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

Good morning, and welcome to the first quarter results presentation for Cint. My name is Patrick Comer. I'm the CEO. And I'm joined here by Niels Boon, our CFO, and we'll be walking through the results of the presentation with you today. So let's get started. As you well know, Cint is the world's largest survey exchange. Our business is to match survey respondents to surveys and to also run a global scale media measurement business, which has been growing quite nicely over the past few quarters as well. Getting into the actual details here. Looking back on the first quarter, it was a significant quarter for the business. As you may recall, we announced our 3-year strategy plan in January, what we call Cint 2.0, which lays out the plan for the next 3 years. We also released our midterm targets, speaking to our plans for performance over the next few years. And we also, at the same time, announced and completed our almost SEK 600 million rights issue, well oversubscribed by at least 60%, and we appreciate the trust and the interest from our shareholders in investing into the future of Cint. We also had a significant change in our overall debt. Obviously, with the rights issue and the capital raise and the cash flow from it, we're able to reduce our overall leverage ratio from 2.5 to 0.4, significant change in the course of the business. Also, what you'll see in our statements is we had strong cash flow in the quarter, obviously, from the rights issue, but also from operating with improvement in working capital and overall profitability improvement in the quarter. We also see besides just the financial or operational improvements. Now we have an ongoing sales trend, which we've seen from a number of quarters, where we've had strong sales for media measurement, offsetting slightly lower sales in Cint Exchange. And what we'll say about the first quarter is that this is right in line with our overall 3-year plan and is in line with expectations of our overall transformation. What we also see in the quarter is a strong EBITDA improvement. You'll see stronger gross margins in our numbers, but also lower operating costs, driven by cost reductions last year. And finally, we see, as we've been talking about for quite some time, is platform unification and customer migration is progressing quite well. As we stated, we have 81% migration, which is actually ahead of expectations for Q1. So we are currently focused on our largest and most complex customers for migration in the second quarter, and we are very much focused on their transition from legacy platforms for the new Cint Exchange. In terms of the overall financial figures, what you'll see here is net sales of EUR 35.9 million, a slight decrease from last year. On the gross profit side, you'll see EUR 31.4 million, which is a nice improvement, both in terms of size, but also in terms of margin. OpEx, as you can see, has also gone down, both in terms of cost of sales, but also in terms of overall costs. This is an improvement, which you've seen some of our cost reduction programs in Q4 and Q2 of 2024. Now of course, Q1 is our seasonally smaller quarter, which has a smaller EBITDA than other quarters, but we had an improvement over last year in a very nice way. So what we'll see here is that across the board, we see expected sales from how we see the quarter and our 3-year plan shaping up, but improvements in gross profit, OpEx and EBITDA. What we also speak to is some of our innovation and our wins in the quarter, starting on the media measurement side of the business. We were announced as the media partner for the measurement side for several different important customers. I'll highlight Walmart. Of course, my kids love the fact that it's Roblox, Disney, AdRoll and Teads. All these are important measurement partners of ours, which will allow us to continue to expand and grow that business. We also, in the media measurement side, grew the number of markets that we have available. We added Vietnam and Malaysia, which adds to the total number of markets that we measure in globally to 33, which makes us one of the largest platforms for media measurement across the board. On our exchange side of the business, we also launched 21 different enhancements or improvements. Many of those are associated with migration and Cint 2.0 for the new Cint Exchange. The largest and most important, which is what we call CPI Boost, which allows our customers to change the price of a survey mid-field so they can be competitive both in pricing, but also efficient in terms of delivery. All this is also underlying in the media measurement side, where we have our Study Creator, which is a subscription-based DIY tool, which is allowing for customers, especially out of EMEA to grow quickly within our platform. All these areas are significant improvements in innovation. Obviously, a lot of our R&D right now is associated with migration and the release of the Cint Exchange with migration, but we will see more innovation, and we'll be able to highlight more as we invest further in the back half of 2025. I'll let Niels talk through these financial targets here.

