinch messaging experts and cross-selling. Doing that, continuing to do that, and seeing the strong traction, very happy with, and we'll do that with email and voice and on the SMB side as well. Very strong. Also happy to see that when we pitch Pathwire to our biggest customers, their offering versus existing providers stands strong.
Most of our customers are very impressed by the functionality and the scalability of the Pathwire platform. That's a verification of our theory of this being a very strong email product in the market, you know, which we think will drive good growth going forward. On the operating model side, if we go to the next slide, operator, please, this is slide 10. We have decided to, as previously communicated, run the business out of five business units with strong business unit presidents running a full P&L of all of them. We have Enterprise and Messaging, which is our messaging business and the majority of the enterprise go-to-market. All our regional teams sit in here, so you think about, like, 80% of the enterprise go-to-market sitting in that.
The voice business unit running the voice product and a voice-dedicated specialist sales onto the enterprise side or onto the voice side. Developer and email has responsibility for the email product also, obviously, but also the developer go-to-market for all Sinch products across all products. Applications, this is a SaaS business. Basically, all the applications on top of the channels, so Chatlayer, MessengerPeople, Sinch 4 Marketing. You wanna sell a SaaS service on top, this is the unit that has responsibility for driving that. Then we have the SMB unit basically being the MessageMedia business. You can see enterprise and messaging being 46% of pro forma gross profit, 23% gross margin, 17% GP growth.
Here we're actually to match with the numbers in the report, excluding ACL and India, but you know it. Those are the most easiest numbers to compare to on an objective basis, basically. Voice side being 32% of pro forma gross profit, 46% gross margin, and 7% GP growth. Developer and email, 11% and 77% gross margin and a 30% GP growth in 2021. Applications is currently included in the enterprise and messaging, and we're working on getting those P&Ls, you know, well, and then going on to being clear on the splitting between those. The SMB being 11% of pro forma gross profit, 62% gross margin, and a 28% GP growth for 2021.
Looking at Sinch, I think it's very important that you look at it at these different units going forward. A very diversified, very strong business with a lot of legs to stand on, but also a lot of cooperation and ability to work together with these and cross-sell of each other's products to the other customer bases is a strong opportunity going forward. That said, in order to leave time for questions, I will not go through the details of the 2022 focus. You can read that at your leisure, but I will leave the word to Roshan to go through a little bit more details on the financials.
Thank you, Oscar. I will give you some brief commentary on the financials from this quarter. Operator, please turn to page 11, I believe, the one that's titled Income Statement. I mean, as you know from previous, we focus a lot in our business on gross profit, and this is because of the nature of our business, where we have a costs, a significant cost towards operators to carry messages and voice calls. Gross profit for the quarter ended at SEK 1,348 million versus SEK 796 million in the previous year quarter, and the total growth then being 74%. Sorry, 69%.
Adjusted EBITDA, which is a measure that we focus on a lot because essentially we exclude certain items that make comparability difficult, such as acquisition costs, integration costs, share-based incentive program costs and certain operational currency deviations. Adjusted EBITDA for the quarter was SEK 471 million against SEK 378 million a year ago, same quarter. EBITDA was SEK 330 million for the quarter, where we took significant costs for the closing of four acquisitions during the quarter, compared to SEK 179 million in Q4 2020.
Again, depreciation and amortization includes non-cash amortization, where we have certain assets from or a part of the purchase price that we amortize over defined lives. EBIT then for the quarter ended at SEK -12 million, but when excluding these non-cash amortization, adjusted EBIT was at SEK 393 million, which we believe better reflects the strong cash flow generation in our business against SEK 356 million from Q4 2020. Finally, of course, net financials were favorably affected by currency gains ahead of the acquisitions that we closed during the quarter, where we had currency to be able to pay for the purchase of those companies.
