Sinch AB (publ)

STO:SINCH

Earnings Call Transcript 2019-Q3

[Operator]

Hello, and welcome to the Sinch AB Third Quarter 2019 Results. [Operator Instructions] Just to remind you, this is being recorded. So today, I am pleased to pass you over to Thomas Heath, Chief Strategy Officer and Head of Investor Relations. Please begin.

[Thomas Heath]

Thank you, operator, and good morning, everyone. Welcome to the Q3 2019 Conference Call for Sinch AB. My name is Thomas Heath, the Chief Strategy Officer and Head of Investor Relations. And with me today, I have our CEO, Oscar Werner; and our CFO, Roshan Saldanha. And with those introductory remarks, I'll hand over to Oscar.

[Oscar Werner, Chief Executive Officer]

Thank you, Thomas. So welcome to this Q3 presentation. So I'd run through the first bit and then hand over to Roshan for the -- a little bit more deeper financial figures. So let's move to Slide 2 in the presentation. First, I wanted to give a little bit of a background of the market and our positioning, what's happening, and then we're going to jump into the Q3 figures. So this is a summary slide that we're using. We're active in the market of customer engagement through mobile technology. And at its core, it's very simple. Companies are starting to use mobile technologies, that is messaging, voice or video, to engage their customers. And they're using so instead of using, for example, email. And the reason for doing so is very simple. You open text messages or you answer phone calls at a higher rate or at higher percentages than what you read emails. I think you can all go back to yourself, how many unread text messages you have? That's typically very few. How many unread emails you have? That's very -- that's a lot. And it's also about how fast are you consuming a text message or voice call, that's very fast. While an email, it takes longer time. So that's why companies are using our cloud platform to engage the customers via mobile technology and as an addition to other channels, such as email and web. The other interesting thing with this market is that it's got a 100% consumer penetration. What we mean by that is, I actually don't know of anyone who's not a user of this type of services. Anywhere, in any city, in any country in the world, if I go on the street, I know that pretty much 100% for the people that I see are users or potential users. I know that anybody on this call have been using text messagings to receive boarding passes or your use of -- you've been using WhatsApp to receive information for a company -- from a company where you're a customer or you have been using voice calls to call a ride-sharing app or maybe you have been using a video call to have a call with your doctor. So [ it's just ] an extremely high penetration among consumers, and we usually say 100% consumer penetration. The other thing that you can see in this market, it's a very, very scalable market. This is a cloud or a SaaS business, which is very scalable. That's one of the key things you can see in our results this year -- or this quarter. Basically, when large customers are pushing high volumes, you see results and gross profit shooting up at very rapid rates. And you can get high scalability and high profits out of both the messaging and the voice and video business. And as we said before, we serve 8 out of 10 of the largest U.S. tech companies. That's noticeable in these results as well. And on all accounts, on the top, on the financial figures, we are improving our standing. With that said, let's go to the next slide, please. And so we are seeing here, if we take a couple of quarters back, we're seeing a trend where we are accelerating growth, you see both on the gross profit and on the adjusted EBITDA level. We do not internally think so much about revenue. We think about gross profit because that is the amount of value we provide to the customers and the value we can extract back as the key to us as a company. And we care about adjusted EBITDA. You can see as the trend here on the gross profit has been growing very solidly over the last quarters. In this quarter, we have a 37% growth over Q3 2018. On adjusted EBITDA, we also have a very solid growth, but it's a 55% growth over EBITDA -- adjusted EBITDA in Q3 -- Q3 '19. You can also see, if you look back a little bit further to Q1, Q2, Q3 on adjusted EBITDA, we're about SEK 70 million approximately. And this quarter, we're doing SEK 140 million, SEK 150 million basically. So around about a doubling since that time, which we think is very strong. And that's consistent performance. I think the actual result in a particular quarter is always a little bit -- it's always a little bit hard to time exactly when it hits. But you can see that the consistent performance over several quarters is playing out here. You can also say that we're jumping up to a new level here in Q3 due to the hard work with a lot of our customers. Next slide, please. So Slide 4. The underlying thing with most high-performing businesses is a good growth markets, and we're definitely in a very solid markets. We are in the messaging and the voice and the video markets. Since messaging is our largest segments, we -- that's -- we only account -- we only note that on this slide. So the messaging market is $17 billion on the global scale. That's typically counting the text messaging market. But as you can see today, you have WhatsApp, RCS, Apple Business Chat, Facebook Messenger and a lot of new channels coming in and adding to the growth on top of the text messaging markets, which are richer formats of messaging channels, which we see is going to increase the growth in the messaging markets for the quarters and years to come. On the CPaaS side, so what's happening now is you both have the ability to -- or if one part of our market is just the connectivity part, that is delivering a message or connecting a voice call or connecting a video call. The CPaaS side, that is the Communications Platform as a Service, that is where we and the market is offering more SaaS or cloud services on top of delivering messages or voice calls or video calls. That CPaaS market, there's a large demand as messaging and voice and video goes into more advanced services. Then enterprises want to consume more software in the cloud and so we see we have consistent opportunities to increase the SaaS value-add that we offer to our customers. And this market is growing very rapidly. We typically say around about 50% of the year. And as you can see, both Juniper, Gartner and IDC is forecasting a CAGR of some 50% per year in this market going forward. So all in all, a solid market, strong market, where we see a lot of enterprises moving into using more of this Communications Platform as a Service offerings. And we see that market continuing for the years ahead us. If we move to Slide 5, please. So our playbook for profitable growth is focusing both on the connectivity layer. So ensuring leading direct connectivity to the world's operators and OTT players without middlemen, and doing so and differentiating by quality, scale and reach. But it's our