Earnings Call: Q4 2019

Feb 20, 2020

Welcome to the End of Year Report, January to December 2019. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Thomas Heath, Chief Strategy Officer. Please go ahead with your meeting. Thank you, operator, and welcome, everyone, to this full year results presentation for the year 2019 and Q4 results presentation with Cinch AB. My name is Thomas Heen. I'm Chief Strategy Officer and Head of Investor Relations. With me in the room today is Oskar Werner, our CEO and Roshan Saldanha, our CFO. With those introductory remarks, I'll hand the word over to Oskar. Thank you, Thomas. So I also want to welcome you all to this report. So if we can start right away, we'll go on to Slide number 2, please. This is a slide many of you have seen before, and every quarter, we are updating the numbers. And as you can see, there are quite a few things that have changed in this quarter. So we have the past revenue in the past 12 months up to SEK 5,000,000,000 adjusted EBITDA in the past 12 months up to SEK 574. And the market cap has moved quite a bit lately, as many of you know, to run about SEK 20,000,000,000. We're up to 7.22 people at the end of the quarter, both employees and contractors, up significantly. And a lot of that is driven by acquisitions, as you know. And we are 33 customers where we have local presence and local sales staff presence, which I think is just showing how truly global this market is. We increased number of engagements to $40,000,000,000 on a run rate basis, if you take the numbers that we have right now. The remainder are obviously very similar. We're doing customer engagement. We're scalable over cloud communications and messaging voice and video and in that order. And we're serving a lot of large U. S. Tech companies. I don't think I need to go through the rest of this slide, but as a principle, you can see the change in this type of slide. Then move on to Slide number 3, please. This is something that we it was fun to show all of you. It's a little bit internal. We made a it's called a Mentimeter. We asked, I think, we asked the staff in an all hands meeting if you can all submit one word. And that sums up 2019 for you. This is around 230 or so people from Cinch sending in their suggestions. And the more people level for a specific word, the bigger it becomes in this world graph. So you see, this is what people internally believe is sums up 2019. And we have well, the words as growth and success and exciting and team and combined with words such as baguettes and other things. It's a little bit of what we feel internally, but also, as you can see, a lot of hard work and very busy, etcetera. Next, if we then go to Slide 4. This is something a marketing campaign we did. We're gradually scaling up our marketing efforts. The main reason and the main goal for marketing organization is to drive leads to sales. We think there's a lot of we can increase sales efficiency a lot when we drive more leads automatically from marketing. Automatically is the word marketing, right? We're not doing it from marketing. One of the things we did here was we discussed once on the 3rd day, we think there's so much negative in the world. There's so much a lot of the comments are so negative in so many different forums. So we said, well, let's launch something where we fight world negativity or fight online negativity, where we did a campaign called Text Humanity, where we partnered up with some non for profit organizations and said, all right, let's do a positive message switchboard. So the way it works is basically you would if you send a message via WhatsApp or text message or other channels into this switchboard, You write something positive, you write your name and you get a positive message back in order to counter all the negativity there is in the world. And we think it's fascinating to see how much positive it is and you can get out of this. And so far, we we have seen 50,000 net positive messages exchanged between people in around, I think, 60 different countries. So a very large interaction of positivism, which we think is super positive. Then going to the next results, Slide number 5. So of the gross profit and EBITDA level, that's what we focus on, as you know, since the pass through of revenue is large and varied between geographies. We think that the correct measure is a gross profit and EBITDA. And this quarter, we had a 42% growth in gross profit and then 82% growth in EBITDA over Q4 in 'nineteen. And I will comment more on why we have those results a little bit later in the presentation. So we could then go on to Slide number 6. The first thing that you need to know in any business that is growing well and consistently, it's about the markets. That's probably the single most important factor, and the next most important factor is the people in the business. But we are in the growth markets. I've said this several times before that the fascinating thing I think about with Cinch is it has the combination of doing a profitable here in our business and an attractive business for the future which can drive growth. And I think this slide sums up the 2 major aspects to that. The messaging market as such, on A2P SMS messaging, it's a $17,000,000,000 market dollars $18,000,000,000 market size, and that's where we make the majority of our profits and the majority of our revenue and gross profit. That is growing well and it's our profit machine, so to speak. And then we have the CPaaS market, that is the software value on top of that, which is the high growth market, which has a growth of 50% CAGR roundabouts, where we supply various forms of more advanced and more intelligent software modules on top of just delivering the message or just to deliver the phone call, if you will. So that's the 2 aspects of the market. It's growing on both these accounts, and that's a true reason for growth. So next slide, please. Replay, as we've been talking about several times in 2 different areas. 