Sinch AB (publ) (SINCH) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the company update [ with Thomas Heath ] conference call. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Thomas Heath. Please go ahead, sir.

Thank you very much, operator. Good morning, everyone. And welcome to this conference call about Sinch's acquisition of SDI, or SAP Digital Interconnect. With me on the call today is our CEO, Oscar Werner; and our CFO, Roshan Saldanha. And with those opening remarks, I'll hand the word over to Oscar.

Thank you, Thomas. So welcome to this morning's call. We're very happy today that we have agreed with SAP to acquire a business unit of their called SAP Digital Interconnect. This is a business unit that has been in this market for a long time. So it's one of the long-time messaging companies in the industry and we've come to know them on the -- over many different years. And now we have reached an agreement to acquire that business unit. So if we move to Slide 2, please. So these are now our numbers before the consolidation of -- or an integration of both Wavy and SAP Digital Interconnect. So revenue of some SEK 5.6 billion, adjusted EBITDA of SEK 646 million, last 12 months and market cap is up to the market, but that was one of the days where Thomas -- and I think it was the day before or something when Thomas looked at it. 766 people and present in 33 countries. And as many of you know, who's been on these calls before, we do customer engagement through mobile technology and basically providing enterprises with tools to communicate with their consumers via messaging, voice and video. We do 40 billion engagements a year, and we serve 8 of the 10 of the largest U.S. tech companies in the world and thousands of enterprises around the world as well, mainly in a couple of segments. That said, and this slide has been similar. So I will go on to look at a little bit more detail into what we're doing on this transaction. So operator, please go to Slide #3, please. And so here we see a technology evolution in messaging, and we're going from text notifications, that is outbound messages via text messages to richer media messaging with all the new OTP channels and new channels that are coming, such as WhatsApp and Facebook and RCS and then WeChat, the KakaoTalk and then Line, Viber, et cetera, which gives us ability to not only send a 160-character text message, it is also possible to send -- you can add videos, picture messages; you can add action buttons; you can add -- have conversations; you can, in principle, make the message to the same inbox, as you today receive a text notification, look like an app; and needless to say it can be much, much more powerful interaction if you can have all the functions and features of an app into a text message. And then moving also to conversational messages because users can also -- not only can they get richer media in their message, but they can also start responding to the messages. And enterprises are able to track that an outbound message is related to the inbound message. And thereby, you can start to have conversations and -- within the messaging channel in a way that is much, much harder if it's only a text notification. And in this -- if you go to Slide #4, please, operator. And in this, we have a relevance in a couple of different categories throughout the customer journey. The type of messages we do are typically as part of a customer journey, and it's practically integrated as an integral part of enterprise's customer journey, and it can be for the purposes of revenue generation, service enablement or customer care. And the revenue generation may, of course, be marketing, but that's a smaller part of it. The bigger part of it is something that is integrated into the enterprises' customer care or a customer journey, but has the purpose of generating revenue. It may be for reducing your churn, or it may be for increasing customers in-store or store pickup or something like that. And service enablement is examples are onetime passwords, two-factor authentication, verification, but it may be also at the mobile boarding pass. And customer care is a relatively large trend where the customer care industry is moving from calls and online intermediate, WebChat. They're moving portions of the traffic over to various messaging channels. And basically, imagine you're sitting in a line and you're waiting for a response and -- from a large enterprise, maybe say a large utility company, and sitting there and you had a voiceover by voice saying "hey, you can also WhatsApp your question to this number," and if you do that, you may get response quicker, but you will remain in the line if you would rather speak to an agent. And then you may, in the line there, WhatsApp your question. And if it's a relatively straightforward question, that can be automated. And then you can get your answer via WhatsApp instead. And that's a large trend or a growing trend in the customer care industry, to the customer care user that becomes, instead of paying -- or to the customer -- or to the enterprise -- it becomes instead of paying, on average, maybe around $5 per call that reaches the customer care center, you may pay $1 or $0.50, or something, to a messaging provider, that has both the messaging channel, an automated AI to automate the bots, which is needless to say, a lot lower cost. So let's move to the next slide, please. So our playbook for profitable growth has been to focus on 2 areas. It's been the connectivity area, where we ensure the connectivity between the enterprise and the consumer without middlemen, maybe on the voice side, it may be making sure the call is completed; or in video, make sure the video call, video link can be set up; or in messaging, it is making sure we deliver the WhatsApp message or WeChat message or text message. And on top of that, we see a range of attractive software-as-a-service or software module that enterprises are asking for and that if we provide this additional software, we can charge additional fees and the software-as-a-service becomes more -- or becomes a pure SaaS model, where the connectivity, because you don't have any cost -- COGS, you don't have any cost of the goods you sell. And so it becomes like a pure SaaS model with more 85% margins on average or roundabout. While the connectivity business is, you have COGS, so therefore, the gross margins in percentage times, obviously, becomes lower because you pay fees to the OTT providers such as WhatsApp and WeChat and to the operators. So let's go to the next slide, Slide 6, please. We have been very clear on our M&A agenda. We do M&A in the scale and profitability area and in the technology and go-to-market, where the scale and profitability, typically, we can acquire sticky customer relationships, a strong customer basis. And we acquire direct operated actions in new markets. And these are typically a little bit larger companies, what was always profitable. And so we add to our network by adding more customers and more operated connections and more volume to our network. And if we go to the technology and go-to-market area, it is we're typically acquiring smaller companies with complementary technology and go-to-market-abilities that we see, all right, this technology and go-to-market-ability, we would like to complement our offering with in order to increase the software value-adding higher gross margins. So operator, if we go to the next slide, please. And so here, if we place SAP Digital Interconnect into those buckets, we have done -- we've lined up our acquisitions in those categories. And if we place SAP, it's -- the main reason is on the scale and profitability side. Here it mainly adds to our network of connectivity. And on the other hand, this is a large company. So of course, when you are large, it will also add new areas and new technology bits and new offerings that we don't have. But the primary reason is on the scale and profitability side. And so operator, if we go to Slide 8, please. So if we then speak a little bit about what is SAP Digital Interconnect, it is a global cloud communication providers, operations in the Americas, Europe and Asia-Pacific. And it has 3 business units. It is Programmable Communications, which is primarily messaging, and which is 67% of its revenue; Carrier Messaging, which is supplying software and services often as a service to operators, primarily, this is on the P2P side. So SAP provides software and services to operators to handle their P2P messaging, and