Teneo AI AB (publ)

Good morning. Thank you all for tuning in today to our Q4 2021 results presentation. Our PowerPoint, you can find that on artificialsolutions.com, investors and quarterly reports. So please go in there and click it since we're not sharing that obviously over the phone. So good morning, it's been an interesting Q4 and I can say that at this point we have done our transformation. and 2022 will be the focus of scaling up from the position we're in. We're now transformed fully into a software as a service company. So some of you may or may not be familiar with the company. I'm gonna go through a bit about us as well and then talk more about the financials for the quarter and what our other achievements are for the quarter. The two people, and now I'm on slide two, the two people talking today is me and Fredrik Torgre. and suffice it to say that we've done transformations and turnarounds and scale-ups before, and we are hoping to achieve the same here, of course, and we're halfway through this journey. I will talk on slide three, again, for those of you who are not familiar with what we are and what we do. This is a presentation or a schematic to show the space that we are in. The space we're in is called conversational AI. which is a subset of the AI software industry. And it's a subset which is worth roughly 130 billion Swedish kronor and has a CAGR of 22%. So this is a market that attracts a lot of attention right now. And we were very early in this market. We started already back in 2021 when people were running around with Ericsson T28 flip phones. This market is all about a customer, an employee, a citizen coming into a system and asking something. That's the left part of the schematic. Can you help me? That could be a service request. I have a question. That could be an information request. I need to get this done, an action request. And so requests of different kinds and sorts and asking for some kind of action usually come into a human. With conversational AI, they come into what we like to call the bot. and the bot now needs to interpret what is it that this person is saying. Do they want something? Did they give me any places, other details such as names? Is there a date in there maybe? What kind of request is this? What are they asking for? Is the user happy, upset? Have we interacted before? All that the bot now needs to understand and then also potentially take the action. Best of breed in the industry today is that 20% of a total interaction from the left to the right can be managed by the bot. And typically, this is that you've trained the bot on a few use cases where the bot can manage it themselves. One example that we have today, which is also measured transactional net promoter score in this, is Swisscom. And they have 1.8 million phone calls coming from the left, the bot interpreting those. And in 20% of those cases, the bot actually also responds and manages the full interaction. Now, that obviously is a good ROI, so there's a lower cost. since there's no human involved in answering, but interestingly enough, there's also an 18 point transactional NPS. So the net promoter score, the customer satisfaction goes up with 18 points with the bot answering versus the human answering. So that's the industry we're in. We are leading in this industry and we also have some of the foundational patterns in this industry because we started really early. So the stage we were at in 2014 with Ask Anna is where most of our competitors are at today. And what we built during that period, the technology we built during that period is what we're now bearing the fruits of in a software as a service model. And that's what we're scaling up during 2022. I'm gonna move to slide four, give a bit more information about us and a bit more flavor about our business. We were founded in 2001, again that's a long, long time ago. That's before the iPhone, before the iPad, before even some of our employees were out of school. And this is interesting to us because we made many of those learnings that others have made early on. And those who are doing it today, we actually saw recently in the Swedish media, a large Swedish public organization who said they've now been at it for three years. And basically the feedback that they gave in that interview was the feedback that we got from IKEA in 2014. we started building our platform after receiving feedback like that from our customers and that's what's achieved this great platform that today is a patent value and you see that at the bottom left of the text and also bottom left of the squares 1.6 billion sec is the patent and IP portfolio evaluation that we conducted during q4 this was done by a company called aux first aux first does this for Many companies, one of the more notorious ones this year was Philip Morris, which has also been, that report has been waltzing through the European Union, all sorts of instances, and it's a quite reputable organization. So they value our patents and IP to be 1.6 billion SEC. Now we use those patents and IP, of course, to provide our software as a service. service we are not licensing them as such so we believe that our technology advantage is what provides an advantage to customers and what we do is we have an 86 language support platform where you build easily and you maintain easily a solution within the conversational AI space and those are the two main factors today there's quite a lot of competitors out there who try to build easily so It could be a no-code approach where it's purely graphical, but you will hit the roof quickly on the volume side and the maintenance side of that. So we both build and run this for you in a better way. Our partners or customers, they do the actual building. We provide the platform that makes it easy to build. are trailing or last 12 months ending December 21. So note that that is not a classical software as a service measure. We are still transforming from a licensed PS model. We no longer had PF. And what you see now is that we actually are back on track where the software