Sinch : Financial Document

Q2

Interim Report January - June 2022

April - June 2022

• Net sales increased by 80 percent to SEK 6,615m (3,682).
• Gross profit increased by 123 percent to SEK 1,937m (869). A reassessment of reserves for accrued traffic costs in Messaging affects gross profit negatively by SEK 162m.
• EBITDA rose by 247 percent to SEK 528m (152).
• Adjusted EBITDA1 increased by 77 percent to SEK 503m (284).
• The loss after tax for the quarter was SEK -40m (47).
• Basic earnings per share were SEK -0.05 (0.07) and diluted earnings per share were SEK -0.05 (0.07).
• Cash flow from operating activities amounted to SEK 668m (- 240).

January - June 2022

• Net sales increased by 87 percent to SEK 13,164m (7,032).
• Gross profit increased by 139 percent to SEK 4,033m (1,689). A reassessment of reserves for accrued traffic costs in Messaging affects gross profit negatively by SEK 162m.
• EBITDA rose by 242 percent to SEK 1,176m (344).
• Adjusted EBITDA1 increased by 129 percent to SEK 1,264m (552).
• Profit after tax for the period was SEK 48m (188).
• Basic earnings per share were SEK 0.06 (0.28) and diluted earnings per share were SEK 0.06 (0.28).
• Cash flow from operating activities amounted to SEK 809m (347).

"To ensure that Sinch meets its financial target to grow Adjusted EBITDA per share by 20 percent per year, Sinch has initiated a cost reduction program aimed at gross savings of 10 percent gross in Messaging and central functions with full effect from Q3 2023." - Johan Hedberg, Interim CEO

Significant events during the quarter

• Theboard of directors decidedon 28 April to execute the previously communicated issue of 10,803,010 new shares in Sinch to the sellers of MessageMedia.
• Theboard of directors decidedon 26 May to execute the previously communicated non-cash issue of 25.5 million shares to the sellers of Pathwire.
• Sinch announced on 9 June that the company had become aMicrosoft Teams Operator Connect Partner, which means that the company's solutions can be used to connect outbound calls from Microsoft Teams.

Significant events after the end of the quarter

• Sinch announced on 11 July that the reassessment of reserves for accrued traffic costs in Messaging will reduce gross profit, EBITDA and Adjusted EBITDA by SEK 162m. Links to press releases and webcasts are available atinvestors.sinch.com.
• Sinch published updated historical segment reporting on 18 July.
• On July 20, Sinchannouncedthat CEO Oscar Werner steps down from his position. The board of directors has appointed Johan Hedberg as interim CEO and will now initiate the search for a new CEO. Johan Hedberg is one of the company's founders.
• Due to the short-selling report published on 11 July and other questions received, Sinch issued a fact sheet on 21 July 2022, which is available on investors.sinch.com.
• As announced in this report, Sinch is initiating a cost reduction program in Messaging and central functions. The program seeks to achieve gross savings of about 10 percent, corresponding to about SEK 300m on an annual basis. The program is expected to have full effect from Q3 2023. See page 7.

Invitation to webcast and phone conference

Sinch will present the interim report in a webcast and phone conference on Thursday, 21 July at 14:00 CEST. Watch the presentation at investors.sinch.com/webcastor call and register a couple of minutes in advance.

Sweden:	[phone]
United Kingdom:	[phone]
USA:	[phone]
Access code:	4619 8709#

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

INTERIM REPORT JANUARY - JUNE 2022

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Comments from the Chairman of the board

A new chapter for Sinch

Over the past few years, we have successfully combined organic growth and acquisitions to develop Sinch into a global leader in cloud communications and mobile customer engagement. We now have a leading product portfolio for messaging, voice and email that is used by some of the world's most demanding customers, as well as an unsurpassed offering for small and medium-sized businesses. Sinch has more than 150,000 customers across the world and employees in more than 60 countries.

Despite the company's strong market position, we are now facing several challenges. Changed macroeconomic conditions cause companies to review their costs in response to high inflation and rising interest rates. Meanwhile, the equity market is switching focus from corporate potential and growth to looking more closely at profitability, cash flow and business risks.

Sinch is well-equipped to respond to these external factors. Our products are often used to improve operational efficiency and our economies of scale set us apart from the competition. In addition, we have always been profitable, since 2008, which attests to our endurance and longevity.

As regards internal factors, the main issue is the decline in gross profit growth over the past three quarters combined with continued increases in operating costs, resulting in falling profitability.