Operator, please turn to page 12, where we reconcile cash flow with Adjusted EBITDA. A very strong cash flow quarter in Q4 of 2021. Adjusted EBITDA, SEK 471 million, then turning to cash flow before changes in working capital of SEK 485 million. Again, the key difference being the gains that we have from currency fluctuations, which positively affect and therefore provide a cash flow conversion of 103%. Even the underlying cash flow conversion it continues to be strong in the business.
Turning to page thirteen, where you see the full cash flow analysis, where the cash flow before changes in working capital then at SEK 486 million against an Adjusted EBITDA of SEK 471 million is then further reduced by a negative change in working capital, which is quite minor this quarter at SEK 24 million Swedish krona. Especially when excluding the impact from acquisitions, that would have been a significantly positive change in working capital for this quarter.
In addition, of course, we have quite large cash flows out from the acquisition of group companies, SEK 28.2 billion, then financed through loans as well as equity issues, resulting in a closing cash balance of SEK 1.8 billion for the end of the year. Please turn to page 14, operator, for a cash flow reclassification. Again, there is no reclassification that has been done in Q4 2021. This is just as a reminder for the reclassifications that were done in Q3, where we had moved part of the financing for Wavy and also select cash flow items into investing activities from operating activities.
Again, just to repeat, there is no reclassification done in the current quarter in Q4 2021. Please turn to page 15 for the financial targets. We have two financial targets, which we continue to measure, Adjusted EBITDA per share to grow more than 20% per year, and net debt over Adjusted EBITDA to be less than 3.5x over time. Adjusted EBITDA per share grew 12% in Q4 2021, measured on a rolling 12-month basis, and net debt over EBITDA was at 8.1x, measured on a rolling 12-month basis.
When including the Adjusted EBITDA from all of the acquired entities on a pro forma basis, that net debt over EBITDA would have been 3.2x, which is in line with how we have measured it when we communicated the acquisition. Turning to page 16, where we further provide a bridge of the financial leverage. You can see there that the net debt, the reported net debt over Adjusted EBITDA is at 8.1x. When adjusting for the pro forma EBITDA from the Adjusted EBITDA from the acquired entities, that net debt to Adjusted EBITDA would have been 3.2x.
In addition, this net debt includes leasing liabilities coming from the acquired entities, which, when adjusting for the leasing liabilities, we would have had a net debt over Adjusted EBITDA excluding IFRS 16 leasing lease liabilities at 2.9x. With that, I would like to hand back over to you, Oscar, for the last page and any final concluding comments and Q&A.
Thank you. Operator, move to slide last slide, transforming to global leader, slide 18, please. Operationally, as you understand from this quarter, I mean, there are two really good, really strong things. I mean, driving organic gross profit growth in our messaging business. The other business is growing well. Driving organic growth in the messaging business, obviously one very large priority going forward. The other priority is matching OpEx to gross profit growth in order to match that over time, and that's a commitment we have made, you know, we stand by and we will do that going forward. We implement the programs in order to do that in the messaging and in the core functions part, basically. That's the two focus areas.
The other businesses we see as separate businesses doing the same thing, but they're all at a little bit different stages. Then really strong message here on the. That's operationally, organically, what we wanna do. We continue on the track we have done in order to drive that going forward. Then important to remember how significant change we're driving here. We really have transformed and are transforming this company into global leader, being, you know, recognized as the top two provider in this market, basically. Being also, if you could take a step back, three and half years ago, this company was 330 people. Now we're over 4,000. And the profit and the gross profit has turned the same way.
It's a very, very significant transformation we've been driving and a really good diversification of both growth engines, profit engines and gross profit levels, which I think from a financial perspective is very solid and sound. We're so happy to see that that's how the customers are seeing it as well. We can really see large enterprise customers turning to us, looking at us in a different light and being, wanting to deal with us as a broader supplier and on the more strategic side, but then also ability to drive cross-sell across these different units.
From a management perspective, we're, you know, strong focus on gross profit and matching OpEx to EBITDA, number one focus, and number two focus, really happy with the position we've taken in this market, which I think will propel us going forward into this very, very strong market going forward. That said, thank you. Leaving it over to you, operator, and for questions.
