QUARTERLY REPORT JANUARY TO DECEMBER 2020

STRONG CUSTOMER RESPONSE ON NEW SAAS BUSINESS MODEL

JANUARY TO DECEMBER 2020

  • Order intake* was 44.9 MSEK (62.7)
  • Order backlog* amounted to 35.2 MSEK (49.9)
  • Net Sales amounted to 53.8 MSEK (49.1)
  • Recurring Revenue amounted to 40.4 MSEK (27.1)
  • Usage Revenue as % of sales increased to 31% (16)
  • Gross Margin as % of sales increased to 66 % (61)
  • Adjusted EBITDA was -78.0 MSEK (-112.8)
  • Earnings per share amounted to -3.2 SEK (-7.4 SEK)

OCTOBER TO DECEMBER 2020

  • Order intake* amounted to 9.4 MSEK (17.0)
  • Net sales amounted to 9.7 MSEK (11.0)
  • Recurring Revenue amounted to 7.6 MSEK (5.9)
  • Usage Revenue as % of sales increased to 30% (4)
  • Gross margin increased to 65% (55)
  • Adjusted EBITDA amounted to -15.1 MSEK (-30.6)
  • Earnings per share amounted to -1.0 SEK (-1.5)

EVENTS DURING THE QUARTER

  • Per Ottosson joined as new CEO on November 2
  • Introduction of a new SaaS business and delivery model
  • Measures taken to adopt organisation to new business model and make it fit for profitable growth 
  • Operating expenses reduced with 40%
  • SelectQuote – an US insurance broker – first customer on the new SaaS offering
  • HelloFresh extends its engagement with our Teneo platform
  • Entered into a convertible note financing agreement of up to 60 MSEK
  • Extension of credit facilities of 117 MSEK from March 31, 2021 to March 31, 2023

EVENTS AFTER THE QUARTER

  • Appointment of Daniel Eriksson as Chief Innovation & Customer Success Officer
  • A number of recruitments within sales organization to accelerate the new business and delivery model
  • Received 7.3 MSEK in cash tax refund January 2021 for performed R&D work in 2018

KEY FIGURES

(For definitions please see page 20 and *for clarification on page 5)

MSEKOCT–DEC 2020OCT–DEC 2019JAN–DEC 2020JAN–DEC 2019
Order intake*9.417.044.962.7 
Order backlog*35.249.935.249.9 
Net sales9.711.053.849.1 
Recurring revenue7.65.940.427.1
Usage revenue as % of total sales30%4% 31%16% 
Gross margin %65%55% 66%61% 
Adjusted EBITDA-15.1-30.6 -78.0-112.8 
Earnings per share, SEK-1.0-1.5 -3.2-7.4 
Cashflow from operations-18.6-32.4 -75.9-144.4 

CEO STATEMENT

My first quarter was a quarter of change for Artificial Solutions. Entering the quarter in October 2020, we had well advanced discussions with many large, interested customers but the discussions did not lead to contracts. It was time for a change. Our technology is one of the best on the market, one of the few that can deliver a complete solution. We also have fantastic customers in the US and Europe. Customers who invest heavily in the Teneo platform and for whom we are very grateful and dependent on in our development. We have a firm belief that Artificial Solutions now is very well positioned to gain market share.

I started as CEO at the beginning of the fourth quarter with the mandate from the board to modernize and vitalize Artificial Solutions commercial and delivery model. The market demand for new business and delivery model had changed more rapidly than anticipated accelerated by the pandemic. Customers require low entry costs and delivery as a service and Artificial Solutions earlier license-based business model didn’t capture the customer demand well enough. Today customers also do not want to manage their platform themselves – but instead have it delivered as a service. We decided to accelerate change work to the maximum – a strategy change that should have taken a year, we carried out in a quarter. The changes have been received very well, our customers are delighted by the changes and new customer interactions are taking place each day. We have a firm belief that Artificial Solutions now are well positioned to gain market shares in the coming years.