they do so to a couple of the world's largest operators, both in the U.S. and Europe. And it has an Enterprise Solutions part, which is round about 5% of the revenue and where it has a contact center solution and a couple of other solutions as well. SAP Digital Interconnect do 18 billion messages on the enterprise side, which is where enterprises are supplying messages to consumers. That is the number we typically relate to Sinch before Wavy and SAP did 43 billion messages. And so that's the main business of Sinch. And SAP also did 292 billion person-to-person messages in 2019 to operators. This is obviously a very high number. This is more related to the operator business, where you supply the software and service to operator to provide the P2P message. Obviously, that's a much higher volume in the market, but also a much lower, as you can see above from the revenue from the 2 different parts, a much lower revenue per message, if you will. But it's very strong, obviously, to be able to handle successfully such a large messaging volume. SAP Digital Interconnect is around 320 employees with headquarters in San Ramon in California. It also has offices around the globe in around about 30 countries. I think it's 33 in total. And our footprint will go from 33 countries to 39 countries. So we have employees in a large number of overlapping countries. And the deal rationale of this transaction is very straightforward. This is a business we have known for many years in the market. And when decided SAP decided -- SAP mother company decided to enter a competitive process to explore a sale of this business unit we were very interested. And the reasons are, first and foremost, customers. SAP Digital Interconnect comes with 1,500 enterprise customers, some of the world's most valuable brands, which diversifies our customer base and gives us access to long-standing and large enterprises, which are very attractive to add to our mix of customers. Number two, it's accretive. And so this is a highly accretive deal, which fits very well into the scale and profitability category. Number three, it significantly strengthens our U.S. presence. We're run by doubling our staff in the U.S., which is our biggest market. It also adds a lot of people in both Asia Pacific and Europe, which strengthens our offerings and market -- and go-to-market-abilities in those markets. And the third one is, obviously here, it has very strong operator relations and functions as a trusted vendor to hundreds of carriers and some of the largest operators in the business, which -- in our business model, which is two-sided. You have the operators on one hand, where you're purchasing capacity and need to have strong relations with. And on the other hand, you have enterprises where you sell that capacity in a refined form with more software value-add. It's very important to work on both ends of that spectrum, both the enterprises and the operators of OTT provider space. And integration. We -- this transaction is subject to review and approval from competition authorities in multiple jurisdictions. So we are engaging with those markets. And we expect that to go through. We do not see that we get to too high market share in any market. But obviously, we will submit it to the regulatory authorities, and we will work closely with them and have good cooperations with the regulatory authorities. But we need to await for approval before we start integration here. We will combine operations across U.S., Europe and Asia. And we see there are synergies in a couple of areas, both on the SMS platform integration and on a set of core functions. And this can come, both from the OpEx side and it can come from the COGS side, basically pooling the operator connectivities and the deal with the operators, and if one company has a stronger agreement, then you would use that agreement, obviously, on the global level. And we see both cross and upsell opportunities, both for Sinch and SDI product portfolio. Financials, we pay an enterprise value of EUR 225 million. SAP Digital Interconnect recorded revenues of EUR 340 million and a gross profit of EUR 94 million and adjusted EBITDA of EUR 15.4 million in the 12-month ending March '20. Revenue growth has been around 10% in the last 2 years with the Programmable Communications business units growing the fastest. And again, I mean, closing is subject to regulatory approval, but we expect the transactions to close in H2 2020. So let's move on to Slide 9, please. So the Programmable Communications being the largest business unit here. The products are Programmable Communications APIs, developer tools and digital interfaces, it's similar to what Sinch is providing. It has a verification and an authentication business. It has omnichannel capabilities with SMS, e-mail, WhatsApp, WeChat, Viber, et cetera. It has single-point APIs with rich failover capabilities. And it's processing 18 billion enterprise messages in 2019. And the go-to-market is similar to what Sinch is offering, and it's a value proposition built on high-quality of service and international reach and presence in some 20 countries here. On the customer side, some 1,500 blue-chip enterprise customers, very strong brands. It's a strong customer base with many of the world's most well-known brands, and it has a low churn over the years. And the split of customers, you can see below, Bank & Finance and Technology being large, but also Telecom operators being a large customer base, and this is not on the P2P side, this is on the A2P side basically, and providing services both to the operators to communicate with their own enterprise basis or on a consumer basis or to operators to use as a tool to sell to their enterprise basis. Marketing being slightly larger and then a large set of other segments that is being targeted, but there you have the overall split of customers in industry verticals -- in industrial vertical terms. And so Programmable Communications is being the largest, 67% of SDI revenues in the last 12 months. So let's move on to the next slide, please. Carrier messaging, like we said, 292 billion person-to-person messages processed during 2019. And it has Intelligent Hubbing and dynamic routing for person-to-person messaging between carriers. So supporting carriers on the P2P messaging side. And it has a messaging proxy to allow carriers to handle business messaging on a person-to-person basis in a single solution. And it has very strong relations and service quality to several of the world's largest operators and SDI -- and the carrier messaging portion is round about 28% of SAP Digital Interconnect revenue in the past 12 months. Then we have Enterprise Solutions being, the smallest part, round about 5% of SDI revenue in the 12 months, and the largest portion here is the Contact Center 365, which has an on-prem, it's a Private Cloud and a Public Cloud solution as a Contact Center. And it has a set of other solutions for enterprises. So a Message Manager being more of a tool for enterprises to send messages to the consumer base. It has an IoT offering, a smaller IoT offering, and it has a People Connect for workforce disruption communication. So enterprises can subscribe to this in order to fast tool in order to when there are workforce disruptions, you can use this tool in order to communicate to its consumer base in an omnichannel fashion. So a set of solutions in the Enterprise Solutions space, but the Contact Center being the larger part of this smaller unit. Let's move on to the next slide, please. There is a Slide 11. So on this slide, you see countries with local sales that Sinch has today. And as you see, we cover with local sale large portions of the globe, and we are continuing to strengthen our offering. This is a very large market. Total market size of messaging is round about $20 million, and the voice business is maybe $15 million and then the video being a couple of billion dollars. So it's a very large market. It is a very large portion of the enterprises in the world are doing this -- are using this transaction. So I typically say in any country, you can go to banks and they are doing this type of messaging or voice solutions. So therefore, a very large portion of the world's enterprises are potential customers. So -- but here you see the distribution network. And the super network, our scalable cloud platform is obviously a large portion here, which is being strengthened by this deal. So let's go to Slide 12, please. And with that, I will leave over to Roshan, our CFO.

