Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining Artificial Solutions International AB Q2 2022 conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Per Ottosson. Please go ahead.
Thank you, Natalie. Good morning all and welcome to this presentation of our Q2 results, which I'm very happy to share with you. Also, since we are far into August, we are also including some July numbers since those are available as we speak. The presentation is available on Teneo AI Investors and Quarterly Report, so on our website, and I will be saying just which slide number I am on as we are speaking. Let's dive right into it. Today's presenters is Per. I am the CEO of Teneo AI since about a year and a half back. I have a long background in this particular area of the IT world, which is called Conversational Artificial Intelligence or CAI, and I'll talk a bit more about that as well.
Fredrik Törgren, who has a long experience in both PE-backed tech and SaaS companies and also worked in the capital markets in Stockholm. We are gonna present today, like I said, the Q2 results, but I wanna first start with Slide 3, which is to tell you what our market is and what it is we are doing and why this is important, and relevant for our company. Our market is a customer or an employee or any stakeholder that wants to know something or has some kind of request comes in from the left with a, "Can you help me? I need to get this done," et cetera. The conversational AI then needs to interpret this and understand what it is the customer is asking, but also what language they're using. Are there people, places, and details mentioned?
What kind of request is this? Does the user seem happy or upset? Have we interacted before? A typical use case here, we can take the case of Swisscom. Swisscom has built a solution where the conversational AI picks up the phone when you call the Swisscom hotline. Roughly 1 million calls a month go directly into this platform, and the platform will then determine what it is the person wants, and if they're happy or upset, et cetera. An upset person always gets connected to a person, a live person immediately, whereas a person who's not expressing that they're upset in any way would probably try to be served by the conversational AI. What we found is that the actual customer satisfaction improves when the conversational AI, so our technology, picks up the phone.
The interesting piece in that is that this is very new and there's very few companies that have implemented what Swisscom has done. They are probably one of the top five in the world in this, but the other top fives are also our customers. This is a niche which is now expanding and, we are gonna see lots of increased traffic in there. As you see from our revenue model, that's exactly what drives our revenues. Artificial Solutions at a glance. This is slide number 4. We are the leading software company in, the conversational AI space when it comes to one specific aspect, and that is volume, which is also why you at the bottom of this slide, you see very large customers.
It's the likes of A1, O2, AT&T, Volkswagen Group, Škoda, and customers that have a lot of customer interaction are typically working with us. Also, there is some public entities which have a lot of interaction with, for example, patients, or it could be with taxpayers, and when they have a lot of interactions, they're working with us. This has really shaped our strategy, and these are the type of customers we're looking for. We're not necessarily looking for volume of customers. We are looking for many of these larger customers and expanding within those customers. That's also what you will see in our report that our revenues increase quite dramatically in the existing customers. We were founded in 2001. That's quite relevant because we have some of the foundational technologies that are used in this industry.
They are used by Amazon, they're used by Apple, they are used by Google, for example, because we were very early in building these technologies. These are patented. There's 4 citations on these patents that you can follow if you go onto the Google Patents site. It's highly acknowledging the fact that we were early on and are innovators in this space. Our platform is called Teneo, and Teneo allows somebody to build a communication application, so conversational AI application, and either they build it themselves or they build it with partners, and we support them with something called customer success. Our model is that we're, we provide the SaaS and we provide help in how to use that SaaS to build, but we do not build for our customers.
The customers do it themselves or the partners do it for them, which also then makes partners very important, which is why at the bottom right or with the strategic partners piece there, you see several partners. The most important one being that we are aligned with Microsoft Azure. We are part of the Microsoft Azure ecosystem, and that is quite important for us since that means Microsoft's salespeople have incentive to also recommend and drive our usage in these large customers. Another part to highlight is CGI for this, was it this quarter or was it the beginning of July?
