Tecnotree Oyj

Good morning. I welcome you to this post Q3 2024 results publishing Investor Connect event. My name is Timo Holopainen and I will be the moderator for this session. We will record this session and make it available on our website later today. But over here, I must offer an apologize as 6th of September Investor Connect recording is not available on our website yet. And unfortunately, there was a technical problem during the Investor Connect and the recording doesn't exist. So most probably we cannot ever put the video on our website. We apologize and we do our best to avoid this happening in the future. Today's speakers are our CEO Padma Ravichander and our CFO Indires Vibekananda. Can you share the slide, please? In this session, we go through the Q3 2024 business review and highlights, then Q3 2024 execution and financial guidance KPIs, and Q3 financial review and highlights. Then after this, we have this question and answer session. And please note that you can write your questions on the Zoom screen during the presentations. With this short introduction, I will hand over to Padma Ravichander. Padma, please go ahead.

Thank you, Timo. Good morning and good afternoon to everybody who's joined us today. Thank you for joining on our Q3 earnings call. We welcome you to Technotree to get the updates. I will first give you an update, both on financials and business, which will be followed by our guidances and how we'll achieve our guidances, after which we will have Indresh talk about the financials themselves in detail. Thank you. Next slide, please. So welcome to Technotree. We are a business support systems telecom services provider for software. We have a global footprint for those who are new to Technotree. We have been in existence for 46 plus years, only serving the telecom operator worldwide. We believe our software touches 1.2 billion people and we service more than 90 customers in 70 countries. We ourselves have a footprint in 30 locations across the globe. We are truly a global company out of Finland and today I'm proud to say we have a digital stack which is among the top 10 in the world for telecom operators fully integrated with cloud capabilities as well as AI, ML, artificial intelligence and machine learning capabilities on the stack. What is really interesting to see is not You know, five years ago, we didn't have more than a handful of customers. Today, with our investments that we have made heavily in 2019 to now in our R&D efforts expenses, we have a stack which services many tier one telcos as you can see in this canvas of operators we serve around the world in Middle East, Africa, Latin America, Europe, APAC, as well as recently in the United States of America. The footprint is growing, and there are many operators here, due to confidentiality, who are not included in this canvas. So I'm really proud to see how colorful this slide looks, and it's still growing in terms of the number of new logos we are adding to the portfolio. I'm going to delve into the top line metrics here. As you can see, there are a number of indicators. 2023 was a very difficult year for Technotree. We hit the headwinds in terms of currency fluctuations and devaluation of currency in Argentina, the devaluation of Naira in Nigeria, and they were very severe, almost 100% devaluation, and it continued till Q1 of 2024. So the company really took this seriously. We sharpened our pencils and we said we are going to look at the financial metrics that will bring us back to the black, that will create greater enterprise value to our investors. And the one single metric that we honed in upon as a management team was free cash flow. We were, of course, advised by industry analysts that focus on free cash flow, reducing the operating costs will be the most important turnaround story that Technotree can bring to bear. Technotree has been known for its agility. We came out of debt restructuring, probably the only company in Finland. And it almost we had to, with the headwinds we faced in 2023, We had to repeat the story again, and I'm proud to say the big important transformation is the free cash flow here in the slide, which shows that in Q2, with the cost-cutting measures we were able to bring down, increase the free cash flow by 800K that quarter, and we almost more than doubled it this quarter with 1.7 million dollars. of free cash flow. Cash is king and we will be heavily focused on this. I also want to tell you that in September 6th, we had an investor connect and it's unfortunate it was not recorded, but I will be covering many aspects of it in this call today. So for those who missed the call, you would get the information updated with Q3 data here. Now, when you look at this chart of metrics, not all boxes are green. Our goal is to get to focus on making all of these financial metrics green, but it is a journey. And the most important aspect here is the fact that The revenue growth in 2023 was muted. This is mainly because the telecom industry itself is going through a change in terms of growth. Markets have indicated a 0% to 2% growth, especially for BSS vendors. So we did face a challenge in revenue growth. Our revenue growth was also hurt a little bit because the Q1 order intake for techno tree in 2024 was low. So there is a periodicity in the way revenue gets accumulated. Once we take an order, it takes six to seven months to deliver the results and capture the revenue. So obviously, in Q2 and Q3, our revenue growth has been growing. Our order intake has been growing, sorry. And as you can see, in constant currency terms, we have actually, year to date, earned about 63.2 million, which means 11% growth year on year on revenue terms, okay? And this is very important because of the geographies we deal with, the calculation of constant currency. I will turn to Indresh and have him explain for the analysts who are on this call how constant currency is computed by us because we work in different geographies with different currency fluctuations. So, Indresh, can you please explain this so that that metric is well understood? Thank you, Padma.

