LINK Mobility Group Holding ASA (LINK) Earnings Call Transcript & Summary

Good morning, and welcome to the First Quarter 2025 Financial Results Presentation for LINK Mobility. My name is Kristian Niegel, Investor Relations and Corporate Strategy Manager in the company. And with me here this morning are Thomas Berge, CEO; and Morten Edvardsen, CFO, which will present the results. After the presentation, there will be a Q&A session. Please post questions online during and after the presentation. Thomas, the word is yours.

Thanks for the introduction, Kristian. Another great quarter for LINK with strong organic growth and 2 new M&A deals for the start of the year. LINK is the leading and largest CPaaS player in Europe. We started out more than 20 years ago in the Nordics and have been part of building the messaging market in the Nordics to one of the most advanced messaging markets in the world. LINK is using this experience to fuel the development in the less penetrated markets in Europe. Our strategy is dedicated to providing digital communication products to the enterprise market for them to interact with their end customers. We approach the enterprise market through a strategy of local touch points with our clients. We have numerous sales reps, customer service and customer success employees on the ground winning new contracts and supporting existing clients in the local language and culture. This setup is creating a larger reach than many of our competitors who have a more regional or centralized approach to the market. LINK has more than 50,000 clients serviced by our more than 30 offices in 18 countries are a result of the successful implementation of this strategy over many years. Gross profit in the last 12 months was recorded at almost NOK 1.6 billion. LINK has grown significantly over the last year with a gross profit CAGR of 12%. Profitability has always been a key priority. LINK is growing the business while generating additional profitability and cash. Over the last 4 years, adjusted EBITDA has a CAGR of 14%, higher than gross profit growth due to LINK's scalable business model. For Q1 2025, the last 12 months adjusted EBITDA is reported at NOK 757 million or a growth of almost NOK 40 million in 1 quarter. LINK has a central position in the industry value chain, supporting clients with connectivity and SaaS solutions to enable clients to communicate with their end users. Enterprises have a constant need to communicate and inform their end users. Enterprises are increasingly choosing the mobile phone as the communication channel towards the end users. This megatrend is being driven by the end users themselves. We prefer that enterprises communicate with us over the mobile phone and the enterprises adapt. LINK has the connectivity to the mobile operators and relevant OTT channels, which are combined with our software solutions to provide our enterprise clients with an end-to-end communication solution towards their end users. Those software solutions include chatbots combined with AI, marketing automation, CDP, payment solution, template builders and template managers. LINK software solutions combined with connectivity enables a state-of-the-art multichannel and conversational communication platform, ensuring satisfied end users and high return on investments for our clients. We're happy to report an excellent first quarter. Both gross profit growth and adjusted EBITDA growth are strong and a continuation of the solid performance the company has reported over the last 2 years. Organic gross profit growth came in at 9% versus same period last year. Adjusted EBITDA growth is reported organically at a very strong 18%. In the current quarter, gross profit growth is significantly higher than revenue growth, the same trend as we have reported in the 2 previous quarters. Enterprise revenue growth is lower than gross profit growth due to more demand for advanced products with higher margins and more activity on higher-value clients. The profitability contribution on the more advanced products has counteracted the softer development on low-margin traffic on gross profit, but not to the same extent on revenue, thereby resulting in higher gross profit growth than revenue growth. For Global Messaging segment, the discrepancy between the revenue and gross profit development is clear. Revenue declined with NOK 118 million, while gross profit grew with NOK 7 million. Revenue decline in Global Messaging is a result of LINK terminating traffic to lower-margin destinations, focusing on more profitable arrangements. The aggregator business in Global Messaging is more volatile and less sticky compared to the enterprise regions. Volumes fluctuate based on the decisions on the LINK side as well as clients' needs and adaptions. LINK has terminated several low-margin destination, reduced revenue growth, but still increasing gross profit growth and gross margin in the segment. Gross profit is reported at NOK 409 million or an organic growth of 9% in fixed currency, which is in line with the expectations of high single-digit growth. Adjusted EBITDA is reported at NOK 198 million or an organic growth of 18% in fixed currency. LINK recognized