Earnings call transcript: Sinch AB Q2 2025 sees stock surge despite earnings miss

Sinch AB reported its second-quarter 2025 earnings, revealing an earnings per share (EPS) of 0.6395 USD, falling short of the forecasted 0.6845 USD, marking a -6.57% surprise. Revenue also missed expectations, coming in at 6.62 billion USD compared to the anticipated 6.74 billion USD. Despite these misses, Sinch AB’s stock surged by 22.36% to 35.41 USD, reflecting investor confidence in the company’s strategic direction and growth potential. According to InvestingPro analysis, the stock is currently trading near its 52-week high, with the company showing a strong 35.8% price return over the past six months.

Key Takeaways

• Sinch AB’s stock price rose by 22.36% post-earnings, despite missing EPS and revenue forecasts.
• The company reported its fourth consecutive quarter of organic revenue growth.
• Strategic expansions in AI and partnerships with major tech firms were highlighted.
• Operational expenditure increased by 5%, primarily due to personnel costs.

Company Performance

Sinch AB demonstrated strong organic growth with net sales increasing by 2% and gross profit by 6%. The company has maintained a positive trajectory with consistent revenue growth across all regions, notably in the Americas, EMEA, and APAC. The expansion of its AI capabilities and strategic partnerships with Salesforce and Microsoft Dynamics have positioned it well within the competitive landscape.

Financial Highlights

• Revenue: 6.62 billion USD, a decrease from the forecasted 6.74 billion USD.
• Earnings per share: 0.6395 USD, below the expected 0.6845 USD.
• Gross margin expanded to 35%, with an adjusted EBITDA increase of 8% organically.
• Free cash flow reached 523 million USD with a cash conversion rate of 60%.

Earnings vs. Forecast

Sinch AB’s EPS and revenue both missed forecasts, with EPS showing a -6.57% surprise and revenue falling short by -1.78%. This miss contrasts with the company’s recent trend of surpassing expectations in previous quarters.

Market Reaction

Despite the earnings miss, Sinch AB’s stock price surged by 22.36%, closing significantly higher than its previous close of 28.94 USD. This increase reflects strong investor sentiment, likely driven by the company’s strategic initiatives and growth in AI and connectivity solutions. InvestingPro’s Financial Health Score of 2.63 (rated as "GOOD") suggests the company maintains solid fundamentals despite current profitability challenges. The stock has demonstrated strong momentum, with a 39.6% return year-to-date.

Outlook & Guidance

Sinch AB maintains a cautious outlook due to macroeconomic uncertainties but targets 7-9% organic growth in net sales and gross profit by 2027. The company also aims for adjusted EBITDA margins of 12-14% and has activated a share buyback program of up to 10% of outstanding stock. InvestingPro analysis reveals the company’s strong potential, with analysts forecasting a return to profitability this year. Get access to detailed valuation models, comprehensive financial metrics, and expert analysis with an InvestingPro subscription.

Executive Commentary

CEO Lorinda Pang emphasized the transformative role of AI in business communications, stating, "AI is fundamentally transforming how businesses communicate." She also highlighted the company’s comprehensive approach: "We are not just adding AI features. We’re building a comprehensive, intelligent communications platform."

Risks and Challenges

• Macroeconomic uncertainty poses a risk to future growth projections.
• Rising operational expenditures could impact profitability.
• The competitive landscape in AI and communications technology remains challenging.

Q&A

During the earnings call, analysts focused on the impact of AI innovations and the company’s strategic partnerships. Questions were raised about the sustainability of growth in the face of economic challenges and Sinch AB’s approach to maintaining profitability while investing in new technologies.

Full transcript - Sinch AB (SINCH) Q2 2025:

Conference Operator: And the conference over to CEO, Lorinda Pang, and CFO, Jonas Dahlberg. Please go ahead.

Lorinda Pang, CEO, Cinch: Thank you very much, operator, and a welcome to everyone for this q two earnings call. My name is Lauren DePeng, CEO of Cinch, and I’m calling in today from The US while our CFO, Jonas Dahlberg, is calling in from Stockholm today. Let’s turn to slide two to look at the highlights from the quarter. I’m pleased to share that our second quarter results for 2025 demonstrate our continued resilience and steady progress even as we continue to navigate an uncertain macroeconomic environment. As we begin, I would call out the large FX swings we experienced in the quarter for net sales, gross profit, and costs due mainly to the weekend US dollar.

As we always do, we will point you to organic changes, which normalize these FX swings and is a consistent representation of the underlying business. Reported net sales was 6,600,000,000.0 krona corresponding to a 2% organic growth rate when adjusting for the effect of foreign exchange movements, which which was nearly 600,000,000 krona in the quarter. Organic net sales growth is an important guidepost to the underlying performance of the business, and 2% is lower than our ambition. While mix shift will help drive improved profitability, we need to do both, higher top line growth in net sales and shifting our mix. Our gross profit showed a robust 6% organic growth reaching 2,300,000,000.0 krona.

