Teneo AI AB (publ)

I think we'll just go ahead and start. For all of you to know, this meeting is being recorded. Just from a privacy perspective, so you're aware of that. Presenters today is going to be me and Fredrik. Fredrik is our CFO, and of course, I'm the CEO of Tenio. I think most of you have heard us talk before, so I'm not going to do a whole lot more introduction than what you see on the slide. This was a very interesting quarter with a lot of activity happening in Teneo. Obviously, one of the big things is that our investors, or a few investors, but very strongly, decided to support our growth in the US, which has also been our main focus for the quarter. So hiring has been a large portion of what we've been up to. and we now have a complete organization covering the US with both customers and partners. We also spent a lot of time on renegotiations. Typically, our MSAs, our Master Service Agreements, are three years. So, of course, a lot of those have come up now for renewal, which means that we have renewed with our large customers, and in a few cases also managed to increase the prices for the ones who don't have big enough volumes. We pretty much, we've been quite hard on increasing prices there as well. So that's also been an important milestone this quarter. But most importantly, it is the pipeline building and a totally different momentum in the market. So what I would like to do is start with a market update to tell you a bit about what's going on in the market and how we're capitalizing on that as we speak and why that is helping us grow our pipeline right now. The first thing is that everybody talks about AI being something in customer care. I am in the US today. I was at a dinner yesterday with a lot of people from the industry. And the big thing, of course, the big piece of news is that open AI is not going to go for profit, so it will remain a nonprofit organization. That is very interesting because that means they won't be able to bring in the types of money that they were looking for to further expand their LLM footprint. Of course, they're the ones who have spent the most and might be in the lead or not in the lead, but everybody thought the LLMs were going to be the solution for customer operations in the beginning of the year. Sorry, beginning of 24, but that has shifted a lot recently. And we are now capitalizing on what I would call the second wave, which is a bit after the trough of dissolution with the LLMs. We come in and we show what we can do. Here's another way to look at the time. This is from Statista. the total addressable market of course the left one is AI market which is tremendous growth and we saw Microsoft capitalizing a lot on this in their quarterly report we are on the other side there we're going to be in the AI for customer service market which probably did not grow as much in 24 in revenue terms although a lot of companies have been there to do that and one of the reasons is most of them have built their technology on top of open AI in different guises it could be Azure open AI or it could be OpenAI directly and of course build chatbots. So that has been a big focus for a lot of customers in 24 and actually even beginning in 2023. Now, the biggest example of that, and I'm not picking specifically on this company, it's a great company, but the biggest example was Klarna that came out and said, we're going to take out the staff in customer care and replace them with an AI powered chatbot based on OpenAI. Now, only Klarna and OpenAI have the same investors, so there's a bit of a synergy for them to talk about and, you know, raise both company profiles in doing this, but there's a company called Voiceflow and they test these type of applications and essentially probably a few of you have tested this as well. they don't like it. And it turned out that Klarna did not fire any of the staff because the chatbot is actually not connected to your personal information. It will just give you a link so that you can see your personal information after logging in to your account. So it will give you a link to look at your transactions and give you a link to complain about transactions, et cetera. And as you see, there's a very strong criticism here on the customer experience of that chatbot. Now, a large portion and reason behind that is if you expose a chatbot which is LLM based directly to the web, which a lot of people again in beginning of 24 thought was going to be the answer, you first of all, you subject yourself to the potential for hallucinations. Here are some recent examples. Air Canada, for example, they had a chatbot which provided incorrect refund policy information, they ended up paying people business class tickets for bereavement for a dollar instead of charging them for them. There was a Chevrolet dealer that agreed to sell several cars for a dollar. because somebody managed to manipulate the prompt. So when you have a chat bot that's exposing inner internal systems through an LLM, what happens is you can do millions of chats without any real cost to you. All you need is some compute power and of course the network. However, that is totally different if you were to use voice, where the voice acts as a firewall. So this is examples of things where companies or people have been able to manipulate the prompt. And in some cases, not even manipulated, it's just purely