Quarterly Report October To December 2019

Growth Plan Secured By Fully Subscribed Rights Issue

JANUARY TO DECEMBER 2019

  • Order Intake was 62.7 MSEK (55.4) and Order Backlog increased to 49.9 MSEK (35.2)
  • Net Sales totalled 49.1 MSEK (44.9)
  •  Gross Margin increased to 61% (45)
  • Usage Revenue increased to 16% (12)
  • Adjusted EBITDA was -112.8 MSEK (-100.3)
  • Non-recurring expenses in connection with the reverse takeover in February totalling -28.5 MSEK
  • Earnings per share -7.40 SEK

OCTOBER TO DECEMBER 2019

  • Order Intake was 17.0 MSEK (23.8) and Order Backlog increased to 49.9 MSEK (35.2)
  • Net Sales totalled 11.0 MSEK (11.5)
  • Gross Margin increased to 55% (27)
  • Adjusted EBITDA was -30.6 MSEK (-35.4)
  • Earnings per share -1.50 SEK

EVENTS AFTER THE QUARTER

  • The Rights Issue resolved by the Board on 12 December 2019 to raise a total of 120 MSEK was fully subscribed with the issue of 18.5 M shares

EVENTS DURING THE QUARTER

  • Signed one new customer, a large Scandinavian retailer, adding to the eleven new customers signed earlier in the year
  • Major USA Telecoms customer extends Teneo solution to support 11M customers
  • Partnership Announced with Blue Prism, a leading Robotic Process Automation provider
  • Patent for the Teneo Hybrid Methodology granted bringing the total number of foundational Patents to five

KEY FIGURES

MSEK OCT-DEC 2019 OCT-DEC 2018 JAN–DEC 2019 JAN-DEC 2018
Order Intake 17.0 23.8 62.7 55.4
Order Backlog 49.9 35.2 49.9 35.2
Net Sales 11.0 11.5 49.1 44.9
Gross Margin % 55% 27% 61% 45%
Adjusted EBITDA -30.6 -35.4 -112.8 -100.3
Partner Revenue % 54% 40% 45% 32%
Earnings per share, SEK -1.5 n/a -7.4 n/a
Cashflow from Operations -32.4 -50.3 -144.4 -121.9

CEO STATEMENT – LAWRENCE FLYNN

Perhaps unusually for an earnings’ report, I would like to start with an event announced before the end of 2019 but concluded only recently. Of course, I am referring to the 100% fully subscribed, 120 MSEK Rights Issue. I am delighted this has closed with such strong support for the company and I would like to thank existing shareholders and welcome new shareholders to our community. This is a major milestone and sees the company well financially positioned to achieve positive cash flow from operations at the end of 2020, based upon achievement of its business plan and the refinancing of current debt.

Q4 Sales

During the fourth quarter we added another new name account, a very well-known Scandinavian retailer. Although this relationship begins with a full-scale customer pilot for both internal and customer facing use cases, this transaction sees a new and important customer begin their journey with the Teneo Platform, which will ultimately lead to a full-scale rollout and significant usage revenues.

Despite this significant success, we were disappointed to announce in a press release of January 17th, 2020, that one major transaction did not close as expected in December. We are still working closely with this account and expect it to close during early 2020. However, without it, we failed to meet market expectations for Order Intake for the year. Had the transaction closed as planned, the Order Intake achievement for the quarter, and indeed the whole of 2019, would have been in accordance with previous market guidance. We are naturally disappointed but believe this to be a timing issue rather than one of substance and thus, our guidance for 2020 remains unchanged.

Similarly, revenues for the quarter (11.0MSEK) were affected by the delayed closure as we would have been able to enhance this figure meaningfully had the missed transaction closed in time. Order Backlog stands at 49.9 MSEK as of 31st December (up from 46.9 MSEK at the end of the third quarter and 42% up year-on-year) and perhaps even more importantly, high gross margin Licence and Usage account for more than 80% of this total.

Partners have continued to make a significant contribution in the quarter contributing 63% of the Order Intake number and 54% of the Revenue. This is important as it allows the business to focus on the highest gross margin revenue streams and achieve our end of 2020 goal of 70% Gross Margin. At the end of December, the full year Gross Margin was already 61%, which means that we are well on track.

Customer Success

A number of key customers – Circle K (initially in 4 countries), Swisscom, Skoda and others, continued to extend the roll out of their solutions in live, public facing implementations and, a large USA based Telecoms company began to roll out its live solution, expanding the solution from supporting 150,000 of its customers to over 11 million customers.

Overall, 2019 was a good business year for Artificial Solutions, and I am especially pleased with the expansion of our Customer and Partner portfolio, adding 12 very large National and Multi-National, new name customer accounts during the year. Like the names mentioned above, as these accounts mature and deploy applications, they underpin future usage fees for the company adding to the 19 customers already deploying live applications on the Teneo Platform. 

New Market Guidance on Usage – 80%+ of Revenues by end 2022

As part of the communication for the Rights Issue we provided important, new, forward looking guidance on usage fees. The Teneo Platform is built to help major organisations to communicate with very large numbers of customers. When this is done well, the volumes are significant. A key element of our revenue model is to charge our customers on a usage basis, charging per session, per transaction, per connection etc. Our existing customers are very large indeed and over the coming years we expect the revenues to grow rapidly with very high margins as applications are opened to their entire customer base, and as they add new use cases, new languages, new platforms and hence drive more Usage revenue.  

As their solutions progress through the initial stages to high volume and live implementations, we expect the volumes to grow and Usage revenues are expected to grow from around 15% of total revenue today to in excess of 80% by 2022. Our largest customers are each capable of delivering Usage revenues of in the region of 60 MSEK or more a year, within two to three years. 

As previously stated, we have added 12 major customers in 2019 and many of them are just at the beginning of that predicted growth curve.  I remain confident that with our existing, contracted Customers and Partners, we will continue to grow the business in line with the guidance. 

Partnerships Remain Key

I am also delighted to report that we have concluded a new partnership with Blue Prism, a leader in the ultra-high growth Enterprise Robotic Process Automation sector. Adding this dynamic to our existing blue-chip portfolio of partnerships further allows us to leverage investments made by enterprises in digital transformation, as Teneo powered Conversational AI solutions will be deployed to power Blue Prism robotic processes. This is a win-win for the partnership as both us and Blue Prism derive revenues through usage and the combination of the two technologies increases the usage per customer.

Patents

Maintaining thought and technology leadership is important to the company and I am pleased to report yet more evidence to support this as our 5th Patent – Teneo Hybrid Methodology – was granted during the quarter. This further enhances the standing of the company as a leader and innovator and comes in addition to the 1,460 MSEK valuation of the previous 4 patents conducted in Q3 2019.

Summary

Quarter four 2019 had its challenges in terms of getting all the desired deals closed in time but, despite this, we have made excellent progress in 2019 and, supported by the new financial strength facilitated by the Rights Issue, the company is well placed to deliver on its market guidance for 2020 and beyond.

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

For more information:

Lawrence Flynn, CEO, Artificial Solutions

Tel: +44 (0)1635 523267

Email: 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 February 27, 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).

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