Welcome everybody. Good morning. As you know, the technology mainly deals with about six currencies for its revenue, mainly the Euro, Naira, Pesos, Kuwaiti, Dinas, as well as the Euro. While the currency changes is a normal phenomenon globally, but technology has a unique feature that some of the changes affect us adversely. So when we look at the way our revenue comes into picture, if the currency's ratio, what it was prevailing at the end of last year, that is on 31st December 2023, had not that changed, my revenue would have been much, much higher in the current quarter or in the current year as well. As you can see, for the first nine months of this year, in a constant currency, I would have earned about 63 million instead of 54 million, what I'm showing. So I would have earned nearly 9 million more in constant currency, the revenue, if the currencies had not changed. However, it is not just I always lose. My costs are also in some of these countries. And when they depreciate against Euro, I do get certain benefit as well. So that is why if you look at in my EBIT, while my revenue has gone up on a constant currency by about 9 million, my EBIT has not gone up in the same 9 million. It has gone up by slightly a lower amount. That is basically because when the currencies depreciate against Euro, I gain up in cost, I lose in revenue. And since our currencies are in that position, we always want to share with our shareholders the fact that in real, what did we achieve, and also in constant currencies, what we achieved, which is a good metrics from a finance perspective for the shareholders to know.

Thank you for that clarification, Indresh. So as you can see, EBIT certainly, the cost-cutting measures that we announced in Q2 of 2024 have taken effect and in constant currency terms we have benefited in terms of a 35% growth in quarter on quarter and a 36% growth in YTD terms. I think this is really the way we took the bull by the horn as one would say in terms of the financial situation of the company, knowing that the revenue is tracking lower, we took very quick and agile measures to improve the focus on cost reductions and free cash flow. And it has really paid off. One of the other points that I want to make on the slide is you will see that through the course of my explanation that we don't value all revenues the same way. We really believe that the revenues that we earn in some of the frontier markets are too expensive for us in terms of fluctuation of the currency and conversion of the currency and deflation of the economies within the countries and therefore revenues from mature markets is a focus for us and that we believe will certainly guide us to ensuring that we deliver good revenue over time that is highly predictable and has a fair valuation going forward. Agreed. So the big news is the focus on free cash flow. And I want to thank my team who has been working very hard on this. We announced that on 6th of September that we will give a guidance this year of 2 to 5 million of free cash flow. In Q2, we delivered 800K. And consistently in Q3 we delivered another 1.7 million of free cash flow. There's a lot of indicators that I will talk to in my subsequent slides that help us achieve the free cash flow. But the four main pillars that drive better free cash flow and creates a better enterprise value for the company is first our focus in the beginning of the year we announced the ARR driven model for revenue recognition. I'm proud to say that quarter on quarter we've been improving the ARR content of our revenue. Today, if you look at the revenue year to date, 58% of the revenue that we earn is in ARR. So both with existing customers as well as new prospects, the ARR model ensures more predictability in smaller chunks of revenue coming in. So the revenue might slow down a bit, but it would be more predictable. The capex to sales, two years ago we were spending 19% to 21% of our sales in capex to build out the stack. I'm proud to say today the stack has 4,000 features and we are at a very good strategic position. Recognition by both European operators and American operators for our products definitely is in the cards and you will see a lot more announcements coming in Q4 around this. But the capex to sales we can safely reduce. We are working on a higher revenue base. Doesn't mean that we are not investing in capex spend to improve the product where required. But we don't have to spend aggressively because we do have a very stable product stack today. The DSO days are a very challenging environment as we continue to steer the ship away from frontier markets. Collections are very difficult in some of these geographies. We are tracking at about 150 DSO days per average, both last year and this year, but our goals are to improve this and I'll talk about that guidance shortly. Order backlog, we did have a a lower order intake in Q1, but quarter on quarter our order has been improving. So we did retire some of the orders that we collected and therefore the order backlog is slightly lower in Q3. So these are the real metrics. Some are good, some are excellent, and we will work on the ones that we need to improve on. But overall, I think the company is on the right direction towards achieving its guidance. In terms of specific highlights in Q3, we acquired one new customer in the Maya region towards a sub-brand model of MNOs and MVNOs. We had a number of go-lives in Q3, which is very important. Many of them are existing customers. Some of them are new customers. MTEL is a new customer. STC is a long-term customer where we are delivering a number of products and services for multiple lines of business. So there were seven go-lives. And we also added, even though we are only spending about 10% to 12% on CapEx spend, we still added... 