Earnings Call: Q2 2020

Jul 17, 2020

Thank you all for standing by, and welcome to today's interim report, January to June 2020. I would now like to hand the call over to your speaker, Chief Strategy Officer and Head of Investor Relations, Mr. Thomas Yip. Thank you. Thank you, operator, and welcome, everyone. Good to have you dial in to this conference call discussing the Q2 2020 results of FINCH AB. My name is Thomas Hee. I'm Chief Strategy Officer and Head of Relations Head of Investor Relations. And with me on the call today, though not, of course, in the same room, is our CEO, Oskar Wanner and our CFO, Roshan Saldanha. And with those introductory remarks, I'll hand the word over to Oskar. Thank you, Thomas. So welcome to welcome again to this quarter report. And so we'll try to give you the information on the quarter and also answer any questions that you may have. So can you go to Slide 2, please? So this slide we showed many times before. We're now up to $6,000,000,000 revenue in the past 12 months and an adjusted EBITDA of $708,000,000 in the past 12 months. With the acquisitions that are closed, but not counting the ones that are not closed, 822 people and present in 37 countries. And what we do is customer engagement to mobile technology, primarily in messaging, voice and video, where messaging is the largest. And we do some $40,000,000,000 engagements per year. We're serving 8 out of 10 of the largest U. S. Tech companies. So a large portion of the West Coast large tech clients are our customers. We believe this is a very interesting market. We believe it's a growing global multibillion dollar market. And we believe that this market will continue to grow for the foreseeable future. And therefore, we're trying to position ourselves as one of the leaders in this space. We have been profitable since Foundation in 2008. So we're very proud of that, and we work very hard to keep it to obviously keep up profitability even during tough times. And we have had a solid growth since our IPO since 2015. So can you move to Slide 3, please? So we have, as you see, had a track record of profitable growth, and we focused both on organic and M and A driven growth. In this quarter, we had a 43% in gross profit in Q2 2020 and a 55% growth in EBITDA and adjusted EBITDA. We focus on gross profit since the revenue has a lot of pass through fees and they vary between countries. So looking at revenues and this type of estimates, we'll skew your analysis. So therefore, we only look at gross profit in both external and external. And then this quarter, we obviously need to say that the acquisitions of Wayby, STI and ACM Mobile will add significantly to our scale and profitability. You can see the impact both on the gross profit level in the yellow bar and on the adjusted EBITDA level on the purple bar on the trailing 12 months on a trailing 12 month basis on the graph. So as you can see, we're with these acquisitions assuming closing, we're taking a major step up both in profitability and gross profit, and we think it also puts us in a very strong strategic position. Operator, if you go to Slide 3, please or Slide 4, please. And to put this in context, both the organic growth and the messaging and CPaaS here. We're not showing the figures for voice and video in order to make it a little bit shorter. But the messaging market is a on the ATP SMS side, the biggest part market and then the market where the majority of the revenue is a $17,000,000,000 market globally. And other estimates vary between $15,000,000 and $60,000,000 The business usage of SMS is continuing to grow. But then you also have very high growth rates in next generation messaging channel like WhatsApp and RCS and Viberg and CalTalk, where you're seeing above 100% growth rates in the market. So this is a market which is combining the size and the profitability of the existing text messaging market and the high growth and sizzle on the next generation channels like WhatsApp and RCS, which I think we think is very interesting. The other thing that is happening in the market is on the SIPA side, basically adding software on top of actually delivering the message or terminating the voice call. So you deliver various forms of software services, which may be an AI service, an NLP service, which the Chatlayer acquisition is an example of or it may be other forms of software that you add on top. And there you charge more in a SaaS model where you charge for those services a 90% margin, but because it's a full cloud service. And those markets are growing fast as well and ranging between 30% 50%, depending on the various estimates that you may choose. Slide number 5, please, operator. And as a consequence of this, we have a playbook for profitable growth where we both focus on the connectivity side that is terminating the voice call or making the video call or actually making sure the message is delivered or the software as a service on top, which are the value added services on top. And we focus on both of those. The majority of our business is on the connectivity side, even though we grow the software as a service side both organically and by M and A. So let's go to Slide 6, please. As you know, we have been making quite a few acquisitions lately. And in this quarter, we have added 3 relatively sizable ones: Wavy in Brazil SAP, headquartered in the U. S, but large operations in Europe as well and also present in Asia and ACL, the 2nd largest player in India. So we feel that this quarter will really take a stance of becoming the global player in this industry. And we're now a leader in both Europe, U. S, Latin America and India for Realum being the biggest messaging or one of the biggest messaging providers in all of these regions. And we believe no other messaging players is that deeply entrenched in all these markets. So we think we have a very strong position there, and we think that sets up very well for the future. So operator, if you go to the next slide, please, Slide 7. This is a case for the acquisitions on the to show you what happens when we do acquisitions on the technology and go to market side. So we have the strategy of scale and profitability, but also technology and go to market. On technology and go to market, we buy typically smaller companies that have a specific technology or go to market ability that we think we can scale globally. And one of those that we acquired a couple of quarters ago was My Elephants. MyElephant has a way to deliver what we call a rich SMS. It's basically like some SMS with a landing page to mobile landing page. And they have a software so that people in marketing can actually create those messages themselves without any help from a developer. And we Cinch had a customer called Nationwide, which is a financial institution or bank, you may say, in the U. K. And when and then we took the MyElephant service and pitched to the Nationwide and they had a best use case. So Nationwide wanted to do payment holidays for credits, so basically prolonging payment terms for credits to their consumers. And they wanted