Q6 15/16

Feb 17, 2017

Welcome, everyone. 2016 was a great year of growth and innovation for CLX. We grew the business with 145% compared to the same quarter last year, of which 35% is organic growth. Through the acquisition of mBlocks, we have larger exposure to fast growing high margin regions like North America. This changed our margin profile in the Enterprise division. Gross profit margin is 23%, up from 16.6% compared to same quarter last year. Our business has a low seasonal effect, but worth to mention is that Q4 is typically a strong quarter. Enterprises are at an increasing pace discovering the benefits of cloud communications. We are integrating application to person use cases on a global basis using our programmable communication services. The core communication services that they build into applications are messaging, voice and mobile data. SMS remains the main driver for CLX. It's ubiquitous, works on all the handsets, operating systems and mobile networks. It's an instant access to 5,700,000,000 users and handsets across the globe. It's also perceived by users as a high value content channel, and people like to receive content on the SMS channel that helps them in life. Example of use cases that drives growth for Cloud marketing companies adopting messaging for permission based marketing, finding SMS conversion rates superior to email for high valued use cases secure messaging, enterprises and service providers wish to authenticate users online by sending one time passwords to handsets. And appointment reminders built into software to avoid no shows for restaurants, doctors, dentists, etcetera. Next slide. Growth during 2016 has mainly been driven by the mBlocks acquisition, but also by the organic growth of 35%. Our customers our enterprise customers' use cases are getting more adopted by consumers that result in growth in the installed base. Existing customers are also launching new use cases based on success. We also add new customers to our platform and also adding an increasing number of channel partners. Next slide. The integration of mBlocks has gone beyond our expectations. Thousands of new enterprise customers and 10,000 of developers have been added to our services. Large presence on the North American market that has stipulated many interesting conversation and a strong sales pipeline substantial cost synergies that has been delivered better and faster than the plan and also revenue synergies. To summarize the acquisition of mBLOX, this has given us scale and the financial muscles to continue to be an aggressive player in this market. We also announced the acquisition of Cinch in December. The acquisition is more of a strategic nature. It will give it adds voice to our product portfolio. It adds a voice customer base, volumes and purchase power. But foremost, voice expertise and great team members. Our customers prefer to buy communication services from the same supplier. Including voice solutions in our product portfolio, it's a natural step to increase sales to our combined customer base. CLX can sell voice solutions to its customers and Singe can sell messaging to its installed base. And we have already seen early signs of this being successful and executed on two cross sell opportunities. Also today, we announced the next slide. Also today, we announced the acquisition of Ksura Secure Communications. Ksura gives us a solid enterprise customer base in Germany, Europe's largest economy, and also add technology around mobile security solutions. The turnover of Ksura is €25,500,000 and EBITDA approximately €2,100,000 with around a 16% gross margin. We pay $15,500,000 for this acquisition with a potential €1,500,000 add on based on 2017 actual results. Next slide. We are convinced that communications will continue to move to the cloud and that enterprises will increase investments in application to person use cases to become more efficient and to communicate with their customers. The cloud communication market is large and is growing rapidly. CLX will continue to be an active part in the consolidation of the market going forward. The main reason why enterprises and the communications are moving to the cloud is the scalability. You can have launched a service to a couple of customers, try it out and then launch full scale within a very short period of time. It's easy to integrate and fast time to market. It's flexible. You can launch something, try it out, adapt and move forward. And it's a pay as you go business model with small upfront or no upfront investments at all. We launched our mobile data and IoT service for customers in 2016. One of the first use cases that are live on the platform is a customer that provides solutions to remotely measure tank fluid levels to optimize refill and maintenance. Together with the GSMA, we are launching a white paper of the new standard for last mile cloud connectivity for IoT. I'm excited about all the meetings and conversation that are scheduled for the Mobile World Congress in Barcelona this year around IoT. Another area where we continue to invest is our online sales channel. We have simplified communications