Cint Group AB (publ) (CINT) Earnings Call Transcript & Summary

Hello and welcome to the Cint Year-end Report 2022 Presentation. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] Now and I'd like to hand over to Tom Buehlmann, CEO. The floor is yours, please go ahead.

Thanks very much, Elliot, and good morning, everybody to our Q4 2022 results presentation. If we could move on to the agenda slides, please. You will see here, on the left hand side, our kind of traditional agenda for this Q4, we're going to talk about the highlights the Lucid integration, financial updates, of course, and then summary and of course, we'll leave plenty of time for Q&A as well. In terms of presenters as you'd expect, we've got Olivier Lefranc, our CFO and myself. But in addition, we've got Patrick Comer, Chairman of the Board, who is dialing in from the U.S. So a very early good morning to you, Patrick. And the purpose that is, is to kind of give a sense of continuity, given some of the changes that that have been announced more recently. So if we just move on to the introduction, Slide 4, please. I do want to recap this because I think it is important. We are a global platform leader in the connected consumer insights market research space as -- just to refresh all our minds. You've got Cint there in the middle. We're an automated platform. We connect brands or companies who want to ask questions, on the left hand side, with respondents who've opted in on the right hand side. You will see there a nice uptick both in B2B customers and these connected consumers. We'll talk about that in more detail, when we get to our operational KPIs, as we typically do. And then Cint at a glance, we are one of the world's largest consumer networks, we've always had the ambition to be the #1, perhaps a little bit, kind of, sort of temporary pause but we have had a very strong track record of profitable organic growth. And of course, the acquisition of Lucid, end of 2021, created the #1 platform. And we continue to believe very much strongly in the growth and synergy potential of the larger combo. And you can see there, on the right-hand side of the bottom, net sales by region, now very much a U.S. business, 60% with EMEA 30%, a little bit over 30% and then 10% in APAC. So if we just move on to the Q4 highlights, Slide #6, please. This -- we've talked about this in the 2nd of February trading update that we gave. Q4 net sales coming in basically flat on a constant currency basis year-over-year. As we said there, we've got unexpectedly weak demand for the macroeconomic reasons, and we have had -- and we'll talk about this more in a couple of slides time, a significant increase in our reversals. Increase of 4% pro forma year-over-year in terms of our gross profit for the quarter. And then somewhat encouragingly, we've got an adjusted EBITDA margin of 16.8%, which is a little bit higher than we had in Q4 of '21. Also encouraging, I would say, is improved cash flow following a bunch of initiatives that we talked about in -- or initiated in Q3, and we continue to deliver on in Q4. And then, of course, given everything that's going on, we decided to do an impairment test and do a noncash impairment amounting to the EUR 341 million. So that's kind of us in a -- or Q4 in a nutshell. I do want to give a little bit of a voiceover at this point because my sense is there's a bit of a feeling of doom and gloom, at least from the outside looking at Cint. And at least in my opinion, I think that is a little bit overdone. Yes, Q4 was flat in terms of revenue, absolutely. But I would say the reasons for that are very clear, at least in our mind. We've got the macro. We've got the reversals that we're going to talk about in some more detail. And I think it's also fair to say that we've got some integration distractions that with a lot of our colleagues having 2 jobs, the day job and the integration. So I think there is a little bit of element of that as well. So #1, I think we're very clear on the reasons, at least in our mind. Secondly, I think we have a plan. We have a plan to reduce the reversals. We have a plan to get back to growth. We will continue to drive the OpEx synergies and continue to do the integration work. So we do have a plan. And then finally, and that's a little bit why I showed the slide right at the beginning, I do believe that our fundamentals remain strong, right? We are the #1 marketplace. I think we will sort out the issues that we're going through right now. And I do actually think that when the marketing spend recovers, we are going to be really well placed to benefit from that given our size and our suite of product solutions. So I did want to say that. It's my point of view. I believe that very strongly. So I think there's a little bit of doom and gloom. In my opinion, at least is a little bit overdone. Now moving on to the next slide, if we could, please. Let's dive a little bit more detail into what's been going on. So here, you can see the net sales development by business segment, region and customer type, as we've typically presented. What we've done this time in addition, is kind of show what the pro forma and the constant currency is, right? So as you can see on the left-hand side there, what you can see there is that our Marketplace business in Q4 was down 3% in constant currency, whereas the Media Measurement was up almost 20%, again, on a constant currency basis. And just to kind of round out the picture for you, I think it's important to look at the regional split in the middle left, and there, you can see that -- and I'm going to go, sort of, bottom to top is that APAC was 20% up on a constant currency basis. EMEA was up 5%. And the area where we're really focusing is the Americas, who were down 5% on a constant currency basis. So if you -- and then on the customer types, just to kind of complete the picture there, we don't have to break down on a constant currency basis. But what you do see there or pro forma is that kind of we're back to in Q4, the pattern that we've historically seen for much of the time, which is the tech-enabled growing a little bit faster than our established customers. So what conclusions do I draw from this? I would say the macro has impacted all business segments, regions and customer types. However, that has been particularly acute, I would say, in the Americas where it's -- we've suffered, I would say, disproportionately in particular, in the tail end of the quarter. So with that, I would like to continue on with the operational KPIs. And as you can see here, we've seen -- and I see this as a sort of a positive picture. We've got an increase in B2B customers. On the left-hand side, we've got an increase in connected consumers. And encouragingly, we've also had a significant increase in the completed surveys, which is obviously the end product of B2B customers and the connected consumers. Now some people might ask why hasn't the revenue increased in line with the completed survey increase. Well, the key issue there is the reversals, right? So because our platform believes that we've delivered the complete; customer says, no, not a real respondent, so we're basically not going to pay for it. So that's why there is a difference between revenue and the sort of completed surveys. I think that's a good opportunity. Now if we could move to the next slide, please, to do a little bit more of a dive into this reversal point, right? So sort of forgive me for sort of going into this in a bit of detail, but I think it's important. So first of all, what is a reversal? So during the survey fielding process, we send out kind of surveys to respondents. Sometimes, we recognize that complete as genuine, but -- and therefore, that it's been delivered, but the buyer does not recognize it as valid. So the buyer then removes those completes and that results in a negative