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

And good morning, and welcome to the Q4 2024 Results Presentation for Cint AB. My name is Patrick Comer. I'm the CEO. I'm joined here by Niels Boon, our CFO, and we're delighted to walk through our results with you. I think the overall headline is that there is no significant change from what we previously presented at our strategy presentation on January the 27. So we'll be going through these details with you today. As a reminder, as to our business model, we are the world's largest survey exchange. Our primary business is the matching of survey respondents or users to the thousands of surveys that are run by our customers globally every single day. Alongside that, we also have a growing Media Measurement business, which has been capturing a lot of growth and attention with our company over the last several years. In terms of Q4, the overall story is flat with further improvements to our EBITA margin. We do have a slight decline in sales at our Media Measurement business, offset by lower sales in our Cint Exchange. We've seen basically a pull forward of revenue from Q4 into Q3 based on the overall political polling environment in the U.S. Also, we have an ongoing platform unification and migration process that will be completed in 2025. In brief, our numbers, we had net sales in euros of EUR 45.4 million, gross profit of EUR 40.2 million, operating expenses of EUR 27.5 million and EBITA of EUR 12.7 million, all in line with expectations for what we previously announced as our numbers. Some significant events during and after the quarter. I hope many of you were able to join us in late January as we talked about our new strategy, which we call Cint 2.0. We also talked about the rights issue, which we're in the middle of as it were, where we're raising SEK 600 million, of course, subject to approval with our EGM. And also, we announced our new financial targets, which were an update of our financial targets for the first time since our IPO in 2021. In reviewing those financial targets, I'd like to speak to them individually now. The first major target is the sales growth. So we are looking at a medium-term organic annual sales of above 10%. Additionally, we look at profitability. We look to achieve and maintain an EBITA margin of 25%. And we've added this leverage target of a net debt to EBITDA below 2.5x. Now of course, we have to add the caveat that there might be some changes if there are an M&A acquisition. But to be very clear, that's not on the horizon at this time. We have not had a dividend policy in terms of paying out dividends expectation, and we'll continue that expectation on a go-forward basis. And we're also enthused about adding our sustainability target aligning with the Sweden's national climate targets and global best practices by 2045. So good to have our new medium-term financial targets out in the market today. Now moving on to the rights issue, looking at the overview of it and also the use of proceeds. As I mentioned before, it's approximately SEK 600 million. The -- in the bullets, you'll see some of the details about the practice and process of it. We'll have an EGM actually this Friday to approve. But in terms of use of funds, about 2/3 or SEK 400 million will be for the debt repayment to reduce our overall cost of debt, which will free up capital in the long term and reduce our interest payments and provide the opportunity for us to innovate and invest in our Cint 2.0 strategy. And then 1/3 of the balance, SEK 200 million will be explicitly to our balance sheet and focused on our financial flexibility and the opportunity to invest and execute our Cint 2.0 strategy for an overall size of SEK 600 million. We were excited about announcing the rights issue on January 27, explicitly because we had 46% of our shareholder base already committed to the round. And now I'd like to pass it over to our financial guru here, Mr. Niels Boon, to go through our financial update.