1st, the connectivity layer. This is completing a phone call, making sure that enterprise A can call customer B or that enterprise A can send a message, WhatsApp, Facebook, text, what have you, to customer to consumer bill. That's the connectivity business. It's making sure you can connect with these messages. And then like we said, a software as a service on top, whereas an additional service value add, which is additional software modules, which may be you want a web based graphical user interface to send that message, so you don't have to program to an API or you want to mask your numbers so that the caller cannot see the who is calling or the receiver cannot see who is calling or you want an AI service in order to respond to the message you got as an enterprise. You don't want to have an operator with them. You want to have an automated response there. Then you can then you go ahead and have a different service. And of course, we would charge an additional fee for that, which becomes a more classic software as a service business with high margins. Go on to the next slide, Slide 8. We have been doing several acquisitions over the past years. And in this quarter, you can see a significant effort or impact from both Myelephant and 3WW acquisitions. We do acquire companies both in the technology and the market where we want to add a software module, the functionality that we can upsell our existing base and new customers to. And the other area is scale and profitability, where we acquire into the connectivity area, which is scale and profitability, which is represented by CWW. These countries are typically larger, more profitable in the yellow part here, rather smaller and more explorative in the purple part in the technology part. So then go to the next slide. So looking at October to December, like we said, we had a gross profit rising to 42% to 439,900,000 We had adjusted EBITDA rising to 82 percent to SEK 199,500,000. We had adjusted EBIT excluding acquisition related amortization of SEK 185,000,000 and you have a profit after tax of SEK 94 percent. And the big recent difference there between the 185% and the 94% is the acquisition related amortization that we do that are non cash flow impacting. So we think the EBITDA is the best of them doing EBIT. And you can see it's relatively close between EBITDA and EBIT. And the reason is obviously that we take we don't capitalize a lot. We take the majority of our cost and that's straight over OpEx. Organic growth in organic growth in gross profit is 23%. So you can see the difference on the Marielle Fund and the PWW acquisitions. It has a large impact on the growth levers in this quarter, which is why we made them, of course. You can also see that it's a very scalable business model. We have high scalability and that means that EBITDA grows faster than gross profits and despite increased OpEx. So when traffic volumes increase and our big customers are starting to send a lot, a lot of that drops down to the EBITDA level and which is just a factor of a scalable business model. We should also say that in this quarter, seasonality plays a strong and noticeable effect. Q4 has been the strongest quarter traditionally for us. In this quarter, it's an even larger effect, both due to the TWW and Myelkam acquisitions, who both are excluded to Q4. And we're seeing an increased kind of effort on Q4 since we've been able to deliver well for the big centers there, then they tend to give us a lot of traffic during Q4. So that effect has been kind of strengthened during this quarter, obviously kind of resulting in the 82% growth on EBITDA level. Let's go to the next slide. So the key growth drivers is like we have said before, I mean, the rising message volumes with large U. S. Tech companies. They do see that we have high quality labor and they do trust us with their messaging. Number 2 is the growth in voice and video. We see a good trajectory in the voice and video business and we're continuing to invest in that. And the third one noticeable significantly this quarter is the acquisition of PWW and My Elephants. That's the 3 main growth drivers, and you should include them on the seasonality side. Of course, that's a new take on the quarter. And we should say we're growing both with new and existing customers. So this is both those factors are in play in this quarter. Next slide please. We're investing in 4 areas. As you can imagine, where you are in a business, in a market which is developing well and the business that is doing well, you needed to continue to invest in order to keep up this growth. And it's both forward looking investments and investment just to handle the actual number of customers and the traffic volumes that they have. So there's relatively large areas where you need to focus on. But there are 4 areas. So it's to grow with existing customers. So it's both on the platform scalability side and on the keycap management customer handling side, it's investments we're doing. We have an operational efficiency. We want keep and increase our scalability. So we're looking both on the COGS efficiency, on the automation, on the client self-service tools. It's a long term investment team that we think and we think there are more to do there. And even though we think we're scalable, we think there are significant improvements we can do. We are investing in sales and marketing, both on the lead generation side