reconciliation, which is otherwise another word for that, we use internally, is a reversal. So I'll give you a specific example. Imagine we're doing a survey. We think or we want to do -- the buyer wants to do 100 completes. We -- our platform says, "Yes, we've done those 100 completes, but then the buyer comes back and says, actually 15 of those, we don't think are genuine, so we're not going to pay for those. So it is revenue that we think we had. But then in that reconciliation period, which is typically 30 days, the buyer comes back and says, no, actually, we're not paying for these. Now this is an industry phenomena, definitely. The normal sort of reversal rates that have been established and are accepted as sort of in the 5% to 7% range. So that's a little bit of what is a reversal. Next up, a little bit more detail if we peel the onion on reversals. There's really 2 types. One is unengaged respondents, and that really is where a consumer is maybe, I don't know, doing something else, watching TV and just doing this by the by. And you can tell by the pattern of their responses, maybe they all -- if it's a 1 to 5 scale, they always click on 5 and go through it very quickly and don't bother with the open-ended questions, for example, that is defined as an unengaged respondent. And obviously, our customers don't want unengaged responders. They want responders who've been thinking carefully about the questions. So that's one category. The second one, and this is the one that has been increasing substantially, is the fraud, which happens at the weakest link in the supply chain and that generally happens when the links are manipulated due to a vulnerability survey platform and the supplier. So examples of this can be bot responses, where you get similar or identical responses for a whole bunch of respondents. They come from maybe the same IP address. And if they're doing open ends, often you get exactly the same verbatims or even the same typos. And that bot responses are when somebody programs computers to kind of do this on an almost industrial scale. Duplicate responses, which is when you get identical open-end and open-end responses seen across multiple responders, that again is a clue that somebody is trying to game the system. And then the very sort of complicated one is the ghost complete, which is an industry term, which is when a complete registers on the supply side, so the supply believes the complete -- that their respondent has done the complete but not on the buyer side because basically, what people do is they go into the system and they manipulate the links. So oftentimes, that is due to vulnerability between the survey platform and the suppliers. So as you can see, there's quite a complex sort of ecosystem between the person originating the survey, programming the survey, then there's a survey -- a sort of survey platforms, there ourselves and then when the data is collected. And there can be vulnerabilities in those interfaces and some people kind of make it their business to try and take advantage of that. If we could move, please, to the next slide. So what are we doing about it? So first of all -- and this is not an excuse, but it is true. Quality and fraud are industry challenges, right? In our view, and this is also talking to a lot of other folks, the macro economy has led to increased motivation for people to try and game the system. Now we are now the largest global exchange, and we're a public company, and our view is that, that puts us a little bit more into the spotlight. And the other thing to flag here is that the major increase in reversal that we've seen, particularly in Q4, has come from the fraud kind of component. It's not the unengaged responders that I talked about earlier. Impact on Cint. Now first of all, I do want to say these [indiscernible] identified within a short time frame. So the buyers, the clients, they have typically 30 days to kind of say that these -- to kind of declare that some of the respondents or responses they've had, they deem to be inappropriate and so they reverse. So in other words, this is not something that can go back in time, beyond about 30 days. So within 30 days at the end of a project, we know what the reversals are. And of course, then what we do is we report revenue net of reversals and have always done that in the past as well. And in terms of quantum, what we've said in the trading statement, and I'll reiterate here, is that the increase in reversals in Q4 '22 compared to Q4 '21 has taken about 5 percent points of our growth rate, right? So if we were previously at this -- in the sort of 5% to 7% range, the reversals we had in Q4 were 11% for the group overall. So quite a high number. Now that's all well and good. I can hear you thinking, what are we doing about it? So that's -- it's multipronged, which is why it's not an easy fix and it's not entirely up to us. So it does require a product-based solutions, and it requires collaboration across the entire supply chain, right? So because it's when we do sort of technical or heightened security between us and survey platforms that obviously requires the survey platforms to play ball as well. So it's not entirely in our control, but we do have things that are in our control. So we have tightened up our current existing security features. We've rescaled the market. We have a whole bunch of third-party tools that we're currently using. We rescaled the market and looking what's available and see if there are additional tools that make sense. And we're actually also developing and testing an in-house AI-based methodology to identify fraud. As I hopefully gave you a sense earlier, there are some patterns in fraudulent behavior. And we're in the process of testing that to kind of pick that out much earlier and before a client says it's a reversal. And importantly, we're now working on building the server to service solution, which is going to be much more secure than it is currently, but that again requires industry cooperation. Now importantly, because this is an industry situation, we're organizing a quality forum and using our contacts with the industry associations to bring everyone together to help solve this problem. It's -- I think it's fair to say, Patrick, you're leading the charge on this. And the first meeting I think you've got is at an industry conference in -- I think it's in 2 or 3 weeks. And so this is actively happening right now. So we can come back to this. But what I'd like to do now is head on to Slide #12, please, and just give an update on the Lucid integration. So Q4 was a high-intensity quarter with respect to the -- with the integration, I would say. We worked very hard to get a common platform for people, processes and systems as well as launching a company-wide sales and go-to-market messaging platform as well. And then importantly, we start the implementation of this new unified product road map. Now that is not an overnight fix, but it's absolutely essential for our future success to have a common platform, a unified platform. And I think it's fair to say that this is going to consume substantial time and resources also in 2023, particularly on the product side. In terms of the synergies, we absolutely remain on track on the -- particularly on the OpEx side. We've made -- continue to make and have done since the beginning actually, very good progress on the OpEx side of things because those are directly in our control. We reiterate that in terms of the integration costs, we're going to stick to the EUR 40 million that we said right at the beginning. And that will end at the end of this calendar year. And so far, I think we've taken just over EUR 21 million, yes, just over EUR 21 million during 2022, of which about EUR 5 million in Q4. So with that, I'm going to now hand over to Olivier to take us through the financial update.

