Teneo AI AB (publ)

So good morning all and welcome to this presentation of our Q2 results, which I'm very happy to share with you. Also, since we are far into August, we're also including some July numbers since those are available as we speak. The presentation is available on artificial solutions, investors and quarterly report. So on our website, and I will be saying just which slide number I am on as we're speaking. So let's dive right into it today. presenters is Per. I am the CEO of Artificial since about a year and a half back. I have a long background in this particular area of the IT world, which is called conversational artificial intelligence, or CAI. And I'll talk a bit more about that as well. And Fredrik Thorgan has a long experience in both PE back tech and SaaS companies, and also worked in the capital markets in Stockholm. We are going to present today, like I said, the Q2 results, but I want to first start with slide three, which is to tell you what our market is and what it is we're doing and why this is important and relevant for our company. So our market is a customer or an employee or any stakeholder that wants to know something or has some kind of request comes in from the left with a, can you help me? I need to get this done, et cetera. The conversational AI then needs to interpret this and understand what it is the customer is asking, but also what language they're using. Are there people, places, and details mentioned? What kind of request is this? Does the user seem happy or upset? Have we interacted before? So typical use case here, we can take the case of Swisscom. Swisscom has built a solution where the conversational AI picks up the phone when you call the Swisscom hotline. roughly a million calls a month go directly into this platform and the platform will then determine what it is the person wants and if they're happy or upset, etc. An upset person always gets connected to a person, a live person immediately, whereas a person who's not expressing that they're upset in any way would probably try to be served by the conversation AI. And what we found is that the actual customer satisfaction improves when the conversational AI, so our technology picks up the phone. The interesting piece is that this is very new and there's very few companies that have implemented what Swisscom has done. They're probably one of the top five in the world in this, but the other top fives are also our customers. So this is a niche which is now expanding and we're going to see lots of increased traffic in there. And as you see from our revenue model, That's exactly what drives our revenues. Artificial solutions at a glance. This is slide number four. So we are the leading software company in the conversational AI space when it comes to one specific aspect, and that is volume, which is also why you at the bottom of this slide, you see very large customers. It's the likes of A1, O2, AT&T, Volkswagen Group Skoda, customers that have a lot of customer interaction are typically working with us also there's some public entities which have a lot of interaction with for example patients or it could be with taxpayers and when they have a lot of interactions and working with us and this has really shaped our strategy and these are the type of customers we're looking for we're not necessarily looking for a volume of customers we're looking for for many of these larger customers and expanding within those customers. And that's also what you will see in our report that our revenues increased quite dramatically in the existing customers. We were founded in 2001. That's quite relevant because we have some of the foundational technologies that are used in this industry. They're used by Amazon, they're used by Apple, they're used by Google. For example, because we were very early in building these technologies, these are patented, there's forward citations on these patents that you can follow if you go onto the Google Patent site, and it's highly acknowledging the fact that we were early on and are innovators in this space. Our platform is called Teneo, and Teneo allows somebody to build a communication application, some conversational AI application, and either they build it themselves or they build it with partners and we support them with something called customer success. So our model is that we provide the SaaS and we provide help in how to use that SaaS to build but we do not build for our customers. The customers do it themselves so the partners do it for them which also then makes partners very important which why at the bottom right or the strategic partners piece there you see several partners The most important one being that we're aligned with Microsoft Azure. We're part of the Microsoft Azure ecosystem, and that is quite important for us since that means Microsoft's salespeople have incentive to also recommend and drive our usage in these large customers. Another partner to highlight is CGI. Was it this quarter or was it the beginning of July? But anyway, recently we had a press release where CGI have signed a global partnership with us. And we've already on LinkedIn seen quite a lot of external parties noticing this and talking about the solutions they're providing. One of them being a very large healthcare provider that they're implementing and actually going live about four months after initial start to that project. We support 86 languages in a model which is unique to the way we manage languages. It makes it much easier to build a multilingual application than with any other solution. This is becoming increasingly important also in the US, as many of the US companies, of course, go international. You see many of our, we have many smaller competitors who might be only in one language, so there might be a Bulgarian that we completed within A1 that only does Bulgarian, whereas we do several languages and of course that helps if you