Anyway, recently we had a press release where CGI have signed a global partnership with us, and we've already on LinkedIn seen quite a lot of external parties noticing this and talking about the solutions they are providing, one of them being a very large healthcare provider that they're implementing and actually going live about 4 months after initial start of that project. We support 86 languages in a model which is unique to the way we manage languages. It makes it much easier to build a multilingual application than with any other solution. This is becoming increasingly important also in the U.S., since many of the U.S. companies, of course, go international. You see we have many smaller competitors who might be only in one language.
There might be a Bulgarian competitor that we are competing with in A1 that only does Bulgarian, whereas we do several languages, and of course, that helps if you have multilingual customers or employees, which most companies do today. We are in the course of shifting from a traditional licensed usage revenue model to a pure software as a service model. We are still pushing to move all our customers over to the SaaS model. It is somewhat slower than I had anticipated, but we're still hoping to accomplish this by the end of the year. The reason it's been a bit slower is the fact that we've had some certifications that we are just about done with now, which have been a reason for some of these customers not to look at this.
Also it's a renegotiation of contracts with procurement that take time since the revenue model is different, the payment model is different. The SaaS ARR in June was SEK 20 million, but in July, like I said, we're disclosing those numbers since we have them ready, was SEK 21.2 million. That's the forward-looking ARR, i.e., that month times 12. That is a substantial increase, of course, during this year. We started reporting SaaS numbers only in Q1, so we will see some of those comparisons as we go through. The patent IPR portfolio has been valued at SEK 1.6 billion by a third-party evaluation, OxFirst. The patents have we have some very foundational patents in our industry, but we are not using them as a revenue model at this point.
Of course, our revenue that we see and the SaaS model is working, and that's where we want to use this technology to provide real value to customers. Just some of the summaries below, we had three customer renewals in Q2 2022, and one partner signed up. We had an 18-point tNPS increase at Swisscom. This is a number that's been holding steady. It's an increase versus a human picking up the phone. That is quite important for this industry. Of course, the cost saving is enormous when you deploy a robot to pick up the phone. If you also get a tNPS increase that has some reverberations around that in the customer experience business as well. We have nine net new SaaS customers in the last four months.
Also another thing that we find quite interesting is the fact that Škoda is still expanding and now added 13 new regions in this quarter. Thirteen new countries where you can buy your Škoda by talking to Laura. Laura, of course, is powered by Teneo. At the top right, this is the development of our SaaS API call volume. The API calls are the primary monetization of our platform as we grow. You can see here that it's growing at a healthy clip. That is also where we're putting a lot of our focus through customer success in having these large entities like AT&T spread this technology across all of their platforms. Some operational highlights on slide 5.
We had very high growth, again, in SaaS API call volumes, 69% March 2022 versus June 2022. That's one quarter, a 69% increase. If you just look at the month, June versus July, 11% increase. This is quite substantial, and we're very happy with this. As you note, it is driven by existing customers. The SaaS ARR is also growing quite highly. Of course, the API call is a portion of the SaaS ARR, but it's 55% up in March 2022 versus June 2022, and we have a 6% increase in July versus June 2022 there as well. Very good, and I'm very happy with this performance, and this really bodes well for the future. Customers are continuing to show very strong confidence in our SaaS model. We have 23 customers in total.
13 are now in the SaaS revenue model, and 9 of those are net new SaaS customers in the last 12 months. Very happy in that they are growing the SaaS. The customers are showing this confidence in that this works and putting more and more effort into having a larger volume in there. One of the things that's happened, given the fact that we changed our focus to not expanding primarily in volume of customers, but more customer volumes, so expanding into large customers primarily, is that we changed our sales strategy to have a dual sales team reporting into me.
One being, of course, Sean McIlrath, who came in at the end of Q1, who has built quite a team in the US now on sales and pre-sales. Patrick Rosenberg, who we are announcing today is being hired as our EMEA VP of sales. Patrick will be joining us, likely, on some time in September. That is being discussed with his current employer as we speak. Patrick has a long experience, both within the conversational AI and artificial intelligence in general, and comes from a company in the Wallenberg family of companies that is focused on AI. Very interesting recruitment, and he has large international experience, both from the US and Europe, which is gonna be key for us.