Thank you very much, Oscar. Very good morning to all of you, and pleasure to be here talking about this really fantastic transaction that we announced today, which will add a significant number of customers, blue-chip customers to our customer base and also strengthen our market presence across the U.S., Asia-Pac and Europe. And not only that, it will also add a lot of scale and profitability to Sinch's existing business together with the acquisitions that we have already announced in the form of Wavy that is not yet completed, that will be completed in the second half of 2020. So on this page, Page 12, you see sort of the pro forma numbers based on the last 12 months' outcome for Sinch as well as for the announced, not yet closed acquisitions of Wavy and SAP Digital Interconnect. And that would combined give us a net sales of over SEK 10 billion on a last 12-month basis and a gross profit margin of around 27% or SEK 2.7 billion of gross profit during the same period. We're happy to see that SAP Digital Interconnect is also a business that is focused on profitable growth, and they have been profitable over a period of time. And that profitability then combined with Wavy would take us to just over SEK 900 million in the adjusted EBITDA. If we then add the run rate synergies that we have forecasted, the midpoint of the run rate synergies, both for Wavy and for SAP Digital Interconnect that would take us just over SEK 1 billion in adjusted EBITDA. Now remember that the synergies are not coming -- are forecasted to come over the next 18 to 24 months. These are primarily cost synergies, both in the COGS area and in the OpEx area. And some of them are related to consolidation of platforms, which is expected to take some time. And then finally, on the employee front, I mean, SAP -- Wavy, of course, primarily being a South American focused business and SAP Digital Interconnect having presence around the world with significant presence in the U.S., the major countries in Europe, but also a few locations in Asia-Pacific where they have significant presence. We're totally bringing us over 1,250 employees and consultants when the deal is closed -- or when the deals are closed. Turning to Page 13. This shows you our financial leverage. At the end of the first quarter 2020, we reported a financial leverage of negative 1.0, so a net cash position in hand. And then with the acquisition of Chatlayer, that would bring us to negative 0.8% in financial leverage. If we were to close SAP Digital Interconnect on a pro forma basis, that would bring us to a financial leverage of 2.2x. And then adding on top, the Wavy acquisition and the closing of the Wavy acquisition, that would bring us to a financial leverage of 2.7x, which is well within the constraints set by banks and corporate bond covenants. Turning to Page 14. Again, a reminder of our main financial targets. As communicated before, we aim to grow adjusted EBITDA per share with 20% per year and keep net debt over adjusted EBITDA under 2.5x over time. Looking back, historically, we're proud to say that we've consistently delivered a strong growth in adjusted EBITDA per share and grew 52% on a rolling 12-month basis at the end of the first quarter 2020. A large part of that is coming organically. And also that net debt over adjusted EBITDA was at the end of first quarter 2020 in a net cash position of negative 1x, thanks to the strong support we received on the share issue that we did at the end of the first quarter. With those words, and to conclude, I would leave back to Oscar.

