Thank you. Welcome to this earnings call for Q1 2017. In the room with me today is Odd Bolin, our CFO. Jumping into the summary of the Q1 results. Next slide, please. Revenue increased by 143% to SEK 622 million. Organic growth was 20%. Gross profit increased to SEK 191 million with a margin of close to 31%. Adjusted EBITDA amounted to SEK 80.9 million and EBITDA margin to 13%. Next slide. From the foundation of the company, we have combined fast organic growth and profitability. In more recent years, we have used our position as a listed business to complement organic growth with acquisitions. This has helped us to reach scale, and scale matters in our business. Take the next slide. Next slide. Since the IPO in 2015, we said four things. One was to strengthen our position in the A2P messaging market.
We have done so through acquisitions, but also through continued organic growth. We also said that we were going to develop a full service offering for enterprises, so we added voice, video, and an IoT service offering to our service portfolio to enterprises. We also expanded our geographical footprint. We are now one of the largest vendors in North America. We established large presence in Germany, and also through the most recent acquisition, now have a strong foothold in Asia. We also said that we were going to use our position as a listed business to start, consolidate, and make acquisitions. We have done four acquisitions since the IPO. Next slide. This shows the progress in numbers since the IPO.
Almost more than tripled our top-line revenues, more than tripled our market cap, more than quadrupled number of transactions in our network, but only doubled number of people in the organization, so we can prove scalability, and we are not yet at full scale. This combining acquisitions with organic growth of 28%. Next slide. Walk you through some updates on the acquisitions. The integration of mBlox has gone beyond our expectations. We received many new enterprise customers and 10 thousands of developers and small, medium-sized customers. Large presence in the North American markets. We are pleased to report that cost synergies were higher and delivered sooner than anticipated. A quick Sinch update. We launched video communication service in May with Sinch, and we have seen a good early uptake, especially in Asia-Pacific. Next slide. The Xura acquisition and the integration of it proceeds according to plan.
It was an acquisition we made in February and added approximately €25.5 million. Next slide. The most recent acquisition of Dialog adds a lot of presence in Asia-Pacific. It also builds out our Tier 1 super network, also with focus in Asia-Pacific. As part of the acquisition, we got a service offering called Sentinel that is a security solution for mobile operators that helps us to strengthen the relationships with mobile operators to create value for the enterprise division. The net synergies of the acquisition is estimated to £1 million and expected to come in 12 to 18 months. Next slide. Next generation messaging, also called RCS, Rich Communication Services, is now being developed by the GSMA, and Google is one of the main drivers in this ecosystem.
We are part of the Google Early Access program. We think that RCS will drive a lot of more messaging traffic in the networks and grow our market size. In the presentation, you can see the environment and the user experience, how that changes from an SMS to an RCS environment. This will enable a lot of more enterprises to launch services, but also to address more use cases. Next slide. We are continuing to invest in our IoT solution. It will take time until IoT is visible in our revenues. Going forward in our growth strategy, and we're sticking to our long-term strategy of profitable growth, continued organic growth. We're continuing to expand our geographical footprint. We now have additional services, and we are actively upselling our customer base with those.
We are looking at new product offerings and service offering to continue to upsell our customer base. Also continue looking at selective acquisitions to continue to grow the business. Next slide. Our strong development secures continued profitable growth and to be aggressive in the marketplace. Q4 typically is our strongest quarter. Q1 is typically a little bit weaker. With the acquisitions of Dialog, we strengthen our footprint in Asia Pacific, a rapid growing market. Further, we are excited about the future prospects of RCS, and that will help to grow our market size, especially in the messaging market. We continue to invest in IoT, but as I concluded earlier, it will take time until we will see uptake in that market for us. With that, I'm handing over for a Q&A session.
Thank you. If you would like to ask a question, please press the star or asterisk key followed by the digit 1. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We will now take our first question from Daniel Djurberg from Handelsbanken. Please go ahead.
Very much, I pronounce it your way, but it doesn't matter. We can start with the new financial targets, the reason why you changed towards growth and adjusted EBITDA rather than top line and EBIT margin. Is it because of your M&A-driven focus or?
the fact that we are doing the acquisitions gives us a lot of goodwill and immaterial assets that we need to write down, EBITDA is a better measure than EBIT. We also decided to combine the growth and profitability targets into one target, while doing this as a change.
From a cash flow perspective, it's more or less the same, you could argue. Another question is on the, you write about the temporary slowing organic growth in enterprise. Can you tell us why it's temporary, or are you cleaning some lower margin contract or something or?