Since he will collaborate with me in the EMEA team and of course Sean in the US team. Teneo, we had a major platform release. You can read more about this in our statement on our Q2 report on the web. It's called Teneo 7. It is the last straw of making it a SaaS platform. It's been a brilliant job by the team to pull this together. Lots of new features, which we are alone to have in the industry, most importantly being the team-oriented features, meaning that several people can collaborate on the same solution. Incredibly important for us. We're very happy that this was released in the quarter. We've rolled out customers without any major hiccups on that.
We also did a reverse share split to get our share more in parity with where you would put companies that come into the stock exchange. Of course, we came in through acquiring a company and then divesting of that. The reverse share split of 1 to 10 was to put us more in parity with where you would have put a new company had we come into the stock exchange from scratch in an IPO. That's the operational highlights. I'll now give it over to Fredrik to give us some key financial highlights on slide number 6. Go ahead, Fredrik.
Thank you, Per. Some key financial highlights. I think our sales metrics in the quarter keep growing, and our SaaS business is obviously increasing in importance. Net sales amounted to SEK 10.2 million in Q2 2022 versus SEK 8.2 million in Q2 2021, so up 24%. More importantly, our recurring revenues increased to SEK 9.1 million in Q2 2022 versus SEK 6.3 million in Q2 2021, up 44%. Very satisfying as this is one of our key KPIs. The recurring revenues as a percentage of total sales is also continuing to increase. In this quarter, it was up 89% versus 87% in Q1 2022.
Basically, our kind of strategy, we are executing on our strategy and ramping up, I mean, the recurring piece of the business and also the SaaS business. And the impact from our new customer wins in 2021 and 2022 on the SaaS model are starting to be visible in our revenues. Even though they are showing up in kind of revenue increases, they are still in a ramp-up phase. SaaS ARR increased to SEK 20 million in Q2 2022, so up 55% versus Q1 2022. Currency adjusted, the increase was 51%, so still very kind of solid growth. As Per mentioned, July SaaS ARR amounted to SEK 21.2 million, so up 6% versus June 2022.
This is very satisfying kind of growth numbers month-over-month. SaaS recurring revenues, as I said, constitute now 49% of total recurring revenues in Q2 2022, so up 34% from 34% in Q1 2022. Again, this is also, I mean, execution of what we have communicated to the market in the past. This number is also expected to grow as we add more customers to the SaaS model and also as our customers are ramping up on API call volumes. Per also mentioned SaaS API call volumes are ramping up and was up 69% versus March 2022.
Very impressive growth rate, but here we also recognize that we have many customers where we as a company still think there are significant scale-up opportunities from current levels. Given our model also, we can't make any kind of guidance on that. We see plenty of opportunity to scale up from the current levels. Overall, we also experienced, I mean, quarter-over-quarter sales growth on all our relevant SaaS metrics. Also looking a bit more on cost. We continue to keep cost control even if we are increasing OpEx somewhat, but that is more in line what we have guided for in previous reports.
We now reported an adjusted EBITDA of minus SEK 22.4 million. End of Q2, we also had a strong cash position of SEK 64 million. There we can also acknowledge that a few customers paid beginning of July instead of end of June, which sometimes happens with large customers who are pushing payments over the quarter ends. This had an impact of approximately SEK 5.5 million. Adjusted for this, cash and bank position would have been SEK 69.1 million instead of SEK 64 million end of June 2022.
Overall, I think we are on a positive revenue trajectory and our recurring revenues and the SaaS ARR are growing in a good way, even if there is, as I said, still plenty of potential to ramp up API call volumes further. Next slide number 7. And our SaaS model is obviously ramping up, and two key KPIs for the SaaS model is the monthly API call data and the SaaS ARR. The monthly SaaS API call volumes grew with 243% versus December 2021 in relation to July 2022. A very kind of impressive growth rate, I would say, on the SaaS API call volumes. And this KPI is also an indicator of how our customer application and usage of them are growing.