306 new features to our product stack, which is the average that we have clearly maintained quarter on quarter. This tells us that our stack is product-led, and therefore we are able to add features faster into the stack. And our focus, as I said, is multi-tenancy, cloud enablement, and AI. We had a number of recognitions as well in Q3. IDC, one of the analysts, recognized our product catalog and our CPQ capability. We had Gartner in their hype cycle recognizing us, and we had other recognitions as well during the quarter. We participated in a number of events. And the good news is many of our key customers are now subscribing for further development of the stack for monetization as well as operational support on an ARR model. So we have existing customers moving to the ARR model as well as new customers coming into the foray for more ARR type led revenue models. Next slide please. So on September 6th, when we did connect with the investors, the big news then was to recast the guidance and to give clearer picture of where our focus will be. One of the most important factors we added to the guidance that we were giving was the free cash flow. We truly believe that the way to create enterprise value for our investors is to focus on cash. Cash is king, and this is cash that we have forecasted here in the guidance as 2 to 5 million, and second half is in real currency terms. It's not in constant currency terms. It's the net cash in the company post all operational costs and cost of sales, etc. The other guidances remain the same, 2% to 7% in 2024 in terms of revenue growth. I will talk to how we will meet this guidance. I believe we are well poised to make this guidance achievable. On EBIT, we have given a guidance of 7% to 15%. Again, we are on track. Both these guidances are on constant currency terms, mainly because of the deep devaluation of the Naira and a significant portion of our revenues were coming through Naira and our cash collections, and through the Argentinian peso. And on free cash flow, we have delivered 800K and 1.7 million so far, but the guidance is 2 to 5 million in H2 of 2024, and we are, in real currency terms, I strongly believe we'll achieve it. In addition to that, there are a number of new financial metrics that we are tracking. As I said, that we are very keen... We are keen to ensure that we create accretive value to our investors, and we believe that these numbers and these guidances, these metrics will ensure that there is a lot of transparency in the way that the financial management of the company is run. The first one is capex to sales. We heavily invested in 2021-22 at the range of 20% I think 18 to 20% on CapEx. We have now projected that by 2025, The capex to sales will be reduced to 10-12%. That does not mean that there is less spend in R&D. The spend that was required to create the platform was an initial foundational investment and today we are incrementally updating the platform to create more competitive capability on it. The receivable days, very important focus for free cash flow. We are focused on bringing that down to 100 to 140 days. I will speak to how we are going to achieve it shortly. The free cash flow for 2025, we have projected in real currency terms a 3 million. free cash flow. I believe this is achievable. Probably we can do better based on how we perform, what revenues we are able to garner in 2025. But however, it is a journey. This is the first time the company has committed to a free cash flow. And it's also the first time the company has committed to a dividend policy based on free cash flow, which is 10% of the free cash flow. And finally, in terms of foreign exchange exposure, we knew what difficulties it has caused the company in 2023 and Q1 of 2024. So we want to consistently reduce this exposure to Forex and bring down the risk to 10% to 15% in three years. Currently, we are averaging at about 35% exposure. Next slide, please. So now I'm going to go deeper into each one of these guidances, and I'm going to talk about the steps we are taking on a continuous basis as technology management to focus on the guidance given to the market and how we will improve in each one of these guidance and deliver the guidance. The first one is the revenue and EBIT guidance, 2% to 7% growth in revenue for 2024, 7% to 15% growth in EBIT, in terms of constant currency. You can already see that one of the most important and we mentioned this in our quarterly report as well, that if you break down the 19 million revenue, more revenue is coming from Europe and American markets as opposed to the Asia-Pac, EMEA markets which we believe will ensure the growth happens in these markets. We are also ensuring that the growth will come through SI partners in these markets. We announced the relationship with HCL and we believe we'll be announcing more relationships with SIs going forward which should increase our revenue capability. We are already tracking at about 12% increase in revenue in constant currency terms, and we are well underway to achieve it. The other important metric on revenue is the fact that 58% of the revenue today in terms of year-to-date is coming from ARR, which is more predictable and which is more collectible as well, which is an important criteria for EBIT. I think on the 7% to 15% EBIT, you've seen the Q3 results. I believe EBIT is in good shape, mainly because we took the cost-cutting measures in Q2 and we are on track with those measures. Next slide, please. So the next guidance, this is more a 2025 guidance of 10% to 12% on capex to sales, but we are already tracking this very heavily. When I took over as CEO in 2016, we had two major customers in emerging markets or frontier markets that constituted 80% of all our revenue. And today, with the investments that we made in CapEx, we have been able to turn around our product stack, make it more usable from frontier markets to mature markets for customers in the Middle East, customers in APAC, Europe, and America. And therefore, we believe that investments we made, 18% to 20% in 2021 to 2023, paid off in terms of turning the revenue portfolio and shifting the revenue to more stable currencies. So today we stand to reduce the spend. We will continue to spend 10 to 12% year on year, but we are well on track to ensure that we can capture the market and add features that will continue to make us more competitive in the market with this spend metric. Next slide, please. On receivable days, DSO days has always been a challenge for this company. I think in my 14 years here, we've always been challenged