and the marketing side. And on the new sales focus, we want to expand our client base and have a broader client base. And on the international expansion of the personal studio products. And of course, we're investing organically in the new technology, so software for advanced interactive messaging, new channels like WhatsApp, RCS and RCS as service for the mobile operators. So these are the 4 areas. If we then go to the next slide. Looking at the messaging segment being the biggest, as you can see, we have rising volumes and then rising revenue, gross profit and EBITDA. It's from a macro perspective, this is business is shifting from email to mobile assetting. That's the underlying trend due to the fact that it's more efficient. The underlying logic here is you got with nolasiline via any of these channels, you got a 98% open rate and you got a read rate of some 95% within 2 minutes, and that is higher than email. It also has a more limited content, but if you want to reach somebody, this is a very effective channel and that's driving the growth, the underlying growth. My Elephants and TWW are included since mid October. I think it's mid October. And we're doing investments in the next generation method inside here. As you can see, the spike in Q4, acquisition related and seasonality related. On the message volume side, you see it's a big jump this quarter, primarily acquisition related. And you see the big jump in the last quarter on the higher number of transactions per month. In 2016, you saw the acquisition of M Blocks, how the jump played out there. So there you see the 2 acquisition related jumps. There's also growth from existing customer like we said and a positive seasonality in the Q4, which we should not underestimate, where our large customers are sending more and that gives us the big drive in Q4 and but seasonality wise, Q4 is much stronger than Q1. 41% growth in transactions and 49% growth in gross profit Q4 over since a year ago on a Q4 basis. Gross profit per transaction. And here you see some interest in France. We've been gradually over the last quarters and months increasing the gross profit per transaction on a rolling 3 months basis. Here you see it going down a little bit and that is primarily due to the acquisition of ITWW that have a lot of messages at the lower price point basically, and that's what's driving that. Partly it is because the market in Brazil is very large and partly it is because it's competitive, so depending on what you have. Part of it is also since PWW does not have a lot of additional services on top or value added services on top. So when we acquire larger S and S companies, you will see that type of effect. On the other hand, you see a large effect, positive effect on the profit side. You can also see the OpEx per transaction going down. That is mainly actually driven by economies of scale and seasonal increase in volumes. So particularly WW, but a large portion of this one is that the model is scalable and with our large customers are increasing traffic, we don't have to add as much OpEx. So then you have a decrease in OpEx per transaction, which we obviously think is positive. And you can see the scalability in the business and in the seasonality when we have a quarter where large centers are sending a lot. We don't need to add as much OpEx to support that traffic. Next slide please. On the margin side, we have shown this graph a lot of times. We're very proud of it, the messaging EBITDA of profit, our gross profits. As you can see, traditionally 45% of every gross profit dollar that we generate has been dropped down to EBITDA, which I think is a great measure of the scalability and the efficiency in the organization. You see this quarter or the last month, it's going about 50%. So that is actually increasing. And it again shows the scalability of the organization. And you see that we're even though we're investing heavily in OpEx growth, the last quarter's solid gross profit growth has been more than compensating for the addition in OpEx. That's basically what this graph shows. And something that we keep a very close eye on. We know we're adding OpEx at a rapid rate. But as long as we keep this graph in check, then we're growing with the OpEx. So we're actually now growing faster than the OpEx and we think that's where you want to be. It's obviously a hard decline on an exact quarter to quarter basis. But over time, we think we have a lot of room to make sure this is in balance. And so if we get a couple of quarters, we can make sure this is in balance, but hard to manage on an exact quarter to quarter basis. Voice and Video, if you go to the next slide, Slide 16, maintain momentum and growth in voice and video. It's growing on nicely. Like we have said before, it's fueled both by new and existing customers. And it's both number masking and verification. We are increasing OpEx here to ensure quality as volumes ramp for Nanskeremen, and we have this type of ramp in the business that is hard. We're fighting hard there, but I think we're making good progress in increasing quality and increasing our service value to our big customers. And we see a solid market for this area as well. And to us, it's important to keep on growing, and we're investing heavily here or aggressively here in order to make this a long term growth driver for the business. Next slide, please. On the operator side, that's one of the negative sides for the quarters. We have had in this business, you have fluctuations as in results as projects are realized. In this quarter, we had probably delays and currency headwind in Q4. We're also investing in RCS as a service for mobile operators. And as you can see, in