to find an efficient way of when that payment holiday or extended credit was ending, the term for that was ending, sending a notification and reminding people to start paying. They're doing this via regular mail. They're doing it via e mail and they were doing it via text message. But then they saw, all right, well, this service from Myelephant or now Cinch seems like a really good way of increasing the engagement rates of our consumers so that more people actually start paying or take action when the payment holiday ends. And they did a run here. They saw a 4x click through rate compared with the bank compared with the bank and financial sector average. So the click through rates on this particular message or this particular campaign was 4x what they have seen before on any other campaign. And it was 98% engagement rate. And that means when anybody clicks on the link, 98% of the people actually clicked on the next button in this message. So you can see the first button here is if you can start making a payment again. So 90% to 91% of the people that click through to the message actually clicked on it. Nationwide believes this is extremely successful campaigns and they believe they can really increase the engagement rates and they increase the number of people who took action and therefore it makes it easier for them to start getting payments again or putting the people on a new payment plan basically. So very successful campaign. To the left here, you see how the message actually look when you get to the LinkedIn landing page and you can see how interactive this becomes compared to normal text message with photographic, graphics action button and things like that. So this is very much representing the move you see in this industry of moving from simple texturing messages to an interactive message and where enterprises have a much higher value, but they also require more software. And that means that we can charge a higher fee for per transaction that we could if we just send it to normal text message. So that's one example of what we're doing here with the new acquisitions. If we then, operator, move to Slide 8, just a short reconnect of SAP Digital Interconnects that was executed during the quarter. So the deal rationale here is we're getting close to 1500 enterprise customers and some of the world's most valuable brands and we diverse price our customer base. It's a highly accretive deal as you've seen, so it fits our scale and profitability category. It significantly strengthens our U. S. Presence. We go from some 100 people in the U. S. To 200 people in the U. S. We also get strengthening in Asia Pacific and Europe. And it gives us very strong operator relationships and a status of trusted vendors to hundreds of carriers around the globe, given that S and P also have a P2P and an operated business basically. So we think this deal is very good. We're now in integration planning. We're going through and hoping for closing in Q4 or targeting closing in Q4. And we're going through integration planning, and we're very satisfied with what we have seen so far. So it's on track and we're working hard in order to get to closing here. And then operator, Slide 9 please. So ACL Mobile, a little bit of recap. So ACL Mobile is the leading cloud communication providers in India and Southeast Asia. I think they're number 2 in India by volume on messaging. They've got a very strong customer base with a leading position in banking and finance. So a large portion of the private banks in India are now customers of ACL and so would be Cinch. They got very significant scales with $47,000,000,000 business messages handled in the past 12 months. And if you can compare that to Cinch's $40,000,000,000 you can see that the volumes in these type of markets are huge. You can also see by looking at the revenue numbers, the revenue or gross profit per transaction is obviously much lower. But entering into these type of markets with a very high mobile first with a very large mobile first population where the number of transactions is very high, it's obviously very interesting for any company that wants to be a leader in messaging globally. And that is our goal. And therefore, we believe India is a very strategic market to be in. And they have 2 88 employees in India, UAE and Malaysia. This gives us significant scales in one of the in the world's 2nd largest mobile markets, more than 500 large enterprise customers. It's also highly accretive deal. It's the scale and profitability. We get direct operating connections in India, a bit competitive cost structure for further expansion into Asia. The direct operator connection in India are important obviously to both our Asian and now to our U. S. Big tech customers who all have large volumes into India. So that really truly adds to our delivery network in those regions. So operator, next slide please, Slide 10. So India, just a little bit, you know this, but the 2nd largest mobile market in the world, got a 1,200,000,000 mobile subscribers and a 50% smartphone penetration. It's interesting that we see a lot of innovation coming out of India now. So with the world's highest data usage per smartphone at 9.8 gigabyte per month. And it's also very rapidly digitizing economy, second only to Indonesia, if you look at the various reports. It's also the worst largest WhatsApp market, which is interesting in when the new services comes. So from a consumer perspective, it has 400,000,000 users in July 2019 from WhatsApp. So it's a very active WhatsApp market also in terms of business spend. All right. Slide 11 please operator. So with that intro, if we look at Q2 2020, we saw gross profit rising 43 percent to SEK 460,300,000 compared to SEK 321,000,000 the year prior. So adjusted EBITDA rise to 55 percent to $176,500,000 compared to $114,200,000 the year prior. And adjusted EBIT, if we exclude acquisition related amortization, which is non cash flow impacting, was $161,700,000 So as you can see, the profit after tax being 37 $700,000 and the large portion there is obviously the acquisition related amortization. And we also were happy to see that our cash flow, EBITDA to cash flow, that strong ratio is continuing and that's what obviously you can see on the adjusted EBIT excluding acquisition related amortization. Organic gross profit grew 24% in local currency, so excluding the currency effect. COVID-nineteen was causing reduced voice traffic and lengthened sales cycles. But you also see that the high scalability in the business, you can see truly see this when you see the message volumes going up. You can also note that EBITDA grows faster than gross profit despite increased OpEx to handle the greater business volumes. So that's a little bit of the headlines. And now we'll go into a little bit more of the details. So operator, slide 12 please. So the key growth drivers in this quarter since its volumes volume growth and new use cases with large U. S. Tech companies as we've seen many quarters before. We saw the acquisitions of TWW, Myelephant and Chatlayer contributing well