MOMENTUM INCREASES ACROSS KEY METRICS: ORDER INTAKE GROWS 57%

JULY TO SEPTEMBER 2020

• Order intake amounted to 9.6 MSEK (6.1)
• Order backlog amounted to 39.7 MSEK (46.9)
• Net sales amounted to 13.3 MSEK (12.8)
• Gross margin amounted to 71% (62)
• Usage Revenue as % of sales increased to 33% (21)
• Adjusted EBITDA amounted to -17.9 MSEK (-26.9)
• Earnings per share amounted to -0.7 SEK (-1.7)

JANUARY TO SEPTEMBER 2020

• Order intake amounted to 35.6 MSEK (45.7)
• Order backlog amounted to 39.7 MSEK (46.9)
• Net sales amounted to 44.1 MSEK (38.1)
• Gross margin increased to 67% (58)
• Usage Revenue as % of sales increased to 32% (19)
• Adjusted EBITDA amounted to -62.8 MSEK (-82.2)
• Earnings per share amounted to -2.2 SEK (-5.8)

EVENTS DURING THE QUARTER

• ICA, Sweden’s leading grocery retailer, extended commitment to Teneo Platform
• Skoda, part of Global automotive manufacturer Volkswagen Group, extended commitment to Teneo Platform
• New Partnerships with Automation Anywhere (RPA software) and Talkdesk (CallCenter)
• Appoints Per Ottosson as New CEO to join 2nd November
• Appoints Fredrik Törgren as CFO who started on 7th September

EVENTS AFTER THE QUARTER

• New Partnership with QualityArc (a leading Australian AI Consulting firm)
• 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
• Issuance of 1,562,500 warrants with a strike price of 32 SEK per share to creditors as part of credit extension
• Furlough ends – All employees will return to working full time from 1st November

KEY FIGURES

MSEK	JUL–SEP 2020	JUL–SEP 2019	JAN–SEP 2020	JAN–SEP 2019	FULL YEAR 2019
Order intake	9.6	6.1	35.6	45.7	62.7
Order backlog	39.7	46.9	39.7	46.9	49.9
Net sales	13.3	12.8	44.1	38.1	49.1
Gross margin %	71%	62%	67%	58%	61%
Adjusted EBITDA	-17.9	-26.9	-62.8	-82.2	-112.8
Partner revenue %	75%	43%	57%	42%	45%
Earnings per share, SEK	-0.7	-1.7	-2.2	-5.8	-7.4
Cashflow from operations	-28.3	-27.6	-57.5	-112.2	-144.4

CEO STATEMENT

I am pleased to report that the third quarter again demonstrates the robust nature of our Business Model with continuing improvements across almost all of our key metrics.

Sales Increasing

Despite Q3 traditionally being one of the company’s quieter quarters, affected by the summer season, order intake, the value of contractual commitments from our customers, increased an excellent 57% to 9.6 MSEK (6.1 MSEK) in the quarter. This level of growth is significantly ahead of analyst growth expectations for the sector.

I am particularly pleased that two key customers have further increased their commitment to the Teneo platform. ICA, Sweden’s leading grocery retailer, having successfully achieved its pilot project targets, has committed to roll out the solution fully across its organisation, with further publicly facing and usage driving use cases. Also, Skoda, part of Global automotive manufacturer Volkswagen Group, experienced the strong value of using Conversational AI during the COVID-19 shutdown and as a direct result have upgraded to an Enterprise level agreement.

Usage, the amount of revenue derived from the use of the Teneo Platform, is another key metric for our business. I am pleased to report that usage has now increased to account for 33% of sales in the third quarter of 2020, up from 21% for the same period last year.

This has been achieved due to an astonishing 700% increase in the actual usage of the platform over the last twelve months. Further, the high-margin nature of usage-based sales has in turn helped drive gross margin up to 71% for the third quarter 2020 compared to 62% for the same period last year.

The steps taken in the second quarter 2020 to manage costs and cash through the appropriate use of regional furlough schemes and salary deferments, continued throughout the third quarter 2020 with continued significant reduction. The measures taken to manage costs related to personnel improved the EBIT in the third quarter of 2020 by 3.5 MSEK and provided cash savings of 5.4 MSEK. For the first nine months 2020 to date the EBIT improved by 5.3 MSEK and the cash savings amounted to 11.5 MSEK.

After a period of reduced work capacity, the workforce is returning from furlough on 1st November and will be at full strength meaning that the company is better equipped to capture its opportunities. However, with many of our customers and prospects continuing to operate remotely, we are experiencing some delays in the decision-making processes within these companies, but as evidenced in the increased Order Intake, we are closing agreements.

New Partners

Partners remain a key strategic focus for our business, helping introduce us to new clients and providing resources to implement Teneo-based solutions. Our goal is to focus on building strong relationships with key partners, rather than simply adding partners to a generic partner program. I am therefore pleased to report that during the quarter we continued to expand our Partner base with several new Partnership agreements that we believe will support our growth strategy in the mid-term. In the Robotic Process Automation (RPA) sector, we signed an agreement with Automation Anywhere, meaning we now have partnership agreements with the top three RPA providers, namely UI Path, Blue Prism and Automation Anywhere.  Further, as we look to deepen our expertise in contact centres, we have new partnerships with Talkdesk, a leading provider of Call Centre solutions and QualityArc, a leading Australian AI focused consulting firm. These new partners are looking to leverage the benefits of the Teneo Platform to improve efficiencies for their customers.