Q4, the EBITDA on the operator side turned negative. It's not something we're happy with. It's something we want to turn back. So that's something we are working hard on, but this is one of the negative messages for this quarter. You should obviously realize that, yes, it's a fluctuate. This is a fluctuating business, but by no means, we're not happy with having a negative quarter in end of our business It's we're a company that takes a lot of pride in having our larger business units being profitable. So that's something we've got to work on. With that, I want to leave to Roshan Saldanha, our CFO. So Roshan, welcome him to the call. Thank you, Oskar, and good morning to everyone on the call. Turning to Page 19. Consolidated net sales grew in the period by 34% to SEK1.54 billion. Organic growth was at 17% in local currency and excluding acquisitions. The acquisitions of My Elephants in CWW contributed 13 percentage points and the positive currency effect on consolidated net sales was 4%. Consolidated gross profit grew during the quarter by 42%. Organic growth was 23%, and the acquisitions of EWW and My Elefem contributed 14 percentage points, and currently tailwind was 4%. Nonrecurring items in the quarter relate to the acquisitions and integration of Myodes and CWW, drawing about $5,200,000 in Q4 2019. Full year adjusted EBITDA rose by $27,500,000 due to IFRS 16 or the IFRS 16 accounting treatment of leases contributed $27,500,000 to full year adjusted EBITDA. This effect, of course, stops with 2019, and there is no further contribution in 2020 due to the change in accounting treatment. Amortization of acquisition related assets during the quarter was SEK 37,000,000. As Oscar pointed out during his comments, this has no cash flow impact, but it's related to previous acquisitions. And adjusted EBIT, excluding non recurring items as well as amortization of acquisition related items, ended up at $185,000,000 against an adjusted EBITDA of $199,000,000 showing the strong cash flow generation in the business. Turning to Page 20, we have an accelerating gross profit growth. The messaging segment continues to grow strongly with $66,000,000 in additional gross profit during the quarter, Voice and video with $12,000,000 additional gross profit during the quarter operated slightly negative at 5,000,000 dollars and the acquisitions of TWW and Myleson contributing $44,000,000 additional gross profit during the quarter, and then we have an FX tailwind of $30,000,000 What is driving the messaging growth is definitely our largest customers in the U. S, besides, of course, the acquisitions, as commented earlier. We have a limited total ForEx effect on adjusted EBITDA during the quarter, as the ForEx effect on adjusted EBITDA is a combination of increase in net sales leading to increase in gross profit as well as, of course, increased OpEx due to negative headwind from ForEx effects. Turning to Page 21, you see the headcount development in the business. We've grown the headcount year on year with 39%, both through recruitment and acquisitions. Headcount was at 722 at the end of Q4, but the quarterly average for Q4 was at 654. If we have excluded the acquisitions of TWW and My Elephants, the headcount would have been at 614, implying organic addition of 41 employees, which is a slight increase compared to the trend in the previous quarter, but this is a seasonal increase. Near term negative impact on EBITDA is being due to the increase in headcount before some of the new initiatives translate into higher revenues and higher gross profit. Turning to Page 22, you see a reconciliation from EBITDA to tax law before changes in working capital. During the quarter, we had paid interest of SEK 2,500,000 and paid taxes of SEK 54,000,000. Our effective tax rate continues to be around 22% on a rolling 12 month basis. We have a strong underlying cash flow generation of 75%, especially considering that in 2019, the EBITDA is inflated by the change of accounting treatment due to IFRS 16, but we still continue to maintain a strong cash flow generation compared to the previous Q4 2018. Turning to Page 23, where you see a summary of the cash flow statement. We have a net working capital which is at negative $13,000,000 for the quarter and working capital consumption during the year was at $126,000,000 Net working capital fluctuates between quarters due to the strong growth that we have experienced during 2019. There has been a higher consumption of working capital compared to 2018. This continues to remain a focus for us within the company to work with and find solutions to manage our working capital. However, we have a very low bad debt in at around 0.1% to 0.2% varying between quarters. We have a successful we had also a successful bond issue during the quarter and refinancing of our debt, which you can see on the financing activities through new borrowing and through amortization of bank loans. The net debt is increased by SEK84 1,000,000 since January 1, 2019, due to the implementation of IFRS 16 accounting policies. Finally, turning to Page 24, you'll see our key financial targets. The 2 financial targets that the company have declared before is to grow adjusted EBITDA with 20% per year and net debt to EBITDA to adjusted EBITDA to remain under 2.5 times over time. During the quarter, we're proud to say that we had delivered adjusted EBITDA per share of 54% measured on a rolling 12 month basis, and net debt to EBITDA remains at 1.7x measured on a rolling 12 month basis, despite financing our acquisitions of TWW and MyElephant. With those words, I would like to leave back to Oskar to conclude the presentation. Thank you, Arjun. So if you'd now move to Slide 25, future growth? In general, we see a strong pipeline with several U. S.