to growth. And then we have a very strong performance in general in Brazil. It's the 3rd growth performer here. And we're growing both with new and existing customers. So Slide 13, please, operator. We're investing in 4 areas. We're investing in organic growth. So we have this 2 pronged agenda of doing M and A and organic at the same time. So we're continuously focused on driving the organic growth and driving that upwards. And I'm happy to see that we've had a good organic growth the last quarters and also this quarter. And we're seeing a continued investment in platforms' capability. We're seeing supporting growth with existing customers. Just the sheer volume growth obviously takes some investments in order to keep up with. And we see a greater focus on lead gen and new sales and continued increased focus on that each quarter by quarter. Operation efficiency is a big area. So we're investing in COGS efficiency and internal automation. So we see a lot of the initiatives that we kicked off 12, 18 months ago are now coming up in automation. So very happy to see that that's coming out now in Q2, Q3, Q4 of this year and also seeing a client self-service tools. New technology and a large area as well software on advanced interactive messaging, new channels like WhatsApp and RCS. We're focusing now on a cross channel conversation API, so our customers can have one API and then reach every channel in the market. And we're investing in RCS as a service and SMSF for mobile operators. This is the partnership we announced with Ericsson. And integration is a large focus area, of course, so both on CWW, My Health and the Chat layer where we're they're closed and we're focusing on actually doing the integration. And then you have ACL expected to close in Q4, SDI pending regulatory approval and WAVI pending regulatory approval. And there we do integration planning, but obviously not integration or execution. But that's a big area and will be a growing area, of course, going forward. And we're right now working hard to set ourselves up to do this integration in a good way. So operator, Slide 14, please. The messaging performance in this quarter is very good. U. S. Tech companies continue to fuel our growth here. We also see generally in market the rising volumes as businesses shift from e mail to mobile messaging. MyElephant and the TWW are included since mid October 2019 and chat layer since April 2020. And we see investments in software for next generation messaging. But in general, if you look a little bit closer to numbers, the growth in gross profit and EBITDA in this quarter in messaging alone is very strong, showing the strong performance in our core marketing, core product. Operator, Slide 15, please. So you see rising asset volumes. As you see on the graph, we had a spike in early 2020 and we said in I think it was March 2020. And we also noted there we thought that was COVID related early and that was going to go down. So we saw that spike going down as reported at the end of the Q1 report. And we saw that happening, but now we're seeing also message volume picking up again in the tail end of Q2, which we think is good and strong. And we see 58% growth in transactions and 32% growth in gross profit in the messaging segment. So operator, Slide 16, please. Gross profit per transaction. So OpEx per transaction and gross profit percent traction. This is a graph we're monitoring closely. And obviously, you want to see this a little bit like a crocodile gap or crocodile mouth in the end. You want to see them increasing. And over the last quarter, we have seen that. And this quarter, we see that graph being on the solid level or even increasing a little bit. And this is obviously how we try to manage our OpEx to our gross profit. And as you know, we're trying to always keep our OpEx in line or at the slower growth with the GP. And we see that we've been able to do that this quarter. You can also see here a reduced OpEx per transaction due to economies of scale. All right. Operator, Slide 17, please. This is the other graph we're monitoring closely. It's the in our core business, the messaging EBITDA per gross profit. And as you can see here, we're dropping close to 50% of our gross profit down to EBITDA. So this truly I think this is a truly testament for the scalability of this type of business. Being able to, in a cloud business, drop 50% of the gross profit down to EBITDA is a strong testament to our scalability and efficiency of running this operation. Slide 18, please, operator. Then coming out to the headwind areas in this quarter. As we reported in Q2, we saw strong headwinds in voice and video. Voice and video are 2 segments, Barclays verification, which is trading fairly well. And then it's the actual ride hailing segments, which obviously during lockdowns and COVID, has a strong headwind. We saw that in Q1, but then the COVID effect was only 1 quarter. And now in Q2, we see a full quarter's effect of the COVID impact. And then you can see the gross profit levels and the revenue levels and the EBITDA levels on the voice and video segments to drop. And obviously, this is not what we want to see, but this is, as you know, a smaller portion of our business. So but this is the area which is strongly most strongly affected. And we expect this to turn back up as the COVID effect releases and as we are able to sign the new customers. We should go say that we have a positive underlying trend in the number verification business. So this is, as I said, 2 parts and number verification doing well while the ride hailing segment obviously much more negatively affected. And here we are increasing OpEx to ensure quality and service and adding functionality, and we're continuing on a solid level here in order to make sure we have the quality as messaged as core volumes come back. So operator, Slide 19, please. So we also have headwind in the operator segments. We see lengthened sales cycles with lower operating investments due to COVID-nineteen. We also have the currency headwinds. And we also signed a very attractive 5 gs SMSF deal with Ericsson. This is to enable IoT and wake up IoT devices in the 5 gs networks. And the best way to do that is via text message. And therefore, we together with Ericsson have we have developed the software. And together with Ericsson, we're taking it to market to the largest carriers in the world. And here we see a great future potential and therefore we're taking more investments here than normal because we think this case is interesting as such. We're obviously not happy at all with the negative EBITDA impact in operator, and we're working hard in order to turn that trend. That said, I'll leave the word to our CFO, Roshan Solana. So operator, if you go to the next slide, please. And Roshan, if you could please continue. Yes, thank you. Thank you, Oscar. Good afternoon to all of you taking time on this summer day and some of you even from your holidays to join us on this call. Happy to present some comments on the financials for Cinci this quarter, where we continue to