Positive organic growth was delivered by all regions and across all product categories, reflecting solid execution and our focus on higher value offerings. This is reflected in our gross margin expansion to 35% this quarter. We also demonstrated solid performance in adjusted EBITDA. Although flat in nominal terms and on a reported basis, adjusted EBITDA increased 8% organically to 869,000,000 krona. EBITDA grew organically by 4% to 760,000,000 krona.

The efficiency measures we implemented earlier this year are contributing positively, strengthening our financial resilience and creating headroom for strategic investments in key growth areas. Moving on to cash and balance sheet. Free cash flow was 523,000,000 krona in q two. Cash conversion was strong at 60% in the quarter, while our rolling twelve month cash conversion was just below our target range due to the working capital item we mentioned last quarter. We paid down 480,000,000 krona in debt, and our leverage ratio is now 1.3 times net debt to adjusted EBITDA.

And last night, we announced the board of directors has activated the share buyback program after the AGM mandate was provided in late May. These results reflect meaningful progress on our transformation agenda across go to market, product integration, and operational excellence pillars. Also, we are delivering improved connections for our customers through platform innovation, artificial intelligence, and strategic partnerships. For instance, we recently completed our 10 DLC or 10 digit long code connection in The US, making Cinch the only provider that has full direct two way connectivity to all tier one US carriers for 10 DLC SMS. Why is this important?

Messaging continues to be our core business. These exclusive two way connections reduce the need for customers having to rely on other CPaaS providers to act as another intermediary to connect with our carrier partners, and it gives our customers lower latency, greater reliability, and enhanced compliance through direct control of registration, delivery, and carrier policies when partnering with Cinch. Our position in artificial intelligence continues to strengthen as highlighted with the last four product innovation points noted here. Our advancements in holistic AI capabilities remain a core driver of our strategic progress as we’ll explore next. If you move to the next slide, please.

As you’ve heard me say before, AI is not new for Cinch. For years, it has been an integral part of how we drive innovation, optimize our operations, and deliver enhanced value to our customers. Today, I want to show you how we are building on that foundation and accelerating our efforts, presenting examples of our holistic approach to AI capabilities across our platform. We believe AI is fundamentally transforming how businesses communicate, and Cinch is pioneering this evolution through a comprehensive strategy that integrates AI across our entire portfolio. Our MCP implementation across core messaging, email, voice, and verification products is a foundational step.

It enables AI agents to autonomously discover and execute communications across Cincha’s global platform. This is significant as it codifies decades of our communications expertise and best practice, drawing from over 900,000,000,000 annual interactions and turning them into AI understandable protocols. We’re live with Claude and are actively expanding the capability to other leading AI frameworks. Next, our in product AI innovation is delivering tangible value. We’ve introduced conversational solution packages, which are preconfigured AI enhanced bundles for use cases such as payment reminders, shopping assistance, and lead capture that help our customers achieve proven ROI quickly.

Mailgun Inspect is revolutionizing email quality assurance with AI powered optimization and compliance features. And our ContactPro AI is enhancing customer interactions with new cross channel summarization and auto translation capabilities in 24 languages and seamless voice to video escalation, ensuring seamless multilingual and multimodal support. Our AI ecosystem expansion is crucial. We are embedding Cinch’s powerful communication capabilities directly into the platforms our customers use every day. Through strategic integrations like Salesforce AgentForce, our SMS powers autonomous agents for predictive engagement and intelligent lead qualification.

Similarly, our integration with Microsoft Dynamics customer insights enables AI orchestrated customer journeys at scale. This strategy ensures our AI solutions meet customers where they already work, accelerating adoption, and expanding our reach. Finally, the market is validating AI’s importance and our leadership. In our own flagship research driven state of the customer communications report, 97% of surveyed business state that they are adopting AI for future communications and underscores the urgency and opportunity in this space. Our recognition as an OMDIA leader with a 95% in innovation score for AI enabled conversational messaging is a strong testament to our cutting edge solutions and strategic vision.

In summary, we’re not just adding AI features. We’re building a comprehensive, intelligent communications platform that delivers real business outcomes backed by proven infrastructure and strategic partnerships. These efforts are underpinning our execution against our broader cinch strategy for value creation, which we will revisit next. Next slide, please. Cinch is profitable and cash generative.

We are focused on profitable and sustainable growth organically and through m and a. As such, our value creation agenda is underpinned by three essential components, growth at reacceleration, EBITDA margin expansion, and active capital allocation resulting from continued strong cash generation. As a reminder, we are targeting seven to 9% organic growth in both net sales and gross profit with adjusted EBITDA margins of 12 to 14% by the end of twenty twenty seven. These growth rates reflect an ambition to grow faster than the market in each product category. Additionally, our financial leverage policy states net debt over time shall be two and a half times adjusted EBITDA measured on an LTM basis.

A few words on progress in each of our four growth drivers of, before I hand over to the word to, Jonas. Starting with enterprise expansion, the customer base remained stable since q one. On an LTM basis, we’re up 5%. As a reminder, this is the number of customers spending more than 2,000,000 krona in gross profit annually. We’ve clearly seen expansion in gross profit this quarter, but our new large customer wins have not ramped to this threshold yet, but we are expected for them to do so in the coming quarters.

