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

Good day, and thank you for standing by. Welcome to your conference call. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. And I would now like to hand the conference over to your first speaker today, Mr. Thomas Heath. Thank you. Please go ahead.

Thank you very much, operator, and I warmly welcome, everyone, to this conference call, discussing Sinch's acquisition of Pathwire. My name is Thomas Heath. I'm Chief Strategy Officer and Head of Investor Relations. And with me today, I have our CEO, Oscar Werner; and our CFO, Roshan Saldanha. And with those opening remarks, I'll hand the word over to Oscar. And if you're on mute, let's try again.

And we are trying again, and sorry about that. So thank you, Thomas, and thanks for listening, and thanks for your time. And so we are extremely happy to announce the acquisition of Pathwire today. I think it's a foundational deal, and it's just as Inteliquent, really positioning us to be a true leader in this very large and exciting CPaaS industry. And why I think that, we will go through on these slides and then open up for any questions that you may have. So operator, if you go to Slide 2, please. So this is the slide we showed many times before. We got revenue of SEK 11.8 billion and adjusted EBITDA of SEK 1.2 billion in the past 12 months. And now, given the last very significant acquisitions, you obviously need to add the non-closed EBITDA there in order to get the true run rate when all of these are closing. 2,000 people, but we're going to be over 3,000 when these acquisitions closed, 47 countries. And the line we have here is customer engagement through mobile technology. I mean, customer engagement that you get to your mobile phone. And I think we can all agree that's actually done in a multitude of channels. And that is -- this is what this deal is about. Scalable cloud communications for messaging, voice and video. We can probably update that to e-mail, serving 8 of the 10 largest U.S. tech companies. Thinking about all of those customers, they all have significant text, voice and e-mail usage. In fact, any company you talk to, and you can probably go any company on the planet, will use e-mail at scale. And I think that's the significance of this channel. I mean, I think almost all companies, which has a large -- which has a large penetration consumers, are using voice for some purposes, e-mail for some purposes and text or mobile messaging for some purposes. So that is, again, what this deal is about, the ability to serve the enterprise on those areas, right? Text has 100% [ trends ] consumer penetration, e-mail is very close to that as well. So it's a very similar type of channel. So I think it hits a lot of the statements on the slides. It's just very much true for e-mail as well. So if you go to Slide 3, please, operator. So transaction highlights. At first, this is a leading cloud-based e-mail communication platforms for transactional e-mails, that is not for marketing e-mails, but for transaction emails, which is more the delivery of your mobile boarding pass. That's one of the world's leaders. And that's part of our strategy, really if we go and acquire somebody on a big channel, let's be best-of-breed. And this is truly best-of-breed on the globe in e-mail. The other thing, which is very, very significant for us is, it has a proven developer-centric go-to-market model. One of the big go-to-market models in the CPaaS industry is selling to developers because they may set a developer at the Microsoft or DoorDash or a medium or small size company, they all have developers. Sometimes you can sell to these via going -- via maindoor, [indiscernible] door and the other ones, but sometimes it is just a developer signing up online. We have not been good at this developer center go-to-market model and supporting developers, Pathwire is, they're really good at this. That's the main go-to-market model. So adding that knowledge to us is very significant. We're also very well positioned in the fast -- in a growing market. Market size is estimated to $16 billion by Technavio, and transactional e-mail making up more than 60%. So this is a good market in its own. And that's a highly attractive financial profile. The historical revenue growth consistently above 30%, with gross margin close to 80% and adjusted EBITDA margin above 35%. Sometimes you talk about the rule of 40, like growth of 20 and profit margin of 20, a rule of 40. And if you're above that, this is more like a rule of 65 or rule of 80, or rule of 70, right? So it's a very, very attractive growth profile of this, which is obviously attractive to us. And we see significant cross-sell opportunities. We know that 100% of Sinch customers are using e-mail. And we know that a vast majority of Pathwire's customers are using other channels, such as messaging and voice as well. In fact, they're starting to sell messaging. And that's -- their CEO says, I just don't seem to be able to stop selling text messaging, right? So it's a lot of crossover there. Some of them [indiscernible] again, I got the comment from the MessageMedia CEO, oh e-mail is our #1 channel. And we had a discussion yesterday or a couple of weeks ago, where we thought Pathwire or Mailgun was the best company on the kind of doing this. So a lot of synergies across our different units. That is the transaction highlights really -- and really, really focusing on the first 2 from an operational perspective. It's an e-mail leading communication platforms, and it has a strong developer go-to-market. All right. Operator, let's go to the next slide, please. So really a couple of months ago, over a year ago when I first heard about the possibility of this transaction, but also the e-mail market, we were a little bit -- is that, that really fit into CPaaS, but then we really thought, took a step back and how do we think about this market really. And with -- and I think the only conclusion you can get to is if you think about CPaaS throughout the customer journey from an enterprise or from a consumer perspective. And I think if you go to yourself, what channels are you using to interact with enterprises? And I think the answer will be, well, sometimes you're using text or mobile channels when you want the notification of your doc's appointment or the notification of your flight is delayed, then you want it in your inbox because that's what you see. You read it fast, a little bit more costly shorter format, but very, very high attention rate, right? Sometimes you want to do it via voice because it