Cint Group AB (publ)

STO:CINT

Earnings Call Analysis

Cint Reports Growth Amid Market Challenges and Strategic Changes

In its latest earnings call, Cint reported a 1.6% increase in revenue to EUR 42.4 million, with Media Measurement growing robustly by 47%. Gross profit rose to EUR 37.3 million, driving an EBITA margin to 27.5%, up from 22%. Operating costs decreased to EUR 25.6 million, bolstered by operational efficiencies. Cint is on track to migrate 80% of its clients by year-end and aims for full migration by mid-2025. While facing a slow-growing market, management expects a strong Q4 driven by seasonal trends and is focused on enhancing customer experiences through innovative tools and improved processes.

Overview of Cint's Current Position

Cint specializes in the ResTech industry, serving as a global exchange for surveys that power insights across various research types, particularly in Media Measurement. The company plays a vital role in connecting researchers with over 300 million respondents across 130 countries, catering to more than 4,300 customers. As of Q3, Cint reported a 1.6% increase in net sales year-over-year in constant currency, reflecting stability amid ongoing market challenges.

Financial Performance Highlights

For the third quarter, Cint achieved net sales of EUR 42.4 million, with a gross profit of EUR 37.3 million, resulting in a gross profit margin of 88%—a slight increase from 87.4% the previous year. Operating expenses, reduced to EUR 25.6 million, led to an EBITA of EUR 11.7 million, translating into a 27.5% EBITA margin—a significant rise from 22% year-on-year. This improvement is attributed to enhanced operational efficiency and reduced costs, particularly in hosting.

Segment Performance Analysis

Cint's growth was primarily driven by its Media Measurement segment, which saw a remarkable 47% increase year-on-year, while the Cint Exchange faced challenges, reporting a 12% decline. Geographically, the Americas showed positive growth due to Media Measurement, but without that segment, there would have been a staggering decline of 17%. The EMEA and APAC regions also reported declines of 1% and 17%, respectively.

Operational Efficiencies and Future Plans

Cint is making substantial strides in platform integration, having migrated 66% of its customers to the new Cint Exchange with a target of reaching 80% by the end of the year and full migration by mid-2025. The emphasis on retaining customers during this transition is critical. Innovations like the AI-powered Fielding Assistant and the new revenue per interview (RPI) model are aimed at streamlining operations and enhancing customer experience, with over 70% of supplier volume expected to use the RPI model by year-end.

Cash Flow and Debt Management

In Q3, Cint reported a total cash flow of minus EUR 7 million and a total net debt of EUR 78.6 million. However, operating cash flow showed positive trends with an improvement of EUR 6.5 million, thanks to stronger profitability. Management is focused on optimizing working capital and expects gradual improvements as platform consolidation continues, which is anticipated to enhance invoicing efficiency in the medium term.

Market Outlook and Strategic Initiatives

While Cint acknowledges the sluggish overall research market, particularly in global terms, there are signs of recovery in the Americas, especially around significant events like the U.S. elections. Looking ahead, the company has set a clear vision: to be the fastest, most efficient provider of consumer insights. A strategic plan will be developed to enhance investment in innovation and expand commercial capabilities post-migration. Management remains optimistic for the future, stressing their commitment to delivering sustained profitability and improving free cash flow.

Guidance and Expectations

Cint expects to maintain this momentum into the fourth quarter, traditionally a strong season for sales. However, they predict only modest year-over-year sales growth due to ongoing market conditions. Post-migration, management aims to achieve a more profitable and efficient operational structure. Notably, the absence of non-recurring items (NRIs) that contributed EUR 8.7 million in previous quarters will enhance profitability prospects moving forward.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Cint Interim Report Q3. My name is Kenneth, and I will be coordinating your call today. [Operator Instructions]

I will now hand you over to your host, Patrick Comer, the Chief Executive Officer, to begin. Patrick, please go ahead.

[Patrick Comer, executive]

Thank you, Kenneth, and good morning, all. Of course, my name is Patrick Comer. I'm the CEO of Cint, and I'm joined by our CFO, Niels Boon. It's a privilege to speak with you today as the new long-term CEO, having stepped into the role at the beginning of September after 2.5 years of being Chair of the Board. As many of you know, I am uniquely qualified to lead the organization. I was the Founder and CEO of Lucid, which of course, was acquired by Cint in 2021.

Over the past 45 days, I've spent a lot of time in dozens of meetings with our largest and most important customers, many of whom I've known for many years, speaking with them about their opportunities and the challenges that they face. And what I've learned is that Cint remains a critical part of this industry and that our partners are ready for us to complete our migration and our integration so that we can build our future together. Welcome to our results presentation.

