Earnings Call: Q1 2020

Apr 29, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Cinch Interim Report, January to March 2020. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer For your information, this conference is being recorded today. Now I would like to hand the conference over to your speaker today, Thomas Heath, Head of Investor Relations and Chief Strategy Officer. Please go ahead, sir. Thank you very much, operator, and good morning and welcome everyone to this conference call with Cinch AB to discuss our results for the Q1 Q1 2020. With me today from different locations are our CEO, Oskar Wainer and our CFO, Roshan Saldanha. And with those opening remarks, I'll hand the word over to Oskar. Thank you, Thomas. So welcome, everybody, to this Q1 report. We're very happy to present a strong quarter this quarter, and we will go through the details in the following slides. So if we can have Slide 2, please. So this overview, you have seen many times, if you have followed us, we have updated the revenue in the last 12 months to $5,600,000,000 and the adjusted EBITDA in the past 12 months to $646,000,000 We have also grown a little bit in number of people in this quarter to 766. And the remainder of the slide is the same. I mean, we continue on our main business, of course, to customer engagement through technology and messaging voice and then a little bit on video. And we're doing $40,000,000,000 transactions, dollars 40,000,000,000 engagements per year, and we're providing cloud communication services for messaging, voice and video. And with that said, I think we can go on to the next slide, please. So this is now Slide number 3. We are in the unprecedented times and uncharted territory. And I think it's hard for a business leader in this time to know exactly how the future will look. And in Cinci, we have put a strong program in place in order to have flexibility to handle this. We have put a strong program in place. It's everything from employees working from home, of course. We have also done a lot of customer communications around this. We set up a COVID-nineteen knowledge center on our website. And we have put the strong contingency plan in place where we are considerably more conservative on OpEx investments now in these times. And the reason for that is simple. It's no models can really kind of take in and how do we project for this. It's obviously harder. It's harder for any company and we're not we're, of course, included in that. So in such times, we take a more conservative approach and a more conservative approach to leverage in general. We have also also we have done it's good to know, we've also done an anti smishing or initiative in the U. K. We see in our industry, there are companies and competitors using grayed out or routes that are bypassing operators in order to send text messages to consumers, which do not send them by operators. And we have begun with MES in the U. K. Done an anti SMIC initiative. And we have, of course, signed up to this. We're a good player in the industry, and we're happy to see that most of our competitors have signed up even though we all have not done yet, which is surprising to us. And we'll discuss the financial impact of COVID later in COVID-nineteen in the later of the presentation. So we shall move on to Slide 4, please. You will have seen that we have completed a direct share ratio of SEK 1,500,000,000 announced the acquisition of Weyvie on 26 March. And we want to extend a thank you because we're incredibly grateful to our owners for being willing to support our strategy in these very uncertain times. So a huge thank you to our owners for supporting our strategy there. I also discussed this with our Chairman yesterday, and we concluded that supportive owners is a true success factor for Cinch and we wanted to personally extend thanks to you as well for your strong support. So go to next slide please, Slide 5. So we had a strong growth in Q1. We had a 54% growth in gross profit and then 64 percent growth in EBITDA, and this is coming both from organic and M and A driven activities. And of course, we focus on gross profit and not revenue since we have a large share of pass through revenue. And we're happy to report the track record of profitable growth quarter over quarter in last quarters. So if you can go to the next slide, Slide 6, please. This growth is obviously now to a large extent driven by we're in a positive market. The cloud communications market is a positive market both in our main segment messaging, which is a $17,000,000,000 market only on the ATP SMS market alone. And then we're now seeing a growing impact on the next generation messaging where we have 50% to 100% or in the markets above 100% growth rates in that segment. And we also see a strong growth in the CPaa segments of the more value added services on top of the actual connectivity or sending messages or connecting the voice calls. So this is a strong market, which is obviously very beneficial for us as one of the market leaders. Go to the next slide, please. We have Slide 7 now. We are focusing on both the connectivity side in voice and video and in messaging and connecting people to make it possible to transmit messages and place voice call. And so that's our biggest segment. And we're focused on that. And we're also now focused on building higher value added software as a service services on top of transmitting message or connecting the phone call. We're also adding a large number of services on top where we believe we can charge more to our customers for higher value added services. We'll go to the next slide please, Slide 8. We have been active on the M and A agenda. We have done 2 lately. It's chat layer, which is on the conversational AI side and wavy, which is both on the scale and profitability on the to market and the reason for that is simple. I mean, they have a innovative business