hallucination. So you have, for example, the New York City small business chatbot, which was based on OpenAI as well. And somebody came in there, the one that I really liked the most, was that somebody came in and said, I want to start a restaurant to serve human meat. and the chatbot answered, okay, you need these permits and, you know, we really like you to open a restaurant that's great for small business in New York City. Or in this case, if it's a rodent-eaten cheese, what I do with it, well, it just cut away the piece that the rodent ate on and then you can serve the rest of the cheese. Obviously, these are not correct things to say. And that's because LLMs hallucinate, because LLMs are just a, they're just prognosticizing what the next few, let's say, syllables are going to be in the language that they're putting out. It's called tokens. And then another reason why the big market shift is happening here on the chatbot side is that this is Johan Rea Barrier. He's not Swedish, but he's originally from Sweden. and he works at Electronic Arts as a Red Hat, so a person that hacks stuff for Electronic Arts. And these are the three risks that he talks about when it comes to LLMs. So it's misalignment, jailbreaks and prompt injections. Essentially, having a chatbot exposing LLMs to internal systems is a bit of an issue. So what is it that could solve this? How do you now use the latest AI technology but still let your customers essentially get at the internal systems because that's the that's what you really want to do you want to allow your customer to, without talking to a human, be able to look into SAP, Salesforce, ServiceNow, whatever internal systems might be, systems of record, but also knowledge bases, of course, like Slack, etc. So how are you going to do that without subjecting yourself to these hallucination risks, but also to these potential security threats? And that is, there's a simple answer to that question. You're going to do it through the phone. so if you do this with voice you first get a firewall because first of all it's not possible to do millions of phone calls because it's very costly you have to have a phone line etc we had a we had a um security incident in august of i have to think i think it was 23 but anyway where um It was then said to be Chinese state actors had got a hold of WhatsApp numbers and they were dialing into voice based solutions. However, that is still quite costly because each one of those WhatsApp numbers cost a lot of time and effort to get, but also they cost money. So voice really is acts as a firewall in itself. And that is why we go to market with only one thing. We automate voice. Customers may still build a chatbot on our technology, but voice is where we shine, and it's where we are the leaders, and that is what we're selling now in this go-to-market motion in the US, the UK primarily, and then every once in a while we'll have customers popping up in other geographies, but that's our focus geographies. So what you see here is an example of a customer. This is our large tech company. They have today 10 million phone calls a month. and 60% of those cases are resolved automatically. So that means that no human is involved in that. So backing back into Klarna, did Klarna fire 60% of the staff? No, they did not. Did anybody who deployed the chatbot based on LLMs actually managed to make an ERI? Well, we've seen lots of articles that that did not happen. So it's been McKinsey, BCG, et cetera, are all talking about the lack of ROI in these implementations. This one has real ROI. The 60% automation, those calls cost 40 cents. That includes everything. It includes the contact center, it includes the zip lines or the phone lines, and also the cost of Teneo. and the project. And then the $6 is when a human picks up the phone instead. So the difference is $5.60. And if you do that, 10 million, 60% automated, 6 million, $5.40 per month, sorry, $5.60 per month, you see that it's over $30 million of ROI. So this is quite important that this type of AI actually has the ROI and it can also be deployed in a secure manner. That, and together with our unique selling point accuracy, is why we're so bullish in the market and why we're putting all our eggs in now building pipeline in the US, UK primarily, as those markets have very large phone consumers, so companies that have a lot of companies calling into them. This accuracy was tested by Ciara. There's two numbers that we use. We use a number 99% in marketing sometimes as well. That is what has been reached by, for example, Telefonica Germany. They've gone out and said that they have 99% accuracy in intent recognition. So what is this? The first step in speech in any phone or any chat, for that matter, too, is to take the text and get that in the text string. So this is the text that was transcribed. So as I'm speaking now, Teams could make a transcription of what I'm saying. It's going to be about 95, 94% correct. However, understanding that text is something very different. And it's simple things like, please show me all your sofas. I hate furniture in the living room. Don't show me any sofas. Those two words could easily get you to sofas in a traditional transcription-based solution. However, in Teneo, we understand what you said. So after the transcription, we then take the understanding. And that's what was tested here by Ciara, the actual