Yes. So these are the financial targets that we announced in January. So there's nothing new here. But just to remind you all, double-digit sales growth, more than 10%. This is towards the end of the 3 years, right? So by 2027, 25% EBITDA, then a leverage ratio of 2.5, where we are now at 0.4. So it's actually way below the target at the moment. And no change in dividend policy and sustainability target. I think I'm actually continuing. That's good. Yes. So also as part of the financial guidance that we gave in January, we labeled 2025 as a transition year as we're going through the migration, right, and unifying the platform. Despite that, we have a couple of good milestones as well during the first quarter. So that's quite nice. We have strengthened the balance sheet, improved operating cash flow and also on track to position ourselves for growth going forward. So let's dive into the numbers. Starting with net sales, you see EUR 35.9 million. That's a slight decline from last year, but in line with our expectations. And the good news is that if you compare the margins on the right, you see that we improved actually gross profit by more than EUR 1 million despite lower sales. And the margin is increasing from 83% to 87.5%. The driver here is lower hosting costs as well as lower personnel costs. And then moving on to EBITA. There, we jumped from EUR 1.5 million last year to EUR 3.7 million this year, and the margin increased from 4% to 10%. And again, this is on the back of lower sales, right? So overall, this shows that our efficiency -- cost efficiency measures are kicking in. And yes, we're looking forward to the rest of the year because of this as well, of course. And diving into the segments and the regional split. So you see the similar story as what we had before, 8% growth for Media Measurement. Here, we have to make the remark that there was a one-off project last year that was kind of rising the results over there. Without that, the underlying growth rate was actually 17% instead of 8% for Media Measurement. Cint Exchange down by 5%, which is also in line with our expectations given that we are migrating the customers. And then regionally, similar picture as what we had before as well. So the Americas growing by 10%. It's driven by Media Measurement, of course, being mostly in the Americas as well. And then we have declines for EMEA and APAC. The APAC decline looks high in percentage terms, but it's a low basis, of course. And it has to do with the reorganization that we announced last year, where we're changing to a new go-to-market strategy over there and setting us up for future growth. And continuing with the P&L. So we already discussed a bit about these numbers. So you see the higher gross profit compared to last year. And overall, the OpEx is down from EUR 29 million to EUR 28 million as a group over there. And that even includes the EUR 1 million other income -- other operating income that you see over there that's coming from FX impact. So it's not operating over there. So without that, the improvement would have been actually EUR 2 million. Yes. And the margins, of course, look quite nice as discussed. So we have like the higher gross profit and the higher EBITA. And also one thing to point out is the items affecting comparability. We didn't have to many more for, I think, the first time in the year. So that's also quite a good news and something that is also expected to stay like that, of course. And then the cash flow part. So this one looks a bit different than what we have seen in the past. So we have a couple of positive effects that you can see this quarter. So the first one is that the operating cash flow was plus EUR 10 million compared to minus EUR 1 million last year. And that's just driven by the operations of the business, right, with the lower cost base and in particular, reduction of accounts receivable in the working capital. And then you see that we had this one-off effect where we sold the minority interest that brought in EUR 7.1 million. So that's in the investing cash over there. And then, of course, we had the rights issue as well, bringing in EUR 54 million. Here, we were also helped by the exchange rates actually. So this is more positive than expected in euro and USD. So that's also good news. And then overall, you see that there's EUR 94 million cash at the end of March. It has to be said that, that's before about EUR 2 million in costs that are associated with the rights issue as well that are not out of our bank account yet at the end of March. But still, it's really a great result, of course, and the net debt overall EUR 12.5 million compared to EUR 84 million last year, last year being December, I mean, so 3 months ago. So this is a huge transformation. And yes, this is really strong, helping us, positioning us well for the future. So again, thanks for all the shareholders as well, of course, who supported us during the rights issue, and we're looking forward to show even better numbers in the future. And then here, finally, working capital. You can see most notably, of course, the change in accounts receivables, right? So we had under EUR 20 million there, down by EUR 23 million. So we're now at EUR 97 million, which is lower than what you've seen in the year. So it's actually lower than last year's Q1. So this is quite remarkable, of course. We have a couple of reasons here why that's happening. I listed some all there. We've talked about it before, but now it's really starting to pay off. So the first one is what we call legal entity rationalization, where we went down in number of entities to take out complexity there. We also unified the ERP system. So we have one ERP system now across all entities across the whole company for the first time since the merger actually 3.5 years ago now. So this is also great and helping a lot with efficiency. We also have only one CRM system where all the billing information is stored. That sounds trivial, but it's not, and we have now one. And we have stronger teams than we had a year ago as well. And all these things, of course, are helping to take out inefficiencies in the invoicing process and also to just make the collection more efficient in general. So we keep on working on this, of course. This is just the beginning, hopefully, and we're continuing to push with this. You can see that accounts payable also went down. So often, we have the same parties from the receivable side, also on the payable side, and it goes hand in hand. But of course, the receivables went down more than payables, right? So the overall effect is still cash positive. So overall, net working capital went down from EUR 45 million to EUR 38 million. Yes, I think that's actually it's from the working capital side. Thank you for joining us today, and we're opening it up for questions now. Welcoming Brett to the stage.