Thank you, and good morning, everyone. As Patrick already said, it's no surprise here. We gave a trading update on January 27, and the numbers are the same. We just provide a bit more context and details in this section here. As a reminder, this is the last time that we have to say that we changed the P&L format last year during '24. You see the 3 changes. So we have net revenues instead of gross. We moved from a cost base to [Technical Difficulty] based P&L structure, and we introduced the EBITA Measure as the main profitability measure. So every number that you see for last year is done in a pro forma way to reflect these changes as well. Starting with the sales. On the left, you can see I'm kind of talking constant currency, we had a decline of 4.4%. That was driven by, as already mentioned, partly the elections in the U.S. in particular, but also overall weaker demand in the market, still kind of the same picture as we have seen in the previous quarters. Gross profit, similar compared to, yes, the quarter before. It's a bit below last year, and that's also on the back of lower sales because there's also a fixed cost element in there. So as a percent, therefore, it's a bit lower, but overall in line with expectations. And then on the right, you see the EBITA, EUR 12.7 million. That's higher than last year, both in absolute as well as percent margin, which is, of course, driven by cost savings that we had during the year because we have lower sales, but still nonetheless higher profitability. So in particular, we had cost savings announced in December as well. That's partly reflected in here, but will come out even more during '25. Then going into the split of sales. You see Media Measurement was growing by 8% in constant currency. Cint Exchange was down by 10%. That's a similar picture that we have seen, yes, across the year, except for maybe that Media Measurement used to grow faster, but that's also what we already discussed due to 2 things actually, Q4 last year being really high and also the elections ending in Q3, more or less. So therefore, a lower percentage growth rate here, but nothing that is concerning us. So it's still in line with our expectations. And on the right, we have the split by region. So we see APAC growing by 10% in constant currency and then EMEA down by 6% and the U.S. down by 5%. So I think also that is relatively similar picture from what we've seen before in other quarters. And moving on to the full P&L. think most numbers here, we already spoke about at a high level. So you see the EUR 12.7 million EBITA again, 28% margin. And maybe looking a bit at the full year, it's also good to look at. Of course, you see that we have about EUR 4 million higher EBITA profitability on lower sales. So this is overall good by performance and improvement in terms of profitability and something that we're focused on quite a lot. And yes, one thing to mention also is the EUR 1.1 million impact from the bad debt allowance or the bad debt provision. We have a more sophisticated method now implemented and that led to this change in there. So thought it was good to mention that as well. And there was a bit of revaluation impact of EUR 600,000. Going to cash flow. This is, of course, the most important in the end, right? It's all about cash. So this is the key slide, I would say. For the quarter, it was plus EUR 2.5 million compared to minus EUR 2.7 million last year. You could see that the operating cash flow was actually below last year, but then we compensated a bit on the working capital side being less negative than last year, and therefore, overall cash flow positive. If you look at the full year, you see operating cash flow before working capital being about EUR 11 million better than last year. And this is, of course, ultimately what's driving everything below as well. Something we're really keen on to improve even further this year in '25, but it's looking good already for '24. You see working capital, the negative impact, a bit smaller than last year, but of course, that we are working on to turn around. You will see that on the next slide after this. Cash flow from investing that has to do with capitalization of R&D expense, in particular, so investing into new features, new platform, et cetera, for the future. And the cash flow from financing activities, you see that's more than last year, that has to do with down payments on the loan. Overall, we closed the year with EUR 26 million cash in the accounts. And then the final one around working capital. So here you see that working capital increased a little bit also as a percent of customer spend, which is the way that we look at it, driven by accounts receivable in particular. So that one increased by about EUR 16 million, 1-6. At the same time, accounts payable also increased by EUR 10 million. So that's kind of in line with what we've seen throughout the year because many of the parties, clients who are on the accounts receivable side are also a supplier on our other side for about 2/3 roughly. So this tends to move in line with each other. And therefore, overall, working capital is kind of similar. So it's slightly up, but also we had a strong Q4, of course, coming into that number. So it's by definition, the highest point of the year. Having said that, of course, we are still focused on getting accounts receivable down overall, and this is one of the most important goals for this year as well, if not the most important one, we have a couple of most important ones, but this is one of them. Yes, I think that's actually what I have to say here.

Perfect.

Yes.

Well, thank you, Niels. So the reporting on financial in line with what we already presented. So no major change there. Good to get some greater details on cash flow and accounts receivable as well. We're excited about the future of Cint, especially with our new strategy of Cint 2.0. We think it's critical, of course, that we have a strong rights issue over the next coming weeks. And so appreciate your support as we move forward with that. And it's a big year for us as we focus on this working capital, cash flow, revenue and our new Cint 2.0 strategy and the ongoing migration and consolidation of our systems. So appreciate your time and support, and we'll move to Q&A at this time.

[Operator Instructions] The next question comes from Daniel Thorsson from ABG Sundal Collier.

First comment here, you comment that demand substantially fell after the U.S. election in Q4. How should we think about the start to 2025? Has Q1 also seen this decline in demand in year-over-year terms?