have more bilingual customers or employees, which most companies do today. We're in the course of shifting from a traditional license usage revenue model to pure software as a service model. We're still pushing to move all our customers over to the SaaS model. It is somewhat slower than I had anticipated. and what we're still hoping to accomplish just by the end of the year. The reason it's been a bit slower is the fact that we've had some certifications that we're just about done with now, which have been a reason for some of these customers not to look at this. And also it's a renegotiation of contracts with procurement that take time since the revenue model is different, the payment model is different. The SAS ARR in June was 20 million, but in July, like I said, we're disclosing those numbers since we have them ready, was 21.2 million SECs. So that's the forward-looking ARR, i.e. that month times 12. And that is a substantial increase, of course, during this year. We started reporting SAS numbers only in Q1. So we'll see some of those comparisons as we go through. The patent IPR portfolio has been valued at 1.6 billion SEK by a third-party evaluation, Oxfors. The patents have very innovative, we have some very foundational patents in our industry, but we are not using them as a revenue model at this point. Of course, our revenue that we see and the SAS model is working, and that's where we want to use this technology to provide real value to customers. Just some of the summaries below. We had three customer renewals in Q2 2022, and one partner signed up. We had an 18-point TNPS increase at Swisscom. This is a number that's been holding steady. It's an increase versus a human picking up the phone, and that is quite important for this industry. Of course, the cost saving is enormous when you deploy a robot to pick up the phone. But if you also get a TNPS increase, that has been some reverberations around that in the customer experience business as well. We have nine net new SaaS customers in the last four months. And also another thing that we find quite interesting is the fact that Skoda is still expanding and now added 13 new regions in this quarter. So 13 new countries where you can buy your Skoda by talking to Laura. And Laura, of course, is powered by Teneo. At the top right, this is the development of our SAS API call volume. So the API calls are the primary monetization of our platform as we grow. And you can see here that it's growing at a healthy clip. And of course, that means that existing customers are growing. And that is also where we're putting a lot of our focus through customer success in having these large entities like AT&T and spread this technology across all of their platforms. Some operational highlights on slide five. We had very high growth, again, in SAS API core volumes, 69% March 22 versus June 22. So that's one quarter, a 69% increase. If you just look at the month, June versus July, 11% increase. This is quite substantial, and we're very happy with this. and as you note, it is driven by existing customers. The SaaS ARR is also growing quite highly. Of course, the API call is a portion of the SaaS ARR, but it's 55% up in March 2022 versus June 2022, and we have a 6% increase in July versus June 2022 there as well. So very good, and I'm very happy with this performance, and this really bodes well for the future Customers are continuing to show very strong confidence in our SaaS model. We have 23 customers in total, 13 are now in the SaaS revenue model, and nine of those are net new SaaS customers in the last 12 months. So very happy in that they are growing, the SaaS customers are showing this confidence in that this works and putting more and more effort into having a larger volume in there. One of the things that's happened, given the fact that we changed our focus to not expanding primarily in volume of customers, but more customer volumes, so expanding into large customers primarily, is that we changed our sales strategy to have a dual sales team reporting in to me, one being, of course, Sean McElrath, who came in at the end of Q1, who has built quite a team in the US now on sales and pre-sales. and Patrick Rosenberg, who we are announcing today is being hired as AMIA VP of Sales. Patrick will be joining us likely sometime in September. That's being discussed with his current deploy as we speak. Patrick has a long experience both within the conversational AI and artificial intelligence in general, and comes from a company in the Wallenberg family of companies that is focused on AI. So very interesting. recruitment and he has large international experience both from the US and Europe, which is going to be key for us. Since he will collaborate with me in the EMEA team and of course, Sean in the US team. Teneo, we had a major platform release. You can read more about this in our statement on our Q2 report on the web. It's called Teneo 7. It is the last straw of making it a SaaS platform. and it's been a brilliant job by the team to pull this together. Lots of new features which we are alone to have in the industry, most importantly being the team-oriented features, meaning that several people can collaborate on the same solution. So incredibly important for us and we're very happy that this was released in the quarter and we've rolled out customers without any major hiccups on that. We also did a reverse share split to get our share more in parity with where you would put companies that come into the stock exchange. Of course, we came in through acquiring a company and then divesting of that. So the reverse share split of 1 to 10 was to produce more in parity with where you would have put a new company had we come into the stock exchange from fresh in an IPO. That's the operational highlights. I'll now give it over to Fredrik to give us some key financial highlights on slide number six. Go ahead, Fredrik.