unit who are providing CPaaS services and SaaS services, which we're placing the technology by the market sector. And we have they have a large messaging business, which are placed in the scaling profitability and scaling profitability area. If we go on to the next slide, we have included the deal rationale in this deck for your reference. We do not intend to go over it here. We think we have gone over it before, and therefore, we will skip those slides in just a time, but we included them in the presentation for your reference. To remind on Slide 10, what is Chatlayer. So Chatlayer is an AI based service where you can basically automate understand the human intent of the incoming messages and automate the response. So if you think about the connectivity business in messaging or voice, that is actually us submitting the message or connecting the content of the message. That is up to the customer to content of the message. That is up to the customer to create. But with the chat layer, we would interpret what is for our customers, of course, automatically interpret what is the intent of the incoming message that is coming from the consumer into the enterprise. And we would tell the enterprise, all right, this the intent of the users or this user intent is to book a ticket. This user's intent is to know about the insurance claim or something like that. And for a company, you can see the difference between the leftmost picture, which is a scripted dialogue, where our customer, in this case represented by KD Insurance, would need to say to a user, hey, welcome to KB Insurance. What do you want to talk about? What's your option? And they would have a 1, 2, 3, 4 number of options. And the user here is interested in the nearest office, as you see, which is not one of the main options. And if the user types that into KB Insurance and KB Insurance doesn't understand what the user is saying, so it responds where they have typed the incorrect response, try again. And then the user is typing 0 and you get to the main menu while the user thinks it takes too long time and therefore give up. And you can contract that to this type of service we can do with chat layers technology and AI technology on MLP, which is basically welcome to Kate Insurance. The user would type in where's the nearest office and the chat based technology would interpret that and understand what the user means and therefore ask you what CPO are you in if you're not using any indication based services. And when the user is answering LiveAtul, we understand or our customer understands the question and can therefore respond by the correct answer. So as you can understand, for a messaging business handling 40,000,000,000 transactions, this is a very strong value add to our services. Next slide, please, is the deal rationale of Wavy. We have gone over though in the specific course for wavy, so I will jump to that as well. And if we then go to Slide 12, please. This is an example of the Wavys innovation business, which is pretty much in line here with a chat player. And that is why when they're doing it, the customer care for a company called Ingressor Arapido, and Ingressor Arapido is a ticketing sales and app management company, where Igresso Rapido has a large number of incoming calls for the contact centers and it's a complex to scale support team, the teams who maintain quality. And Wavey has provided a service to them where 82% of the tickets are answered automatically by a bot. So it doesn't need to go to an agent in the call center. And they have 70% satisfied users by the bot answers, so very high satisfaction rate on the answer since the users is getting the response earlier. And they can we have seen that aggressive Aperto can have a 45% cost reduction in their call center or contact center due to automating a lot of these incoming requests. And this is also a very, very powerful case, of course, in the innovation business Newtek or CITAS business of WAVI. All right. Next slide, please. So going into January to March. So we saw gross profit rising 64 percent to SEK446,700,000,000. Adjusted EBITDA rate was rising not 64% not 82%, but 64%. So there's been an error on this slide, to $184,300,000 and adjusted EBIT, excluding acquisition related amortization, to $168,800,000 compared with $102,300,000 Profit after tax was $96,400,000 And the difference between profit tax, it's the we have what we're doing write downs of the big amortization related of the values coming in, in the acquisitions. And that's why you have a big difference between the adjusted EBITDA and the profit, which is not really translating to cash flow, of course. So cash flow is much closer to EBITDA. Organic gross profit was growth was 42% in local currencies. So we see a strong organic gross profit growth in this quarter. We do have a significant local or FX effect in this quarter, which I want to point you to. And we obviously have a positive impact of the TWW and Myerisan Acquisitions. And COVID-nineteen is causing reduced voice traffic as we have communicated before, and we can see that in the later part of the presentation. It is also we're also seeing a negative impact in certain segments of short term positive impact on the messaging segment as well, which we short term positive impact on the Messaging segment as well, which we didn't fully expect, but that is a companies communicating more to their employees and to consumers as a precautionary effect during COVID-nineteen. This is everything actually from health care providers. We see major health care systems around the globe using our messaging service and then having increased communication. And we see one off effect even from airlines in the early parts of the crisis, their volumes were going up because they have an increased conversation and then later it's going down. So we're having a positive short term effect here on COVID-nineteen as