doesn't really work to do this via text, I need to speak to somebody as well. So sometimes you want to call your enterprises. And I can guarantee that sometimes all of you and all of the people I meet are also, in many cases, using e-mail as the third big channel to consumer communicated enterprises. So these are the channels that consumers are using. And conversely, these are the channels that enterprises are using to communicate with our customers. So if I, as a company, want to serve all enterprises, with all the main communication channels, I needed to cover the main channels, and that is what we have done with both, first Inteliquent and then with the Pathwire acquisition. And I think that's a very, very powerful position and very, very, very few companies can do that at scale on a global level, but we're definitely one of them. So that's thinking about it from the customer journey. This actually makes very logical sense because that can -- they can serve your customer across all our main channels. All right. Go to the next slide, please. So that is the reason why -- the first previous slide was the reason why e-mail made sense. And now on Slide 5, it makes sense why does the developer go-to-market makes sense. And I think all of you on the call when we acquired MessageMedia, we said, okay, we were good at -- from the Sinch side at the enterprise go-to-market. We're now adding the SMB go-to-market with MessageMedia. And the SMB, you should think about Joe mechanic shop or you should think about -- think it about as the hairdresser. It's not a developer. It is a business user and often CEO of that company or owner of that company that goes in. I need a easy web tool application where I can solve my communication needs, and they sign up online with a credit card and then they go. So that's what MessageMedia does. And we added that very strong go-to-market channel, but we had a hole in the middle where -- which is Twilio stronghold, which is the developer go to market. And we got an enterprise, we added SMB, but now we're also adding a company, which is very strong at the developer go-to-market. And the developer go-to-market is the developer at Microsoft or at Wells Fargo or a small company could just search online for -- I need to solve my communication need for this request I got from my CEO or project manager or something like that, and they sign up online with their credit card. But they're using not the web tool, they're using an API, right? You need to be a developer, a code in to this API. So they're going on GitHub, they're looking at the APIs, et cetera. So it's like -- it's a developer go-to-market, which is different to the SMB market and very different to the enterprise go-to-market. And now we're adding a company that is very strong, this developer go-to-market on one product and we aim to use Pathwire prove us on the developer go-to-market in e-mail to expand that to approach developers in voice and developers on messaging from this team with their strong experience. And we think it's much better to go that way than to build it ourselves because having somebody who's proven that they can do it before is obviously -- and can do that scale is always more powerful. So from a go-to-market perspective, it also fills a box for us. I'm finding a company that fills both box in the -- on the product, on the e-mail side and a box on the go-to-market side, extremely good fit for us, and I think it will propel us to really new heights and really doing good things together. That's the 2 main things -- 2 main reasons to why we believe this acquisition is super, super good. All right. Operator, next slide, please. So this is Slide 6. You can see on the left graph, as we're acquiring companies with higher gross margin and higher adjusted EBITDA margin than us, which is extremely impressive, we're very profitable ourselves, right? But this company is actually related to the revenue, has a higher profile, now they have lower COGS, so that's not as odd, but still, it drives up both our gross margin and it drives up our adjusted EBITDA margin, which we think is great. The other thing that happened, which is very significant, if you look to the right-hand graph, we're really turning the company from a one channel or messaging in many channels, but it's kind of one category of channels to -- from 85% on that channel to being around about 50% on that channel and balancing the companies to all the other channels. And you can see this, then you can support a much larger need of the enterprise needs, but it's also obviously from a diversification side, a much stronger and more well-balanced company when you have this type of broadened growth or broad GP generation. So we're really turning the company to be through all channels in CPaaS and we're really showing that by gross profit generation. And I think that's very, very powerful. So having on the left -- right hand graph a 55% -- 51% messaging, 16% voice and video, 13% e-mail and then 19% operator, which is the largest part is coming from the Inteliquent, serving the U.S. operators on the voice side, right? I think that's a very, very strong and diversified company. All right. Operator, Slide 7, please. This is what IDC did, I don't remember, maybe 12 months ago, maybe 9 months ago, that we're really kind of picturing the companies in this market. And you can see the jump we did from 2019 to where we're the blue blob in the middle. We did a jump to 2021, where we're the orange #2 blob in this market. And we have repeatedly said, all right, our goal is to be #1 or #2 in this industry. We want to be -- we think the market is fantastic. The market is very, very large, and we want to be one of the 2 largest players. And what we're doing now is exactly according to what we have said. We're really taking that step and really distancing the midsized companies or the large, but doesn't have all the channels or not as global companies basically. And I think we're definitely putting some ground in between us and the others and really singling out 2 leaders in this industry that are doing multiple channels at scale, basically. So that's the goal here. That's what we're doing. And we think that position of being able to serve global enterprises all channels on a global basis is very, very attractive. So we're just taking the next step to this slide basically. All right. Operator, going to Slide 8, please, where we have shown the Gartner model of the CPaaS industries several times. This is now the new Gartner model. They just updated this. So they had a couple of layers. And as