Tecnotree Oyj

Good morning, everyone, and welcome to TechnoTree's Q4 and end of year 2024 results presentation. My name is Tom Skoponen. I am the head of investor relations taking over for Timo Holopainen. With us today, we have CEO Padma Ravichander and CFO Indiresh Vivekananda. I will be opening the questions and answers in the chat in just a few moments. We will be bringing up all the questions and answers at the end of the presentation. Without further ado, please, CEO Padma Ravichandran.

Good morning, everyone, and welcome to our Q4 2024 results presentation. Along with me is our CFO, Indresh Vivekananda. I will give the quarterly highlights and the guidances and a bit on the strategy and the actual results presentations of the Q4 performance of the company, and the 2024 performance will be guided by Indresh. Thank you. Can we move to the next slide, please? One more. As you all know, Technotree is a global expanding BSS provider. We are in the top 10 globally. We service over 1.2 billion subscribers worldwide. We have recently acquired a lot of tier one telcos, as you can see in this canvas. When I started the journey at Technotree in 2011, there was no more than two big customers, one in Latin America and one in Africa and it's quite interesting to see how the canvas has developed and today we boast with more than 90 plus service providers globally being supported by our technology and platform and our capabilities from our resources worldwide. We do have a follow the SAM model in terms of operational support and to support these customers and multiple network operation centers across the globe. Today, the stack is full with 4,200 features. And I'm proud to say this year, I think we had something like 20 concurrent go-lives for all the acquisitions of licenses we did in 2023. which will definitely turn into ARR models in the coming years for us. So it was a very, very pivotal year. I want to say 2024 overall has been pivotal, but we have handled it in an agile way with our SISU spirit. We started the year with deep forex losses, as you remember, in Q1, and because of the currency fluctuations in the NIDA. That continued with geopolitical situations and the slowdown in the market. We also had made commitments to exit markets that were highly sanctioned or were political risks. And we had to continue to execute those terminations adequately. And we also exited businesses that were non-telco that we acquired initially in 2022 we acquired the cognitive scale. So in multiple fronts, we had to hone in the business and ensure that we are focused on the segment that we want to serve and grow in that segment. What I am abundantly happy about is the outcome, despite having these challenges in front of us, the way we have pivoted through and navigated through these challenges in 2024. If we can move to the next slide. It's abundantly clear, despite these challenges, we were able to meet the guidances that we had given for 2024. In terms of constant currency, we had promised to deliver 2% to 7% of growth in revenue. We delivered 4% growth despite deep fluctuations, both in the Argentinian peso and in the Nigerian naira that started in Q1 of this year. However, these currencies have been stabilized and we have also been able to negotiate better terms with some of these customers and also move some of the operations to dollar denomination type of payments. On EBIT, we had promised 7-15%. We delivered 9% in constant currency. A lot of that benefit came from the deep cost-cutting measures we took in Q2. And I'll talk a little bit to that. And finally, the most important and most significant achievement, I would say, of 2024 is the free cash flow. For three consecutive years, TechnoTree has posted positive free cash flow. This was a resolve that we took. in April of 2024. And I'm proud to say that the entire management team worked extremely hard despite working in difficult markets with customer payments that are cyclical in nature and revenue invoicing, which is also fairly cyclical. The other big achievement for the year is in the beginning of, in the latter part of 2023, we made an entry in the telco space in the US market. And through 2024, we aggressively work to create a footprint in the U.S. market. All the CapEx investments we made with our prepaid customers in Africa and Middle East and the standardization of the stack as per TM Forum standards. The Relationship we developed with a tier one SI player in the US market all yielded us a fantastic result by winning a tier one Telco customer on our digital platform. So clearly we were able to prove that the investments that we made and the effort that we took to enter the American market was well rewarded. Finally, we announced, based on the slower revenue growth and the slower order intake growth, that we would administer cost reductions across the company. This was also propelled by the fact that we had 4,200 features and a fairly mature stack. We had promised to deliver 4.5 million in cost reductions, but the company actually exceeded that expectation and delivered 6.9 million of cost savings, which definitely helped in ensuring that we met the free cash flow guidance for three consecutive quarters. Can we move to the next slide, please? I now want to get a little