on collections, mainly because of our customers being tier one vendors with a lot of clout. They can negotiate very hard and bargain very hard on 90 to 120 days on invoice payments. And so tightening our credit limits and improving our collections is really a focus that we have brought in starting this year. And we also had this focus last year. But this year we have taken certain hard measures. One is the Think Cash, Do Cash initiative where we are following the cash and making sure that we are calling up on our customers to pay on time. But beyond that, when they don't pay on time, we implemented a no payments, no service policy. And being the second largest billing vendor for telecom industry, we have a lot of our customers' revenue depends on us. maintaining their operations and helping them build. So this particular action definitely is providing us good recovery plans with our customers in terms of collecting cash. But we have to do it in a steady measure and there is seasonality in our business in terms of deliveries, etc. So while DSO days will be more than 100, we are hoping to contain it between 120 to 140 days going forward in 2025. The next slide, please. Talking a little bit about currency risk, I already said that we are tracking at about 35%. The good news, 35% of our revenue is coming from frontier markets, especially Africa. In LATAM, we took a strong measure in Q2 and converted all the local currencies to being paid in US dollars. So we've limited our exposure to the pesos and the local currencies of LATAM. In Africa, we don't have that capability yet, and we are challenged because some of these countries have very less foreign exchange availability as well. So we continue to work on reducing our exposure to these markets. We are already seeing early green shoots in that our revenue from America and Europe is increasing, as you can see in these charts, compared to APAC and MEA, which is definitely a very important trend to de-risking ourselves from exposure to foreign currency. As I told you earlier, five years ago, this was 80% of our revenue came from these markets. And today, about 30 to 35% of our revenue exposure is limited to these markets. The other note on Naira is the fact that The last quarter, there hasn't been a lot of change in the Naira compared to the US dollar. And if this trend continues into 2025, the headwinds that we faced in 2023 will definitely turn to tailwinds for us. But who knows? We just have to wait and watch and see how that pans out. Finally, on free cash flow, I've talked enough. This is a proud metric for us. We have been taking severe measures on cost cutting. 4.5 million for 2024 was announced and 7 million for, which will have an effect of 7 million in 2025. I think we are on track. Indresh will cover this more. And this plus the focus on collections of cash. The lowering of our exposure to frontier FX risks are all various actions and the focus on ARR are all steps towards improving our free cash flow. I truly believe that this will accretively create better enterprise value for the company and its investors and also this will help us ensure that we are able to provide the dividends to our shareholders as 10% of free cash flow starting next year goes towards dividend payouts. So in summary, the narrative for Q3 is that it was a difficult quarter in terms of order intake. We were muted on order intake. It was challenging. But we, as I said, not all revenue is good revenue. So we have been focused on ensuring that we are moving to markets that provide stable revenue, that don't have the currency fluctuations that we have faced earlier. So we are being guarded, and we are quite confident based on the trend we are seeing in the order collections quarter on quarter, the order book growing quarter on quarter, while Q1 was a slow order book growth, Q2 has increased in order intake and Q3 Q2 has increased in order intake, and we are seeing a good growth in Q3 in the order intake. I am confident that we will make our revenue guidance. In terms of EBIT and free cash flow, the OPEX and CAPEX reductions will definitely help us achieve it, and we will continue to monitor cash collections going forward. We also are focused on mature markets, very early green shoots in terms of our revenue in these markets and orders in these markets are already giving us confidence and our relationships with SI partners give us a growth strategy and the fact that our product is ready for SIs to implement in these markets definitely speaks to the R&D investments we have made is in good stead. And finally, we believe very strongly that we want to strengthen the transparency of how we communicate to you as investors and the governance within the company. And towards that, I'm proud to say we did look to work with many IR firms in Finland But we felt bringing the IR officially in-house is an important step, and working with IR in a continuum is important for the company's transparency and governance. And towards that, we have appointed Thomas Kopenen, who will continue to work with the company as an IR officer. He will work with the management team. and with you as investors on a continuous basis, and the analysts that cover us, especially Ronnie from Indris. With this, we hope that we can bring greater information and clarify your doubts. So Thomas brings a lot of good experience. He's a business school graduate with economics and marketing, but more importantly he has worked as a board member and in the C-suite for more than 10 years managing capital markets and equity investments for multiple companies and investment houses. So I believe he brings a lot of value. In addition to that, he has worked in Middle East markets and some other geographies that Technotree has customer presence. So he will be a valuable addition to our management team. Finally, I want to thank the management team. Especially, we set a very difficult target for ourselves as free cash flow. I think... Achieving what we have achieved in terms of that is quite telling in terms of how agile the team has been in taking on the responsibility and ownership for delivering these results. Thank you very much. Indresh, on to you.