You can simplify, say that the more applications/solutions covered or covered regions, the higher the API call volumes. All in all, high volumes means more revenues for our company. The SaaS ARR grew with 126% December versus July 2022. In the monthly SaaS revenues, we have also converted customers entering the SaaS model obviously. Overall, very strong growth on two of our key KPIs going forward. Slide 8. This slide we have showcased, I think, since Q1 2021, and it's basically outlining the business model that we are driving towards existing customers that are not on the SaaS model into the SaaS model as quickly as we possibly can, and then also bringing in new clients only on the SaaS model.
This also clearly showcases if we do a reference to the increase in ARR between June and July, where you actually see that the main part of the increase is actually coming from the dark blue piece of our revenue model, which is the variable piece which is linked to the API call usage by customers. That also showcases. I mean, if we have customers who pay the subscription piece to be on the platform, which is the red part, that is more of kind of the starting point for our customers. But if we have large customers bringing on significant volumes, we can increase the variable part, the dark blue side.
That is what we see the increase in between June and July, which was kind of 6% increase in SaaS ARR, is only in this case driven from increased volumes. That also showcase the scalability in our model. When we once have customers in the platform, we want them to scale, like Škoda, for instance. We want to grow in more regions in order to get more kind of volumes. And that is the very nice piece with our business model and the great scalability with it. I'll leave it there. We have run through this slide in previous calls, so I think most of you are familiar with the business model as such. Slide number 9.
I think we have talked about most of the growth metrics here, but obviously, recurring revenues grew from SEK 6.3 million in Q2 2021 to SEK 9.1 million in Q2 2022. A growth of 44%. The rolling twelve months recurring revenues is also increasing year-over-year and quarter-over-quarter and amounted to SEK 35.2 million in Q2 2022. SaaS recurring revenues and the SaaS ARR increased versus Q1 2022 and Q2 2021 to SEK 20 million in June 2022. SaaS revenues increased further in July, as I already mentioned, and SaaS ARR amounted to SEK 21.2 million in July, while total ARR amounted to close to SEK 42 million.
Looking ahead, we see clearly that the underlying contracts we have with customers has potential to grow further. Also, as you saw, between June and July, we had a 6% increase in SaaS ARR. And that's a key driver also for the total ARR, increasing to SEK 42 million in July. Slide 10, looking more on cost. We can just see that we are increasing our OpEx as guided for in previous quarters. Run rate in the first half of 2022 was SEK 134 million, excluding extraordinary items. Going forward, we expect the OpEx to slightly increase due to as per outlined front-end investments. Basically, marketing and sales activities to further kind of grow the revenue growth.
With this also we can also see that our cash position end of June was adjusted SEK 69 million, and our current net cash outflow, so that is cash in minus cash out, we expect our current cash and bank position to last at least the coming three quarters. There we can also just say that, I mean, we raised debt from Capital Four at the end of 2021. We can just say that we have very good relationship with our debt providers and also our large shareholders. Going forward, as a growth company, we are intending to continue to grow, and we will finance our continued operations in the best interest of the company and the shareholders, obviously.
With that, I leave over for you, Per.
Excellent. Thank you very much, Fredrik. Great numbers, great quarter. Things are moving in the right direction. This is a bit of a summary. First of all, our technology valued at SEK 1.6 billion is the patents that are the foundation of this business. The business we are building is, of course, a SaaS business on top of this today. You see that from December to July, the SaaS ARR has increased 126%. Very high growth, and it really proves that this model is working. We have instigated a cost reduction since we moved over to SaaS, right before we moved over to SaaS of 25%. That still has good impact, although we are now starting to invest in sales and marketing. It says here Microsoft Azure is 1,700+ customers.
