Sinch : Financial Document

Q4

Year-end report January - December 2022

October-December 2022

• Net sales increased by 41 percent to SEK 7,361m (5,207).
• Gross profit increased by 79 percent to SEK 2,416m (1,348).
• EBITDA rose by 140 percent to SEK 791m (330).
• Adjusted EBITDA1 increased by 104 percent to SEK 960m (471).
• The loss after tax for the quarter was SEK -226m (453).
• Basic earnings per share were SEK -0.27 (0.60) and diluted earnings per share were SEK -0.27 (0.59).
• Cash flow from operating activities amounted to SEK 973m (472).

January-December 2022

• Net sales increased by 71 percent to SEK 27,722m (16,177).
• Gross profit increased by 124 percent to SEK 8,810m (3,933).
• EBITDA rose by 234 percent to SEK 2,774m (831).
• Adjusted EBITDA1 increased by 136 percent to SEK 3,124m (1,322).
• Profit was reduced by a non-cash impairment of goodwill of SEK -5,097m and Sinch is reporting a loss after tax for the year of SEK -4,943m (908).
• Basic earnings per share were SEK -6.03 (1.29) and diluted earnings per share were SEK -5.95 (1.26).
• Cash flow from operating activities amounted to SEK 2,508m (329).

"As we sum up the year, we see marked improvements in both cost control and cash flow"

- Johan Hedberg, President and Chief Executive Officer (interim)

Significant events during the quarter

• On 14 October, Sinch announced that Sean O'Neal had been appointed as the new President of Business Unit SMB and that Brett Scorza had been appointed as the new President of Business Unit Voice. The reorganization of Business Unit Applications to focus the company's investments on Conversational Messaging was also announced at that time.
• Also on 14 October, Sinch provided further details about the previously communicated cost reduction program. The program is to achieve total gross savings of at least SEK 300m on an annual basis by means of reduced consultancy costs, lowered non- personnel related expenses and reductions in force. About 150 people will be affected by the workforce reduction. See page 7 for more information.
• Sinch informed the market of a goodwill impairment of SEK 5,000m on 20 October and announced preliminary results for the third quarter of 2022.
• On 3 November, Business Unit SMB launched an Early Access Program to the MessageMedia product, which has been integrated with BigCommerce, a leading open ecommerce platform.
• Sinch announced on 18 November that Josh Odom would become the new President of Business Unit Developer & Email effective 1 January 2023.

Other significant events earlier in the year

• Sinch announced on 3 February that the company will be organized into business units: Enterprise & Messaging, Voice, Developer & Email, Applications and SMB. Sinch's management team was expanded at that time.
• The board of directors decided on 10 February to execute a non-cash issue of 25,500,000 shares to the sellers of Pathwire.
• The board decided in Q2 to execute the previously communicated issue of 10,803,010 new shares to the sellers of MessageMedia and the second non-cash issue of 25,500,000 shares to the sellers of Pathwire.
• Sinch announced on 11 July that reassessment of reserves for accrued traffic costs would reduce Q2 results by SEK 162m.
• Oscar Werner stepped down from his role as CEO on 20 July and Sinch co-founder Johan Hedberg was appointed interim CEO.
• Sinch launched a cost reduction program on 21 July in conjunction with the Q2 report.
• On 29 September, Sinch informed the market that Neqst D2 and Johan Hedberg, interim CEO, had together acquired SoftBank's stake of about 5 percent of equity in Sinch.

Important events after the end of the year

• 12 January 2023, credit facilities of SEK 6,500m and USD 110m were extended by one year. New maturity is February 2026.
• Jonas Lindeborg has chosen to leave his role as Sinch's CTO. His duties will be distributed to other executives.

1) Adjusted EBITDA is reported to clarify performance in underlying operations. See Note 2.

YEAR-END REPORT JANUARY - DECEMBER 2022

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Comments from the CEO

Focus gives results

2022 has been an eventful year with major changes in the external macro environment and in our own business.

When I took over as CEO last summer, we opted to focus on three areas in a clear order of priority. We have since them worked determinedly to tighten our cost control, improve our cash flow and sharpen our focus on profitable growth. As we sum up the year, we see marked improvements in both cost control and cash flow but it will take longer to improve the organic growth rate.