well in March specifically, which we're going to see a little bit when we look at March figures on volumes. And our high scalability means that the EBITDA and adjusted EBITDA grows faster than gross profit despite us being able to handle getting larger volumes. And you can really see that large volumes become a big spike. We don't need to have much OpEx and it put obviously it drives a lot of EBITDA as a result. So next slide, Slide 14, please. The key growth drivers in this quarter is continued growth on volume but also on new use cases, which we're very happy to see with U. S. Big tech companies and being able to translate the messaging business into new use cases and new demands with our biggest customers is obviously very strong. The acquisition of TWW and My Elephant and especially on TWW when you think about EBITDA, it's a big driver. But we also see the operator business, which coming back to strong profitability this quarter as a result of project completions and large customers having higher volumes. So that's the 3 main growth drivers to this in this area. And as you see, the voice and leisure segments, we have taken off for this area due to the COVID-nineteen impact. So despite the strong underlying growth, we see weaker growth in that segment for this quarter. And if we go to next slide, Slide 15, we have 4 investment areas, and we adjusted this slide a little bit to add the integration efforts given the number of M and A we have M and A transactions we've done. So we're investing in organic growth, of course. So continued investment in platform scalability, supporting assisted customers and new focus on new sales and broadening our base is a big area of investment for us. Operational efficiency coming to cost efficiency and automation for improved scalability is another big area. And new technology is the 3rd. I mean software for advanced interactive messaging and new channels like WhatsApp and RCS and RCS as a service for operators. We're also happy to announce in this quarter that we're participating on SMSF for 5 gs together with Ericsson. So providing operators around the globe with an ability to have SMS in 5 gs, it's a strong new development. And integration wise, we are we have scaled up our integration or our acquisition efforts as you have seen. And on that comes integration related OpEx, which we if it's through integration related OpEx, we will that will go away. We will classify it as extraordinary items. But we are scaling up our integration efforts, of course, on the back of acquisitions. So if you go on to Slide 16, please. So you're seeing on the messaging, if you look at the segments business segments a little bit, we can look at messaging, our largest segments. You are seeing increased volumes driven by U. S. Tech companies continue to fuel growth. We're seeing also a shift in the enterprise base. I mean businesses shifting from email to mobile messaging for portions of their customer communication. This is a trend that has been ongoing for the last 20 years, and we see that trend going on. And even being stronger and stronger, we see a strong impact there. My Elephants and CWW are included since mid October 2019, which obviously impacts messaging. And we are investing more in next generation messaging, which is obviously impacting more on the OpEx side and we're seeing revenue, but compared to the larger segments, it's obviously on a small scale. If we go on to Slide 17, we see the message volume development in the last quarters here. And as you can see, there's a big hike up in Q4 and also a spike up in Q1 and especially in March. So the late 2019 is the TWW and My Air France acquisitions, October, November 2019. So you could see the jump from the curve there. And we see significant volume increase in March 2020, of which part of is likely to be related to COVID-nineteen and part of being a one off effect, we believe. It is obviously this is billions or less it is and thousands of customers. So it's hard for us to know exactly, but we do see a significant spike, especially in March, which we didn't expect, to be honest, on short term effect, which are which will not be there going forward coming from these spikes of increased communication. But it's also a growth from existing customers, both new customers and new use cases, and we're very, very happy to report the 60% growth in transactions and a 64% growth in gross profits. So very strong development. Need to monitor this trend going forward, but we were also a little bit surprised on the very strong launch number, of course. Going on to the next slide, Slide 18. This is gross profit per transaction and OpEx per transaction. And we're monitoring gross profit at the primary bottom line driver apart from OpEx, of course. Gross profit per transactions is declined due to traffic mix, sending these amounts of volumes when the mix and then the mix changes to low gross profit per transaction countries, it has an impact, and we've seen that this quarter. And the inclusion of TWWs, TWWs, high number of transactions, but a lower and very good EBITDA, but a lower gross profit for transactions is the market structure in Brazil. And therefore, it impacts our total gross profit per transaction, which is planned and it has a great EBITDA impact. And you also see an OpEx per transaction increase due to the seasonal OpEx pattern in Park Lids. Of course, when message volume goes up, then OpEx per transaction goes down, but it's also a seasonal OpEx pattern. And obviously, Citi WW has an number of messages on total, but the balance then on OpEx per transaction goes down. But the most important thing to us is that these two lines are following each other. So the difference, which is obviously our profit, it's increasing or being maintained, and we see that in this quarter. So both currently going down. It's obviously kind of planned and especially due to the TWW