bread and butter core business where we have the majority of the volume, but then, adding a high growth, a very additive Software as a Service business on top of that where we empower businesses to leverage rich and conversational messaging and also more services on the voice and video side, where we increase our software value-add in addition to our connectivity offering, and it's also increasing our stickiness with maintaining scalability. So these are the 2 parts of our offering that are growing and where the connectivity side is large, very profitable, very scalable and the Software as a Service is scalable, a little bit smaller as of today, but in a solid high-growth mode. With regards to acquisitions, we have done several acquisitions over the years. In this last quarter, we announced 2, that is myElefant in France doing rich messaging and low code web tools, that is basically offering people at -- the marketing department at our customers a web graphical user interface that create campaigns, both in Facebook Messenger, WhatsApp and SMS. So offering a software tool that is actually used by the market peers at the marketing department of our customers. And then we also had an accession of TWW, which is the #3 player in Brazil, the world's fifth most populous country, where we're acquiring a -- more on the connectivity side, that is a text messaging business serving large financial institutions and a large portion of other countries in Brazil and also giving the ability to have a direct connectivity to sell to our largest U.S.-based companies. Both of those acquisitions have been very well received by the market, and by market, I here mean customers. So we have a lot of customer interest, both from the myElefant services and from the TWW services. And we have -- we can see now, when we look at our own internal sales teams, a high demand to sell both of these services from our internal sales teams. And also, interestingly enough, the CEO of myElefant calls us -- or CEO of TWW calls us up and say -- and tells us, "Can I please have the myElefant services to offer in Brazil right now?" So you see a lot of good cross-sell opportunities from these 2 acquisitions internally and also a lot of interest from our customers. The deal rationale, I'm not going to go through this a lot. We have presented this on previous calls. But the deal rationale is very clear. It's a scale and profitability type acquisition that gives us scale, operator connections and customer relations in new geography and an important geography. And it's a very well-run operations. And we can acquire these type of companies at an attractive enterprise value per EBITDA multiples. So good for our shareholders. And if we move on to Slide 8 on myElefant. It's more of a technology and go-to-market acquisition, where we strengthen our product portfolio and offering and enabling future strong growth. So basically, you acquire a technology which we didn't have, or a market position or market offering which we didn't have, and then you take it and you scale it to all our other regions and -- which is a good way of getting into new technology areas. And then we scale it through our interaction network of sales and customer relations, basically. And this is very much playing on the increased SaaS value-add and to add to the SaaS offer that we're offering to our customers. We're super happy with both these acquisitions, and we believe they will drive growth -- they will contribute to our growth in a strong way going forward. So next slide, please. Now looking at July to September 2019. Needless to say it's a very strong quarter. So gross profit rising 37% to SEK 343.6 million, and you have adjusted EBITDA rising 55% to SEK 147.6 million compared to SEK 95 million and SEK 249 million (sic) [ SEK 249 million and SEK 95 million ], respectively, in Q3 of 2018. Adjusted EBIT excluding acquisition-related amortization is raised to SEK 131 million. And what we are seeing with acquisition-related amortization, we are amortizing -- it's a non-cash flow or a non-cash flow impacting activities basically. So that's why we call it adjusted EBIT. And you can see that, that is a close to cash flow. It's obviously pretax and things like that, but it's a measure that is closer to cash flow, basically. And you see profit after tax to SEK 68 million, but there you have a lot of areas which are impacting the comparability, basically. So we think the adjusted EBITDA and adjusted [ EBITA ] better measures our true performance. Organic gross profit growth was growing 33% in local currency. It's important for us to look at the local currency. Sometimes, we have a currency tailwind and sometimes headwind. But the local currency gross profit grew 33%. And we have -- we see this quarter that the gross profit that we add has a great positive effect on EBITDA, which more than offsets our increased OpEx in new product development. So given that we are in the strong market, we're investing solidly in new products and new go-to-market opportunities in order to capture the future growth potential in this market that is clearly there. But you can see that our gross profit is more than offsetting that, and therefore, our EBITDA is growing fast. Next slide, please, so Slide 10. The 3 main growth drivers in this quarter is rising message volumes with the largest U.S. tech companies. So largest companies in the world wanting to do international delivery. It's a good growth driver for us. Another very solid growth drivers is just the pure enterprises. All enterprises in many, many segments across the world are gradually shifting consumer communication from email to mobile messaging or voice or video basically, so we see a strong growth in the base of enterprises. It's maybe a travel transport, banking, et cetera, that's a marketing retail. So it's a lot of different segments that are starting or using, but increasing the use of telecommunications. So that's another big growth drivers -- growth driver. And you can also see, as apparent in these numbers, strong growth from our existing customers and new customers in voice and video. So that's the 3 main drivers for this quarter. And if we go on to the next slide, please. We're investing in these 4 areas. So we need to invest in growing with existing customers. We're a high-quality supplier in this market, and we got strong customers in a lot of different segments. And we need to invest to keep up with the growth that they are giving us to -- and continue to invest in platform scalability and account management resources, et cetera. We are investing heavily in operational efficiency, so it's in both COGS efficiency on the COGS side, it is for internal automation and improved scalability and it's for clients self-service tools. We are investing in sales and marketing. So we have a new brand that strengthened lead generation and where international expansion of the personalized video products. We are just adding more salespeople in the U.S., Europe and Asia. So that's another area. And the fourth area is new technology. This market is undergoing a technology shift which