revenue now compensates for the fact that we removed our PS. We've sold that PS portfolio off. That's no longer with the company. That's being built by our partners or our customers today. But our trailing 12 months then, so that this is not forward looking classic ARR, our recurring revenues are 36.7 million SEK. And that's the blue portion that you see at the top right of this slide, slide number four in our presentation. you see that the dark blue, that's what we are aiming to grow. So the total revenue now you see is 45.3, but the dark blue portion, 36.7, that's the recurring software revenue. And there we have a growth of an 18%, and that's the one that we're aiming to grow now going forward. We financed during this year 120 plus 250 million SEC, 250 as a debt, and 120 as equity, putting us on a solid footing going forward for this year. At the bottom left, you see some of our customers, and we have seven new customers acquired on the software as a service model this year, and some of those you see at the bottom left. Interestingly enough, these are the really large implementations, the really sort of stellar references that you want to have in this industry. and we're quite unique in having this reference base that's of course a very strong piece now as we're building out our sales and marketing organization during 2022 our strategic partners the ones that have really made a big dent this year is our relationship to microsoft where we're doing several campaigns together with microsoft also visiting the mobile world congress together in two weeks We have CSG, have done several large engagements and their total PS revenue on our platform last year was over $6 million. So they're making good money off of us today. CGI, similar type of numbers, also very good and generating a pipeline for us. Ernst & Young has also proven to be a very solid partner for us being able to take the software and use it for things that we had not imagined before. So very interesting that our partners are delivering and that's really a point of strength as we go into 2022. I do want to mention that we have a 95% renewal rate in the last two years. We will start as our legacy revenue decreases as we convert our customers to software as a service. We will of course start reporting on real fast metrics but a 95% renewal rate is very good and with growth in our new SaaS customers that of course is going to provide for good net retention rates going forward. The next slide is our executive management. I'm going to mention this again because this is the team that now is going to build this out. The sort of stable person in our company is Andreas Vivek. He's been with us for a long time. He's the one that took all those learnings back in 2014 and started building the platform that we then patented and which is the basis for our software as a service offering, which we're now taking to market in a strong way in 2022. Apart from that, the management team is new. And quite experienced people from the software as a service industry and we feel quite secure that this is the team that's going to be able to build out our revenues now in 2022 and going forward. Next slide is number six. And these are some of the operational highlights for the year. So Q4 2021 was the final step in our transformation. We got the Nicolas Cullerstedt or CRO that you saw on the last slide. He came in from Snowflake to start building out the sales organization and we now have a sales process. We are using the methodology called MEDIC which we have implemented and we've started now recruiting sales into that sales motion. Currently a small sales organization with five salespeople, one being focused on partners, but that is being built out during this year. So quite happy with the build up in the salespeople we do have and with the new SaaS model and how it's being received in the market. We have happy customers. In my career, which is quite long in the software industry, I haven't really seen customers this happy. Partially that's because it's SaaS, but also our on-prem customers, our legacy customers are quite happy with us as well. So we get some very good customer feedback at the end of the year and the Q4 as we had our sort of wrap-ups of the year with our customers. Very happy with that and very happy with our product team and our customer success team and how they're delivering value to our customers. We are accelerating on growth, so we have traction now, 17% growth Q4 2020 versus Q4 2021 on the adjusted recurring revenues. Some of you may remember, if you're new, that means that we've taken the old upfront revenue recognition and adjusted that to be a month-of-a-month revenue recognition since we're no longer recognizing deals or revenues upfront. Our SaaS revenues are increasing and we signed a number of new customer contracts and customer contracts during Q4. Very interesting BanquiDiba, there's been a lot of talk about Meta. BanquiDiba in Italy are actually using our software to provide a speech service in a Meta-like VR banking service. which I believe to be one of the first in Europe and maybe even potentially globally. So quite an interesting use case as we're moving into the metaverse to see what that can give. Banco BPM also a very good Italian customer, Italian bank. GrapeTree, interesting, they do medical staffing, so you would call that Staffett Läkare, maybe in Sweden, in the Midwest, and are expanding across the U.S., and our software is going to provide a way for them to provide better service to both their employees and their customers. scania scania scania scania scania scania scania scania scania scania HelloFresh, very interesting in moving into new brands and HelloFresh is launching new brands all the time. Some very interesting developments going on there as well. And SelectQuote which is a healthcare administration company back in the US working to make healthcare plans easier to administrate and work on. What we're doing now is recruiting on all the supporting sales activities. That's a big focus for Q1 to get people in. Of course, it