an extraordinary bad debt provision in the Global Messaging segment same period last year. Underlying growth in adjusted EBITDA is 12% and higher than gross profit growth due to LINK's scalable business model. Reported EBITDA is NOK 187 million, reflecting NOK 11 million in M&A costs. LINK signed new contracts in the quarter with an estimated gross profit of NOK 42 million, above the quarterly target of NOK 40 million. A higher share of the new agreements is for more advanced solutions with higher profitability. New contracts utilizing advanced conversational products on RCS constitutes 17% of all new contracts closed in the quarter. LINK also closed 2 new M&A transactions, both in the U.K. market. The U.K. market is an attractive market, and the 2 new acquisitions have solidified LINK's presence and expanded the customer portfolio to new verticals like the public sector. The additional size in the U.K. elevates LINK to a clear Tier 2 player in a very large market, which further fuels our growth opportunities in the U.K. We have a strong M&A pipeline with 5 targets in due diligence, of which 3 have been added in the quarter. Gross profit is reported at NOK 409 million or a growth of 9% in fixed currency. A solid contribution from the more advanced CPaaS solutions with higher margins, together with stronger growth momentum on high-margin client traffic was the main driver of growth. Increased market demand for more advanced conversational products is clearly materializing in the P&L with a solid gross profit growth. This effect is also evident in the organic margins with a 3.3 percentage points increase in gross profit margins. The graph at the bottom of the slide displays the margin impact from the segments. Both the Enterprise segment and Global Messaging are reporting a positive contribution to group margin expansion with 1.6 and 1.8 percentage points, respectively. LINK has significant improvement in new business wins over the last 2 years based on renewed focus and changes in commercial execution. The graph on the left shows the estimated annualized gross profit on new contracts. The numbers are extracted from our CRM systems and the estimations are based on contractual arrangements and specific dialogue with clients. Internally LINK, we have a target of achieving NOK 40 million plus in gross profit from new contracts per quarter, except Q3, which will be lower due to summer break. The current quarter resulted in NOK 42 million in expected gross profit from new contracts, isolating the new contracts for advanced conversational products named CPaaS in the graph, the current quarter is at NOK 15 million on estimated gross profit. We observed more traction in market demand on advanced mobile marketing solutions combined with bots and WhatsApp RCS. We also see more demand for marketing automation and CDP in the Nordics. The OTT channels are in high demand. RCS and WhatsApp combined with chatbots and other software solutions are growing rapidly. The main use cases are mobile marketing and customer support use cases. LINK is further enhancing its SaaS solutions with AI content creation to help our clients to automate more of their campaign activity. Historically, about 75% of the gross profit is recorded in the P&L after 12 months. We expect the higher contract backlog to benefit gross profit growth gradually. The more advanced CPaaS contracts take longer time to scale volumes versus legacy product, but of course, result in immediate and higher license revenue. LINK has a healthy sales pipeline in addition to the new agreements won. LINK is operating in a growing market with 2 growth engines, continued growth on existing products and accelerated growth on the more advanced conversational solutions. For existing products utilizing SMS and e-mail as a channel, most markets experienced market growth as more and more businesses are using digital communication solutions to alert, notify and promote their end users. On top of businesses utilizing digital communications for the first time, there is also a growth momentum on businesses using digital communications on new use cases. The Nordics are the highest penetrated messaging market in the world with 436 messages per citizens, with the rest of Europe lagging behind with 186 messages per citizen. We expect the less penetrated markets to continue increasing the penetration rates as more use cases are introduced, gradually closing the gap to the Nordics. The more advanced solutions enabling 2-way dialogue on the new OTT channels like RCS and WhatsApp are creating new use cases for the industry. Suddenly, enterprises want to engage with their end users instead of just pushing out a message. This market is in the early stages of adoption, but growing aggressively from low volumes. This growth is expected in our industry to accelerate, partly taking over the growth momentum on existing products and partly creating growth on top. Profitability is much higher for these more advanced solutions, both on a per message basis, but also higher license fees. The continued growth on the more advanced products is expected to raise margins levels going forward, but we expect an evolution