you can see, we're -- the core of this is really filling 2 core boxes. One is the e-mail box, as you see in the bottom right-hand corner, and the other one is the developer blogs, developer relations, certifications, events, and I mean developer go-to-market and support for developers and products for developer on the left-hand side, again, repeating the 2 key rationales for doing this deal. That's the 2 things. And it's very clear. If you go to analyst, they would all say that's a core part of the CPaaS industry. We want to be a leader in the CPaaS industry, and then we got to fill the main boxes. It is also actually satisfying much more than that, like they have a great analytics offerings. They have sentiment analysis. They have some AI tools, et cetera, et cetera, et cetera. So I could also go in half code or 20% code or a couple of the other boxes, but let's not go into that. It's like on the top level, this is the 2 things, but there's also strength in our ability, in a lot of the other boxes. So it makes sense from a wide variety of reasons. And as you can see, with recent transactions, we're ticking off a large part of the boxes on this type of -- in this type of chart. And it's very hard to do so. So doing that at scale on a global level, very, very few companies will be able to do so. But that's again, following on the strategy of being a leading CPaaS player in the market. All right. Operator, Slide 9, please. So we've shown this slide many times before, for you, also you have been [indiscernible]. We do technology and go-to-market acquisitions, and we go scale and profitability acquisitions. So technology and go-to-market being. And we needed this technology and go-to-market knowledge, we typically see them together. And we think it's better we make a bi-analysis and we think it's better to acquire than try to build on ourselves because it will go faster, and we've got to get a better service. So that's when we kind of try to fill the technology over the market box. And the other one is scale and profitability, really acquiring sticky customer relations, adding to the EBITDA, leverage share platforms, adding operator connections, et cetera. This truly fits both categories, trying to build an e-mail service from the ground up today is going to be close to impossible, extremely expensive, take many, many years. And when you get there, all the other players will probably have moved 4 years ahead. So it's going to be very, very, very hard and extremely expensive. The other part on the go-to-market, adding a developer go-to-market is expensive as such. We've been trying to find ways to do it, but not really found the ROI to be worth it so far because we had good ROI in the other channels. But when we found the company is doing this at scales with a 35% profit, great, let us do that and let us build on that and then add that developer go-to-market through the other channels in a strong way. That's a very good way of covering that go-to-market model for Sinch. So it's a definite technology and go-to-market. It's also obviously also scale and profitability, just the 35% EBITDA margin and 30% growth. This type of size of company adds to our scale, adds to our profitability, obviously also takes that box. So if operator go to next slide. If you draw it, it would definitely be in the top hand both the e-mail and the developer go-to-market, and it will be on the scale and profitability in North America primarily, but also across Europe, but a lot of revenue, a lot of gross profit, a lot of EBITDA coming into the company, which gets into the credit pool and makes us a very strong and diversified company. So operator, Slide 11, please. So Deal Rationale, founded in 2010, leading developer-centric, cloud-based e-mail communication platforms, more than 100,000 paying customers, using Mailgun and Mailjet, that's their 2 main brands. Again, they're signing up online hundreds or thousands of customers on a recurring basis. So it's a very, very good customer acquisition machine, but signing up online with a no-touch model, headquartered in San Antonia, Texas, 290 employees worldwide. Deal Rationale [indiscernible] forward, gain leading product offering for e-mail, will dramatically strengthen our developer go-to-market and has a very attractive financial profile. So its home on all these 3 points, which is truly what we look for. Another point which is always important for us is the culture fits. This company has a great culture fit. They are truly focused on profit, have been profitable since day 1, just as we have. They're a non-excessive company. They're really down to earth. They are not the high flyers. They are cost conscious. The CEO just told me when he talked to a couple of our teams, he said, "I love the Swedish word lagom, and lagom means no excesses, down to earth." And I think it's a phenomenal kind of view from them of being this ambitious, this high growth in the world's biggest market, but loving the world of lagom or being nonexistent and excessive, down to earth. I think it's just a great culture fit with us. And we frankly have a lot of fun on all the calls. So that's also a great, great things. Integration. We see significant revenue synergies from mutual cross-selling. Basically, all of our customers, we know they use e-mails, how can we open the doors to Pathwire. Basically saying, we take this 100 customers work, let's bring the Pathwire team in, let's have a call with them, can we cross-sell -- can we cross-sell to all these big brands that we have. And on the other hand, Pathwire is already selling quite a bit of text and expanding that, selling Sinch products into Pathwire. And as you heard, MessageMedia, their #1 request is, can we get e-mail into our offering. So cross-selling Pathwire products to MessageMedia's 60,000 customer base is also going to be in strong trial. So significant revenue synergies. Using our global footprint to accelerate the international expansion and then using Pathwire's expertise in developer go-to-market, making them own developer go-to-market across all channels. It's a relatively low-touch integration because they will be run as a separate business unit. This is a profitable company. It's a large company that will be used. We won't merge the platforms on the line. So relatively low touch on integration because they would kind of operate on its own business units with our own platform and run this thing. So less concerned about that, even though it's always a lot of work, of course. So Roshan, if you would do the financials on a high level, that would be good.