we think is very positive for the growth in this market going forward. And we're investing in software for advanced interactive messaging and voice and video. Maybe new channels like WhatsApp, RCS, Facebook Messenger, KakaoTalk, WeChat, et cetera, where you can offer richer forms of cloud communications to our customers via various OTT or Internet players. And it's also investing in RCS-as-a-Service that the mobile operator community is launching gradually, which is also increasing the capabilities for our enterprises to do more advanced forms of messaging services. So next slide, please. Looking at the messaging part, we see continued growth, rising message volumes. U.S. tech companies continue to fuel growth, and we see investments in next-generation messaging. But the overall picture is it's a very solid business going forward. We have a very solid standing in the market, and we see growth on all accounts here. And we're investing heavily in the business to secure future growth as well. If you go to next slide. On the message volume side here, we're growing with existing customers, new customers and new use cases. We have some 14% organic growth in transactions, while we have 30% organic growth in gross profit. And here, you can see the effect of adding higher-value services. We're actually growing the gross profit side quicker than the messaging side. We're substituting, if you know -- if you will, lower margin messages for higher-margin messages. So therefore, you see the gross profit growing faster, and this is in line with our plan. We want to add more software value add. We want to offer higher quality, more complex offerings to larger markets. And this may be more -- it maybe both kind of SaaS services or offering more complex or higher quality services to our largest customers and delivering to 250 countries with latency in nanoseconds. It's much, much harder than delivering a low-quality message to where -- with a long latency for another customers. And for those type of services, you can command a higher gross margin. All right. Next slide, please. You see the gross profit per transaction here, and the -- it's rising. So you see both the gross profit per transaction, that is the top purple line in this one. It is continuously rising. And you see the OpEx per transaction is also rising, and this is in the plan. I mean, we are investing more in R&D gradually quarter-by-quarter. So therefore, the OpEx per transaction is going up. But we're doing that to invest in new self-services and high-quality services. And as a result of those investments, we're also seeing the gross profit per transaction going up as we're seeing that we have more higher-value services to offer, both on the quality side and on the value-added sell-side basically. So that is all in plan, and we think that's a good trend that we should see going forward as well. You should also -- and concrete examples are obviously personalized video. We have some currency tailwind, but also increased traffic to profitable markets. All right? Let's go into the next slide. We are measuring messaging EBITDA per gross profit. That's a key metric that we're using internally. We think it's very powerful, and it shows the full scalability of our business model to be able to drop around about 50% on every gross profit dollar that we make down to EBITDA. That shows how scalable our model are -- our model is and it shows a true, true cloud business, basically. And as you can see, we managed -- despite strong investments in new areas, we managed to keep this line flat since our gross profit is growing fast as well. In the last month, you're actually seeing an increase here. That means that our gross profit is growing faster than our OpEx investments. So despite pushing hard on investment in new areas, "We can't keep up with the plan." And in a funny way, "We can't keep up with the gross profit development." But we intend to keep this growth in a solid way. If we see that gross profit development is going slower, then we will pay down on OpEx. And if we see that it's going faster, then we can be more aggressive on the OpEx side to capture new growth opportunities. Obviously, it's hard to time this on any quarter, in any given quarter. But over time, we see that we can keep this [indiscernible] at a very solid level. Okay. Let's go to the next slide, please. We see a step change in voice and video. We've seen this over a couple of quarters, but very happy to see that profitability is now following. This is obviously what good looks like when you new -- when you launch new services. We acquired a company here, which is actually the origins of the Sinch name back quite a few quarters ago. And we work them hard to turn them into profitable and put them in a position where we can see really hypergrowth. And as you can see, from Q4 of last year, we see very solid growth and development in this area. It is fueled by number masking verification. And we're growing in both with existing and new customers. And we're seeing now that we're winning new customers, but we're also winning new markets for our existing company customers, which I think is a very positive sign. That basically means that, hey, typically, when you sell to this these of large companies, you get 1 or 2 markets to start with. And typically, you get hard markets to start with. And when you do a good quality of service in those markets, you get more. And we see that is the underlying growth, that is a portion of the underlying rationale between why the figures are growing now. But actually, as we said, we're also growing with new customers in this area. We are increasing OpEx here to ensure quality and volumes and ramp volumes as quickly. As you can understand, when we have this type of growth engine, you need to follow up with solid OpEx investments in order to follow your customers where they want to go, basically. And we're doing that as fast as we can. But as well, as you see here, profit is rising in a solid way due to the high gross profit growth as well. Okay. Let's go to the next slide, please. And on our Operator business segment, you have a stable development. This is a mature business, selling software both in the cloud and on-prem to operators. This is a solid business. And the fluctuations in results is due to how projects are realized, but we have a stable underlying performance. Our investment in providing RCS-as-a-Service to mobile operators that is basically enabling mobile operators to offer this type of services to players like us and enterprises. And you see increased internal cooperation between this business unit and the growth in the Messaging segments. This business unit gives us very, very deep technical competence deep down in the operating network. So that gives us an ability to serve our customers on the messaging and voice and video side in a better way since we have a very deep tech stack and very deep technical competence in those areas. With that said, let's go to the next slide. And I want to hand over for more a thorough run-through of the Q3 financials by our CFO, Roshan Saldanha.