-based LOBITA companies, and we see we have a good solid delivery to those. And so we see that's a potential for you to grow. We see generally the market trend, enterprises shifting to male to messaging. We do not see that, that trend will slow down. We think it's still going to continue for the coming years. So it's a good in general market. We see further growth opportunities in voice and video. Many companies want to include voice and video in their customer journeys in many different ways, and we see that's a growth market for the coming years as well. We are building a larger sales organization and strengthening our marketing in order to address more enterprises on a global basis. And we think that we have a focus to broaden growth in this area, and we think that's a very positive sign from those abilities. As you know, we also have an active M and A agenda. And as opportunities come up, we have a strategy of strengthening the organic growth with acquisitions. In general, I mean, there's 2 areas, the 2 major areas for growth, we'll continue to strengthen our connectivity offering. We're one of the absolute best players in the world of offering mobile connectivity, and we intend to stay in that position. And so we continue to invest in our connectivity offering. And we're also investing into the SaaS value add through investments in software, RCS, OPC, chat apps and a lot of different areas. So with that said, we think we are well positioned for the future in the general markets, And we hope to continue a good growth story going forward. And we think the market is there to do so. Then it's obviously hard to tell exactly what quarter and how and where does it go, and we do not give any forward looking projection for that. With that said, I want to conclude the presentation of this quarter, and I want to thank the entire team, the Cinch, for a lot of hard work and a very well performed quarter year. And I want to open the presentation for questions. So thank you. Thank you, The first question we have is from the line of Pritraj Savanovich from Carnegie. Please go ahead, sir. Good morning. Thank you for taking my questions. Starting with a bit on messaging. You mentioned time and time again that the big U. S. Tech companies are one of your growth drivers, but it's hard for us to size the market here and see what kind of true growth potential there is for you guys. So if you could let us know, for example, of the biggest accounts here, how much traffic do they currently allocate to in percentage points and what is the upside here to get a feeling any type of feeling on the potential here continued? And you also say the pipeline is very strong still. Thank you for the question. We do not give and we have not given information about the customer consultation and we cannot give the names of those companies. We are legally obliged to do so not to do so in the names. They're very protective of their brand names. So I would love to, but I cannot. We can say it's 8 out of 10 of the largest U. S. Tech companies. And I think you can all understand roughly who we are without naming the names. We have continued growth both from existing accounts and the potential for new accounts in that area. But I want to also stress that we have a this is a messaging business. It's a global business. It is pretty much any enterprise in any country would have messaging and do have messaging needs. The other big segment in our business is the banking and finance segments where we have a large portion of big retail banks as our customers through phone alerts and 2FA notifications, etcetera. But there are also a very large number of banks that we do not have. Other big segments are travel and transport, for example, the Internet sector in general and the large number of subscription based services. So it is a very, very broad market that we're talking about that exists in any country. And there's also a large potential for large potential and large amount of revenue from non big tech companies, of course. All right. Super. Another question then. Looking back, let's say, the beginning of 2018 or even end of 2017, it seems that the gross profit per transaction has quite had quite a positive trend, slightly less than Q4. But can you give us some flavor on the drivers behind this? Is it FX tailwind mix effect or more higher charging from value add services in a longer time perspective? Hi, Fredrik. Good morning. This is Roshan. Yes, I think it's a combination of those factors. I think one of the things that we see is definitely if you go back a few years ago, I mean, this business is coming from selling wholesale. And as we have increased the enterprise share of our business and we continue to focus on growing that, We can see that that's a higher value add and therefore a higher gross profit result for us, especially when we talk about the scale and size of the large tech companies in the U. S. As a part of the total business that has grown over time and definitely lean to a higher gross profit even on the messaging side. Then I think also definitely that the value added services that we are continuing to build, have built over the years, continue to build and acquire and deliver to our customers means that we can increase margins over time. At the same time, I must say, this is a competitive market, and we are in a competitive market. So we definitely see also increased price pressure, and we work continuously on our cost base to be able to retain and grow margins over time. Yes. I mean, it's important to understand that this is a market where with large scale U. S. Competitors, I mean, competing