So what you can see here is that our net sales we're at EUR 80.3 million in the quarter, which is like a pro forma growth of 6.6% versus last year. That was at 75.4%. And as Tom said earlier in the introduction, 0.1% growth on a constant currency basis. Moving to gross profit in the middle. Our gross profit in the quarter was at EUR 48.7 million versus EUR 46.7 million last year, a 4% growth compared to pro forma. Our gross margin was a little lower than it was in the last -- in Q4 2021. So we were at 60.6% versus 62% last year, reflecting an underlying change in product mix as well as some price pressure in some geographies. In terms of the adjusted EBITDA, so our adjusted EBITDA was at 13.5% for the quarter, a growth of 18% compared to pro forma 2021. Our adjusted EBITDA margin now was at 16.8% versus in Q4 2021, primarily driven by good cost control over OpEx and also the integration synergies that Tom talked about earlier. Next slide, please. So here, you can see the full-year numbers. So net sales for the full year, on a reported basis, are at EUR 295 million, which is a pro forma growth of 21% versus last year, 13% on a constant currency basis. Pro forma growth has been driven by some positive currency tailwind, so the strengthening of the dollar and also some positive business development because we grew at 13% on a constant currency basis. We've seen the highest growth rate in Asia Pacific, 25% on the constant currency and EMEA at 18%. Americas, despite the fact that Americas was down like 5% in the last quarter, it grew 9% in the full year. Moving to the middle. Our gross profit for the full year is at EUR 183 million, pro forma growth of 22% versus last year. And in terms of gross margin, we are slightly relatively stable, slightly below compared to last year, again, due to some price pressure and product mix. Our EBITDA is at EUR 48.8 million, pro forma growth of 35% compared to last year. And our adjusted EBITDA margin is at 16.5% versus 15.1% on a pro forma basis last year, primarily driven by scale and the synergy benefits. Next slide, please. So in terms of the Q4 margin, so Q4 margin has been impacted by lower-than-expected sales, but again, it's higher than last year's pro forma so at 16.8% in Q4. It is lower than it was in Q3, 19% and Q2 17.7% and higher than it was in Q1 at 12.1%. We have some seasonality in Q1, generally speaking, is a lower quarter than Q2, Q3 and Q4. As Tom mentioned earlier, so we've done like an impairment of the goodwill for an amount of like EUR 341 million. This was largely triggered by the market reaction to the trading statement. And also, we have to take into consideration the macroeconomic slowdown and also the increase in interest rates. Next slide, please. And -- so we have continued like to focus on cash, and this has had like a positive impact on our numbers. So as you can see here, we had some positive cash flow in the quarter from changes in working capital of EUR 7.2 million. We had also some positive cash flow from operating activities of EUR 5.1 million. Net-net, our net cash flow was down EUR 1.1 million in the quarter. The amount of cash and cash equivalents at the end of the quarter was at EUR 62.6 million versus EUR 65 at the end of Q3. And the total net debt amounted to EUR 56.4 versus EUR 65.9 million at the end of Q3. Next slide, please. And we have seen some continued working capital improvements. So several initiatives were launched in the third quarter, including like a review of the overdue customer invoices, harmonization and improvement of payment terms for customers and suppliers and more payment discipline and improved payment schedule for the payables. So we have pursued this initiative in Q4. And the total net working capital position continued to reduce for the second quarter in euro. So what you can see is that we are at EUR 38 million in terms of net working capital at the end of June that reduced to 24% at the end of September to 21.5% at the end of December. And I'm really expecting and looking forward to see further improvement in the coming quarter. But it's important to keep in mind that we have some pretty complex invoices. We need to go like into the weeds. So there are no quick wins. But definitely, we are moving in the right direction. And I'm really expecting to see some continuous improvement in the coming quarter. Our accounts receivable have increased by 3.8%, but this is largely due to the sales seasonality. So you might have seen that our net sales in Q4 were at EUR 80.3 million versus EUR 74.3 million in Q3, which is like a 8.1% increase. And I think that's it for the financial part.