These are, of course, the largest customers that we are very keen on working with. Out of those, we've identified 200, and those are on our target list, and those are the ones that we are going after with the sales organization under Patrick and Sean. Of course, we already have some of the largest out of that, which is of course important as a reference. Maybe the Telefónica reference that was presented in July is something to have a look at as a shareholder as well. It's a seminar that you can find in my LinkedIn profile. The total ARR, SEK 41.9 million.
If you add up both the legacy and the SaaS, since we both are now driven by paying on a monthly basis, that would be SEK 41.9. SaaS API calls, so the SaaS revenue-based API calls is 10 million, which is also very, very good and increasing very much. This means that we're powering a lot more than anybody else in this industry. Although they may have many customers, we have very large implementations and growing at those customers. This market, the SEK 137 billion market, is an unconsolidated market. It's something where things are gonna start moving now that we see results on transactional NPS on customer experience. This is gonna start really moving, and it's gonna be interesting to see what the consolidation plays are here, but nobody's really big in this market today.
We have the biggest implementations, and some others have lots of smaller customers, but nobody's really reached any real size here. It's gonna be an interesting play to see the consolidation on that market. With the SaaS, as we're moving customers to SaaS, we give them an 82% carbon reduction versus running all this in their own data centers, and that is actually a key argument for many of our customers today. That's it. With that, I'd like to hand it back to Natalie to conduct the Q&A here.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. As a reminder, it's star followed by one to ask a question.
This was obviously a presentation that explained everything in one go. Fredrik and I are, of course, available for any email questions or phone questions later today as well. If there's no questions, Natalie, then let's just wait half a minute. Okay.
Hello. Hello.
Thank you all.
Fredrik here. I think, operators, I just got a text message from one of the participants here, and he just said that there were some issues to ask questions. Maybe we could give it a few minutes more just to see if that is solved.
Ladies and gentlemen, please try again to press star and one on your telephone.
Okay. Yeah. I also got a message here. Seems to be some kind of issue there with the star. Natalie is trying to open this manually now. Let's see if that works.
Okay. We will now take our first question from the line of Forbes Goldman from Redeye. Please go ahead.
Well, good morning. Thank you very much for taking my questions. The first one is, I am quite curious to learn about the, like, maturity of your average customer in the SaaS model. I mean, if you take the SaaS ARR divided by your SaaS customers, it appears it's about SEK 1.5 million per customer, and it's increased quite a bit, compared to the previous quarter. Could you explain something about this development, please?
Yeah, that's. You are spot on, Forbes. This is part of why we did redefine our strategy. What we find is that some of these customers have the potential to go into the $ millions in ARR. We find that there's so much more that they can deploy. Most of them have deployed a few use cases. The only really mature one is Swisscom. Swisscom, of course, is not in the SaaS revenue model. Switzerland being a bit different, it is very difficult to use the SaaS model in a country at this point. If you look at their maturity and you were to put that on some of these other customers, then you would see that we are scratching the surface of these.
We are on the 2-3% of the volume that we could do with these. That's why we are putting a lot of focus on customer success on existing customers, and that's been taking a lot of our effort, also in this Teneo 7 update, which is very much to enhance the experience for these large clients that are really building on top of this. That's what we spent most of R&D and most of our resource on during this year. Yeah, that's a good catch. It is growing, and we see potential of a lot more growth in that in existing customers.
Great. Would you say that the number of source customers has gone live, that number has increased in Q2 compared to the previous quarter then?
Yes, it has. Right. There's at least two that have gone live and then another one that went live at the beginning of this quarter. The beginning of Q3, so in July.
Right.
It's also the customers are already live. There is lots more potential.
Yes, I understand that. Great. Thanks. Bye. I'm also curious about the 10 other customers not in the source model. Is there anything you could say about the API calls that these customers are generating and when you expect these to migrate over?