Oscar, I think you are on mute.

All right. I was speaking into mute. Saying lots of great things here. Sorry about that. So with that said, that was the last part of the presentation. So with that, we will leave over to questions of this exciting transaction. So thank you for your time, and feel free to ask any questions.

[Operator Instructions] Our first question comes from the line of Daniel Djurberg from Handelsbanken.

Congratulations to another interesting consolidation over here. Two questions, if I may, on the same topic, on integration. It would be interesting to understand if it's -- you can see it's more of a plug-and-play, i.e., will -- the SDI seems to hold a similar setup as Sinch with the Programmable Communication carrier and enterprise. Will it be direct integration of these into Sinch messaging operator, voice and video? And also if you can tell us a little bit more on the integration of the SMS platform since this is a bit -- both this and Wavy is a bit larger and really, more or less, like Mblox, if it would be more complex integration of the SMS platforms, et cetera?

The first question relates to where or what business unit it will be integrated into. So first, you need to know there's been a competitive process. So we have received less information and less access to the team than we are typically provided because it's been a competitive process. So the first stage for us is to speak and get close to the team and understand the teams. And based on that, we will make the decisions on exactly what business units are -- is it going to be in. So that question on the overall level, I will -- we will need to get back to because we think it's respectful. We want to understand and learn from this team and understand their best practices and then we can decide. But generally, on the largest part Programmable Communication, yes, it is combining the Programmable Communication or messaging business on the SAP Digital Interconnect with Sinch's. That's fair to be said because again that's the obvious one, right? And that's the business we know the best here. So that's straightforward. And your second question, if you can repeat that, please?

Yes. It was on the integration of the SMS platform. Historically, Mblox was a bit more larger, of course, bigger. And also I guess, Wavy will come into the play now. But otherwise, you have done quite smaller acquisitions and easy to integrate on the Nova platform and so on. But is this -- those -- Wavy and SDI, are they larger shanks, i.e. larger process, will it be -- take more time and make done step-wise, customer-by-customer or how to think of the integration of the SMS platform?