The board of directors' overall assessment is that after the expansion of recent years the company is now entering a new phase in which we need to sharpen our focus on profitability and cash flow. Rapid growth has made our global business more complex, and we require an effective governance model with delegated responsibility in our five business units. We will continue to invest in growth but with rigorous demands for profitability.

Yesterday the board therefore announced that we are initiating the recruitment of a new CEO for Sinch. I would like to take this opportunity to thank Oscar Werner, who has led the company through four intense years characterized by strong growth and a high pace of acquisitions.

Johan Hedberg will take over immediately as acting CEO of Sinch. Johan is one of the founders of Sinch and has been CEO before. He knows the company well and we feel confident that he can take the necessary steps to strengthen our position and our business as we move into a new phase. One of the first steps is to initiate a cost reduction program, where the target is gross savings of about 10 percent in Messaging and central group functions. This corresponds to approximately SEK 300m annually and the program is expected to have full effect from the third quarter of 2023.

Profit in the second quarter of the year was similar to the first quarter but was reduced by SEK 162 million due to reassessment of reserves for accrued traffic costs. Growth

was very good overall, but organic growth was weaker.

Gross profit more than doubled to SEK 1,937 million. However, organic gross profit was somewhat lower than the same quarter last year, if we exclude the impact of the changed assessment of reserves for accrued traffic costs. Adjusted EBITDA grew by 77 percent to SEK 503 million.

Cash flow from operating activities was SEK 668 million, a strong improvement from the preceding quarter. Nevertheless, there is further potential here.

Performance in the Messaging segment is still less than satisfactory. We are delivering growth in traffic volumes and revenues, but gross profit, which was SEK 715 million for the quarter, is falling. The aforementioned changed assessment of reserves, price adjustments applied to a major customer and weak performance in Brazil is constraining gross profit.

In the Voice segment, we have a strong gross margin and EBITDA-margin but a weaker growth in gross profit. Growth is hampered by the ongoing US toll-free regulation (8YY Access Charge Reform) but expansion in Europe and cooperation with Microsoft bodes well for the future.

Organic gross profit growth in Email was 15 percent. We received our biggest Email order ever during the quarter via a multi-year agreement with a new American customer in the public sector. Organic gross profit growth in the SMB segment was 13 percent overall and 30 percent in the important US market.

We do not know how the new macroeconomic conditions will affect us, but we have a very strong position in our market. With sharper focus on costs and an effective governance model, Sinch will deliver profitable growth, both short-term and long-term.

Stockholm, 21 July 2022

Erik Fröberg

Chairman of the board

INTERIM REPORT JANUARY - JUNE 2022

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Sinch overview

For a list and definitions of financial measurements defined or not defined under IFRS and for operational measurements, please refer to page 29.

	Q2	Q2	Jan-Jun	Jan-Jun
Sinch Group, SEKm	2022	2021	2022	2021	2021	R12M
Net sales	6,615	3,682	13,164	7,032	16,177	22,310
Gross profit	1,937	869	4,033	1,689	3,933	6,276
Gross margin	29%	24%	31%	24%	24%	28%
EBITDA	528	152	1,176	344	831	1,662
EBITDA margin	8%	4%	9%	5%	5%	7%
Adjusted EBITDA1	503	284	1,264	552	1,322	2,034
Adjusted EBITDA margin	8%	8%	10%	8%	8%	9%
Adjusted EBITDA/gross profit	26%	33%	31%	33%	34%	32%
EBIT	-49	48	46	145	158	59
EBIT margin	-1%	1%	0%	2%	1%	0%
Adjusted EBIT1	390	254	1,037	498	1,161	1,709
Adjusted EBIT margin	6%	7%	8%	7%	7%	8%
Profit for the period	-40	47	48	188	908	768
Cash flow from (-used in) operating activities	668	-240	809	347	329	790
Net debt (+) / Net cash (-)	10,530	-11,191	10,530	-11,191	10,658	10,530
Net debt/pro forma Adjusted EBITDA R12M, multiple2	3.3	-4.3	3.3	-4.3	2.9	3.3
Equity ratio	62%	79%	62%	79%	60%	62%
Adjusted EBITDA/share, SEK	0.61	0.41	1.56	0.81	1.84	2.60
Diluted earnings per share for the period, SEK	-0.05	0.07	0.06	0.28	1.26	0.98
Average number of employees	3,657	1,822	3,547	1,716	1,937	2,868
Average number of employees including consultants	4,346	2,229	4,278	2,058	2,364	3,474

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 and includes contributions from acquired entities during the past 12 months. Net debt is measured excluding IFRS 16-related lease liabilities. See page 8 for comments.