Next slide, please. I'd like to start with our heroic purpose, which serves as our North Star. Our purpose is to feed the world's curiosity. And it's this purpose that informs every decision that we make. It is our commitment to help our clients understand and to engage with their audiences more effectively. And this purpose not only defines who we are today, but also shapes our vision for the future.

Next slide, please. And a quick reminder/ overview of the role that Cint plays in this market research industry or ResTech industry. We are the critical global exchange for distributing surveys. We power insights for a wide range of research types, and most importantly for us, the Media Measurement or audience -- I'm sorry, advertising effectiveness industry. With customers in more than 70 countries, our platform reaches more than 300 million respondents and we reach respondents in more than 130 countries globally. And every day, surveys are launched on our platform, leveraging our profiling data to connect researchers with the right audiences in the right time. Our role is to provide this critical, technical infrastructure and insights platform, servicing more than 4,300 customers globally. And at Cint, we have built the world's largest automated survey exchange, ensuring the efficient delivery of insights at scale for businesses worldwide.

Next slide, please. So looking at an overview of our third quarter. Despite our ongoing and challenging market conditions, we have maintained stable sales and achieved continued improvements in our profitability. As you can see, our Media Measurement business continues to grow strongly, offsetting slower sales that we've seen in the Cint Exchange, which has been impacted by weaker demand. What's important to highlight is our improved gross margin, driven by higher operational efficiency and lower cost, thanks in part to the ongoing platform integration process. We're on track with customer migration and expect the majority of clients to be fully transitioned by the middle of next year. Our commitment to innovation also continues. And we'll highlight recent investments focusing on product enhancements and leveraging automation to deliver more value to our customers.

Next slide, please. Briefly looking at our Q3 figures. Our net sales for the third quarter reached EUR 42.4 million, reflecting a 1.6% growth on a constant currency basis. As mentioned before, this growth was mainly driven by strong performance in Media Measurement. Our gross profit increased to EUR 37.3 million with a gross profit margin of 88%, slightly up from 87.4% last year. This improvement in gross margin can be attributed to lower operational costs, particularly in hosting. Our operating expenses were down to EUR 25.6 million, leading to an improved EBITA of EUR 11.7 million, which translates to an EBITA margin of 27.5%. This is a significant improvement from 22% last year, partly due to lower costs associated with our long-term incentive program. Overall, our focus on operational efficiency has resulted in a stronger financial performance and positions us well for the future.

Next slide, please. Let's talk a little bit deeper about the progress we've made with platform integration, customer migration and some of our innovation products. By the end of the third quarter, we had successfully migrated 66% of our customers to the new Cint Exchange, and we're aiming for 80% by the end of this year and expect to fully migrate all customers by the middle of 2025. Obviously, customer retention is a key focus during this migration. I'm pleased with the momentum so far and feedback from our customers. We have a dedicated team closely working with each client to ensure a smooth transition, and we've implemented several support initiatives to address concerns they may have. We have not seen significant churn and we are closely monitoring customer satisfaction throughout this process.

In terms of looking at innovation for the quarter, one of our key releases is our AI-powered Fielding Assistant, which helps our customers get the best price and best delivery options for their surveys, while cutting down the time it takes to manage projects. This is a major step forward in making the platform more efficient for all of our users. We've also rolled out what's called RPI, which is revenue per [ interview ]. This replaces the old supplier take rate systems of our legacy platforms by optimizing for delivery, quality and price. Over 70% of our supplier volume is already using this model, and we're on track to reach 90% by the end of the year. All of these efforts are helping us streamline operations, improve customer experiences and set the stage for continued profitability.

Next slide, please. Let's spend more time on Media Measurement as it continues to be a key driver for us. This quarter, we built on our partnership with Disney by enhancing our self-service Media Measurement platform. This now is open to new customers and allows them to quickly set-up studies and to get real-time insights in just minutes, making it easier than ever for them to move from a study concept to actionable data. We've also expanded our capabilities into measuring digital-out-of-home. These are particular ad placements and one of the fastest-growing areas of digital ad spend. Additionally, we've introduced AI-powered reporting enhancements to help our customers synthesize their brand lift insights more effectively and optimize their media strategies across different platforms. These innovations are helping us meet the evolving needs of our customers, making Cint an essential platform and providing advanced cross-channel measurement solutions.

Next slide, please. And with that, I'll pass the mic to our esteemed CFO, Niels Boon.

[Niels Boon, executive]

Thank you, and good morning, everyone.