Next, self serve capabilities. There are tens of thousands of customers in this category generating high gross margins and representing more than 15% of gross profit and growing at double digit rates as evidenced by our strong gross profit growth in q two. We are continuing to build momentum in RCS. In the quarter, we delivered nearly 800,000,000 RCS for business messages, which was a 27% increase over q one. We’re also increasing the number of customers who are actively sending over 1,000 RCS messages per month.

These along with other KPIs we are tracking are positive signs of growing adoption around the world. Email had another stellar quarter where we delivered double digit organic growth in net sales and profitability. I’m also really pleased with the acceleration we’re driving through smarter email functionality with AI built into our offerings. The Mailgun Inspect product I mentioned earlier being just one example. Finally, relating to partners and ecosystems, deepening the relationship with existing partners like Salesforce where we are natively integrating SMS into AgentForce, and Adobe, where we’re supporting RCS for business messaging in their journey optimizer suite, continues to be an important part of our growth strategy.

Looking ahead, our continued expansion is focused on innovative solutions. We are excited about our partnership with Authvia, which is powering payment enabled messaging across North America. Cinch will become Authvia’s default messaging provider. And with RCS messaging as a key focus, the collaboration positions Cinch and Authvia at the forefront of mobile innovation, making interactions more seamless and efficient for consumers. These integrations and collaborations are vital.

As I said, they meet our customers where they already work, accelerate adoption, and they expand our addressable market with high efficiency and low incremental cost, reinforcing our commitment to profitable and sustainable growth. With those remarks, I’d like to hand the word over to Jonas to take us through some more detail on the financials.

Jonas Dahlberg, CFO, Cinch: Thank you, Lorenda. So, in a nutshell, this is a solid quarter with positive organic development, but, obscured by currency effects. And I guess, currency effects is the story of the quarter for many companies, so you’ve heard it before. But there are different types of currency effects that may hit companies differently. So before diving into the details of the financials, I’d like to talk about the currency effects impacting Singe and what’s not impacting Singe.

So the material currency impact for Singe is translational, meaning it’s all about, a reporting currency. If we would report in US dollars, it would look different, but the fact is we would still make as much money. Speaking of the US dollar, it’s around 50% of, the revenue and almost the same in terms of cost. So we are currency matched, and this also goes for other currencies like the euro, which is the second most important currency. While, the krona is a minor currency for us, and that’s why we really have significant translational effects, but profitability metrics remain intact because, really it’s about translation.

With that having said, let’s move into revenues. Revenue in the quarter came in at SEK6.6 billion, which is a 2% organic growth, and it’s the fourth consecutive quarter of organic revenue growth. All regions contributed positively to the organic growth, with Americas growing 2%, EMEA 3% and APAC 2%. On product level, application and networks demonstrated organic growth, which is important as they are the most profitable product areas. In particular, we continue to have strong growth of our profitable email products, and hence, even though organic net sales growth does not impress, we continue to have a positive mix shift contributing to the increased profitability.

And more of that later. Normally though, net sales is down 6% in the quarter due to the mentioned translational FX impact. Moving over to gross profit. Gross profit in the quarter amounted to SEK2.3 billion, and that’s a 6% organic increase, with about an equal contribution from net sales, positive mix shift and increased profitability to propel the growth to 6%. And this is the seventh consecutive quarter of organic gross profit growth, so we’re very pleased with that.

Now again, reported numbers are down and for gross profit, it’s 3% due to translational currency impact. Looking closer at product and regional level, we can see that we have a very broad based organic gross profit development. Basically, mid single digit growth or above for most both regions as well as product categories, with APAC being the exception. And, there’s an important story behind that, and we’ll come into that on the next page. So let’s look closer at the regional development.

Americas, which represents 63% of our revenue, came in with a 2% organic net sales growth and a gross margin increase of two percentage points. The gross margin is supported by messaging and email, and this translates into a positive organic GP development in APIs and applications, looking at the category level the product category level. Moreover, we have positive development in networks due to price adjustments supporting the continued turnaround of networks and providing a positive development of the GP margin. Moving over to EMEA, we had a 3% organic revenue growth. Also here, we had a positive gross margin development.

And we have solid growth in the core messaging business. At the same time, we have reduced the share of fixed fee contract, and this reduction has both contributed to the improved margins and improved cash flow. Now what’s very positive here also is the strong growth of RCS, which is the next generation of SMS, if you will, providing much more, interactive features for, and richer experience for users. And as you know, we are very bullish on RCS as the next s curve of messaging growth, and we see RCS growing more than two times from last year. And overall for the group, we had actually a 27% quarter on quarter growth of s RCS traffic.

So good momentum, but it’s important to say that it still will take some time before RCS will provide a material contribution to our P and L. But so far, so good. Lastly, APAC. Here, we also have an organic net sales growth of 2% and organic gross profit growth of three percent, which also translates into a margin increase. APAC is still on a solid trajectory even if the organic growth numbers look muted this quarter, and it’s mainly because APAC is up against very tough comparables in this specific quarter.

