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

All right. Good morning. My name is Patrick Comer, and welcome to the second quarter earnings for Cint Group AB. I'm joined by our CFO, Niels Boon; and our COO, Brett Schnittlich. So let me go ahead and dive into the presentation. I'm going to go immediately to results, as I believe most of our friends or analysts out there understand our business model and speak quickly to our overall view of the quarter. We continue to deliver on our promise of strong profitable improvement. And at the same time, we've achieved a pivotal milestone, which is the substantial completion of our platform migration. So this quarter marks the end of the heavy lifting of the consolidation phase, which, of course, will continue throughout 2025. But the major milestone in terms of migration has been accomplished. And now we turn our eye and we pivot to innovation and to growth. And while this transition phase has obviously impacted our top line as we expected, our operational execution has created a more efficient and a more scalable foundation to build on. And the strategic initiatives we're launching are now present and will be built to fuel our growth in 2026 and beyond. Notably, of course, we've seen this quarter a stronger growth in our Media Measurement business, offset by lower sales in Cint Exchange. Operating cash flow has been supported by higher profitability again, and we have further reduced our accounts receivable, showing our focus on cash flow. As I just mentioned, 95% of our legacy Cint customers have now migrated to the new platform. This is a crucial part of our overall synergy and merger plan. Ongoing operating cash flow is supported by our higher profitability and what you've seen is a very much a focus on reducing our accounts receivable. Of course, after our rights issue, we have a stronger balance sheet with a much better net debt position overall. So in brief, in terms of net sales, EUR 39.3 million, gross profit of EUR 34.9 million, operating of EUR 26.7 million and EBITA of EUR 8.2 million with a 20.8% margin for the quarter. Let's talk a little bit more about platform consolidation and migration. Given the criticality of this, it's important to spend some moments on it. First of all, it's important to note that the Cint Exchange is now feature complete and fully operational with 95% of our customers running all new work on the platform. This has been a tremendous amount of work by our customers and by our teams involved, and I wish to thank them all for the last quarter, but in reality, several quarters of work to get us here today. As we suggested in our last quarter release, it's likely, and we have found that there are some quarters who need a slight extension of their deadline of migration, mainly for trackers and for some API integration that's continued into the early third quarter, but we have absolute expectation that the vast majority of all customers will very quickly be fully migrated onto the platform. We don't expect this to linger long. Also importantly, we have announced a new commercial agreement with our large research partner, Kantar. We just signed this and announced it yesterday. This is not just an extension of a historical program. What's critical about this new deal is that it tightly couples the internal innovation build for Kantar with Cint's new exchange. We are excited about this new deal, and we have really been enjoyed working with a new partner in a technology context. Our goal is to achieve, of course, full platform consolidation by the end of the year, and we're still on pace to do that. This consolidation will include an upgrade path for our legacy Lucid customers, which will start in the fourth quarter. Platform deprecation is planned for early 2026, and we look forward to seeing those material but relatively smaller cost mitigations in the early of 2026. We also thought it critical that we add some customer testimonials as well, and you can read those, as we have some delighted customers who wanted to speak out and how much they've enjoyed the transition to the new Cint Exchange. Beyond migration, we now point towards innovation. And we wanted to speak about 4 of our clear focus areas for the quarter in that regard. We have rebuilt Engage, which is our new panel platform, and that panel platform is now fully integrated with the Cint Exchange. What that means for our customers is that they have access in the new Cint Exchange to exclusive high-quality panel at a larger scale and size than ever before. It's also critically important for our legacy Lucid customers who have not had direct access to this panel before. Very soon, later in July, we will launch our Cint Verified Audiences as a native app in the Snowflake marketplace. This is an opportunity, of course, for our Data Solutions business and allows customers to purchase our verified data through the Snowflake platform. As we've been speaking, the Study Creator DIY product within our measurement business is growing rapidly. It's a very nice fit, especially within the European region, and we've seen substantial growth in that part of our business over the last quarter. And finally, we speak about our new measurement integration into the Trade Desk. We've upgraded our API as well as the reporting and data capabilities that our customers can achieve through the Trade Desk integration, including visualizations, AI-generated reports and also multi-touch reporting as well. So these are clear areas of innovation that we've been able to achieve will store all lifting and migration in the second quarter. So I'm proud of what the R&D and product teams have been able to accomplish with a lot of things on their desk. And now I move to Niels to go through the financial elements.