help enterprises digitalize their communication. Operator, please turn to Slide 21 for the condensed income statement. Consolidated net sales grew by 38% in the quarter to SEK 1,600,000,000 and the growth rate in the quarter was positively affected by the previous acquisitions of TWW, Chatlayer and Myelephant and as well as the depreciation of the Swedish kroner, primarily against the euro, pound and dollar. The organic growth of net sales in local currency was 27%. We see a strong continued development of adjusted EBITDA per share, which was DKK 2.9 for the quarter versus DKK 2.1 for the same period last year. On a rolling 12 month basis, adjusted EBITDA per share increased to DKK 12.6. For the Messaging segment, especially adjusted EBITDA was a record high at DKK 214,000,000 for the quarter versus DKK 112,000,000 last year and $177,000,000 in Q1 of 2020. Adjusted EBITDA in the other segment was also decreased or affected negatively by SEK 12,000,000 due to increase in provisions for social insurance costs related to the company's outstanding long term incentive programs. In addition to that, in adjusted EBITDA, we also have a negative ForEx effect of SEK 11,000,000, which varies, of course, from quarter to quarter depending on foreign currency movements. Moving to EBITDA, which came in at SEK146 1,000,000 this quarter. It was it is reduced by nonrecurring items of SEK 31,000,000 compared to adjusted EBITDA, of which SEK 26,000,000 are acquisition costs related to the recently announced acquisitions, mainly SEI and ACS. EBIT came in at $88,000,000 versus $73,000,000 in the same period previous year. Acquisition related amortization, which does not affect cash flow was SEK 43,000,000. The amortization relates mainly to planned amortization of acquired brand customer and operator relationships as well as software. Adjusted EBIT excludes both items affecting comparability and amortization and of acquisition related intangible assets. Since these do not affect cash flow. Hence, we consider adjusted EBIT to be a better measure, and it amounted to million this quarter versus SEK104 million same period last year. Operator, moving to Slide 22. Slide 22 shows a bridge explaining our underlying gross profit development. Significant part of our revenues are passed on as cost of goods sold to mobile operators. We pay them to send messages in place calls, but the rates they charge vary greatly between markets. Since pass through revenues do not contribute to our profits, we focus almost exclusively on gross profit when we assess and steer our business. Changes in our gross margin often reflect changes in geographical mix rather than underlying performance of competitiveness. And over time, we aim to improve gross margin through also delivering additional value added components to customers. The bridge explains the different components in our gross profit growth and organic growth. Consolidated gross profit rose by 43% during the quarter to $460,000,000 versus $321,000,000 last year, same quarter. Positive exchange movements contributed or explained $4,000,000 or roughly 1% of this increase. The acquired companies, which are then TWW, Chatelier and Myelephant, contribute 19% of this increase. Therefore, organic growth in gross profit in local currency and comparable units was at 24% for the quarter. When looking at the segments, gross profit growth in the Messaging segment was particularly strong coming in at 59%, of which organic growth in local currency was 35 percent. Acquisitions contributed 23% points and currency fluctuations an additional 1% point. Adjusted EBITDA over gross profit in the messaging segment also came in at a record of 52% for the quarter as we benefit from increased scale. Gross profit declined by 40% in the voice and video segment, and I think Oscar has talked about sort of the reasons behind that, as well as 13% in the operator segment, which are both affected by muted demand due to the ongoing pandemic and the related economic development. Operator, please turn to Slide 23. On Page 23, you see a summary of the number of resources at Cinch. We continue to invest for continued growth. And Oscar already talked about the main areas of resource addition, which are driving internal operational efficiency and quality, increasing our sales and marketing efforts as investment in new technology and finally, of course, integrating the acquired business. I would just briefly touch upon the size of the investment and what we believe will deliver growth during the coming periods. Our headcount is distributed in many different locations across the globe, but the main locations for us are Sweden, the USA and Poland and UK being other significant locations. We have grown headcount in the company with 47% during the previous 12 months. Note that these numbers are quarterly averages and at the end of Q2, we ended at 8 22 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet. A lot of the work that has been done is, of course, to support our gross profit growth in the current periods, but there are also investments among others in conversational method using channels such as WhatsApp. These investments are taken through our income statement as OpEx, and we have very limited capitalization of resource costs, which we believe will be prudent. Please turn to Page 24. On Page 24, you will find a bridge from adjusted EBITDA to cash flow before changes in working capital. To explain the effects between these items, we see a delay in paid taxes in certain jurisdictions, primarily in the United States, benefiting short term cash flow. In the quarter, we have significant acquisition costs related to the announced transactions of SDI and ACL as well. Despite these, we see a cash flow generation from operations of SEK127 1,000,000 or 72% in relation to EBITDA adjusted EBITDA. Please turn to Page 25 for the cash flow statement. And the cash flow statement the cash flow from operating activities was $264,000,000 which is aided by a strong swing in changes of working capital. Change of working capital can fluctuate from quarter to quarter because many of our customers maximize their liquidity and also that our rapid growth consumes working capital. So in this quarter, we are especially aided by the low growth in the voice and video and the operator segment, which actually helps our working capital position. Due to muted growth in yes, and of course, then we also did the new share issue this quarter, which we're very thankful for the considerable support from the shareholders, contributing SEK 700,000,000 to fund announced acquisitions. Moving on to Page 26, just to briefly summarize the status of our ongoing acquisition and integration processes. In the case of WayV, SAP Digital Interconnect, we are pursuing the regulatory approval and performing other steps. I mean, in both of these cases, there's also carve outs to be performed. So that is also being worked upon in parallel. And in the and we hope to be able to close both of these during the second half of twenty twenty. In the case of ACL, we are expecting