takes a while to get them in and build that pipeline out. But in the meantime, of course, we're working on expanding the usage in our existing customers. The SaaS platform is providing revenues in a delayed fashion since we charge for API calls, but we'll go more into that as we go along. Capital Four has helped us with a 250 million SEK credit facility over five years. It's a PIC interest, meaning we pay the interest at the end, so very good for our cash position. And of course, we exited the quarter with a very good cash position, over 100 million SEK in cash. We have gotten another cash injection from Research and Development and we got the approval of our 2020 application for this, which is going to provide us with a cash refund next year at the end of the year. at the beginning of next year of 5 million SEC. This is because we have most of our development in Barcelona and in Spain you get a cash credit for software developed in Spain. So this is quite beneficial for us. Also Barcelona is very beneficial to us because it provides us with a very diverse workforce so we're very happy in having our R&D sitting in Spain and in Barcelona. The next slide, I just want to provide some flavor to software as a service. What's the big deal? Why are even our existing customers moving over to software as a service? So to the left, you see a typical situation in a customer environment today. Customers who are maintaining our platform themselves, they need to maintain the servers, the network, the storage, all these different boxes, and then the virtualization layer on top of that. and they need to monitor all of this and there's temperature, there's cabling, all sorts of mundane physical things that they need to manage. As they do that, there's a cost incurred in this and this is a large portion of our industry today. Many of our customers have deployments that look like this and also many of our competitor customers have deployments that look like this. Our offering software as a service takes all of that away. You no longer need to maintain any of those boxes or networks or storage yourself. The second part of this is that when you no longer maintain it yourself and we maintain one instance for all of our customers, then to the right you see a front page of WIRED which was from December in 2021 and so the end of Q4 and what you see there is a picture of a big big hole in the internet which was the log4j which is a logging product which is open source and used for example in the Apache web servers and which is very commonly used across many companies today I would estimate that there's hundreds of in any enterprise company today there's hundreds of applications running log4j Now, there was a hole in this, which wasn't necessarily a bug, but there was a hole that was found in this where you could basically submit a request to these servers and then take over the service as administrator. Now, if you were running these servers yourself, that meant that your IT department now needed to patch hundreds of servers So not only, it's not simple, right? You need to understand the context, you need to understand what versions you're on, and you need to build the patch for those services yourself. We did this, of course, and within the first 12 hours, we have the first patch available. And as this vulnerability evolved, we were patching within the next 24, 48 hours along the way. So our customers that were on SaaS were protected all the way. There are still companies and applications out there which have not been patched at all for Load4j, providing a huge security exposure to the outside. In Sweden, we also saw the Coop disaster in June or July last year when you couldn't even go in their shop because they had their systems sitting on the left side in their own data center. big advantages to our customers and really helping our customers move to SAS quicker which is what we're pushing and that's also of course what our revenue model has been built on that we get more revenue as customers move to SAS and grow and they grow easier when they move to SAS so I wanted to explain that and now I'm going to give it over to Fredrik to talk about some of the key financial highlights Fredrik our CFO please thank you thank you

Moving on to the next slide, please, which highlights the key financial highlights for the quarter. From a CFO perspective, I'm very satisfied that we can actually show a number of metrics that are actually evidencing a lot that we are executing on our strategy in the way that we have guided for and I think that is yeah I'm very pleased with that so to summarize I would say our sales metrics in the quarter keep growing our sales business is also increasing in importance and we also secured financing for our operations to summarize the quarter and net sales adjusted amounted to 10.2 million SEK in Q4 2020 versus 10.4 million SEK in Q4 2021. So up 2%. The adjusted recurring revenues amounted to 8.1 million SEK in Q4 2020 versus 9.4 million SEK in Q4 2021. So that is actually up 17%. And that is, as Per already mentioned, one of the key metrics that we are steering at the moment, as we are also transforming from a non-SaaS software company with PS into becoming a pure SaaS company, where we will focus more on the more forward-looking metrics. But this is a very kind of good metric, and we're also very pleased that we can show significant growth in this metric. The impact from our new 7.1 customers on SaaS is starting to be visible in our revenues, but we're still, as Per mentioned, ramping up, so we expect more to come. In December 2021, the recurring revenues derived from SaaS customers as I said, increasingly important and constituted 25% of total adjusted recurring revenue. And this is, of course, a metric that we will track in order to see also the development of our execution of our plan. And we also expect this number to grow as we add more customers to SaaS and also as we are ramping up on those customers on API core volumes. On a rolling 12-month basis, the adjusted recurring revenues increased