Navigating well through the COVID-19 pandemic

Artificial Solutions’ 2Q results confirmed high levels of resilience, posting YoY revenue growth of 22%. Within this metric, usage revenue continued to shine, up 80% YoY in 2Q, representing a six-fold increase in usage revenue over the past 12 months. The COVID-19 impact on order intake in the short term is perhaps to be expected, but major customer wins and partner additions continued during the period. Global enterprise focus on automation is strengthening (discussed further in this report), with systems integrators continuing to play a key role. In 2Q, 53% of revenue came via SI partners, up from 34% in the same period last year.

• 2Q sales up and contract wins: Net sales rose 22% YoY to SEK15.4m, marginally ahead of 1Q. Order intake was SEK6.5m, reflecting the COVID-19 impact on activity. A major new customer win comprised a fresh food delivery company operating in 14 countries. BPO giant, Tech Mahindra, joined the partner roster.
• Usage revenue continues to grow strongly: Up 113% YoY, usage revenue represented 36% of 2Q net sales. As more customers move into production deployments and as transactions are processed through their Teneo platform deployments, usage revenue is scaling quickly.
• Enterprises embracing digital: The fundamental drivers of adoption of Artificial Solutions’ conversational AI technologies have never been stronger as enterprises accelerate their digitisation programmes. This is reflected in acceleration in Artificial Solutions’ qualified new business leads, up 58% in 2Q.
• SI partner base a source of competitive advantage: Comprising a tier 1 list of systems integrators, partners remain active in selling Teneo into the global enterprise market, with involvement in most large deals to date, and helping to access major opportunities in existing and new geographies / verticals.
• Investment summary: Artificial Solutions is acknowledged as a leading vendor in the global conversational AI market, with a deep portfolio of intellectual property, yet the company remains a relative minnow in market cap terms. Our DCF produces an equity implied fair value of €115m, while the most recent IP valuation analysis, undertaken in 2019, generated a patent valuation range of $125m to $153m.