Cint Group AB (publ)

STO:CINT

Earnings Call Transcript 2023-Q1

[Operator]

Hello, everyone, and welcome to the Cint Q1 Interim report. My name is Nadia, and I will be coordinating the call today. [Operator Instructions]I will now hand over to your host, Giles Palmer, CEO, to begin. Giles, please go ahead.

[Giles Palmer, executive]

Thank you, Nadia, and good morning, everybody. Welcome to our Q1 earnings call. Before we kick off, I just thought I'd say hello and introduce myself because this is the first time you would have heard from me and I actually only started with the company on the 1st of April. Well, actually, that was a Saturday. So I probably started on the 3rd of April. So I'm a month in. So bear with me in terms of my ability to go deep on historic -- historic issues because a month isn't a very long time. But let me just tell you a little bit about me and why Cint chose me for the role and why I took the role, and a little bit about my qualifications for doing a good job. So I started a company called Brandwatch in 2006, which we sold to Cision 15 years later for about -- around about $500 million. And that was a technology company. So I started it from basically a piece of paper, grew it, raised capital, expanded into different markets.

[Operator]

Ladies and gentlemen, we have lost connection with our speakers. Please stand by as we reconnect them. Thank you for standing by. We have the speakers reconnected.

[Giles Palmer, executive]