with 8% versus Q4 2020 and amounted to 36.7 million SEK. And these adjusted recurring revenues in Q4 then also accounted for 90% of total sales, which basically means that we are again executing on our strategy and focus on growing the recurring revenue streams. And also, as I mentioned earlier, the professional services revenues are, according to plan, consequently also decreasing. So it's very much how we are executing on our plan, as I started off with. Also, a positive thing is that we actually also report net sales growth on reported net sales. up 1% Q4 2020 versus Q4 2021. And I think also we have highlighted the details on this kind of revenue recognition for our adjusted numbers in the quarterly report. And for those that are interested to look in more into details on that, you can also go into our quarterly report on page 45 to get more. information about that. We continue to keep a good cost control and reported adjusted EBITDA of minus 16.6 million SEK and we also then when we close the quarter we also had a strong cash position having 112 million in the bank. So overall we are on a positive revenue trajectory and our recurring revenues are growing in a good way, even if there is still limited revenue impact from the new customer wins during 2021. So in that regard, very positive if we look a bit ahead. Next slide, please. This is a summary slide on the key metric that we measure and follow in the company and it's also kind of linked to the execution of our strategy so our recurring revenues license and support together with usage revenues in the old model and subscription fees and API core revenues under the new SaaS model they are key for us as a SaaS company and they are continuing to grow and it's a key metric for us in our focus on building a SaaS company and also over a longer period of time also creating long-term shareholder value. Therefore, it's really satisfying to see that we increased it from 34 million to 37 million in June 4, 2021, a growth of 8%. And what is also good is that we also can see that The recurring revenues are also growing with 4% Q3 2021 versus Q4 2021. So that's the kind of trajectory we want to continue on and of course ramp up even more. I already mentioned that we had 25% of revenues coming from sales customers in December. And I think that is also something that we track internally and also will show externally going forward as well. And also as a comparison, this 25% can be compared with 14%, which was the number in Q3 2021. So we are progressing on converting into the source model basically. And we also see continued strong commitment and high interest on our source offering from our existing customers and we expect many of them to join the source model in 2022 as well. So we go to the next slide. We show this in previous presentations as well. So we have As we have guided, we keep good cost control. The ones of you that have followed us, you are well aware that we did significant kind of OpEx reductions in Q4 2020, which showed full effect in Q1 2021. And this cost reduction was basically done to align the new product-led source strategy that we are now working on. And we continue to keep a low OPEX level. So the current annual run rate was 117 million SEK in Q4 2021. And consequently, I mean, the OPEX cost base being below 10 million SEK a month, basically. And I think this is very much kind of in line with what we have guided for in previous quarterly reports and presentations. And going forward, I think we expect to increase OPEX somewhat from the Q4 levels and onwards, primarily as we're adding key commercial positions to further kind of execute on our new strategy and grow sales even more. But still, we keep a very kind of careful control of costs going forward as well. Next slide. Just quickly on the five-year PIC loan that we secured in December. Per mentioned a bit about it, so I will not go into details. But we are very pleased with the financing, especially as it provides us with an even stronger cash position than we had before to carry out our strategy and execute on our strategy. We started, as you can see, the uses of funds table to the right. We started the month with 96 million in cash. And then we have received gross amounts of 250 million from the new loan. And then we have done repayments of approximately 200 million SEK to former debt providers that we have had financing the company. With the financing, of course, our interest cost is being reduced with more than 7% units versus the previous debt financing. It's especially good for us as a growth company, still cash flow negative. We don't need to pay any cash interest until after the five-year period and as the loan is maturing. So that's very good. And also I think what is also worth mentioning is of course that the financing as such may seem high with 9.5%. but I think that should also be compared with what the cost of financing with equity would have been, which I think would have been significantly higher. So all in all, very positive with the financing and having it in place. So I think very pleased basically with the financing we have closed. And with that, we move to the next slide, please. A bit of continuation, I would say. I mean, we mentioned in the previous slide, we started Q4 with 96 million in cash and our liquidity has continuously been strengthened during the year. We, as many of you are aware, we managed to close a successful Direct Additions in Q2, providing us with 120 million SEK, excluding transactional costs. And then we closed the FIU credit now in Q4, adding 250 million. On top of that, we ended the year with 112 million in the bank. But beginning of January, we also received 6 million as an R&D cash refund. that Per mentioned that we receive for the R&D work that we do in Spain. So further strengthening our cash position. So pro forma, we had 118 million end of year. And all in all, I think the strong cash position in Q4 also enables us to drive and execute on our strategy to 100%. So very pleased with this. And with that, I hand over to you again, Per.