Thank you. As a reminder, if you do have a question today, you can ask a question over the phone by pressing star and one on your keypad and the Hash key to cancel. We do ask that you limit your questions to two at a time, please. And you can also submit your questions via the web. The first question from the phone lines is from the line of Mohammed Moawalla from Goldman Sachs. Please go ahead.
Great. Thank you. Hi, Oscar, hi, Roshan, and hi, Thomas. I have a few questions, if I may. First of all, I just wanted to unpack kind of the gross profit growth a little bit, because obviously there is some pricing pressure, but also from the operators. I know historically you've talked about it taking several quarters for you to kind of you know push that through. But how do you do you think the gross profit will evolve? Because you talked about the gap between revenue growth and gross profit growth. From a kind of a quarterly phasing standpoint, you know, how is that expected to kind of evolve in 2021? Then secondly, can you talk a bit about some of the cost measures you mentioned?
Is this likely to be more back-ended loaded in terms of the improvement? Therefore, how should we think of EBITDA margins phasing, you know, across first and second half of this year? Then lastly, a question really around some of the kinda cash flow elements. I believe some of the acquisitions have had higher CapEx to sales. Is that likely to mean the group kind of CapEx to sales is likely to be higher? How should we think of working capital? As we think of kind of cash flow, I mean, you are at sort of close to three times, what are the risks around potentially breaching covenants? Could you give us some details around those covenants and why you're confident that they may not happen? Thank you.
Thank you.
Um-
Thank you, Mo. A few, I think that was more than a few questions perhaps. We'll see if we can cover all of them. I think, Oscar, you had a question on how we see gross profit evolution going forward. Also a little bit on the characteristics of how we're working with cost control. I think for Roshan, we had a discussion on CapEx to sales, and also I think maybe on net debt. Oscar, I'll let you start.
Yeah. Gross profit going forward, I mean, we don't give forecasts, but I think, you know, something's worth considering when you do your analysis of this. The first one is remember the effect of acquisitions.
Pro forma revenue, including acquisitions, would've been SEK 23.1 billion, and gross profit would've been SEK 7.7 billion. Look at the company as the company is, and analyze these business units, you know, on a standalone basis. That's number one important to understand. The somewhat weaker organic performance in Q4 relates to the messaging business, which is roughly, you know, 40% of the total.
Looking at the pro forma gross profit growth backwards, gross profit was 13% in local currencies for the full year, 8% in, you know, without local currencies, but 13% in local currencies, with GP growth a little bit slower at the end of the year. You need to consider the special effects in Q4. We had like isolated one-time effects, and time-bound contracts with one mobile carrier having a 5% gross profit impact in this quarter. Without that, it would've been 10%. Effects of Brazil and India, and strong comparisons, they are obviously hard to quantify. Without them, GP growth would've been a few percentage points higher in Q4.
Overall, I mean, we obviously have driven very strong growth, profit growth, organically in the previous quarters, and we obviously always work as hard as humanly possible in order to drive that going forward. We see some very positive sides on the cross-sell side, on the position we have in the market. Then we see some toughening competition on specific margins in, you know, in the messaging industry, which is obviously tough. On the other hand, with our position, we're in a strong position to utilize our scale in order to, you know, play that game in a good way. Exactly how that will play out is obviously hard to quantify. But given our position, we think we stand strong in this market going forward as well.
On the cost control, it is very concrete. There are two areas where we have driven cost going forward that kind of stands out here. You know, one is the scale-up OpEx. As you can imagine, doubling the business in one quarter, I mean, there's just like a set of group functions like finance, like HR, like business IT, et cetera. We have to have a broader set of team in those areas in order to do the group accounting for the double size of the company with a lot of new companies coming in. I mean, that's just bigger than what it was before. There we have taken investments in order to get over that hump.