[Roshan Saldanha, Chief Financial Officer]

Thank you, Oscar. Good morning to all of you. It's a wonderful morning. I'm proud to present this excellent report, Q3 report for the company, which shows the scalability of our services, and it's a result of our customer focus, as we focus on quality for -- on the services that we provide to our customers. Please turn to the income statement slide. This was a stable quarter. We have some M&A-related costs for the acquisitions that we have recently made, which is essentially what you will see between EBITDA and adjusted EBITDA. Consolidated net sales grew by 24% in the quarter to SEK 1.216 billion. Growth -- we see growth now in several important European markets such as Sweden and Germany. EBIT came in at SEK 87 million versus SEK 50 million in the same period previous quarter, which is a 74% growth. Acquisition-related amortization, which does not affect cash flow, was SEK 32 million, down from SEK 36 million in the same quarter a year ago. This amortization relates mainly to planned amortization of acquired brand customer and operator relationships as well as software, and does not affect our cash flow. Adjusted EBIT, excluding both items -- all of these items of acquisition-related amortization, amounted to SEK 132 million, up from SEK 92 million in the same quarter a year ago. Diluted earning per share was at SEK 1.27, up from SEK 0.71 in the same quarter a year ago, which is a 79% growth year-on-year. The nonrecurring items that we have of SEK 12.9 million, as I said already, relate to the acquisitions of myElefant and TWW that we announced in October. But the financials in this quarter, in Q3, of course do not include any effects from those acquisitions as they were closed in Q4. Turning to the next page. Slide -- page 20 shows a bridge explaining our underlying gross profit development. A significant part of our revenues are passed on as cost of goods sold to mobile operators. We pay them to send our messages and to place our calls, but the rates that we charge vary greatly between markets. Since these passthrough revenues do not contribute to our profits, we focus almost exclusive on gross profit when we assess and steer our business. Changes in our gross margin often reflects changes in geographical mix of our traffic rather than underlying performance or competitiveness. This bridge explains the different components in our gross profit, growth and the organic growth in local currency and comparable units. We have had no acquisitions since Q3 last year, hence there's no M&A-related effect in the current quarter. Consolidated gross profit rose by 38% during the quarter to SEK 344 million, up from SEK 250 million a year ago. Positive exchange rate movements explain SEK 12 million or 5% of this increase. Organic growth in gross profit in local currencies and comparable units was 33%, which is 22% in the messaging segment and 56% from a relatively small base in the voice and video segment. In messaging, the growth is coming from a shift in mix of our customer base to more enterprise customers, as well as growth with existing customers. We have a very low dollar-based churn in our customer base, which is consistent with previous quarters. Moving on to the next page. This slide shows the scalability that I commented previously in our messaging segment. We grew volumes by 14% year-over-year, which reflects also a shift in our customer base as we gradually increase our enterprise customer base and we grow more than our enterprise customers, whereas our wholesale customer base continues to be stable to slightly weak. This is reflected in our revenues which grow faster than the volumes at 19%, as we sell more software and value through, for example, personalized messaging. We can also add differentiation and quality to our service delivery through offering different routing options. Finally, of course, this value-add is most reflected in our gross profit growth, which is at 30% this quarter. So having more demanding customers and being able to globally deliver traffic at a high-quality to our super network has made this gross profit growth possible. Moving on to the next page. Oscar talked about investing for continued growth and highlighted the main areas of growth, being driving internal operational efficiency and quality, increasing our sales and marketing efforts, as well as investment in new technology. This is reflected in our growth in headcount. The size of the investment, we believe, will deliver growth during the coming periods, but does not yet contribute significantly to growth in the previous quarters. Our headcount is distributed in many different locations across the globe, but the majority of the resources are situated in Sweden, with U.S.A., Poland and U.K. being other locations with significant concentration of resources. We have grown headcount in the company with 24% during the past 12 months to 573, which is an average for the quarter. But a lot of the work that has been done is to support our gross profit growth, of course, in the current periods, but also investments in conversational messaging channels, such as WhatsApp. These investments are taken through our income statement as OpEx, and we have very limited capitalization of resource costs, which we believe to be prudent. This is, of course, reflected in the low levels of depreciation that you will find in our income statement. MyElefant and TWW Brazil will increase headcount by 78 from Q4 2019. Moving on. We have previously received questions regarding our cash flow development, and hence we added this page to further illustrate our strong cash flow generation capabilities. As you see, adjusted EBITDA in the quarter was SEK 148 million, up from SEK 95 million through the same period a year ago. And cash flow before changes in working capital was SEK 144 million, up from SEK 69 million same quarter a year ago. This is a 98% cash conversion from adjusted EBITDA to cash flow before changes in working capital. Of course, this is an extraordinary high results this quarter. And when looking at the running 12 months, you see that we have SEK 385 million cash flow before changes in working capital against an adjusted EBITDA of SEK 483 million for the same period. Moving on to the next slide. When talking about cash flow, of course, we have to invest in our growth to working capital. And this is caused partly by swings in working capital from quarter to quarter, which is -- which you can see that we have a negative working capital development also in the same quarter a year ago. But in addition to that, the strong growth that we have on a quarter-on-quarter basis means that we are paying our suppliers before we actually can get in the cash from our customers, and that is reflected also in our negative development in working capital. In general, we have a very low bad debt. We're at 0.05% on revenues. Our net debt was in this quarter at 0.9, down from 1.6 a year ago. Net debt is increased this year by SEK 84 million due to the implementation of IFRS 16 on the 1st of January. Total net debt amounted to SEK 445 million, which is down from SEK 550 million last year. And this growth, of course, includes the SEK 84 million that I just mentioned. Moving on. This slide summarizes our financial targets, which are unchanged from previous quarters. The targets are adjusted EBITDA per share to grow by 20% per year and net debt to remain less than 2.5x adjusted EBITDA over time. Adjusted EBITDA per share grew 46% in Q3 2019, measured on a rolling 12-months basis. Net debt over EBITDA was at 0.9x, measured on a rolling 12-month basis. Pro forma net debt over EBITDA when accounting for the acquisitions of myElefant and TWW, including the acquisition costs, but also the EBITDA over the previous year, would be 0 -- would be 2.2x adjusted EBITDA. With that final comment, I would like to hand back over to Oscar for concluding remarks.