Now what’s encouraging in APAC is actually that, we see stability in India, and hence, we are confident that also APAC is on a solid trajectory for the future. Looking closer at the margin development, both gross margin and EBITDA margins are up in the quarter. We see gross margin up 1.2 percentage points compared to the same quarter last year, and about half of this is from improved mix and the other half from increased profitability on product level. Looking at adjusted EBITA margin, we’re up 0.8 percentage point to 13.1% and also non adjusted EBITA is up 0.5 percentage points to 11.5%. Looking a little bit closer at cost, so operational expenditure is up 5% on an adjusted basis.

This, in combination with the gross profit growth of 6%, then translates into an adjusted EBITDA growth of 8%. And we continue to be disciplined on cost at the same time as we continue to extract synergies from being one cinch. If you look at the organic increase of OpEx of 5%, it’s largely about personnel cost. And we continue to remain vigilant if there would be a weaker market development to make sure that we protect our profitability. Now as we report, adjusted numbers, I’d like to, put some attention to the adjustments.

And the message here is, the main adjustment items in the quarter is integration, cost, and the second is FX. And the FX effect here is losses on operational assets, predominantly working capital. Important to note here in the quarter is that restructuring costs are marginal. And if we compare to last year, we conclude that we have an increase in the quality of earnings despite hydro adjustments. And the foundation for this claim is basically that the integration and restructuring cost is 42,000,000 lower than last year.

And and really, what’s up in this quarter compared to last year is, the FX effect on operational assets. Last year, we had a positive gain from that, and this year, it’s a it’s a negative gain. But, if we believe that FX will normalize over time, this is basically a wash over time. So enough on adjustments. Let’s look at cash flow.

Cash conversion in the quarter was strong with a cash conversion of 60% measured as free cash flow to adjusted EBITDA. On an LTM basis, also solid, touched the lower end of our guidance range. We guide for 40% to 50% cash conversion over time, and we were at 39%. We continue to have some variability in our cash flow, and this is mainly driven by fluctuations in working capital. And this is also the driver behind the high cash conversion in q two, swinging back a bit from q one.

Still, we have slightly higher working capital than normal, and we can actually look at the next page on that. What you see here is net working capital, the solid line here, within normal variations. In fact, we have a negative working capital, and that’s what you should expect from us. But on a sequential basis, you note here that we’re slightly higher than what we’ve been the last few quarters, and this is because of this temporary supplier agreement, that we we talked about in the first quarter that we expect to normalize, within the year. The the thing I just want everyone to be reminded about when it comes to cash flow is we took a provision in q four, of 700,000,000 SEK for, tax charges, and we expect some of that to be paid at the end of this year and then the full 700 at some point to be paid next year.

So that will have an impact on cash flow. But rounding off, very positive development of the balance sheet. We continue to strengthen our financial position. We improved our leverage ratio with another notch during the quarter and landed net debt to EBITDA at 1.3. And this is an improvement driven by a combination of the cash flow, but also translation of debt in foreign currency as we have some euro and USD debt, and this is now depreciated against SEAX.

So this is the positive effect of currency in the quarter. And given the solid financial position and solid director of cash flow, the Board of Directors has resolved to activate the share buyback mandate given by the AGM in May and that we press released yesterday. And with that, I’m handing over to Lorinda to summarize the quarter.

Lorinda Pang, CEO, Cinch: Thank you very much, Jonas. Before we take questions, let me summarize the quarter. Cinch delivered continued growth and stable margins in the second quarter. This is the fourth consecutive quarter of year over year organic net sales, and we delivered organic gross profit growth in all regions and product categories. We improved gross margin and adjusted EBITDA margins with adjusted EBITDA increasing eight percent organically year over year.

These figures highlight our focused execution and the positive impact of our efficiency measures. Our financial position continues to strengthen, and we remain committed to disciplined capital allocation and have now activated our share buyback program. While we are pleased with our progress, we maintain a prudent outlook for the remainder of the year given the prevailing market conditions. We are making meaningful progress on our transformation agenda, solidifying our leadership position and accelerating our momentum in AI. These AI efforts are not isolated initiatives.

They are embedded in our core strategic priorities and directly support our value creation agenda. We remain focused on executing our plans and winning in the areas we have a right to win. Enterprise expansion, self serve, RCS and email, and partners and ecosystems. And as you’ve heard throughout today’s presentation, we’re making consistent progress against each of these strategic priorities, translating our efforts into tangible market advantages and customer successes. Our q two execution was another important building block towards our midterm guidance of 7% to 9% organic growth in net sales and gross profit by the end of twenty twenty seven, a journey we continue to approach with steadfast focus and realistic expectations.

Thank you very much for joining us today. So let’s now open the call for questions, please.

Conference Operator: Next question comes from Erik Lindholm, Rojessel from SEB. Please go ahead.

Erik Lindholm, Analyst, SEB: Yes, good morning and good afternoon. Two questions from me, if I may. I might come back to the third one later. But I want to dig a bit deeper on the discrepancy here between organic net net sales growth and gross profit growth in the quarter. It looks like sort of the main difference is in API Platform, in APAC and Americas.