Thank you, Patrick. Good morning. Starting with the first one, just a reminder of our financial targets that we announced at the end of January this year. In particular, the sales growth of 10%, combined with margins of 25% and then the leverage ratio to keep that below 2.5x. Dividend policy, no dividends, and we are following the net zero targets from Sweden as well. Going into this quarter, you can see on the left graph that we had a decline of revenues of 6.6%, 2.9% in constant currency. I have to highlight that this quarter, the USD versus euro exchange rate had a lot of movements, USD becoming weaker, and therefore, the constant currency numbers are better for us because we have a lot of sales in USD, about 2/3 comes from the Americas. Underneath of this sales number, we have the same picture as we have seen before. So we have a decline in Cint Exchange and then increases in Media Measurement. And moving to the middle graph, the gross profit improved, even though we declined in sales, which is, of course, great. So we now have 88.8% gross margin, which is 1.8 percentage points above last year on a smaller basis, so that's great. It's driven by lower hosting costs and personnel costs. Then moving to the right, the full profitability, the EBITA. Also there, you see a strong increase. So we arrived at EUR 8.2 million, being a margin of 20.8%, which is 3.9 percentage points above last year. And again, also here on lower sales basis, right? So this is also a great improvement. This is driven by the cost savings that we did both in June and in December. Moving on to the net sales development. So as mentioned, Cint Exchange declined. It's 9.1% in constant currency. Media Measurement, 14%, 1-4. So that's a similar picture as we have seen before, and it's mainly driven also by the Americas region. And then if you go to the right, you see the regional split. So we have a decline in Americas and APAC and an increase for the first time in a while in the EMEA region. So that's also great to see. And then moving on to the full P&L. So we already discussed sales and gross profit. You see here the full numbers and EBITA as well, of course. So we don't have to focus on that. Again, you can see that the cost basis is lower across the board. So this is actually the first quarter where we have a clean new cost base for going forward after we had the cost savings last year and also the rights issue that we completed at the end of Q1. Right now, that's fully behind us. We also had lower interest expense. Therefore, you cannot see that here, but we will get that later. So overall, this is a really clean and nice P&L to look at. Also no NRI items affecting comparability. So there's actually a small positive effect reversal that you see there from last year. It's EUR 0.5 million compared to last year when we still had EUR 4.9 million in NRI that was partly for the integration between Lucid and Cint and also that we announced cost savings in June. So that was also in there last year. So we don't have any of that this year, which is great, of course. Moving on to cash. You see also a similar picture. So we have good strong cash flow from operations. The working capital cash flow was actually down this quarter. That's driven by the accounts payable side. We go into that later. Other than that, cash flow from investing, that's related to capitalized software development where we capitalized investments into the new platform and the new features, et cetera. So that's in line with expectations. And the bigger change that you see there is the financing part. So here, I need to highlight that we had, of course, the rights issue proceeds that we received at the end of Q1. And at the beginning of Q2 in April, we paid down the loan with USD 35 million. So that's in there. And then also, we had a USD 5 million down payment at the end of the quarter in June. So that is what goes in there. That's all according to plan and what we announced with the rights issue. So overall, that leaves us with a net debt of EUR 13.7 million compared to almost EUR 80 million last year. So that's, of course -- or less last year exactly. So that's a huge improvement. And the final point, the leverage ratio. We just looked at the targets, it's 2.5x. We're actually at 0.3x. So that's much better than our target actually, which is great, of course, and a really strong position to act from. So we can be proud of all of this. Moving to my final slide around working capital. So you can see that the total working capital went up a little compared to the previous quarter. This is driven by accounts payable decline, as you can see there in the middle of the table. We had a strong reduction again in accounts receivable. So this is still our main focus, of course, to reduce further, but it's great to see this decline from EUR 120 million to EUR 97 million to now EUR 84 million. It's still coming from the same structural improvements that we talked about last quarter as well. So legal entity rationalization, ERP consolidation, one CRM system, and we also have more capabilities there. A lot of automation and improvements in the background. So this is really great to see as well that it's paying off now. So overall, as a percent of total customer spend, also the receivables is now lower than we have seen in a very long time. Yes, I think that's actually it from the financial side. We can get Patrick back on the virtual stage, and then we open it up for questions.

Thank you Niels. I am back.

[Operator Instructions] The next question comes from Daniel Djurberg from Handelsbanken.

Why don't we come back to Daniel if you're having a challenge audio. You can also...

Can you hear me now?

Yes, I can. Daniel.

Can you hear me?

Sounds like we're having an audio problem.

There seemed to be some technical issues with...

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

Let's try with the next Daniel.

That's right.

Can you hear me better?

Yes.

Yes. I heard it was quite noisy the first one. Okay. So a few questions here. First one on costs. You continue to surprise on the lower end here again. How do you view recruitment and total costs for the rest of the year? What's your plans and also into 2026? Do you need to invest a little bit more on the cost side to start to see a growth recovery?

Well, I'll start with and maybe Niels can color in as well that I wouldn't really frame it as that we're, in some way, holding back or slowing down cost or investment in order to just be more efficient. Obviously, we've been very effective in our cost management over the past couple of quarters. And we look to continue that level of efficiency, as we've consolidated on the unified platform. So the savings we unlocked last year, especially a running multiple legacy systems, which we unlock now is going to be obviously redeployed for growth initiatives. Niels, do you want to comment on it as well?