Obviously the work will continue, but we will, you know, we would limit the growth in OpEx in those areas because now we've kind of taken in the businesses and working on optimizing on that. That's kind of more of a specific to this quarter. The other side is more of a investments in sales and marketing, that's more of a mismatch. You know, okay, this quarter gross profit growth was lower. Previously we had it higher, and then we have mismatched gross profit and OpEx.
What we're doing there is basically saying, "Okay, now let's flatten out recruitment, let's flatten out cost addition in the messaging business in a significant way, in order to let the GP match the OpEx growth, so we can do that over a couple of quarters." That's already implemented. We have a specific approval for any hiring within the messaging business right now that goes to me, Roshan, and Anders, who is the leader of that business unit. Every single role is individually approved by us in order to match the OpEx to the GP side. On the cash flow side, Roshan, maybe you can comment.
Yeah, thanks. I just add one thing there on the timing more. I think you know it's you know a lot of the OpEx of course short term is already signed up right? It does take a bit of time to see that in the financial numbers. Going on to the cash flow I think you know firstly both Pathwire and MessageMedia are very strong cash flow generators. So is also Inteliquent but especially Pathwire and MessageMedia are strong cash flow generators because they have a significant size of their revenues coming in also through prepaid kind of subscription. That helps.
From a working capital perspective, you know, I would say that in Q4, we are a bit hampered by some technical treatments of the acquisitions. Otherwise, the working capital de-development in Q4 would have been even more positive than what we have reported on a like-to-like basis. As we comment that on the cash flow statement page. Yes, Inteliquent, especially among the acquired businesses, has a slightly higher CapEx to sales. In general, I think we still believe in a strong cash flow generation next year. I think, you know, we have tended somewhere between the 60%-70% cash flow conversion range.
I think that's what we believe also will continue to be the case going forward. That will help deleverage net debt. Remember that when we announced the acquisitions, we said that we would be at 2.9x. When excluding the IFRS 16 lease liabilities, which we had not factored in at that point in time, we are actually ending the year at 2.9x, and we'll see some deleveraging during the year.
On the covenants, please?
No, I mean, so far I don't know if there's a specific question there, Mo, but so far we are in line with our covenants. I mean, the financial target that we have set is at 3.5. As you might have seen, we've announced some new financing today where we've increased the consortium of banks that are part of the credit financing and also added SEK, the Swedish Export Credit Corporation, to the consortium. I mean, the covenants are very much in line with our financial targets. Therefore we are in line with those.
Got it. If I may just. It's maybe one for Oscar. As we think about GP growth, I mean, should we think of 2022 year as a bit of a kind of consolidation year as you bed the deals and-
Sorry, Mo. We need to move on. Sorry, Mo. We need to move on to other questions. Can I ask you please to refrain yourself to one to two questions, and we'll loop back. Glad to take your question once we've covered the rest.
Thank you. The next question is from the line of Predrag Savinovic from Carnegie Investment Bank. Please go ahead.
Thank you very much, operator. Good afternoon, guys. The first question is on the extra cost impact in gross profit on volume not sold. Oscar made a good comment in the intro, and Mo went wrong. I guess you've done this before in countries where you have more volume. Was this the first time you did it in this specific country? Did you expect something that did not occur? Can we put this behind us now? Then I have a follow-up as well. Thank you.
Roshan?
Do you want me to start off, Oscar?
Please do.
Yeah. I mean, this is as we said. I mean, it's a contract with a very large, well-known multinational operator on a global basis. It covers many countries. You know, we have specifically then seen that in two of those countries, we have volumes that do not meet the commitments and the expectations that we have, which then drives up our costs. We have, of course, made a judgment as at the end of the year, you know, as to what that additional cost might be, and we have made a provision for that.
You know, I think, as always, this is an estimation and a judgment, and I don't want to make any commitment for Q1 and Q2. At the end of Q2, that contract will be terminated. We will not have that going forward from there.