Well, obviously, it's premature to talk about Q1. I would say, in my experience, the budgets for 2025 are set in late Q3, early Q4. So I wouldn't expect that the performance of Q4 to indicate anything about Q1, honestly. We've had scenarios in the past where Q4 has been radically large or radically smaller for various reasons and then Q1 starts the new year. So it's -- we'll have to see exactly how Q4 -- sorry, Q1 is performing as we get to that earnings report. But I wouldn't correlate them necessarily.

Okay. Okay, I see. And then the second question here, is a reasonable target to reach a positive free cash flow in 2025, given your work with working capital, but also less interest costs due to the rights issue that you will conduct?

That is a fantastic question. Niels, what do you think about that?

Yes. So I would say so. So we have a couple of elements like you already say yourself as well, right? So we will have the debt reduction that will help for the interest payments as well, reducing that. But also we will have a lower cost base already going into the year because we had the cost savings that we announced in July and also in December coming fully out now in '25. And also, we don't have the NRIs anymore from the integration that we still had half of the year last year. Yes, so those things will help, and then on top, of course, working capital that we're working on, right, will help as well. So yes, all combined, that is all pushing in a positive direction there. But we don't guide with explicit numbers on this, right? So...

Yes. Okay. I see. That's helpful. And then just a final one here. The slide went a little bit faster than I could see. But on the cash flow side, it looked like you had a positive cash flow in 2024 in the full year, while in the report, it's clearly negative. Was I missing anything in there? Or was that the case?

You mean for the full year?

Yes, for the full year. On the slide that you had, I think the number deviated from the report a bit. The net cash flow in the report was minus EUR 12.9 million, while I think it was a positive number in the slide that you showed. Or maybe I was just wrong, it went fast.

Yes. I think it should be the same. I don't have the slide in front of me here. But for Q4, it was positive. In any case, maybe that [ just mixed with Q4 ]...

Yes, but for full year '24.

For full year about, you mean. Okay. I can...

Okay. Let's keep it then. We can take it afterwards.

Yes. Yes. No, that's good.

The next question comes from Viktor Hogberg from Danske Bank.

Two questions from me. On the Media Measurement organic growth, I heard what you said about the reasons for the deceleration in growth versus Q3. But do you have anything that is in your hands in order to be able to accelerate growth from the Q4 level within Media Measurement? And also on the OpEx side, are you still planning for OpEx to be relatively flat in 2025 over 2024?

So 2 questions there. One is about the relative expectations for ongoing growth within the Media Measurement business given the slower growth in Q4. And secondarily, do we expect the kind of OpEx picture to remain the same in 2025? So I'll start with the second question. We don't expect to layer in incremental cost. We had a cost reduction in June and December of '24, and we expect to see those kind of reduced cost maintain itself across '25.

This is the same guidance that we gave in December with the cost savings program that still holds.

That's exactly right. And then secondarily, on the Media Measurement side, we expect ongoing growth out of Media Measurement. I think the slower growth in Q4 was mainly driven by the outsized Q4 of 2023 that we're being compared to. What we see is ongoing growth and momentum within that business unit.

Any follow-up?

No follow-ups from me.

Wonderful. All right. So on to our next call.

The next question comes from Fredrik Lithell from Handelsbanken.

I think I have 2. First one is really sort of a follow-up on the cash flow discussion 2025. I recall that in earlier years anyhow that you sort of, when you grow, you pay your [ sample ] partners first and then you get -- you receive payments from your B2B clients. So that would imply that if your growth is coming back, you should sort of tie in working capital again. It's good to grow. So I just want to see if that has changed, if you have renegotiated how that works. So that's the first question. And the second one is really on the Exchange, if there is any fundamental change. You talk in the report about some lower volumes from key customers. Have either the traditional inside companies like Kantar, have they changed how they work with digital samples? Or is it sort of a Google phenomenon on the digital side? Just elaborate a little bit on how that specific market is developing and if you see any changes that you need to address?

Will you take the first question?