transaction. So if you go to next slide, Slide 19, please. We see stable margin for the Messaging. So we're measuring Messaging EBITDA over gross profit as a measure of our scalability. And we want to make sure that this line is stable at 45% and even up to 50% in some months. That means that we're in balance with our gross profit growth and our OpEx investments, and we want to keep that balanced. That has been what we communicated before that keeping this line in balance and then continuing to drop almost half of every profit dollar down to EBITDA. That's our how we steer the company. Yes, we've talked about this slide a number of times. So for those of you who've been on the calls before, you understand it. And we see a stable development in the slide or on this trend, which is one of our key massive measures. And we believe this is really truly showing the scalability, being able to drop 50% of the gross profit down to EBITDA is a very strong metric for any business. Then looking at COVID or at voice and video, and here you see the COVID-nineteen impact. We have said that roughly 50% of our gross profit here is attributable to the ride hailing segment. So as you can all imagine, the ride hailing segment is down, especially in the lockdown countries. It's also fueled by search, but it's 2 segments. It's verification and number masking and number masking being most of the right hitting segments and verification being most to logins to big customers. So when you get a text message or a voice call, when you log in and want to verify that your number is your number, that's the verification business. And that business obviously is still strong. But ride hailing is driving this drop down. And I want to also highlight that the impact here is only on March, and the COVID-nineteen impact is not the full quarter, it's only on March, but still you see a significant impact. So the total impact in a quarter where you have a full corona impact is likely going to be larger than what you see here. This we have communicated before in various communications. So this I hope this comes as no surprise to you. Looking at next slide, Slide 21. On the operator side, we're happy to report a return to profitability on the operator segments. This is fluctuations in results as progress are realized, of course. We had some previously delayed projects who are successful that are successful completed in Q1. So there you see the flip in EBITDA between the quarters. We're also very happy to see the investments or the deal with 5 gs SMSF together with Ericsson, and we're making investments in this quarters on that, which we believe is going to drive good revenue going forward. And we're investing in the RCS as a service to mobile operators as we see that as a strong potential for the future, which is obviously weighing on OpEx in this quarters as well. With that said, I want to leave over to Roshan Saldanha for a little bit deeper on the Q1 financials. So if you show Slide 22, please. Roshan? Yes. Hi. Good morning. Thank you, Oscar. Good morning to all of you on this call and on the webcast. Please turn to Page 23, which shows the income statement. Consolidated net sales grew by 48% in the quarter to SEK1.6 billion. The growth rate in the quarter was positively affected by the movement, the Swedish kroner, primarily against our invoicing currencies of euro, pound and dollar, and the organic EBITDA net sales was at 32%. EBIT came in at SEK119,000,000 versus SEK 69,000,000 the same quarter last year. And acquisition related amortization, which does not affect cash flow, was SEK41 1,000,000 or SEK33 1,000,000 last year. This amortization relates mainly to planned amortization of acquired brand, the customer and operator relationships as well as software and does not affect cash flow. So adjusted EBIT, which we believe is the better measure, amounted to SEK 169,000,000 versus SEK102 1,000,000 last year same quarter. Turning to Slide 24, which shows a bridge explaining our underlying gross profit development. A significant part of our revenues are passed on as copper goods sold to mobile operators. We pay them to send messages and take calls, but the rates can vary greatly between markets. Hence, we almost exclusively focus on gross profit when we assess and steer our business. Consolidated gross profit rose by 54 percent during the quarter to SEK447 1,000,000 versus SEK 289 1,000,000 the last year, out of which foreign exchange contributed around SEK11 1,000,000 or 4% of that growth, and acquisitions contributed 15% of that growth. I think here it's worth to mention also that we see that the more marketing related sort of part of our business is also affected by the pandemic, and that is across markets and across businesses. But My Elephant, being a recent acquisition, has a share of marketing related traffic, and then that is affecting growth, although that effect came only partly in Q1 and will be reflected more in Q2. Looking more at the organic growth then. Organic growth was 42% in the messaging segment, 18% from a small base in the voice and video segment. And as Oscar commented earlier, do consider that the ride hailing segment within voice and video, ride hailing customer segment within voice and video is significantly affected by the lockdown restrictions in the pandemic, and that is only reflected for 1 quarter or for 1 month, you could say, pretty much this quarter or even less, whereas in coming quarters, it can be a full quarter effect. Organic growth in the operator segment was 13%, but that can vary from quarter to quarter as projects are realized. In messaging, the organic growth is coming from volume growth. Some of it may be short term. We already see that the spike that we have seen in volumes during March tends to normalize in the 1st few weeks in April, we expect that some part of that spike at least that we saw in Q1 is not a lasting spike in