Okay. Thank you. That's very clear. On operator price hikes, they seem maybe not global, but broad judging by what you report and other players do. You have scale, right? There's no one bigger than you. Would be interesting if you could reason a bit around the potential benefit of actually not raising prices fully to customers and even grow more because I can see your peers some are raising prices, but you have the scale benefit, right? Can you win in this environment thanks to this, even if it's challenging right now?
I mean, you can obviously speculate about that. I mean, it is. Directly when this happens, it's a little bit of a, you know, the operator price increases drives a competitive game in between the competitors, right? Now, the longer you wait, then you may pick up traffic from competition because you have better prices, right? That's kind of one way to capitalize on these price changes. That's a short-term thing. Typically, we try to keep gross margin, you know, we think we deliver good service, but of course you have that type of tactics in the short term.
A little bit longer term, it could be so that you're actually seeing a little bit of a shakeout in the markets where, you know, smaller competitors will have a tougher time. We talked about that a long time. If you don't have, you know, upsell opportunities, if you don't have the scales in this type of business with large economies of scales, it gets even tougher than for us. You could reason around what's going to happen going forward, that the larger players are probably gonna win in the end when price competition gets tough because they can, you know, they have a broader base to do it around or to spread their costs on.
You could. It's not a strategy we are playing, but that's a way the market could play out in going forward. That's more on a speculation level than anything else.
Okay. Thank you very much, guys.
Thank you. The next question is from the line of Stefan Gauffin from DNB. Please go ahead.
Yes. Hello. I would like to continue on this sort of price competition in the market. Historically you said that when you see these operator price increases, it typically takes a couple of quarters before you have sorted that out. Would you say that the competitive situation has changed or is at another level right now, making it harder for you to adapt to this? I'll start with that one.
Little bit different in different markets. Brazil, especially you have two effects. You have this, and you have the competitive position, or three, I figure. You have the macroeconomic climate with the very high inflation rates, et cetera. In those markets, a lot of different moving factors. I think the macroeconomic headwinds definitely make it harder to pass price changes on. Obviously the inflation rate puts pressure on your EBITDA in that type of markets. Again, much tougher for only local competition, but you do definitely have that. In India, a little bit different. We see a strong market going forward, but definitely, you know, strong competition as well there.
Yes, I think you have a combination of those factors. How much, hard to say, you know, how much each factor is contributing is obviously hard to say in this type of, you know, in a sweeping global statement, if you will. Is the, you know, market competition a little bit tougher now than it has been? Yes, it has increased. The last two quarters, it increased a little bit on the price competitions. Previously, we've seen low single-digit price declines, but more than well outweighed by the volume increases. Now it's been a little bit tougher in the last two quarters. That's why we commented on it.
Now, that may be bad for the market, but it may also be good for the larger players going forward. In general, we think we stand strong in the markets.
I think just a couple of maybe comments to that, Andreas did some of the points made earlier. I think one is that, you know, remember again that, please remember that the messaging business, you know, 2022 is around 40% of the total business. I think the other comment to kind of add to this is to say that, you know, when adjusting for the provision that we made for the volume commitments, I mean, you know, our organic growth on gross profit growth was at 10% in this quarter despite, you know, having quite tough comparables coming into this quarter.
I think, you know, that's an important indicator as well in what is otherwise a tough quarter, right? I think obviously that's the baseline that we have going out from Q4 2021.
Yes. Another question. I mean, there are a couple of one-offs this quarter with this provision for volume commitments and also the bad debt provision. The concern, I guess, from some investors that I've talked with is that perhaps you have been
Too focused on the M&A process and have not had enough focus on the core business. How can we be sure that these kind of issues will not be repeated? Is that comment anywhere valid?
Well, it's a good question. Obviously, when you grow a business this far, you know what I mean, you know, we're doing 69% gross profit growth in this quarter, closing four transactions. Do we spend time on that? I mean, the answer has got to be yes, right? That's how it is. I think the operating model that we put in place with these five business units is our view, the best way of insulating each business unit against that defocus. Because then you have, you know, a leader for each of these business units. There may be an M&A in one of them, but that doesn't affect the other four of them. That's really one of the core reasons that we do that.
