Earnings Call: Q3 2020

Nov 3, 2020

Welcome everyone to this Q3 results presentation with Cinch AB. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. With me on the call today is our CEO, Oskar Wanner and our CFO, Roshan Saldana. As a reminder to everyone dialing in, whilst this call is open to everyone, questions are reserved for investors and analysts. And with those opening remarks, I'll hand the word over to our CEO, Oscar Werne. Thank you, Thomas. Everyone, welcome to this Q3 presentation from SENS. So operator, if you could move to Slide 2, please. So as you can see, we're now revenue past 12 months SEK 6,600,000,000 and adjusted EBITDA of SEK 786,000,000 in the past 12 months. We're up to now with the closed acquisitions of 1484 and then present in 41 local countries. We do, like we've said, customer engagement through mobile technology. So any way enterprises wants to engage with their consumers via mobile channels, that's where we come in. And that may be via messaging. It may be via voice or video. So a video example would be you're connecting your call to your doctor, making that call the call with the doctor online working or calling your ride hailing service. We would connect the call to your ride hailing service via voice or messaging. You may get a reminder from your dentist or your ticket from your airline, then we would transmit those messages. We are now up to SEK 107,000,000,000 engagements per year. This includes ACL. So and you can see that has gone up pretty significantly since the last presentation and that is due to the huge volume in India and with the STI transaction. So very much in a very high increase on that number. And we're going to come to that through the presentation. You're going to see the volumes going up. But then obviously, in India, the gross profit per transaction is lower than in U. S. And Europe. We are serving 8 out of 10 of the largest U. S. Tech companies. We're working well and closely with a lot of these companies and they are unimportant, by far the only customer group, but unimportant customer group for us. Fascinating thing with this market is it's got 100 percent consumer penetration. I've yet to meet one single person of the adult population since I joined CIMH that is not a user. I know that you all have used or received the messaging, voice or video services, but I of the types I just described before. We're very proud that we've been profitable since our foundation in 2008. That's the way we run the company. We think it's a good way to run the company of always delivering a lot of value to customers and therefore being able to be profitable. Operator, next slide please. So if you look at we have a track record of profitable the last acquisitions with ACL and STI, which are now closed, and then Weyby, which we're still working on closing for. And you see the impact of both our adjusted EBITDA and gross profit in this chart. We take a major leap going forward now with the last acquisitions we've made. In Q3, 40% gross profit growth and 53% growth in EBITDA in Q3 'twenty. All right. Operator, let's move to next slide, please. The reason we can do what we're doing and continuing on growing as we have been doing is partly it's a good market. We're in a very good market right now. And the other part is we are having good performance and relative to the market as well. The messaging side, which is our largest segment, is a $17,000,000,000 market on SMS only as per Mobile Squared. And the business usage of SMS, our base services, continue to grow. Then we're also seeing +100 percent growth rates in the new messaging channels such as WhatsApp, RCS, Viber, KakaoTalk. And the reason for that is very simple. It is it's you have the same read rate, very high read rate, very high response rate as you have with text, but you have a richer format message. So you can actually send more and make a more attractive experience for the consumer. And therefore, you're seeing very, very high growth rates in those areas right now. The other part of this market is the CPaaS market where you typically say value added on top of just delivering the message or just connecting the voice or video call. There you see a lot of value services. For in our example, it would be like chat layer services where you have an NLP service. And in that area, you're seeing 30% to 50 percent growth roundabout. So in principle, we are in a really good market with a base business of SMS, which is big and growing, but a little bit slower rate. Then you have a very fast paced growth in the WhatsApp and RCS or new messaging formats business and you have a very solid growth in the software value on top. That's kind of if you would summarize the market in 3 different areas. Operator, if you go to Slide 5, please. What is really happening in this market? What happened in the 1st 30 years in the market was basically enterprises realized that there was a move from there was an additional channel to email, which is SMS. The reason enterprises adopt SMS is pretty simple. It has much higher open rates. Typically, we say it's 98% open rate and 95% read rate within 3 minutes, which you will know beats e mail hands down. So enterprises realized, hey, if I got a short, simple message to tell, text messaging is a more effective way to get attention of consumers than e mail, and that's why that market grew to 17,000,000,000 Now text has one major limitation, and that is it's only 160 characters, and it's text only. That limitation is now removed with the next gen messaging formats being RCS, WhatsApp, Facebook, Capital Business Chat, there's a lot of those channels. So what's happening is basically you can keep the high open rates, but you get an app like experience instead. So the number one limitation of text is being removed while you keep the big benefits of the high open rates. And that is something that we think is going to grow this market for the coming 20 years. We believe this is going to be gradual evolution. Enterprises are slow to adopt, and there's a lot of them. We're talking about communicating to every single consumer in the world. So this is millions