deeper into some of the guidances given and the revenue performance and the EBIT performance. If you look at the typical revenue growth of TechnoTree over the years, I've taken a three-year view. It's very cyclical in nature. And what we plan to do, I think mid-2023, was convert our model into a more predictable ARR, annual revenue recognition model. And we started the journey in later part of 23. In 23 end, we acquired two customers in the ARR model. By the end of 2024, I'm proud to say we have 10 customers who are now on the ARR model. And the ARR model, if you look at the 2024 revenue has provided a more stable growth in revenue quarter on quarter, which is exactly what we had expected. Also, in terms of the growth in ARR business itself, you can see that in 2024, we had a lot of licensed revenue that we had taken in Q4 of 2023, which gave us a high revenue of 22 million in 2023. In 2024, we delivered the projects around those licenses that we had sold. Therefore, the project delivery revenue increased. And finally, the overall revenue in terms of constant currency also performed. And the ARR revenue growth is also shown here in the graph. The other important movement on revenue was the acquisition of a North American tier one telco. And if you look at our order backlog, the American business in terms of order backlog is growing. And in terms of growth in the telco revenue in America, we've seen a 40% uptake. And that is certainly rewarding for the efforts that we had put in to enter this new market. Can we go to the next slide, please? On EBIT performance, clearly the strong message here is the cost reductions that we administered in April of 2023. This was mainly because we wanted to give a free cash flow guidance for the company, and we wanted to ensure that the company has an operative cash, positive cash flow month on month. And that strong operational alignment ensured that we Even though we had a lower revenue overall in actual terms in 2024, our EBITS margins grew much higher and we recovered with a positive free cash flow. So the cost reductions worked in our favor as we also faced a bit of an economic slowdown in terms of revenue growth. Next slide, please. The last guidance was on free cash flow, and this is a very interesting chart. I have looked at three years of free cash flow that the company has been posting in the last three years, 22, 23, and 24. And as you can see, even as late as the last six quarters before Q2 of this year, the company posted negative free cash flow. And despite working in difficult geographies, despite having foreign exchange losses, exposures in markets like Nigeria, and continuing to serve some of these customers, we took a very strong stance that we will in H2 post a positive free cash flow between 2 to 5 million euros. And I'm proud to say that we were able to achieve this through the cost regulations that we put in place, the think cash, do cash policy that we implemented in the beginning of the year, the tracking of all payments all invoices uh and all due receivables have definitely benefited us and in addition to that we started notifying our customers that if we do not receive payments on time services will be uh you know stopped and these policies along with the arr approach of more predictable revenue more predictable invoicing has definitely definitely helped improve the free cash flow. Cash collection for the company continues to remain a challenge, mainly because we work in difficult markets where foreign exchange in dollar denominations are sometimes hard to find, and some currency fluctuations are still there in the African markets. Although all of LATAM now is in dollar denomination, we still continue to have seasonality in the collections, which Indireesh will explain more on the receivable side. But we have continued to lower our exposure to these currencies, and I will share with you the new metrics that we have been able to achieve in terms of foreign volatile currency exposure. Next slide, please. One of the other guidances we added during the course of 2024 was CapEx2Sales. The company had been steadily investing in creating a digital stack, in creating a moat by having more than 60 APIs that were standardized so that the integrations can be fast and our implementation cycles will be more rapid. And we also had invested a lot in creating out-of-the-box journeys, as you can see, 4,200 features. All of this paid us really well in terms of our entry into the North American market. But now I'm proud to say we are at a place where we can start reducing the capex. And as of the second half of 2024, we started reducing our capex. CapEx investments in the product stack because we have a mature stack. We have a configurable stack that can be configured by the markets we serve and the customer needs and profiling that we are trying to meet. However, the guidance is that by 2025, we reduce the capex to sales spend to 10 to 12%. I truly believe we are on a good step towards it. And we have taken sufficient impairment, as you can see, 6.1 million in 24 and adequate impairment in 2023 as well. So we'll continue the aggressive impairment guidance as well. Next slide, please. The next point that we had given guidance on for 2025 was to ensure that over the next three years