Yes. So if we could go to the next slide, please. So just to kind of pull everything together. So you'll be familiar -- in terms of strategy and short-term priorities, strategy you will be familiar with. And it's obviously centered around: #1, reversal reduction. That is a big focus for all of us. I'm sure that we'll get the question, so how long is it going to take? And the answer is, we don't know, right? We don't know for 2 reasons. One, it requires industry cooperation, and we're going to do our absolutely best to kind of harness our colleagues to help with that. Secondly is this -- particularly the organized fraud is a little bit of a technological arms race, right? So -- and it has been over the years that I've been in the industry, and I was telling to Patrick, and he said it's been the case for even longer, which is all the time he's been, which is they -- the dodgy people, they find a loophole, they exploit it. We pick it up, we close that and so on and so on. So we're definitely at reversal rates way above where we want to be and where we will be. But it's really difficult to give a specific time on that. But it is an absolute top priority for us. Secondly, commercial acceleration or reacceleration -- you'll be familiar with the kind of 4 red circles in terms of our commercial strategy. I'm very confident that those will continue to be the levers that will drive our future growth as they have been the levers that drove the growth of both legacy Lucid, legacy Cint in the previous several years. Now what we are doing is, as I said earlier, applying a very intense lens to the Americas because that's where we absolutely need to and are focusing. What we've done there specifically is made a couple of -- made some leadership changes. Those are already done. Secondly, we're doing a complete re-plan, if you like, of the year, to kind of really do a thorough bottom-up commercial plan, sales plan, which I think is -- which I've seen the first version of, which is really good. And we're sharpening the pencils and the commercial activity, really where the opportunities lie. And then thirdly, we are engaging and hiring -- going to be hiring some commercial resources to go after the direct to brands opportunity. We talked about that, I think, in Q2 or Q3 last year as a pilot. That's proven to be very positive for us. And I think it's partly actually driven by the macro weirdly, where brands are -- obviously are also under a lot of cost pressure on all dimensions, raw materials, et cetera, et cetera, et cetera, and are looking at ways to be more cost-effective with their market research as well. So we've had some good success with the direct-to-brand pilots that we did in the middle -- started the middle of last year, and we're planning to roll that out starting with the Americas and the U.K. actually now. And then the final piece, obviously, and I talked about this a little bit already, platform integration and road map, really important, big focus will definitely take all of this year and probably some into next year, but really important because getting from the current kind of legacy platforms to one integrated one is very important on lots and lots of dimensions. So that's a sense of our short-term priorities and strategy, which I think is a nice segue into the final slide, please, which is I'm going to restate where I started, which is I really do believe that we've got very solid fundamentals. Yes, we've got some hiccups and some stuff to get through, but I'm really convinced we will do, right? And when we do, I think we're going to be able to really take advantage of this very large underlying market. We've got this structural shift, digitization, and that's unchanged and will continue. I think we're going to be really well positioned, especially when we have the integrated platform to take advantage of the uptick in marketing spend when I'm sure it will come. We've got these additive and complementary value props that we've talked about, particularly measurement, which continues to do well as we talked about right at the beginning. And we will get back to delivering profitable growth. I'm utterly convinced of that. And as I've said, we are on track with the synergy delivery, and that will then play out in a strong bottom line performance because we've mentioned this in the past, we're quite a sort of a relatively fixed cost business model and therefore, when we get back to growth, that will then, of course, also benefit the bottom line as well. So with that, Elliott, I'm going to pass back to you to orchestrate the Q&A.