of enterprises. It's going to be a gradual approach. But it's going to drive growth going forward in this market. Operator, Slide 6, please. Just one example of what we're talking about. Here, we're doing an RCS campaign for a company called Cdiscount in France. Cdiscount is an e commerce company, and they're doing an outbound mobile marketing campaign. Previously, they were using SMS, and right now they moved a portion of that traffic to RCS. As you can see on the left, you see how it looks. So instead of just having a text message, you can have a picture message and you can also have action buttons. You can click on buttons if you want the user to do anything. On the bottom right, you see the increase in the performance indicators. So they had a 9% increase in the average basket size of consumers actually responding and buying something from these messages, and they had a 4% increase in revenue. And this is only by moving from SMS to RCS. So as you can see, pretty much any outbound campaign, you will have a significant uptick in your commercial rate to whatever key business KPI that you have. And that's the power of this market. All right. Let's move to Slide 7, please. So playbook for profitable growth, we play in 2 different areas. Our main area and number one area is the connectivity. This is making it possible to send a text message, making it possible to send WhatsApp or Apple Business or Rosh Yes or WeChat message or Facebook or Viber or KakaoTalk, there's a lot of these new channels, making it possible to deliver that message. It is connecting the voice call from your ride hailing from you to your ride hailing company And it is connecting the video call to your doctor online. That's kind of the connection piece, making sure you can communicate. That's the largest part of our business. And then what we call the SaaS services or the value add on top is basically where we add something like chat players. Not only do we deliver the message, because what happens is enterprises then get responses from computers from consumers. And then they ask us, well, can you interpret the intent of the responses of these consumers? Basically, either they have to channel all these responses into the care center and pay $5 per response or they can automate understanding the intent of what the user wants. And with chat player, we can automate understanding the intent. So we would tell the enterprise a message came in, here is the message, and this consumer wants to rebook his ticket or this consumer wants to cancel his appointment. So we would tell them that. And in that case, they can actually automate the entire chain and reduce their cost. So that's one example of the software as a service on top. But there are very large amount of those type of services that enterprises now demand when they go into the next generation services. All right. Operator, slide it please. So we made quite a few acquisitions, as you know. So the latest ones are SAP and ACL, which are now closed. So we're happy to announce that. And then WAVI, where we're working on closments with the regulatory authorities in Brazil. And we do this in 2 different areas. We do it in scale and profitability and technology and go to market. Scale and profitability is larger, typically getting market access, getting access to operator and get access to a large country and a large number of customers. Where technology and go to market is when we talk about Chatelher and My Elephants, where it's a technology proven with customers in one country that we want to scale globally. And that's what's happening with Chatlayer and My Elefante and Wilkie vehicle right now. We're taking those and we're selling them through our entire distribution network of all these other the entire distribution network of Cinch. So operator, Slide 9, please. And I do not intend to go through this slide, but I want to have it in the deck in order for you to have it as a reference slide. But the deal rationale of ACL is very simple. India is the world's 2nd largest mobile market, 1,300,000,000 population. We get access to that market, 500 large enterprise companies, including the majority of India's private loan banks. And it's a highly profitable company where we make an accretive acquisition. We think that's very, very good for our shareholders. Operator, next slide please. So the next one is SAP Digital Integrate. You saw the numbers before. It's a major step up for us both on the gross profit and EBITDA level. SDI is presenting with the majority of the revenue in the U. S, Europe and APAC. This is 1500 enterprise customers, some of the world's most valued brands. It truly diversifies our customer base. It's also a highly accretive deal and it fits the scale and profitability category. So I think both of those acquisitions, we're very happy with. We think they significantly strengthen our position in the market. All right. Let's move on to next slide, please. So in the quarter, we launched the Conversation API. We're now on Slide 11. This is a way to wire 1 API or one access point access all channels. So as an enterprise, you don't have to make one connection to us for SMS, one for WhatsApp, one for RCS, etcetera. You can make one connection and you can use all different channels. And we would then help enterprises to select the channel that is best and best fits consumers' needs. This is a major launch for us, and it is moving us squarely into the omni channel or multichannel LAN. We call it conversation API because it also enables consumers or enterprises to have an easy way of handling true or true conversations with consumers. If we look at Slide number 12, operator, this is just an example of how it looks. We are if you look at a text message to the left, it's a text only. If you look at RCS message next to the left, you see it's a you have a picture, but you also have action buttons on the bottom. If you look at a WhatsApp message, you have the pictures, you have a couple of links, etcetera. You looked at a Facebook Messenger message, you have the picture, but you have a text and then you have a couple of action buttons. And the