[Oscar Werner, Chief Executive Officer]

Thank you, Roshan. So if we move to Slide 26. So looking at the future. We have a strong pipeline with several U.S.-based global tech companies that we're working closely with. And we have a larger field sales organization and strengthened marketing. And so we're investing in our go-to-market abilities, and we see the early signs on the effects of that in this quarter. We don't see -- you see it in the numbers a little bit, but we also see it in the leading indicators that we're looking at. So we're looking to push that and we see that as a good growth driver going forward. You see further growth in voice and video. As you can see, that's a very good position we have there right now, and we intend to fuel that business area and continue to grow it. We also have our new client wins in personalized video. And our personalized video services developed out of Seattle in the U.S. is doing very well in the market and winning new clients. And we want to expand and take more share in those clients that we have won. And then we see also TWW and myElefant being growth drivers going forward. Both of those offerings, we can offer to our larger based customers, and therefore, we see good growth in that, especially in the TWW case being present in high-growth markets, such as Brazil. It's obviously good. And the last one being investment in rich media, conversational messaging, RCC -- RCS and OTT chat apps to capture the market growth potential. It's also a strong long-term future growth potential. And I want to emphasize that we see that market -- this is a -- it's a long-term shift. It's not a blip. You would compare it to -- I mean the messaging market that is $17 billion today on a global basis, going from 160 characters text string to something where you can send video and pictures. You can send action buttons. So basically, in your inbox, it would look pretty much like an app where you can rebook flights in a button in your message, and you can do conversations with your customers, so -- and basically, you can track that to messaging, but not going to belong to each other in a conversation. And I think from an enterprise perspective, going from a 160-character text string to all of these new features will obviously drive a lot of growth because the value to the consumer and the value to the enterprise will be much greater. We see that, now that a lot of customer care volumes on the call center side, it's moving from calls to customer care, where you see you can automate around about 50% of the calls in the company care center. So that's a big trend in the market of contact centers moving more of their traffic over to messaging. The other big trend is you're seeing app companies realizing that, "Okay, I can only reach the 20% of my best user via an app." But via messaging, which in the future will have the functionality of an app, you can reach the remainder of 80% that hasn't downloaded your app with a similar functionality. So we see that -- we believe that messaging is going to take share on both the contact center markets on the voice and going to take share of the app market because it's got similar functionality to app without the need to download. So that's a strong future for many years to come, growth of the mobile messaging market. With that said, I want to thank you all for listening in and for the time on this call. And then hand back over to Thomas.