to close in the current quarter in Q3. And then of course, once we have closed both SAP and ACL, we will review our synergy assessments that were done pre acquisition as well. In the acquisitions done earlier and already closed, such as TWW, My Eleph and the Chat Layer, we're happy to see continued progress in all of these businesses. TWW, I think, had a strong gross profit development also in Q2, contributing $48,000,000 in gross profit this quarter. In the case of My Elephants, we've actually completed the first stage of the U. S. Launch and continued integration with the Cinch platform is ongoing. And in the case of Chatlayer, we continue to work on the integration execution into the Cinch platform. Moving to Page 27. Cinch had a positive cash position at the quarter end of SEK 1,500,000,000. I would like to state that the net debt to EBITDA is ended at 2.1x or negative 2.1x. The financial targets for the company are unchanged from what we have previously stated. We aim to grow adjusted EBITDA per share at 20% per year and keep net debt to adjusted EBITDA under 2.5x. Operator, please move to Page 28. Page 28 summarizes our financial leverage pro form a upon closing the announced acquisition. As announced, we believe that our underlying business performance will enable a timely deleveraging, enabling us to meet our financial goals. I'm happy to report that at the end of Q2, our pro form a leverage is already below our financial target, although this is subject to future business development and current situation until the time of closing these transactions. We at current levels, we expect pro form a net debt over adjusted EBITDA upon closing all of the transactions to be at 2.2. With that, I would like to hand back over to Oscar to summarize today's presentation. Oscar? Sorry, coming off mute. So thank you, Roshan. Operator, if we can move to Slide 29, please. So the key priorities ahead are obviously, I mean, continue to grow with U. S.-based global tech companies, obviously a key focus for us. We're also increasing our investments to broaden growth across the base in many different areas. We've done so both organically over the last quarters and obviously, to a large extent, M and A driven. And that's an initiative which we'll focus a lot on going forward and have been focusing a lot on. Closing of pending transactions is obviously key and integration planning for ACL, SDI and WAVI and obviously starting execution those transactions are closed. And right now focusing on the prior integration of the prior the transactions that are closed closed in prior quarters. We're also continuing to strengthen messaging side. And we're investing in SaaS products for advanced next generation messaging in order to catch the growth curve that is obviously coming. I mean, you only need to look at the nationwide case to understand that pretty much any of our customers is will have benefits from moving to the next generation messaging. It will improve their business performance and it will improve our ability to charge them because they will need more software and more services in order to move there. That said, I want to thank you all for listening so far, and I want to open it up for questions. So, operator, are there any questions for us, please? Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Okay. The first question is from the line of Daniel Gerberg from Handelsbanken. You may ask your question. Sir, thank you for taking my question, and congratulations on a strong Q2. Question is to Oskar first. You mentioned that some messaging volumes were taking up again in the tail of Q2. I guess that stems from societies opening up and so on. And do you also have seen this in the end for voice and video, I. E, as ride hailing, scooters, renting, etcetera, coming back a bit? If you could comment a bit on that as well. Well, in voice and video, we see the verification business trending fairly well, I should say, and that has been during all of COVID. Ride hailing, a bit, but so far not the major effects, I would say. So yes. Yes. Thanks. And if I may, another question on you mentioned work on the unified cross channel API. Can you comment a bit more on this project for you and how important it is if you consider yourself an early mover or head of your Norwegian colleague, etcetera, and the technology risks involved, etcetera, would be great? We believe this will be a very important project. We're fairly well advanced. So we're now trialing it in what we we'll call this a closed beta trialing with a set of customers and then coming closer to a launch. So we're well advanced. We think it's a very important project because we believe that, as we said many times before, companies and customers will want to reach their consumers via any channel, via the channel where the consumer is. And obviously, they don't want to make 10 integrations to somebody like us to do that. They want to have one interface. We think this is one of the bread and butter APIs going forward. As compared to the market, I think we are not an early mover, not extremely late, maybe in the mid in this area, but there are a couple of companies like Twilio who are out before. On the other hand, we think we are learning from what we've seen in the market and learning from the experience that we're doing and coming out with a solid interface. Okay. And would you need additional functionality, you think, e mail or payment or whatever to put in this cross channel API? Or are you quite satisfied with what you have? I'm never satisfied. You should know that by now. So do we I believe there are I believe the basis is definitely there. I believe there will be new channels to be added. Email or not, I won't comment on, but definitely there will be new channels and there are multiple channels. And so yes, we'll focus on adding channels to it. I also believe that there are new functionality that can come, and that can come both in the terms of payments. It's a very interesting area where when enterprises want to do payments in the messages or do payments in the voice calls, so integrating that in a seamless way into your APIs is interesting. We're not going to be a payment provider, but integrating those type of services. That's definitely an interesting future area. And there are also other interesting areas such as adding more machine learning functionality into those interfaces or adding more software on top in order to let our customers code less. So I believe there's going to be continued development of new solid features into these interfaces and other areas. Okay. Thank you so much. I'll get back in queue, and have a great summer, all we need. Thank you. Thank you. The next question is from the line of Fred Radhvazlivanovic from Carnegie. You may ask the question. Thank you, operator. Hi, guys. Thank you very much for taking my questions. First one on the Voice and Video segment. And I understand your customers in this segment are having a tough time and you clearly see why volume should be down Q over Q. But I'm a bit curious here on the