[Operator Instructions] Our first question today comes from Daniel Ovin from Nordea.

My first question is a bit on what happened in the second part of Q4. When you reported Q3 in end of October, you seemed pretty optimistic regarding October, and you also talked about having a visibility of 6 to 8 weeks. Now you only grew 0.1% in local currency. And even if these reversals were only known afterwards, the organic growth would have been around 5% in local currency, which is still below the 11% in Q3. So can you just explain a little bit more what went wrong here? And maybe visibility is not as good as you mentioned then? Or just help us to understand this first bit, please? That's my first question.

So no, so you're right. I was more optimistic during the Q3, which in hindsight has proven to be wrong; obviously. So really, what happened was a couple of things. So in -- I mean, we don't talk about monthly revenue in detail, but I can say that both October and November were up fairly nicely year-on-year, but we had a big dip in December, and that was particularly in the Americas. And 2 things happened there really. One was in -- generally, we spend it or lose kind of approach have. And that has driven a lot of work for us in kind of in November and in December over the past many, many years, and there was almost none of that. That has completely dried up. Talking to the commercial guys. And the second thing is that the -- particularly in December, we got a real spike in reversals, much higher than in the previous month. So those 2 things really impacted the overall quarterly numbers. So it was those 2.

And then one question on the reversal side of it. Just to understand how it works here. So if you then get a reversal from your customers, do you get also a refund from the platform guys then? Or the one that provides you with the respondents -- or does it have an impact on the margin? Or maybe you can just understand a little bit what happens in the value chain when you have these reversals.

We think we've delivered the complete, although the -- yes, we think we've delivered the complete. The customer says no. And what generally happens is then, in most cases, it's the supplier who ends up paying out to the bad actors, some money. In some small number of cases, we manage the incentives. But in general, it's the suppliers who lose out.

So it's not a margin -- negative margin impact, it's more of a top line impact on your side?

It's a revenue problem because if -- because we think we've delivered the 100, which is what the buyer wanted and then the buyer says actually you didn't deliver 100, you delivered 85. Right? So for example. And then the project is closed and finished, and therefore, we can't go back and say, well, have another 15. It's a missed revenue -- broadly, it's a missed revenue opportunity and it's worse because we think we've delivered what the client wanted, right?

And is this -- I'm just thinking about the 2 different models of Cint you have the Lucid, more auction type model. Is it mainly related to 1 of the 2 models? Or is it broad-based across both different models? If you can just talk a little bit around that.

No, it's both. It's across the board. And I mean, what I would say is it's -- again, it's definitely an industry thing. And we've actually -- we have some sort of friends in the industry, and they have found videos on the dark web, which kind of give instructions on how to kind of game the market research industry, including us. So I mean, there is -- there are videos of how to do it, right? So we're obviously taking steps and all the rest of it. But it's pretty broad-based right now.

And then just one last question here on the net debt levels here and the covenants, et cetera, is there any risk around that? Can you mention anything on where there are, so we get a better understanding. Any comments around that would be helpful. That's the last question.

So I think we have some covenants in place in the end of like 2021 back to the time of the acquisition of Lucid. We have always met our covenants already, including like Q4 2022. And we continue to monitor like the situation like on a regular basis.

Our next question comes from Sarah Soderblad from SEB.

So I think I'd like to pick up there where we left off on the sort of exit rates in December, and you said there was no budget flush effect this season or this year. Firstly, what do you think that is? And secondly, I guess, if December was that weak if October and November looked good, that implies that we're going into Q1 with a rather weak momentum. Is that what you're seeing so far into the quarter? If you can comment on that, please.

Yes. So on the -- so why do I think there was much less or almost no spend it or lose it? I think that's because what I've said in previous quarters, I mean CFOs are getting a much tighter grip on budget, on particularly marketing budgets. And I think that's what's impacted. I think brands anecdotally need to get high-level approvals from their kind of financial colleagues. And it makes it much less discretionary spend that they've got to kind of push that out the door at the end of their fiscal year, I think. So I think that's been the real -- that's a real factor, which is all, again, tied into the macro and brands being more careful with their marketing spend. And then -- and the second part was kind of beginning of this year. What I'd say is what I said in the report. I think the macro situation is definitely continuing for the foreseeable future as far as we can see at least. And the other big point is the reversals, we will get a handle on them, but that's going to take -- it's going to take a while.