Yes. Our COO, Brett Schnittlich.

Thank you so much. Pleasure being here. And I believe we're going to be starting by taking some calls from the phones.

[Operator Instructions] The next question comes from Thomas Nilsson from Nordea.

Media Measurement growth is strong. What are the main drivers behind this? And how sustainable do you see this level of growth over the next, say, 12 to 18 months? And are there particular geographies or verticals you are prioritizing within Media measurement?

Thanks, Thomas. That's a great question. So I hear a couple of thoughts in there. One is tell us about the medium-term kind of growth prospects for the Media Measurement business. And are there particular geographies or verticals that are focus areas for that. I think what we continue to see is strong growth from the Media Measurement business. We noted in our release here that the underlying growth of the Media Measurement business continues to be strong, even the overall segment only showed 8% in the quarter. So we continue to see the growth and interest from our customers, what we showed in terms of the number of new partners that we are now the measurement partner with. We're scaling up in the first quarter. And so we continue to see strong demand and strong interest from customers, but also the number of platforms that we're integrated with is continuing to expand, which means the number of customers that our products are available to is also increasing. In terms of geography, we announced both Malaysia and that our number of countries has gone up to 33. So we're the largest global scale partner for Media Measurement globally. And so we see strong support for the Media Measurement historically within the North America region. And so that's where the majority of revenue is today. We're also seeing growth in the EMEA area in particular, closely correlated with the Study Creator product, which is releasing, which allows for EMEA customers, in particular, to create their own studies and move with Media Measurement faster. And so we're seeing that as a growth shoot in the EMEA business.

Yes, double-clicking on something Patrick said. As we stated earlier, with the new partners that are being added and continue to be added, these have a channel sales effect. So as we bring on these clients, their clients are also capable of working with our Media Measurement products. So the growth opportunities are exponential, and we've seen that in the past with other partners like Amazon and Trade Desk.

Okay. And the second question, if I may. When it comes to your financial targets regarding the path to an EBITDA margin of 25%, what would you say are the most critical levels for margin expansion once platform unification is complete? And how much of this improvement should come from revenue growth versus further cost efficiencies?

Well, I think there's a clear trajectory in terms of revenue growth target, creating the opportunity at its core for the profitability. So those are closely linked together. As revenue can grow, the fixed cost, of course, will remain while the variable cost will be slower. So we'll see the expansion there. In terms of other costs that we have -- other things like hosting, which will be reduced and other kind of platform costs, which will continue to go down as consolidation finishes in 2025. Anything you want to add to that in terms of the path to...