Thank you. Thank you, Padma. Thanks for sharing the insights about the company operations in this quarter. Now I'll wish to share some more insights on the financial performance in this quarter. Thank you. Let's go. Most of the data are already with our shareholders, so I'd like to give a little bit more expansion to that. So as you said, some of the highlights in this quarter I want to call out. One is we did pay out a small dividend what was approved by the shareholders on the 1st of October. And on the other numbers, you see that there is a little bit reduction in my revenue, quarter on quarter, as well as for the last year to this year. So while we know that in constant currency we grew, but still on the real currency why we were not able to grow the way we wished to grow is one of the things is if you look at the order intake what we got in this year, the Q1 was terribly bad for us. We got about 10 million order intake in Q1. Improved slightly to about 13 million in Q2, but in Q3 we had a very good order. Our intake of about nearly 24 million. So that gives us a confidence that we are able to meet our guidance and we should be able to turn out What we have wanted to do. And the other thing also we wanted to call out here is about the quality of the orders what we have. Last year, out of my order backlog what I had, the America and the Europe constituted about 6% of my order backlog, which has now grown to about 10%. which shows that we are growing in the markets, which will be good by way of revenue and also the cash, which is the most important thing. And that is also being reflected in our cash flow, our positive cash flow board, we are getting it. And on the numbers, I think 2% growth in the reported currency from Q2 to Q3 24, a steady pace. And this is one of the things we have been sharing with our shareholders since last couple of quarters. that we are changing the model of our revenue also. Earlier we had a huge revenue on one particular quarter, then again it will dip in the next quarter, again it will go up in some other quarter, so there was a high seasonality in that. So once we are slowly moving our revenue stream to more of ERR, that will help me to make a stable revenue growth or numbers quarter on quarter, that will also have a short-term impact where my revenue will be lower to some extent, but it will show me more consistent thing, which I think we wanted to do it. And a 43% growth in EBIT from Q2 to Q3 of 24, order backlog of 75 million. So these are some of the positives we would like to call out. On the constant currency also, the net sales decreased by about 5%. Again, because of the Q1, we had a lower order intake. EBIT decreased 19% to 5 million compared to 6.2 in the last year. However, from Q2 to Q3, there's a 70% increase in the orders what we received, which gives me confidence of our performance in the coming years. Now, moving on to my next slide. Next slide, please. The balance sheet again, one of the things I really look at it is, how is my cash moving up? 10% growth in my cash compared to last year to this year, 1.7 million free cash flow generated in Q3, and all along we always had a negative cash flow till Q1 of this year, made a small change in Q2, reasonable in Q3, hopefully we are given a guidance which we'll be able to achieve. Then again, the other point I want to highlight is 8% reduction in our CapEx to sales from the Q2 of current year. CapEx related to own product development in Q3-24 was 2.1 against 3.7 and 3.2 in last year. Further, while Padma you spoke about the DSO days from last year to this year, again last quarter my DSO was about 170. We were able to bring it out to about 153. Again, this also demonstrates so far that we have had more seasonality in our collections and revenue. which we are trying to address by moving into one, moving into good markets, matured markets where I'm able to collect, and also moving into an error model which gives me more consistency in my revenue as well as in my cash collections. Next slide, please. So we spoke about what are the reasons. Padma, you said that one of the reasons for our cash collection or our profitable increase is our reduction in the OPEX. OPEX we are able to optimize. One is I have got different zonal officers and ability to work across the world. OPEX to net sales in the current year is about 58% compared to about 60% in the last year. And OPEX to net sales, it was about 52% compared to 66% in the H1 of current year. So that means I'm slowly bringing down my OPEX to the revenue. Again, 5% to 7% global OPEX reduction was expected in 2025 through cost efficiency action. In absolute terms, I expect about 4.5 million reduction in 2024, which could be about 7 million in 2025. And where are we getting this reduction? Mainly, my headcount has come down by about 10% compared to last year, and my personal cost has come down much higher than that, about 50% more than in the absolute percentage thing, from 10% to 15%. And how are we able to manage this? By reducing the headcount, I need to deliver what we already have in our thing. What we are trying to achieve is having a lean process model in engineering framework, working closer to the customer, so that reduces a lot of my other costs, tools and automation, the way world is moving on, improved engineering productivity with AI tools. Once we acquired also everybody new members, two years back we acquired cognitive scale ability of their APIs and other tools. the software. So that integrated into technology products is helping me to improve my engineering. And what is our plans? Reduce OPEX to ensure stable free cash flow, further focus on invoicing and cash collection, which should help me to have a higher free cash flow and a better profitability. And deliver at lower cost, leveraging our global presence in different continents what we have currently, that should help me to achieve this.