with companies like Twilio. I mean, they have a lot of cash, a lot of developers, a very successful and good company in so many different ways. We like competition because it makes us more on our toes and it drives the market. So that's good. But yours is it, Arshan. This is a big global market with strong competitors and that's something that is important to understand. Okay, super. And looking in a little bit in new verticals, and I know it's still early days, but can we get an update of the progression on My Elephant since you acquired the company in terms of revenue progression? And it seems that there is some quite meaningful upside potential here from adding these services to the mix. And you all already mentioned that you have started the cross selling. So what are your expectations here and some kind of revenue update? Yes. I mean we don't give the broken out financial figures. So I cannot and will not give that, but I can give the commentary around it. We're very, very happy with both of those acquisitions. On the my elephant's day, we see very strong synergies across our base. And we have a large number of Finch salespeople that are super excited to sell it. And we have a large number of salespeople that are already selling these services. And we see that in all our geographies. So we see with the theory we had, this is a great service with a great go to market and we want to add it on and sell to our existing customers, to me, that turns out 100% true. And then we're very, very confident on that, that will be a growth driver going forward for many years to come. Obviously, then we're gradually now integrating Myelephant into our own offering. So all gradual quarters here, you will see no difference in between the Cinch offering and the MyoTophant offerings, and we're giving them a global responsibility to drive this. But it's but the thing that they have started is very, very good and we see growth from that. And you should also see the seasonality in My Elephant. It has a strong impact and it has a very strong Q4 given that it's relatively marketing oriented. So therefore, we see an extra strong impact in Q4 from that acquisition that will pay off a little bit in Q1. Okay. Super. And finally, maybe an update on the acquisition pipeline that this is becoming an integral part of your story? Yes. No, I mean it is a needless to say, we cannot talk about any specifics on this one. We have an active M and A agenda in the connectivity area and in the technology and go to market area and in both of those, and we have an active agenda. And we are continuously working to find good partners to work with. And hopefully, we're successful, but it's not something we can give any projections on. But this is a big market and it's a good market and we see a lot of opportunities in many different areas. If that leads to transaction, it obviously depends on so many factors, so it's very hard to tell. Okay. Super. Thank you very much. Thank you. Thank you. The next question we have is from the line of Raimo Correa from SEDAR. Please go ahead. Thank you, operator. Good morning, everyone. Just I have a bunch of questions. I'll try to limit myself. But starting off really on the former question, a follow-up on the M and A pipe. Just sort of given the balance sheet situation and you obviously executing on 2 acquisitions quite recently, how do you reason around timing, etcetera? I mean, you have a pipe, would you shy away from execute on that due to integration, etcetera, of current or recently made acquisitions? Yes. Roshan again. I can take that question, Ramin. I think the first thing is, as Oscar said, there is a very strong pipe out there, has been and we see definitely increased interest. There's a couple of drivers to that. I think one key driver is definitely the underlying tech shift in the market, which means that the larger players have a better possibility to invest. What we can say is we are keeping to our financial targets and one of our financial targets is to keep net debt to EBITDA at 2.5x times over time. We can definitely see that adjusted EBITDA grows on a rolling 12 month basis as the business grows, and that increase is definitely our possibility to leverage and make acquisitions. In addition to that, and this is more of a shareholder decision in the end and a Board decision, which is that we have the possibility to fund acquisitions through equity as well. And that is not but that is nothing that the management will comment on and that is nothing that we can say anything about. Yes. And from an organizational perspective, the yes, acquisitions takes a toll on the organization and it has an opportunity cost. We need to be clear about that. And we're gradually setting our organization up to handle both the ability to execute transaction and to integrate them. To us, that's a work like anything else. I mean, we have of course, there are limits. It's hard to talk exactly about what we And of course, there are limits. It's hard to talk exactly about what these limits are, and we have to evaluate each case when we see them. And a high level question perhaps, but looking at some of your peers, they are expanding their portfolio quite aggressively. I mean, anecdotally or put it this way, you're growing quite nicely with the U. S. Big Tech. But anecdotally, what are you hearing with other customers when you're competing against the likes of you mentioned Twilio earlier, which sort of has expanded quite aggressively into new or added new products into their portfolio. What are you hearing from customers when you're out on the market? So I mean it's if you compare us to Twilio, it's the competitor we always get the question