Yes. These are large -- I mean, these are larger companies, and that has 2 aspects, right? One, the integration process takes longer time, and you need to be very careful with all the customers, of course, that's our main focus. So yes, this is more to be compared to the Mblox transaction in terms of length of time and how long time it takes. We, obviously, need to make individual plans for each business, and the business is individual. But yes, it's more to be compared to that. Then we should obviously say that at the time of making the Mblox transaction Sinch or CLX then was a much smaller company than it was, I think it was 80 people or something like that on the CLX side. So we're now significantly larger. But yes, it's more relative to that. The other aspect when you make larger transactions is obviously, it has a -- if you are 300 people, then you have a very stable operations yourself. So it's easier to handle the transaction because it has a well-run management team and well-run processes and systems on its own, right. So it's a more stable business and a larger business that you take over that has been existing for many, many years. So you also have a little bit more time to do these things. The comparison to Mblox is correct, yes.

Our next question comes from the line of Predrag Savinovic from Carnegie Investments.

Very interesting transaction today. A question on the historic growth rates here on SDI. I think you mentioned 10% growth in the last year. Can you say a bit more in a longer perspective to how it's been for SDI in both net sales, gross profit and EBITDA? And also maybe on the profitability level of SDI for the past 3 to 5 years, just so we can get a sense of how the margins have developed here prior to you acquiring the business?

So Thomas or Roshan, do you want to take that question?

Yes. I would like to comment that briefly. I think, Predrag, I mean -- firstly, I think the numbers that we state that's consolidated for the company on a net sales basis, right. And I think the -- in terms of -- if you look at the 3 segments, right, Programmable Communications, as we've said before, is very similar to our messaging business. And in that sense, the mechanics of the business and then the gross profit very much follows sort of where we're terminating traffic or where the business is terminating traffic. And that business has a slightly higher growth rates than sort of the overall business growth rate. I think that's safe to say. On the Carrier Messaging side, which is the P2P communications, while P2P volumes have sort of stabilized or declined, sort of, over a period of time and this is not a business that is growing significantly, so it's slightly, sort of, either a stable or declining mode. And then the Enterprise Solutions business, of course, I think there's a combination of on-prem and cloud solutions that they have and that business has a growth rate. And you could say that's slightly slower than the total growth rate for the company. I don't know if those comments help you a little bit to get a view on this. When it comes to EBITDA on the different segments, I think that's nothing that sort of we can comment at this point in time due to the reasons that Oscar explained on sort of access to the business, et cetera, earlier.

Okay. I understand. I was just wondering if whether like this division has now reached a 5% margin this year and it was loss-making in the past years, I mean, just has it always been profitable?

No, no. I mean, in that sense, the trends are very stable. So there's no sudden changes in the trends, sort of -- the trends that I explained are sort of -- are stable and sustainable, we believe.

I mean, these are -- I mean large messaging businesses in this space are typically profitable, and this is no exception. So this is a business we understand and know, and it looks very similar to other companies in this space. And they're all solidly profitable over many years.

Our next question comes from the line of Fredrik Lithell from Danske Bank.

Congrats to a great acquisition. I hope you are all well. Two small detailed questions, maybe. The first one is you're adding around 100 carriers -- carrier connections. You already, by yourself, have around plus 300 or something like that. Are there any duplicates that does that mean anything? Or are these sort of 100 new ones that are added to your existing network? And a follow-up on that one is this -- any white spots that you cover now is, for example, direct connections to Indian operators or any other places that you can highlight?

Thank you. There is -- obviously, I mean, this is a global business that is supplying to large enterprises under our world. So obviously, there's a large overlap of connections, but there are also new ones, but it may also be so that there is an overlap, but there is a special feature or a better rate or a better access or a better capacity or something like that on what the connections. So that's a detailed comparison. But I think it falls in the large number of overlaps, a set of new, then the third category is on the overlaps, a percentage of them will have different price and functionality. So we do think it adds to our operating network in a good way. Are there any white spots? That's a more detailed analysis that we need go through. We know a couple of countries that are -- that look very interesting, but it requires a more detailed analysis and not something we would disclose publicly. But it's -- yes, there are a couple of areas which look interesting from a top level perspective. I think that was answering all your questions, right?

Absolutely.

Our next question comes from the line of Ramil Koria from SEB.

Just one high-level one before I step back into line as well. I mean SAP is obviously a pretty big entity at least to say, and presumably, they're bundled quite a bit and upsold their Digital Interconnect offering as well. Are you in anyway contractually sort of protected from short-term customer churn as customers all of a sudden have 2 vendors? Or should we sort of expect this unit to have been separately managed for quite some time given its history?

