Customer acquisition acceleration in prospect

The arrival of the new CEO, Per Ottosson, and the new CFO, Fredrik Törgren, was accompanied by a series of strategic decisions seeking to accelerate new customer acquisition and significantly reduce costs. The strategic shift away from professional services was fully executed as part of the restructuring. 1Q’21 results and management commentary confirm a positive market response to the new recurring revenue model, especially the significant signed contracts and further prospective wins. The company’s technology remains market-leading at a time when enterprises are emphatically seeking to automate business processes.

• Our updated revenue forecasts post 1Q’21 results suggest strong growth ahead. The announcement of contract wins with a large US tech company and Telefónica Deutschland/O2 under the new model are highly positive indicators, especially given the scope for high transaction volumes from each.
• The Cloud version of the core AI chatbot platform, Teneo, is built on Microsoft Azure and is designed to work seamlessly alongside the Microsoft suite of cognitive services tools. Adding a sophisticated chatbot platform to Microsoft LUIS and selling this in the Azure Marketplace should unlock customer wins.
• The transition from upfront licences to recurring revenue would typically imply a period of flat revenue as revenue from new deals is deferred. However, a number of existing customers are busy expanding their deployments, in turn generating usage revenue growth; this momentum will support FY’21 revenue.
• The path to breakeven for the business is now clearer, following a series of measures to remove unproductive operations and streamline headcount, which has been reduced from ca.113 at end-2019 to ca.70. We forecast EBITDA breakeven in FY’22 followed by strong EBITDA margin expansion in FY’23.
• Investment summary: Artificial Solutions has demonstrated technology leadership by the major deployments achieved to date combined with a long list of tier systems integrators, which have tested and approved the Teneo platform. The company continues to trade at a significant discount to the value of its patent portfolio of ca.$140m. Our DCF model suggests a fair value market value of €160m (SEK1,620m) compared with the current market value of €48m (SEK490m).