Viber message looks pretty similar. And I think you can all agree that on the attractiveness for a consumer of any of the most right hand messages is more attractive than the leftmost. And therefore, the conversion rates to whatever key goal they had with this message is likely to increase. And that's basically what our data is showing us. We are also then helping enterprises to render or display these messages across different channels. So they can tell us, this is what I want to send, and we will help them via our technology to form up the message in the optimal way across the different channels. And that's obviously a great value added service for enterprises because this gets pretty complex when you're trying to communicate with consumers around the world across multiple formats. So that's one of the benefits of Conversation API. But this picture, I think, shows very clearly, I mean, just the difference between the different channels and the power to reach commercial rates. All right. Operator, Slide 13, please. So July to September, gross profit up 40% to CX 418,000,000 or $481,000,000 Adjusted EBITDA rising 50 3 percent to SEK 226,000,000 and previous quarter, SEK 147,000,000 Adjusted EBIT, excluding acquisition related amortization, was SEK 210,700,000 compared to SEK 137,000,000. And profit after tax then including acquisition related amortization being SEK 91,000,000, but that's noncash flow impacting. Organic gross profit growth was 24% in local currency, so without currency effects. You see the COVID-nineteen causing a reduced voice traffic in length and side sales cycle, but the main business is doing well. So you have an impact on some segments, but a negative impact on some segments and a positive on others. So therefore, we kind of net net probably even. And you see that we have seen high scalability, that EBITDA grows faster than gross profit despite us increasing OpEx to handle greater business volumes and strengthen go to market and develop new products. Operator, Slide 14, please. So key growth drivers in this quarter has been continued volume growth with the U. S. Big tech companies. It is the general trend of businesses increasing their use of text messaging and messaging in addition to e mail. That's a trend that has been going on for the last 30 years, and I think it will continue to go on for the foreseeable future. And then obviously, the acquisition of TWW, MyElephant, Chat Player and ACM Mobile impacting in this quarter. Four investment areas, it's organic growth, operational efficiency, new technology integration. That's our 4 main topics. I won't go into detail, but organic growth obviously being very, very important us. Operation efficiency, given the number of volumes we do, dollars 107,000,000,000 transactions, that is, what is it, dollars 15 or $13,000,000 transactions per mobile phone on the planet every year. So every year, we touch every single phone on the mobile on planet, kind of, 10 to 15 times basically. Obviously, there's a lot of operational efficiency. We can do that and automate our tools and drive more cost efficiency. New technology, investing in the conversation API and new channels and additional software, I think that's relatively apparent for you when you look at the differences in what you can actually get from a consumer commercial rate perspective. And then obviously, we take quite a bit of cost right now for integrating these companies. So you see that below our adjusted EBITDA in integration costs in order to be transparent for you what the integration costs are. Slide 16 please, operator. We have strong growth in messaging. Total gross profit growth of $57,000,000 with organic at $35,000,000 So you see messaging segment growing the fastest for us, driven by U. S. Tech and MyElephant and KWW are included since mid October, chat players since April and ACL since September. We're obviously getting tougher comparable figures hand to heading into 2021 given the very strong growth we had in the couple of quarters a couple of last quarters. So we ask you to be mindful of that even though we were obviously continuing to push hard on the growth area. But comparables are obviously getting tougher when you've done this type of growth hike. Right. Operator, Slide 17, please. This is an interesting slide. As you can see, the last quarter, when we include the message volume ACL, we do a true step change. Yes, nominal figures at 2 65 percent year on year growth in transactions in Q3 with 19% growth in comparable units. SAP will add further volume for 1st November and then growth from existing customers and new customers and new use cases. But mind you, this very large jump from ACL. It is important to remember, it's a very, very large country. That is why we were interested in making decisions. It's in acquisitions, huge volume, but obviously at a lower gross profit per transaction. But that's something that also will continue to grow both as the economy in India grows, but also as the mobile penetration grows. So there's both a growth in the economy and therefore, hopefully then in gross profit per transaction, but also a penetration growth rate in India, which we think is very attractive to be in such a market. All right, operator, Slide 18, please. And on just you can see a consistent effect on the gross profit and OpEx per transaction, and this is very interesting, of course. Obviously, you will have a drop in gross profit per transaction when you move into this type of market with such a high volume. So you see the drop at the tail end there. You have a little bit of a downturn before, but I think that's within the trend line on the gross profit per transactions. So the major thing here is from ACM. And then you see on the OpEx per transaction truly going down as well, which is a very interesting concept. And that's another reason why we did this. I mean, truly establishing ourselves as with a low cost base, being able to play the true low cost games game as this market becomes increasingly competitive, having a base in India where you can run operations, you can run you can run have development centers where you