gross margin, it comes down by quite a bunch in year over year terms as well. While if we look in volumes or at least net sales terms year over year, it's pretty flattish. It used to range well above 30%, now at 24%. Can you explain a bit on what happens with the margin here in this segment in this quarter? Roshan, would you care to take that one? Yes, just coming off mute here. So I'm happy to comment that one. I guess sort of when you're looking at the voice and video segment as a whole, I think you have to look at sort of the as we always say, I mean, we have the mix between our products, verification and number masking, which are the 2 primary products we're selling in this area as well as a mix between sort of the markets where we're selling them, right? And just as we always comment, I mean, gross margin is a factor very often of what the operators charge to place calls in different markets. And therefore, it's more related to that rather than to our own sort of delivery capability. That's super. And then another question. And we've seen in several industry reports here on the messaging side and on communications in general that discussed that the adoption of messaging and conversational services as a complement to customer support in general has increased by quite a bunch in this environment. I'm wondering whether you see this adoption too. I mean, you did mention the Nationwide example, but I'm sure, Chatelaria, TWW, MyoFN as well, there should be more. And what kind of trends do you see here for the services that you have? No, that's a very good question. No, we definitely see it. We see it often in obviously, in the Wavy acquisition, they have a lot of business in that area. So they have a very fast growing business primarily focused on the customer care side. On SDI, we actually get a unit, which is an SDI software unit. It's not really what you talked about, but we see the combination of the WAVY chat layer and that unit to be very interesting, but it's actually a full contact center in the cloud. And then we see on the Chatlayer side large demands on their side, but also a large demand from our existing customers of the chat layer service. We just came off a call from the ACL people who wants to sell chat player, for example. So it's very interesting, that area. And I think it's driven very if you just drill it down what it is. I mean a call to a contact center costs around about $5 And you can automate that by and you can do that via messaging. And then you can and messaging is very easy or it's very suitable for automation because you get the information in the short text format. So basically, you can maybe automate 50% of incoming calls and therefore take down your cost in your call center or contact center to a large degree. So I think that's a very interesting area going forward for many of these businesses. And that's kind of the core area, but then it's also the wider area, which is well doing what that's kind of handling incoming calls to ConnectCenter, right, where I think a lot of the call volumes will move from voice calls to messaging actually in the core contacts in the world. But then you've got the wider area, which is more the nationwide example, which is they want to do customer communication and how do they do that? And you may do proactive communication sending out the message to inform somebody in order to avoid a call or to actually to drive the calls into them. And that type of combination is not really connect center per se, but it's customer success, right, in the wider area. And that's also an area where we see a lot of activity and also a lot of interactivity between the voice business and the messaging business. So you're 100% correct. We believe a lot in this area in general. It's very encouraging. Thank you. And again, on the messaging side here, very impressive numbers here from this segment. Can you say what kind of traffic you're seeing growth here in terms of maybe by use case? And I know in Q1, there was discussions on airlines, some from healthcare in general in the UK, for example. But now in Q2, what is the big driver in year over year terms? As I can assume that airline traffic has come down potential also from the health care side of this 2 factor authentication e commerce related. Can you share some flavor here? Yes. I mean, it's obviously a lot of transactions. It's a little bit hard to know. But the major drivers here is obviously it is, like we said, I mean, the U. S. Big tech, but the U. S. Big tech is then it may be in turn selling to other companies. So but U. S. Big tech is definitely 1. Then it's obviously banking and finance going strong. And you also have the e tail the e tail portion is obviously also picking up very well. And that's the 3 segments I should probably highlight as of today. Yes, that's the 3 larger growth drivers, I think. Very nice. Thank you. And finally, maybe one for Rocha. I mean, in terms of the negative $11,400,000 revaluation that impacts EBITDA. And I'm aware that monthly revaluation of the balance sheet happens, but I'm not fully grasping what creates this revaluation item impacting the figure. There's 2 I think there's 2 items. So just we separate those out, right? I think and these are 2 items affecting adjusted EBITDA. I think firstly, one is sort of as the stock price has developed during the quarter, where every month we're doing an evaluation or every quarter we're doing an evaluation of sort of social insurance costs related to the outstanding options, long term incentive programs, where we have such social insurance costs in certain markets. And we make a provision in our books for that. And that, obviously, given the strong share price development, which we're, of course, very happy about, but that leads to a quite large sort of post into affecting adjusted EBITDA this quarter, which was around SEK 11,000,000 In addition to that, there's another, I think, around SEK 11,000,000 which we talk about, which is sort of revaluation of foreign currency. And that is, again, a recurring item that does come every quarter. There's 2 parts to that. 1 is the as we pay sort of accounts payable and receive money from customers, there's a difference in the foreign currency valuation between what we have on our books and what we get in and that's so called realized gains and losses. And then the other part is unrealized because everything that's on our balance sheet, we need to revalue at the end of every quarter as well as per the current exchange rate. And the combination of those 2 is another sort of negative bit of $11,000,000 in this quarter. So there's 2 of them. That's very clear. Thank you very much guys. Thank you very much for those answers. Thank you. Thank you. Next question is from the line of Ramiel Correa from SEB. Thank you, operator. Good day, everyone. Just a few questions from my side. Starting off in the very short term here on the OpEx side, this is the 2nd quarter in a row that you commented that you are going to halt recruitments to some extent. I can imagine that you have some lag to