Cint Group AB (publ)

STO:CINT

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, welcome to the Cint Interim Report Q1. My name is Neil and I will be coordinating the call today. [Operator Instructions] I will now hand you over to your host, Giles Palmer, the CEO of Cint to begin. Giles, please go ahead.

[Giles Palmer, executive]

Thank you very much, and good morning. Welcome to our Q1 announcement, our Q1 results. It doesn't feel like very long since we were here last time, does it? I think we did Q4 in the end of February. So it's a couple of months. So let's get going. Next slide, please, Slide 2. This is the same slide as you would have seen before. Can you move it forward, please. Can you -- there we go. So it's just a very simple explanation that Cint is the world's largest survey exchange, where over 4,000 companies come to get their surveys answered by over 300 million respondents. So we plug in an enormous number of panel providers and our own supply on one side. And on the other side, we have thousands of customers and wanting to get their surveys answered. And roughly speaking, we do 300-plus-thousand surveys a day, and that can peak in peak times. So it's -- it is -- it has the economies of scale and the scale to be the world's largest exchange for getting surveys answered. Next slide, please, just in a nutshell. I'm you're going to go to point first. Can we have the next slide, please? It will come. So point4 first or the fourth bullet point. We just noted in a couple of the reports that have kind of come out already this morning that there's a little bit of confusion around what we've done with the different -- the changes in reporting. So let me just explain that. And Niels Boon, who's our new is CFO, who's sitting next to me, say, hi, Niels, will explain more later. As we transition to one platform, which is going to be called the Cint Exchange from the 2 previous legacy platforms, the Lucid platform and the Cint platform. We want to recognize revenue in the same way. In previously since recognized revenue on the Cint platform grows and then supplier costs or cost of the costs that go to the same -- the panel providers came in as a cost of goods sold, whereas on the Lucid platform, we recognized just the difference between those 2 as revenue. So there was a bit of an apples and pears thing going on there, which has been the case ever since the acquisition. And as we now move to one platform, that makes no sense. And so we want to starting in Q1 '24, recognize revenue in a consistent way. We think it's also the right way to do it, frankly. And interestingly, what happens is, obviously, the top line revenue goes down, but the gross profit is significantly higher. And the difference between what we're now calling revenue and gross profit is really hosting 2 things, hosting costs and the cost of the people internally that support our customers or run the managed services that the customers use. So that's the top line. And then on the cost side, we decided that it would be much more helpful to the market and internally direct – to account for things in a more in a more [ departmental ] way. So R&D costs, sales and marketing costs, general and administrative costs and [ then in ] personnel. So we've made these changes to be more consistent and more transparent. And then we get down to an EBITA number, which we think is a more useful number in terms of the actual as we transition to one product, one platform and to be helpful. So I just want to make sure that people -- everybody is clear that we personally internally think that this is a move towards transparency and openness and consistencies rather than any sort of anything else. So I'll just make that point because I've seen a couple of comments this morning. So let's go back to the quarter. It's a growth quarter, right? So on a net sales basis, -- and if we were to look at it on a previous basis, gross sales basis as well, it's a growth quarter. It's the first quarter of growth since I think Q3 2022. I think from memory; I wasn't here back then. But it's a milestone. So I'm not going to make it bigger than it is. It's a very small growth year-on-year, but it's still a growth quarter. And I was asked back in June on the earnings -- the Q2 earnings last year when the company will return to growth well. And I said in the [ not-too-distant future ], well, I think that this is roughly the not-too-distant future. Just want to be cautious that the idea of returning to growth suggests that it's is going to be there permanently. We're not giving guidance on Q2 and beyond. So we're not saying that this is now back to growth, and the growth is going to increase, not saying that, that may be the case, but what we are saying is that Q1 is a growth quarter. So as simple as that. And that's driven by really strong performance in Media Measurement and some weakness still in the 2 platforms, the 2 exchanges. So our goal is obviously to combine those exchanges, drive efficiencies and make sure that we get back to [ road ] there as well. We've started to migrate our managed service customers, as I said, in February, that's on plan and going well. And yes, the internal teams are extremely happy with the new platform because they're using it to run the managed services from behalf of our customers. And we are beta testing our self-serve platform, the new Cint Exchange in May. So very soon, next week or at least may start this week. I'm not sure we actually will start absolutely next week because we're still bug fixing, but