The cost reduction program we announced in July has had a clear and positive impact on financial performance in the fourth quarter. The program has produced results faster than we initially estimated and about half of the expected gross savings of SEK 300 million has now been realized. In fixed currencies, we have reduced our total cost base by 12 percent since Q2 2022, corresponding to an underlying cost reduction of 8 percent excluding non-recurring effects in the last quarter of the year. It is encouraging to see how the business can produce quantifiable results so swiftly when guided by clear and unambiguous goals. With these efficiency improvements, we are creating scope for forward- looking investments in initiatives focused on promoting both profit and growth.

Alongside the efforts with our cost reduction program, we have increased our focus on cash flow. After the major acquisitions in late 2021, we have a more expansive and stable business, but our exposure to a number of large customers can still create some volatility between isolated quarters. If we sum up the full year, we successfully converted a full 60 percent of Adjusted EBITDA to cash flow (after investments, changes in working capital, tax and interest payments).

Growth in the fourth quarter was lower than in the third quarter and we are now seeing the effect of macroeconomic headwinds in our voice and messaging business. The seasonal increase in messaging volumes in the fourth quarter was not as definitive as we have seen in previous years and overall transaction volumes in the messaging segment declined slightly. Some customers with large voice and messaging volumes are now prioritizing profitability ahead of growth, which makes them more price-sensitive. Our email and our small business product set, saw good growth and our gross margin has improved in the Email segment following a successful switch to a new cloud infrastructure supplier.

YEAR-END REPORT JANUARY - DECEMBER 2022

Looking ahead in 2023, the macroeconomic outlook remains uncertain. We will continue prioritizing profitability and cash flow and do not expect any immediate improvement in the growth rate. At the same time, our cost reduction program is now creating scope for forward-looking investments. The main point here is to realize the synergies we identified in connection with the large acquisitions in 2021 - to drive cross-sales between product areas and create a more cohesive product offering that is attractive to software developers. We have more than 150,000 customers, but most of them still use only one product or communication channel.

With an industry-leading product offering and improved profitability, we are in prime position to benefit from the opportunities that arise in a rapidly changing market.

Stockholm, 16 February 2023

Johan Hedberg

President and Chief Executive Officer (interim)

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Sinch overview

For a list and definitions of financial and operational measurements, please refer to page 33.
	Q4	Q4
Sinch Group, SEKm	2022	2021	2022	2021
Net sales	7,361	5,207	27,722	16,177
Gross profit	2,416	1,348	8,810	3,933
Gross margin	33%	26%	32%	24%
EBITDA	791	330	2,774	831
EBITDA margin	11%	6%	10%	5%
Adjusted EBITDA1	960	471	3,124	1,322
Adjusted EBITDA margin	13%	9%	11%	8%
Adjusted EBITDA/gross profit	40%	35%	35%	34%
EBIT	66	-12	-4,703	158
EBIT margin	1%	-0%	-17%	1%
Adjusted EBIT1	919	393	2,731	1,161
Adjusted EBIT margin	12%	8%	10%	7%
Profit or loss for the period	-226	453	-4,943	908
Cash flow from (-used in) operating activities	973	472	2,508	329
Net debt (+) / Net cash (-)	9,162	10,658	9,162	10,658
Net debt/pro forma Adjusted EBITDA R12M, multiple2	2.7	2.9	2.7	2.9
Equity ratio	60%	60%	60%	60%
Adjusted EBITDA/share, SEK	1.13	0.61	3.76	1.84
Diluted earnings per share for the period, SEK	-0.27	0.59	-5.95	1.26
Average number of employees	3,533	2,425	3,565	1,937
Average number of employees including consultants	4,239	2,989	4,287	2,364

1. Adjusted EBITDA and Adjusted EBIT are reported to clarify performance in underlying operations. See Note 2.
2. Adjusted EBITDA R12M is measured on a pro forma basis, includes contributions from acquired entities during the past 12 months and both net debt and Adjusted EBITDA are measured excluding IFRS 16-related lease liabilities. See page 7 for comments.

Adjusted EBITDA per share3,4, R12M (SEK)

1. Sinch has a financial target decided by the board to grow Adjusted EBITDA per share by at least 20 percent per year. Adjusted EBITDA is an Alternative Performance Measure (APM) aimed at clarifying performance in underlying operations. The chart above shows the development of this APM over time.
2. Adjusted EBITDA per share as of September 2022 has been updated. See also page 4.

YEAR-END REPORT JANUARY - DECEMBER 2022

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Quarterly summary

Adjusted EBITDA and Adjusted EBIT are reported below to clarify performance in underlying operations. See Note 2 for more information.