Sorry about that. So yes, I was just telling you about the story. So we acquired Crimson Hexagon, we did a ton of planning on the technical integration ahead of time. Ahead of the deal. We did -- we negotiated the deal and then stepped into it. We took out a bunch of synergies, about a bunch of costs in the first quarter. But the key thing that I wanted to bring to this call is that with 2 completely separate technologies, we planned and integrated them and created a net new product from different parts of the 2 independent stacks within 1 year. And then we transferred or migrated all the customers over to the new product. And that took another year, but it was a much more complicated customer migration than the customer migration that we're looking at is in because there was so much historic data from each of the products tied up with the customer account. So that process was obviously very challenging and very bruising, but it set the company up for significant long-term success. We took the pain early. We did the hard work. We integrated the companies. And then once that was done, the growth rates we were able to put more money into the go-to-market machine and the growth rates accelerated very quickly thereafter. During the course of that integration, that 2-year integration of the companies and the technologies, the commercials were very challenging. We saw growth rates decline despite the fact that the thesis ahead of time was that there will be less churn because we wouldn't be churning between the 2 competitors. So I've seen this movie before a little bit. It's obviously different this time around. But the approach that I'm bringing to this organization and the thinking, the philosophy is to create a -- an integrated organization back to front, a product, which is the best of -- well, in this case, we're choosing one technology over the other. But we're going to extend it, we're going to improve it. And we're going to create an integrated platform from which we can -- with which we can bring the customers across. And then we can optimize and streamline the organization and make it more efficient. So I just wanted to kind of at least bring that to this call ahead of time before we talk about the Q1 numbers that there's a philosophical approach that I'm going to be taking here. And I just wanted to give you a bit of background as to the fact that I've done it before. Right. Next slide, please. Thank you. So as you know, I'm sure because I don't think anybody on is new to this company, I think you have a lot more experience on Cint than I did, founded in the business [indiscernible] Lucid was founded. I think in 2003. Yes, yes. Anyway, so that's on here. Anyway, alluded with required in 2021, around about 1,000 employees. And the key thing here is that -- and the way that I think about this is that Cint brings together organizations that want questions answered with real human beings who are for those questions for those companies, and we match make, we bring those 2 sides of the market together. And the way I think about it is that we are feeding and helping to -- we're feeding both in terms of associating and growing the world's desire – with the world's curiosity. So that's us. And a global company, America is the – the America is the biggest market as obviously, APAC is smaller, but very much a global company. Next slide, please. So yes, Q1, weak start to the year. Well, let's not sugarcoat this. Q1 was not a great quarter. We're not going to pretend anything different. You can read through what's on the slide here. The media measurement business did go well, but the underlying marketplace businesses, both the and business where we had challenging quarters or a challenging quarter. The fourth point down here, I mentioned in the introduction, the focus is now in the complex phase of product and customer integration, well, product integration and customer migration. And once that's done, and it's going to take a while, the company will be extremely well positioned for long-term, sustainable, profitable growth. And that's my focus. I'm going to come back to the leadership team, my new team on the last slide. Next slide, please. So yes, here it is the numbers. I've made them big. They're not the numbers that I wanted to be seeing. They're not the numbers that we're going to be posting in the future, but there they are. Now let me just say a little bit on the right-hand number, which is just read a couple of analyst reports this morning saying that one that said that reversals confusing. So this number is versus Q1 2021. So it's a comparable. 2022, sorry, 2022. Reversals in Q1 '23 were at a similar level to Q4 '22. Now there's, I think, maybe a little bit of a surprise that it was I guess a sense that Q4 was hugely different to all the other quarters last year. It was definitely the worst quarter last year for reversals, but it wasn't hugely different. It won't double the number of any of the other quarters. It's just that they had a bigger impact because the organic growth rates weren't as high. So Q1 '23 is similar to Q4 '22 in broad terms. And it's a key focus. For me, it's my #1 focus right now. And I've put this under the broad banner of trust. Marketplace dynamics for me are reasonably simple. They come with scale. The larger the marketplace on the supplier side, the more choice to buy at, and that's a desirable thing. The larger the marketplace on the demand side, the better the more the sup the higher prices that suppliers can choose can provide the higher prices suppliers can charge higher prices and they're going to get fulfilled more often. So there's a natural leaning towards scale in the marketplace business. But the one key thing for me, underpinning the health of the marketplace is trust. And this is my key focus for H1 2023 is to make sure that Cint is the most trusted marketplace in the world. And are we there right now? I'm not sure. I would like to think so. There was a report that we published on our website last month saying that which was an independent -- some independent research done by Sapio or Sapio and Cambri saying that Cint [indiscernible] was nothing to do with us. They did this themselves. They found since to have the highest quality sample in -- across the industry. These are independent studies. Now maybe that's true, but it's not good enough for me as far as I'm concerned, we need to do better at this reversal problem, a fraud problem. And we need to make sure that we are the most trusted marketplace in the industry. Next slide, please.So I've talked about point one. We have an ongoing -- Mike Misel, who's -- who I promoted the Chief Trust and Safety Officer has teams of engineers and analysts working on this. This is a key focus for us at the moment, and we are implementing features every month to counteract these issues. There's not one size fits source solution to this. There's a bunch of different things that we're implementing. And it's not a one and done either. It's a little bit of a moving target. We can deal with this in the Q&A if people want to know more. But also, I just do want to say that some of the things that we're doing, we're going to keep to ourselves because we think we've got some pretty interesting and very technologically advanced solutions that we're going to be bringing to bear here, and we see those as a competitive advantage going forward. So I'm going to be reasonably tight list on exactly what we're doing. Okay. Next slide, please. So yes, what I said at the beginning, product integration, having one world-class market-leading product is my focus for the next 1.5 years, let's say. It's not going to be quick. There's a lot of work to do. This is not a straightforward business. There's lots of moving parts, but we are well underway in bringing these 2 products together, but there's -- it's not just about the product integration. It's about upgrading user experience; it's about plugging into back-end systems and BI systems and all sorts of other operational systems. And then it's about making sure that this company is as efficient as it possibly can be. I think of analogies like the Tesla factory, where everything is optimized for efficiency and profitability. That's the kind of thing that we want to be building towards. To make that happen, obviously, there are some costs that we're carrying right now, integration costs and people working on the integration, which can be repurposed towards growth and innovation going forward a lot of those. One of the things that we're not going to be needing to do is increase the level of cost in order to get the integration done. We can do it with the staff that we have right now. And we'll do it under the budget of $40 million, which was what was the numbers stated a year ago. Next slide, please. So my mantra internally is consolidated to standardize and optimize. Number one, as I said, consolidate the platforms, consolidate the back-end systems and make sure that we have the most efficient organization from a systems and product point of view and then consolidate the customers on to that platform and then standardize how we do things, make sure that we are building models and operational methodologies across the company that we can duplicate and we can optimize and bring on people, bring in new people and get them up to speed as quickly as possible. That's a standardization process and then optimize how we do things in order to drive profitability. And I've said at the bottom, this will move towards the creation of an efficient and highly profitable organization primed for the next phase of the organization's evolution, which is going to be very growth focused. Next slide, please.Just going to bring in something here, which you may not have heard us talk about before. Cint is a data genesis company. So in a world where AI is in emerging and, in some cases, rather scary prospect, where organizations across the globe are going to move towards automation and the increased use of AI, there is a need, a huge need for what I call data genesis. That's the origination of real human-orientated data. You can't ask an AI how it feels about a product. You have to ask your consumers. So that's where Cint comes in. We are the connector between organizations who have curiosity who are to ask questions and real people who can answer those questions. And in a world of increased AI, this, I think, is going to be a hugely important thing. Furthermore, with the increasing large language model desire, a need for data, there's another opportunity here down the road for Cint to – for the data that Cint creates to power these large language models or other AI. So that's not something we do right now. That's not something that's in our plan, but it's something that just to sort of give you an example of how what we do have huge long-term future potential. I just wanted to say it here. And we are -- and we need to be understood as a data genesis company. Next slide, please. So I've got a fantastic team. It's a blend of industry experts who have significant tenure who understand this business, who understand this industry, Jake and Mike and Felicia and Michelle are all long-time Cint and Lucid employees. Olivier, who you'll hear from in just a second, joined in November last year. And I've brought on [indiscernible] sorry, forgot to mention as a fantastic Chief Officer. And Alicia and [indiscernible], as we call her, have joined in the last month or so, 2 fantastic executives who ran out the team. We now have a full team. We've just spent 3 days off site. It was a fantastic... [Technical Difficulty]