Yes. No, I would say so as well. And we're also, of course, constantly exploring ways to accelerate things, right? And -- but at the same time, we want to be cautious. And yes, we come from fire, of course, with the cost, so we also don't want to go overboard right away. But if you see good opportunities, we will definitely invest in those.

That's right.

Okay. That's clear. And then on the organic decline here in Q2, it's quite small still, but is it mainly driven by a lower number of customers, all in all, due to some customer churn in recent quarters? Or is it entirely explained by lower volumes per customer?

I think it really gets down to the heart of the migration, which is impacting sales in the Cint Exchange during these quarters where customers are moving and going through their own process of whether reintegration or retraining, there's an obvious change in the volumes between legacy systems and the new Cint Exchange. So we would expect as we get through this, that a lot of the challenges in terms of top line growth on the Cint Exchange would start to rebound. And so we point out most of this at the moment to be correlated to the migration process.

Okay. Okay. That's clear. And then the final one, you're soon in a net cash position here. What are your alternatives for deploying cash in '26 and beyond? Are there any potential acquisitions you're thinking about or anything else?

Well, obviously, we're not going to announce talking about new acquisitions at this stage. But as Niels just pointed out, we do find ourselves for the first time in a while in a positive cash position. And now that we have started to prove our ability to have a more successful accounts receivable position also from a free cash flow standpoint, our net debt is in a much better place, and we've proven our major focus for 2025, which is consolidation. Now we move to innovation and growth, which means that we are starting to think about the opportunity to grow in new ways, and that could be reinvestment back into the company at different levels or something outside. But the key thing for us is that we've accomplished this major milestone of consolidation, which is critical to the long-term success of the business, which gives us now the opportunity to, dare I say, dream a little differently now that we started to prove ourselves effective in execution on several important levels.

The next question comes from Thomas Nilsson from Nordea.

Could you perhaps elaborate a bit on the visibility you have into organic growth for the second half of 2025 and whether you're seeing any green shoots in client activity or demand pipelines?

Absolutely. Well, in terms of visibility -- and Thomas, it's good to hear your voice. Welcome back. The -- Obviously, we are going through this -- still this migration story, which is impacting our top line. And so we're spending a lot of time with our customers, navigating the final stages of their transition here and really looking to understand the very question that you asked, which is what is our visibility and how do we view their move of volumes of revenue onto the new Cint Exchange. Obviously, there's been some friction with that final cutover. But we believe the bulk of that revenue impact is now behind us. In terms of green shoots, what we've seen, we highlight that with Study Creator. This is the DIY tool for our Measurement business, which allows our advertising customers to run brand lift measurement projects themselves. And this is a very good fit for middle-sized or smaller customers or customers that are wanting to move quickly and especially in the European market. And we've seen a substantial growth curve in the number of customers, but more importantly, the volume that each of those customers is contributing to that Study Creator business in the last quarter. So that's a tremendous green shoot for us as well. Secondarily, we've seen some EMEA growth this quarter, which is something that we've been wanting to see for a while. And especially in our SMB and smaller businesses, the cutover to the new Cint Exchange, we've seen a lot of growth there as well above the plan. So I think that's some green shoots there critically, and I expect to see a lot more in the coming quarters as we move again from this migration story, which is very kind of internal operational focus to more customer and innovation and forward-looking focus with our customers on a go-forward basis.

Okay. And a second question, if I may. Looking forward, when it comes to innovation and new products, could you talk a bit about what kind of new products and services you're planning for the coming years and which customer groups would be well served by these?

Absolutely. Well, we announced our strategic plan in January, and that has not changed. And so our innovation story is very much focused on those key areas. For our Exchange business, one of the key areas that we talk about is premium supply. So these are audiences that are more valuable, but also harder to reach. The key area we often talk about is B2B. So in this past year, we've ran a -- what I'll call a B2B cycle with our commercial teams as we learn which suppliers and which buyers are more focused on this, as we start building out the capability to launch what we call the premium marketplace, which is an additional layer to the existing marketplace, which focuses on the needs of premium buyers, premium suppliers, but also the respondents themselves to make sure we're taking care of them effectively. On the measurement side, part of it has been growth outside of the U.S. We speak a little bit about the European opportunity. But also, we want to keep adding new channels, new platforms and new types of measures. So for example, we're launching the ability with our verified audiences, the Snowflake marketplace, the new upgraded integration with Trade Desk. We keep adding new integrations. I think last quarter, we announced 4 or different platforms and partners we go out to, and that's a big value to our customers. And then on which measures we actually provide. So I think a big focus of ours recently has been especially on social media. And there are several different measures and types of channels that we'll be adding for our customers over the coming quarters.

Next question comes from Daniel Djurberg from Handelsbanken.