Thank you. Thank you, Oscar. Again, pleasure to speak with all of you. Big announcement. We're acquiring Pathwire and paying $925 million in cash and delivering also 51 million new Sinch shares to the sellers. At the closing price yesterday and at yesterday's exchange rate, that gives us an implied enterprise value of $1.9 billion or SEK 16.6 billion. This transaction is expected to close before the end of 2021. We expect to incur integration cost of SEK 75 million over 18 months post closing. And these basis, of course, drive the revenue synergies and obtain the revenue synergies, but also to integrate the Pathwire business into the Sinch business in terms of common platforms for finance, HR and other administrative systems. On financial for Pathwire, they had revenues of $132 million expected in 2021 with a gross profit -- with a high gross profit percentage close to 80% of -- and gross profit of $104 million and again, strong adjusted EBITDA at $55 million. This is a company that has tended to have EBITDA -- adjusted EBITDA margin of -- in the high 30s as well as a consistent pro forma organic growth above 30%. So this contributes really well to Sinch's financial profile as well. Oscar?

Thank you, Roshan. Let's -- operator, let's go to Slide 12. And so this company is targeting transactional e-mail. So really, the payment confirmation, the purchase confirmation, all of that. It is not so large in the marketing e-mail side. So it's really focusing on having a high delivery rate of transactional e-mail. And this is also -- I mean, I have gotten that questions a lot of times on our text messaging volume, is it mainly the transaction side, basically appointment reminders and things like that. So the fit is very, very good in that sense. So prime focus being on the transactional e-mail side. Operator, Slide 13, please. When I look at it on the outside is like it's very simple, right? Sending an e-mail, why is that a problem? But it is actually not when you go through it, and this was -- has been a learning experience over the last year for us in Sinch because we looked at this market for quite a bit now. And sending an e-mail to mailbox is easy, but sending it -- but getting it into the inbox and making it read and action on, it's another story entirely. Over 90% of the incoming e-mail is blocked by inbox service providers, with only 8% of all e-mail traffic making into the inbox. And deliverability is the rate in which messages are being sent in the inbox, that's where Pathwire is well leading. It also says if you want to do this, you can't focus on too much marketing e-mails because you need to focus on the e-mails people really want to get. Otherwise, you fulfill the inbox. So that's the kind of the core focus they have, and I think we can all agree that something that we all are using and all need. And then we needed deliver to the inbox, not in a spam filter basically to the e-mails that we need. Operator, next slide, please. It is also an API platform for developers. So very strong at that. So some 20-plus API, fast onboarding. So the product for developer is usable in less than 1 minute. Again, it go online for a developer, you get to be able to send e-mail through this machine in less than 1 minute. It's a very, very powerful offering. And as you can imagine, all these developers around the world, we're looking for communications, signing up as fast, super good. And we want to take this model and bring it to all our other products. Deliverability rate is 98% versus industry average of 83%. That's another extremely strong point to this company and why they keep on growing above industry average, right? It's scalable cloud-native on a global delivery 99.9% upside. So that's a very strong part of this developer offering basically, an ability to talk to and serve developers well. Operator, Slide 15, please. We also have Mailjet. It's a smaller product, but it's a marketing platform. It's a kind of a platform for marketers. So one of the most advanced web tools, like drag-and-drop e-mail builders on the markets, seamless collaborations or features for designers and developers and very advanced automation to onboard the recipients, reward action and reactivating active users. Here, again, you can see the web side, the kind of online go-to-market very, very powerful in this market. And that's truly where we're turning Sinch as well and coming from the selling to the world's largest enterprises with a rock-solid quality, really turning and being -- getting into this rapid fire web tool online go-to-market with both the MessageMedia and the Pathwire acquisitions. I think it's going to be very, very powerful for us going forward. Still, you sell to a lot of big brands, like DHL or American Express, I mean, they all use these type of services, because they need the simplicity in order to handle the product. All right. Operator Slide 16, please. Pathwire manages the entire e-mail life cycle. So it validates, it collects, real e-mail addresses, define it, segment it, create it, being able to create beautiful e-mails that companies actually read, tests, ensure that it actually works, sending it. So sending it, deliverability and then optimizing it using a good advanced analytics and campaign statistics tool, all of these things they do. So it's a lot more than just click the send button and make sure you deliver an e-mail basically. And this is what the entire SaaS tool does. All right. Slide 17. Loved by developers, trusted by business. You can see a couple of these. I'll leave it to you for read for later. But the first one, e-mail delivers super fast straight to your customers in boxes. I just read the green ones. The reports are fantastic. Mailgun makes it easy. Mailgun is consistently fast. Hacker news, that's truly, truly the developer-centric review. We went from thousands of e-mails on Mailgun to almost 7 million e-mails across 140 domains, and never -- and we have never encountered a reputation issue over the years we've used them. So this is from a developer news outlet, right? They know what they're talking about, and they really come to this type of business. So very, very strong. And then on the second side icon. Thanks for the amazing e-mail framework, for any developers out there who need response e-mail, this has been a wicked solution, truly get to the tech arena. I think that's very, very strong with this business. All right. Operator, Slide 18. Pricing very short as well, but pricing on a SaaS model, really pricing a monthly 3-month recurring fees. A lot of these companies are very small, but they also sell to the AMEXs and the FedExs on completely different -- and there, the revenue per month gets very, very large, of course. But their stronghold has been this developer go-to-market, but now also having signed some of the world's largest enterprises and seeing the platform is there, they can deliver. They just haven't scaled out their go-to-market, but that's what we have, like 400, 500 sales people around the globe that we can now open the doors to the world's biggest enterprises and start selling this platform. I think that's very, very powerful. 19, so -- this slide, and I will leave the next to you, Roshan. I think this again shows, I mean, the transformation of the company that we're doing. We're really having strong organic growth. It's always the core for us, continue to around the core business. But then we're really truly making a jump here, to truly be 1 or 2 in CPaaS. And that's what you're seeing with these latest acquisitions, Inteliquent adding voice, big channel; MessageMedia, adding SMB go-to-market, a very big channel; Pathwire adding e-mail plus a developer go-to-market. So 3 extremely significant and pivotal transactions that we have done here. Pro forma last 12 months revenues of SEK 20.4 billion, gross profit of SEK 7.2 billion and adjusted EBITDA of SEK 3.2 billion. I think that's just shows the power of the combination of these companies, shows the power when you are profitable yourselves and acquire truly highly profitable companies with the same culture. And I think it just shows the power of that type of model that we're applying here. Roshan, anything else you want to say on this slide? And then if you take the rest of the deck here.