[Operator]

Ladies and gentlemen, we are [indiscernible] with our speakers. Please stand by as we reconnect them. Thank you for standing by the team have reconnected.

[Olivier Lefranc, executive]

Hello.

[Operator]

Hello, we can hear you.

[Olivier Lefranc, executive]

Okay. Very good. So on the left, what you can see is our net sales figure. So our net sales were EUR 60 million in Q1. Due to seasonality, Q1 is normally a lower level of demand than what we feel like every year. So compared to Q1 2022, which is the most relevant indicator, you will see that our organic growth, our net sales decreased by 11% versus Q1 2022 from 67.3% to 59.9%. And on a like-for-like basis, organic growth in constant currency, as Giles said earlier, we were down 12% in Q1. Our gross margin for Q1 was EUR 35.9 million, compared to EUR 41.3 million last year. And the gross margin is at 60%, slightly down versus the 61.3% of last year due to price pressure in the market. And on the right, what you can see is our adjusted EBITDA. So again, because we are relatively a fixed cost business and Q1 is a pretty low quarter. So the most relevant comparison is with Q1 last year. And what you can see is that our adjusted EBITDA was at EUR 3.7 million versus EUR 8.1 million last year. So a reduction of from 12.1% to 6.1% due to the relatively fixed cost base of the business. But I will come back to that later in the presentation. So next slide.So now we are going to keep at a little bit more like into net sales. So on the left, you can see the business segment. So the way we break down our net sales are between media measurement and marketplace. So media measurement is a product that was created by Lucid just few years ago, and that has been growing consistently since then, year after year, quarter after quarter. And marketplace is our largest product. So marketplace has reduced by 16% versus Q1 last year from EUR 61 million to EUR 51.2 million. 16% and 7% in constant currency. The main driver of that is that we are seeing a lower spend from the existing clients. That's really the main driver. And in terms of media measurement, which is unfortunately, I would say, a smaller portion, we have seen a very strong growth of 38%, 33% in constant currency, driven by higher volumes with existing clients and also quite a lot of new client gains.In the middle, you have the breakdown of net sales by region. So America, as Giles said earlier, is our largest region and saw a decline of 11%, 15% in constant currency. And EMEA and at a back contract did a little bit better. We're a little bit more resilient with 7% organic decline in EMEA and 9% in Asia Pacific. On the right, you can see the breakdown by customer types, so between tech-enabled companies and established inside companies. And so we saw a decline of 3% with tech-enabled, 2% in constant currency and 14% for established inside companies, 16% in constant currency. So tech-enabled company segment has overperformed established inside companies, which is something that we've seen, I would say, almost every quarter since we are tracking this indicator. Next slide, please. So a little bit more figures about the P&L here. So what you can see again is that our adjusted EBITDA has reduced from 8.1% last in Q1 2022 to 3.7% in Q1 2023, mainly driven by a reduction of net sales and operating profit. As I said earlier, our operating expenses are slightly down compared to last year due to the cost synergies from the integration and cost containment measures that have been put in place a few months ago. So by far and large, our operating expenses are under control. Next slide, please. Now focusing on cash. What you can see here is that our cash position at the end of Q1 2023 is at EUR 56.6 million, which compares to EUR 55.7 million at the end of Q1 2022. Also, we have seen in the quarter, an improvement of the working capital of EUR 5.3 million, driven by a higher focus on managing payment terms from accounts payable and receivables, which is a pretty good improvement compared to last year when we saw a reduction of close to EUR 80 million in Q1 which was due to the acquisition cost and also some increase in accounts receivable, and I will comment about that later in the presentation. Interestingly, as well, what you can see on this slide is that our interest has gone up significantly from 2.5% in Q1 last year to close to EUR 2 million in Q1 this year. And this is coming from our USD 120 million loan, which is on variable rent, which is impacting us significantly this year. Next slide, please. So if we focus now on the net working capital. So what you can see is our net working capital is at EUR 21.2 million at the end of Q1 of 2023 compared to 28.8% last year. So it's pretty significant 26% reduction. What you can see as well is that our net working capital has been reducing consistently since Q2 last year due to the efficiency measures that have been launched in Q3 2022. And our accounts receivable are at EUR 84.9 million compared to EUR 90.9 million last year which is a significant reduction. And our accounts receivable compared to last 12 months total customer spend has continued to reduce to 2.2% at the end of Q1. So we are seeing, as mentioned that in the title, some gradual improvement in networking capital. And now I'm handing over to Giles to wrap up any conclusion.