New Business Model: SaaS

In the beginning of December, we communicated our transition to a SaaS business and delivery model. This model increases sharply in preference among our customer segments as the customer’s cost (our revenues) to a greater extent than before is based on customer growth. By transitioning to a SaaS model, new customers experience a decrease in the initial financial hurdle and an easier way to start using our unique technology to enhance their productivity and potential revenue efforts.

As more and more players in the market rely on the SaaS model, a competitive advantage is created as the customer do not commit to any engagement until their business is mature.  Through the new model, Artificial Solutions gets much better visibility for future and recurring revenue. Our ambition is to increase the volume of transactions at the same level as the customer’s own ambition. Customers want to transfer as many transactions as possible to automated systems, including conversational AI, to streamline their operations and increase quality.

Cloud Delivery Model for the Future

In business-critical applications Microsoft Azure is the leading platform. Microsoft knows large enterprise’s needs and situation better than any other provider on the market. Now when we are accelerating into a SaaS delivery, it is natural to select Microsoft Azure. If customers want to build faster conversational AI in their Azure Strategy, by utilizing all the tools available in Azure, Teneo offers a way to build much quicker solutions than any other vendor in the market. A Center of Excellence within of the “Big Four” (i.e., one of the auditor giants) has tested Teneo in Azure and they could conclude that the combination Teneo, Azure & Microsoft LUIS allows organization to build twice as fast, with 50% resources and deliver an unprecedented ROI. We only see benefits and opportunities to follow Microsoft LUIS by offering the 1,700 customers globally who have begun their journey with LUIS to build themselves or to use Teneo®.

Customer Success is Now Professional Services

After 20 years of development and a significant focus on Conversational AI, the Teneo platform offers a broad and deep functionality for building solutions for Conversational AI. Our customers can be found in all industries, e.g., Financial Services, Government, Insurance, Retail, Telecommunications, in US and Europe. Teneo offers a horizontal solution in a market which today mainly is organized by industry and function. Where competitors work in a specific industry and offer industry-specific skills, we can work horizontally. The final use of a customer is controlled by the customer or partner. Our role will be to support the customer or the partner – we do this in a Customer Success model in the same way as most successful SaaS companies do.

LUIS^Teneo®

Our Cloud service is named LUIS^Teneo® (LUIS to the power of Teneo). All the 1,700 organizations that are using MS Azure and MS LUIS can immediately benefit from the benefits Teneo offers to our customers. Other customers will select Azure and LUIS in order to take part of the benefits that the combination of LUIS^Teneo® provides. We have already acquired one customer in this area, SelectQuote. By delivering a development environment, stable operating environment, and the ability to efficiently build on 36 languages and dialects simultaneously, we empower Microsoft Azure and LUIS. All our current fantastic customers have the option of continuing with the old delivery model or transition to LUIS^Teneo. Many of them have already decided to transition to the new model but some will remain in the previous delivery model, which we remain committed to.

Significant Market Potential

We have had a stated goal of reaching a positive cash flow for many years. As this is a priority, it is equally important to analyze the market. The market is growing 20 – 25 % per annum and is today valued to 350 billion SEK (IDC: WorldWide Artificial Intelligence Spending Guide 2020). With our strong technology, our global customers, and the changes we have made we are well positioned to take part in this growth. Cash flow will be steered by the pace of growth we choose.

Our Technology

Teneo is an integrated development environment that enables organizations to build bots while maximizing their resources through rapid development, rapid deployment, increased functionality, and greater scalability. Our offering is the following:

  • Teneo Studio, a graphical interface for developing conversational AI.
  • Teneo Engine, an operating environment that improves models for Machine Learning with linguistic rules and knowledge.
  • Teneo Data, an analysis platform that makes it possible to analyze customers’ conversations and improve the AI solution.
  • Teneo Languages, 30+ domestic language packages that allow you to launch multiple languages in the AI solution faster than with any other technology.