I think you should assume this unit has been separately managed for some time. This has been probably one of the reasons you would have to ask SAP, of course. But it's been a separate unit that comes from previous acquisitions of SAP. So it's been run separately. So we don't expect churn as a result of that. Obviously, in a transaction, there's always a risk that the customers review their offerings and review their suppliers and et cetera. So that's a risk we always take in the transactions and that's something we always count into the business cases, both on the positive and the negative revenue synergy case. But we see no other -- no larger risks in this transaction than any other transactions we do. And very clearly operated separately by SAP for quite some time on the customer and revenue and the core operations side. So what has been integrated -- yes -- what has been integrated here is more the finance, HR functions has been provided more from the -- from SAP motherships, while the other core functions, customer-facing functions has been run separately.

Our next question comes from the line of Daniel Djurberg from Handelsbanken.

A question I could -- would be on the revenue model. In SDI Programmable Communication, how you know -- as you mentioned, SMS, push, e-mail, WhatsApp, WeChat, Viber, et cetera. Still, would it be similar -- very similar to Sinch revenue model or a bit more like SAP with a little bit larger recurring or true recurring revenues than Sinch or is it a direct copycat, you could say, or not a copycat, but similar to Sinch?

Yes. I think this is very similar to Sinch on that side. On the Enterprise Solutions side, it is different with more SaaS revenue, higher margin, longer contracts. So -- and that's not only on the Contact Center space, but is -- they also place there a part of their value-add to enterprises they place in this category. So there, you have a little bit of a difference to the classic Sinch, if you will, while then Sinch is also moving in a similar transaction, but the classic Sinch you have a little bit of difference there, but the Programmable Communications part is primarily similar.

Perfect. And obviously, if I may, on the operator side, you offer the firewall and the RCS as a service, et cetera. Do you see a decent upsell opportunity for those products towards the carrier business for SDI or can you comment a bit on that?

So typically, it's a good question. The -- typically, we -- that's not the rationale for making this transaction and the main reason being the SAP supplies the world's largest operators with services on the P2P side, while our target focus has been smaller carriers and operators, basically. So no, not any direct translation, direct incorporation there. And now with the SMSF and Ericsson Corporation, we are actually starting to supply the world's largest operators as well from our operator business unit, but if you're looking for material benefits, no, that's not the case.

Our next question comes from the line of Fredrik Lithell from Danske Bank.

Roshan, maybe on the synergies here, as it has been sort of a more competitive process, have you been able to look into the operations in such details, so the synergies are pinpointed or is it so that you have done a proxy on what you think you can be able to what type of benefits you will be able to reap on the size of it all? How have you come by the synergy sort of in your calculations?

Yes. I mean thanks, Fredrik. I think it's not a -- of course, we have limited access during this process. But in a broad sense, I would say, it's not different than any other acquisition that we have done. I mean, at this point in time, we have had typically access to a limited number of people, more limited in this case than in other cases. And -- but the good part is that SAP Digital Interconnect has been existing for a number of years. I think it's one of the pioneers really in this space. And we have people on our side that are quite familiar with that business, and we have good experience from previous transactions. I think we mentioned Mblox, which was really a success execution for former CLX Sinch as a company. And that combination of knowledge and experience makes us fairly confident on sort of -- on the overall synergy levels that we are communicating. The synergies are in the OpEx and in the COGS areas primarily. And I think, obviously, as we go into the next phase, both until closing, but primarily then after closing, when we have full access to the business, we will further refine these plans. And -- but that will -- we're confident on the level of synergies that we communicate now.

Okay. And maybe a second question, if I may, while I'm still on. The Carrier Messaging business unit and maybe also the Enterprise Solutions, I'm not really sure here, but it seems like these will -- these 2 smaller divisions of SDI will fall into the -- your operator division. Would -- if that is so, if that is your thinking, do they have similar types of business models? I'm not sure if that was Daniel's earlier question, it might be a repeat question then. But is it a similar type of operations they are doing that you're already doing in the operator division?

So good question. First, the Carrier Messaging is obviously supplying operators. So that could be argued, and we haven't made the decision to merge together with our operator business unit. But that's something we need to speak to the organization. The Enterprise Solution is not supplying operators with services. So that's both on the Contact Center side and it's value-added services to enterprise. So that should not be a group together with the operator business unit unless we decide anything differently. But from the outset, no. Business model wise, it's a little bit different if we talk about the Carrier Messaging because this is a -- it's more -- yes, it's obviously higher volume and supplying services to larger operators, and it's a different product set because this is P2P messaging. So we are primarily supplying the software for SMSCs, which do P2P messaging as well, but this is more a managed service offering, which is where you actually operate the platform as well. So it's a little bit different to our operator business unit. But it's obviously falling in similar categories, but this is not a product offering we have and a little bit of a different business model as well on the operator side. And on the Enterprise Solutions, I think I answered, that's completely different to the operator business unit.