No, nothing to add really on this slide. I think you covered it very well. I mean, obviously, the growth profile as well as the distribution of the revenues across all these products is very exciting for the future with the combination with Pathwire. Thank you, operator. Can you please turn to Page 20 -- Slide 20, where we show the financial targets. And our 2 financial targets, again, to remind everybody is adjusted EBITDA per share to grow at more than 20% per year, and we want to keep net debt to adjusted EBITDA or leverage below 3.5x over time. And at the end of Q2, I mean, we grew adjusted EBITDA per share by 38%. And net debt per EBITDA was reported at 9.6x negative, which means essentially a cash position at the end of Q2. On the next page, Slide 21. Operator, if you could turn to that. You will see the pro forma net debt over adjusted EBITDA. And yes, we're starting with, obviously, the 9.6, which was in Q2 '21 reported. And then if we add the adjusted EBITDA for the acquisitions, which are not included on a full year basis in Q2 '21, and that is primarily then ACL, Wavy and SDI. Then we would have a Q2 '21 pro forma leverage of negative 8.8. Together with Inteliquent and the payment Inteliquent that would bring us to a negative 0.5. And going forward with that, with MessageMedia and with MessengerPeople, we would have had a pro forma leverage of positive 2.7x. Now together with the Pathwire announcement, we've also successfully announced and closed a directed share issue of SEK 6.6 billion or $750 million. And we're super happy to get the support of our existing shareholders, but also some very select new shareholders, including Canada Pension Plan. And together with that share issue and with the announced transaction of Pathwire, our pro forma leverage would be 2.7x. I think another key point to note in the Pathwire transaction is that we're delivering a large part of the enterprise value through Sinch equity, which also shows the strong faith that the current shareholders of Pathwire plays in the combined future of Sinch and Pathwire. With that, I'd like to hand back over to you Oscar, I guess, for final comments.

All right. Thank you, Roshan. So again, I think it's a pivotal transaction. If you see it together with Inteliquent, this is truly about, can we serve enterprises with all the main communication channels across the customer journey on a global level. I think both Inteliquent and Mail and Pathwire really makes -- puts us in that position, covering the 3 biggest channels, messaging, voice and e-mail. And the other one is adding a strong developer go-to-market, which we didn't have, alongside our strong enterprise go-to-market and alongside MessageMedia's strong SMB go-to-market, I think it's very, very powerful. These are the 2 main points that made to me this transaction is just super good for Sinch. And I think it would propel us to really good positions in the future. And I think it really puts it in a position to be able to be a winner. I think there will be several, but a winner in the large CPaaS market. With that said, thanks a lot for listening. open up for any questions.

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

And also, congratulations to another attractive acquisition and to broadening your technology base and the revenue base substantially. I have a question starting on the potential for upselling and cross-selling and your e-mail channel or normally, the e-mail channel is a little bit less of a success rate, you could say, and that could give opportunities, I guess, for some kind of selling for back services to Pathwire perhaps. Still, you commented about quite low-touch integration from a technology standpoint. So is that doable at all to have SMS or other channels as fall back to e-mails or if you could comment on that would be great. And also if -- more or less from day 1, can -- the revenue model, they have the scale model if that works already from day 1 for your enterprise go-to-market, including SDI's large customers?

Very good question. I -- it shows that you understand it and I love the question and you're 100% correct. So yes, it is -- and that's 1 of the key things, but I maybe should have commented on, but it's not only serving enterprises with -- these are the 4 channels, you can buy them separately. It is also, and maybe most interestingly saying, okay, I will make sure I get the message read by your consumer. And then you will say, okay, we will take care of the optimization in between channels for you. And we will use the channel that is from a data model proven to be most successful. And that may be starting with an e-mail, and if you're not reading it, then you get reminded by text or for another person, it may be you start with an e-mail and then WhatsApp. And for the third one, it's starting with e-mail, but then having a voice call for another use case, right? So it's optimizing that, extremely interesting, and I think that's where the market will truly turn. And I think if you can't then do all the channels, it's going to be hard to optimize. Now -- so 100% degree, that is where the big data and the data models and all that comes in, 100% true. Now that does not say that you need to integrate the e-mail platform to the messaging platform and or the voice platform, [indiscernible] is they're too big, they're too much at scale, and they do different things. That's like integrating a car, a boat and a plane. But I think when you want to go to your vacation, you would take maybe the airport train to the airport, and then you take the airline to your destination, then you run the car and it's a little bit the same thing, right? You -- so basically, what you integrate is the layer above. So you need a data layer above that can track the data across all of these channels. But that's actually -- it's more a layer above which we need to figure out together with Pathwire and Mailjet. So that's not really truly integrating the core platform, and that makes it a lot easier. On the sending side, it would be adding e-mail to our conversation API, but that's really how the conversation API is already built. It's built from multiple channels. It's got like 12 or 15 channels already. Adding e-mail there, it's just -- I'm simplifying a bit, but connecting the e-mail API from Pathwire's up into the conversation API, but that's actually how it is actually did. So 100% true, 100% right, but that type of integration is much, much easier than porting all the traffic customers of 1 platform to another platform.

Perfect. Thank you. May I also ask you on -- I just saw last week on Inteliquent that they are expanding its scope to Europe and many other markets, like New Zealand, Thailand, Australia and so forth, both with national phone numbers and calling services, et cetera. And my question is, perhaps not the right forum, but if you can comment a little bit on this and how it impacts you or your operations after this deal is closed?