over time, not a revolution. On this slide, we provide a specific example of a conversational use case growing rapidly on one of the OTT channels, WhatsApp. The logistics industry is rapidly demanding conversational products to engage end users in dialogue regarding tracking shipment, delivery time, payment and collecting NPS score to both save money on no shows and to create a better end user experience. LINK is implementing a lot of new contracts on this use case, increasing the volume to almost 50 million messages this quarter versus 2.5 million same period last year. RCS, it's a feature channel that we expect significant growth from going forward. RCS can be viewed as SMS version 2 as the channel is embedded in the SMS app, but with all the functionality and features that were used on, for example, in WhatsApp or iMessage. RCS has been on the market for several years, but until now only been available on -- or compatible on selected Android handsets. Apple has not opened up for RCS until now. This has held back the adoption significantly. Apple launched RCS on iOS 18.1 and are gradually rolling out this feature through mobile operators in Europe. Spain, France, U.K., Belgium and Germany offer RCS on both iOS and Android, the rest of the market are waiting for RCS to be rolled out. Customer demand is driven by the additional value this channel is creating through a better end user experience and interaction. We see a higher response rate, higher engagement rate and a significantly better conversion on RCS than SMS. The RCS volumes are increasing rapidly from 82 million messages last year to 119 million this year on an LTM basis. Looking at the new contracts, we expect NOK 17 million on gross profit from new contracts, which is a growth of 49%. We expect material commercial traction on RCS when we can reach all end users with increased security, features and ease of engaging into a conversational dialogue. RCS is rapidly growing as we speak, but we expect this growth to accelerate when the channel is available for most end users. LINK has closed 3 acquisitions in the U.K. market in the last 7 months. The U.K. market is large with good growth potential. LINK has got the size after the 3 acquisitions to become a relevant vendor in most verticals. We have 8% market share in the U.K., becoming one of the biggest Tier 2 vendors and a much more relevant player towards the mobile operator benefiting from higher discounts due to the additional volumes. LINK's customer stock in the U.K. also increased significantly with more than 3,600 clients representing all verticals and a great potential for upselling activities. The customers from the acquired entities will also benefit from LINK's additional product portfolio, and we are upselling more advanced conversational products on RCS and WhatsApp as we speak. LINK is interested in further acquisitions in the U.K. market. In addition to organic growth opportunities, the company is well positioned for inorganic growth through M&A. LINK has the competence, the historical track record for value creation through M&A and a solid pipeline with M&A targets. Since 2015, LINK has closed over 30 acquisitions, of which the majority have been a great success, generating significant value. In 2024, LINK closed 3 acquisitions, EZ4U in Portugal, NRS in Spain, and Reach Interactive in the U.K. In 2025, LINK has closed 2 more acquisitions so far, both in the U.K. The acquisition had a multiple of between 6x to 7x cash EBITDA and was highly accretive to LINK's own valuation. We have 10 prioritized targets, most of them located in Europe. These prioritized targets have an EBITDA potential of up to EUR 30 million to EUR 40 million. Of these targets, LINK has 5 companies under due diligence, and we have added in 2025, 3 more targets to the due diligence process. Bolt-ons in Europe have priority, but we're also looking outside Europe. Private companies in our space have a target valuation of between 6x to 9x cash EBITDA before synergies. The quality of the customer base, growth momentum of the targets and synergy potential are the main criteria, placing the valuation in the mentioned range of 6x to 9x cash EBITDA. The company is pointing to LINK's stable historical performance to provide further guidance on reasonable expectations going forward. We expect LINK's European business to continue to display a high single-digit gross profit growth rate. Additionally, we expect adjusted EBITDA growth rate to be higher than the gross profit due to our scalable business model. Inorganically, LINK has a growth target of 10% on adjusted EBITDA through bolt-on acquisitions. LINK has NOK 2.5 billion in cash reserves. The cash position will be further strengthened by time as the company historically generates approximately NOK 400 million in free cash flow on a yearly basis. The high cash reserves will be used for acquisitions and a significant repayment of the existing bond when the last tranche of the bond will be refinanced. Acquisitions will not increase net debt beyond a leverage ratio of between 2.0 to 2.5. That was my part of the presentation. Morten, please take over and guide us through the financial section.