from 2024 to 2025 to 2027, we will reduce the currency risk exposure to 10% to 15% from what it was, 45% in 2023. As you can see in this chart already, we have touched an 18% mark. We have converted all the LATAM contracts into dollar denominations. We also see that the Naira is getting more stable. The currency fluctuation of the Naira to the dollar has stabilized mainly because of the oil production increases and the stability of the Nigerian economy. And the predictions from the analysts is this should continue, but we will take no chances. We are prepared to continue to revisit the currency risks and take precautionary measures as required. Moving on. Finally, I wanted to touch upon why today, technology is investing in partnerships. As we enter the new mature markets of US and Europe, we find that the synergies that we are able to develop through partnerships One, for scaling our capability to deliver, and two, to attract new customers and create the spread of our products and services across the market. We need partners in these mature markets. And I'm delighted to say that we started with one partnership with HCL Technologies, which we announced mid-year last year. Several more partners are being onboarded and several assignments are underway. And as deals unfold and we are able to ensure that these partnerships bear successful revenue growth, we will continue to share with you the outcomes of these partnerships. why did we start these partnerships now today we have a stable stack which is tm forum certified in fact Even Gartner has recognized us in their magic quadrant for AI and AI capability. And working with these partners, we find that our ability to scale our delivery capability very quickly, as well as continue to grow our market share is quite promising. And I hope this bears good outcome in 2025 and beyond. Next slide, please. Now for our guidances for 2025. We have now presented these guidances in our report already. Given the fact that the growth in BSS market share has been advised to be at 0% to 2% by many of the analysts in the market, we are predicting a low to mid single digit growth as a percentage growth on revenue for 2025. uh that is in constant currency terms ebit margin we have said that the margin would be uh about 200 basis points of two percent growth in ebit overall and we have improved our free cash flow guidance from greater than 3 million to greater than 4 million for the full year 2025. the additional guidances we are given on dso days to reduce our collection and exposure for age receivables to 100 to 140 days we will continue to work on it it is definitely challenging with large tier one operators to push them to pay faster but we we have plans to improve that through our arr models um and the partnerships we have with their size The capex spend, as I've already explained, we have brought it down in 2024 and will continue to reduce the capex to sales spend to 10% to 12%. We announced a dividend policy first time in the history of TechnoTree, and we also issued a dividend. We plan to continue to comply to the policy that we have announced and hopefully improve it over the course of several years. Finally, reducing our exposures to frontier markets and bringing the risk on foreign currency down to 10% to 15%. Some very good steps have been taken in 2024 with Latin America and with the African markets, and we'll continue this journey and focus on ensuring that such risks do not unduly put pressure on our free cash flow. Finally, as a parting comment, what I want to say is while the industry is going through challenging times, I think technology again has been a champion in terms of sensing the market conditions and predicting how the market will shape into the future growth for BSS and telecom industry. One of the biggest revenue generating capability that is going to come to telcos is the whole onset of the artificial intelligence and machine learning capability. If you look at the market today, it is abundant with several generative AI models. Many of them are open source and freely available, challenging open AI and companies like that. There is abundance of compute power available thanks to companies like NVIDIA. But what is really not available in the market to make AI ML as an industry possible you know, game changer is the fact that there isn't real data available to drive these models and to move them from being explainable to more predictable and more intuitive. And there is the opportunity for telephone operators who today have massive networks globally and have large amount of data. You know, it's said that annually there is more than 180 zettabytes of data swimming along the network all over the place. And the access to this data lies in the hands of the telecom operators. So I really believe telecom industry is going to benefit and revolutionize how data monetization is used to move the telecom operators from being pure connectivity and network providers to providing innovation in AI going forward. And here, with our 137 patents, the acquisition of a very early growth stage of AI and ML company in the US, and several telco use cases that we have brought to bear on our digital stack, I truly believe that technology is poised for growth in the AI industry. Thank you.