that as some processes are already underway in Q1. But how should we reason or how should the reason now going into Q3 and onwards on the OpEx side given employee benefit expense being such a large part of total? Yes. You're correct. I mean, yes, you're correct about the it has a lag. So we did much more conservative recruiting in Q2 than we were in Q1. But obviously, the people coming in, in Q2 were the ones we actually recruit sign in Q1 and Q4 and Q1. So I mean, there is that type of lag. So you're 100% correct about that. And what we will do in our strategy is obviously, I mean, seeing the COVID effects and writing those out and understanding those. And therefore, we wanted to be conservative in making sure we can continue to deliver good numbers. As the months pass by, now we feel gradually more and more secure about what do we believe the COVID impact will be for us, even though it's hard to judge kind of what is the second wave, what's going to happen, what's going to happen with the long term economic downturn, upturn, whatever. That's Obviously, for us and probably for you as well, hard to judge. But that is the strategy. I mean, keeping it tight until we see the effects and then setting a new strategy after that. We're still at that stage. So we're still holding tight, but we're then obviously specifically releasing some OpEx for integration. We cannot do this amount of M and A without actually taking care of the acquisitions once they come and making sure we can reap the benefits from Synagis, etcetera. So there we have one we've made one round together with the Board of releasing a set of OpEx. Long term or medium term, I think you should think about we will match our OpEx to how to gross profit development. So we will as long as we see growth, we will let OpEx now trail the gross profit development. If we see weaker growth, we will keep OpEx tighter. So that's very much our strategy along with the lines of the gross profit per EBITDA per gross profit type graph and keeping that at base or at we've been around 45% to 50%. And that's our strategy going forward as well. So as long as we hit and continue to hit our OpEx targets, then we'll let or gross profit targets will continue to trade OpEx to that. Was that clear? Yes, yes, super clear. Just a follow-up on that. I mean, shorter term, if you do hold investments, and I reckon there's nuances to being tight on recruitments. But if you do, say, halt recruitments in the short term and you obviously have a tailwind with especially U. S. Big Tech, presumably, you'll see a margin expansion here in the coming quarters unless you start unwinding you being tight on the recruitment side? Or am I sort of thinking am I missing No, yes, you're correct. You're correct in theory and in practice. On the other hand, we're then saying, all right, when we see the volume increase with those areas, what do we need to support? We have a discussion with the Board and saying, what are the investments we needed to take in order to support the growth? And then we kind of release smaller chunks in order to support that growth. And that's very much focused on near term gross profit growth, if you will. But yes, you're correct. On the other hand, I maybe the more important one is to kind of that we're actually trailing OpEx to GP in the longer term. But you're correct in that sense, yes. Yes. That's true. And then you have the then as you need to say in that context, you have the M and A playing in as well, right? So where which is okay, we need to take care of those. We need to reap the synergies. So therefore, we need to be aggressive on that side even though we're conservative on the other side, if you will, which will also, of course, skew the short term picture a little bit because, yes, so you just don't come quarter 1 basically. Yes. I see we're running out of time, but let me ask a few more, if that's fine. Just on the transaction volumes, in Q1, you were quite clear that March was an exceptional month. We're seeing a tick up now in June. Should we consider that fair to extrapolate? Or was there anything extraordinary on that number? I would say, I mean, June was a good month. So it depends what you extrapolate. But what we're seeing we're expecting volume to increase in the trend that we have seen before in the more in the little bit more long term, yes. But then, of course, extrapolating, it depends what point you mean. But we don't see anything specific get wet in June. I don't think we should take a lot of conclusions out of 1 month's traffic trends. No, that's our view. Okay. And then on the U. S. Big tech side, could you say anything about share of wallet with your biggest accounts right now? And perhaps if the growth we've seen in the last few quarters here is driven by a larger share of wallet and how much is driven by growth with the customer as such? Any flavor on that would be very helpful. Flavor is both. I think we are both growing with the customers as their volumes are growing. But we also see opportunities and but we're also growing share wallet, and we see that share wallet, it's possible to continue to grow with share wallet. I mean these companies are extremely large. Like I said before, I mean just the 5 largest, it's the same size as the entire German stock market. So it would be to have every single German listed company as a customer, and they would all be heavy customers of your users of your services and that's only the top 5 and we're talking 10 here. So very, very large companies. There are definitely room to grow, but it's obviously a hard fight for any revenue dollar or gross profit dollars that you get. I mean, this is also very well known brands and competitive situations. I think we'll need to move on to other questions from other askers, if there are any more in the queue. Then we have some on the web call as well. Would you like to take the next question? Yes. Next person asking, please. Okay. The next one is from Frederic Liezel from Danske Bank. Yes. Thank you. My questions have been answered. Thank you. I hope you have a great summary. I can say that. Thank you. You too. Thank you. Likewise for sure. Okay. The line of Fred Dragg wishes to ask a question again. Hi. Thank you, operator. I have one follow-up on the partnership with Ericsson. I think in this report, you make quite a number of this more so than you've done before on the partnership on 5 gs SMSF. And I think when you first announced this, it was a bit vague on what kind of economic value you would make here and now you're sounding kind of bullish on this. Have you gotten more clarity on this side as you do seem more optimistic on the generation you can make? Can you say anything on how this partnership is structured and how that will impact you financially? Thomas, maybe you want to answer this. I think you're a little bit closer to the people delivering the service. Absolutely, thanks. I think what we're seeing generally speaking is a very positive and good collaboration with Ericsson around this project. And I think it's clear that Ericsson is