So you talked a little bit about the plan that you have for Americas specifically. What is it actually that happened in the Americas? Because I've heard some companies describe that something negative happened with the ad cycle in Americas in Q4 that had already happened in Europe a couple of quarters prior to that. So is this just sort of an effect of the U.S. being behind us in the sort of ad cycle? Or -- can you specify where you expect the macro to turn in the Americas specifically if that's where the most effective? And secondly, on the sort of plan that you have, could you give us any details on what that includes? Because I mean, I'm wondering how much can you actually do if most is tied to macro in Americas?

Yes. So in terms of predicting where the macro cycle is going, that needs somebody smarter than me to be able to do that. I wouldn't want to try and predict that. But in terms of the plans, what I will say is, I think -- you're right, some of it is -- a lot of it even is macro related. But I do think we can be more effective in terms of our sales execution, particularly in the U.S., which is why we kind of made the changes that I talked about. So I think there is an opportunity there. And just to kind of sharpen our sales effectiveness, #1. And #2, there's definitely an opportunity on the direct to brands, right, which is a function of brands wanting to be more cost-effective with how they spend their marketing research money and therefore being a little bit more open to a proposition like ours rather than going through the traditional way that they've sourced market research. So I think it's those 2 things.

So just 2 more questions for me. You talked about headcount reduction. I think you talked about it -- that since Q2. And I'm just wondering, has there been a sort of loss of any seniority in the organization, is the headcount reduction sort of to blame or partly to blame for the deceleration in organic sales growth. Is that how you would view it? Or would you describe it differently?

No. So no, I don't think the head count reduction is related to the deceleration at all, actually. I think the headcount reduction was -- we took that early in end of Q1, I think, beginning of Q2, something like that. And it was where we had overlap, right, or duplication was the key kind of areas where we focused. So no, I don't think that's a factor. What I do, though, think is that the -- and this is more qualitative, is that the ramp-up of integration effort in Q4, I think, has been a little bit more of a distraction than we wanted than I wanted. And with people getting pulled into -- including some of the commercial folks into integration work streams. By way of example, we're in the process of rolling out sales force as a common tool across both legacy companies. And obviously -- and there's a big lead to cash project as well, which obviously impacts the commercial folks as well. So I don't think it's the headcount reduction. I think if anything, it's more the ramp-up of integration efforts. But again, it's hard to put a number -- specific number on that. But what we're doing now is trying to rather make a larger number of people do a little bit of integration kind of reduce it and say, right, you're going to be doing integration for the next couple of quarters. So fewer people, more full time is kind of the approach that we -- or the shift that we've done.

Finally for me, I'd just like to dig a little bit deeper on the working cap because you've talked about accounts receivables also for a couple of quarters now, and you said that was a key strategic priority in Q2 in the report and that we should see effect from debt collection from the overdue accounts receivables already in Q3 was the message. And we haven't really seen that in either Q3 or Q4. So I'm just wondering, is there any sort of credit loss risk there on that front? Or how far along are you in that process? And what can we expect for the rest of this year?

Yes. So I would say 2 things. So in terms of genuine bad debt, I mean it's not -- like in the market research industry in general, I mean, we have like very few like genuine bad debts. I have not seen much of this like at [ DeepSource ] or at Cint. So we are like in an industry where the default risk, like generally speaking, is pretty limited. And also we have a very large number of clients, so we are not depending like on one or 2 clients. So I'm not too concerned about like default-free on the client side. Now we have like a very complex -- we have many clients, and we have some pretty complex invoices because we have like a lot of complete. We have a lot of items. So we are not like sending to our clients some invoices with just one line. Our invoices are complex. And therefore, they take a lot of time to be digested, I would say, by our clients. So if you look at the indicators on Slide 18, you will see that they are really like moving in the right direction in terms of the net working capital to consumer spend. You will see that our accounts receivable are a little higher than they were at the end of Q3, but this is mainly due to the seasonality in sales because they increased by 3.8%. On sales increased by 8.1% in the last quarter versus Q3. So again, as I said, like earlier in the presentation, we are definitely moving in the right direction. But it's not going to be spectacular. I mean, we have to go like into the weeds and it's going to be like a gradual and progressive improvement quarter after quarter. But we have what we need in terms of resources for the collection efforts.

Our next question comes from Predrag Savinovic from Carnegie Bank.

Another one on the reversal rates. So I was thinking -- what if you implement certain changes to the reversals on frauds, but then the fraudsters readapt and the rate sticks at, what did you say, 11% for November? Is there a risk this could be case, do you think?