Maybe for the benefit of the audience, on our operator business, I mean, we're selling software. The typical buyer is either the network function or the IT function within the companies and within the operators and they're buying SMS software to run their businesses. The Carrier Messaging business that SAP Digital Interconnect has is typically sort of the carrier departments or the wholesale departments that are the buyers. And this is what we're -- what SAP offers is an outsourced hub-based messaging Internet working, right? That provides simplified routing, that provides cost savings. So it's slightly -- it's a different product. Not commenting on your question of how this will be organized because as Oscar said, I don't [Audio Gap] we're ready yet, but just to explain a little bit on the differences between the business product.

SAP business is one step closer to our enterprise business, if you will. It's a little bit -- it's more the same departments as we deal with on the enterprise side. So it's one step closer to the enterprise business.

Our next question comes from the line of Ramil Koria from SEB.

Could you please just provide some flavor on your plans for the Enterprise Solutions offering? I know it's early days, but I mean, your analysis so far, what are you going to do with the Contact Center capabilities here?

Yes, it's very interesting because messaging becomes conversational, as we had on one of the slides and repeated many times. So pretty much any company enterprise we have when users start responding to all the outbound messages that comes out, becomes a conversation between the enterprise and the consumer and that may start in the messaging format in our world, but -- and then you may use the Chatlayer and other functionality to automate the responses of that conversation to some extent. But to some extent, you also need to -- we're humans, right, so at some point, you need human interaction, and there's only a -- if that's 30%, 50% or 70% of the users, that depends on the use case, you need to hand that over to human agents. And that's where the kind of the interaction in between the messaging and automated kind of consumer communication and the Contact Center industry is. That's where the line or demarcation is. And that's where we will engage. So you would expect us to, all right, hey, the Chatlayer functionality, what can we do with that in the Contact Center industry and you should expect that Contact Center industry to use our messaging routes on omni-channel fashion, and you should expect us to explore the interface there. So how can we do something great with the interface there and how can we understand in a better way how you do conversations with consumers. That's the kind of the overall. And there, we need to learn because this is new for us. It's also very interesting because it's an industry that progressively is moving closer and closer to the CPaaS industry. And there, we have to set our strategy together with this business unit, as we learned with it. Any more questions on that or -- I understand that's a little bit hard to understand, but it's...

That's very good. That's very good. But I mean, the go-to-market is quite different here. So given what you're saying is your intention is initially sort of exploring options here before taking decisions on sort of investing in the go-to-market organization for this vertical, specifically? Is that sort of the way we should read it?

True. You should see this as a separate business unit within SAP and it becomes separate with us as well, but there is a growing increase of integration in between the Contact Cancer space and the messaging space and the CPaaS space. So there's large degrees of overlap, and we will explore those overlaps before we set a clear strategy on exactly how do we go forward here.

Let me just take my final question, if that's okay, and I want to pass for today. But perhaps just some high-level sort of flavor on the competitive environment in the APAC region. I mean, we know who your competitors are in the U.S., but anything in the APAC region would be great.

Yes. So first relating this transaction to APAC, I mean, we both have volumes and customers on the APAC region. This is, however, mainly -- if you look at the staff and the transactions, mainly U.S. and Europe. So this is more towards what we have, and this is not one of the major players in the APAC region, even though it obviously strengthens our footprint greatly. Then looking at APAC, it's a very large region. It is most populous region in the world. And there are significant players in that region in many different areas. I mean, India is a market of its own with a set of large players. China is a market of its own with a set of very large players. And then you have all the countries apart from that with significant regional plays as well. So that's another region, which is just a start or maybe the largest region in the world in this space. So obviously, there is -- there's growth opportunities and large competitors in that space in a big way.

Should we consider this acquisition as some sort of a greenfield entry into those markets. I mean, given that you presumably increase your direct sales presence in mainly India here? Or could there be more M&A in the pipe, if you want to enter the APAC more forcefully, if you will? I know it's a tricky question.

Well, it's -- obviously, we don't comment on the future possible transactions, but you're correct. This is more of a greenfield entry or it's more of doubling our own greenfield entry. I mean, we have done a greenfield entry there. We have a set of people in Asia and SAP Digital Interconnect has done the same. So say that this is more greenfield or doubling our own greenfield entry into the APAC region, yes. So we become a larger player, but we're by far one of the largest players in APAC by this transaction even though we are doubling our size. Remember, this is a very, very large market. So should we decide to enter APAC more forcefully, yes, then we can invest organically or value with other transactions or players, who are more local to that market and larger by market share in the markets in several different regions.