still own, you can run a lot of functions there at a much lower cost in the Western countries. That's another very strategic thing that we have done and that we're looking forward to exploit fully. Operator, Slide 19, please. If you see the margin in Messaging and we measure that as Messaging EBITDA per gross profit, this includes both the text messaging and the new messaging performance. As you've seen, we had a good growth of that showing the true scalability on the messaging based business. This is a very highly scalable business. We're dropping in the last months here more than 50% of each gross profit dollars that we make. We dropped down to EBITDA in messaging. And I think the trend of this curve is obviously very, very strong. Reven and gross margin depend on the mix on the terminating markets. And then the EBITDA gross profit shows margin excluding the mobile operating charges. And you can really see how that adding traffic volume increases gross profit more than increases OpEx. And this is the scalability in our business. When you get to this scale, then you have a true and you run it like we're doing, then you have a truly scalable business model. But then we're obviously now doing continued OpEx investments to capture growth. And there are some positive timing effects here. So HolidayPay encouraged the reducing OpEx in Q3. So this trend this will look a little bit up and down. But I think in general, we are performing very well on this trend over the last quarters years. If you look at voice and video, you see what we have been talking about, a sharp decrease in demand in Q2 as number masking from ride hailing customers with as COVID-nineteen reduces traveling. You see an improvement which continued into Q3, but you see improvement at the end of the quarter. And so especially the last month, we saw an improvement, which is great. On the other hand, it's uncertain future due to renewed lockdowns. And obviously, with the lockdown, it's less ride hitting traffic. But I think doing this, we see, yes, when there is a lockdown, when there is a route through traffic, we will have a significantly reduced traffic. We're also seeing it's coming back when the lockdowns are going away. But now let's see what's going to happen with the renewed lockdowns, then then it may increase going forward. And I think your estimate is as good as ours there. But we have positive underlying trends in the other part of this, which is number verification. So it's not all ride hailing. So around about 50% of this is ride hailing, but other 50% is number verification where we see a positive trend underlying. And last slide for me, the recovery in operators. So we do see a return to profitability, partly driven by currency headwind a reduced currency headwind. We do see linked in sales cycles with operators and slower investments due to COVID-nineteen. We're also investing quite a bit here due to the 5 gs messaging products sold together with Ericsson and we see a positive customer feedback on that. All right. Operator, next slide, please. And I hand over to Roshan Silvana. Thank you, Oscar, and good afternoon, everybody. Glad to be able to present some comments on the financials for Cinch in this quarter, and our scalable cloud platform continues to enable delivery of digitized customer experience journeys. On Page 23, if you turn to Page 23, you see the consolidated net sales, which grew by 46% in the quarter to 1,778,000,000 dollars The growth rate in the quarter was positively affected by the acquisitions of TWW, Chatlayer, MyElephant and ACL. The organic growth rate of net sales in local currency was 35%. We see a strong continued development of adjusted EBITDA per share, which was DKK 3.65 earlier for the quarter versus DKK 2.73 same period last year. On a running 12 month basis, adjusted EBITDA per share increased to SEK 13.53. For the Messaging segment, adjusted EBITDA was a record high at DKK 246,000,000 for the quarter versus $135,000,000 last year same period and $214,000,000 in the previous quarter. The EBIT came in at $155,000,000 versus $87,000,000 in the same period previous year. Acquisition related amortization, which does not affect cash flow, was $44,000,000 in the quarter. And this amortization relates mainly to planned amortization of acquired brand customer and operator relationships as well as software. So if you exclude this, then we look at a measure called adjusted EBIT. Adjusted EBIT was $211,000,000 for the quarter against 132,000,000 dollars last year. Operator, please turn to Page 24. Here we see a bridge explaining our underlying gross profit developments. A significant part of our revenues are passed on as cost of goods sold to mobile operators and hence we tend to focus on gross profit in our internal target setting and measurement versus revenues and that's how we steer our business. Changes in our gross margin oftentimes reflect changes in geographical mix rather than underlying performance. Over time, of course, we aim to improve gross margins through delivering additional value added components to our customers. Consolidated gross profit rose by 40% during the quarter to SEK481 1,000,000 versus SEK 344 1,000,000 the same period last year. Negative exchange rate movements reduced growth by $16,000,000 or 5%. The acquired companies WW, ACL, Chatlayer and Myelephant contributed 21% or $72,000,000 of this increase and then organic growth in gross profit in local currency and comparable units was at 24%. Gross profit growth was by far the strongest in the messaging segment at 57%, in line with the recent quarters, of which organic growth in local currency was 35%. And adjusted EBITDA over gross profit came in at a record 58% for the quarter as we benefit both from increased sales scale, but also from a somewhat more cautious approach to increasing costs earlier in the year in the light of COVID-nineteen. As you will see, we are continuing to invest in the business as we see that COVID-nineteen has not hit our messaging business negatively. Gross profit declined by 54% in the voice and video segment and 5% in the operator segment, both affected by