So you're right in the sense that it is a little bit of an arms race. But I would say the -- if I think about back to the -- back just like over history and Patrick, maybe we'll come to you to get your kind of even longer perspective in a second. The way this tends to work is that there's a -- we plug some vulnerabilities. That obviously improves the overall system, the ecosystem security. And so over time, we're plugging more and more gaps, right? So it's not that we plug one and we unplug another, right? So as our tech sophistication and security sophistication increases as an industry, it just becomes harder and harder. It's not that there's kind of new stuff that or new gaps that we're making, it's -- they may find some additional gaps, but we'll keep plugging those. So over time, I think our security levels will increase, and therefore, the fraud rates will go down. Patrick, do you -- if you're still on, do you want to comment on that?

Yes. Just in my experience, that's exactly right. There will be a spike in reversals. And then all the players in this space will make the appropriate changes to limit those reversals back to a more normalized rate of 5% to 7%. The -- what's interesting is that all the players, those suppliers, the marketplaces or the survey platforms are all innovating with technology over time. And as those innovations continue to grow, new gaps in security may arise and a new type of process will occur where a bad actor can create a higher [ rate ] versus a normal. What I haven't seen is implement -- changes to security be implemented and then all of a sudden, a new spike. It generally takes quite a long time for the market as it were, the bad actors to figure out how to, a, get around technology, but more importantly, as technology improves and different players are innovating across the industry, where those new gaps are created. And it's the new gaps that they find more likely than a historical fix that a company has made.

And another one on the macro also tying that to reversal rates. Do you think that it could be so that you're less impacted by macro and that is more that your customers might be pausing certain surveys because of reversal rates spiking. And I think you mentioned this is an industry phenomenon. Are you seeing this -- I mean, are these similar levels in some of your sector colleagues, I don't know, PureSpectrum or Dynata, are they on similar levels, would you say?

Well, so we don't know for a fact about other people's reversal rates because they are not public companies. But the anecdotal evidence and Patrick, your perspective will be helpful here, too. The anecdotal evidence and the discussions we have are absolutely. It's -- right now, it's an industry spike. And that will be supported by some of the videos that I was talking about. I mean they don't single out -- they talk about the industry, how to -- they mentioned Cint and other companies, but they -- it's a how to guide for the industry. Rather -- and therefore, I think we've not seen significant pausing or cancellations of projects due to quality because it is an industry challenge right now. I mean, Patrick, how has this sort of played out in the past? Does that mirror with historical patterns?

That's exactly right. Reversals tend to rise together across all players in the industry and also come down. As the fixes that are implemented, some of our internal to a company and some are across companies. And so that's why you'll see very quickly our industry peers coming together to create those fixes between parties versus just those fixes internal to a party. And so essentially, as reversals are somewhat tied to macro, it's not surprising that the reversal rate across the board is growing with all players.

I mean, a final question to Olivier. I think you said you expect a significant improvement in the cash flow. Would it be possible to either quantify this or maybe put this in relation to EBITDA as in how much free cash flow compared to EBITDA, we could expect is it 40%, 50%, whatever percent to get a figure on that?

I mean, it's difficult for me to make some prediction like in that regard because by far and large, like we are like a fixed cost business, so it will depend back on the revenue momentum. But generally speaking, we are not like a very capital intensive business. So we should see like some very good conversion from EBITDA like to cash flow, there is no reason, and we are pretty, I would say, like linear business in many aspects.

We now turn to Daniel Thorsson from ABG.

Lots of question on the increased reversal rates, obviously, I think it's a vital question for the market as everyone else, of course. So a very short one on that one. Do you see a risk for that to increase further in Q1 here?

It's possible. I mean I can't sit here and say it's impossible. It is possible because. We're in the process of getting to grips. We've made some about several weeks ago, we made some changes, which were very positive from our point of view already in our system. Look, it's really impossible to predict the peak. What I would say is we -- this has happened in the past, and we will get to grips with it, right? So it's a matter of a little bit of time and a lot of effort. And then second question. Sorry, just on that timing. I mean, Patrick, do you have any sense of how long, if you like, the spikes of reversals are historically? Is there -- or is it -- does it differ from time to time?

I don't have a good sense of exactly how long the spikes were. What I can say, it's pretty clear that we and other companies have reacted pretty quickly. And I think, as Tom just said, we've seen good benefit from that.

And then second question related to the goodwill write-down here, which I think is quite large. You mentioned that it is a result of higher interest rates and inflation, obviously, and then also weaker macro. So I guess that you have reduced the growth assumption in that impairment test to arrive at such large write-down, but yet you do not change your financial target of growing organically more than 25% per year mid-term. So my question is basically how much have you lowered the assumed growth rate at Lucid affected the goodwill item? And how should we think about your target of coming back to 25% organic growth again. Is that still reasonable?

Yes. So we are not looking at [ these ] separately. I mean, we have just like one cash generating unit. We are looking at the business as a whole. And yes, I mean, we are not changing our medium-term guidance. It's just that it's going to take longer to get there than we thought like 6 months ago. So -- and this is -- as you can imagine, this is having like an impact on the model, yes.