There were a few different reasons. One, as Johan mentioned, is a seasonal slowdown. Generally speaking, you could say that, obviously, the traffic we send has a connection to the number of days in the period. In a quarter with fewer days, we have less traffic, in that quarter. We also have a situation where, generally speaking, on a holiday, traffic is give or take about 50% of the traffic on a weekday, meaning that more holidays also impact our revenues every quarter. Quarter one tends to be slightly weaker, and we had fewer days. We also had a temporary slowdown from one of our resellers, where we, for different reasons, had a little bit less traffic during the first quarter, but where we see that traffic coming back at the end of this quarter. That was a temporary effect.
As we have mentioned in the report, one of our customers have made an acquisition of a platform for messaging, they now have their own messaging platform that they use, which means that they have redirected some of the traffic that we have been sending for them over to their own new platform.
You talk a little bit about the ambition to take out further cost. Is it possible to give some quantification of the level there? Also, if you could talk about the Xura margin of 2.5% in the quarter, is that seasonally, or normal in terms of seasonality, or is it below expectation or in line with expectation?
Talking about the cost level, generally speaking, we do think we have more to gain from the mBlox acquisition we did last year. We still have some potential for cost reductions there. We obviously have quite a bit of potential for cost reductions in both Xura and Dialog, as communicated. Xura's margin for the quarter, can you please specify exactly what you referred to?
I think it was, oh, okay, it was including integration costs. Sorry, I didn't see that. It's, I guess.
Yes
It's a bit higher, underlying. Sorry for that.
Okay, just my final question, if I may, is regarding the Sinch, the new product, the video launch in May. Can you just describe for us the revenue model that you use for the external customers in the video side?
Yes, that is a license model where it's number of users that is using the video solution.
Again, as a reminder to ask a question today, please press star one. We will now take our next question from Lina Åsberg from Carnegie. Please go ahead.
Yeah, good morning. I just wanted some more clarification on the top line slowdown, which you say is part temporary. If you could maybe break down a little bit how much is related to what. Also, Twilio buying Beepsend and moving traffic over to that platform. How much of that traffic that you expect to be migrating has already migrated in the quarter? Should we expect further migration in Q2, or do you think that effect is fully into this quarter? How much relates to Twilio's move of traffic, and how much relates to your customer temporarily holding back traffic in Europe?
First of all, we have not communicated which customer we have seen doing an acquisition. Whether it's Twilio or not is your guess. We can't comment on that one. Generally speaking, we think that the majority of the temporary slowdown we saw in this quarter will come back, during the end of this quarter or beginning of next quarter.
I think it's worth to comment as well that Q4 is typically our strongest quarter, Q1 a little bit weaker. It's a comparison effect as well.
Could you say how much of the traffic has been migrated that you expect to migrate, or if there is a further effect in Q2 to be expected?
No, we haven't commented on that.
I think it's a relevant thing to comment on.
That could be. We'll consider that. We're not going to comment on it right now.
Okay.
There are no further questions from the telephone. We have a question from Fredrik Lithell from Danske Bank. Please go ahead.
Yes, good morning. I was wondering if you could just state a little bit, on the acquisitions you've made, the Xura and the Sinch, how much more of integration and [EU] charges we should expect that you still have to use in the coming quarters. You used, in combination, SEK 10 million in this quarter, and how much is less, and what of the acquisition does it relate to? Would be good to have something to hold on to there. Thank you.
What we see going forward are less than what we've seen so far, but we will have some costs over the next couple of quarters, as we do gradual adjustments and continuing adjustments of the organization. The amount that we foresee are such that we haven't seen a need to quantify them and communicate them specifically, because we don't believe them to be very large.
Okay, does this mean that the initial take when you did acquisitions and the probable EO charges you foresee at that point, do you see that they will be smaller altogether than what you felt in the beginning?
For
For Sinch or for Xura.
What we do generally, we make an accrual for the restructuring costs that we expect over the time of the restructuring period.
There are always some adjustments that might have to be made over the course of the restructuring.
Yeah.
They should be rather small.
Okay. Thank you. Can I have a follow-up question? You do this mBlox acquisition, and you do the Xura, you get into the German market, and you also do the Dialog. What are the implications and what have you felt that operators, because you have this steady negotiation with operators on termination fees and all that stuff? Is there any insight so far? I understand it's early out, but any insight that your negotiation power has improved over time due to you being such a big consolidating factor in the whole market?
Yeah, scale definitely matters in our business, and we continuously speaking to the mobile operators on these topics. I would say, of course, with more transactions, we have more negotiation power with mobile operators.
Is it fair to assume that even though you do have that, you will have to wait until for operator A, your contract runs out and you renew that one. That's when you might be able to see some improved COGS from a renewed renegotiation. Is that fair?
I think it's a very fragmented view of that, and it's really a per operator relationship negotiation. It's very difficult to comment on a general basis for that.
Okay. Thank you.
There are no further questions from the telephone.
Okay. Thank you for today's session.