music demand due to the ongoing pandemic and related economic development. Operator, please turn to Page 25, where you will see a summary of the number of resources at Cinch. We continue to invest for continued growth and the main areas of resource addition as Oscar referred to are driving internal operational efficiency and quality, increasing our sales and marketing efforts, as well as investment both in new technology and in integration of acquired companies. Our headcount is distributed in many different locations across the globe and definitely the diversity is increasing with the acquired companies, but the majority of resources are still in Sweden with USA, Poland and UK being other locations. We're happy that 288 employees from ACL Mobile have joined us during the quarter. And as we closed SAP Digital Interconnect transaction after the quarter, 322 employees have joined us from the 1st November. In addition, we see that the Cinch headcount during the quarter has grown by around 50. The numbers that you see on this page of course are quarterly averages. A lot of the work that is being done to support our gross profit growth in the current periods and also investments in conversational messaging using channels such as WhatsApp. For example, you saw the launch of the conversational API, which also Oskar referred to. These investments are taken mostly as OpEx through our income statement and we have very limited capitalization of resource costs, which we believe to be prudent. Turning to Page 26, you will find a bridge from adjusted EBITDA to cash flow before changing working capital. As we informed with the Q2 report, there's a timing effect in paid tax in the United States, which we see now in Q3 as higher pay tax. In the quarter, we have also significant acquisition costs related to the announced transactions of SEI and ACL. Despite this, we will see a strong cash flow generation from operations of SEK145 1,000,000 or 64 percent in relation to adjusted EBITDA. Please turn to Page 27 for the cash flow statement. Here you see cash flow from operating activities was $107,000,000 due to seasonal swings in working capital. Changes in working capital, of course, fluctuates from quarter to quarter, but I think overall, we're happy with as we continue to grow the business that we're able to manage working capital in a good way. Many of our customers of course try to maximize the liquidity, especially at quarter end and this can affect us from quarter to quarter. On Page 28, I would like to summarize the status of our ongoing acquisition and integration processes. I'm incredibly excited today to again say that we have closed the acquisition of SAP Digital Interconnect and therefore can move it to the integration execution phase. For Wave, we continue to go through the regulatory approval process and we continue to be confident that this transaction will be approved. As usual with regulatory processes, there might be small delays which might occur in comparison with our original time plan, but we still expect to close it during Q4. For the integration phase, our focus remains on commercial execution, on the launch of new products and services and cross fertilization across our customer basis, technical integration and finally of course other functional integration. It has been great to see already in this quarter contributions of $71,000,000 in gross profit from the acquired companies, but also we see other cross sales successes such signing the 1st chat layer customer in India. Turning to Page 29, adjusted EBITDA per share grew 51% in Q3 2020, measured on a rolling 12 month basis. Link has a positive cash generation and we had a positive cash position at the end of the quarter with SEK970 1,000,000. Net debt to EBITDA was at negative 1.2 times. The financial targets for the company are unchanged from what we have previously stated where we aim to grow adjusted EBITDA per share by 20% per year and maintain net debt below 2.5 times adjusted EBITDA over time. Please turn to Page 30. On Page 30, we summarize our financial leverage pro form a upon closing the announced acquisitions. As at Q3, if we closed the not yet the outstanding acquisitions of SEI and Wavy, then we would have had a net debt to adjusted EBITDA of 1.8%. We believe that our underlying business performance will enable a timely deleveraging. And we're happy to report that at the end of Q3, our pro form a leverage is already below our financial targets, and we look forward to the future. With that said, I'd like to hand back over to Oskar to summarize today's presentation. Thank you, Roshan. So key part of this, I mean, continued growth with U. S.-based global tech companies, great customer base. Of course, we should continue try to continue to grow with them. Our initiatives for broadening our growth, we work hard on that, and we see good positive early signs across the base. New customer wins in next gen messaging through Synch Conversation API, we see this market is really running, and we see great early stage demand even after the 1st days of launch. Closing of pending transactions, obviously, very key. Working with WayV, we were successful in SDI. We hope to close WayV. But then you've got to be in this type of acquisitions when you do a lot of them. There are always risks for delays, and we're aware of that, and that's the game we play. But we continue to be positive on all the probability of closing them. But obviously, technical and commercial integration of SAP Digital Interconnect and the other acquisitions we've made, it's a very large focus area. And we continue to strengthen our connectivity offering, focusing hard on that. That's where we are probably the largest in the world, but also investing in the SaaS products for advanced next generation messaging. With that said, I would like to conclude the presentation and hand back to Thomas and operator for any questions. Thank you for listening. Thank Our Our first question comes from the line of Fredrik Zlunovich of Carnegie. Please go ahead. Your line is open. Thank you very much, operator. Hello, everyone. So my first question, I'm wondering