[Giles Palmer, executive]

Yes. Thank you, Olivier. Very clear. So I think it's pretty clear what we're saying here. Q1 wasn't great. Nobody is turn to retain anything different to that. But I did want to spend that time giving you some sense of how I'm thinking about this business and the -- yes, next slide, please, the short-term priorities. And what we're going to be working on. So let me just reiterate the product integration is really front of mind for us. Trust is my #1 priority. In order to do the product integration, my mantra to the company are sort of calling card is to consolidate standardize and optimize business. Like I said here, implement additional security features within reversals, that's under the banner of trust, as I said. Olivier mentioned our focus on cash flow, net working capital and collecting our debts. And we have a fantastic team. I'm really, really happy with my leadership team. And then our final slide, please. In – as I was saying a little bit earlier on, there is, I think, in this new world where AI is a growing presence, an increasing need to connect companies with the opinions of real people. That's what we do at Cint. And we are positioned at the heart of right in the middle of the market research value chain. And that's a key strategic position. And then finally, the way I think about this and the reason why I was so excited to take this job is that for me, marketplace dynamics benefit from scale. I mentioned that earlier on. To furthermore, in digitalization there's still -- I don't know what the steps are, but there's a lot -- there's still a lot of market research, which is done offline and in efficient ways. Over time, that's going to move online and Cint is very well positioned to be a core provider as more market research and more opinion mining moves into the digital realm. So thank you very much. That's the end of the presentation. Let's open it up for questions.

[Operator]

[Operator Instructions] Our first question is today go to Predrag Savinovic of Carnegie Investment Bank.

[Predrag Savinovic, analyst]

Yes. Thank you, operator. Good morning, all, and most welcome on-Board Giles. First, I want to ask about the integrations. I mean this is the first time you addressed the market. I mean your shareholder letter, you write that integrations are the top priority. You did reiterate OpEx synergies, but there's a comment then on the timeline. Do you mean do you believe that the integrations will take longer time than previously anticipated? And could you give us a time frame also if that would be the case.

[Giles Palmer, executive]

Yes. Thank you for the welcome. So when I'm talking about integration here, I'm really reiterating I'm talking about the platform integration, the product integration or the systems that support that all the way into the ERP system so that we have one unified flow within inside the company. We're not spinning 4 plates, 4 systems. We're operating one system, which we can then use as our core innovation engine. Now it's not a one and done kind of saying this. There's a ton of different work streams involved. There's lots of dependencies. And this project will -- we've said will take well into 2024. We are in the process of putting together a very detailed plan for exactly what will happen when. And when you're looking out more than a couple of months, those plans are when it comes to technology, they're very difficult to -- to forecast with a very high degree of accuracy. But if pushed right now, I would say that if we can get everything done by the end of 2024, I would be very happy because I'm looking at where we are right now and the amount of work that's ahead of us, and there's a lot to do.It's not going to be all work streams continuing all the way through to the end. There will be times -- it will be will drop off as things get delivered as systems get integrated as customers get migrated, then the integration work sort of drops off so it's not like everything will continue throughout to the end of next year, not at all. But I would be surprised if we got it done. We will try to get it done before the end of 2024. And I don't have an exact plan right now because we haven't done all of the work. But that's my rough estimate, but it's not an exact science.

[Predrag Savinovic, analyst]

Okay. And then secondly, on the reversal rates, you note that they are on the same levels in Q4, but then you're also right that you expect to gradually reduce them. Could you elaborate a bit on this point? I mean do you see certain improvements here after the first quarter? Or do you have certain security measures that you expect will have an effect on these -- and also, [indiscernible] point, I don't know really how this works, but is there a balance between how much security measures you can implement versus impacting, say, legitimate respondents. So any clarity there would be appreciated.