Be able to continue to drive strong organic growth and, you know, M&A driven growth. We continue on that strategy, right? That's the reason we do it. Can there be impact? Of course, there can be. As with everything you do, there will be some type of distortion. But that's also, I think, the answer to what we're doing to rectify that is the business unit structure.
Okay, great. Thank you.
Thank you. The next question is from the line of Andreas Joelsson from Danske Bank. Please go ahead.
Good afternoon, and thank you for taking my question. You mentioned cross-sell potential several times in the presentation. Just curious because, sometimes it feels like cross-selling is easier said than done. Can you please tell us a little bit how you go about to realize those cross-selling opportunities? Secondly-
Yes.
Secondly, on the OpEx side, I noticed from Mr. Heath's excellent Excel sheet that you have increased the number of consultants quite heavy in 2021. How much of those are sort of in preparation for the integration of the acquired units? Thanks.
Okay. Cross-sell is very concrete. I 100% agree with your question, and I think the same as you do. Looking at it from what we actually do, it's actually very concrete. What we do right now is we say, pick a list of 100 or 200 messaging customers. We ask the account manager of those customers to open up the account. We bring in, if we take the email example, just to take an example, bring in a Pathwire target team to say, these are 100 large enterprise accounts. This email Pathwire team, specialist sales team, come in and sell. Do what you do and sell to these customers. We just go one by one. That's how concrete it is. The impact, I think, is large.
I think we have over 20 engagements today where we're kind of in real engagements with large customers of pitching the emails with good interest. We have signed the first customer now, already, you know, one and a half months after the deal. I think it is when you do it that way, it becomes very concrete. Then we do it the other way around, right? We make a list of the Pathwire customers, say, let's make a 100 list, a 100 customers, and let the account manager for them open up, and we bring in the same, you know, messaging team, basically. It is actually very concrete, which I'm very happy with.
Like I said before, the other thing I'm happy with is when we open up to... We've done it enough now and have enough interaction with large enterprise customers on the messaging side to know that almost all of these customers are very impressed by the service that Pathwire team is providing. They all have even providers. Like, there's a 100% overlap. Every single messaging customer has an even provider so far, and they're very impressed. The theory we had is, I think, proving to be true. In order to get that to GP, sign the contract and get the actual volumes ported over, I mean, that will take some time, and we're obviously not through that yet, but very concrete on what we're doing.
On your second question, finance, Roshan, do you want to take that or should I?
Yeah, no, I can at least start to address it. I mean, you know, this is what you see, what you're referring to is the average number of consultants that is in our report, which has grown to now to 550, you know, at the end of Q4 or the average for Q4. I mean, that is a reflection of the, you know, the fast scale-up that the company has had to do, right? Very often, you know, due to recruitment timelines, I mean, there is definitely a, you know, a need to go in for interim staffing in many areas.
Now, a part of the cost control, you know, and cost reduction exercises that we will exercise in 2022 will include, of course, addressing this base, right? Again, you know, I think the reason for bringing in this number of consultants has been due to the rapid scale-up that the company and really addressing all of these issues, you know, while recruitment takes a bit of time.
Perfect. Thanks.
Thank you. The next question is from the line of Daniel Djurberg from Handelsbanken. Please go ahead.
Thank you operator for squeezing me in. I have two questions, if I may. The first would be on the messaging side. I'm looking at page 21 in your report, and we can see that messaging in the U.S. has fallen off some 22% year-over-year, despite this U.S. appreciation of 10% year-over-year. My question is this related to the multinational mobile operator you mentioned or is it that something has happened with some of the big tech customers? That's the first question.
I think that's-
Thomas? Roshan.
I can start off on that one. I mean, Daniel, I think that's, you know, That is reflecting the, you know, the country from where the invoicing to the customer is done rather than actually where the customer is based or, you know, where the traffic is being terminated. so, you know, as we said in previous quarters, I mean, there is sometimes a shift, you know, in terms of where the invoicing is being done from, and they can also be large one-off, you know, kind of effects that are retrospective in character that affect that mix. it's not necessarily reflecting the underlying business development, but maybe we can pick that up offline and give you more details on that.