understanding of the text. That's where we ended up at 95%. Again, Telefonica Germany saying 99. And then you can see the competition here. So we are going head to head with these large companies in our pipeline today. And we're seeing that we're, we are doing pilots and POCs to prove this accuracy because it is a key point. And we're seeing that that works to prove in a, in a fairly short timeframe. And that's our path now to shortening the sales cycle, which is going to be the step that we're going to be focusing on going forward now. We have a pipeline which is big enough to reach our target for this year, which is to exit the year with 200 million SEC ARR. We now need to shorten that sales cycle and get these customers in during the next few months. So who said AI has no ROI? I use this in the Swedish contact center setting and large gathering of contact center people. Although we don't focus on the Swedish market, it was still quite interesting to test this out. So one answered phone call called 60 SEC. I heard numbers in the audience of 200 SEC. So people were saying that Swedish companies spend 200 Swedish kronor to answer a phone call. If you have a million calls, that's 60 million sec. You automate 1%, that's 600,000. If you do 60% automation where we are unique and this can only be done with Teneo today, that's 36 million sec in savings. So it's starting to be that we could probably at the next year, once we've now reached that ARR target for this year, we can probably start moving into other markets as well because you can see that the ROI is there even if it's not the 35 million dollars a month which we saw at the large tech company this is still very big ROI numbers and certainly something where we could make money as well but again the focus this year is still on those really large consumers of phone calls that is why I'm in the US right now calling you from Atlanta this is where the large consumer companies are Not necessarily Atlanta, but all over the US. And this is where they are. So there's a second part to this graph here. The statistic graph shows the AI for customer service market. And we are now partnered up with Genesis. That is our go-to market, prime go-to market. Genesis is the largest contact center as a service provider. So they sell these phone systems. And you see at the bottom of that, this is our AB Foundry listing. So you can now go in and buy Tenio off of AB Foundry, i.e. directly from the Genesis web. You don't need to negotiate with us. And we don't have to do all those MSAs. which take quite a lot of time with these large companies, those massive service agreements. We have the same arrangement with Microsoft, by the way, which is also coming to fruition. But the text at the bottom there is the interesting one. So in their Q1 2025, which was June to, so that ended in September of 24, but in their Q1 2025, which was the last time they reported the amount of calls, was 5 billion calls going through Genesis. So we have less than a percent of that. We have several joint customers today, but we have less than 1% of that 5 billion. Our target is, of course, to get that up to at least 10%. And the reason why we'd be able to do that is that we now built very strong commitment with Genesis since mid Q4 when we started that journey. And we were at their sales kickoff, invited by them in Nashville this end of February. So that was the sort of kickoff of building pipeline together with Genesis. And that is a large portion of the meetings I'm doing here in the US are exactly related to that. So coming to business updates, brilliant quarter, we had 142% NRR, Our ARR slightly softer than last quarter. This has to do with a few factors. One of them being that one of our larger customers has sold a portion of their business. The interesting thing with that, that was like a PE in between, and then it was sold again. It was sold to somebody who's now our prospect, because they realized that they don't want to add humans to do the support on that on that piece of the business so that was a bit of a drop in there of course there's a bit of currency effect not that much this quarter given that most of our revenue is in the US great growth in the SAS ARR if you look at year over year we had a very very nice directed share issue together with our shareholders I'm very very thankful and the whole team really is firing on all cylinders with this money going in now into building out the US, which I'll come back to. Great gross margin, even better than the quarter before. And of course, the revenue growth in SAS API calls year of year 185%. So we're continuing on the doubling trend there almost. So What are we going to use that money for? We have a slight increase in cost. We're guiding that that cost is going to go up a bit more in the report as well because we hired now a substantial team over in the US. First, I want to talk about what has this given so far. Now again, most of these people started in February and March. The whole team, which I'll come back to, started in February and March, but it's already paying off in terms of building a pipeline. We have our EMEA team firing as well. That's three people. But this team of seven people in the US is really taking off in terms of building out the pipeline right now. So I want to talk about that pipeline number to really give an understanding of what it is. We said in Q3, we were going to start reporting on pipeline. And that we did that in Q4. First time that so you said was actually in the Q3 report. That's the October number. Q1 report is the February number. and then the April number is of course now then. So you take an average large Teneo customer, they would pay us about €10,000 per month in the subscription. 