to the extent that it can be sold online and delivered in a highly automated manner. We believe that this sales channel will grow rapidly from low levels in 2017. This will be a good complement to our field sales team to cost efficiently address small and medium sized enterprises. We also continue to build out our leading Tier one super network that connects hundreds of mobile operators globally to our communication platform. Our Deep Carrier integration gives us unique insights to provide service to the most demanding enterprise customers. Owning and controlling this network is a core asset to our business and set us apart from competition. Next slide. The Enterprise division continues to grow at a rapid pace. Q6 net sales were SEK619.1 million organic growth, 43%. And we talked earlier about the drivers of the organic growth in the business. Next slide. The operator division continues to develop well and in line with the company's strategic plan. The Q6 net sales was SEK60 million. Next slide. And then we have a couple of key financial metrics, and I will read through them to summarize them. Revenue increased by 145%. Organic growth of 35%. Gross margin was 28.3%. EBITDA amounted to 68,100,000.0. Adjusted EBITDA, 76,000,000 and the adjusted EBITDA margin, 11.4. On the next slide. For the full year, net sales increased by 55%, organic growth was 28%, gross margin was 27.5%, and EBITDA amounted to SEK161.9 million and adjusted EBITDA SEK238 million. And then next slide. Finally, I would like to thank all customers, partners, employees and investors for a fantastic 2016. We entered 2017 as a leading company in the enterprise cloud communications market. Our customers continue to grow and add new use cases to drive more communications through our platform. We have a strong sales pipeline that will continue to fuel organic growth. We will continue to evaluate strategic opportunities in the market to either acquire customer relationships or complement our product portfolio that we can leverage on our existing customers. And thank you for your continued support, and I hand over to the moderator again for questions. Yes. Thank you, sir. And we have our first question from Laurent Euroballet from Handelsbanken. Please go ahead. I think it should be Don and Euroballet. But my first question would be congratulations first to a strong ending of the system 16 and also to the acquisition, interesting acquisition here in Germany. First question would be actually on the Finch. If you could give anything more color on the potential restructuring charges that you will, I guess, take to make this profitable entering 2018, the level and if it will be back end or how it will be loaded during the year, etcetera, if you could just give a ballpark for the Finsch restructuring charges? So I think at this point in time, we will not communicate any more than what is in the report. Okay. And then in the report, write about Exura sorry about France's writing, states about 20,000,000 to €24,000,000 restructuring charges to be reported €17,000,000 to €18,000,000 And then I might ask if this will be more or less even during this two years' time frame or if it will be back end or front end loaded? And if the 20,000,000 to 24,000,000 will be cash flow impacting in full? Yes. So yes, over two years. Okay. And quite evenly? Or will it be back end? Do you think it would be early or come in most part in 'seventeen or I think we will see some upfront and then more evenly throughout the time period. Okay. And also, if I may, on the it is like 16 employees in this company, if I read it correctly. What is it you're going to do with restructuring? Because 20,000,000 to €24,000,000 versus the number I'm pleased is quite high number. So that's mainly around migrating everything to one platform. Okay. So it's cost for that migration and then there is some write downs perhaps or Yes, it's mainly around the integration of the platforms. Okay. I think I'll leave it there. Thank you so much and good luck. So we have another question from Frederic Litel from Danske Bank. Please go ahead, sir. Yes. Good morning. Thank you. I have a question. You started off your presentation, Johan, by talking about the seasonality. Can you sort of split a little bit for us up how the seasonality should be viewed and what we should expect and calibrate for the quarter we've entered in those terms? And also, if you could give us some more color on what mBlocks and the traditional before mBlocks, Enterprise division did in the quarter would be helpful. Yes. So for the seasonal effects, mainly around large holidays, like Christmas and New Year's, there are slightly more promotions and marketing activities that increase. And I think Black Friday is part of that as well in this quarter, that increased traffic through the platform. Also in Q1, it takes a little bit before everyone is back at work and traffic start ramping up. So typically, the first day in January is a little bit slower and then February is a short month. But it's still small seasonal effects in the business, but although Q4 typically is our strongest quarter for those