I mean is there anything to call out here on the operator side of the equation that is driving this gross margin improvement? Or is it maybe a mix effect? And is it fair to say that organic gross profit growth is likely to be a bit lower, if organic net sales growth, doesn’t improve? I’ll start with that and then come back. Thanks.

Lorinda Pang, CEO, Cinch: Thanks, Eric. So I think, first of all, the the difference in GP and organic growth, is really the ex the the effect of product mix as well as customer mix. So both email, that we called out had a fantastic, quarter. Our voice interconnect business, also had higher gross margins and, has been growing faster in the quarter. So both of those and email, of course, has higher gross margins.

So both of those had a positive impact on gross profit. We also had a change in business mix in API, so we had less lower margin SMS business, which again has a positive impact on gross profit. In terms of moving forward, you you heard my my comments on the lower net sales piece being something that we have to we have to get better at. Right? At at just 2% organic growth, it’s not where we want to be ultimately, and that is what ultimately will drive sustainable gross profit growth go forward.

Erik Lindholm, Analyst, SEB: All right. That’s fair enough. And then, I wanted to follow-up on the OpEx growth as well. So organic OpEx adjusted OpEx growth accelerated quite sharply compared to Q1, and the average number of employees, I think, was up 5% year over year. I mean is there anything to call out here?

Or are you I mean is this just an effect of you of the growth investments you have taken over the recent months? Or yes, should we continue to see similar organic OpEx growth add? Thank you.

Lorinda Pang, CEO, Cinch: Sure. I’ll start and then ask Jonas to help out here as well. I think as far as OpEx is concerned, you know, we we did signal last year that we would continue to make investments in strategic areas that we needed to, and we we effectively self funded that for the most part. We do have, you know, inflation and and merit the merit increases, you know, to make sure that we’re keeping our employees up against market in a competitive way. So you should see that that, basically, the EBITDA margins go forward will be similar to that of, the first half.

But we do expect that gross profit will grow as well. So, Jonas, do you have anything more to add to that?

Jonas Dahlberg, CFO, Cinch: Not really. I think that’s a fair description.

Lorinda Pang, CEO, Cinch: Thank you.

Erik Lindholm, Analyst, SEB: All right. Great. And just a final question, if I may, on the AI piece. It’s really interesting topic, of course. You highlighted this as a sort of structural catalyst for for the sector.

I mean, is it is it fair to say that this is already a factor that is showing up in your growth today? Or is it more of an accelerator in the years to come? Thanks.

Lorinda Pang, CEO, Cinch: Yeah. Eric, to your point, I think, yes, it is structural. It, you know, it will fundamentally change the way that, both humans as well as agents, communicate. And, ultimately, you know, we’re of the belief that all of these agents that are starting to, you know, grow across all business and industry, they have a need to get to an end consumer at some point. They need to communicate with something on the other side across all channels, whether that be messaging, voice, email, video, etcetera.

And, you know, Cinch is well poised, to play very well in that. Right? We have the underlying infrastructure, and we have all of those channels of communications. But it is something that, again, we’re embedding within our product portfolio. We’re seeing a little bit of that at this point, but we do think that there’s opportunity, in the future.

Erik Lindholm, Analyst, SEB: Good. Thank you.

Conference Operator: Next question comes from Predrag Savinovic from Carnegie. Please go ahead.

Predrag Savinovic, Analyst, Carnegie: Hi, Lorinda. Hi, Jonas. Thanks for taking my questions. I also want to ask a little bit on growth to try to understand the trend better. It’s quite a good improvement from last quarter.

It looks like it’s broad based. I mean, I note the comments you have on net sales, but then again, you call out positive mix shifts, e mail, specifically RCS as well, which are on a higher margin level. So I’m thinking how consistent can this mix be for the remaining two quarters of the year? And if that is so, can the gross profit growth potentially continue on a similar level towards the end of the year even if the net sales would lag? Then I understand over time, these should converge, but for the near term or the next twelve months even.

Lorinda Pang, CEO, Cinch: Hi, Pradejak. Thanks for the question. I think maybe a way to think about it is, first of all, you you mentioned RCS as being a driver for growth. It’s actually not. We we are seeing good progress in RCS.

We’re seeing great volume increases in RCS, but it’s actually not impacting the financials just yet. And the reason being is it’s at this point, it’s it’s effectively substituting SMS. So we’re not seeing an uplift there yet, but we do have an expectation and ambition for that in the future and over time. But to your point, you called out email. You know, we did have, you know, different parts of the business that did grow.

We saw a good strong partnership growth. We saw self serve growth. But if you heard, I I mentioned that enterprise growth in terms of the number of enterprise customers is stable from q one. We’ve seen good leading indicators there where we have won new business, some some really nice logos to be quite honest, and but it does take time for that revenue to actually ramp. The way that I would characterize if you’re thinking about second half, I think it would be safe to say that if you look at first half in the aggregate, that’s probably a, you know, a a good way to think about second half.