Also, in the quarter, we were pleased to announce that our Partner, Deloitte, had deployed an intelligent chatbot developed for a US Federal Healthcare department using the Teneo platform, just one of a number of projects currently live within our now extensive Partner ecosystem.

The continued enhancements to Teneo Developers, a resource for partners and developers to self-learn and build experience around Teneo, has been key in helping us on-board new partners and accelerate the transfer of knowledge throughout our partner base. We have now more than 800 third party consultants engaged in learning the benefits and use of the Teneo platform.

Strong Business Model

This encouraging performance continues to confirm the strength of our business model, underpinned by our focus on sales of high margin licenses and usage supported by our world leading Partner channel.

I was therefore encouraged to see this view supported by leading industry analyst IDC, in a recent profile of Artificial Solutions, in which they commented:

“Artificial Solutions was early into the market for conversational interface technology and did well in establishing its position. This market is expanding rapidly because of the rising trend for customer services automation, fuelled further by COVID-19-related lockdowns, which increased online behaviour.”

Funding

Since the end of the third quarter 2020, we have entered into a convertible note agreement with Nice & Green S.A. (“N&G”) whereby N&G undertakes to subscribe for convertible notes of up to 60 MSEK. The company has only committed to utilize 20 MSEK of the commitment, with the option to utilize up to an additional 40 MSEK. Following utilization of the initial 20 MSEK, the company can decide if and when the remaining tranches will be drawn. The agreement provides Artificial Solutions access to flexible financing at a reasonable cost under current market conditions and the company maintains flexibility to use other forms of financing and at the same time can focus on continued growth post COVID-19.

We have also extended our current credit facilities of 117.4 MSEK from March 31, 2021 to March 31, 2023. In addition, warrants were issued to the creditors, granting them the right to subscribe for 1,562,500 of new shares in Artificial Solutions before March 31, 2023, at a strike price of 32 SEK per share. This provides us with financing stability over a longer tenure, whilst the potential dilution for shareholders are mild with a strike price of the warrants of 32 SEK per share. If the warrants are fully exercised, we will be contributed 50 MSEK in new funding.

Guidance

As I will be handing over to Per Ottosson as new CEO on November 2nd it is not appropriate for me to specifically comment on forward looking guidance. Nevertheless, since before the COVID-19 outbreak, the company has provided guidance on order intake, usage revenues, gross margin and operating cash flow. Currently we are on track with the guidance on almost all metrics, for instance, in the third quarter 2020, we have achieved the gross margin objective for 2020 of greater than 70% for the first time. Our previous guidance has been to reach a positive operating cash flow from operations by the end of 2020. The board of directors’ current assessment however is that the pandemic will have an impact on the timing of completion of individual customer agreements, therefore current estimates indicate the timing to be during the first half of 2021. Our general view is that our business is seeing through the COVID-19 crisis very well, where the current situation is in fact driving additional demand for our conversational AI-solutions.

Summary

So, in summary, the third quarter 2020 has delivered strong order intake and revenue as well as improved EBITDA despite the quieter summer months and the ongoing challenges of the COVID-19 pandemic. We have continued to build on the numbers of strategic Partners taking the Teneo Platform to their customers and the numbers of trained consultants has reached record levels. Our strong position in the market continues to be endorsed by external analysts, and importantly, we have successfully put in place funding to support the continuing growth of the business. The Company continues to be well positioned to take advantage of its leading position in a growing market.

Artificial Solutions financial reports are available at the corporate website, https://www.investors.artificial-solutions.com/financial-reports.

For more information:

Lawrence Flynn, CEO, Artificial Solutions

Tel: +44 (0)1635 523267Email: lawrence.flynn@artificial-solutions.com

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 October 29, 2020.

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).

About Artificial Solutions International AB

Artificial Solutions (SSME:ASAI) is the leading specialist in enterprise-strength conversational AI, a type of artificial intelligence that enables people to communicate with applications, websites and internet-connected devices in a human-like manner through voice, text, touch or gesture interaction.

The Company’s advanced AI platform, Teneo, makes it possible for larger global corporations to collaborate with developers and together create sophisticated and highly intelligent conversational AI applications that runs over 40 languages, on multiple platforms and communication channels. The ability to analyze and benefit from the huge amount of conversation data is completely integrated into Teneo, which allows for unmatched insight into the customers’ behaviors.

Artificial Solutions’ technology for conversational AI makes it easy to implement a wide spectrum of applications with natural language, such as virtual assistants, chatbots, voice-based conversational interfaces for smart devices, and more. The technology is already used by millions of people today in hundreds of implementations within both the public and private sector globally. For more information, please visit www.artificial-solutions.com.