Welcome to the CLX Communications AB first quarter report, January to March 2018 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Thomas Heath, Chief Strategy Officer and Head of Investor Relations. Please go ahead, sir.
Thank you, operator, warmly welcome everyone to the first quarter earnings call with CLX Communications. My name is Thomas Heath. I am the newly appointed Chief Strategy Officer and Head of Investor Relations. With me in the room is our President and CEO, Johan Hedberg, together with our Chief Financial Officer, Odd Bolin. With those introductory remarks, I leave the floor over to Johan.
Thank you, Thomas, welcome to the Q1 report for CLX Communications. Some highlights from the first quarter. We put a lot of effort in this quarter to restructure our enterprise sales team, I am glad that we are delivering 16% organic growth in the quarter. As part of this initiative, we also hired an APAC regional director to strengthen our APAC sales teams. 2017, we established a lot of relationships with many of the U.S. global digital native companies. Out of the 10 biggest tech companies, we have signed eight to date. Recently had a successful launch of one of the key customers that we signed, positive outlook for further launches in Q2 and Q3. We took major steps toward complete migration of customers onto our new platform, Nova.
All non-U.S. customers have been migrated to date, we are on time to migrate the remaining part of the customers in end of Q2. It was a slightly disappointing quarter for the operator division. We had a low conversion from pipeline to order and sales. The pipeline, though, remains strong. We concluded the acquisitions of Unwire and Vehicle. The next slide. Talk a little bit more about the Unwire acquisition. Unwire is based out of Denmark in Copenhagen, strengthening our position in the Nordics, especially in the bank and finance sector. Has a positive contribution to our margins. We will integrate Unwire through a phased integration approach to safeguard our organic performance. This is an acquisition in line with consolidate the market and build further scale to CLX. Next slide, please.
Talk a little bit more about the Vehicle acquisition that we also concluded in Q1. Vehicle is based out of Seattle in the U.S., and that is to strengthen our position in next-generation messaging services like RCS. It's a personalized video messaging platform with a strong U.S. customer base, large brands. We see a good cross-sell potential to CLX enterprise base, especially in the U.S., but also to mobile operators in the rest of the world. Next slide, please. We continue to invest in our voice and real-time video solutions on the back of good demand from especially the ridesharing segment across the globe. We are live in many markets and continue to roll out into more countries across the globe. We also continue to broaden our customer base from this particular segment. With that, I'm handing over to Odd Bolin, our CFO, for more details on the numbers.
Thank you, Johan. Good morning, everybody. Let's start with just going through the numbers briefly. Gross profit increased to SEK 200 million from SEK 198 million first quarter last year. We had an EBITDA of SEK 53 million, which was a decrease compared to last year, but adjusted EBITDA was SEK 65 million. Our EBIT was SEK 20 million, and the net profit was SEK 9 million. As Johan pointed out, we are disappointed with the operator division this quarter. We had a slower-than-expected conversion, sales to revenue. We had had some increasing OpEx in the enterprise division due to the finalizing of the Nova development project and the customer migration. We are, in parallel with this, redirecting our efforts and our focus towards organic growth, where we have seen some initial uptake at this point. Sinch is developing according to plan. Next slide, please.
Looking a little bit more into the details of enterprise. We had a flat EBITDA versus the same quarter last year. We have a very strong customer pipeline, in particular with some U.S.-based global enterprises. We have had an increase in OpEx during the quarter, as I mentioned just recently, primarily due to this finalization of the Nova platform project and the customer migration that goes to that. We expect OpEx to stay flat or increase a little bit during the second quarter for the same reasons. We are at the very final stage of the customer migration, and that demands some extra resources in order to finalize with the right quality and on time. After the second quarter, certain qualified resources from those projects will be redirected towards developing new products and services within cloud platform as a service.
The Unwire acquisition had no material impact in the first quarter. It was done, as you remember, at the 27th of March. That will contribute significantly during the rest of 2018. Next slide. The operator division. The underlying business is continuing to develop as planned, pretty much, but we have had a slow conversion of sales pipeline to orders and orders to projects and projects to revenue during the winter this year, which is now creating a slower, lower revenue and profit than we had expected. We are obviously not happy with this development, but we still continue to see a strong sales pipeline. We believe that the long-term outlook for the division is unchanged. We've had no capacity expansion projects for a few quarters.
We are confident we will see further capacity expansion projects going forward, but we cannot forecast when those will materialize. We continue to invest in sales and marketing in order to grow our top line long term. We stick to our 15% EBITDA margin as a forecast for the medium term for the division. Next slide, please. Looking at Sinch, we continue to invest in increased functionality and a lot of customer-specific adaptations. Ride-sharing is developing very favorably for us and the further markets are set to go live during the remainder of the year, which will have a positive impact on the development of the unit. Vehicle is, as Johan mentioned, developing well. We see increasing revenue and very considerable interest from a number of large or very large potential customers.
We continue to make rather moderate investments in Internet of Things, that way mirroring the relatively slow pace of market development. We continue to do development work for Rich Communication Services, because we see a strong interest in that area, and we want to be part of that, and we want to match the rate of the market expansion to our development efforts. Next slide, please. Just to repeat our internal key metrics, we are looking primarily at gross profit and adjusted EBITDA to gross profit, OpEx per transaction as key metrics. We have said this before, but it's worth reiterating. We do not consider gross margin to be a relevant measure, since that is, to a very high degree, dependent on in which market our traffic terminates, which we can only have some influence on. Gross profit per transaction and gross profit is a more interesting measure for us.
