Conversational AI leader; customer wins continue

Artificial Solutions (AS) is a market leader in the conversational artificial intelligence (AI) segment. Its customers include some of the world’s largest enterprises across market sectors, while partners include many of the leading systems integrators (SIs) globally. Revenue growth remains strong, driven by major new customer wins and expanded existing customer commitments. The relevance of AI chatbots to robotic process automation is a further growth driver as enterprises evolve their IT infrastructures.

• 3Q’19 results: Order intake growth remained strong at 65% YoY to SEK6.1m, while order backlog was up 101% YoY to SEK46.9m. 3Q net sales were SEK12.8m, up 33% YoY, with an adjusted EBITDA loss, as expected, of SEK26.9m. Growth was again driven by a combination of direct and indirect customer wins, together with contract extensions and renewals from the existing customer base.
• Three new customers added in 3Q: These comprised an additional Volkswagen brand, Scania; a global recruitment company; and a US Government department. . This followed 7 new wins in 2Q’19. 43% of revenue in 3Q came via SI partners, up from 34% in 2Q’19. SIs are providing access to customers that would otherwise be tricky to access, the US Government a key example.
• AI adoption gaining momentum: Industry forecasts indicate accelerating implementation of AI, conversational chatbots in particular. AS is now established as a mainstream vendor, regularly listed alongside technology companies hundreds of times its size on all metrics. Its patents are also receiving regular forward citations, reflecting AS’s clear focus on innovation.
• Valuation: The stock has fallen since the March 2019 listing on the Nasdaq First North exchange. Low exchange liquidity, gradual progress in educating the market on the company and sales of stock by investors in the company into which AS reversed are all factors. With a market cap of ca.€20m, the discount vs. the patent valuation of €115m is noteworthy.
• Investment summary: Operational progress continues to be in-line with stated targets, while management has prioritised refinancing of the debt that matures in 2020 – our expectation is that the new funding arrangements will comprise a mix of debt and equity. Accelerating enterprise take-up of conversational AI should create healthy demand for AS’s industrial grade Teneo platform, with SI partners increasingly driving new customer acquisition worldwide.