Yes. So that's obviously -- I mean, first, we're 2 separate companies still, not closed. We are high -- very high confident that we will close, but it's their decision. But it's obviously very much in line with our strategy, and it's 2 things. They have very large U.S. customers. I think the [indiscernible] Microsoft, all of these of the world are their customers. Those customers obviously have needs for faster delivery and Inteliquent is a trusted supplier, and they ask Inteliquent, could you please just give me international like 1 supplier. Obviously, good growth opportunity. And the other end, the other thing is, as we -- as they now get the much more international footprint with all the sales reps we have everywhere, then it makes probably a ton more sense for them because it's -- they've got higher probability as within local business. So it fits us very well. That's great, and I think it's very much in line with strategy.

Yes. And just to secure, it doesn't give any more hurdles from a security point of view. This is more of a collaboration for them with some third party, or do you need United Kingdom and Germany and New Zealand that you also approved this acquisition?

No, from an approval, it doesn't change anything. What they said is we're expanding our product footprint, they're not acquiring anybody. It's like so they win another customer. No, there's 0 impact on the approval side, no.

We will now be taking our next question that comes from the line of Ramil Koria from SEB.

A few questions from my side. Just first off, as always being the devil's advocate here. Could you perhaps elaborate a bit more on the -- well, first of all, the barriers to entry to new entrants, but also why this company is able to outgrow, let's say, Mailchimp, for instance? Is it due to the transactional e-mails focus? Or is there sort of anything in the stack here that really sets it apart, perhaps the sort of the ability to bypass the junk box or anything like that? Or is that sort of pertaining to the fact that it is transactional e-mails once again?

Oscar, do you want me to start with the second?

Do you want to start with the second? Yes, if you want to start, fine, and then I'll fill in. I'll interesting to hear. So fire away.

No, great question, Ramil. And I think -- I mean I would point to 3 things, right, on the Pathwire platform. I think number 1 is that this is a cloud-based platform, right? And traditionally, you have some of the older players, which have platforms that are more on-prem, more traditional platforms. And I think that -- it's part of the whole ship to cloud, which is essentially making Pathwire win versus the competition. I think the second thing is, of course, they're focused on developer go-to-market. And I think through that, they're bringing a lot of digital native companies into the fold, which would definitely adds volume and bring business to them, right? And then thirdly, you're right. I mean they have a higher -- they have a higher deliverable state. They have worked a lot in terms of through algorithms and through different methods, improving sort of the accuracy and the timeliness of their delivery, making sure of their delivery of mail, making sure that they have -- that they are winning on that front. And then this better product, so to say, with higher deliverability and developer focus I mean has meant that they've taken market share since founding 2010. And in a sense that very much like Sinch, right? I mean we've taken market share since we were founded in 2008. I mean we're not the first player in this industry. So that really is, in a sense, brings means that we are more similar to each other as well. Oscar, back to you.

No, I think that was a very good answer. I would add 1 thing, which is just strengthening your 2 first point, just the cloud and developer side, and we've seen this across many different areas, and that is APIs outgrow everything. It is so scalable business model. When you get to an API model, it is extremely scalable, and you just get integrated everywhere. If you have a good API product, you get integrated everywhere. And I think that's a new -- it's a party shifting cloud, really doing through APIs and really growing strong. This is pretty much a stripe did, right? They did really easy to use payments APIs and started to hit the market with that and created a very, very large company on it. And we're doing the same on text messaging, we're doing the same on voice and these guys are truly kind of cloud, e-mail, super strong APIs. And that business model has just proven very, very strong. So that's another kind of strengthening the 2 first points Roshan said. Then I think it's just good, acquired good companies with proven growth, proven competitives that outgrow the market. I mean, it's a very good model, right? Yes, you pay a little bit more, but in the end -- it's in the end, the winning strategy if you want to win in the market. In terms of barriers to entry, interesting. There are only a few large players in this industry, right? It was Mailchimp, Mandrill, just acquired by Intuit for $12 billion. It was SendGrid acquired by Twilio. It was SparkPost acquired by MessageBird and no Pathwire acquired by us. That's it. That's the 4 largest players in this market. Next big player is Amazon SES, and they've been in this market for a long time. Even though such a powerful company like Amazon has been in the market for this long, you always need to be very careful because they're extremely powerful, but they only have -- I think it's a 9% market share or something like that. It's a tough market, right? So if Amazon can get to a 9% market share over a couple of years, and not more than that, I think it just proves that [ antivirus ] in this market is large. I would not start an e-mail company today and try to get up in the top area here. That's going to be very expensive. And that's true even for the largest companies in the world, right? Now said, competition is tough as any market, which is scale, but that just shows the entry barriers, I think.

Okay. And a brief follow-up on that. I think you both -- Oscar, you referred to Amazon's market share. Could you talk about a bit about Pathwire's market share and perhaps the market growth rate?

Yes. So in -- it's always hard because market share is always -- did you get all carriers. But in that report that we saw, Pathwire was about double of that, so significant larger. And then -- so that's kind of the relative size. Then I'm always in this market port. I think it may have been a little bit like U.S.-centric. Did it really cover all APAC, et cetera, et cetera, and this was in the transactional market, not in the marketing e-mail market. So it's always a little bit hard, but that's kind of relatively size-wise, directional approximately right.