Yes. No, I think that's right. And it's -- we are already quite lean, of course, based on the cost reduction programs that we just had, right? So we did one in Q2 and one in Q4. So we are already kind of positioned cost-wise for the future. The unification of the platforms will help on the hosting side and some efficiencies here and there. But overall, we want to repurpose most of the teams, for example, there. So that will be -- where we are right now is kind of what we will see in the future as well. So we don't expect additional cost cuts on the back of that.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions.

Okay. One more question coming from the phones.

The next question comes from Daniel Thorsson from ABG Sundal Collier.

Patrick, Daniel from ABG. Sorry, I was a little bit late. I had a couple of calls at the same time.

It's a busy morning.

Yes, I didn't dare to put to raise the hand before I knew that I had time. I got a question here on your outlook statement in the CEO word here. You say that the changed consumer behavior, the increased macro uncertainties may not be that negative for you, and you mentioned the COVID situation as we all remember. Can you elaborate a little bit around that and what you are seeing at the start of Q2, for example?

As you recall in COVID and for the overall business of surveys and market research, when there's uncertainty and volatility in the market, it creates the need for more surveys and more research to understand the customer as customer needs and interest and perceptions change. And we saw that particularly in COVID where there was an initial pullback. And then once we got into COVID, there was a huge amount of research growth as consumer behavior is changing based upon the realities of COVID. At the same time, we also noticed that there's a strong global pullback that can impact our customers' budgets. And so there's a push and pull dynamic that can happen when there's this type of uncertainty in the market. What we're seeing now is that we are not currently seeing customers pull back nor are we seeing them push forward, but we're watching very closely. And so this type of uncertainty that we're seeing in the overall market can have both a positive and/or negative output to the business and future performance. Right now, we're not seeing strong signals of either, but it doesn't mean we're not very focused on listening to our customers' challenges and concerns around are their customer behaviors changing and shifting, but also are their budgets or their own kind of corporate perception changing at this moment. So it could be a mixed bag. It can be positive, it could also be slightly negative as well. And we'll see as the quarters unfold from here.

Yes. One of the things that we saw previously, the Cint platform provides a super low friction way of being able to converse with customers. So again, as Patrick said, in moments of uncertainty, when organizations need to figure out what customer sentiment is, it's a platform like Cint that allows you to be able to get quick answers to those questions with relatively low friction.

I see. Okay. That's helpful. And then secondly here, on the Cint Exchange platform, given the phases you are in the migration, when in time it's reasonable to expect you to be back to organic growth if we separate the market dynamics and independent of the market development, how many quarters could that be left roughly?

Well, I think it's pretty clear that we're still in migration and consolidation. So we don't expect a significant change in that positioning in the short term. It's important to note also that we moved off an election year. So the volume of completes or interviews in the platform has shifted because we're in 2025 and not 2024 because of the U.S. elections. And so in the short term, we're very much focused on that migration process. And obviously, in order to achieve our overall revenue growth targets and profitability that we set as targets, we're going to need to achieve that return to growth in the exchange business within the medium term.

Okay. That's helpful. And then finally, on the cost side here, OpEx is down a bit, gross margin is up. How do you plan further cost reductions in the global organization? Or are you starting to look at net hiring? Or how should we think about the group level costs?

So overall, the aim is to keep it quite stable in line with what you see now in Q1, I would say. It's some of repurposing...

[indiscernible] pickup or...

Sorry.

Say it again.

Until we see a growth recovery? Or what are you kind of waiting for to see a hiring mode again because your target is to grow 10%? So I think that requires some OpEx growth at a later point in time, obviously. But I think as long as you are in a low growth mode, I guess, that your stable OpEx response here is fair for sure.