Can you say something on how you have reduced the growth assumptions in Lucid because the goodwill is obviously related to Lucid. And when you acquired it, you increased your target of growing from 20% organic growth to 25%. So you obviously assumed to grow very fast, and now you have reduced the growth rate. Can you say something about that change?

So what I would say is that we've not changed like the growth rate in the medium term. But like in our model, it's just that things are going to take -- it will take longer than expected to be back like to this, like 25%, which is what we have factored in the model. But I cannot be like more specific than that because I cannot like give a guidance about like 2023. But as you can imagine, because of the impact of the macro, we had to factor that into the model. And when you factor that into the model, it makes a significant impact, yes.

We now turn to Andreas Joelsson from Danske Bank.

A follow-up on that goodwill question. I think you mentioned that it was also a response to the market reaction from the trading update. Is that correctly understood? And if so, how does that impact goodwill? And secondly, on reversals, even though it's hard to say how long a spike can be. Can you say where the spikes have peaked before if you're at 11% now? Is that in line with where spikes have peaked before?

Well, I'll take the reverse the one first and then pass on to Olivier. No, the 11% from what I can remember is higher than we've had in the past. So I think we -- yes, the 11% is at a high level. So what that means, I don't know exactly. It's hard to say, but it is high.

And coming back to the goodwill. I mean, it's always something -- it's not like always like an exact science, as you can imagine. So it's something that we are looking at like from different angles. And one of the angles that we are looking at is goodwill versus market value of the company. And the reaction to the trading statement that we made like on the 3rd of Feb was a 50% reduction in the share price. So it created quite a gap between the amount of the goodwill and the market value of the group and which I think triggered the review.

[Operator Instructions] Our final question today comes from Charlie Brennan from Jefferies.

Maybe I'll start with you, Tom, and start with congratulating you for your contribution here and wishing you well for the future. Can you maybe just start by giving us some background to your reasons for leaving? And maybe specifically, when did the Board actually start the process of searching for the new Chief Executive? And what sort of skills do you think the new Chief Executive is going to bring that perhaps you didn't?

So I don't know when the Board started a search because that's their job. And I was only involved, as I think I said, right in December had a dinner with Giles. So I don't know when they started. What I can say is I had very soft conversations with the Board several quarters ago and said, look, at the right time, if you find somebody or when you find somebody, it will be good to pass on the reins. So I can't give you a time on when they started -- an exact time when they started, but it was several quarters ago when I started having a very soft chat to them. In terms of my rationale, it just felt that 5-plus years is quite a long time. It's a pretty full on demanding job as many of our jobs are. And I felt that somebody else would be well placed or better placed to take on the reins. So nothing kind of -- nothing more than that. And then in terms of Giles, I mean, I've been working sort of side by side now with Giles for several weeks. I think he's going to be excellent. He's clearly a seasoned CEO. I think what he brings more than what I have been able to do is a very thoughtful approach. He's much more product and engineering led than I am, more on the commercial side. Not to say that he's not commercial, but he's definitely brings some skills and experience on the product side. And I think that's going to be very good for the company at this current phase. As I talked about earlier, I think product integration -- sorry, platform integration is going to be absolutely crucial; as is kind of the whole kind of all the sort of business models and delivery setup and so on. So I think he's going to be very good.

Maybe I'll just end with one last question. I think one of the best ways to get some confidence back into the Cint story will be to have some nearer-term expectations that you can meet. So I appreciate you've got the medium-term targets out there, but something closer to the here and now, I think, would be useful. Is there anything you can say about the shape of 2023 that would be helpful. If I listen to you talk, you're expecting a continuation of weak macro, that sounds like organic growth close to 0 in the first half of the year might be appropriate. At the same time, you're talking about higher integration and platform costs. You're talking about costs to get on top of these reversals. Is there a scenario that costs go up and EBITDA can be down year-on-year? Or is that too bearish?

Look, we've taken an approach, a policy of not guiding to the near term, which includes this year. So I'm not going to -- I can't be drawn on that, unfortunately.

This concludes our Q&A. I'll now hand back to Tom Buehlmann, CEO, for any closing remarks.

Okay. Thanks, Elliot. So look, thank you all for your time this morning. Hopefully, we've given you a bit more color around what we think is going on, which is mostly around the macro and the reversals. Hopefully, we've -- I know there were some question marks or questions around the reversals. Hopefully, we've been able to give you more color and explanation of, a, what they are; and b, how they are impacting us. And then importantly, I hope you're going away with a kind of a continued, at least from our point of view, a continued sense of optimism about our medium term because we really do believe that we will get through the current situation. So with that, thank you for your time. I look forward to meeting many of you over the next couple of days, and thanks again.

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.