Tecnotree Oyj

Welcome to Technetree Q1 2025 Earnings Call. My name is Thomas Capone, Director of Investor Relations. Today's call, I have with us today, CEO Padma Ravichandar and CFO Indresh Vivekananda. Questions can be submitted in the chat or Q&A option below. We'll deal with them at the end of the presentation. Without further to do, CEO Padma Ravichandar, go ahead.

Heetos, welcome to our Q1 results. We're here in Dubai, myself and Indresh. We'll lead the call today. Technotree is a global company listed in Finnish stock market, has been serving clients, telecom operators across several geographies over the last 47 years. We are located in 12 different locations globally with one purpose, to create a borderless capability for our digital platform to be rolled out in various markets with great local governance, and that makes us Glocal. Our platform has 4,500 features, is a very mature stack, and supports multiple lines of businesses, both for telecom and digital service providers and boasts of about 1.2 billion subscribers using the stack across the world. Our stack is also embedded with artificial intelligence. Over the last several years of investments we've made in ecosystem play and AI, and today has several customers worldwide and an expanding geographical footprint that is well described in this canvas that's growing, ever growing. Coming to the Q1 performance of the company, I'm proud to say that we have had a continued stable performance in terms of free cash flow. Four consecutive quarters of delivering a positive free cash flow, one million this quarter compared to a negative 4.7, demonstrates that our operational effectiveness, our think cash, do cash focus has definitely yielded us positive results. In a difficult economic situation, we have posted a revenue growth of 4.6% in constant currency and a 3.7% growth in normal revenue terms, which is still significant compared to the market and our competitors for Q1 of 2025. The growth in revenue has typically come from new markets and licensed revenue and geographical expansions. You can also see that there is very significant reduction in the difference between constant currency and real revenue. mainly because the foreign exchange losses due to emerging market currencies has been reduced and stabilized. Our EBIT performance will meet the market guidance we have given. While this Q1 is a short quarter, I strongly believe this will continue to improve because of the OPEX reductions we have taken last year and our continued focus on cost efficiencies across the platform. Our guidance was also about capex to sales to lower this to 10 to 12% starting 2025. We are well on way by reducing capex to sales by 7%, mainly by lowering the marginal cost of ownership and cost of service across our platform. And the ability to deliver our platform faster has all helped us reduce the capex to sales. Our ARR remains stable being the first quarter of the year, but this is cyclical and it will start growing in the next two to three quarters upcoming based on the healthy pipeline we have. The DSO days have been a sharp focus for the company for the last eight quarters, I would say. and I'm proud to see that it has shown significant improvement, and this focus will continue to stay, although I must say DSO days are cyclical in nature. As we deliver, you know, the not due amounts of receivables go up, and then they slowly get collected. The order book stands stable at 70.3 million. While the growth in Q1 on the order book is high compared to Q1 of last year, We believe we have a healthy pipeline of orders, particularly both in mature and emerging markets. And I'm confident that this would convert to revenue and will help us meet our growth guidance that we've given for this year. In terms of overall performance in Q1, I'm happy to say that we announced an anchor account in Netherlands for our digital stack. This time it's not with a telecom operator, but a private network service provider to whom we will not only deploy our digital stack, but also our other investments in AI, ML, and techno tree moments and ecosystem play. to help connect non-Telco services on our platform and expand our digital footprint in Europe. We also had five go-lives demonstrating our strong delivery capability in the market and the features added to the product stack continues to grow, while we also have now started working with four global SIs across different geographies to expand our market footprint. The number of ARR clients in terms of a subscription-based delivery model is expanding, both with existing and new customers, and our recognitions are continuing to grow in terms of brand footprint, We are recognized by TM Forum as a finalist for the ODA achievement. We were also awarded the ODA in a box award, and we are recognized by Gartner for both our revenue and customer management in their magic quadrant. So this positioning of TechnoTree in a leadership position continues to grow in the market. Coming to the revenue guidance, in this quarter, the revenue definitely met the guidance overall, but the strongest revenue growth still continued to come from EMEA and APAC, while the order book definitely grew in terms of pipeline opportunities in mature markets of Europe and America. Much of the orders came from license revenue, and that is a cycle. We first acquire licenses, and then the delivery revenues come after, followed by ARR. So this is the approach we take, and I'm happy to see that new license revenues have been booked in Q1. On CapEx to sales, we continue to deliver on the promise of bringing this down, mainly because of the maturity of the stack, but also because our marginal cost to deliver new clients has come down and our marginal cost to service and scale these clients have also come down. We also have a strong... a strong focus on how we manage overall cost of ownership and continue to reduce the capex spend on the product stack. The ARR revenue also helps us stabilize the capex to sales margins. On the free cash flow, this has been historic for the company. This is the fourth quarter, and I believe across these four quarters, the company has booked in close to 4 million in free cash flow. This is really because of very strong physical control, OPEX control that we brought in in 2024. And the effects of that continue to bear benefits for the company. We have also invested in a lot of artificial intelligence embedded in our delivery capability that has increased our productivity and lowered our R&D spend. And we will continue to move to the ARR model that will ensure that predictive cash collections are also possible. In addition to that, the Think Cash, Do Cash program has helped us ensure that we bring down the DSO days and ensure invoicing to customers continue in a very regular and punctual fashion. So with that, the guidances for end of Q1 2025 remain. We will be ahead of the market with a low to mid single digit growth in our revenue. Our margins will increase by 200 basis points over the course of the year. And we believe we will be able to deliver a greater than $4 million free cash flow while continuing to focus on the DSO days reduction, the capex to revenue being monitored carefully to ensure that our investments are focused and bring us the maximum leverage in terms of revenue growth. And that way we ensure that investors' equity is protected and well served. We have also, I think Indresh will expand on it, we've also reduced our exposure to foreign currency risks this quarter, and we will continue to focus in expanding our footprint in mature markets. I truly believe that the techno tree growth story is a very compelling one, mainly because we have been taking market share year on year compared to our competitors. While the general trend in terms of annual growth in BSS market has slowed down overall, techno tree enjoys a very positive premier position in terms of taking market share from our competitors, mainly because of the way the stack has been built, bottoms up with embedded artificial intelligence, TM forum standardized APIs, our ability to deliver these platforms faster in the global market and scale these platforms to the use of our customers in various geographies has demonstrated that we are able to take strong market share away from our competitors and continue to grow our footprint with global SIs partnering with us to move our presence in these mature markets faster. The the North Star win of a new client in Europe with our positioning as a digital service provider for a private network. which is fully 5G enabled in the Netherlands. The story of this will unfold. We have already started working with this customer, and I believe we are expanding our footprint and ripping and replacing a lot of the legacy systems that are out there with our mature stack and out-of-the-box features that are very important fast implementable across multiple geographies. So with that, I will pass it on to Indresh to continue to give you an update, a closer look at the financials for the company for Q1.