on. So we're happy to comment on that. So I mean, Twilio has a very strong they're a very strong position. They have invested a lot in a very broad product portfolio and they invested a lot in the online go to market and they're very strong in these two areas. They have a wider product portfolio than we do and they have a stronger online that they go to market than we do. We have invested more in a high quality global delivery network in our perspective than Twilio has. And we think we're stronger than Twilio in that area. So that's our own perspective on these 2. And then we meet somewhere in the middle. And we are obviously working then on building our product portfolio. And I think you see the signs of that in the types of offering we're doing. You see the voice and video growing. You see partner's video. You see the Mallerca acquisition and you see other self serve activities coming out. So that's a big area of growth or investment for us. Generally, anecdotally in the market, that's also what we feel. I mean, through serving large customers, which is not only Big Tech, but also big banks or big enterprises, we have a very strong position. And when we did the entire quality of our offering, we have a good standing and are very competitive in that market. We also see strength and demand from the new tech areas and all these new software offerings that we have. And we see we're able to take business in there, and that's a growing area, but it was still an area where Twilio is still stronger than we are. Thank you, Oskar. And just going back to the 4 investment areas, perhaps just I mean, it's a very difficult question, I guess. But could you elaborate a bit on the split between the four buckets in terms of investments? When are you focusing sort of the coming investments, etcetera? Yes. Ramiel, I mean, that's not information that we disclose, of course, about sort of where we are how we split our OpEx between these different areas. I mean, for us, of course, the what is important is to continue to support our gross profit growth and make sure that we are delivering to our customers a scalable and high quality service because that will make sure that we continue to grow and retain these customers, and that is the priority. Then at the same time, over time, I mean, of course, we need to be investing in the other area to continue to remain a relevant and reliable partner to our customers in these segments. I think that's what sort of drives our prioritization of investment, if that helps. Thank you. And just a final one, to some extent a follow-up to the former one. But looking at the EBITDA to gross profit came in at 45%. And I mean given that you're investing quite heavily in future growth initiatives, how should we view, call it, operational leverage the coming year or 2? I can begin and maybe Oscar wants to complement. I mean, sort of just very shortly, I mean, Q4, if you look also on previous Q4s, tends to be a slightly stronger quarter. This is due to, among other things, the seasonality of our business and the volume increase during seasonally during Q4. I think the acquisitions, of course, of My Elephants and TWW being a little bit more seasonally strong in Q4 has maybe accentuated that a little bit during 2019. And that drives sort of the EBITDA adjusted EBITDA over gross profit measure. I think it's a very strong proof point for us on the scalability of our business and that we will continue to invest to drive further. Yes. And this is obviously a question long term, short term statistically. We believe that there's a strong need to continue to invest in our business because there's strong growth opportunities and we'll continue to do so. We think that's good for our shareholders because it's driving growth over multiple years and we think that's what our shareholders want. And we obviously need to balance that, the long term view, with the short term view of continuing to deliver profits and growth in profits. And that's the balance we so far have been able to strike. We obviously hope to be able to continue to strike that balance. But then again, I mean, there may be quarters where we're not able to, and then we will report that and we'll take action accordingly when we see those results. We have a very, very well ingrained culture in our business to make money, and that's we stand out in that area, and we want to continue to make money and continue to make money on good levels. So we'll continue to have a high focus on that despite the big investments we're doing. Thank you very much for taking my questions. Thank you. The next question we have is from the line of Daniel Gilbert from Handelsbanken. Please go ahead. Thank you and good morning and congratulations to a really strong year end of 2019. First question would be on TWW. If I calculate correctly, they grew 17% with some 12.4% profit after tax last year. And also Myelisan grew some 20% and increased the margins 2019 versus 2018. My question is really should we expect similar solid performance for these in 2020 or even better given the cross selling opportunities that should arise? I mean, as you know, we cannot give forward looking statements. So we can't comment on the future performance of our main business or any part of the business. We can comment on the rationale to making these acquisitions. And that is, I mean, Brazil is the 5th largest country by GDP in the world. We think it's important to be in big markets. It's also a market with high growth in terms of mobile penetrations and use of mobile services. And that's why we thought that market specifically was interesting to enter. We believe there's good growth in Brazil going forward. And obviously, there's