12 months of that is about €120,000. So if this was a qualified opportunity, so this is a customer that we could sell to with a 20% probability, that means we know they have a project, they have a budget, we know that we're talking to the right people and we have a chance at selling, that's a qualified opportunity. So if that was in that pipeline stage, we would see €24,000 in the pipeline for that. So it's important to realize that we don't take the API calls into the pipeline at all. We also don't sell API calls upfront. The API calls come after the customer implements the solution. It's a very important part of our business model, and that's why we measure it in this way too. This pipeline is definitely enough to hit the 200 million. We need about four or five large customers out of this pipeline. This pipeline is more than 15 qualified large customers, so it is definitely enough to hit that number. And what you see here is the development of the pipeline. So it was 266 in October, 461 in February, and 1,050 in April. double just between February and April. Of course, that's the effect of the team coming in the kick offs that we participated in in February and March and April has been a lot of that work to build that out. On the right, you see that a pipeline is affected by a few things. AWS, where today we decided that we're primarily doing AWS Connect together with a partner that's going to sell this AWS Connect together with us as a service. That is a company called Cloudhesive that you see on the bottom left. We have Genesis. That's our prime. That's where we go direct to all Genesis customers. We have all those customer lists. We go direct to them. We go together with the Genesis sales reps. We go together with their PS team and also with their CSM, so their customer success management to these. A large portion of those customers are going to be MWM customers. So that's another partner that we're working with. NWN was partner of the year 2024. It's a combination of NWN and Carousel. Two important partners in the Genesis Contact Center space area. And. Intervision Kenway consulting working with them as well in more starting now April May and in marketing and then app direct bit of a pause there right now because we put so much effort in the the other parts here so that's where we stand right now we have a great pipeline it's being built together with these partners. and primarily in the genesis space and through cloud he's in the aws connect space so the two most important hires over in the us michael kenney has been head of business development at several large companies that work in the same model that we're working in dropbox semantic and ingram micro So very relevant. He runs this motion in the US. And then we have Lee Cain, who is former Genesys Senior Vice President of Sales, has several positions within our contact center space. And he is running the Genesys relationship. So it's a person that also hired a lot of the people on the Genesys side. Very, very important two people. And between the two of them, we have a team also that covers the whole of the U.S. So we split the U.S. into three different parts. Jon is actually a Swedish descendant. We call him John here, of course. Henry and Jeff. And they're running that the this we then also have a Presence team a solution architect team, which is an Howard and Julia we added there. So all these people are new people that we added during the quarter and coming from a very strong background in building solutions like ours on are competitive products as well so like google dialogue flow etc so she when we called she was very happy to join knowing that teneo is the best solution in the in the market julia's also worked with teneo and other solutions and Howard comes from Ciara and was part of that testing that did that 95% accuracy. So, very important movements in the US. We have a team coming into this quarter that's really going to be able to fire in all cylinders. Now, I do get this question a bit, is there an impact for Teneo on what's happening in the US? Well, we have local US delivery with source code, escrows, etc. So a U.S. company doesn't really need to care about anything about us being in Europe. We deliver from the three regional crowds in Microsoft, in Azure, in the U.S. So that's not really an issue. We have a local organization, we have a local company, we invoice from local companies. So there's no right. There's no tariff discussions, anything like that impacting us right now. What is happening in the US, and I can attest to that, I came in on Sunday, I had meetings yesterday and going for additional meetings today, cost savings are definitely in focus in the US. So take UPS, for example, they're looking at reducing at least 20% of the staff. They're based out of here in Atlanta, of course. Many, many companies are now looking at serious cost savings. And of course, what can we provide? We can provide serious cost savings. So that's quite important. Of course, the dollar impact, we do report in Swedish kronor and we do have majority of revenue in dollars and it's going to impact us, but it's not going to impact us from a business perspective, of course. So we're quite bullish on both US and UK and the broader European markets having some cases coming in as well. So some of the operational highlights before I give it over to Fredrik. 