I would not extrapolate gross profit growth in q two as as the new baseline. I think, you know, it it comes in in fits and starts. It’s a good steady movement up, but, you know, I would rather us think about the average of the first half.

Predrag Savinovic, Analyst, Carnegie: Okay. No. That’s very that’s very clear. And a follow-up to that, you have spoken a bit about macro and some cautiousness in your CEO remarks and so on. But are you seeing anything specifically that suggests challenges ahead in the volumes right now, or is this more you anticipating this this could happen?

I remember something could happen in in h two that could affect us.

Lorinda Pang, CEO, Cinch: Yeah. We’re not, we’re not necessarily seeing too much at this point. There’s you know, with any, you know, we’ve seen we’ve seen geopolitical changes, wars over the years. We’ve seen pandemics over the years. And what we know to be true is is that it does have an impact traditionally on marketing use cases.

Enterprises tend to be cautious in their spending, so they may slow down or they will look for cost efficiencies and and look for concessions in terms of what they already purchase. So we haven’t seen a lot of that just yet. We are being cautious, and we are being pragmatic because, as you know, this is a very it’s it’s a volatile environment, and it’s very difficult to predict. So our message is is is that, you know, we’re watching it carefully. We will continue to be prudent with regards to our expenses so that we can protect our profitability.

Predrag Savinovic, Analyst, Carnegie: Okay. Brilliant. And then just finally to Jonas, you have been guiding previously around the 40% to 50% conversion you have to free cash flow from EBITDA. You said it today also, but if you could elaborate maybe on what kind of levers you could pull in the future. Can this level improve?

And if so, how and why?

Jonas Dahlberg, CFO, Cinch: As the business looks today with current level of adjustment items, current tax rate, this is roughly where where we will land, 40 to 50%. It could be go, you know, theoretically, if WallStars aligned north of of 50 to maybe 55% or so with the definition we have of of cash conversion. But, you know, what what I feel confident about is is the 40 to 50% level over time. There will continue to be swings in working capital. We will try to smoothen that and and to be better at at working capital management.

But over time, it’s it’s the 40 to 50%. Again, what what I want to remind you about is the SEK 700,000,000 tax provision we’ve taken, and that’s the cash that has to leave the company. On the other hand, we have a positive going in the other direction, not with the same amount, but still a meaningful contribution from this supplier agreement we talked about in Q1. It’s around half of that amount. So SEK 79,000,000 out, SEK $350,000,000 in somewhere over the next few quarters.

Conference Operator: Next question comes from Ramil Korya from Danske. Just

Ramil Korya, Analyst, Danske: trying to reconcile things a little bit. If the margin the operating margin is supposed to be flat in H2 versus H1 and one is to extrapolate H1 organic GP growth, that would imply a fairly not going say material, but an acceleration in the OpEx organic growth. So could you talk a little bit about could you break that down a little bit? Why is organic OpEx growth going to accelerate into H2 versus Q2?

Jonas Dahlberg, CFO, Cinch: I don’t think yeah. Go ahead.

Lorinda Pang, CEO, Cinch: Sorry. I was gonna say, hey, Ramil. Thanks for the question. First of all, we we take merit increases, you know, in the in the third quarter. So that would have an impact on OpEx.

Anything else, Jonas?

Jonas Dahlberg, CFO, Cinch: No. I was just about to say that on a sequential basis, you will see an increase due to merit, basically inflationary effect on personnel costs. But you shouldn’t anticipate an acceleration of OpEx. You shouldn’t do that. We should be able to fund our margins our adjusted EBITA margins, we believe.

Ramil Korya, Analyst, Danske: Okay. Okay. Makes sense. And then on the topic of AI, just curious to hear a little bit about the monetization opportunities you have in the space, so to say. I can see why the conversational solution would drive sort of volumes and that’s one way of monetizing.

But I was also thinking about the MCP. Is that gonna be a part of, like, an embedded part of the infrastructure that you provide moving forward? So more of a sort of a differentiator, or is that something you can monetize, isolated perhaps towards app clients?

Lorinda Pang, CEO, Cinch: I think the way we should all probably think about MCP is is that it’s it’s it’s the standard. Right? It’s the USB for AI effectively. And so I don’t necessarily think it’s a differentiator. I do think it’s a requirement in order to play in this space.

And your your thoughts about how to monetize the you know, because we have the infrastructure. I think that’s right. Volumes will increase because the amount of communication flow will increase, and and a lot will be coming through machines as well as in a hybrid way, right, across between both humans and machines. But, ultimately, as I mentioned earlier, they need to they need to transmit and get to an end user in some way through some channel of communication. And again, you know, we’re we’re well positioned given the the the large infrastructure, but also the different channels that we support.

Ramil Korya, Analyst, Danske: Can I ask a follow-up to that, Torbinda? I mean, clearly you having a lot of interactions to build your dataset on vis a vis smaller players and MCP becoming somewhat of a hygiene factor in the future. How do you think the competitive environment will change in the near to midterm considering all the technological improvements we are seeing with incumbent players here?