Our next question comes from the line of Daniel Djurberg from Handelsbanken.

And my two final questions, if I may, it would be, first, you sounded positive on the regulatory approval process. Can you comment some more on that which markets because it was several jurisdictions and also in which market will the joint company will have the largest market share post the merger? And also if you can comment if you heard anything from SDI on the COVID-19 impact since they have the enterprise -- 1,500 enterprise customers in terms of volume, what they saw in March if we compare that with you?

Thomas and Roshan, maybe have a look at the regulatory level.

Yes, I think we refrain from going into any details. We're assessing the exact list of countries where we will file for regulatory approval, and I don't think we'll comment anymore at this stage.

And then on the COVID-19, we have been obviously -- obviously, in these times, we are reviewing transaction volumes and how our businesses perform. It is obviously a little bit hard from the outside to assess the business in full. But based on the information we have been provided with, they have a similar impact to what we have. Obviously, it is not good, but it is in the short term, we have not seen major impacts based on the information we have been provided so far. So I think it's similar to what we see in ourselves and what we see in other players in the market. And on the carrier messaging side, it has been a little bit positively impacted due to, I mean, the general trends that I think you read in the paper so that people communicate more via the telecom networks in these times.

Perfect. Stay safe and healthy, and good luck.

Same to you.

Our last question comes from the line of Predrag Savinovic from Carnegie Investment.

I was wondering if you could say something on e-mail perhaps and I know you can offer this through partnerships, but you rarely or never even speak of it, but it seems that SDI does have this capability. So maybe some thoughts on this channel?

Yes. In general, I mean, we’re customer engagement company and an e-mail is something that is requested by enterprises. So it is not the core reason for making the deal, but it's one of the technologies that are interesting to get and one of the -- getting the experience from the best -- from that area is very interesting. And therefore, it can be added and then the knowledge can be added to our overall offering. But we need to -- just like with the Contact Center industry, we need to review that more and understand that portion more of the business before we can give any more information. But in general, this is about customer engagement and customer communication and e-mail and IMAP and then all these others that's just more channels to which enterprises can use to engage their customers.

Okay. Super. And I have just two more. One coming back to customer retention. And you mentioned that one of the biggest dealers [ announced ] here is the customers, and there is some overlap on their technology side, but is there any customer overlap since SAP has been around for quite some time? And also about retention on the management within SDI, will they stay on board here once this is finalized?

So on the customer side, of course, there are overlaps. These are large enterprises, typically have multiple vendors, and that's an active strategy on the customer part. And therefore, being 2 major players in the industry, there is going to be overlaps. So yes, is the short answer. Is it major, maybe not. But yes, there will be overlaps. On the entire organization, I don't want to single out any different group. But on the assigned organization, we will, of course, review and see who will -- what are the roles in the new joint company? We have a philosophy of from the day one that a company joins us were just as much part as of Sinch as anybody, who has been there for a long time. And we are a strict meritocracy. So we're just looking at how can we grow our business to supply our customers with the best possible service in the best possible way. That's our approach. And then we try to do just that. And as you can imagine, in this stage, we're going from a 700-person company and with Wavy and SDI, we're adding some 500 people. There's a lot of growth, and we need to upscale our own organizational structure and then rethink that and make sure we follow this process, which we have been planning, of course. But therefore, it's good to have a lot of new colleagues and a lot of new competence that you can utilize in various different ways. Exactly how that plays out, we need to speak to the people and get to know the people before we can answer that question.

We have no further questions at this time. Please go ahead.

Thank you very much, everyone, for dialing in to this conference call and for your continued interest in Sinch. If you have any follow-up questions, feel free to reach out by phone or e-mail. And with those remarks, I'll hand over to Oscar for a few closing words.

Thank you, Thomas. Needless to say, we think this is a very interesting and good addition to our company. Otherwise, we wouldn't do it. We think, like I said, I mean, the customer base, the operations, the people and the financial -- given the financial attractiveness of this deal, I think it makes it -- it's one of the steps -- one of the big stepping stones on the way for us to reach our goals. And therefore, we're very, very happy to have a great SAP to make these transactions around SAP Digital Interconnect. That said, thank you. Thank you for your interest, and I hope you stay safe.

Ladies and gentlemen, that does conclude your conference for today. Thank you for participating, you may now all disconnect. Speakers, please stand by. Thank you.