Thank you. Thank you.

These are my updates. Thank you, Padma. Thank you, shareholders.

So, Chimo, I think that is our presentation to a conclusion. And I hope you have time for Q&A.

Yeah. Thank you, Padma. I'm interested so much. And as Padma said, now it's a time for questions and answers. And I think so we have quite many questions already. And maybe we directly go to those, if it's okay. So first question is like that, sounds like the Nigerian Naira devaluation has had a huge hit on your revenue growth in the four to five quarters. I noticed the Naira dollar exchange rate has been flat since last five months. Can you walk me through when this year on year declines in the currency will no longer impact your revenues?

Well, that's a very good question and it's a little bit of a crystal ball gazing at this point in time given the geopolitical circumstances we are in. Yes, we did take a huge hit in 2023 and even I think it was a 4.3 million hit in free cash flow, negative free cash flow in Q1 of 2024. So the pains of that is what caused us to shift our financial focus towards cost optimization, focus on free cash flow, focus on more ARR and moving away from these frontier markets which have huge currency fluctuations. Fortunately, in Q3, we have seen a stable Naira against the dollar. It has been literally flat to our advantage. And if this remains stable, as I said earlier, if Naira continues to you know, stay in the range that it has against the dollar. I do believe the headwinds we faced in 2023 will become tailwinds and we will have less currency fluctuations in 2025 and maybe even a bit of a benefit.

Thank you, Padma. That's good to know. Then I think the next one, let me see. Okay. I was reading the research report suggesting that 50% of earnings per share dilution from the CCDs and LTI program over the next few years. What measures can you take to reduce this dilution?

It's a very good question. I think the LTI program per se is under a million and it is a small portion of dilution, if anything. And it's important to note that the dilution actually will start earliest in mid-2026. And our focus today as a company, if you look at all the rubric kind of measures in financial terms that we are measuring ourselves towards, is to bring the enterprise value of the company to mitigate the dilution and to improve the free cash flow so we can pay dividends to our shareholders. And I believe... A higher enterprise value will ensure lower dilution percentage. So that's our focus. That's what we can do as management, and we will be 100% focused on that.

Okay, thank you. That was a good answer. And definitely the recent pre-cash flow is signed for that direction. Then the following question. You held an investor meeting in the beginning of September. Can you give a recap of the main messages of this investor meeting, especially regarding the plans to improve cash flow going forward?

Yes. So at the end of Q1, when we had a negative free cash flow of 4.6 million, I think it was a rude awakening for Technotree because we had just come out of a bad year as well, and the Naira took another 100% dip. So we sharpened our pencils and we put in together a plan to do a financial management that is focused on free cash flow and is focused on cost reduction methods and methods to reduce capex to sales exposure as well. On the 6th of September, the key messages we delivered was new set of guidances, the focus on cash flow becoming positive in the next few quarters. We set 2 to 5 million in H2, which we are definitely tracking good towards. We also announced that we will have a stricter management of working capital and better focus on payment terms with our customers to reduce exposure in terms of collections. We will reduce the capex to sales spend and as you can see we have taken good measures to do that as well and improve the cash collection. I think the DSO days in Q2 was 170, we have brought it down to 150. We are quite strict in terms of collections from our customers. abstained from providing services where customers have not paid us, which is something unheard of in the history of Technotree. So we are taking stringent actions towards ensuring collections happen. So the key messages were improve the clarity and transparency of our financial metrics. That's what we conveyed on the 6th of September. I have reiterated most of what I covered on the 6th of September in today's Q3 earnings calls as well to you.

Okay, thank you. Then the following one. You gave the guidance of free cash flow being over 3 million next year. What is driving the improved cash flow? And on the other hand, why is the cash flow still remaining significantly below your profit levels?

So I would allow Indresh to first take a stab at this and then I will give you my perspective.

Sure. Thank you. Thank you Padma. Yes, Timo, it's not an unusual question. We still get some people asking why is it above 3 million, why it cannot be above 5 million. I think if you go back to Padma's presentation, there was one slide which showed historically in the last few quarters How we have come to a positive cash flow in the last couple of quarters? Last year we had a huge negative cash flow. First quarter of this year I had a minus 4 million. From there we came to 800 positive. There we have moved to 1.7 million positive. I think we are taking step-by-step action. So that is why we have said that next year we plan to do it above 3 million. Again, let's not think Technotree is not a company which works only for Europe and America as of yet now. Even today, my order backlog, only 10% comes from that market. I still have business in the other currencies and in the other countries where it could be a cash delay in collection. We are trying to mitigate it. So that is the reason from a conservative basis as an accountant, I wish to give something which is conservative for me and then we'll see how it goes.