[Giles Palmer, executive]

Yes. Okay. Like I said in the presentation, there's a few things I don't really -- that I don't want to talk about because I see them as competitively advantageous. We have too many systems, right? We have the marketplace and the elusive marketplace. I mean, they're not exactly the same, but we're continuing to operate both. And we've seen changes in reversal rates between the 2 in Q1, right? So the loser marketplace, we implemented some security features and reversals came down. But then some annoying, I guess, not frozen behavior but script [indiscernible] or script interruptions got increased in the Cint platform. And so we're looking at that very closely to reduce that level. So there's -- it's not a simple one solution thing. And then there's a data science solution, which I'm not going to talk about, but it's -- we're using some advanced statistical analysis and some AI to implement which we will be rolling out in Q2, which we are hopeful will have a significant impact. So it's a cocktail of measures that we're deploying across several systems and at several points in the value chain in order to minimize the weaknesses or the opportunities for sort of bad access to kind of interrupt the flow of things. In terms of the answer to your question, are they -- is that going to minimize the real response, no is the short answer, very, very minimal because it's the patterns that we're seeing for fraudulent behavior or behavior that we don't want on our platform are reasonably clear. And so interrupting those actually shouldn't have very much impact, if any, on real people and real respondents.

[Predrag Savinovic, analyst]

Okay. That's brilliant. And just a final one, if I may, in terms of revenue progression, if you could reason around the revenue development per month in the quarter, say, maybe January started weaker, March ended better the other way around or similar across the quarter?

[Giles Palmer, executive]

We're not commenting on that. But what we're not seeing is revenue dropping off a cliff, right? We're not seeing things deteriorating further than they are right now. So yes, it's -- we're not giving kind of month by month, but I'm not alarmed by the shape of the quarter to kind of hint at it.

[Operator]

The next question goes to Sarah Söderblad of SEB.

[Sarah Söderblad, analyst]

Thank you for the presentation, and welcome aboard from you as well, I guess. I'd like to start by getting some more color on the macro backdrop. If you could comment on how, you think that Q1 looks compared to Q4, I think that will be very helpful.

[Giles Palmer, executive]

Yes. I'm not sure I can, to be honest. I don't have enough experience to do that. But what I will point you out is the slide that Olivier presented around what we've called tech-enabled versus industry players or large industry players. And what we're seeing is that, that number, the large industry players decline, I think it's higher in Q1 than it was in Q4, which is indicative, I think, of the macro in that area. So that's about all I can say of any sort of helpfulness, I think. And Olivier, have you got any say on that?

[Olivier Lefranc, executive]

No. What I would add is that I can leave like names of industry players that everywhere you low lap where you see that company with some declining growth rate like everywhere we do in the industry. We don't see a single player in the market research industry that is improving in terms of revenue.

[Sarah Söderblad, analyst]

Right. And are you at all able to comment on what you're seeing so far into Q2? I mean it's been a month. Are you seeing any kind of sequential improvement, would you say?

[Giles Palmer, executive]

We're not going to cover on Q2 at this stage. I'm afraid.

[Sarah Söderblad, analyst]

Okay. Do you have any sort of internal analysis or expectations on when you expect to return to growth? I mean you said that your priority this year like in other places on the integration and optimization and so on. So is the conclusion like returning to growth, is it really a priority for this year. Is that correct? Or do you describe it?

[Giles Palmer, executive]

So everything is a balance, right? Coming into this organization, it's pretty clear to me that we need to create that single platform. We need to create that platform for long-term sustainable growth. And that's a decision that you could argue might have an impact on returning growth. I'm not sure it does. I think it has an impact on next year and year after growth in a positive way. Unless we create this single platform on which we can innovate and expand what we do and really lead in terms of thoughts and innovation, then growth is always going to be more challenging. So I'm not sure the 2 are actual trade-off. But in terms of this year, we're not giving guidance this yet. I'm 1 month in, and we've got a budget for this year. I'm very comfortable with it, but we're not giving guidance on when the company is going to get back to growth -- it's -- but it is a priority, right? It's not -- what we're not saying is, yes, we're not planning on getting back to growth. That's not what we're saying. We're just not seeing win at this point.

[Sarah Söderblad, analyst]

Okay. I have one sort of question, which I hope you could help me with because I looked at the underlying KPIs that you report and I noticed that the number of B2B customers is unchanged sequentially. Still the customer spend or the total customer spend is down 30%. So I'm just wondering, could you say if you have lost any major clients during the quarter? Because I think that would kind of explain this dynamic if you assume that new clients tend to come in with a lower spend and then ramp up gradually.

[Giles Palmer, executive]

Yes. Look, that 4,900 number was -- that was a slide from last quarter to really illustrate what the business does. There's one of the other things that we're looking at very closely is how we count customers as we integrate the platform and as we go through a kind of a customer hierarchy and a rethink of how we -- what it means to actually have -- how we count customers basically. Then we're not that comfortable in basically saying what our customer count is. But for sure, we -- the customer count is not higher now than it was at the end of December. And depending on how you count them, and we're not and I'm not clear enough about how we do that right now. So I'm not happy to sort of publish those numbers. But the customer numbers are if anything, going to be lower now than they were at the end of December. But we don't have that data to share unfortunately.