I think Ramil just to complement that, right? I think if you look at some of the industry reports, I think we are referring to one of them, right, Technavio, I think they say the e-mail market is $16 billion. Now you can compare that with what we say about the messaging market, which is only slightly bigger. But at the same time, the gross profit profile of the e-mail business is much, much higher, right? I mean, you don't have the operator cost element. So from a gross profit perspective, it's a larger market. And I think what we look at industry estimates, I mean, they say they grow sort of in the 10% range, right? I mean this market is growing in the 10% range. But the interesting thing is that there's an undergoing -- underlying sort of on-prem to cloud shift, which means that a company like Pathwire, which is in the front end technologically and is providing a cloud product grows much faster than the market. So that's what we're seeing in the growth numbers when they are growing 30-plus percent, right, for a long period of time organically.

So really, front-end cloud, on-prem to cloud and also in the front end in API-enabled business for developer. That's 2 very strong growth drivers driving above market average growth rate.

That's very clear. And a final question from my side. Going all the way back to Page 6 on the right-hand side, the gross -- GP per by product split. I mean, there are a lot of moving parts here, and of course, from an external point of view, it's becoming more and more difficult to pinpoint every moving part here. But could you elaborate a bit on the trajectory of the split as such, perhaps a few years from now, will messaging still be roughly half the business? Or do you foresee a future where perhaps it's a smaller or even a bigger part of total here? And same question for the other revenue buckets here?

All right. Great question. Roshan, do you want to start? Or do you have a...

I can start off. I think you can give the long-term answer. And Ramil, just very briefly, right? I mean I think this is the challenge, right? I mean we have a very large business, which is messaging, text messaging, which is growing -- still growing, right, from a large base. And which means that it takes -- even if the percentage numbers on the smaller business element -- business units sort of are high, it takes a while before they catch up, right, just purely mathematically. So I think my guess would be that for a number of years, messaging will still continue to be important. Obviously, some of the other segments, especially mail and I hope voice as well, when we get sort of more into the CPaaS, CPaaS product area will grow faster than messaging and that's what my hope is. For at least the traditional messaging business, then you've got the OTT messaging within messaging as well, which has high growth rates, but from a smaller base. And then I think the other -- I think the other thing to remember, of course, in this aspect is operator, right? An operator is fairly steady. So that will reduce. I hope -- I really hope that we have an Omnichannel as we develop our Omnichannel experience that we have an Omnichannel gross profit base as well going forward. But I'll let Oscar elaborate more on that.

All right. So the first principle to me is like, a, the market is going to be huge in CPaaS because enterprises will communicate with the consumers, right. B, how do I make sure I win? Okay. If we cover all the main channels with market competitors offers in our large win, then we will be covered in the tech shifts, right, in the shift in between the channels. So it becomes like significant to derisk the company profile because you're good at all the channels. And if it shifts a little bit more to e-mail or less to e-mail or more to voice, it's like you're going to be leading, right? And I don't think any of the channels will disappear because it's just human nature to use different channels for different areas, right? So that's one. Then how it develops, we don't know, but we can conclude if you would look at other players in this market. If you would look at how Twilio looks and you can start that on now, it is relatively similar, which is very interesting, right, which shows a couple of things. Great, it's relatively similar, that's good, but it also shows the extreme powerhouse that messaging has been. It is just a very profitable, very large market. And it's also interesting that it's the kind of the messaging people, us, Twilio, MessageBird, that are actually acquiring the e-mail people. Why is that happening? And it's the messaging people acquiring the voice players. So it is -- the consolidators in this market has mainly come from that area, because I think that's where the area that CPaaS really grew up. So that's -- but it's also because that's a very sizable -- a very, very large market that is driving a lot of needs. And so I think the split today is comparative to other companies. I think it will change, but I think it will -- messaging will still be a very large segment, and that was also proven by it's actually the company is coming from that, that are the main consolidators in the market so far, I should say.

World-class answers.

We will now be taking our next question that comes from the line of Predrag Savinovic from Carnegie.

The first 1 is really on Deal Rationale, what is mostly driving you for this, the developer-led go-to-market that Pathwire has sounds intriguing, sounds like you're very enthusiastic of how you can leverage this in other verticals. So to you Oscar, what do you think is the biggest factor here in value creation? Is it this which covers the white spot you had? Or is it adding a leading position on e-mail delivery, which is also white spots? And a follow-up to that, how important is e-mail in your ongoing customer discussions on the multichannel strategy?

I think it's both. You can't acquire a developer go-to-market if you don't have a product that you're good at it, right? So like you can't be good at something if you don't have the product. So I think it's truly both. It's adding e-mail and developer. I don't think I can differentiate them. But it's both really being good. And I think the other thing that really drives value is this layer on top switching in between channels. That's what I think truly drives value, switching in between channels and driving all the cross-sells to the e-mail platform and adding the developer go-to-market. That's the 3 main things driving value creation there.

Okay. And on the e-mailing market, you call Pathwire one of the leaders or the leader. And I'm thinking of you citing this $16 billion TAM, you would have roughly 1% of that pie, which sounds quite small. And then you referred to another figure bigger than this. So trying to figure out what is really the tangible TAM here for Pathwire?

Good question. Pathwire is the leader on the deliverability or delivery side, then there are companies who are -- have more volumes, such as SparkPost and Mandrill. But that's what we're seeing when we call ability to deliver the e-mail. That's where they're the leaders and then they are one of the largest players on the planet. On the market size, Roshan, I haven't read that specific report. So if you could comment relative to the specific report.