That's correct. What we'll see in terms of personnel cost structure. If you take a look at our R&D team, right now, we're very much focused on migration, finishing key features and aspects of the Cint Exchange. Once migration and consolidation is complete, that team will be now focused on innovation. And so there's a turn from migration to innovation at the back half of this year and ongoing, of course. As you well know, we just released our new go-to-market plan, where we changed the way we sell our products focused only on the segments versus the geographic regions. So we've had a good uptick in that, particularly out of the North America team. We would expect, of course, as sales expect to grow in both sides of our business that we invest in the sales alongside. And so I think that you'll see our cost structure shift slightly up as we look at higher growth rates. But the cost structure as we have now is what we expect to see in the short-term basis.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions.

Wonderful. And just as a reminder, anybody on the web who'd like to post a question, please put it in the chat. We've got a first question from Viktor at Danske Bank. And there's actually 4 questions. Let me read them out and we'll nail them one at a time. The first one is, is the 10% group organic growth target based on roughly 15% organic growth in Media Measurement? The second, Media Measurement, are there any other one-offs affecting historical growth rates such as data solutions to be aware of? The third, receivables decreased sequentially but was at the same level of sales in Q4. What should we expect in 2025? And the fourth, in terms of macro, from recent years, we've seen that demand is negatively affected by bad macro. What are your thoughts on the current macro situation and potential impact to demand? So let me go back to the first one. Is the 10% organic growth target based on roughly 15% organic growth in Media Measurement?

I don't think we've broken out the individual growth rates. But what I will say is that we've seen that level of growth that we saw it even if you take out that one-off project in this quarter, higher levels of growth out of Media Measurement. So I think we would expect to see that level of more growth out of the Media Measurement business on an ongoing basis. And what was the second question?

The second question is...

The one-off, yes.

Yes. Are there any other one-offs like the data solutions to be aware of?

We don't expect that to occur as we've basically consolidated our Media Measurement product into what we see today with Media Measurement through our channel partners that we announced today as an example. The type of one-off projects, which were more legacy since media measurements are not likely to occur again as we're no longer focused on that style of measurement.

And for Niels, receivables decreased sequentially, but was at the same level of sales in Q4. What to expect in 2025?

Yes. So overall, we're looking at it in absolute amount. So we have still a backlog to go through, right? So we keep on working that one down. So that means it should come down as a percent of sales ultimately. We don't have like a clear target that we're announcing for that, but we're working with full speed on getting the absolute number down in any case.

That's right.

Yes. And that final question from Viktor. In terms of macro, from recent years, we've seen that demand has been negatively affected by bad macro. What are your thoughts on the current macro situation and the potential to impact demand?

I think we spoke to it earlier. We can, in volatile times, see both positive signals and pull of demand in the business as uncertainty drives the number of questions that our customers have for their consumers and their constituencies. And so we can see an increase of demand based on uncertainty. At the same time, if that uncertainty creates a pullback in research or advertising budgets, then that demand can have a negative impact. Sometimes those cancel each other out, sometimes you lean one heavily one way or one heavily on the other. What we'll say is as of now, within Q1, we're not seeing signals that are indicating too much of an either direction at the moment. So we're in a wait-and-see moment looking and speaking with our customers around what they're seeing in the market. We are seeing obviously certain projects that are very much focused on volatility and market uncertainty as our customers are asking questions of their constituencies from a political basis, but also their consumers as their behavior might shift as they expect to buy certain things faster or slower. But right now, that's not driving a change in how we look at forward growth at the moment.

Wonderful. So at the moment, there is no other questions out and pending. Patrick, [ final ] thoughts.

I would just say thank you to our investors and our partners for the support last quarter. It was a significant material quarter as we obviously did our rights issue, announced our strategic plan, left the quarter with a very different cash position and leverage ratio, but also see strong operational and revenue signals that support the overall strategy for Cint 2.0. So thank you for your support this quarter. We look forward to speaking with you again in about 90 days.

Thanks.

Thank you.