a bit on your U. S. Revenue opportunity here. So the U. S, it's 54% of total messaging revenue in the quarter. And judging by the gross margin, it seems to be mainly nondomestic traffic. And the growth year over year for the U. S. Seems to be over 100%. So this is clearly, clearly impressive. But I can't help but wonder what can you do to get more domestic traffic here? Do you see this happening? In that case, when and why? So it is not only we have a very large domestic U. S. Business. We are, if we're number 2 or number 3, but in that area in the domestic U. S. Market. I just want to be very clear. We have a very strong standing in messaging in the U. S, full stop. So we have a large and significant domestic U. S. Business. We're also good at international. If we stick out anything, it's high quality international delivery because that's harder and less competitors that can actually do that because in each region, U. S. Being one region or Europe, you have a couple of local regionals who can compete in that, but fewer of the competitors can actually do high quality and cash delivery. So that's where maybe it's only us and 2 other companies who can do it for the really biggest customers. So we see growth in both of those two areas, and I want to be very, very clear that we have a large and solid U. S. Domestic business as well. Did that answer your question? Or would you or did you have any follow-up on that specific one? No, no. That's very clear. I'll take my second question then, which is one of your competitors, Twilio, with the recent investments and acquisitions, they will now be competing to what seems to be some of your key customers within the U. S. Big tech. And given this move, competing with some of the major platform owners, could this imply that your relations with some of your largest companies will strengthen even further? Yes. So first, you'd have to ask them. We obviously ask them. But here you see a little bit of the difference in strategy in between the companies basically. We believe in a very partner oriented go to market approach. And the basics are we our enterprises should reach 100% for the consumers in the world. That means millions of enterprises. And there is no way that any single company will be able to sell all of those enterprises directly in our view. That said, we believe that using partners to reach them, that may be the cloud platforms, which I assume you're alluding to, Salesforce, Oracle, Adobe, Celgent, I mean, but there's a lot of them. That's one group, but it's also like local ASPs, like local ASPs or application service providers in the local market, but it also includes SIs and creatives, so system integrators and creative agencies. We believe that partner go to market is very important. And yes, you're right. Some of the moves that Twilio have made puts them in a competitive situation among a couple of these, flex competing on the call center side and then the latest acquisition of segments may be seen as competitive on more the cloud platform side. And the acquisitions of SendGrid on the mail side may is obviously competitive to the mail people, but it may also be to the other side. But that's a we have a partner oriented approach and then how the customers react, we'll have to see in the coming quarters. Very clear. Thank you very much. Thank you. Our next question comes from the line of Daniel Uebe of Handelsbanken. Please go ahead. Your line is open. Thank you very much for taking my question and congratulations on a really strong messaging growth. I have a question first on your new CNG Conversation API. Can you comment with us a little bit more on your go to market strategy and also the unique selling points you have here versus competitors? For example, Twilio is your reach rendering better or in par with the messaging orchestration they have? I'll start with that one. Yes. It's a good question. Go to market is in one way in the simplest form relatively similar to text if you sell an API with more channels. I mean, either you sell a text messaging API or you sell an API with more channels. That's an API based sales of messaging connectivity, which is pretty similar. Now when you go into conversation API, what happens is enterprises typically want more software on top. So they would typically want like chat layer on top because consumers start to respond and then you need to have an automated response engine or they want a more software to create the messages. Then it becomes a more value added kind of go to market model. So there you need a different type of sales force who are a more value based sale than you had in the classic old CLX days, if you will. So that is changing our go to market model. So in one way, it's similar. In one way, it's different. And that's a transformation we're going through. And believe me, it's very exciting, but it's not easy. Your second question now, now forgotten. Could you please repeat that? It was a little bit on the competition. For example, you have the rich rendering, while some of your competitors has this orchestration offering, if it's similar or unique selling points? That's another question. Yes. So we believe our USPs are it's hard to say because the market is so similar. So it hasn't really ironed out or so early because it hasn't really ironed out yet. But one is the number of channels. So we're going for having the broadest channel selection. Number 2 is personalization, using the assets from vehicle and a couple of other technologies. So really making the messages personal to the consumer is one key thing. Second one is our core USP in all the company, which is just service quality, uptime service quality. And the third one would be looking into the data side and looking at how can we actually help companies to improve the commercial rates. So that's a couple of the USPs we're targeting, but this is customer driven development. You need to work closely with the customers and realize what do they need, what can we do and that's going to be developed over the coming quarters. But that's kind of directionally where we're going. Okay. Thanks. A super fast