Artificial Solutions

2Q’19 results – customer wins, accelerating order intake

22 Aug 2019 / Corporate research

Artificial Solutions’ 2Q results announcement for the three months ended June 2019 confirmed strong progress on major client wins, usage revenue growth and new engagements with major Systems Integrator (SI) partners. Order intake growth of 200% was driven not only by direct and indirect customer wins, but also by contract extensions and renewals from the existing customer base. The completion of the SEK65.7m (€6.1m) fundraising in early July provides funding for future growth to meet customer demand. Consistent strategic execution is facilitating the establishment of Artificial Solutions as a recognised international leader in the conversational AI segment.

  • 2Q’19 results: All key financial metrics showed favourable trends. Order intake growth was particularly strong, at 200% YoY to SEK22.8m (€2.1m), while order backlog was up 79% YoY to SEK50.7m (€4.7m). Net sales for the quarter were SEK12.6m (€1.2m), up 11% YoY, with an adjusted EBITDA loss, as expected, of SEK27.7m (€2.6m). (We use a 10.7 SEK:€ conversion rate.)
  • Seven significant new customers added in 2Q: these included Swisscom (which will also resell Teneo in its IT Services business), a major European bank, an additional automotive brand within the VW group, a major US Government entity, a Nordic convenience store/gas station operator, and a large US-based global tech vendor. Management expects each of these to deliver significant usage revenue over time.
  • Strategic emphasis on revenue from SI partners working: this is confirmed by i) deployments with clients that would otherwise be inaccessible, e.g. wins with a US Government department and a major US tech company, and ii) margin expansion – 2Q gross margin of 60% – due to a greater proportion of software licences within the revenue mix. 34% of 2Q revenue came from partners (vs. 25% in 2Q’18).
  • Valuation: Artificial Solutions trades on the Nasdaq First North exchange in Stockholm. A DCF analysis produces a mid-point-implied fair equity value of €97m, while a detailed valuation of the company’s intellectual property (IP) assets, comprising patents and software licences, undertaken in 2016, came in at $96m.
  • Risks: Competing with some of the world’s largest technology companies brings challenges, such as keeping pace with developments, retaining talented people and creating enterprise mindshare vs. strong brands. SIs are a route to market but may reduce the company’s visibility into potentially lengthy sales cycles; however, to date, Artificial Solutions has proven adept at managing these factors.
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