You can state that you still have the six out of the 8 big tech or if it was eight of the 10 big tech. I don't remember.
Yes. Yes. I mean, that we can confirm. We still have eight of the 10 big tech.
Yeah. Yeah. Yeah.
Uh.
That's great. One more question, if I may, and that would be on Pathwire. If you look at the pro forma 2021 profit after tax, it's as you comment in the report on page 29 that you have a loss here on SEK 363 million for Pathwire. Is that something that is extraordinary there or is this the run rate when we enter into 2022, and what can you do about it if that's the level? Thank you.
Thank you. I think if you were looking at the bottom line there as if Pathwire.
Yeah.
No. This reflects, you know, previous owners and their financial setup in terms of how they, under private ownership, extract value from the business. It has no, you know, representative value at all for how it will be treated in Sinch.
That's great. Can you give any ballpark where we could look at the EPS or so? Yeah.
No, I think, you know, in general, I think we've given EPS for the bigger acquisitions.
Yeah.
in text and in
Yeah.
In the spreadsheet, right? Other than that, generally speaking, we pay our taxes at a very low rate in most countries, right? We pay quite a lot of taxes, especially perhaps for being X, so you should take that into consideration. Other than that, I don't, you know, to my knowledge, there isn't anything in particular.
Thank you so much, and good luck here in 2022 with all the integration.
Thank you.
Thank you.
Thank you. The next question is from the line of Daniel Thorsson from ABG. Please go ahead.
Okay. Thank you very much. Two quick questions from my side. First one, you say that the new 8YY Access Charge Reform will materially offset the underlying growth potential in voice and video in 2022. Can you help us quantify that? Is material offset taking it closer to zero, slightly positive or slightly negative territory? The second one is how should we think about future acquisitions? Do you think that you have what it takes, product wise to succeed in the global CPaaS market, given that you are now announcing the new operating model with the business units as the business looks today? Thanks.
Oscar, maybe I can start off on the first one, and you can fill in and answer the second question.
Yeah.
The acquisitions for the future. I think just a clarification on the first one. I mean, I think we have indicated an intelligent pro forma growth of around 7%. That 7% is actually, you know, indicative of what we would expect for the periods after including the impact of the 8YY Access Charge Reform. If you were to sort of exclude that impact, the underlying growth would be significantly higher. I think that's important to remember. Oscar, do you want to take it from here and also especially answer the second one?
Yeah. On that one, you're right. We think we have achieved an extremely good position in this very strong market with the acquisitions we have made. That's one. We still have an organic and an inorganic growth agenda, especially in the long term, because we think there are continued opportunities, obviously for strong organic growth and for M&A-driven growth, you know, going forward. The timing of those, obviously from a, you know, when we do acquisitions is, you know, we need to think about now. We have done a lot of them. We need to focus, as you have mentioned on this call, a lot on operations, making things work in between these units as of today. That's gonna be a very large focus going forward.
We need to take our main teams to focus on that. That's one. On the other hand, it's a you know, and then you have the you know, the pure financials of making acquisitions. We always do acquisition. So that's another part to it, of course. Do we see opportunities for more acquisitions going forward in this very dynamic market in the mid to long term? Yes, we do think there are strong opportunities to add other areas. Do we need to? Maybe less of a need to right now, but I think there are strong opportunities that will drive a strong shareholder value going forward on both the organic and the inorganic growth side.
Excellent. Thank you very much.
Thank you. The next question is from the line of Andreas Markou from Berenberg. Please go ahead.