Thank you, Per. So, some key financial highlights and I think our sales metrics in the quarter keep growing and our SaaS business is obviously increasing in importance. Net sales amounted to 10.2 million SEK in Q2 2022 versus 8.2 million SEK in Q2 2021, so up 24%. But more importantly, our recurring revenues increased to 9.1 million SEK in Q2 2022 versus 6.3 million SEK in Q2 2021, up 44%. So very satisfying as this is one of our key KPIs. And the recurring revenues as a percentage of total sales is also continuing to increase. And in this quarter, it was up 89% versus 87% in Q1 2022. So basically our kind of strategy, we are executing our strategy and wrapping up. I mean, the recurring piece of the business and also the SaaS business. The impact from our new customer wins in 2021 and 2022 on the SaaS model are starting to be visible in our revenues. But even though they are showing up in kind of revenue increases, they are still in a ramp up phase. and SAS ARR increased to 20 million in Q2 2022 so up 55% versus Q1 2022 and also currency adjusted the increase was 51% so still very kind of solid growth and in addition as Per mentioned your life SAS ARR amounted to 21.2 million SEC, so up 6% versus June 2022. So this is a very satisfying kind of growth numbers month over month. SAS recurring revenues, as I said, constitute now 49% of total recurring revenues in Q2 2022, so up 34% from 34% in Q1 2022. And again, this is also, I mean, execution of what we have communicated to the market in the past. And this number is also expected to grow as we add more customers to the SaaS model and also as our customers are ramping up on API core volumes. Per also mentioned SaaS API core volumes are ramping up and was up 69% versus March 2022. very impressive growth rate. But here we also recognize that we have many customers where we as a company still think there are significant scale up opportunities from current levels. But given our model also, we can't make any kind of guidance on that. But we see plenty of opportunity to scale up from the current levels. Overall, we also experienced, I mean, quarter-over-quarter sales growth on all our relevant SaaS metrics, and also looking a bit more on cost. We continue to keep cost control, even if we are increasing OPEX somewhat, but that is more in line what we have guided for in previous reports. And we now reported an adjusted EBITDA of minus 22.4 million SEK. End of Q2, we also had a strong cash position of 64 million SEK. And there we can also acknowledge that a few customers paid beginning of July instead of end of June, which sometimes happens with large customers who are pushing payments over the quarter ends. And this had an impact of approximately 5.5 million SEK. So adjusted for this cash and bank position would have been 69.1 million instead of 64 million end of June 2022. But overall, I think we are on a positive revenue trajectory and our recurring revenues and the SaaS ARR are growing in a good way, even if there is, as I said, still plenty of potential to ramp up API call volumes further. And next slide, slide number seven. Our SAS model is obviously ramping up and two key KPIs for the SAS model is the monthly API call data and the SAS ARR. And the monthly SAS API call volumes grew with 243% versus December 2021 in relation to July 2022. So a very kind of impressive growth rate, I would say, on the SAS API call volumes. And this KPI is also an indicator of how our customer application and usage of them are growing. And you can simplify, say that the more applications slash solutions covered or covered regions, the higher the API call volumes. So all in all, high volumes means more revenues for our company. The SAS ARR grew with 126% December versus July 2022. In the monthly SAS revenues, we have also converted customers entering the SAS module, obviously. But overall, very strong growth on two of our key KPIs going forward. Slide eight, then. This slide we have showcased I think since Q1 2021 and it's basically outlining the business model that we are driving towards, driving over existing customers that are not on the SaaS model into the SaaS model as quickly as we possibly can. and then also bringing in new clients only on the SAS model. And this also clearly showcase, if we do a reference to the increase in ARR between June and July, where you actually see that the main part of the increase is actually coming from from the dark blue piece of our revenue model, which is the variable piece, which is linked to the API call usage by customers. And that also showcase, I mean, if we have customers who pay the subscription piece to be on the platform, which is the red part, That is more kind of the starting point for customers. But if we have large customers bringing on significant volumes, we can increase the variable part of the dark blue side. And that is what we see the increase in between June and July, which was kind of a 6% increase in SAF ARR. is only in in this case driven from increased volumes and that also showcase the scalability in our model when we once have customers in in the platform we want them to scale and last quarter for instance we want to grow in in more regions in order to get more kind of volumes and that is the very nice piece with our business model and then the great scalability with it. So I'll leave it there. We have run through this slide in previous calls, so I think most of you are familiar with the business model as such. Slide number nine. I think we have talked about most of the growth metrics here. but obviously recurring revenues grew from 6.3 million SEK in Q2 2021 to 9.1 million in Q2 2022 so a growth of 44%. The rolling 12 months recurring revenues is also increasing year over year and quarter over quarter and amounted to 35.2 million SEK in Q2 2022. SAS recurring revenues and the SAS ARR increased versus Q1 2022 and Q2 2021 to 20 million in June 2022 and SAS revenues increased further in July as I already mentioned and SAS ARR amounted to 21.2 million SEK in July while total ARR amounted to close to 42 million so looking ahead we see clearly that the underlying contracts we have with customers has potential to grow further. And also, as you saw, June between July, we had a 6% increase in SAS ARR. And that's a key driver also for the total ARR increasing to 42 million in July. Slide number 10. Looking more on cost, we can see that we are increasing our OPEX as guided for in previous quarters. Run rate in the first half of 2022 was 134 million SEK excluding extraordinary items. And going forward, we expect the OPEX to slightly increase due to as per outlined front-end investments, so basically marketing and sex activities to further kind of grow the revenue growth. And with this also, we can also see that our cash position end of June was adjusted 69 million SEK. and our current net cash outflow, so that is cash in minus cash out. We expect our current cash and bank position to last at least the coming three quarters. And there we can also just say that, I mean, we raised debt from capital four at the end of 2021. and we can just say that we have very good relationship with our debt providers and also our large shareholders. And going forward as a growth company, we are intending to continue to grow and we will finance our continued operations in the best interest of the company and the shareholders, obviously. With that, I leave over for you, Per.

Excellent. Thank you very much, Fredrik.