also risks with some markets and Brazil has its specific set of risks and that we need to weigh in. But generally, we believe Brazil as a market in mobile messaging, both from messaging and voice and video will continue to be a growth market, with probably a little bit higher growth in Brazil than you have in the main European markets and given the size of the population and the market states that market is in. And on the My Elephant side, like I said before, we see very strong synergies between the businesses. And so we think both we can help My Elephant directly with relations and we think our salespeople will have another tool in the toolbox which they can sell. And we think the development of that entire thing will be good. And gradually, it will be much harder to just dissect what is my elephant and singe. Because I mean, we have it also from the day of an acquisition and the acquired companies any personally in an acquired company is just as much as Cincher as anybody who has been working here 10 years. So gradually, it's impossible at all very hard to differentiate between these branches. Yes. Good. Another question for me would be on the number of transactions in Q4. It was up some 41% in your highlights, but most of it comes from acquisitions, of course. But in Q3, you gave us an organic number of 14 percent. Can you strip out the organic number also in the Q4? It would be great. Yes. Again, just a short answer on that one then. If we had included DWW and Myelephant in the base for Q4 2018, the pro form a growth would have been 25% in transaction volumes. Perfect. I missed that earlier. Okay. And then just perhaps a question on RCS. We see now some, I guess, uptake in the U. S. With both Google and cross carrier messaging initiative and so on happening in Q4. And this has taken a lot of time. And but can you say something if you see this as mainly a potential trigger for you? Or is it more of a threat? And also, is it do you see any possibility impact on pricing dynamics for traditional applications of your SMS messaging from this? Yes. I'm happy to answer that question. That's obviously one of the most strategic questions we have in the business. We have a very very simple view on that. We think what's happening in the market and we take a customer view, both end customer and enterprise customer. And so we think what's happening in the market right now is the first wave of this market watch where we've been growing in the last the first 20, 30 years of this market where the SMS market is growing up to 30%. There is a couple of very simple reasons for that. It is 9% to 8% open rate, 90% rate break within 2 minutes, a beats e mail if you want to reach somebody fast. That's why it's a $20,000,000,000 or $17,000,000,000 market right now on text message. Simple as that, right? Businesses want to reach their consumers and then they use text messaging for part of it. Now the main limitation of that is that it's got a 160 character limitation, right? So emergency and reach, but only 160 characters. Now what is happening is that 160 character limitation is taken away. And that's taken away whether you use WhatsApp, RCS, Apple Business Chat, WeChat, KakaoTalk Line, Viber, Telegram, Facebook. There's a lot of different channels, right? OCS, there's a lot of different channels. But the main thing is that limitation of 160 character text only is taken away. And instead, you can send you can deliver almost an app like experience to consumer. Basically, you can have voice, you can have video, you can have pictures, you can have action buttons, you can have a conversation which you can track in the messages, etcetera. So much richer experience. We believe that richer experience will drive a 10x improvement in service quality to consumers and to enterprises just because it's a better experience and we believe that that's going to drive the market for many years to come. We also believe that the transition over to these services is complex to enterprises because that means they suddenly need to implement mobile messaging, which can perform as an app into their business offices and that will take time. But we believe in the coming years and many years that will drive a lot of growth in the market. Now come back to your specific questions. Yes, sometimes there are delays in various markets and various technologies and etcetera, like in the U. S. Delays in this operator consortium on RCS and like in French, they have just launched it and then there are problems with the handset reach. But to us, all right, RCS is then 1 channel, fixed market is 1 channel and then we have all the other channels like WhatsApp, Facebook, Yahoo! LiveEng, Viber, which are proving the use case, and we're seeing increased metrics on the key business objectives of our customers. So for us, RCS is 1 channel. We have many channels. We believe in the concept of this happening on a broad scale in the market and we believe that's going to be good for consumers. And the content consultancy believe the market is going to grow on the back of it. Perfect. Thank you so much. I think I'll stop there to see. I might have some more questions. Thank you, sir. Thank you, sir. Operator, any more questions from the line? Any final question? There's no further questions in the queue at this time. Well, with that, I want to thank everyone for dialing in and following our webcast. It's been a pleasure to speak to you. Looking forward to keep the dialogue also in the future. Any follow-up questions, don't hesitate to get in touch. Thank you very much. Thank you. Thank you. Ladies and gentlemen, that concludes your call for today. 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