Yes. I mean I think it's -- in the long term, I mean, what we'd say is -- I mean, a large part of this market is addressable, right? It's, of course, there's a bit of geographic aspects, there's a bit of technology aspects, is the mail sort of bundled with another product, such as contact center product or a CRM, sort of. So there are, of course, some restrictions. But in the long term, a large part of this kind of entire market is addressable. And I think what's important is, like we said before, the shift to cloud, right, which sort of increases the addressability constantly. So there's a long runway of growth from that perspective.

Okay. And on the customer side, you cite a few big ones using this, like DHL, Microsoft and many more. Do these customers typically have a multi-vendor strategy or a single vendor? Maybe take that into context of the 100,000 you have, I guess, the bigger ones probably have multivendor, but what does it look like?

Enterprises typically have a single vendor strategy per channel, but the multi-vendor strategy per -- of channels because they can't handle 2 e-mail providers. Big techs typically have a multi-vendor or 2 or 3 vendor strategy even on per channel because the volumes are so huge. But we see enterprises really wanting and also the big techs really wanting to consolidate their providers because there are so many and it's so complex and also using the switching in between channels, logic that we discussed before.

Okay. And 1 final on the Slide 8 on the Gartner model of this CPaaS industry of the parts, where Sinch is not present in or only partly present in. Which of these boxes would you say are important for you to add or to grow into -- to be the #1 or 2 player in the industry that you target?

So happy to say that these are the 3 largest channels. And then obviously, video is a channel where you're saying, we're not super large there. You can say, in-app services, we're not super large there. I think the data models, like analytics, CDP, those areas interesting, but we're like looking at what are we doing, what are we building ourselves, what do we have, what can we do, et cetera. So its -- payments interesting, but it's probably more a part of what we're doing, payments within the message flow, et cetera. So there are definitely interesting areas, definite areas we want to cover, but then it's a question of a make or buy and doing it in a stepwise manner.

I think just a very short for that one, right, Oscar. I think one thing to remember is also that we have with Inteliquent, MessageMedia and Pathwire, 3 fantastic acquisition platforms, right? I mean, Sinch have had a great story consolidating the text messaging market, Inteliquent we see as our platform for global voice, message media, the platform from global SMB, and Pathwire as a global e-mail platform. And all of these companies have experience with consolidating those markets. So there's a geographic regional aspect to this.

So see them as BUs. I [indiscernible] win in developer with e-mail globally. I [indiscernible] you win in SMB. And they have handled acquisitions and things within the BUs. We're kind of just leveling up one. And within those BUs, it's a different story, right? So see the BUs that has their own CEO and drives their own business, which I also think is a very, very powerful model there.

[Operator Instructions]. And your next question comes from the line of Ramil Koria from SEB line.

Just -- I mean, if I may, since we have the opportunity now, talk a little bit about sort of the integration team that you have on board. You've recruited someone to the management team. I mean, how many are you -- how should that team sort of increase or decrease, I guess, it's more towards the former than the latter moving forward, i.e., how much are you scaling up the integration capacity as such, knowing that this isn't a cumbersome integration as such?

So the integration team today, I think the latest reports are some 80, 75 people. So it's a significant team. Super happy to have a leader in that, which we didn't have like 7 months ago, and she is driving it. It's a full-time job and that's the only thing she does. She has an integration lead for every deal and then an integration team for every deal doing the things, right? So that's around about what we're doing, how it scales up and scales down. It -- her budget is the integration budgets that I report to you. That's what she can keep to. So Julie, this is your -- this is your money integrated to this. You get the people in that you need to do that in order to do so, and you need to -- when that budget is off, you need to scale down the team or get those people back into the main lines basically. So that's the size and how we scale up and our hard task is to continue to keep within budget that we have reported to you. I think we scaled up really good. I think we can do some more, but also conscious on cost and keeping to the budget that we communicated. And so far, we've been very successful in doing so. Now lots of work, very hard. This hasn't been easy. We've got to be very, very humble about the challenges we have on doing this. On the other hand, if we wouldn't have made this deal now, it wouldn't be there. So the choice for us was do the deal, be big in e-mail or leave the e-mail market. And in that decision, I think it's good to make the deal, because you need to understand the deals don't stay. They will be gone if you don't do them and somebody else will do them.

[Operator Instructions]. There are further questions that came through, sir please continue.

In that case, we'll thank everyone for participating for the good questions and for listening to what we think is a very exciting opportunity and a very exciting story. I'll hand over back to Oscar for any final remarks before we wrap up.

Thanks for listening. Thanks for your continued interest. We have a lot of these calls. Super excited to have you on the call. To me, these 2 deals and then this deal here is very logical. Enterprises have many -- used many channels. We want to serve them throughout their needs. If you want to be a leader in the CPaaS on a global level, you need to do all channels. Secondly, if you need to do -- be a leader in CPaaS, you need to cover all the go-to-market models and covering off, being strong in the developer go-to-market and serving developer and good APIs extremely important. And then adding a company with such a fantastic financial profile, low on ego, low on excesses, they've always been profitable, driving profit. I think it's -- when you see that type of deal, I think it's just a very, very good combination with what we are and getting a team in with a culture that really fits us. I'm super happy with the deal, and thank you for listening.

Thank you. That does conclude the conference for today. Thank you all for participating. You may all disconnect. And speakers, please stand by.