Hi, everyone, and thanks very much for taking my questions. Two of them. The first one is a bit of a follow-up on Inteliquent. My question is more on cross selling here and the revenue synergies you can have between basically selling Inteliquent offering to your messaging and other clients and vice versa. I mean, you mentioned about email that you've identified quite a few clients that you can cross-sell the email solutions to them. Have you done something similar with Inteliquent? And shouldn't that actually make up for part of the lost growth coming from the regulation? That's the first one. The second one is if you can give us a bit of update on SDI integration. Should we expect that this should be complete by, let's say, Q4 in 2022? Thank you.
On the Inteliquent, yes, Pathwire was just an example. Sorry if I was unclear. We see similar things on Inteliquent and similar things on the application side. On the SMB side, it's on the small businesses. You do also see it, but you need to do a product integration in order to reach it because it's not an individual contract per customer. It's just like them, you know, buying on the web. 100% you see it on Inteliquent on the application side as well. We've seen the traction a little bit slower, but definitely you see the traction in those two areas.
On the SDI integration, we have previously said it takes in between, you know, 18-24 months to integrate these type of companies when you talk to the platform migrations. Your timelines is roughly correct relating to those timelines, yes. In terms of people integration, the majority of that is done. I mean, the sales teams are mixed. You cannot see who was in SDI and who was in Sinch before. So a lot of the people side is already done. Then migrating the traffic and closing down platform is around about the timelines you stated, yes. Yeah.
Okay, great. Maybe just quickly on Inteliquent cross-selling. You mentioned this is a bit slower, but is this included in the 7% guidance you gave us, or is basically cross-selling on top of the 7%?
First, I'm not sure we gave a guidance. We gave you the historic growth, right? Just to be clear on what we actually said.
Yeah.
I mean, the historic growth, it is obviously not included because then we weren't closed, if you will. Guidance we don't give, but we will work as hard as we humanly possibly can in order to drive growth in all our business units.
Okay.
Yeah.
Okay. Thank you very much.
In that number as a fact, no, there's zero cross-sell, if you will. Yeah.
Mm-hmm. Okay. Okay, great. Thank you very much.
Thank you. The next question is from the line of Fredrik Lithell from Handelsbanken. Please go ahead.
Thank you very much. Just a quick final one maybe for you guys. Regulation, you talked about the 800 regulation in the U.S. There are other regulations ongoing. We saw the 10DLC in the beginning of 2021, and we've seen sort of the STIR/SHAKEN, and I think it's called in the U.S. on robocalls and all that stuff. Can you see effects from that? Or, you know, that you're cleaning out that type of not needed traffic, sort of any more regulations that we should be aware of? Thank you.
Yeah. I think, you know, with the risk of, you know, lacking perfect information, take it for what it is. The major one that we know of and that will impact our business is 8YY reform, right?
Okay.
That will be offset then, of course, by underlying growth as Roshan alluded to. There aren't any other material aspects which we think are important enough to highlight at this stage. When it comes to robocall mitigation and STIR/SHAKEN, you know, Inteliquent's a recognized leader in that field. You know, not seeing that necessarily as something negative.
Very good. Thank you very much.
Thank you. There are no further questions on the phone line, so I'll hand over to the speakers to check for questions on the web.
Thank you. I think we've had a few questions on the webcast. They're quite detailed in nature. If we can ask you to just reach out to Investor Relations at investors@sinch.com, and we'll do our best to pick those up. With that, given that we're about 15 minutes over time, thank you for all the interest and engagement and the questions. We're here to help, reach out if there are any other follow-ups. I think with that, Oscar, if you wanna have a brief concluding remark before we end the call.
No, thanks a lot for your interest. I mean, there are two big focus areas, you know, again, organic focus on driving growth in all these aspects, you know, strong management focus on that, and then focusing on matching OpEx to EBITDA and having cost control and making sure we got, you know, our EBITDA follows our OpEx. You know, really strong focus on that. And then, on the total side, being very happy with the position we've taken. We're really transforming this company. I think we're in a very strong position in an overall very strong and growing market. Strategically, we're super happy with the story, and then we need to get our hands down into the quarterly performance and driving that forward.
That said, thanks a lot for all your interest, and take care.
Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.