reasons. Okay. Thank you. So we have another question from Lena Osterberg from Carnegie. Please go ahead, madam. Madame Elena Osterberg, your line is open. You can ask your question. Yes, sorry. I was on mute. Great report. Good morning to you. A few questions, if I may. First of all, in the Enterprise division, which saw very strong growth in this quarter, could you say a little bit more about which countries were the largest contributors to the strong organic growth? Yes. So North America has been very strong. We've seen revenue synergies from the mBLOX acquisition. So that is the strongest growth, contributing with the strongest growth. But also some Central European countries have been very strong. Okay. Thank you. And also Ksura, could you say something? You mentioned the restructuring or integration costs, but you say nothing about synergies. I assume that as in the case with mBlocks, once traffic is moved to one platform, you should be able to lift margins here as well? Yes, that's correct. And when do you think you can get some synergies out of the business? I think we will have some And then once we migrate traffic within eighteen to twenty four months to our platform, a larger part. Okay. Should we assume similar size of synergies as we saw in relation to sales as we saw with enBlocks? Or is there a difference between the two companies that would make them bigger or smaller? We don't comment on that in this report. Okay. And mBlocks then, how much do you have left of the integration integration work on the platform? When do you think you'll have sort of full integration and synergy extraction? Yes. So we our estimations right now is that we can complete that work in Q1 twenty eighteen, and that will mainly synergies and platform costs. And that is in the range of SEK 15,000,000 to 25,000,000. Okay. And then also on FX, if you could say a little bit, you had some tailwind from FX in the quarter. The organic growth rate that you say is 35% in the quarter. Is that net of FX? Or is it just acquisition adjusted? Can you please repeat the question again? You report 35 organic growth for the quarter year over year. Is that just adjusted for M and A or is it also adjusted for FX? No, no adjusted FX. So it's not adjusted for FX. Okay. And how much roughly did FX contribute in the quarter positively? No comment on that right now. Okay. Can you say something about the Internet of Things platform and the success with new customers there? Are you still in sort of technical trial phase? When do you expect to be more commercial? Is that now with Barcelona and the launch there? Or how should we view the revenue projection of that business? So IoT, so that has been in production now since late twenty sixteen. We are bringing customers and new connectivity on board and ramping our efforts in that area. Of course, Barcelona will stipulate a lot of conversations in this area. We are now also ramping up our marketing efforts in this area. So we are launching a white paper together with the GSMA. We also have some marketing activities planned for Barcelona. So I would say for Barcelona this year is really the starting point for when we actively go out to the market with this offering. Okay. And how I would still repeat what we have said earlier that we're starting from low levels, and it will take time before this ramps up to something that is becomes visible in our numbers. Okay. And could you maybe say something about the projection of signing up connectivity, new operator partners? So forth, we have not included that as a metric, but we will take that into consideration. Okay. Thank you very much. Thank you. We have another question from Thomas from Danske Bank. Please go ahead, sir. Thank you. Thomas Heith here. Just a question. You mentioned channel partners contributing to top line growth. Sort of how large is this as a proportion of the total? And should we assume a similar financial profile for new channel partners as the earlier agreement with Vodafone? Thank you. Yes. So I think this is it's a mix of on channel partners. So, it's not only mobile operators, but it's partners that we work very close with to basically get a broader reach to, for example, retail or enterprise customers. And of course, the Vodafone partnership has helped us to win more deals in the market. And but it's not something that we isolate as a separate post in our reporting, but we have really good progress in that area. But is it fair to say that the revenues that you're adding through channel partners has the same lower margin profile? Just curious that what I'm trying to get that is whether there is a general pressure on gross margins or whether there is more a mix shift where you're adding some revenue streams that have lower margin? I would say it's still much more relevant to look at what region in the world we are growing in than what specific sales channels is coming in through. All right. Thank you. That's helpful. So we have another question from Daniel Juburg from Handelsbanken. Please go ahead. Thank you so much. I have a follow-up on the Sora, LRx Sora acquisition there. I just looked at