[Thomas Heath]

Thank you very much, Oscar and Roshan. And we're welcoming any questions from the conference call.

[Operator]

[Operator Instructions] And our first question is over to the line of Daniel Djurberg at Handelsbanken.

[Daniel Djurberg, Research Analyst]

Congratulation to a solid report. My first question would be coming back to your outlook. You've mentioned strong pipeline with the -- among other, with several U.S.-based global tech companies. Can you comment, is this still within the 8 out of the 10 you talked about before? Or do we see additional? And -- or is it that you do more business from the existing 8? That would be my first question.

[Roshan Saldanha, Chief Financial Officer]

Oscar, I'll leave that to you.

[Oscar Werner, Chief Executive Officer]

Yes. So this is still within the 8 out of 10. So as previously said, contracts with 8 out of 10, and actually traffic with 6 out of 10, and we're still within that. So these are very large customers and there is growth opportunities in many different areas in those large customers. So this is growth within the existing accounts, the larger share of this growth.

[Daniel Djurberg, Research Analyst]

Okay. And among those 6 out of the 10 that you do serve today, do you see also continued or growth opportunities there? Or are they running at full scale there in your view?

[Oscar Werner, Chief Executive Officer]

No. We see continued growth opportunity there. And both because they are growing and both because -- and also because they are -- and also because there are more use cases within those. You have to realize, these are very, very large companies. And no company will ever have 100% share. There are multiple departments, multiple countries, multiple use cases. They're very innovative and come out with new things all the time. So there is always large potentials, but there will always be also several suppliers to them. But yes, there is a good growth opportunities within the existing accounts on all those accounts.

[Daniel Djurberg, Research Analyst]

Yes. And so far, it's been very positive for your gross profit, growing 30% in the quarter, but should we be afraid of any pricing pressure from these very big names ahead, given the competition? Can you comment a little bit on competition on pricing, especially in the U.S.?

[Oscar Werner, Chief Executive Officer]

Yes. I mean among those big players, typically, the competition you get is the other big, big players in the market, right? Typically, you don't get competition from the local players because it's very hard for -- if you're a global company serving -- a global company serving all the countries in the world, it's hard to have a local supplier in every country. And so typically, that's the other global players that we get competition for. That said, I mean, that's good, solid companies. So yes, that's over a strong competition. And by the way, I think that's good. I think it's good with the market, which is vibrant, which has several good player in it. So yes, it's strong competition. And I also believe that competition will be stronger in the quarters going forward. Yes, I do and -- given that there are large opportunities. And there will be price pressure on those accounts. On the other hand, there is also growth opportunities.

[Roshan Saldanha, Chief Financial Officer]

Just to add to that comment. Roshan here. I think the way to think about it is that, as we said, I mean these are large companies, there are multiple use cases. The market is growing. We talk about the messaging market and the CPaaS market and their growth rates. And therefore, these companies are also exploiting new opportunities to use messaging. We've -- even if there might be price pressure, we don't see any dramatic price pressure or price changes. This will be a gradual sort of development over time, and that is something that has also happened historically. So it is nothing new for this business. On the other hand, it is always compensated by the fact that the volumes are increasing as significantly as they are as these companies grow and reach new markets, new customers themselves. So overall, we see sort of price being overcompensated by volume growth.

[Daniel Djurberg, Research Analyst]

Yes. And one final, if I may, would be you mentioned in the Operators' page in the report that many operator have a cautious attitude to RCS and are hesitant to invest. Can you comment a little bit more on this statement, perhaps from a size of operator, regional wise? Or you see a negative impact on the enterprise opportunity in RCS due to this or...?