Next slide, please. This slide is just a reminder that we changed our reporting formats in Q1. So the 3 main changes are the revenue recognition, function-based P&L in terms of costs and the EBITA measure instead of EBITDA. So just to remind you because of the year-on-year comparisons.

Next slide, please. So all the numbers that you see here are pro forma numbers, meaning they are like-for-like under the new method. So as already mentioned by Patrick, we had 1.6% constant currency growth at the group level. Gross profit was higher. You could see we had this one-off dip in Q1. And since then, we have been improving, mainly due to the lower hosting costs and ongoing optimization of that. Then on the right, you see EBITA and the profitability. And of course, there, we also see a nice spike upwards towards 27.5%. It was, however, helped by a EUR 2 million kind of one-off adjustment on the LTIP programs compared to EUR 0.9 million last year.

Next slide, please. So here you see the different business segments. So as was already kind of commented during the previous quarters as well, Media Measurement has been growing quite well, 47% year-on-year compared to Cint Exchange with minus 12%. Then if you go to the right, you see the regional split of the same numbers. So here, the Americas includes Media Measurement, therefore, it went up. Without that, it would also have been a negative growth there, unfortunately, with 17%. EMEA, minus 1%; and APAC, minus 17% as well.

Next slide, please. So going down the P&L. So we already discussed a little bit gross margin and total OpEx. So as you can see further, you also see the split here, the different function-based cost items. We also had this efficiency program that we announced in July that becomes visible here mainly in the sales and marketing expense line. And other than that, worth to point out, amortization last year was related to the depreciation of systems. This is why it's a big number last year and not so big this year. So this year is more normal, I would say, there. Items affecting comparability has to do with CEO change mainly, and that's therefore also non-recurring. So yes, coming down to EBIT of EUR 3 million compared to minus EUR 21 million last year.

Going to the next slide, please. So this is about cash flow. You see total cash flow was minus EUR 7 million compared to minus EUR 4.3 million in the previous year for the same quarter. Operating cash flow actually improved by EUR 6.5 million. So based on the stronger profitability, as you already saw before. Changes in working capital, minus EUR 9.9 million. We will go deeper into working capital later on. Investing activities, that has to do with capitalized development costs, was stable compared to last year. You see here cash flow from financing, that has to do with a EUR 3.6 million loan down payment that we had in '24, but not last year. So that's the main change that you see there. So total cash, EUR 23.4 million and total net debt is EUR 78.6 million.

Going to the next slide about working capital. So here, you see the split. So total working capital went up with receivables being stable. Accounts receivables actually going down here, but you have to kind of look at that one in combination with other current receivables as well. So if you take those 2 together, it's stable. Accounts payable went down, however, and therefore, total net working capital went up as a percentage of total customer spend and also in absolute number, of course, and thus the customer spend was stable with -- compared to the previous quarter.

So we are still and will be focusing on working capital going forward. I expect more gradual changes there, improvements there rather than a step change. We have a couple of major things working to our favor there that will become visible over time. So one is, of course, the ongoing migration/consolidation of the 2 platforms going into 1 platform. We're doing the same with the CRM systems and also with the ERP system, where we still have multiple or 2, 1 for Cint, 1 for Lucid, and we're close to completing that as well. And also, we went through what we call legal entity rationalization, where we went from 28 legal entities to 18 and we're just finalizing the last 2 of that. All of this will lead to more efficiency on the invoicing side, in particular. Going forward, however, in the short-term, it's not helping because it's more confusing and extra work maybe, but it will pay off in the medium and the longer term for sure. Yes, so the teams are fully focused on this.

I think that's my last slide. Let me go back to Patrick for the last one before the Q&A.

[Patrick Comer, executive]

All right. Thanks, Niels. So as we look ahead, the completion of the platform consolidation in the middle of next year is the major milestone for Cint. Once this process is complete, we'll be able to shift our focus towards accelerating innovation and expanding our commercial capabilities, particularly within the core marketplace business, which has seen a slower demand over recent quarters. While we continue to work through consolidation and migration, we anticipate only modest year-over-year sales. However, we do expect a typical strong seasonal fourth quarter.

Looking further ahead, we're developing our robust strategic plan, which we will present in the coming months. And our vision is clear. We want Cint to be the fastest, most efficient provider of consumer insights, offering the best quality and the widest variety of data to our customers. This will position us for sustainable growth as we move into the next phase of our company's journey.

I'm specifically focused on improving our commercial footing and positioning our platform for success post migration. And personally, as a major shareholder, I'm passionate about this company and this industry. I am focused on executing the strategy and believe that we will see results in profitability and free cash flow. And I'm committed to clear and transparent communication with our investors throughout this process.