Thank you, Thomas. In the first quarter, LINK reports revenue of NOK 1.7 billion. Total revenue growth was, as in the previous 2 quarters, impacted by termination of low-value traffic in the Global Messaging segment and high comparables on high-volume, low-margin clients. These effects resulted in an organic revenue decline in stable currency of 7%, taking into account positive currency effects of NOK 31 million in the quarter. Acquisitions closed in 2024 contributed with NOK 56 million and total reported revenue remained fairly stable year-over-year. Enterprise revenue remained stable year-on-year as we face stronger comparables this quarter on high-volume, low-margin clients, including extraordinary high volumes on one single retail client in Q4 2024. We continue to observe increased volume and revenue steaming from more advanced products, reflecting implementation of sold contracts in the preceding quarters. Regionally, we observed low single-digit growth in the Nordics in line with previous quarters, while Central Europe growth was reported at 7% in the quarter, somewhat down quarter-on-quarter, impacted by the extraordinary high volumes from the one large retail client with an underlying momentum of double digit, excluding this mentioned client. Western Europe revenue growth was as in the previous quarter, impacted by strong comparables on selected high-volume, low-margin clients, and this effect was stronger quarter-on-quarter as Q1 '24 included even higher volumes from such clients. The Global Messaging segment reported revenues of more than NOK 300 million or an organic decline of 28%, impacted by termination of low-value traffic as in line with the previous quarters from refocus towards higher-value traffic and reduced credit risk. Total volume reported for the quarter was 5.4 billion messages, representing a reported growth of 17% and impacted by adding on significant volumes from the LATAM business as part of the acquisition of Net Real Solutions in Spain. Organic volume growth on SMS was as for revenue impacted by the termination of traffic and high comparables and declined year-on-year by 8%. All the key channels continue with solid organic growth momentum of 130% year-on-year, impacted by strong growth in WhatsApp messaging, as Thomas touched upon previously, in addition to growth in RCS messaging. Moving over to the churn and net retention overview. Enterprise churn remained in the historical level of 1.5 percentage points and includes a 0.3 percentage point impact from the large retail client that churned Q3 last year. The low churn reflects sticky integrations to clients' IT stack and high transition costs, which are further supported by implementation of more advanced CPaaS contracts. As for revenue, net retention metric is impacted by the terminated traffic and high comparable low-value traffic same period last year. The year-on-year effect related to selected high-volume clients are stronger in Q1, as mentioned, versus last quarter, hence, a softer net retention is reported quarter-over-quarter. While the effect from terminated traffic in Global Messaging is at a similar level as we've seen in the last 2 quarters. We would emphasize that we expect net retention metric to normalize in the second half of this year once the high comparables last year are faded out. Moving over to the next slide on gross profit. Gross profit is reported at NOK 409 million or a reported growth of 15% with a positive impact from currency of NOK 8 million and acquisitions adding NOK 15 million. Organic growth in stable currency was 9% and outpacing revenue growth from shift towards higher value revenue compared to same quarter last year. The Enterprise gross profit growth was 7% and outpacing stable revenue development from improved revenue mix towards both higher-value traffic and products, driven by implementation of higher-value CPaaS contracts. Regionally, Northern Europe gross profit was slightly down year-on-year following softer volume development on selected clients. The underlying growth momentum on existing clients is influenced by price increases from operators in the region, while new contracts contribute positively on the back of consistent strong commercial results in the region. Central Europe contributed positively to total growth from both domestic and global clients and an improved contribution from more advanced products on selected global clients, leading to a reported organic growth of 22% year-over-year. Western Europe delivered organic growth of 3% despite 6% lower revenue year-on-year linked to high comparables on high-traffic, low-margin clients, driving a positive margin mix. Growth is impacted by the isolated bankruptcy churn of a large retail client since the third quarter last year, impacting approximately 2% on year-on-year growth. In Western Europe, higher interest in and increased use of richer OTT channels contributed positively, but was also somewhat offset by the isolated churn -- retail churn, which includes a high share of OTT, mainly related to RCS messaging. The lower graph shows development in the gross margin level in the Enterprise segment, which improved year-over-year and quarter-over-quarter to 28%. The mix towards higher-margin revenue as in traffic and products impacted enterprise margin positively, while the contribution from more advanced feature-rich channels was 0.4 percentage points on the year-on-year margin expansion. Then to the next slide on adjusted EBITDA. Adjusted EBITDA is reported at NOK 198 million, a reported growth of 25%, and 18% or NOK 28 million organic growth in stable currency. Growth is driven by NOK 31 million organic gross profit growth and partly offset by an organic OpEx growth of 1% or NOK 3 million in the quarter. As Q1 2024 included a NOK 9 million bad debt recognition related to the Global Messaging segment, the underlying OpEx growth