question on vehicle. You did this earn out write down in the quarter, but the company reached the targets for 2018 2019, it seems. What has happened and which criteria did the entity fail to meet? So Roshan, do you want to answer that? Yes. I can take that one. Yes, I mean, when we do these acquisitions, we have a number of of targets, both in terms of overall financials, but also in terms of sort of what KPIs we want to deliver underlying those financials. And I think without going into too much of detail, obviously, we're happy with the overall development of the business, but there are some parts of that agreement that were not fully met. And therefore, we have sort of a positive one time effect below adjusted EBITDA in our P and L this quarter. Well, we should be very clear. We're very happy with the vehicle acquisition. We think the team is doing great. They were one of the teams hit by COVID and then gross profit development and growth in the tail end were slower than expected, which made, all right, a little below targets, a little bit below targets. And that's when these things happen. But in general, we think if you look at it longer term, it's a great acquisition. The team is doing very well, and it fits extremely well into our portfolio. So I think we're super happy with it. But then with the target set, yes, they were a little bit below and then we actually obviously act according to contract. Okay. Crystal clear. I will get back to queue. Thanks. Thank you. Our next question comes from the line of Rommel Khoria of SEB. Please go ahead. Your line is open. Thank you, operator. Thank you, Jens, for the presentation. Two questions. I'll take both immediately. First off, following up on the conversation API question. I mean, on a like for like basis, is there any sort of gross margin differences in sort of relating to differences in the pricing model here opposed to pure play single messaging APIs, given sort of friendering capabilities, etcetera, being held on top of this? My second question relates to your comments, Oskar, about expanding outside or sort of improving your momentum with customers outside of U. S. Big Tech. Can you take us through what's specifically being done there? And for one thing, could you perhaps verticalize the sales force to sort of enforce sector specific use cases? And yes, just take us through that, that would be great. Thank you. All right. On the first question, there are 2 parts to when you sell the compensation API, alluding to what I said before. So basically, there is a pure messaging markup, I mean, just delivering the message. In that part, today, the margins are a little bit higher than text because the volumes are lower. But we, in principle, believe that long run, they will be similar if it's just delivering the message via an API, if you will. So and that's what we see when we go in and make deals with big customers. The people with big volumes, the margins actually become similar in on an absolute gross profit per message level because then the percentage obviously depends on the carrier charges, But that's what it looks. But there is a large opportunity, which we also see for adding software value on top. And there, the kind of margin profile looks much more like a SaaS business, where you charge either on a seat based model like non direct users or you charge an additional transaction fee, so you charge $0.01 extra per transaction or you charge a monthly fee. That can come in the form of chat layer or it can come in the form, like you correctly stated, improve the rendering capabilities or it can come as improved automated routing in between the channels and optimizing that for optimizing that for the enterprise via data and AI and machine learning, just three examples. All of those will, in total, increase the gross profit per transaction. And it will all of those will look more like a SaaS based model where you have like a total 80% margin or 90 percent margin in that value added services area. Moving on to your second question. You had 2 questions in one. One was what are we doing? And the other one is could you divide up the customer segments? If I start with the second, the customer segments are big tech is 1 and then we have cloud platforms, a second one, a channel. Then we have ASPs, so application service writers. Then we have enterprises. Then we have system integrators and creatives. That's in principle our 4 major segments. We're not targeting SMBs and any major in any major scale. Other competitors do. We are not focusing on that at the moment. All of those categories are significant to us. So all of them are a significant part of our base. It's not like one of they're all significant and all big basically. The way we go to market or what we do in order to increase growth is we are dividing our there are 2 parts to our sales, if you will. It is new sales or signing new logos, and it is managing the base. And we divide that with dedicated people in selling new stuff and then managing the base. The new stuff, we're dividing in field sales and inside sales. And what we're doing there is tightly measuring how much bookings do each of those reps have per head. And we see now a good increase in the bookings per rep on both the field sales and the inside sales area. 2nd step there is turning that booking into GP, where we see an improvement, but we think it takes a little too long time for us to turn it into GP. So there we have another set of actions of making it from order to live or order to gross profit faster. So that's the number 2. Then we're working with the account management base, and you have a bookings per rep. That is what they sell in new in cross sell and up sales. There, we're working with them to increase their cross sales numbers. So that's one area. The other area which we've seen very successful is with the strategic accounts is just increasing the amount of traffic we have on existing products like just the SMS business or the voice business or whatever we have by focusing on the largest accounts. We've done that very successfully with the strategic accounts by putting cross functional