Yes. I will take the first one on working capital. So I think overall, like it's not like we changed a lot in terms of renegotiations compared to last year because those processes are always taking time. And typically, the larger customers, they weigh the heaviest, right, and they have certain terms with us. It's more about actually sticking to them, I would say, and optimizing the processes around it that it actually works more according to the terms. As you can see in the numbers, we have some overdues, of course, right? So when we look forward, the expectation is to reduce that part and then at the same time, not build up new overdues. So this is then helping in a positive way also like cash flow-wise next year. And yes, I think that's actually the short answer to that.

Okay. Just as a follow-up. So the short answer is that when you start to grow organically again, if we disregard the overdues and all that stuff, you will not really tie in cash into working capital when you grow organically.

Yes, but not exactly. Yes.

Good. Good.

And then overall, we mentioned that demand has been soft, particularly from some larger customers. I think that's a reflection of the overall market. I think if you look at some of our peers that are also public, they've also mentioned softness in demand globally in research across the board. So it's really a reflection of overall market sentiment around use of research budgets in 2024, more than it's about the particular behavior of a couple of large customers that's different than the macro environment.

Okay. That sounds reassuring.

Next caller?

The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson, Nordea, your line is now unmuted.

I guess we'll move on to our next question. Our next question is actually coming in through the chat. This is from [ Thor ]. Accounts receivable, are you seeing signs that migrated customers are behaving better in terms of payment times?

How would you reflect on that?

Exactly. That's a good question, I would say. I think we should kind of disentangle the behavior from the platform that they're on. So the new platform will be better in terms of process, smoother and more efficient, let's say, in terms of the invoicing process. And therefore, I expect it to be better for everyone who's migrated, but it's not necessarily because of the behavior, but more because of the process that underlies that. Yes. So the answer is yes, but not because of behavior, but because of the process that we have on the new platform being better. Would you agree or...

I really like that question. I would say that it's early days in understanding the exact behavioral differences.

Yes. Also, yes.

But we have seen that the invoicing process on the new Cint Exchange is much more straightforward and elegant than what we've had in legacy systems in the past. So one would expect that as migration continues, as more projects are run and invoiced on the new platform that it will be more streamlined process.

Wonderful. And Thomas has resurfaced now on chat. So Thomas, here was the question. With 75% of customers migrated to the unified Cint Exchange by year-end 2024, are you seeing any challenges from the remaining 25%? Are there any risks that full migration could take longer than H1 2025?

Great question. There are always risks and challenges. So to say there are none would be untrue. What we can say is that the remaining customers are in process in terms of the migration, but also we're in ongoing development and feature release for some of the key things that they require in order to be able to migrate fully by the end of June of 2025. We are on pace and in process. That's not to say it's without risk and without challenges and concerns. But right now, we continue to see that we are on pace to have full migration from the legacy Cint platforms by the end of June 2025.

Good deal. It looks like we have another caller coming in.

The next question comes from Fredrik Lithell from Handelsbanken.

I just had a follow-up there on your description on the legacy platforms and all that, the full migration done by June '25. Behind that, when we reach into the second half of '25, is there a sort of a cost element that will disappear from the fact that you sort of can close down the old platform or platforms would be interesting?

That's a great question. We look at those costs in 2 forms. One would be, say, the cost of legacy platforms in terms of hosting, maintenance and other aspects and then also the R&D aspect of developing the new platform. And so we look to be able to deprecate legacy platforms as quickly as possible and those hosting and maintenance costs would, of course, be a cost reduction in the back half of the year. On the R&D side, we look to convert our engineers' time away from maintenance or away from build of new platform into other innovative products that we've suggested in our Cint 2.0 strategy.

Wonderful. As it stands right now, I do not believe we have any more questions. Give it a couple of seconds on the chat, but we look to be completed.

Fantastic. Well, thanks, Brett, and thanks, Niels. Again, we appreciate your time and attention today as we go through the Q4 results. We appreciate your support as well in terms of the rights issue that was underway right now. But most importantly, we look forward to the success in the execution of Cint 2.0 over the next 3 years. So thanks again, and have a great day.

Thank you.

Thank you.