was 6% and mainly driven by salary inflation and other growth-related items. Adjusted for extraordinary bad debt provision, the organic growth in adjusted EBITDA was 12%. The inorganic growth contribution from acquisitions closed in 2024 was NOK 8 million in the quarter. Adjusted EBITDA margin improved year-on-year by 2.5 percentage points to 12%, driven by the 3.3 percentage points organic expansion in gross margin, partly offset by increased OpEx to sales ratio linked to revenue decline from low-margin traffic. Moving on to an overview of the P&L. I will only focus on a select few items as we've been through the development in adjusted EBITDA in the earlier slides. Nonrecurring cost in the quarter is reported at NOK 11 million and results in a reported EBITDA of NOK 187 million for the quarter. M&A costs were NOK 11 million in the quarter, whereof NOK 6 million was related to closed acquisitions, while the residual is related to ongoing processes, including the ongoing due diligence on 5 prioritized targets. Share option costs include a net reversal as the ordinary program cost of NOK 3 million were more than offset by NOK 4 million in reversal of social security tax accruals following share price development in the quarter. The net reversal of NOK 1 million in share option costs was fully offset by recognition of NOK 1 million in other restructuring costs. Also depreciation and amortization is reported at NOK 92 million, a NOK 9 million increase, whereof NOK 7 million related to finalized projects end of 2024, and the remaining increase related to acquired entities. Net financial items are reported at negative NOK 35 million and include a net currency loss of NOK 8 million, which includes a NOK 19 million negative currency adjustment of the receivables related to Message Broadcast, reflecting a weakening of U.S. dollar versus NOK, partly offset by an NOK 11 million adjustment on liabilities denominated in euro. Net interest costs reported at NOK 27 million includes NOK 39 million in interest mainly related to bonds, NOK 4 million amortized transaction costs, which was partly offset by NOK 16 million interest on cash deposits. Then to the balance sheet. Noncurrent assets amount to NOK 6.4 billion, whereof NOK 4.6 billion in goodwill with no indications of impairment. The year-on-year decrease in noncurrent assets of NOK 708 million was primarily driven by reclassification of the receivables related to the U.S. divestment, representing a decline of NOK 400 million, and cancellation of own bonds represent a decline of NOK 259 million. Trade and other receivables was reported at NOK 1.6 billion and include the seller's credit and earn-out related to sale of Message Broadcast totaling NOK 267 million and due in the second quarter this year, which is the main driver for the increase, together with NOK 30 million related to acquisitions. The underlying development was positive following termination of low-value traffic and improved collections. Cash reserves reported at NOK 2.4 billion and declining NOK 900 million year-on-year, mainly from M&A of NOK 235 million, share buybacks of NOK 305 million and investment in own bonds of close to NOK 600 million, partly offset by cash generated from operations. Reported payables is reported at NOK 1.3 billion or a NOK 220 million decline year-over-year with contribution from acquisitions adding NOK 32 million. Underlying decrease reflects the effects of terminated traffic, as well as normal fluctuation in timing of payables to mobile operators. The net interest-bearing debt is reported at just above NOK 1 billion, calculated in accordance with our bond agreement with gross debt related to the 2 outstanding bonds totaling EUR 296 million with [ NOK 171 million ] due in December this year. Leverage is reported at 1.4x LTM pro forma adjusted EBITDA at the end of the quarter and in line with the previous quarter. The receivables seller's credit and earnout related to the sale of Message Broadcast due this quarter totaling NOK 267 million is not deductible in the net debt calculation according to bond terms. Including these receivables, leverage would be at 1x adjusted EBITDA. Then to an overview of key operational cash flow items. In the quarter, we reported cash flow from operation of NOK 133 million, somewhat impacted by net working capital build in the quarter from timing effects on payables. Working capital fluctuates from quarter to quarter, but we expect the impact to normalize on an LTM basis. CapEx was reported at NOK 46 million, impacted by -- year-on-year by salary inflation on development resources and a push on selected CPaaS solutions to capture opportunities in terms of customer contracts. Interest payments representative of LINK02 quarterly interest payment and lease payments of NOK 3 million. On an LTM basis, free cash flow after CapEx and interest paid was NOK 350 million with NOK 100 million negative impact of working capital build, which is expected to normalize. Lastly, an overview of bond maturity with the 2 outstanding bonds totaling EUR 296 million divided into LINK01 with EUR 171 million maturing December this year and LINK02 with EUR 125 million maturing October 2029, with a current blended interest rate of 3.8%. Our current solid cash position derisks the refinancing of LINK01 as full repayment leaves sufficient working capital to operate the group. The refinancing of LINK01 will be directly linked to expected development in the actionable M&A pipeline, whereof currently 5 targets are in due diligence stage. The refinancing will be managed in due time ahead of maturity end of this year. We reiterate that the financial policy remains of net debt not exceeding 2.0x to 2.5x LTM pro forma adjusted EBITDA, which still gives ample room for executing on our inorganic growth strategy. That completes the financial section, handing the word back to Kristian.