[Sarah Söderblad, analyst]

Okay. Got it. That's all for me. Thank you.

[Operator]

The next question goes to Viktor Högberg of Danske Bank.

[Viktor Högberg, analyst]

Just the first question to you, Giles. Let me sign off on to this one. Was this the kind of asset that you signed up for? Or have you been surprised by the state of things in Q1? Or was this a challenge that you were happy to meet? Just some background on what you expected and what you did meet.

[Giles Palmer, executive]

Well, like you coming into the company, I wasn't given much guidance in what was coming next. That's the nature of the business, right? It's a public business. I was -- it was pretty clear where Q3 was. I was -- I felt like I wasn't -- I felt like Q4 was -- I mean, I took the job on the 23rd of January. So this was before Q4 was announced. In terms of is it worse or better than I expected, both it's both worse and better. So the culture is better, the people are amazing. I think the opportunity is fantastic. The results are not as good as I was expecting them to be, for sure. I think I'm in the same boat as you either. But this is a really interesting challenge and one that I'm totally up for. So whether it's worse or better than I was expecting, like I said, better in some respects, worse than others, but it's going to be amazing in a year's time. I'm going to tell you that right now.

[Viktor Högberg, analyst]

Okay. One thing, and it might be too early for you to have the details on the gross margin side. I guess it was mix driven. I was on the low side in Q1. Any one-offs in that one or just volume and mix? Any comments on gross margin, what to expect? You previously said 60% to 63% could be the possible range in short term. Is that still relevant?

[Giles Palmer, executive]

Yes, that's still relevant. It's complicated. I asked my team this question yesterday, some of the more experienced people in the organization. Do you have any comments on gross margin and the response we got back was is complicated, there's a different elements that play into it. The improvements in long-term gross margin, I think, are definitely possible, but that's going to involve doing the sorts of things I've been talking about in the presentation, optimizing and standardizing and optimizing how we do things. There's definitely room in our COGS for improvement, in my opinion. But it's going to be a systematic improvement that is going to take some time.

[Viktor Högberg, analyst]

And on the OpEx side, fairly stable, what to expect for this year. That's one thing that you can affect yourself macro and outside demand, maybe not. How are you managing the OpEx during this year because that was fairly stable throughout 2022? We start to expect this year as well? Or do you need to ramp up real investments, not the one-offs, integration cost, but in the organization in order to meet the future demand? Or is this a level where you can work from?

[Olivier Lefranc, executive]

No. I think the expectation at this point in time is that we will remain at about the same level in terms of operating expenses. For sure, if revenue is not developing as expected, we might need to take some additional measures, but we are not, at this point, we are not at this point in time. So no, we expect expenses to remain relatively steady in 2022.

[Viktor Högberg, analyst]

And on that, if revenues would develop in another way, would that be additional measures in staffing up or staffing down?

[Olivier Lefranc, executive]

Yes. I mean we will -- I mean we'll adjust slightly depending a on the business performance. But again, the difficulty that we are operating relatively like fixed cost model. So -- but at this point in time, we expect our operating expenses to remain steady in 2023.

[Viktor Högberg, analyst]

Okay. And on the cash flow side, the debt and the covenant because currently, you're not anywhere close to a breach, but you mentioned the covenant that you did renegotiate that. Is that related to the RCF? Any stats been grown? And what is the covenant?

[Olivier Lefranc, executive]

Yes. So as you have seen, so our Q4 numbers and our Q1 numbers are not what they were expected to be. So which trigger a renegotiation of the covenants with the bank that we did like in Q1 in order to I'm sure that we would like to remain compliant in 2023. So we were compliant at the end of Q1. So like on 31st of March, and we are doing -- we are ensuring that we remain compliant for as long as we have this [indiscernible]. That's what we are doing.

[Viktor Högberg, analyst]

You won't comment on the level of it.

[Olivier Lefranc, executive]

No, we cannot comment on the level of it. I mean we have like the usual -- I mean, as you can imagine, we have like the usual indicators and ratios and all that in place. So we have some obligations like on a monthly basis, we have some obligations like on a quarterly basis.

[Viktor Högberg, analyst]

Okay. Okay. And just a final question for me. On the platform, the uptime of the platform as you think that affected Q3 growth. Is that behind us? Do you think that it's stable enough investments to just integrate the platforms or still some work to do on the historical issues on H2 growth in terms of the platform performance?

[Giles Palmer, executive]

Yes. As far as I'm aware, and I have some data on this, but probably not full information. Those issues are behind us.

[Operator]

The next question goes to Alex Guan of Jefferies.