it's going well. That's what I want to say there. Okay. Next slide, please. So here we are, the figures. Net sales, EUR 36 million -- EUR 36.4 million, 1.6% constant currency. As I said, gross profit also up OpEx down year-on-year up. Actually, the gross profit percentage is down. I think the growth profit actually is slightly down because the gross profit margin is slightly down versus last year. OpEx is less. EBITDA is up. It's not hugely up, but it's up. So as we're carrying this cost of integration and consolidation, we're still managing to reduce that cost even with inflation and so on, on a year-on-year basis, whilst actually just returning [discernible]. So nothing too dramatic there, but I just wanted to be clear about what's going on. Next slide, please, Slide 5. We've decided to say a little bit more this time about the media measurement business because it's becoming quite material and it's performing super well.So I wanted to sort of flesh that out a little bit. You can read what I've said here, but I'll just -- I'll summarize it increasingly cross-platform. So historically, it would have been mainly sort of digital advertising. But now we're in integrating or making it possible to compare things like audio and social and linear TV tracking. So broadening out the scope of the offering and also onboarding 2 really big new partners in Netflix and Disney in Q1 as well. So the revenues from those deals really just beginning to show up in Q1, but those are significant. Netflix have announced the upfront season, whether TV -- presales of [ TV as in ] the U.S., Cint has baked into that with Netflix. So really encouraging lots of great work done by the team there, great performance and obviously, more to come.Slide 6, please. focus on product integration and customer migration. I've been saying this since I joined, Cint is in 2023 was a bottom-line loss-making company. And as we all know, it shrunk last year. So my job, our job as a team, and I just want to make a note that I'm incredibly happy with the senior team that we've got in place now. So just [ a nod ] to them, they're doing amazing work.Our job is to integrate all of the technologies that we have inside the company, create one best-of-breed, fantastic new platform with a new user experience, streamlined, efficient, baked in all of the learnings that we've had over the last 10-plus years, [ fire up or refire ] up reinvest in sales and marketing and make the company leaner and have more modern products to drive growth and be more efficient. So consolidation is the first piece of that, consolidate the platforms, consolidate the back-end systems, consolidate different salesforce instances, different [ NetSuite ], all of the stuff that is required. And that's going really well, massive undertaking, lots and lots of work, lots of people doing this work internally. And as we cycle through that consolidation in the coming 2, 3 quarters, the company will become more efficient. It will become easier to run. Data will flow more seamlessly. We will automate processes. It will be a very different company. And alongside that, we'll be launching the new Cint Exchange. So lots and lots of work and focus been on consolidation and integration. And we're also moving into the standardizing and optimizing how we do things as we move into a new planning process in the next 2 or 3 months. So lots of really, really good work. This is a continuation of the messaging that I've been saying since I joined about a year ago, but I'm super happy with the way things are going. It's a lot of work, but it's going very well. And the customer migration is in play, as I said a few minutes ago. Next slide, Slide 7, please. Quality, obviously, quality was a big deal a year ago when we announced that it was spiking upwards. It's been a constant sort of base [ note ] in these calls for the last year. But I'm pleased to say that it's now that reversals are now below 9%, which was the target and amazing work by all the engineering teams inside Cint both on internal projects and integrating external bot analysis and bot tracking products that have allowed us to really get on top of this. So again, great work R&D team. And we're not going to talk about this going forward and unless it becomes a problem again. It's not part of the growth story. It's not part of the core work to consolidate and improve and grow the business. We will keep an eye on it. And if it starts going the wrong direction, we'll talk about it, but it's not -- doesn't warrant this level of this level of discussion once it's under control, which it now is and still trending downwards. So that's all I want you want to say on that, but I just want to be clear and transparent. Slide 8. And then my final slide, it's a repetition. But I think by now, you will know that we are extremely focused on making this company streamlined, efficient, highly, highly productive and prepped for the next phase of its evolution, which will be a phase of innovation. And we're moving to that reasonably quickly now and the levels of excitement inside the company beginning to go up cautiously. But we are still executing this strategy this year, consolidate, standardize, optimize and have a [ we've got ] that path to efficiency and higher profitability. So that's it from me. I will now hand over to Niels. Over to you, my friend.

[Niels Boon, executive]

Good morning.

[Giles Palmer, executive]

Slide 9, please.

[Niels Boon, executive]

Next slide.

[Giles Palmer, executive]

And then maybe Slide 10.