the medium term. Of course, we also see new use cases, which we are very excited about from our largest customers, and that's contributing growth as well during the Q1. Oscar talked earlier about the investments that we're making for continued growth and highlighted the main areas of growth being driving organic growth, internal operational efficiency and quality as well as investment in new technology. Please turn to Page 25 to see a summary of the number of resources at Cinch. What our headcount is distributed in many different locations across the group, but the globe, but the majority of our resources are in Sweden with U. S. A, Poland and U. K. Being other locations with significant concentration of resources. We have grown headcount with the company with 50% during the previous 12 months. As stated earlier, I mean, we are being cautious going forward and reducing our rate of investments due to the increased economic uncertainty. But obviously, the growth rate in Q1 is reflecting more the new signings of employees that we have done maybe in the weeks or months prior. And hence, the growth in Q1 is still at the same levels as the growth in Q4 at around 40 people per quarter. But that might reduce during Q2 depending on what actions we take. Yes. Turning to Page 26 then, which is a statement of showing the reconciliation between adjusted EBITDA to cash flow before changes in working capital. Very, very strong quarter here with 94% development on the conversion of adjusted EBITDA to cash flow before changes in working capital. And this is primarily driven, of course, by a combination of one off effects and refunds of paid taxes, which means that paid taxes is unusually low this quarter compared to what we would normally expect it to be. Turning to Page 27 for the full cash flow statement. Cash flow from operating activities was $135,000,000 this quarter. Changes in working capital fluctuates from quarter to quarter because many of our customers maximize their liquidity. We can see a small number of customers requesting additional payment terms, but we still don't see that levels that affects our overall working capital development. Actual customer losses remain low at 0.05 percent and cash flow in relation to operating profit is slightly improving over time. And the net cash position amounted to SEK639 1,000,000 and that is, of course, due to the share issue that we so successfully completed in Q1, thanks to the support from our investors, and that is really great to see. Finally, Slide 28, which summarizes our financial targets. The financial targets are unchanged for the company from what we have previously stated. We aim to grow adjusted EBITDA per share by 20% per year and maintain net debt below 2.5x adjusted EBITDA over time. Measured on a rolling 12 month basis, we grew adjusted EBITDA per share by 52% in Q1, and net debt to EBITDA was negative 1.0, down from positive 1.2 a year ago. With those comments, I'd like to hand over back to Oskar to summarize today's presentation. Thank you, Roshan. A small comment on the headcounting phase. I don't think it was mentioned on the slide, but you obviously have the addition of TWW and My Elephant on Q4 and Q1, given an extra hike in those numbers. That's why you see the trend break going up in those quarters. So just important to realize. Future growth, we see a strong pipeline with several U. S.-based global tech companies. And this is, as I said before, both with turning on traffic from NOO, but also working deeper and deeper integrations with messaging and other use cases in the ones that we have. Mind you that the 5 largest U. S. Tech companies has the same stock market value as the entire German stock markets, And that's only half of the 10, let's just say. And all of these are big cloud communication consumers. So it is very, very, very large companies. There are a lot of departments and a lot of opportunity if you continue to do high quality service to them, which we so far have been able to do. We also see, I mean, the trend is still there. Enterprise is shifting contact center space shifting from voice to messaging. So we see strong trends going more to messaging and more to the voice segments that we have in macro, and that's continuing in this quarter. I mean, I think it's a strong trend, but it's been there for the last years. And the reason is super simple. If you want to reach somebody fast, time critical and get a response, then messaging is more effective than e mail. It's as simple as that. And I think you can all go to yourself. You have much fewer unread messaging mobile messaging inbox in their email, and that's what enterprises are seeing and therefore using this communication channels to consumers. We have a larger sales organization and strength in marketing. So we see increased lead gen from marketing when we up our marketing efforts and improve those, which we're very happy to see. And the larger field sales organization is resulting in an increased pipe if compared to 12 months ago. And we're working hard obviously on driving always a larger broad based growth in the company. And M and A, I mean we are we have an active M and A agenda in both our categories, scale and profitability and technology go to market. And we do have an active agenda. We think it's we're very fortunate as a company to be able to make in these times especially, large M and A transactions, which adds to our adds significantly to our profitability at attractive valuations. And while also broadening our customer base and diversifying our customer base, I think that's a very, very attractive position to be in from an M and A wise in this type of market. And that's why we completed it the way we did. We see also continued strength in our content category offering. That's a big growth driver, just like increasing quality, increasing reach, etcetera, and increased SaaS value add to investments