Internal Adjustments and Organizational Development Provide Cost Benefits

A completely new business model requires a radical change in the company’s internal organization, structure and way of working. In the future, our focus will be on development and new sales structure.  We are convinced that the changes we have implemented will not only have an effect in the short term through cost savings but will also create an organization which is more fast-moving.

We have sold our APAC Division to our previous VP of APAC, who now will become a partner in the region. We have also simplified our organizational structure by having fewer managers, simplifying internal processes and legal structures in order to reduce our operating costs. We have also formed a partnership with our previous VP of Professional Services, who has hired several of the talented consultants who have left us, in order to support our customers. 

Within the framework of our new partner program, we have focused on strengthening the relationships with Cognizant, Deloitte, CSGI, Accenture and TechMahindra to deliver our solutions.  Our partners are more important than ever as we ourselves do not deliver consulting services, and very valuable to us in our ambition to reach new customers.

The last few months we have recruited several key staff with long experience from AI and SaaS.

The adaptation of the organization has received a strong positive reception internally. We can already see the effects of our lower cost base and we will get the full effect of the adjustment in Q1 2021. We estimate that our operating expense will be 105 MSEK on an annual basis in Q1 2021. This can be compared with our operating costs in Q1 2020, the only quarter without the impact of furlough support and similar support related to Covid-19, which was approximately 44,4 MSEK, corresponding to an annual number of almost 178 MSEK. The cost reductions enable the company to continue the business financed from operations or increase the investment pace to follow the market.

Technology Multiplying the Power of Conversational AI

Artificial Solutions’ solutions enable faster development of advanced solutions for conversational AI, regardless of platform. Solutions based on our technology are also far superior in terms of scalability, number of languages and transaction volumes. It is fantastic to work with the strong and international development team that makes this possible and in the next few years we have a real opportunity to establish ourselves as an accelerator with leading players in conversational AI, including Microsoft.

Our technology can scale from a simple chatbot to handle hundreds of thousands of sessions every day in different languages. This can also be applied horizontally, which opens up an even larger market.

With one of the most technologically advanced platforms on the market, we are very strong in global competition. With a SaaS-based model, we will help our customers become productive and competitive. The team at Artificial Solutions will accelerate the growth that Teneo deserves.

With the major changes carried out, both, me and the rest of the management team have a strong foundation for the future. We can see this in the increased number of customer discussions we are having, and I hope to come back shortly with updates on a number of exciting LUIS^Teneo customer engagements.

Per Ottosson, CEO

This information is such that Artificial Solutions International AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out below, at 7:30 a.m. CET on February 18th, 2021.

Contact information Per Ottosson, CEO Artificial Solutions:
+46707472494
per.ottosson@artificial-solutions.com

About Artificial Solutions

Artificial Solutions® (SSME:ASAI) is the leading specialist in Conversational AI. We enable communication with applications, websites and devices in everyday, humanlike natural language via voice, text, touch or gesture input.

Artificial Solutions’ advanced conversational AI Teneo®, allows business users and developers to create sophisticated, highly intelligent applications that run across 36 languages and dialects, multiple platforms and channels in record time. The ability to analyse and make use of the enormous quantities of conversational data is fully integrated within Teneo, delivering unprecedented levels of data insight that reveal what customers are truly thinking.

Artificial Solutions’ conversational AI technology makes it easy to implement a wide range of natural language applications such as virtual assistants, conversational bots, speech-based conversational UIs for smart devices and more. It is already used daily by millions of people across hundreds of private and public sector deployments worldwide. For more information, please visit www.artificial-solutions.com 

Artificial Solutions International is listed on Nasdaq First North Growth Market in Stockholm with short name ASAI. Erik Penser Bank is the Company’s Certified Adviser (www.penser.se, tfn +46 (0) 8-463 83 00, e-post certifiedadviser@penser.se).

For more information, please visit www.artificial-solutions.com.

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