Thank you very much, Fredrik. So I'm going to go through quickly on slide 13, our business model. Again, some of you have seen this before. But I want to highlight how it works and also give a bit of understanding to the delays that you will see in revenue from our SaaS customers, but how that actually works over time. So on slide 13, you see to the left, that's a large customer and a small customer. We basically, that's just for modeling purposes. Of course, there's customers that are in between the two. And to the right, you see the pricing that makes up those bars on the left. So to the right, this is all subscription revenue. First of all, you need to pay for access to the development platform. And this is called Teneo. The whole product set is Teneo. So you get Teneo, you start working, you start building. And for a smaller customer, they might pay us 7,500 because you only need five seats. A larger customer maybe needs seven, eight, nine seats, and they would pay €10,000 per month to us. We actually charge the same in dollars, so it would also be $10,000, so slightly less for the US, which is common for SaaS and for software companies. Then the big one that is the one that, of course, is generating revenues over time is the API called revenue. And this is when you deploy, so you've built your solution, you're deploying it, It typically takes six to nine months for a smaller customer, nine to 12 months for a larger customer. And then as you deploy, you will start ramping up gradually to more and more conversations, which then gives more and more API calls. And we estimate in our modeling that a large customer gives 24,000 euros per month in API calls and a smaller 2,000. We already now see that we're going to have customers that are larger than the 24,000. On the other hand, we have a few that are going to be smaller than the 44,000, so we think this is a good average. And then we have data, which is basically a data analytics platform connected into the Power BI platform of Microsoft. That's revenue is going to be around 10% of the API calls in our model. We have a few trading and expert services that we provide usually to the partner, and those are small revenue, which don't really have big impact. So the big impact is the blue portion, which is the API calls that you see here, the 2.9 in the large customer. That's what we're after. That's what we're aiming for. With that, let's have a summary slide before we go into Q&A. So what are we? We are a horizontal technology delivered as a software as a service platform built with our experiences from 2001 and patented and lots of forged citations on our patents, which meant that our patents and IP were valued by Oxfords at 1.6 billion SEC in the report produced in Q4. We have growth in our recurring revenues, 17%. Obviously, now that we start focusing on building out sales with Niklas Kullerstedt, our new CRO that came in from Snowflake, and with the marketing engine, we're going to be aiming at growing that more. Of course, also aiming to grow that at existing customers with our customer success organization. We've implemented cost reductions during 2021 and are now at a 34% lower cost than we were before. And that's the basis that we start building from. We are working with Microsoft as what's called an IP Co-Seller Incentivized Partner, meaning that Microsoft salesperson has all incentive to work with us. They actually get commission for working with us. and we help them build out on their 1700 plus Lewis customers. Now, this is very key to our go to market emotion. We did it together with Microsoft partners as well, as many of these customers are Microsoft partner customers. And that's where we're building our sales organization on top of with partnerships going direct to our customers, but obviously leveraging the strengths that Microsoft has in these customers. The team that has come into a large system comes from a company that is in the same industry, and that company was valued at 13 billion SEC last year. I was, of course, early in building that, but a large portion of our team also comes from that. So we've done this before. We scaled the software as a service solution in the conversational AI space before. Our market has a 22% CAGR and is worth about 130 billion SEC in 2022. This is, of course, a market that attracts a lot of companies, but we believe we have the strongest technology. Now we also need to build the strongest marketing and go-to-market organization in that. Interestingly enough, another aspect of going from on-prem to SaaS is that deploying in the Microsoft Azure Cloud, and our default deployment is in the Microsoft Azure Cloud in Sweden, so since they have a regionalized cloud, that actually provides a carbon reduction of 84% to our customers according to calculations if you use the Gartner carbon dioxide calculator. So that's also quite substantial. You will be moving into a much better environmental aspect as well as you move from on-prem to SAS. So going forward, we have a good position there. That's a summary of where we stand. Good position starting in 2022. We see already that even though we've removed PS, our revenue is growing again. So very happy with that. With that, I leave it over to Q&A.