Adjusted EBITDA per share3, R12M (SEK)

2.80										Adjusted EBITDA per share, R12M (SEK)
2.60
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Mar Jun Sep	Dec	Mar Jun Sep	Dec	Mar Jun Sep	Dec	Mar Jun Sep	Dec	Mar Jun
	2018			2019			2020			2021			2022

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.

INTERIM REPORT JANUARY - JUNE 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. From Q2 2022, the segment division reflects the new organization Sinch announced on 3 February 2022. Historical amounts according to the new segment division are presented from Q1 2021. Periods before 2021 do not report the segment division in this way, in accordance with IFRS 36.

	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Net sales, SEKm	2020	2020	2020	2021	2021	2021	2021	2022	2022
Messaging	-	-	-	3,302	3,640	3,884	4,540	4,392	4,318
Voice	-	-	-	48	42	53	339	1,400	1,485
Email	-	-	-	-	-	-	81	330	358
SMB	-	-	-	-	-	-	247	427	454
Total	1,622	1,778	2,999	3,350	3,682	3,938	5,207	6,550	6,615
	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Gross profit, SEKm	2020	2020	2020	2021	2021	2021	2021	2022	2022
Messaging	-	-	-	808	848	875	975	896	715
Voice	-	-	-	12	21	21	162	681	685
Email	-	-	-	-	-	-	64	246	260
SMB	-	-	-	-	-	-	147	273	277
Total	460	481	796	820	869	896	1,348	2,096	1,937
	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Gross margin	2020	2020	2020	2021	2021	2021	2021	2022	2022
Messaging	-	-	-	24%	23%	23%	21%	20%	17%
Voice	-	-	-	25%	50%	39%	48%	49%	46%
Email	-	-	-	-	-	-	79%	74%	73%
SMB	-	-	-	-	-	-	59%	64%	61%
Total	28%	27%	27%	24%	24%	23%	26%	32%	29%
	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
EBITDA, SEKm	2020	2020	2020	2021	2021	2021	2021	2022	2022
Messaging	-	-	-	305	317	311	434	250	86
Voice	-	-	-	-6	-10	-6	45	335	312
Email	-	-	-	-	-	-	36	116	122
SMB	-	-	-	-	-	-	70	126	112
Other	-	-	-	-106	-155	-148	-255	-178	-103
EBITDA, total	146	215	179	192	152	157	330	648	528
EBITDA margin	9%	12%	6%	6%	4%	4%	6%	10%	8%
	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Adjusted EBITDA, SEKm	2020	2020	2020	2021	2021	2021	2021	2022	2022
Messaging	-	-	-	348	382	388	448	267	55
Voice	-	-	-	-6	-10	-6	52	343	318
Email	-	-	-	-	-	-	36	126	131
SMB	-	-	-	-	-	-	65	137	125
Other	-	-	-	-73	-89	-83	-130	-112	-127
Adjusted EBITDA, total	200	234	378	269	284	298	471	761	503
Adjusted EBITDA margin	12%	13%	13%	8%	8%	8%	9%	12%	8%
Adjusted EBITDA/gross profit	43%	49%	48%	33%	33%	33%	35%	36%	26%
Adjusted EBITDA/share, SEK	0.33	0.39	0.60	0.41	0.41	0.39	0.61	0.96	0.61

INTERIM REPORT JANUARY - JUNE 2022

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	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1		Q2
EBITDA adjustments, SEKm (Note 2)	2020	2020	2020	2021	2021	2021	2021	2022		2022
Acquisition costs	-26	-69	-33	-17	-24	-24	-101	-42		1
Adjusted earnout	4	61	-27	-	-	-	-	-		-
Integration costs	-9	-3	-75	-31	-75	-59	-66	-59		-66
Costs of share-based incentive	-12	-4	-33	-29	-18	-45	-15	-17		-27
programs
Operational foreign exchange	-11	-5	-19	0	-15	-14	29	5		117
gains/losses
Other adjustments	-	-	-11	-1	-	-	11	-		-
Total EBITDA adjustments	-54	-19	-199	-76	-132	-142	-141	-113		25
Amortization of acquisition-related	-43	-44	-66	-70	-75	-103	-264	-441		-464
assets
Total EBIT adjustments	-97	-64	-265	-146	-207	-245	-405	-553		-439

INTERIM REPORT JANUARY - JUNE 2022

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