105% year-over-year growth in SaaS API called revenues. That is our prime driver of margin. It is our prime driver that we drive our organization on. We sell first to the customer this $10,000 a month thing that they start building on. That's Teneo. And then it starts generating API revenue and that's when the customer really starts making money. So that's quite important to us that that grows and of course 101% SAS ARR growth as well year over year. SAS API volumes 154% up year over year. That's also quite important. We have a. Consistent profitability with 86% gross margin. Once this investment start paying off in the US, we're of course going to get ourselves back to cash flow positive again. And that's going to be through this gross margin, which is again on the API calls. many large renewal agreements that have taken quite a lot of time and effort legally and we're very happy that going forward our proposals that are on the table right now are going through these marketplaces meaning that we don't have to do these large managed these service agreements which master service agreements which take quite a lot of time and effort And of course, again, thank you, shareholders, a successful directed share issue, 60 million. That gives us this investment potential in the US that is already starting to pay off, but that's going to pay off handsomely for us. I'm quite sure, especially after being here now only for 24 hours so far, but definitely going to see a big spike in the US revenues during this year. So with that, I'm going to hand it over to Fredrik, who's going to go through some of the financials.

Thank you, Per. So I think actually we can move to the next slide, Per. I think we touched upon the financial summary earlier as well. So take the next slide there. Just lots of numbers here, but I just wanted to start off a bit, I mean, on what has been the focus of the year. And clearly we are experiencing a very strong growth year over year in all our sales numbers, as you can see. And in the first quarter, focus has been obviously closing the successful directed share issue. which was oversubscribed and we had lots of interest from very interesting investors existing and new ones. So very thankful for that. But on top of that, obviously, a lot of internal focus has been on securing renewals with our existing and large customers. So very important for us to ensure we enable to continue working with them. and as Per already mentioned also building pipeline obviously that is key for our long-term growth and also building and yeah setting up all the related activities related to building sales organization in the US so I think that that is very important to bear in mind key in the quarter has been clearly to continue to grow SAS API call volumes, and we're growing them with 154% year over year. And we also have a slight increase versus Q4 2024, which was a record quarter we should remind us about as well. And as I said, we renewed major MSAs with large customers. And in those discussions, we also managed to drive price increases, which is also very important for us long term as well. And as you can also see, our SaaS API call revenues, they were growing even faster than our API call volumes, 185% year over year. And that is a result of these activities that we have been doing and that will benefit us long term as well. And obviously we have very happy customers that continue to work with us since we have a very, very unique platform for managing large volume of calls basically. And that's also manifested in our NRR of 142%. What is also very pleasing to see is that we continue to increase our proportion of SAS revenues now at 73%, as you can see in one of the graphs. That is very pleasing as well. And As communicated in the Q4 report and also in connection with the directed share issue, we plan to continue to invest in sales and marketing activities during 2025. And we see a slight cost increase in the quarter and that will also continue to grow in Q2 as well. But still given given those investments, we still improve our adjusted EBTA standing at 1.4 minus in the quarter. So we keep cost control and we continue to drive the execution plan that we have been communicated to the market and also to our shareholders in connection with the directed share issue. So very pleased with the quarter as such. And I will also come back a bit on gross margins and cash positions later on. So I think we can move to the next slide, Per. For those of you that have been on these calls previously, it's clear that for the last three years, our strategy has been to to grow on our existing accounts and help them grow number of use cases, as well as also growing the existing use cases. And NRR is a key KPI for us. And that also is, I mean, simplified, you can say that it measures how well we manage to grow our existing accounts. So a number exceeding 100% means we are growing in this respect. And we had 142% in the quarter. And in the business to business enterprise software space, this is a very, very, very