Thank you. Thank you, Padma. Good morning, everyone. As always, we walk you through the numbers for the current quarter compared to the previous one and one year before that. As you can see, the revenue remained stable at 16.9 compared to 16.3 in the last year, which was slightly higher than the 15.5 we had done in 2023. On the EBIT, we still are able to maintain at the same level of last year. Financial expenses, which includes all our foreign exchange losses, it's slightly lower than the last years. And on the taxes, which are basically the withholding done by our customers when they make the payment to us, has gone up slightly higher than the last year. The collection, which is one of the major highlights for us in this quarter, we are able to collect about 14.3 million euros compared to 9.5 in the 2024 Q1 and comparable to Q1 of 23 and 15 million. The next item we have to present to you is the orders which we have received in this quarter. In the Q1, we were able to get about 11.5 million new orders compared to 10 million of last year. The order backlog, which is a combination of the order received and the revenue recognized in this quarter, is lower at 70.3 against 74.8 in the previous year. The earning per share, which is constantly at 0.1 across the three years. Can we move on to the next one? Yeah, one of the unique things in our industry is the long DSO days, which we have been observing for many years. And as Padma mentioned, we did have a negative cash flow for many, many quarters prior to the Q2 of last year. Since Q2 of last year, when we changed our focus into think cash, do cash, which we announced in the last year, our DS4 days are coming down. Again, it's a cyclical in nature. The one point I want to highlight to the investors is more than 40% or even 49% of my receivables are less than 90 days, which means that while in the industry, 90 to 120 days is the normal credit period, half of my revenue, half of my receivables are still within that limit. Also, I wanted to highlight one more thing. About one year, which is now at 19%, just three months back, it was about 24%. So we were able to concentrate both on the short-term and the long-overdue, and we were able to reduce in both the segments. Can we move to the next slide, please? Yeah, as Padma mentioned about the currency risk, we are reducing our exposure to the frontier markets. Nigeria, which has been one of the large customers for us, Naira's stability in this current quarter has helped us to minimize the exchange rate. And as we know that as a side note, in Nigeria, the customer over there has shown significant increase in their profitability. And also we understand that the local government has provided them. a permission to increase their tariffs. The growth in the mature markets will reduce the impact of currency risks. As you can see, compared to last year, the volatile currency exposures, what we have in Q1 last year, it was about 55%. It has come down to about 45%. That was the last year. And in Q1, between the volatile and the stable currency the ratio has reduced from 85 between 85 to 50 50 which means that last year my volatile currency which contributed 55 of my revenue or rather 45 of my revenue has come down to 15 in my current year a significant decrease in the volatile currencies. Again, the other concern or the other issue we had was on the USD, Euro thing. As we can see that the Euro is getting stronger against USD. Does it affect our performance? Yes, to some extent it does affect our revenue. And also we have most of our costs coming from the USD denominated and hence there could be a natural hedge in that. these are all for what we have achieved in the q1 of the current year can we move to the next slide here is the summary of my assets and liabilities as at the end of q1 as we said that our focus on the product development has reached a maturity. And therefore, the addition to that is going to be more stable going forward. No, not much change from December to March of this year. um the trade receivables has come down however there is an increase in the other receivables also again this is again one more cyclical nature of our business where we provide services and recognize revenue based on the contracts which we have entered with most of the customers however to build in certain customers i need to get a purchase artist from them for that thing some of the customers take sometime during the beginning of the year for getting their approvals and the purchase orders will come to us a little later which will increase my unbuild in the q1 again cyclical in nature however there was a slight increase in my bank balance from 16.4 to 18 million at the end of the quarter on the convertible debentures there are no changes it remains at 23.1 And there is a small increase in the other non-current liabilities. And trade tables has also come down a little bit in this quarter. So here are the assets and liabilities at the end of Q1 of 2025. Can we move into the next slide? So we presented briefly what we have. And back to you, Thomas, for questions and answers.