their homepage and found that they have quite a lot of different offering solutions, including WebRTC and VideoShot and so on. I was wondering if you will fully migrate their customer base to your technology or if we can use some of their existing technologies that is cloud based, so you can use some of their platform as well adding technology? So we acquired a part of Ksura, and Ksura is a bigger entity that has been merged with Mavenir and another business as well. And this is a division that didn't fit in their strategy going forward, but fit very well with ours. Okay. That's clear. So much. So we have another question from Fredrik Lusel from Danske Banker. Please go ahead. Thank you. Johan, just a general question. After you have now completed the mBlocks acquisition from this last summer, have you felt any sort of positive effects in your relationships with operators globally in your sort of maybe any early signs if you have a better negotiation power due to the fact that you have now turned into maybe the largest entity that they need to cooperate with? So any positive effects from that? Thanks. Yes, yes. I would say with mobile operators to some extent, but definitely in the North American market where we are now seen as a large player and adding also the I mean, the only player with a truly global presence. And that helped a lot in discussions with large enterprise customers, in particular, in The U. S. Okay. And follow-up on that, I mean, there are a lot of ATT vendors that do not really have these relationships themselves, but that are sort of using your network and paying you for the use of it. Have you sort of any stronger position in those discussions as well, so you can sort of get a bit better pricing out of that? Or how does that work? I would say, I mean, typically, we always work with our cost base. But I wouldn't have a specific comment on that segment of the market in particular. Okay. Thank you. We have another question from Daniel Duberg from Handelsbanken. Please go ahead. Have two more follow ups, if I may. And the first one is, if you could say now on the IoT, if you now feel that you have a global reach, I. E, that you have so many operators on board that you can go out and state that you're global? And then if you can also perhaps say something if how many, if it's like north of 50 or number of operators you're working with? And also, if I may, some on the operator outlook and also on the collaboration one year back with SAP and also Ericsson, if there's any progress? Yes. So we're not yet global on IoT. We predominantly now focus our efforts in Europe and North America, where we have a strong sales force. And I would say, even though we are in production mode, we are still and this is sort of an immature market yet, we are still learning a lot from the customer use cases that we get on board on the platform. Platform. We typically don't comment or we will not comment on the number of connections we have with mobile operators in this area. We have many, many connected already, and we have many interesting discussions in this area. I don't have any I think the Ericsson and the SAP partnerships are developing well, and we're seeing a continuous flow of deals coming through those partnerships. But it's not something that I comment in more detail. Okay. Thank you so much. So for the moment, we have no further questions, sir. All right. It seems like there are no more questions. And I want to take the opportunity to open sir. We have a question. Sorry. We have a question from Frederic Litel from Danske Bank. Please go ahead. Sorry for the late addition. I just wanted to put one question on the operator division. You had a very nice sequential growth in the quarter of 32% on top line and you also did well on margins. Can you sort of elaborate a little bit on where you are in your deliveries to a few big sort of projects and how we should expect that to continue in coming quarters? Thank you. So, had some elements of a capacity expansion project in this quarter. And we continue to see that at least through the first half of this year as well. And that's sort of the outlook that I can give right now. Okay. Thank you. So we have a question, I think. Yes, we have a question from Thomas Yates from Danske Bank. Please go ahead. Thank you. Just also on operators division. These platform as a service offers, you built a new site and so forth. Any progress in that regard and sort of what the outlook could be from new business on a more recurring basis where you host and run the full product? Thank you. Yes. So that's been it has strong synergies with our IoT offering, and we build a complete new network operations in Poland to support this offering. We get a, I'd say, continuous stream of and I would say more and more interest in the market for this offering. We have not selected yet to report on it as a separate item. But it's developing well, but still from low levels. That's very helpful. Thank you. So now we have no further questions, sir. Okay. So I want to take the opportunity to thank you for listening in to our year end report. And yes, thanks for today.