The only thing I would say is that this 3 million is in real currency terms. It's not constant currency. It's very important to note, which means that we are not, you know, we've completely de-risked that commitment, okay, to the share owners. And we have a dividend policy that we want to meet on top of it. So I believe it's a very fair journey. It's a long journey. I think turning a company around, we have done it once, we'll do it again. And we are confident that we can meet this guidance, but I'd rather meet and then better it than give a guidance that we are unable to keep for all the various risk factors that Ingres has already spoken about.

Okay, thank you. And compared to the Q3 free cash flow, it even looks a little bit conservative, the 3 million, but it's the right approach, I think. Then, following questions. You are reducing your capex significantly. Are you able to elaborate? Is there some significant changes in your R&D activities? And do you feel like you are comfortable doing this without risking your technological competitiveness?

Yes, very good question and very pertinent question. As I already elaborated, today, TechnoTree is in the top 10 BSS vendors globally. the second largest billing vendor for telecom operators after Oracle. We are definitely winning in both North America and Europe based on the standards-based digital stack from a TM Forum standards for telecommunication operators. We have a stack that is fully ready. We have integrated artificial intelligence and machine learning capability for enhancing customer experience improving productivity of the sales agents and operations within a telecom operator. And we have made our stack fully cloud ready, which means it can reduce operation costs for the operator going forward and expand the footprint through multi-tenancy, etc. And our stack is secure and fully GDPR compliant. So I believe we have created a formidable moat in terms of the capability of the stack. We're not saying that we need, we are going to reduce the capex, we are not going to have any capex spent. What we have said is we are going to reduce the capex spent from the significant spend that we were making in 22 and 23, which was required to bring out the competitiveness on the stack, the standardization of the stack, and as well as create a moat against our competitors. Today, even with a 10% to 12% spend on a higher revenue base, we will still be continuously improving the competitive advantage of the stack on an ongoing basis. And we have a fairly large R&D team that will continue to focus on those improvements globally.

Thank you, Padma. And of course, as you mentioned earlier, this increasing low-code, no-code will definitely improve our ready-to-use data. Then the following, looking at Q3, how would you summarise Technotree's Q3?

The narrative of Q3 is that it has been a challenging quarter for us. It's been challenging because we are steering the ship. We are steering the ship towards profitable business. The net profit in terms of free cash flow is a demonstration of consistently performing in the black. And that is not an easy task in today's economic conditions where revenue growth is muted for all our competitors, including ourselves. The two main disadvantages we walked into 2024 was one, a low order intake in Q1, followed by a major fluctuation of the Naira in Q1, which caused a negative free cash flow of 4.3 million for us. So we walked into 2024 with this sort of an impact. And we had to not only recover from that impact, but also ensure the guidances we have given to the market in terms of revenue growth of 2 to 5% and EBIT growth of 7 to 15%. And now the free cash flow of 2 to 5 million in H2 are all delivered to our investors. So I think the cost efficiency measures that we have implemented the focus on mature markets like U.S. and Europe, the partnerships with SIs like HCL to increase our revenue capabilities in these markets, and the strict measures in cash collection that we have administered through ThinkCash, DoCash, are all initiatives towards ensuring the guidances that we have given the market will be met for 2024. And I'm also quite comforted by the fact that while Q1 was a low order quarter, we steadily improved the order intake in Q2 with a 23 million order intake in Q3, which is a shift in the right direction in terms of ensuring that we stay ahead of the market guidance given for telecom industry for revenue growth.

And Timo, if I were to add a couple of things in that.

Yeah, please.

One is consistency in the revenue, which we've always been talking about quarter on quarter. One thing in 24 I can highlight is, if you look at the revenue growth from Q1 to Q2 to Q3, Q1 we were about 16, Q2 we were 18 and Q3 we are 19 which means that we are stabilizing our revenue intake. And on the other side we are also maximizing our cost which also gave me a better net income. Even if you observe 1.6 in Q1, about 2 million in Q2 and about 4 million in Q3. So I call that we are consistently getting the revenue and because we are managing the cost, we are able to churn out a better net income. So that is how I would like to add to your answer, Padma.

Yes. I agree.

Then, following question. Hmm. Just a moment. Okay, then the following question. We saw the clear decline in revenues in both actual and constant currencies. What were the main causes for the decline in revenues?