teams with them and really supporting them. And we're now doing that on a set of other key accounts on 50 and then going down the base and really focusing on the most important customers in order to grow their base traffic. We're also doing efforts in marketing where we have started to measure an ROI. Basically, if I spend $1 in marketing, how much do I get back? And we see now we're proving during the year getting an increased ROI. So I spend $1 in marketing, how many how much gross profit do I sign based on that? Then we measure that and track that through the entire chain, and we see that number is increasing. And we're obviously optimizing that number, but now we're starting to increase more in marketing because Resideo ROI is good. I could probably go on for 50 more minutes on this, but that's a very high level explanation of what we're doing. Yes, that's crystal clear. Thank you, Jose. Our next question comes from the line of Frode Kleutel of Danske Bank. Please go ahead. Your line is open. Thank you very much. Congrats to a great report. I have two questions, please. First one, Oskar, if you could, on the SAP acquisition, talk a little bit about the 2 smaller segments and your impressions of those right now and if you have changed any views on what you intend to do with them and how you intend to sort of maybe trim them in terms of profitability or grow them? So that's one question really. And the second one is a question I've raised before a couple of years back maybe, and I'm still very interested about your views on the same question. And it goes to COGS and the fact that you are growing in size with all the acquisitions you do, does this change your sort of competitive situation not a competitive, your power situation in negotiating prices you get on SMS volumes or termination fees or something like that with the operator? Does it change anything on a global scale maybe or maybe locally? Just interested. Thank you. All right. First on the SDI business, I assume you refer to the P2P and then the Enterprise Solutions, which is primarily contact center. So on the P2P side, we are continuing to keep that business. It is a highly cash generative business, which is profitable. It is growing slower on average than our main business, but it's cash generative and profitable. It is also making our relations to operators much closer because we have a long we have like software in the networks, and it gives us relations to the operators, which are very, very valuable. So we see that's a strategic benefit to have that type of business because you're getting close to the operators and can do more with them in the future. So that's we're continuing to run and we're running as a separate business with a separate P and L, a little bit like we do with our own operator business. Exactly how we organize relation in between them, need to get back to that, but we have a view on how we do that. On the Connect Center Business or Enterprise Solutions, which is mainly Connect Centers, I talk about a Connect Center, we are engaging with the Connect Center team. And remind you, we closed it yesterday or the day before yesterday. Sure. But we have obviously engaged within what we could do to avoid gun jumping. We'd be very clear on not taking any risk there. But we're engaging with that team now and seeing how and what can we do with this team that aligns it with our core business strategy. And there we have some very interesting strategic discussions of how can we align this closer to our CPaaS business and closer to the messaging business. And there are a set of needs that enterprises have that think we can do, but I would need to get back to exactly what we do when we actually gone through the strategic process. But we do see a great value in that team, but we're having the strategic discussion of being aligned. That's very clear. And on your second question now, Woz, remind me here, Simon. On the COGS, if the scale that you have now sort of brought in by through all these acquisitions, if it changed anything, your sort of negotiation power towards operators on the traffic costs? Yes. So COGS is very important in the text messaging business, of course. A couple of aspects to that. Yes, volumes give you higher in some way higher works you up the volumes gains for the operators, I would say. So yes, with higher volumes, you may get a bigger discount, and that happens. Now last time I checked, I was still much smaller than AT and T and Verizon, right? So in terms of a purchasing power, operators still have the power. So in principle, if they have a volume scale, then yes, we get higher. But it's not like we're then going up to AT and T and calling the shots, right? They are still calling the shots. And that's still the same with the operators in Brazil. I mean, they decide their pricing. But obviously, you're a bigger partner, yes, and you can talk to them, but it's still an operator set pricing, and we got to be very clear on that. COGS is also important, which we need to know the COGS. There's a big gray routing COGS. A lot of companies in this market are using gray routes or using SIM farms to send around operators. So we see an increased usage of that in the market, which is a big concern because they're going around the operators and not playing according to rules. And then that's a bigger concern where we're getting competition from gray routes in various areas, which is a concern of us right now. So that's another trend in market, if I come from that. Okay. Thank you very much. All right, everyone. I think we're quickly running out of time. I think we'll have to ask people to get in touch with us. We're happy to try to answer as many questions as you have and really thanks for the engagement and interest. But we'll have to cut it short here as we've reached the full hour. So I think with that, thank you very much. And I'll leave to Oskar for a final remark before we close the call. Thanks for listening in to us. We truly appreciate your interest. We're happy to delivering a good result, and we're working very hard to continue to do that. But thank you for your interest.