Obviously, OpEx per transaction in order to measure operational efficiency. Next slide, please. Looking at those, we see gross profit continuing to grow. The rolling 12-month figure is growing. We saw quite a bit of an uptake versus the first quarter in 2017. That needs to be emphasized here that that was a weak quarter, and we've had some positive productization effects during this quarter. The long-term outlook is, however, in our view, still very positive, and we continue to see an increasing number of transactions mirroring the organic growth we have in the business. Next slide, please. We do see a long-term trend towards further operational efficiency due to the economies of scale that we continue to increase.
We had a little bit of a dent in that development this quarter due to the increase in OpEx we've reported for the Nova project and the migration project. With that, I give the word back to Johan to give a little way forward.
Thank you, Odd. Next slide. We will talk a little bit more about next-generation enterprise messaging. The technology that is named RCS, Rich Communication Services. We believe that RCS has the potential to replace many applications on the phone. All U.S. carriers have now committed to launch RCS in 2018. We are also starting to see price points in the market for RCS services being launched by mobile operators, where we can reutilize our contract structure and network that we already have with the mobile operators. We hosted an event in Atlanta earlier this year. It was a great event to position CLX as the early market leader as RCS develops going forward.
We launched an SMS RCS API that allows customers to fall back on SMS, since they will take some time until RCS reach full market potential, with being compliant with all the mobile phones in the marketplace and all the mobile operators adopted the technology. Next slide, please. We'll talk a little bit more about multimedia messages and the Vehicle acquisition that we recently made. Mobile messaging is the only channel that instantly reaches 5 billion users, reaches 100% of devices and has a 98% open rate. We had a video example that we wanted to show you, unfortunately it don't work with this conference bridge. Mobile, I will talk about it instead. This is an example where a U.S. mobile operator sends a 45-second multimedia content to users that signed up for their service.
The video explains how the first bill will look, how the first invoice will look to avoid churn from their user base. It also uses a upsell opportunity to sell a insurance on how you protect your mobile phone from damages. This has been very successful, see a reduction in churn of new subscribers, also increase in sales from add-on products. A very successful implementation of these kinds of services. We're seeing this being now launched across large variety of different enterprises and segments in the marketplace, especially as a welcome service. With that, we are finished with the presentation for this quarter, welcome questions from the audience.
Thank you, sir. Ladies and gentlemen, if you'd like to ask a question over the phone at this time, please press the star or asterisk key, followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question over the phone. We will pause just for a moment to allow everyone the opportunity to signal. Our first question comes from Stefan Avås from Carnegie. Please go ahead, your line is now open.
Hi, and good morning. I guess it's fair to say that your organic growth is on the right track now. What will need to happen for you to deliver similar organic growth, or organic gross profit growth, as your main listed peers? Is it more a function of different end market exposure, or could the difference be explained by execution or your current strategy in place?
I think the main factor for our gross margin development is determined market, for SMS messages. Where the U.S. contributes with a higher gross margin than, for example, Europe. A large exposure to the U.S. market increases the gross margin.
Okay, let's look at gross profit then instead of the top line. The same question, the organic growth of your gross profit, what will need to happen for you to deliver the same growth as your peers?
Can you just please specify what growth levels you are referring to? Our peers can be defined in different ways, right?
Look at the gross profit in enterprise division. It's up by SEK 20 million, on the other hand, you had some acquisition impacting that number, and as you point out, it was fairly weak quarter last year in enterprise. It's fair to say that you underperform peers when it comes to organic growth. I'm wondering what your take on that is. Is it because you have different exposures or is it that you have failed on the execution in some way?
With the increasing focus we have now on organic growth, we'll see stronger growth coming out of that. Whether that's going to be in line with some still undefined peers is obviously not clear, but we are quite happy with what we're seeing in our pipeline, and we think that the way forward will show that we're on the right track.
All right. Adjusting for the integration acquisition costs, your operating costs were fairly high in the quarter, as you pointed out, also it was up by around SEK 5 million quarter-over-quarter. Given your cost base now will be impacted by the two recent acquisition on one hand and the announced cost savings on the other, what is the reasonable underlying run rate of your OpEx going forward for the group? You mentioned the enterprise level in the presentation, overall, do you see it trending down now given the acquisitions, or how should we think about it?
Well, as we said, during the second quarter in the enterprise division, we'll see similar or slightly higher OpEx than we had in the first quarter because we're moving from an intense phase to an even intenser phase when it comes to closing the Nova project and the migration. Beyond that, we will reallocate some qualified resources into development of new services and products because we feel that that's a necessary step to take in order to be able to fully benefit from all the opportunities we see in the market, in the cloud platform as a service market. We don't see any major changes to the operator division. We do, as you know, strengthen our top management team this year, which obviously have some impact. What you can expect from the acquisitions is in line what we've seen so far.
We don't see any reason to expect the cost base in either of the acquisitions we have made so far to go through any major changes this year.
All right. The final question from me, you have a financial target, of course, of delivering an adjusted EBITDA per share growth of 20%. Looking at the performance in Q1, how confident are you that you will be able to reach that for 2018?
Well, considering that the financial target includes both organic and acquired growth, and that we have now Unwire and Vehicle on board, we feel we have good opportunities to achieve our targets.
Okay. Thank you.
Thank you. As a reminder, ladies and gentlemen, please press star one to ask a question over the phone. I see there should be no further questions over the telephone at this time, so I would like to hand the call back to our speakers.
Thank you very much for listening in to the CLX Communications Q1 earnings call. For any of you listening in who find you have follow-up questions further during the day, just reach out, and we'll answer your questions to the best of our ability. That ends the call. Thank you very much for participating.
Thank you. Ladies and gentlemen, that we conclude today's CLX Communications AB first quarter report, January to March 2018 conference call. Thank you for your participation. You may now disconnect.