a leader in this space doing very well. So in that sense, we think there's a positive trajectory here. There are lots of assumptions to sort of you have to draw to gauge the financial scope, what this could result into in terms of how operators choose to enable SMS functionality. In 5 gs networks, there are different routes and different parts of the tech stack that an operator can use to power these services. So I think what we're seeing is that a little faster than expected and very positive early feedback, but too early to quantify in any meaningful way. And what's happening right now, it's being pitched to the large operators in the world. That's the status, and we need to see what's happening. On the other hand, you should also I mean, context wise, you should put that in the context of the operator business, right? So you just have the context of the size here. It's not affecting the main business of Cinch. It's kind of more on the operator side here. But it's a very good deal that Sutter business. Fantastic. Thank you. Thank you very much. I think we have a few questions from the conference call that I wanted to bring up. First, we have RR. I think that's close to an anonymous Oscar, but we'll put your question through. Saying, you said you're a leader in North America. How do you see your competitive position compared to Twilio, what we understand is the leader, not Finch? Oscar, I think I'll leave that with you. So yes, Twilio is the largest player in the CPaaS market in general. So yes, that's true. I think we are a leader, one of the leaders in North America, Europe, India and Latin America. And I'm by that not saying are we exactly the largest, but one of the absolute leaders in those markets. And yes, we're definitely at those volumes together with all the acquisitions we made. Compared to Twilio, Twilio is if you would compare the 2 companies, we've said this many times before and we respect Twilio. We think they're a great company. Twilio is stronger than us on the developer go to market and marketing generated lead funnels. They're much stronger on that side and they have a much wider base of customers and a much wider base of small customers. Twilio has a lot of large customers as well. But if you would in general where they're stronger than us, so they're stronger than us on that side. Twilio also has a broader product portfolio. So they have more software services. They also acquired an eBell company and etcetera. So they have a broader set of software services and also into eMed and a set of other segments where we are not. Where we are typically stronger than Twilio is high quality international delivery. Twilio does not own their own network. They don't own the operator connections to a lot of operators around the world. Actually, they don't own operating access even into the U. S. So on international high quality delivery, we typically stand up very well to Twilio, and that's why you can see obviously the growth our strong growth on the largest companies in the world because when these companies want to find the suppliers, they typically want to go to the source and then there we are a very strong contender. Then I mean obviously, Twilio is moving in this direction. They're strengthening the network, and we are moving in the other direction. So it's not black and white, but if we just stylize it, that's the main difference. Thank you for that, Oscar. Yes. Oh, sorry, go ahead. Continue. Yes. And I would also say, I mean, I think good competition, I mean, having good competitor is always good. I think there will be a set of leaders in this industry, a set of winners in this industry. And I do believe that it will be up there, and I do believe that it seems will be up there. All right, Thomas. All right. The last question, I think we'll answer this jointly. The question from Casper Erskine is what percentage of revenue is currently generated from U. S. Tech companies? And how does this develop over time? And what additional services can be sold into this base? And I'll start with the first part just saying, we don't give the specifics on the size of different customer segments, but perhaps to give some color on it without the numbers, Oscar. So could you repeat the question, yes? I missed the last part of the question. So first, it's basically how does the U. S. Tech companies, our business with the U. S. Tech company, how does that develop over time? And what additional services can be sold into this space of customers? Yes. So 2 questions. Yes, it's obviously, I mean, like we were reporting over several quarters, it has been developing very well. It's one of our growth engines. And I think when you sit with those type of large companies and you're delivering a good service and you're doing that quarter by quarter, you get the chance to pitch for new businesses. And we have a strategy to do that and we see that happening all the time. So and we obviously hope that will continue. The type of services that these companies want are similar to some others, but not all others. But they typically they're very data driven. They typically want automation in any form because their volumes are so large. So they typically request APIs to do different things than to send messaging. It may be APIs to set up accounts, APIs to get the data in a specific format, APIs to understand the performance of the delivery since they actually automate the routing based on performance. So various forms of APIs to automate their own business and their own purchasing and so their understanding of what they buy from us is one category. They are obviously then interested in the quality. So moving from selling just this message is delivered to moving to sell it in a verification space, you move to sell this phone number is verified. So you may add the kind of data driven analysis before it, so you actually can now sell on a higher level. You sell the quality and you don't sell only the message delivery is another category. Then we see an increasing interest on the new or next generation Messaging side, where we do see interest from all of these businesses, from some parts, but not from other parts, but that's another area which is interesting. And we see an increasing demand on the voice side from quite a set of those companies. That's probably the major areas as of today. And that was a good list. I think we're a bit over time, and I think we had some questions in the queue coming back again. So I think we'll finish up at this stage. Thank everyone for participating. I hope to keep you posted in the future as well. And with that, I'll leave for some closing remarks to you, Oscar. Thanks a lot. Very happy to have you listen to our quarterly report this quarter. I'm happy to report strong numbers. And we are looking forward to work hard to continue to do that and continue to report strong numbers in the future. And that said, I want to close this call. Thank you all for listening. Thank you. Thank you. That's all for your conference for today. You may all disconnect. Thank you all for participating.