I appreciate your time and attention, and we can move to Q&A.

[Operator]

[Operator Instructions] We have our first audio question from Thomas Nilsson from Nordea Markets.

[Thomas Nilsson, analyst]

Yes. This is Thomas Nilsson from Nordea. I have 2 questions for you. First, in terms of the overall market, do you see any signs of improvement? And secondly, Media Measurement is showing very strong growth. Is there any risk that Cint is competing with its Cint Exchange customers here?

[Patrick Comer, executive]

These are 2 great questions, Thomas. I appreciate it. The first question is about the overall market, are we seeing improvement around growth? And the second question is around Media Measurement. Do we see any kind of conflicts with the kind of Marketplace or Exchange business? Did I get that right?

[Thomas Nilsson, analyst]

Yes.

[Patrick Comer, executive]

Perfect. Overall, in the market, having spoken with all of our customers, I think that across the board, and you've seen that with some of our other public partners that released, it's been a challenging market for research globally over the past few quarters. In the U.S., we have seen some improvement, particularly around the U.S. election. And so we have seen those volumes come through, as we would expect. But in general, I still think that the overall view towards the research industry has been sluggish at best. And I think you see that across the board with public statements.

On the Media Measurement side, there are particular customers that actually use both of our products. They use the Marketplace and they use Media Measurement. They license both as it were. And so the number of conflicts are actually relatively small. Most of our customers in Media Measurement are the agencies and the platforms themselves like a Disney. And so we don't see that many conflicts in the market between those 2 product suites.

Did I answer your question?

[Operator]

We have our next audio question from [indiscernible] from Danske Bank.

[Unknown Analyst]

[indiscernible] calling on behalf of Viktor Hogberg. First of all, I would like to know since the Media Measurement is continuing to outperform, is there anything we should be aware of on year-on-year comparables for the coming quarters that could potentially affect the growth? Secondly, given the currently muted growth, what's the OpEx plan for 2025 in order to protect the cash flow? We can start with those and then I possibly have 2 other questions if we have time for that.

[Patrick Comer, executive]

Can you clarify a little bit about the Media Measurement question? What do you mean by year-over-year comparables with Media Measurement?

[Unknown Analyst]

Like is there anything that we could expect for the next coming quarter in like results or revenues that we could compare to last year or is it expected to be growing as expected?

[Patrick Comer, executive]

So Media Measurement continues to be an outperform from our perspective as that the overall TAM and opportunity with that group continues to evolve and grow. So I can say that we don't see an obvious external reason why that product cannot continue to grow into the future.

Does that answer that question?

[Unknown Analyst]

Yes, yes.

[Patrick Comer, executive]

And in terms of operating expenses, obviously, we did an efficiency program over the summer, which is paying dividends. And as we plan our next 3 year strategic view, we look at, of course, the correct operating structure of the business. And we'll make the right choices to create a free cash flow environment that's positive for the company. Obviously, expenses and how we go forward are of particular importance as we navigate the growth of the business.

[Niels Boon, executive]

I can also add that we don't have NRIs next year any more that we had this year, right? So we had about EUR 8.7 million of NRIs in '24 that are not coming back in '25 and beyond. So from the integration I mean.

[Unknown Analyst]

I'm sorry, could you repeat that? Sorry, I couldn't hear you that good.

[Niels Boon, executive]

Yes, the NRIs. So we had items affecting comparability this year of EUR 8.7 million, mainly related to the integration still. We don't have that going forward anymore because we stopped those at the end of Q2. So therefore, that is also a positive effect combined with the efficiency program going into next year.

[Unknown Analyst]

Do we have time for 2 other questions as well?

[Patrick Comer, executive]

I think so.

[Unknown Analyst]

Well, then I'm just wondering how you're viewing the net debt and the gearing in the light of cash flow and cash position? And then the second question would be -- sorry, sorry.

[Patrick Comer, executive]

No, no, go ahead. That's the second one. That's all right.

[Unknown Analyst]

Okay. And the second question would be, you mentioned it in the call previously that the gross margin shrinked to 88%. And I'm just wondering is that -- would you say that it's also driven by the mix or is it mostly costs?

[Patrick Comer, executive]

Do you want to take the first one?