Lorinda Pang, CEO, Cinch: I think again, I think it it’s AI in general. Again, this is not about MCP specifically, but AI in general is going to change and and increase the amount of communications that’s happening. You know, agents are going to be asked to achieve objectives. They’re not going to be dictated and told the way in which they need to facilitate actions or workflows. So agents ultimately will choose, and, what is going to be important for us is to be able to make sure that our capabilities, our services, and and our infrastructure is easily discoverable, and can easily easily be consumed, by these AI agents.

But that’s also true for, developers, because, you know, everybody is going to have to, get more efficient and be more precise in terms of of the actions that they’re taking. So I think for for Cinch, it really means that, you know, the infrastructure that we have and the core of our business is so fundamental to this new world that AI presents. And we have to ensure that we are being excellent in delivery of the core in order for us to play a role in this new kind of future world of AI. And and that’s what we’re focused in on is to ensure that the core, deliver seamlessly, and that we, through the likes of MCP, technology, allows AI agents as well to be able to, to find us and to use us.

Ramil Korya, Analyst, Danske: Interesting. Okay. Thank you, guys. And then just a final, if I may squeeze it in. I know I’m directing the question to the wrong sort of audience, if you will, but just trying to understand for modeling purposes, how should one think of buyback magnitude?

Any indications on that would be super helpful.

Lorinda Pang, CEO, Cinch: Carlos?

Jonas Dahlberg, CFO, Cinch: Yes. So I mean, the the mandate we got from the AGM, and this is aligned with the resolution of the board, is that we can buy up to 10% of outstanding stock. But the the board will, from time to time, evaluate what they think is in the best interest of the shareholders and also given our, you know, financial position. So basically, you you’ll see. That that’s the message.

The the board will will will do what they think is is in in the interest of the shareholders.

Ramil Korya, Analyst, Danske: Okay. Thank you so much both.

Conference Operator: Next question comes from Laura Metair from Morgan Stanley.

Laura Metair, Analyst, Morgan Stanley: Hi, thanks for taking the questions. Two questions for me, please. First one, you said that profitability has improved at product level. Do you mind just going into what products you saw like better profitability and put this in the context of I remember you talking about competitive pressures that you were seeing in The U. S.

For the messaging segment. How is that evolving? And are you seeing any kind of improvement there? And then secondly, if you could give us an update on the integration of the different business units and the impact you’re seeing on cross selling? Thank you.

Lorinda Pang, CEO, Cinch: Sure. Jonas, do want to start with the profitability question, and then I’ll take the cross sell?

Jonas Dahlberg, CFO, Cinch: Yes. So, we we have an improvement of, the profitability in the traditional messaging business, because we’re we’re increasing sort of the high the high value part of that business reducing some of the commodity business. And so that’s one. Another one is the profitability improvements we have on the network side because of price adjustments in The U. S.

But it’s really broad based across the portfolio, margin improvement. So it’s a combination of commercial discipline and better operational execution also providing the gross margin improvement.

Lorinda Pang, CEO, Cinch: And, Laura, on the integration of the other businesses or the businesses as it relates to cross sell, we are seeing quite a bit of cross sell take place. I mentioned last quarter those two large email customers that we highlighted. Those were originally SMS customers that we’re now selling very large volumes of email to. You know, we’re seeing enterprise customers on the messaging side starting to buy some some more traditional voice services. We’re seeing email customers starting to purchase messaging.

So it’s, you know, it’s more anecdotal at this point. I haven’t given you, hard KPIs on it. But as we look at the pipeline and also in the customer wins that happened in q four, q one, predominantly, those were, for the most part, large cross selling opportunities.

Laura Metair, Analyst, Morgan Stanley: Thank you.

Conference Operator: Next question comes from Fredrik Lidl from Handelsbanken.

Fredrik Lidl, Analyst, Handelsbanken: As well. Congratulations to a nice report. I have one maybe a little bit longer term question, Lorenda. If you are trailing at a certain percent adjusted EBITDA margin, which is sort of your 2027 mid target really, and you’re struggling a little bit with your top line growth ambition. So would you see it as a tool in your toolbox to increase your OpEx on sales and marketing in order to drive it maybe at the take some of your adjusted EBIT margin to for that purpose would be an interesting question.

Also on the 10 DLC situation, what does that actually mean for you going forward? Have you sort of taken out some of the competition?

Lorinda Pang, CEO, Cinch: Sorry. I don’t I don’t know if that’s me or if that’s Frederick. Could you hear?

Jonas Dahlberg, CFO, Cinch: It’s Frederick’s line.

Lorinda Pang, CEO, Cinch: Frederick. Okay. Alright. So I don’t know if we’ve lost him, but for the purposes of the the rest of the audience, I’ll I’ll try and answer at least the first question. I heard something about 10 DLC, but I don’t know the context of it.

So as far as top line growth is concerned, you know, you rightfully call out the fact that we’re we’re not pleased with how we’re performing yet there. And we, you know, we do have an expectation that that continues to grow. Clearly, we have an ambition to get there such that we can deliver seven to 9% sustainable year over year growth by the end of twenty twenty seven. So we have a little bit of a hilt to climb there, excuse me, between now and and the end of twenty twenty seven. It you know, protecting our EBITDA margin is is a very large priority for us.