[Oscar Werner, Chief Executive Officer]

Yes. I mean the operator market is typically a conservative and relatively slow market in general, and we're seeing that. If you know how much operators are making out of the text messaging service, you would, from a logical perspective, think, "Hey, why don't you jump straight onto a new and richer form of messaging?" Which is obvious, but it's going to create more value to the ultimate enterprise or end-user customer. So to me, that would be the logic and I would jump quickly because I would see they have an opportunity. Compared to that mentality, I think the development of the operators is slow, typically because they see other bigger opportunities focused on 5G or things like that. So yes, that is a trend that you see. Now in this quarter, you've seen the U.S. operators coming together announcing a joint initiative where they will push RCS together. So there is also positive development by operators actually stating, "Hey, this is going to happen." As many other things, I think, such an initiative by the U.S. operators is, in general, very, very positive because it drives the markets and it's going to drive operators in other countries to invest as well. So you see the positive signs as well. The other portion to this is, I think you should see the market as rich or, call it, conversational messaging as a whole. And there, you also have alternatives such as Watson, WhatsApp, Facebook Messenger, KakaoTalk, WeChat, et cetera, where the OTT players are coming in, which is putting -- which is, from our perspective, giving other alternatives to RCS. So for us, we're investing in conversational messaging. It's very similar technology, whether it's RCS, or Facebook Messenger, or WhatsApp or WeChat. So the investments are there. We know that the market will be there because if the operators are slow on RCS, we're going to do it on WhatsApp or on WeChat, and that's okay for us. Now from an operator perspective, it's not okay, actually, because they will -- then they will lose the revenue from messaging, and that's going to go to the [ OTT ] players instead. So the operators, if they are too slow, they will lose out on the market. But from our tech -- perspective, we will still do the services that we do, but will use other channels, but the channels will more be the OTT players than the operators.

[Operator]

Okay. Our next question is over to the line of Carnegie, and Predrag Savinovic.

[Predrag Savinovic, Research Analyst]

Could you maybe just walk us through the voice and video segment a bit more? It picks up very well in the quarter compared to previously. And I'm wondering, on the nature of these revenues, are there some kind of nonrecurring character? Or can we expect sales to be at a higher level going forward? And then tying into that, on the profitability, which is just outstanding in the quarter, can you also here help us understand a bit more on how this will develop in the coming quarter and the year as we are a bit on new level here?

[Oscar Werner, Chief Executive Officer]

So we obviously don't give any forecasts, as you know. But I can give you -- on the nature of the business we're running, I can give you comments. And we start with voice and video. In general, we have very little nonrecurring items in our business, and that is true for this quarter -- on the revenue and gross profit side, and that is true for this quarter as well. Our business is a cloud business. It is companies consuming our cloud services over time. What happens is basically a company integrates to our platform and they port a portion of their voice and video traffic over to us. They don't do that in order to take it away the next month because the technical investment for them is bigger, but there's no point, basically. So the vast majority of these revenues are long-term revenues. And obviously, if we have a bad service quality, then customers will move -- or are not competitive on price, then customers will move their traffic elsewhere. But it is long-term revenue. They do not port their either messaging or voice and video traffic over to us just for the short term. That said, what's happening here is we're winning in voice and video. We're winning new customers, that is driving growth. But the theory for us and those customers is that they will continue to use our services. We're winning new markets within existing customers, and that we're doing so that to proof of the service quality we did a couple of quarters ago that we're actually winning new markets right now. And the same question -- the same answers through there. I mean they or us have no intent to pick up here. They do it because we offer a good service, but we need to continue to offer a good service in the future. So we believe that that's a trend that we're seeing and it's not nonrecurring. Obviously, we continue to sell new customers, several new markets to continue the trend. But I think that goes without saying. The second question, if you can repeat that, please?

[Predrag Savinovic, Research Analyst]

Yes, that was -- it ties into that, your answer there. It was on the profitability, which is very strong also in the quarter. And to help us understand if this is a new level we should expect going forward.

[Oscar Werner, Chief Executive Officer]

Yes. We don't give forecasts, as I see -- as I say. So they expect going forward, we can't comment on. But we are working to -- and I think the answer is the same [indiscernible]. We're working to integrate with new customers. And when we [ meet ] a lot of new customers or new use cases for our existing customers, then traffic goes out. We obviously will work as hard as we possibly can to both keep that traffic and grow it going forward. And I think that's the theory we should have. Now it's obviously hard to time every single quarter, in one quarter, a specific customers may send more than in next quarter and things like that. But it is generally in our business, it is long-term revenue. So that's the general case. So unless we see any hiccups, it is long-term revenue and long-term gross profit that we're seeing. Yes. I should probably last comment there. And what you can see on the profitability side specifically, you see the scalability of the cloud business. When you have a lot of customers that are increasing traffic at the same time, then your profitability shoots up. That's what you're seeing. It's a very, very scalable model. And that's what you see in cloud and SaaS businesses, and that's exactly why you see profit shooting up so strongly in this quarter.

[Predrag Savinovic, Research Analyst]

Super. And as a follow-up on what Daniel asked before on the volumes from the U.S. tech companies. How -- can you say anything on how much they have driven the growth in the quarter? And in the recent quarters, messaging, maybe on a rolling 12 basis, how much they account for -- of the total in growth levels?