[Niels Boon, executive]

Yes, you can go on to 10. Yes. As Giles already mentioned, we changed the format of course. I'll just go over it once again briefly. So we have 3 changes. The first one is around the revenue recognition, as mentioned by Giles, we went from gross to net revenue recognition. That also means that the gross margin is higher and therefore, not comparable with previous years. So you'll be classified a couple of items that were previously under operating expense, and they are now called cost of services sold. So that goes into the new gross margin, it's hosting and direct labor. So those 2 things. Yes, the second one?

[Giles Palmer, executive]

Most of that is hosting, right?

[Niels Boon, executive]

Yes, it's [ 2 for ] hosting, roughly [ 1 for ] direct labor. And then the second one is around the cost. So in previous reporting. We always talked about only personnel costs as a group. And now we have split it out into the different buckets. So we have sales and marketing, research and development and general and administrative. And this is also more aligned with how we look at it internally and also just providing more transparency here, of course. And the final thing is that we moved from EBITDA to EBITA. And the difference here is that we now are including the depreciation of capitalized software development into our profitability measures also being more honest there, if you will, on more transparent as previously, that was not the case. Next slide, please. On Slide 11. Yes, [ you have seen ] the numbers already briefly touched upon by Giles as well. As you can see on the net sales on the left, Q1 is always seasonally the least strong quarter. And we also see that here. So there's nothing unexpected there. Still, there was growth for the first time since a long time, right? So it was 1.6% in constant currency. Moving on to gross profit. There you see that it went down a little bit, so 2.4 percentage points compared to last year. I'm looking at pro forma again here for the comparability of course. This was mainly due to the hosting element there, and that has to do with like new partnerships that we were onboarding. One of them, in particular, was the Netflix one, and that is, therefore, not expected to recur. Moving on to the profitability. So EBITA for the first time. Here you also see the 2 things, actually. On the one hand, you see the seasonality as well, of course, from the sales [ right ] reflected in here, but also the operating leverage that we have. So as soon as sales goes up because most of our costs are fixed, you will see that also reflected in profitability. And overall, even though we had a smaller gross profit, we still had better EBITA. So that's quite good. So we moved from [ EUR 900,000 ] to EUR 1.5 million or 2.5% to 4.1%. Next slide, please, #12. So here we have to split from our net sales. The first one is about the 2 business segments. So we already saw the media measurement before. There, we had a 45% growth in constant currency. And then on the right you see what we call the Cint Exchange. This is a new labeling used to call this Marketplace, but it's the same in terms of numbers, and it covers both legacy systems as well as the new Cint Exchange. So going forward, this will be how we will name this. There, we had 8% decline in constant currency. And then on the right, you see the same numbers but then split by region. Americas was going down by 1%. And then in Europe, it was positive in Asia Pacific, it was even more positive. So Europe was 2% up and APAC was 11% up in constant currency. Going to Slide 13. Yes, actually here, similar to what we just saw, Slide 11, of course. It's just everything combined with all the details that you can see here. So overall, we had a bit higher cost of services sold due to the hoisting what I mentioned before as well.

[Giles Palmer, executive]

One thing to say there, the reason when you look at operating profit, EBITDA or EBITA and EBIT, they're the [ second 2 ] columns are the same. The gross profit, the second 2 columns, which are Jan to March '23, are a little bit different. So maybe worth saying something about why that is.

[Niels Boon, executive]

Yes, exactly. So you can see here the last 2 columns. So when we start from the bottom, we see that EBITDA is actually the same pro forma and in the reported that's how we know it from last year but we have reclassifications going on at the top. So of course, first of all, the sales one, where you can see clearly the difference between EUR 60 million and [ EUR 36 million ]. That's, of course, a huge difference, but this is this growth to net revenue recognition that we discussed earlier. And then you see the cost of services sold. So there, you see also a huge difference, and that's because this is now only including hosting and direct labor related to selling the projects, whereas before, it also included cost of sample and that's already deducted now from our new net sales number. Yes. And furthermore, you also, therefore, have a bit lower operating expenses because this hosting and direct labor cost element moved from below to -- into the cost of services. It's about EUR 5 million that was moved up, if you will. And you can see that on Page 14 from our full reporting. Yes. So therefore, you see that all the below gross profit, all the costs are actually going down, except for sales, I think they were stable. Then below the EBITA line, similar items as before, items affecting comparability. This is what we call NRI or nonrecurring items. They are related to the acquisition of [ Lucids ]. We expect one more quarter of this. So the next one, Q2. And after that, we expect it to go to 0, which is in line with what we have said, I think, from the beginning since the acquisition. So it's also still the same. Next slide, please 14. This is about the cash flow. So here, comparing with last year. You see that operating cash flow was actually EUR 4.4 million better than last year. Which is, of course, quite positive development. However, overall...