[Niels Boon, executive]

Yes, I'll start with the first one. So of course, it will depend on the next couple of quarters/year and the plan that we will advance later on, right? But of course, like what I said before as well, we will have lower OpEx already from the NRI and the efficiency program. So that will help cash flow as well, of course. So from that perspective, next year looks brighter than last year. But we're currently developing the strategic plan that we will come out with later, and that will also, of course, affect this number. But yes, other than that, we're more confident than a year ago or 2 years ago, I would say. On the gross margin, it is mainly the improving -- just processes and like how we do hosting, et cetera, and also the consolidation of platforms and less so the mix, I would say. I don't know if you want to add.

[Patrick Comer, executive]

Yes, I think that's right. I think as the platform consolidation continues, we expect to see a reduction in hosting costs, and that should have a sustainable positive impact to gross margins.

[Operator]

We have our next question from the webcast from Ina Djupsund. What kind of activities are other current receivables related to? You wrote about some unbilled revenue in the Q3 report. Could you elaborate what this is?

[Niels Boon, executive]

Yes. So this is what I briefly alluded to. We have accounts receivables and we also have other current receivables. So that's a common item on the balance sheet. So other current receivables are items that are not invoiced yet at the end of that period. And also here, we had some improvements in terms of consolidating systems and the process, the way we were doing things, but that led to a delay in the invoicing at the end of September. So therefore, there's about roughly USD 5 million, so EUR 4.5 million too much, you could say, in other current receivable compared to a normal period. And therefore, I'm looking at those 2 combined. So the improvement in accounts receivable is about EUR 5 million.

So this is roughly equaling out this. So it will still be improving, but less so. And all those invoices already went out, of course, in the first week of October after that. So yes, as you can see also in previous quarters, there's always a certain level of this. It was just a bit higher this quarter, which I would consider a one-off as well and it would be different again in Q4, et cetera. But there's nothing specific to it. It's more like from an accounting perspective, this is how you record that.

[Operator]

We have our next question from Thomas Nilsson from Nordea Markets.

[Thomas Nilsson, analyst]

Could you talk a bit about net working capital, either as a percent of sales or as a percent of total customer spend? And where you would like to see net working capital to grow in, say, 2 to 3 years' time after the migration is complete?

[Niels Boon, executive]

Yes. It's a bit difficult to answer as a straight number. We're not doing -- we're not giving guidance yet, that's right. But what I can say in general that, of course, you have the accounts receivable as a major component here, as you can see in the numbers. And from that, at least 70% is current. So you have about like 30% that can be reduced. And what we've said in the past is that we can say that we can close that gap, for example, by half. This is kind of what we're working with. And then you have to see that, of course, as a percent of customer spend because that's what's driving it ultimately.

So when you look in a static way, meaning not as a percent of spend, then it would be EUR 10 million to EUR 15 million from the current amount with this logic. But of course, hopefully, it will go up again after the migration, and that's the plan. And then also this amount will follow as a percent, and therefore, increase in absolute amount, but then decrease as a percentage. But yes, there's a lot of different factors coming together into this number here, and that's therefore difficult to predict with certainty. And then also it depends on our strategic plan, et cetera, and the speed of the migration and all those other factors. Yes, but we will see improvements for sure. I'm quite confident of that because we have so many ongoing efforts coming together that will affect this number in a positive way.

[Operator]

We have our next question from the webcast. Has Triton Partners or other institutional investors expressed alternative forms of support beyond share purchase activity as part of Cint's robust growth?

[Patrick Comer, executive]

I think the question is around Bolero becoming one of our more significant partners. We have good conversations with all our investors, including Bolero. We welcome Bolero as part of our non-com to help guide at the Board level. But other than that, they've been helpful in terms of asking good questions and being an important investor for us. We've been delighted to see their interest as well as other interest in terms of investors buying shares into the company.

[Operator]

We have our next question from the webcast. In an effort to strengthen Cint's commercial team will CInt work to increase -- sorry, will Cint work to increase the compensation package that better align with the employee incentives?

[Patrick Comer, executive]

To be clear, I'm not exactly sure what that question is about. What I can say is, we are consistently looking at whether it's sales or executive or employee compensation and making sure they're aligned with the strategic growth of the business. We're going through a strategic review process now, which we will report on in the coming months, which will look at our forward plan for growth. And of course, aligning employee incentives with that plan is critical.

[Operator]

We currently don't have any further questions. [Operator Instructions] We currently don't have any questions, and I will hand over to Patrick for any closing remarks.

[Patrick Comer, executive]

Well, once again, I want to say how much a privilege it is to join you as the long-term CEO with Niels Boon, our CFO. This is our first webcast. And so bear with us as we learn this new mechanism. But appreciate your time and attention to Cint and our shares. Thank you so much.

[Niels Boon, executive]

Thank you.