	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Net sales, SEKm	2020	2021	2021	2021	2021	2022	2022	2022	2022
Messaging	-	3,302	3,640	3,884	4,540	4,392	4,318	4,698	4,817
Voice	-	48	42	53	339	1,400	1,485	1,624	1,625
Email	-	-	-	-	81	330	358	400	422
SMB	-	-	-	-	247	427	454	474	497
Total	2,999	3,350	3,682	3,938	5,207	6,550	6,615	7,196	7,361
	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Gross profit, SEKm	2020	2021	2021	2021	2021	2022	2022	2022	2022
Messaging	-	808	848	875	975	896	715	1,004	1,001
Voice	-	12	21	21	162	681	685	767	781
Email	-	-	-	-	64	246	260	292	320
SMB	-	-	-	-	147	273	277	299	314
Total	796	820	869	896	1,348	2,096	1,937	2,361	2,416
	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Gross margin	2020	2021	2021	2021	2021	2022	2022	2022	2022
Messaging	-	24%	23%	23%	21%	20%	17%	21%	21%
Voice	-	25%	50%	39%	48%	49%	46%	47%	48%
Email	-	-	-	-	79%	74%	73%	73%	76%
SMB	-	-	-	-	59%	64%	61%	63%	63%
Total	27%	24%	24%	23%	26%	32%	29%	33%	33%
	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
EBITDA, SEKm	2020	2021	2021	2021	2021	2022	2022	2022	2022
Messaging	-	305	317	311	434	250	86	306	311
Voice	-	-6	-10	-6	45	335	312	378	375
Email	-	-	-	-	36	116	122	141	168
SMB	-	-	-	-	70	126	112	122	130
Other	-	-106	-155	-148	-255	-178	-103	-140	-194
EBITDA, total	179	192	152	157	330	648	528	808	791
EBITDA margin	6%	6%	4%	4%	6%	10%	8%	11%	11%
	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Adjusted EBITDA, SEKm	2020	2021	2021	2021	2021	2022	2022	2022	2022
Messaging	-	348	382	388	448	267	55	326	366
Voice	-	-6	-10	-6	52	343	318	389	382
Email	-	-	-	-	36	126	131	155	169
SMB	-	-	-	-	65	137	125	148	156
Other	-	-73	-89	-83	-130	-112	-127	-117	-113
Adjusted EBITDA, total	378	269	284	298	471	761	503	901	960
Adjusted EBITDA margin	13%	8%	8%	8%	9%	12%	8%	13%	13%
Adjusted EBITDA/gross profit	48%	33%	33%	33%	35%	36%	26%	38%	40%
Adjusted EBITDA/share, SEK	0.60	0.41	0.41	0.39	0.61	0.96	0.61	1.071	1.13

1. The number of dilutive warrants has been updated and Adjusted EBITDA/share, SEK Q3 2022 has consequently been changed to 1.07 instead of the 1.04 reported in the Q3 report.

YEAR-END REPORT JANUARY - DECEMBER 2022

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	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3		Q4
EBITDA adjustments, SEKm (Note 2)	2020	2021	2021	2021	2021	2022	2022	2022		2022
Acquisition costs	-33	-17	-24	-24	-101	-42	1	-5		1
Restructuring costs	-	-	-	-	-	-	-	-18		-44
Adjusted earnout	-27	-	-	-	-	-	-	-		-
Integration costs	-75	-31	-75	-59	-66	-59	-66	-61		-67
Costs of share-based incentive	-33	-29	-18	-45	-15	-17	-27	-42		-38
programs
Operational foreign exchange	-19	0	-15	-14	29	5	117	37		-25
gains/losses
Other adjustments	-11	-1	-	-	11	-	-	-3		2
Total EBITDA adjustments	-199	-76	-132	-142	-141	-113	25	-93		-169
Amortization of acquisition-related	-66	-70	-75	-103	-264	-441	-464	-497		-587
assets
Impairment of goodwill1	-	-	-	-	-	-	-	-5,000		-97
Total EBIT adjustments	-265	-146	-207	-245	-405	-553	-439	-5,590		-853

1) Impairment charges accounted for in USD/EUR in Q3 2022 have been converted at the exchange rate in effect on 31 December 2022.

YEAR-END REPORT JANUARY - DECEMBER 2022

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