in software, RCS, OpenTable Apps, etcetera, are our additional growth drivers on top of the top 4, obviously, spanning all of the areas there. With that said, I want to thank you for your attention, and I want to leave the floor open for questions. Thank you. Our first questions come from the line of Ramiel Skoriev. Please ask your question. Your line is open. Thank you, operator. Good morning, Oskar, Roshan, Thomas. A few questions from my side, if I may. Just please help me understand this. So just to square everything that has been said and some numbers provided during the day here. So marketing volumes are down, ride hailing volumes are down. You are seeing pent up demand in some sort of customer categories. You mentioned the healthcare providers and airlines. But that doesn't sound like your average sort of U. S. Customer and U. S. Revenues are up 16% quarter over quarter. I mean, how much of the impact is really, put it, COVID-nineteen related? And I mean isn't some of the COVID-nineteen related or is there increasing demand also related to digital native businesses seeing a structural change in sort of customer uptake? That is correct. It could have been clearer on the call. So we see the 2 major negatives is the ride hailing in voice and video and then certain segments, I should say, in marketing, especially retail being one example, there we see negative impact. And you see it be pretty significant on the ride hailing segments in voice and video, since you only see 1 month this quarter. Then we have a structural increase in the in certain segments like e tail or some of the cloud communications companies like log in to communications apps. Obviously, that's a structural change, which is likely to continue. That is 100% true. And then you have a temporary a structural positive change, and then you have a temporary positive change, which is more when you see the spikes that we suddenly saw in March, which we didn't expect of airlines being the clearest example, obviously, suddenly communicating out with customers, but then that going down. And then you have health care providers or even governments communicating a lot with consumers. It's very hard for us. I mean, this is our unprecedented time. It's very hard for us to know how much of that is actually temporary and how much is the structural of that or even how much is going to continue during COVID. But we do believe a portion of it and then a relatively messaging when you look a little bit more detailed. And one the simple example there is obviously airlines. But you're 100% right on the structural increase in the communication side as well. Obviously, very hard for us and anyone to judge what's going forward. It's large number of transactions and it's some percent of time. So it's hard. We will have impact, but in generally, we're in a good segment, of course. That's perfectly clear. Just moving on to or basically tying into COVID-nineteen impact and then on the sales and marketing. I mean, some of your peers are more I mean, their unique selling point has to some extent been online channels. And now with fiscal meetings being out of the question, how has have you seen any impact in terms of customer intake, etcetera? You mentioned it in the call, but some flavor on that would be great. I mean, generally, I think new sales has been harder in the new sales has been contacting new customers, new leads, new prospects has been harder in these times. The existing relations you have, they typically go on. And especially on the tech side, you see some of the companies just pushing on even harder and especially the U. S. Big techs are pushing very hard. I mean, as you've seen seen the recruitment plans of some of them. So that's strong. But we also see companies who actually I mean, you can take airlines. We just got a new big RFP from a big airline. We're just saying, hey, we have less things to do and we're utilizing this position in order to develop new services. We want to engage with a player here and therefore sending out an RFP in your area. So whilst others are saying, hey, we cut all the investments. So I think it's very relative to the strategy of the individual company as well. But generally, you can say new sales being tougher, engagement with existing engagements definitely going on and possible to do during these times since people have a little bit more time on their hands when they're not traveling. And then another question on the same topic, perhaps to Roshan this time. I mean other external costs are up, while exhibitions presumably are completely gone, traveling should be down. Is there anything in that sort of other external cost line item in this quarter that could be considered exceptional? No. I mean, I think on the other external costs, there's nothing exceptional. I think in that sense, we have sort of the conferences such as Mobile World Congress in Barcelona that typically come in Q1, where you could say since we were committed and a late cancellation, we're obviously carrying some costs for it, but maybe not the full costs of such conferences. So there are some minor deviations like that. But on the overall side, I would say that maybe slightly positively affected by the coronavirus effect. But in general, no significant one off items. And then another COVID-nineteen related question before I move on to other questions, a high level one. Do you expect the general consolidation of the market to speed up now with the crisis here? Are you seeing a changed behavior among potential targets, etcetera? I'd say no significant impact. Mind you, I think on the scale and profitability side, all of these companies are highly profitable, and they are in a segment that is generally good. So I don't foresee on that side a lot of like profitability and therefore increased pace. It's a general high activity, but not increased. On the tech and M and A, possibly