[Oscar Werner, Chief Executive Officer]

No, we don't give those. Sorry [indiscernible] No, we don't give -- I'm sorry. No, we don't give those figures on specifics. And they are -- I mean, but it's one area. Sometimes, I think we focus a little bit too much on that. And the focus is a little bit too high on that because it's so well-known brands, but we have -- like we said in this quarter, we have growth from those companies. We have growth from the entire base and we have growth from voice and video. And they all contribute. But since they're well-known brands, it's easy to focus and maybe a little bit too much on them. But yes, that's a good portion, but by far, the only portion to drive our revenue.

[Predrag Savinovic, Research Analyst]

Okay. Super. And finally, on acquisitions, you have been acquisitive now recently. Can you say something on your pipeline within rich messaging to lever the myElefant vertical? And which countries are you looking to expand in that vertical?

[Oscar Werner, Chief Executive Officer]

Specifically on the myElefant services?

[Predrag Savinovic, Research Analyst]

Yes. Exactly.

[Oscar Werner, Chief Executive Officer]

Okay. So myElefant, we're looking -- in Phase 1, we're doing in Europe. So we're now training people in the rest of the European sales force on that. Then we're looking obviously into U.S. and Asia. There are a couple of things we need to do in the -- I would say platform or services or things that you need to turn and need to do. It's more novice that you need to turn than -- it's not a complete platform. We make it more -- you need to turn a couple of knobs in order to be compliant in various jurisdictions. So we're turning those knobs right, right now in the other areas, and then we'll launch the same type of services in -- on a global basis. So we're starting in the main countries in Europe and then rolling it out further to U.S., Asia.

[Operator]

Before going on to the next question, which is Fredrik Lithell at Danske Bank [Operator Instructions] And Fredrik, over to you.

[Fredrik Lithell, Senior Analyst]

And congratulations for a good report. Could we go back a little bit to messaging? And also, if you could describe a little bit if you have any -- if we should sort of think about any of the seasonality effects? Do you expect -- do you see sort of that -- the Q4 period compared to Q3 involves more events that drives your traffic on higher levels? Or is that something we should sort of neglect now when there are so many customers that are doing more things that is sort of shadowing any seasonal effects?

[Oscar Werner, Chief Executive Officer]

That's obviously -- it's always a hard question to answer in this type of a consumption-based business. That's up to our customers. But typically, the trend has been that Q2 and Q4 have been the strongest quarters. I do agree with your comment that the broader your customer base is and the more international your customer base is, that those effects are maybe being a little bit more offset because the holiday seasons in different jurisdictions that is different from other jurisdictions. But yes, Q4 and Q2 has been the strongest quarters historically. And how it is in 2019? That remains to be seen.

[Fredrik Lithell, Senior Analyst]

And the final follow-up on voice and video again then. Is it primarily in Q3 so that you have had sort of step-ups from existing clients that are now sort of turning that -- they've tested you on one market, then they are now turning on several more markets? Or is it sort of a broader base type of situation here where you received new customers coming in, in Q3 with really small volumes in the beginning? And a follow-up on that is, do you have any sort of onetime effects? I remember that in Q4, I think it was of '18, you had a bit of a one-time, if I recall correctly, from a new customer coming on. Is there anything we should think about in terms of the Q3 numbers on voice and video?

[Oscar Werner, Chief Executive Officer]

And on the -- I'll answer the first question, I'll leave the other to Roshan and -- to Roshan and Thomas. So the first question is, it is both new customers and new services or new geographies. So it is the effect on both when you see this type of strong growth. On the second question, since we've gotten it more on one-offs, Roshan and/or Thomas, can you please give some more details, if we see any material one-offs in the voice and video business in these results?

[Roshan Saldanha, Chief Financial Officer]

Yes. I mean, I can just overall comment that, of course, when it comes to OpEx, there are smaller minor items happening every quarter, which I would not label as one-off. So in general, the revenue growth is very stable and coming from a stable set of customers as well as the gross profit growth and the adjusted EBITDA impact as well. So we don't have any significant one-offs during Q3 in any of the segments that are included in our adjusted EBITDA.

[Fredrik Lithell, Senior Analyst]

I was more thinking about positive one-offs, that you sort of get some kind of prepayment element if you have a sort of -- if you take on a new big client on that solution or something like that? That's -- it's not on the negative side. I was looking more on if you had on a onetime payment or something like that.

[Roshan Saldanha, Chief Financial Officer]

[indiscernible] No. But my answer is the same [indiscernible]

[Operator]

Okay. That was the final question for today. So can I just pass it back to you for any closing comments at this stage?

[Thomas Heath]

Thank you very much, everyone, for participating in this conference call. If you have any follow-up questions, don't hesitate to get in touch. See you next time.

[Operator]

This now concludes today's call. Thank you all very much for attending, and you can now disconnect.