strong number. We usually compare with two external sources here, and RedEye is one that is measuring these in the SAS universe for listed Swedish and Nordic companies. And in Q4, we were ranked as the number one in this respect in their universe. But we also look at external external parties to benchmark our ourselves versus and and one is the SAS investor Montero and Swedish Nordic venture capital firm which is focused on B2B SAS businesses basically and interesting there the average median in their portfolio companies during 2024 was 105%. So if we then compare 142 with 105, I mean, it's an extraordinary strong number that we present here in the first quarter. I think we can conclude just a very strong performance here in terms of NRR. And we can move to the next slide, Per. Also coupled with NRR, obviously, API code volumes is a key indicator of how our business grows. So basically, you can say that it shows how our customer application and usage of them are growing and the more applications solutions or covered regions the higher the API calls basically and year over year we grew the volumes with 154% and we also experienced a slight increase versus Q4 not very significant but the slight increase and I think our outlook going forward as well is that that we also see a lot of potential in our existing accounts to continue to grow and our customer success team are having very interesting discussions with our. customers and there is high potential in further growth in expansion of our existing accounts and then also as Per mentioned we also have a very strong pipeline with high API call volume customers so we are Yeah, looking forward to the coming quarters. So in short, I would say very strong and good numbers. We can go to the next slide. Lots of numbers here. But you see in the graphs here, SAS ARR and total ARR. and we grew SAS ARR with 101% year over year Q1 24 versus Q1 25 and total ARR grew from with 51% Q1 versus Q1 25 And also here we can see that currency adjusted, we also experienced growth in SAS ARR versus our record quarter in Q4 24. So overall, very solid numbers, I would say. We can go to the next slide. We also record stable gross margin development versus Q4. and in short we are reporting both gross margin excluding commission and including commission and the reason for that is that when we acquire a new customer we usually pay commission and we also have startup costs associated with setting up new customers and therefore initially the contribution is relatively low But as the API code volumes grow, the gross margin also expands significantly. And in, you know, individual quarters, commission can have a significant impact on our gross margin. And that's why we're showcasing both of them. But this quarter, we did not acquire any new customers. And therefore, the gross margin is all the same, basically, but still at a very stable level at 86%. We can go to next slide, Per. Our OPEX, we showcased 115 million sec in OPEX, or adjusted OPEX run rate in Q4, and we had 117 million in Q1 2025. and the increase is according to plan. We communicated also in connection with the directed share issue that we concluded in Q1, but also in our Q4 report that we plan to invest in sales and market activities in 2025. And that we plan to increase costs with approximately 10% versus Q4 24 run rate. So I think We are on the path there to somewhat increase cost in Q2 and potentially a bit in Q3, depending on how we steer the investments, but still in line with what we have communicated and we're following up on costs cautiously day by day, I would say. So we have that under control. We can go to the next slide, Per. cash position so we had 54 million in the bank and the quarter. but we also had receivables that we have collected shortly after the quarter end. And we have large customers who tend to sometimes pay somewhat overdue. So we are not, yeah, this is something that happens. And as a relatively small company, you always try to push but sometimes you may not have the result you want but we have customers that pay sometimes a bit late but they always pay so no risk there but adjusted for those late payments cash in bank would have been close to 64 million SEC instead of 54 million so we are in a steady cash position when we start the quarter and I think we will also Since we also have a lot of renewals in Q1, Q2, there will also be a lot of cash generation coming in during the second quarter as well. So we are in a very solid position going forward. Over to you Per.

Thank you, Fredrik. Yeah, so again, just in summary, very good growth year over year. We are set on renewals with our largest customers. We built a solid pipeline already with a new team. We have a new team of seven in the US, but we hired in total nine to support this go to market in Q1. And they started February, March, of course, since we brought them in after the capital race. So thank you again, shareholders for that. But this is really the partnership approach is paying off in pipeline growth. So I think at that I will leave it and open up for Q&A. And for Q&A, I need to unmute you and then you unmute. So you raise your hand and then I unmute you or Kristina, whoever is fastest here. I see a hand there from Fredrik let me see oops push the wrong button I have now unmuted Fredrik and now you unmute there you go thank you thank you Per and Fredrik