The first thing is, Timo, I want to again harp upon the fact that we are moving into an error model which will, to some extent, normalize my revenue in all the quarters. I again gave you the example how we have been consistently managing it. If you had gone to the previous year, you would have seen that there was so much fluctuation in revenue quarter on quarter. That's one reason. And second one, again, if you look at my order intake going back to the Q1, which was about 10 million, improved to 13 million, improved to 23 million. They are the reasons which I feel that, again, when you call about decline, if you look at quarter-on-quarter, the current quarter is only about 2% compared to the earlier quarter. So I'm not too alarmed about the huge decline as such. Yes, the trend is what we expected, and I'm sure that we'll be able to meet the guidance what we have given into the market as well. So, Padma, your hat, please.

No, that's right. I think, you know, lowering the order intake, the lowered order intake in Q1 definitely hurt us, but we are seeing the trend to quarter on quarter being improved, as you have rightly pointed out. And in Q4, we have some important deals that we believe will strengthen the order book.

Thank you. Then the following question. You have done significant cost-cutting measures this year. To which extent were these already visible in Q3 numbers?

Probably I can answer that, Timo. Even last year in the Q3, my cost was 15.4 million and it has come down to 14 million in this year. quarter which means that I have already compared to last year there is a saving of about one and a half million and even in the absolute terms year on year if you look first nine months last year we were about 40 million and current year we are about 38 million so there also we have saved. And as we announced during the year, there are a lot of cost-cutting measures which we took in the middle of the year, and we expect about $400 million savings in the current year, and that may be turning into about $7 million in 2025. So, and also in my slide, I explained what are the actions we are taking, like near shore development, reducing the headcount. I think they are the reasons and the guidance what we are given at 4.5 million for this year, I'm sure that we'll be meeting that tomorrow.

Okay, very good. Thank you, Ederes and Batman. Okay, then still other question. You mentioned that your market share prospects have improved in Europe and America and you managed to grow in this segment quite well. Can you open up this more in detail and how do you see the competitiveness of your products in Europe and America?

So when we decided to enter, Europe is a market that we have presence already in and we are upselling into this market with our existing customers like Telenor, Teletoo, Telia, et cetera. But, and we have some new customers that have come into the foray as well. But in America, we took a very different strategy. We took an SI-led approach. We feel the maturity of our product stack is now at a very good place, that we signed a deal with HCL, who has a great market penetration in telecoms in the US market. And through them, we are partnered to sell our product stack and licenses to many tier one telcos in the US. We will be announcing more such announcements with SI partners in the coming months. And I'm positive that they will definitely accelerate our penetration into these mature markets. We also believe, as I already stated, we have a very rich stack with 4,000 features. And on an average, we add 300 to 400 features a quarter. And if you look at this quarter, we added 300 features, but we added it at a lesser cost, which means we have improved the quality of the stack with AIML and with low code, no code to an extent that we can implement features faster with lesser cost into the stack. So that's also definitely helping us enter these markets with very, very prescriptive capabilities on our product platform.

Thank you, Padma. The following question, how does the market and demand outlook look like going in the next year?

Well, I wish I had a crystal ball. I think it is very hard to predict. We have had lots of twists and turns. Who expected such a big fall of the Naira against the dollar in Q1? So it is a very tough situation overall. But I believe that with the growth of 5G and the expansions of 5G, operators have to modernize. their capabilities and be ready to monetize the 5G capabilities. Today they've rolled out 5G, but they're not monetizing 5G. So the demand for digital transformation, especially with stacks like ours, which enable them to monetize 5G, is definitely there. But they are very cautious in their spending. Nobody's coming aggressively and throwing a lot of money towards, you know, capex towards spend. So the ARR approach, of drip feeding, of point solutions that give them quick benefit. In fact, we have new products like campaign management which will increase the revenue monetization capability first on their existing legacy stack while that increased revenue can then be spent towards improving and modernizing their stack for digital transformation are all strategies we are deploying. We are cautious about the outlook but I do believe that we are positive in terms of achieving the guidance and creating the enterprise value that we have promised to deliver.

Okay, thank you very much. Nice to finalize this question and answers part in this kind of 2025 outlook and positive outlook, how you explain it. Then it is time to conclude this investor connect and I would say that thank you so much for active participation and many questions what you have shared with us. And unfortunately we can't answer to all of those questions at the moment because of the time limit. But remember that there will be an interest interview and there will be more questions and some stage in our communication we will answer to all questions what you have shared with us. Please stay tuned and follow us in our investor webpage and as well in social media channels. Thank you, Padma and Indires. Thank you. Thank you. It was very nice. And I wish you all a nice rest of the week. Thank you once more. And goodbye. Thank you.