Now we open up for Q&A. Please post questions online. We have received some questions already, and we'll start the session by some questions from Sigurd Flaa from Nordea Markets. You reported 17% higher volume year-on-year, 1 million transactions, increase in both SMS one-way messaging and other messaging, but 7% decline year-on-year in reported revenue. Could you give some more flavor of the organic revenue decline?

Yes, I can take that one. The reported number includes M&A, and we have a significant contribution from the LATAM business as part of the acquisition we did in Spain through -- with the NRS acquisition. When we look at organic volume development on SMS, that is declining 8%. So that's fairly in line with the top line development. As we've just went through in the numbers, we see still termination of traffic in Global Messaging, but we also have specifically for high-volume, low-margin clients across Central Europe and Western Europe, which drove high volumes in Q1 '24 that was higher quarter-on-quarter. So that is the main drivers for the organic volume decline.

Great. And we have another question from Sigurd. Do you expect the product mix effect you saw in Q1 towards higher-margin products to continue into 2025 on a year-on-year basis?

I can take that one. Thank you, Sigurd. Yes, I do expect based on one contract and the sales pipeline that will have a beneficial product mix effect going forward. There are 2 main sort of drivers on gross margin. It's the product mix effect and the customer mix effects. How this translates into the P&L going forward is difficult to say. It's based on sort of the customer mix effects, too. But we are optimistic on product mix effects that is improving our margin levels. But as I said, how this translates into the P&L going forward, that also depends on the customer mix effects. And it's difficult to give a detailed view on. We have 50,000 customers.

Great. And then, we have some questions from Olav Rodevand in Pareto Securities. We'll start with the first one. Can you give some color on how Q2 has been going so far into the quarter?

I think I'm going to point to what I said on my last slide that for the full year of 2025, we expect a high-single-digit gross profit growth and an EBITDA growth higher than that. Yes, that's my comment to it.

Great. Next question. Also, do you have any indications on when RCS will be enabled for iOS in other markets?

We have gotten some indications that the next iOS update happening in June-July may open up for new countries. Apple is known for its secrecy. So let's wait and see, but it's -- our best estimate now is July.

And next question, RCS new contract wins up year-on-year but looks to be down Q-on-Q. Should we read anything out of this? Or is it driven by some other effects such as seasonality?

No, you shouldn't really read anything out of it. It's quite normal that the end of the year is very strong on the OTT channels and RCS specifically. Clients are planning their next year's campaign activity and therefore sort of sign contracts then. So there's nothing abnormal about that.

Moving on to some questions from Jesper Stugemo from Handelsbanken. Net retention rate is still low despite adjusting for the 7% impact on terminated traffic in global messaging. How should we read into this in terms of LINK's ability for upsell to existing and new customers? And could you give some color on the mix between regions? Is there a certain loss in specific regions?

Yes. As we spoke about on the webcast earlier, we have, of course, the effect of terminated traffic in global messaging. This is fairly -- the contribution of that is fairly stable quarter-on-quarter. We have -- as I mentioned on the question to -- from Sigurd is that we have specifically 4 clients, which are very high volume, very low margin, driving high volumes in comparable quarter last year, which are impacting the net retention rates, but not the gross profit growth to a material extent. So, that is mainly in Western Europe, but also partly in Central Europe. We had one large retail client driving extraordinarily high volumes in the same quarter last year, which is impacting the numbers year-on-year. When it comes to upselling, we target 60% to 70% of the sort of closed won contracts to be on existing clients, and that's what we're seeing also in the historical numbers. So the success rate on upselling is high. That's what we also target going forward.

And another question from Jesper. One smaller European CPaaS peer reported a deteriorating ATP market in the Nordics. Given the somewhat slower development in the Nordics, do you see similar market dynamics? Or what's the main hurdle in the Nordic region?

I can take that one. It's -- for LINK -- specifically, it's difficult for me to comment on what the competitors are experiencing. But for LINK, specifically, we see Norway is a challenging market. The 3 other Nordic markets are okay, but Norway is a little bit softer. This is due to the fact that Norway is the highest penetrated messaging market in the world, and it's been growing quite high in number of messages, especially during the pandemic. And we have seen that certain or some high-volume clients have implemented measures to keep volumes stable after the pandemic in order to have a more foreseeable cost towards messaging products. So, that, combined with smaller yearly COGS increases in Norway, have made the market a little bit soft. We have seen that this can happen from time to time, and then some time will pass and then clients will be more ready to increase their spend again. So we think this is going to blow over by time.