Indresh, go ahead. Thank you. Thank you, Padma, for the wonderful presentation. So let me go to the numbers. And I'll try to be as compact as possible so that we leave sufficient time for the question and answers. Thank you. Can we go to the slides, please? So these are the numbers at the top level. I'll walk both Q4 and the year-on-year numbers. As you can see, the highlight was the free cash flow. In Q4 24, we had 400k free cash flow against negative of 600k in the previous year, which is a change of about $1 million in the net. Similarly, for the whole year, if you can see, the whole year, we had still a negative of 1.8. Because we had a terrible Q1 of 2024, where we had more than $4 million of negative cash flow. In spite of posting three consecutive positive free cash flow quarters, we still ended up the whole year at negative 1.8. But previous year, it was minus 9.7. So we made a substantial progress, but still we were on the negative side. In the constant currency, if you look at it, we had 18.5 in the Q4, which is 17% lower in terms of previous years, which was at 22.2. But our whole year, we were at 81.4 compared to 78.4 in the previous year. If you really look at the real revenue, not in the constant currency, but the real revenue what we earn, in Q4, it was 17.6 against 22.2 in the last year, which is 21% down. And on a whole year as well, 71.6 against 78.4. At this point, I want to just pause for a second and draw the attention, the difference between the constant currency and the real currency, which is nearly about 10 billion. One of the reasons for us getting a real revenue of 71 was we lost about $10 million in the exchanges. So if the currency side remained as it was at the end of December 2023, my revenue would have been at $81 billion, which would have been about 4% higher than the previous years. The EBIT, the earnings before interest and taxes in Q4, it was 7.4. In the previous year, it was 7.9, a 7% reduction. But in the whole year as a whole, we did about 26 million against 23.8 in the previous year, again, 9% high. EBIT in real terms, real currency, it was minus 10.9, 10.9 in this year against 7.9 in the previous year, a 38% jump, as Padma has already explained about the cost actions, what we took, that gave us a substantial benefit in Q4. But the whole year, we were flat at 23.8. Again, I want to draw one more attention. If we had currencies that remained same, I would have had another 2.2 million more in EBIT as well. Can you go to the next slide? Now, let's see what are the main highlights for the whole year, in our view. I want to talk again about the free cash flow we are able to achieve. ARR, a step which we took in the last year, which would give us stability in our performance. As we know that technology has a history of quarter on quarter variances, both in its revenue and in the cash collections. That's been the trend and the nature of business in which we are in. So we were looking at how do we normalize it to the extent what we can. One way of doing it was moving into an ARR model. We started doing it from 2024 beginning onwards. So as you can see in 2024, the constant currency, or rather in the ARR model, we are able to get a 10% higher revenue. Padma also spoke about CapEx2 sales. We are bringing it down. While it looks just a 1 million reduction from 23 to 24, I also want to draw to the attention that the plan of impairing these assets at a much faster rate. In 2023, we had a 3.9 million as impairment on these assets, where we took it to 6.1 in 2024. The intention is to do less capitalization and also try to impair it faster. The DSO days, I want to spend a little bit more time on this. It looks like 176 days and in 2023, 153, means a high of 15%. Is it really worrisome? Probably in the next slide, I'll walk through to see how it is. Hardened backlog, We had a reasonably good year. Unlike in the last year, just to cover the number, we had about 78 million of new orders. About 95 million was in 2023. There was a reduction in the order intake as well. But however, I still hold a healthy order backlog of about 80 million, which is slightly more than about one year of my revenue. Can we go to the next slide, Thomas? We talked about the DSO days. Looks very high, 173, very high. But let's look at the historical DSO days for the last three years, what I have provided. It goes up, comes down, again goes up, comes down, highly seasonal. But what I want to draw the attention is, out of this high receivable, nearly 40% of them are not in due, not in due meaning less than 30 days, which means that we had a lot of invoicing milestones which were achieved in the Q4 of 2024, which I have built, which has increased my receivable substantially, but 40% of them are not technically due or legally due. However, we still have a few large outstandings, which are more