[Unknown Analyst]

I have 2, and I just want to follow up on some of the other questions that other people have had. Number one, so this one is for Giles. So I understand in your beginning remarks, there's 2 parts of the process. Number one is updating the type, the product to improve the customer experience. And then number two, is that going to be the integration process of Cint and Lucid. Is it correct to understand that the integration process itself will cost that $40 million? And then on top of that, there's another budget for the take upgrade.

[Giles Palmer, executive]

No, no. No, let me restate. So a lot of the integration of the 2 companies has been done already, like one company, one organization, one HR system, one brand, so on and so forth, all of the sort of bringing the organization together. The bit that I'm very focused on as a CEO right now is the platform integration, bringing the 2 products together into one product, which will be the go-forward product for the entire company and it will be sort of an upgrade on either of the 2 existing products? And then the final piece is to migrate the customers over to that new product. And they kind of are sequential, but they – it'll happen. The customers will come over a bit not all in one go. The $40 million covers the entire thing, right? And most of that $40 million has been spent already, I think, maybe around about 30 or 25 to 20...

[Olivier Lefranc, executive]

23 at the end of March.

[Giles Palmer, executive]

23 at the end of March. And we will get this whole process done for less than 40.

[Unknown Analyst]

I guess a follow-up with that would be what gives you the confidence? Because as you mentioned, the process usually takes longer than what is expected at the beginning and most likely going to cost more.

[Giles Palmer, executive]

We have the skills in-house to do the rest of the work.

[Unknown Analyst]

Okay. And then my second question would be, I think in the press release, you were flagging some supply surplus. I was wondering if you guys have seen any sort of irrational pricing from competitors? And then I think -- I believe Qualtrics and SurveyMonkey are in the process of being taken private soon. Any thoughts on that on how that might affect Cint operation in the industry as a whole?

[Giles Palmer, executive]

So being a marketplace, a reverse auction marketplace, price finds its own spot on the supply versus demand curve. So I don't think that this is a competitor underpricing. As I think this is the general dynamics of the marketplace. On the SurveyMonkey and Qualtrics being taken private, I don't know is the answer. I would assume that they're being taken private because the investors see that as an opportunity, and they will be looking to grow those companies over time in private hands without necessarily they're being tested and private because the investors see that as an opportunity, and they will be looking to grow those companies over time in private hands without necessarily the oversight the public markets or whatever the rationale that could well be good for us. So I don't necessarily see this as a negative for Cint at all.

[Operator]

And the final question goes to Fredrik Lithell of Handelsbanken.

[Fredrik Lithell, analyst]

Giles welcome on board. Most questions have been answered obviously here. But I just wanted to tap you again, Giles, on the integration here and maybe get some more answers out of you. I mean you have 2 platforms. I guess there are more sub platforms within each of those. Is the intention to sort of decide to use 1 of those 2 and ultimately close down the second one? Or do you intend to integrate these 2 platforms into one. So if you could -- I mean, given your experience, your background, it would be interested if you could sort of put some more color on how you plan this work would be interesting.

[Giles Palmer, executive]

Yes. Yes, yes, sure, sure. So when I did it before, you pulled apart the 2 products and put the back end of the one into the front end of the other. I mean, to be simplistic about it, it was more complex than that. That's why it took a year, but that was the philosophy. With Cint and Lucid, we're basically going to be extending one of the platforms to incorporate the functionality of the important functionality of the other. So we're basically taking a listed platform and extending that. And that will be our go-forward platform but with much more functionality with a refreshed user experience with some innovation based into it as well. So there's a lot of work going on, on that right now. And until we have closed the gap on the functionality that the Cint platform owns, then customers don't want to migrate. So we have to close that functionality, have an upgraded experience for everybody and then migrate the Cint customers on to the Lucid platform. That's simplistically from a simplistic point of view, what we're doing. That decision was made before I joined, and it's the right decision. My job is to now make sure that it's pushed through to completion in a really professional way.

[Fredrik Lithell, analyst]

And then the migration of the clients you said in your comments earlier that it will be a gradual move one by one, I guess. Is that a complex nature to move those clients? Or is it sort of API is done when you take one customer at the time? Or is it complex?

[Giles Palmer, executive]

Some more complex than others. We haven't done that planning yet, but my guess is it will be cable by cohort, like 200 at a time over a weekend or something like that. There are more complex larger customers that will have a much more white-lo treatment, and we will go through that process very much hand-in-hand with them and make sure that they are getting a fantastic service and are extremely happy with the result process very much hand-in-hand with them and make sure that they are getting a fantastic service and are extremely happy with the results.

[Fredrik Lithell, analyst]

And the final one on this then, when you are complete to give that end of '24 or something like that, will that mean you close down this Cint platform if that's the choice and that will take away some of COGS? Or is it going to be some OpEx?