there could be targets who come into financial difficulties if you invested a lot. I don't think we have seen a significant impact in increasing activity there so far. But I think in general, there is an active or very active market in this area with a lot of opportunities in the different angles. That's clear. And you added 90 E09 employees and consultants in the quarter. I mean, I asked this question in the Q4 call as well, but could you phrase somewhat differently, but could you, to some extent, sort of just elaborate a bit on how those FTEs are split between the different buckets internally? How do you divide recruitments in terms of functions? Yes. I think I can maybe try to address that one, Oskar. I think, Rommel, and maybe request the operator as well at the same time, we move on to some of the other questions. If there are other questions, we can come back to Rommel sort of after this question. Hope you don't mind about that, Ramiel. I think the on the investment side, I mean, we say that we're investing in the organic growth, we're investing in the operational efficiency and investing in new technology. And I think those are where the majority of our recruitments are going into those 3 buckets. I don't think we give a split sort of in terms of how much of that goes into those buckets. But the majority of our investments are in the core business and the organic growth that we're driving. We're obviously cautious and want to see results in the new investments that we choose to make at an early stage. So we are result driven in that sense. Perfectly fine. Thank you very much. Thank you. Next question comes from the line of Predrag Sabinovich. Please ask your question. Thank you very much and good morning guys. So first one follow-up from Rommel's question on the messaging volumes. When looking at the distribution of external net sales, we see France down somewhat year over year, Germany down, U. S. Grows by a lot. And one thought could be that the lockdown measures came to the U. S. In the latter part of the quarter and will hit fully in Q2 potentially. So could there be any risk of traffic volumes coming down in the U. S. From this lag effect, so to speak? It's a very hard question to answer. I have personally logged in in these times before, and I think that goes for most of us. It's very hard to predict kind of what is going to happen on general. The U. S, yes, it's a little bit later than Europe in that sense. I think but we think more on this the impact more on the segment based than on the geography based in general. So I think we think more on, all right, the travel industry is going to be impacted. The retail marketing industry is going to be impacted. The e tail marketing is probably going to increase. The big tech side is with a lot of the comm services, it's probably going to increase. Now a lot of our U. S. Volumes is obviously big tech, but also a lot of the Itay side or the those type of companies being a big portion of the U. S. Economy. So very hard to say, but generally, we have quite a few large segments in the U. S. Which are relatively less impacted as well would probably be my answer to the question. Then these are unprecedented times and we don't know also has to be a lot of portion of the answer. So we didn't expect a March spike, for example. That was not something we foresee. I think just to complement what you're saying also, maybe 2 comments, Peter, for you to take. One is I think reflect that the spike that we are seeing, what we're saying is that a portion of that spike is driven by the coronavirus impact and a portion of it is, of course, the normal sort of business growth that we have. And despite that it's coronavirus related, maybe what we can see in April is that it is returning to more normal volumes. So it may be sort of more short term and not long lasting, right? The other thing I think when you think about sort of country distribution, I mean, mean the country distribution that we have in our report is based on where our customers are based and is originating markets, so to say, of our traffic. If you look on sort of where we terminate traffic, I mean, this is really more reflecting where the population is and sort of where smartphone users are and phone users or mobile phone users are globally. So and that affects, of course, our gross profit depending on where we are terminating traffic, and it's a much more global picture than our originating view that we provide in the report. All right. Super. Great. And a question on I know you can't comment on rumors, but I still need to ask a question on the articles regarding SAP and Cinch SA Media. But if we put it like this, are you familiar with the portfolio of the digital interconnect division of SAP? And do you see that they have offerings or technologies that you benefit from? Obviously, you know the answer to question. We never comment on any such rumors, of course. You know that. If you ask the question in general, are we do we know of a major player competitor in the market? Of course, we do. But we cannot give any more comments on that. But of course, we know the major players in the market. We yes, we know of them and all other major players in the market, yes. All right. I'll just move on to a different theme then. On the cash flow then for Q1, it looks very solid and has improved really since I think Q3 last year. So I guess I'll tilt my hat to Roshan here. And can you let us know the reasons for this improving trend on cash collection and what you've done here differently? Yes. I think I'm gladdened to say as you call it a trend, I'm not calling it a trend yet, but I think obviously, I mean, we work very actively with working capital. I think that, of course, is a very important thing for us and focus across the business really, not cross functional effort. And I think it takes time to show those working capital improvements