Great. And last question from Jesper. What's a feasible enterprise gross margin in your view for the coming 12 to 24 months, given terminated low-margin traffic, increased usage of advanced messaging and possibly gradual improving markets?

I can refer to the answer that Thomas gave previously. We see a positive impact from the more advanced solution on our margins right now, and that's a trend we expect also to see going forward. But like Thomas mentioned, we have more than 50,000 clients, and then the mix of these vary from quarter to quarter. So it is hard to sort of give an outlook on it, how it's actually going to sort of materialize in the P&L going forward.

Moving on to some questions from Rayan Sayyah from Danske Bank. Could you help us think about what is driving the 40 basis points uplift on gross profit margin from last year? Is it upselling of value-add? Or is it 2- way price uplift, et cetera?

Yes, I guess, Rayan is referring to the positive impact from the sort of richer channels or OTT channels. That is mainly driven by the increased volumes and the higher share of revenue coming from those services. So, that is especially RCS but also WhatsApp contributing to that. So, that is basically based on the signed contracts we are implementing on the back of strong commercial results within CPaaS over the last few quarters. So, that is what we're seeing sort of entering the P&L and impacting the margin in the quarter.

And another question from Rayan. Could you also help us think about amortization going forward? It's a meaningful line item in your EBIT bridge. And with new acquisitions closed in the U.K., how should we model D&A, especially the split between tangibles versus intangibles, and where you expect it to grow materially through 2025?

Yes. I think that, of course, depends on M&A activity. We will have -- we've consolidated the U.K. targets, the recent 2 from the second quarter. So, that will drive some impact. It's -- that's natural. The split between tangible and intangible is mainly -- we're talking basically mainly about intangible assets that we are amortizing. So I expect some growth, but that's -- usually, we write off this over approximately between 7 to 10 years based on whether it's technology or client relations.

Then we move on to a question from Vinay Bhardwaj from Cantor. You revealed that your market share in the U.K. is 8%. Can you share what percent of your gross profit comes from the U.K., given that your activity there has picked up pace over the last few quarters? Who are some of your competitors in the country? How do margins in the U.K. compare with other European countries?

Yes, I can start with the competitor landscape. The U.K. is one of the densely populated countries in Europe with a fairly high penetration rate. So the U.K. market is quite big. And there are a few local competitors. Commify is one of them, mainly catering to small and medium-sized businesses more. And then, you also have the bigger global players who are in the U.K. market. I would imagine or guess that is also due to the fewer language barriers. English is being spoken in U.K., and it's easier to sort of attack that market with resources outside the U.K. So we see Sinch, we see Vonage, Nexmo, Infobip being active in the market. The margins, they are -- they don't deviate that much from what we see in other European countries. The COGS level is fairly similar to what we've seen, for example, in France, a little bit lower, but not materially. Morten, you might want to comment some on the gross profit.

Yes. And of course, the quarter is reflecting the fairly low position we have had before we did the recent M&A. So it's slightly below 3% of the total gross profit that we report.

Good. Moving on to a question on M&A. Are all 10 current prospects inside Europe? Are there any plans to expand M&A further outside of Europe?

Yes. We have plans to expand our footprint outside Europe. As I said, priority #1 is to do bolt-ons in Europe, but we are looking at targets outside Europe as well. We have identified a few markets that is low risk, and we see a lot of value creation opportunities there. So we have specific plans to expand with M&A outside Europe. In the pipeline of 10 prioritized targets, most of those targets are inside Europe. We have 2 targets outside Europe. I don't want to comment on their location.

Moving on to a question on Message Broadcast transaction. When in May will you receive the remaining amount from the Message Broadcast transaction? And what do you plan to use it for?

Yes. So there's 2 items there. There's the seller's credit that is due end of June. The earn-out, we agreed in the SPA with the seller to do a review of the process of the revenue in -- for 2024. So, that is in progress. Once that is finalized, we expect to receive the money a few days later fully according to the SPA. So it's just a process that we need to run through.

Great. There are currently no questions. You will have 1 minute to ask questions, and we'll hold the line. There are no further questions. That completes the Q&A. Thank you for participating, everyone, and see you next quarter.