than one year. There are from three or four large We at least have operators. All efforts are made. These are all the very long-term projects which have been running for a couple of years. They are from a very large customer, so I do not see any risk in collection, but there have been a delay in collection. However, we have been making the necessary provisions, which are as for the company policy and which are as for the IFRS as well. The days-for-days are high, but the good thing or slightly positive thing is majority of them or nearly 40% of them are not into you. Can we go to the next slide, please? This has a comparison for the last three years, 22, 23, and 24. As you can see that in real terms, my revenue came down from 23 to almost a 22 level. I have already explained it. If it didn't have the exchanger thing, we would have had a 81 million revenue. And also, I point out one thing. While we moved to an era, it also affected my revenue in real terms to some extent. The earlier, probably in one of the slides with Padma Va through, it had the quarterly revenue, what we achieved year on year and quarter on quarter. If you had observed there, I had a high peaks and again a low peaks. towards quarter on quarter. But this year in 24, relatively, quarter on quarter, we have been stable. So when we move into an ARR model, it does affect the actual revenue for a couple of quarters or even a couple of years, and then it stabilizes. I believe 2024, we have achieved that stability, even though we had a lower revenue, but it's more a stable revenue. Similarly, we had a EBIT of 23.8, which was almost similar to the last years. And I want to draw attention of the other thing, the exchange losses, the real exchange losses when I revalue my assets and liabilities or when I bring the money in different currencies. Last year, if you had seen, we had about 10 million of exchange losses, which were able to contain it to about 3.7 in this year. that 9.9 was majorly due to the huge fall in naira which we saw in 2023 and in 2024 also in the beginning we had a higher foreign exchange risk and hopefully we believe that is more or less stable We also had a one-time provision of 7.3. Probably I will explain in the next slides the rationale behind it. And then the other thing about the taxes. As you can see, last year we had a 2.8, and currently the taxes also increased to 4.5. One of the reasons Technotree operates in multi-geographies, multi-tax zones, multi-tax jurisdictions, and there are a lot of efficiencies we can still improve upon, which we are working on, and I hope to bring down the taxes and the exchange losses are retained at a better level in the coming years. The net income, because we made that one-time provision of 7.3, it came down to 8.3. And if that had not been there, we would have had a fantastic event in the current year. The cash collection, again, cyclical. We collect some of them in certain quarters. In certain quarters, it is dull. We collected about 51 million in the last year. I already walked out. As explained, order received about 71 million compared to 95 in the previous year. Because of that, the order back loan is about 80 million, which is almost same as last year. Can we move on to the next slide, please? Now, I wanted to share a little bit more about the one-time large provisions, what we made of 7.3. As all of us know, TechnoTree did acquire a Middle Eastern customer through an acquisition the AirSquare Technoman did with the Lifetree India company in 2008. And this customer came along with that acquisition. We have been providing services to this customer till mid-2023. And after that, no revenue be recognized from this customer. And due to geopolitical risks, the war threats, the threats of war, financial sanctions, and techno-trace mature market entry plan, we decided to exit this customer in 2023 Q2. At that time, the total receivable from this customer was 15.6 million, and that was reduced to 10.6 by early 2024 or the beginning of 2024. We have been constantly discussing with the customer, negotiating with him to collect the entire money. We always believe that we need to collect that, and we did a lot of negotiation with the customer to collect the entire 10.6 million. However, the customer has now come to make a settlement at 3.3 million, paying the entire 3.3 million, and settled at 10.6. While we still make an effort to collect this, as a prudent and a conservative accountant, we have decided to make a provision for the 7.3 million. And this 7.3 million is disclosed as a separate line item below the EBIT as far as the IFRS 5 guidance, which talks about the discontinued business. So this is the rationale behind 7.3 million. And we have not given up. We are trying to collect it. Padma, we did have a history of this in some other customer. Do you want to tell us?