You know, we we have said very clearly in terms to in in order to deliver value, we need to have sustainable, but also profitable growth. And so, you know, we’re comfortable in that 12 to 14% range that we’ve calculated, And we will make sure that we manage within that range. In terms of, you know, being able to put more more funds towards revenue growth, You know, we we will see. We we will make investments where we think is necessary and where we think we will get strategic opportunities in front of us and where we think we’ll get the appropriate returns. But we’re very conscious of the fact and committed to maintaining profitability.

And I don’t know, Frederic, if you’re back.

Fredrik Lidl, Analyst, Handelsbanken: Yeah. I’m back. I’m back.

Lorinda Pang, CEO, Cinch: You said something.

Fredrik Lidl, Analyst, Handelsbanken: I lost you for a second there in the beginning.

Lorinda Pang, CEO, Cinch: Yeah. You you said something with regards to 10 DLC, but we didn’t hear your question.

Fredrik Lidl, Analyst, Handelsbanken: Oh, okay. Okay. The 10 DLC, the situation there, is that something that will lead to that you are taking over traffic from from other competitors? Or what what what will that sort of drive? What will happen from your unique positioning there?

Lorinda Pang, CEO, Cinch: Yeah. So it’s you know, our competitors have some of the connections. We we are just the only one that has all of the connections both ways in terms of mobile origination and mobile termination across all of The US carriers. So, you know, there’s competition in certain areas and not in others. And what that means is is that in in those certain unique circumstances that other competitors will have to go via Cinch in order to connect to a particular carrier.

But at this point, you know, it’s it’s I would I wouldn’t say it’s going to materially change the environment. You know, this is a a large complex ecosystem And, you know, we we all kind of, depend on each other in certain circumstances. But we feel like at this point for for customers to come directly to Cinch in these cases, it will improve their quality of service, their reliability, and but they could go through other carriers if they wanted to or other aggregators, but they would ultimately need to ride across Cinch’s infrastructure in certain circumstances.

Fredrik Lidl, Analyst, Handelsbanken: Okay. Fair enough. Can I just have a follow-up on the discussion and and your comments in the report about the 500 large enterprise customers, that group of customers, and it was flat in Q2 over quarter? But you expect that sort of you have on board and then you will start to see traffic from new a few new accounts. Is is that positive for your sort of gross margin, or will it be a burden in the initial phases on your gross margin?

Lorinda Pang, CEO, Cinch: No. I don’t see it being a burden on in the initial phases. These are, you know, large enterprise customers, you know, sold at good margin. And as they onboard, it will just be incremental to gross profit. But, you know, again, we’re we’re maintaining our discipline in terms of winning business.

Fredrik Lidl, Analyst, Handelsbanken: Okay. Very clear answer. Thank you for all the answers.

Lorinda Pang, CEO, Cinch: Thank you. Thank you very much, Fredrik.

Conference Operator: Next question comes from Thomas Nielsen from Nordea. Please go ahead.

Ramil Korya, Analyst, Danske: Thank you for taking my question.

Erik Lindholm, Analyst, SEB: Can you elaborate on your M and A pipeline and whether valuations in the market have now adjusted enough to reactivate bolt on acquisitions opportunities?

Lorinda Pang, CEO, Cinch: Hi, Thomas. Thank you for the question. Listen. I would reiterate what I’ve said in the past, which is the fact that, yes, we we see m and a as a part of our strategy long term. But at this point in time, you know, we continue to be focused in on the business inside of Cinch through all of the acquisitions and the integrations that we have going on.

That being said, we, you know, we do continue to evaluate, you know, the market. Jonas, do you wanna add anything more to that?

Jonas Dahlberg, CFO, Cinch: No. I think that that’s fair. And maybe the most attractive M and A opportunity now is the Singe share. So that’s the capital allocation that the Board has decided on short term. But longer term, in particular, when it comes to AI, it may be important to add strategic capabilities to develop our offering.

And in addition, this is an industry that we’ll continue to consolidate. So medium to long term, it’s definitely on the radar. But, you know, with with M and A, and this is important, it’s not just adding to shopping cart. Opportunities come when they come. So timing is always uncertain.

Erik Lindholm, Analyst, SEB: Okay. Thank you. Thank you very much for that. And one final question, if I may. Are the specific verticals driving more of your growth, such as tech, finance, retail?

And how do you see this developing going forward with with some growth from specific verticals?

Lorinda Pang, CEO, Cinch: Yeah. So as you know, you know, the the vast majority of our our business does come through those verticals that you just mentioned, tech, finance, and and retail or ecommerce. I think we’re starting to see some some good movement in health care as well. But in general, I would say those three. Okay.

Fredrik Lidl, Analyst, Handelsbanken: Thank you very much.

Lorinda Pang, CEO, Cinch: You, Thomas.

Conference Operator: There are no more questions at this time. Thank you, everyone, for attending the Cinch Q2 Report for 2025. Have a nice day.

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