[Giles Palmer, executive]

Yes.

[Operator]

We just had a couple more questions come through. The first one is from Daniel Thorsson of ABG.

[Daniel Thorsson, analyst]

Yes. Welcome Giles as well. So a lot of questions already answered, of course. I have one strategy. So previous strategy has been outlining acquisitions of panel organizations that drive both pricing power but also competitive advantages, obviously. Is that something you think is necessary going ahead? Or are you happy with the third-party structure as it is right now?

[Giles Palmer, executive]

I don't know, Daniel, if this your answer. My focus really is on getting the efficient -- the stuff that we talked about today in the call. I don't want to be distracted by too many other things. I want us to focus and deliver on the integration and the standardization consolidation on the optimization, if at that point or as we get through that process, we start looking at other strategic directions, I absolutely happy to do that. But right now, I kind of tan that distraction.

[Daniel Thorsson, analyst]

I see, I see. And then my second question, you may have answered it, I was in another caller at the same time. But when you look at the performance in Q1 and Q4 also here with negative organic growth, is it broad-based across the customer portfolio for all the customers? Or do you have any larger accounts that are affecting more in this quarter, for example?

[Giles Palmer, executive]

Yes. What we said in the presentation, I think it's slide -- I don't know, 20, maybe in one of Olivier slides was that the media measurement business is growing, the tech-enabled customers are flat and the larger, more established market research customers are down by something like 15% year-on-year. So we can see that, that's where the negative performance is really mostly coming from.

[Operator]

And our last question is a follow-up from Viktor Högberg.

[Viktor Högberg, analyst]

Just a follow-up on the platform migration and the question where Fredrik asked already on what that will do to COGS. Rolling on to the Lucid platform over time, would that mean something on the revenue recognition model that you have net versus growth, that would mean that gross profit growth organic will be the main interesting item in your P&L. Maybe you should start reporting that way ahead of time. If I got it right, that, that will change the dynamics in the revenue recognition when you roll on the platform to Lucid.

[Giles Palmer, executive]

And you should say that. We've been talking about that very thing over the last month. And it's my hope that that's exactly how we will report revenues going forward. Obviously, we'll restate -- we've been talking about that very thing over the last month. And it's my hope that that's exactly how we will report revenues going forward. Obviously, we'll restate the historic -- we weren't resetting but we'll recalculate the historic just for comparative purposes. But when I was saying that COGS will improve, it wasn't because we're switching the revenue recognition model because that's like slight hand in terms of the real answer to the question. I do believe that there's efficiencies that we can -- that can be made in our cost of goods sold, so that our actual gross profit on a like-for-like basis would be higher than it is today, let's say, but in general, having one revenue recognition model across our marketplace business, to me, it seems like a very sensible thing to do going forward. And as we migrate to the new platform, I think that's the time to it. But we have to go through some groups to do that. We have to get auditors to agree to it. We have to go through that process, but that's the aim.

[Viktor Högberg, analyst]

Previous management usually commented on that one, that the Cint customers liked doing business or ordering in one way, the lucid customers in another way, it was hard to combine the 2 for the 2 customer groups. Do you see that as a potential hurdle the way they see at their site payments basically and their payment flow, I don't know if that would change? But you see some kind of operational.

[Giles Palmer, executive]

I'm not sure it's the payments flow. I think it's more rate card versus reverse marketplace floating cost sort of methodologies. I think that's possibly what -- I mean I wasn't here, so I don't know what the -- what previous management was rent obviously guess that was what it would be. We are going to be building that functionality into the new platform. So there's optionality.

[Viktor Högberg, analyst]

Okay. So it won't be looking for change maybe for the customers in terms of how they order on the platform.

[Giles Palmer, executive]

It will be looking to change for everybody because we're going to be upgrading the whole user experience to make it better for everybody.

[Viktor Högberg, analyst]

But in terms of their ordering. They will have the opportunity to switch or to determine themselves how to order. Would that be the right?

[Giles Palmer, executive]

That is our intention. Like I said, there's still some planning to do and there's still a little bit of work to do on the integration. We haven't finalized exactly how everything is going to work, but that's our intention.

[Operator]

We have no further questions. I will now hand back to Giles for any closing comments.

[Giles Palmer, executive]

Not really for me. I think I've repeated myself for a bunch today, which I hope hopefully, hopefully, it's been useful to you to help you get to understand how I'm thinking about things. Thank you for your great questions and for your patience with the company. We are going to work hard to improve the performance of this business going forward. And for your patience with the company, we are going to work hard to improve the performance of this business going forward. And yes, I look forward to speaking to you again in [indiscernible]. Thank you very much.

[Operator]

This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.