[Giles Palmer, executive]

The same period.

[Niels Boon, executive]

Exactly... Yes, Q1 to Q1. And overall.

[Giles Palmer, executive]

And that's a significant improvement.

[Niels Boon, executive]

Yes, huge one. Exactly, so we went from a...

[Giles Palmer, executive]

[indiscernible] during this right? On a -- I mean, I guess as we're looking at collecting cash from the previous quarter's sales, but it's a significant improvement.

[Niels Boon, executive]

Yes, exactly. Yes. So we're quite happy with that indeed. You see that overall net cash flow went down by EUR 2.7 million. That has to do more with financing as well, as you can see here, which moved from [ EUR 600,000 ] to EUR 2.4 million outflow -- that one includes 2 elements. One of them is that we started repaying the loan for the first time. We have quarterly repayments to [ plus EUR 1.9 million, $2 million ]. And also, there was like an interest element actually. That's in operating cash flows. We've got to mention that sort of EUR 4.4 million positive change between last year and this year in operating cash flows, that's including [ EUR 900,000 ] negative impact from higher interest rates. So therefore, it's actually more remarkable. I hope I don't confuse people too much [ not ]. On to the next page. #15. Working capital. Yes, I would say it's more of a stable picture when you compare to December last year. So you can see the accounts receivables, combined with the current -- other current receivables, they are stable. And payables went down combined by minus EUR 1.1 million, and therefore, working capital went up to -- by EUR 1.1 million, obviously. In relation to total customer spend is also quite stable. Even though it's stable, of course, we want to improve this, and we're working hard to do so. And I think the general focus on consolidation, standardization and optimization will also play into this. It won't show overnight into the numbers. But for sure, it should improve as we go along with the migration and all the other projects that we have going on. So I'm quite confident about this as well. I think that's the final thing. Yes.

[Giles Palmer, executive]

Great. So if we just push on to Slide 17, please. So in summary, product and back-end systems and all other parts of integration is our priority, together with migrating our customers on to the new Cint Exchange. Then we standardize and optimize our processes and the business in general to create efficiency and drive profitability. And then 3 is really stepping into increased investment in the media measurement business and stabilizing and turning around the growth in the core exchange business. And then finally, as Niels just said, -- and this we've been saying this for a while. So it's clearly something that we haven't delivered on but is a massive focus. We need to improve cash flow from operations and the flow through from operations right to the bank balance and cash generation. And then the final slide -- and again, this is a repeat. The --I'm going to just step through it. Connecting with -- so our customers and companies in general in a global marketplace, the needs to connect with consumers and understand consumers and make sure that they're messaging their advertising, they're marketing their products, areas targeted, specific [and land as ] clearly and as accurately and as efficiently as possible is massively important. And one of the ways of doing that is to understand consumers and one of the ways to understand consumers is to ask some questions. And that's -- and we are the premium and biggest place for making that happen. So I'm a strong believer that the underlying need is global and large. We are -- as it says in number two, we are positioned uniquely in the center of the market research value chain. It's – Cint is [ not a nice to have ], it's a must-have the market research, value chain, the market research does not happen without Cint executing, facilitating and joining up customers with respondents. And finally, scale matters in this business. Customers come to where they get the best choice and that Cint and suppliers come to where there's the most demand. They're the most customers so that they can get the best price. So the marketplace dynamics very much are there, and it's our job to make sure that we continuously innovate in that marketplace and offer our customers and our suppliers -- more and more opportunity to do business and make money. And that ends the presentation, and we can move to Q&A now. So thank you very much, and thank you, Niels, for doing a great job on your first one.

[Niels Boon, executive]

Thanks.

[Operator]

[Operator Instructions]

[Niels Boon, executive]

No questions.

[Giles Palmer, executive]

It's all so clear.

[Operator]

We currently don't have any questions on the line. [Operator Instructions]

[Giles Palmer, executive]

We'll give it 1 more minute if there's no questions. [Audio Gap] I think we should call it. It seems like there are no questions. So thank you, everybody, for being here. And yes, look, we'll see you again in 3 months' time for Q2.