and probably even 2 to 3 quarters is too short to really say if that is a lasting trend. The second thing, as I said, sort of just this quarter, I mean, on paid taxes, we have some one off effects. So that will most likely come back during the coming quarters. All right. Super. And then on COVID, again, just a question here, more forward looking. Full April is almost in the books. Can you say anything about the trends in messaging for this month? Any flavor? I know you don't leave guidance, but anything you can mention here on April and so forth? Roshan, do you want to take that? Yes. I think, Raman, I mean, sorry, Fredrik, I think the comment that we made on sort of on April volumes, sort of what we can look at messaging volumes and voice and video volumes quite following what we on the messaging side, coming back to more normal volumes and not seeing the spike, maybe the extraordinary spike that we saw in March. And then on the voice and media side, where sort of the volumes now continue to follow what we saw in the beginning in the end of March when the lockdown restrictions were first placed in many markets around the world. I think that's sort of what we can comment so far. I think you should also consider that temporary spikes or maybe not as gross profit contributing as long term traffic trends. So I think that's one thing to consider. I mean in and that's reflected in our gross profit per transaction graph that we are we're showing in the report in the presentation. Super. Thank you. And just one final before moving on. Considering the way we will not consolidate until earliest H2 this year, probably towards the end, your integration processes here or this integration backlog is not going to start until then. So could you see yourself acquiring something before the consolidation process starts? Would you be prepared to Yes. I mean, as we always say, we have an active M and A agenda, and we're continuously evaluating targets. I think more than that, I think we don't comment on specific M and A timing because I think that's where we are. Right. Super. Thank you very much. Yes. And we're happy to continue a bit longer if there are more questions, operator, but please restrict yourself maybe to a couple of questions, and we're happy to take follow-up questions offline after the call. So back to you, operator. Thank you. Our next questions come from the line of Fredrik Liefel. Please ask your question. Thank you. Good morning. If I could just have then two questions on the operator division. If you could sort of describe a little bit more on the SMSF and the business model between you and Ericsson, how that will work going forward and how we should sort of see it in the operator division going forward? And then on the Q1 figures in the operator division, was the sort of the little bit better trend you saw there? Was that a sort of a capacity upgrade? We have seen other suppliers of equipment to telecom operators see capacity upgrades in the quarter. Is that something you had there? Or was this sort of a new contract that you had been negotiating for some time? So the first one, Tomas, do you want to take that or Russian or should I? I can just start with that one and Roshan can fill in. Generally speaking, in the operator segment, we have most of our business is project related and time and when it's completed at some stage, we're invoiced and paid. So there is a certain volatility or lumpiness due to that. I think the reference I recognize from telecom vendors in the sense that you have a license key to unlock software, We do have those elements. We've had those historically. I believe this is not a project of that sort. Perhaps Roshan can elaborate. Yes. Fredrik, on your first question, I mean, we have a long history of delivering SMSCs to software to mobile operators, both in partnership with Ericsson and outside. And what happens in the 5 gs world, of course, is that you need a machine that can sort of connect the old SMFCs from previous generations to new generation traffic. And this is exactly what we are what we have developed or are developing and will be or are very excited to partner with Ericsson to deliver to their customers. The typical model will be a typical software model where we're delivering a software product with upfront revenues and a smaller sort of percentage maintenance revenue going forward. So that's not different from our other operator software deliveries. When it comes to the spike that you saw in Q1, obviously, this is a contract that we've had for a while. And under that contract, we had a project that we actually expected should be delivered in Q4, wasn't delivered in Q4, and so we didn't book revenues for it. And we're happy to have concluded that in Q1 and hence book revenues with it. So it's a bit of a sort of timing difference really, but in that and as we've always said in the operator segment, I think that's to expect that there will be such time differences from time to time. Okay, perfect. Thank you. Thank you. There are no more questions on the line. Please continue. Thank you. I believe the questions on the conference call have all been or on the webcast have all been covered. So I want to thank all the participants for dialing in and passing back to Oskar for a final word or 2. Thank you, Thomas. Yes, so we're obviously very, very happy to report a strong result in these unprecedented times. And we hope to continue to deliver good results, even though, as you understand, we need to be conservative and it's very hard project for us and I understand it's hard for you as well. But so far, we're super happy for the results so far and we keep on working very, very hard to continue to deliver to continue to deliver in the future as well. So thank you all for your time on this call, and thank you. This concludes the conference for today. Thank you for participating. You may all disconnect.