We're still hoping to be able to move them over in 2022, but it has been difficult with some of them, primarily in negotiating with procurement. Since if they move over to SaaS, they're gonna be paying for API calls, which is variable, and some of these have a fixed fee. Even if that variable fee is very much tied to their success, it's been difficult. I think that also stimulates the growth. Our old revenue model basically made it so that you have step costs. If we can't renegotiate, the revenue model is difficult to get them to grow as well because there's a step cost to move into a new area, which you do not have in the new revenue model, and that's why it's so important to get them over to SaaS.
It's been quite some work with procurement in these large corporations to get them to understand that this might be better or this is better for them in the long run. That's something we are struggling a bit with. As far as volumes, if we were to move them over, it's roughly double the volumes that we have today.
Okay, thanks.
And also, Forbes, just, as we mentioned also in the earnings release, the non-SaaS customers year to date grew with 10%, right, versus last year. That's also an indicator of that actually customer that has been with us for quite a while or also increasing in API call volumes, not as rapid as we see in SaaS, obviously, but still growing.
Great. It was really good of you to provide the July numbers to get some more visibility into the operations, and they of course look really good with continued growth. I'm just want to ask about the drivers for this. Have you added any new customer in July, or do you just see your existing customers continue to grow?
This is very much driven by existing customers, and there is one customer who has added. They've almost doubled in API calls because of what we have added into Teneo 7. They could easily then scale this into new solutions. They almost doubled. That's sort of what we hope to see here going forward as well.
All right. With this SaaS model and usage obviously becomes a very important component. Do you see that you will have any seasonal variations throughout a calendar year in a way that you might not have had in the previous model? Yeah.
There is some of the customers will of course have more traffic in, let's say December, that typically like a telco will have more traffic in December. On the other hand, the large tech provider, they have more traffic in March and October. Maybe these variations take each other out, but there might be months where we'll see a dip, but then a larger growth the month after because there will be variations. The growth we have seen now, though, shouldn't be, we still expect December to be the biggest month in terms of API calls, since our product mix, our client mix is very geared to telco. Yeah, but there will be variations, absolutely. It's not that we're gonna see customers removing solutions since that would be a negative ROI to do.
It's a difficult thing to see that customer will do. What it might mean is that a customer has less traffic to their call center or to their chatbot or to their whatever they built, their TV box because of seasonal variations.
All right. Great. That's very helpful. I have a financial question here, and I noticed that the gross margin is down a bit, this quarter, after a couple of consecutive quarters with an improving margin, gross margin, that is. What is that? What does that owe to?
Yeah. Basically, I mean, I think there are two components in this. Also, as we are a bit kind of transitioning our customers to the SaaS model, I mean, continuously, I would say, we also have some, I mean, initial extra costs because we are transferring them from one environment to another. That's one driver. Then we also see, as I think we have disclosed in previous calls, that also we have.
I mean, if we add SaaS customers, we also have an initial kind of cost, which is more or less kind of taken on the subscription piece while the volume part of the operation when the customer is up and driving API call volumes, then that will be close to, I mean, 95%-100% gross margin, right? There we also see that we have any effect of that happening for a few customers who has not perhaps then ramped up yet in that way. That's also then impacting gross margin negatively in the short period. Over time, this, the gross margin is expected to increase quite a bit.
We also see that on some of the high volume customers that the gross margin is significantly better, right?
Great. Thanks. Final question, a bit on the market. It's, I mean, there is a bit of an uncertain macro outlook, and I wonder if that is impacting or affecting your talks with potential customers. I mean, does this kind of environment put brakes on large digitization projects for large consumer-facing enterprises? I would like to hear your thoughts on that.
Will you take that, Fredrik?
Yeah. I mean, I think on that part, I think or we think that, given the nature of our business and also when we also see cost inflation across the globe, I would say in terms of we see significant increases on some costs and that could potentially also have an impact on wages over time, at least. With those inputs, we believe that we can perhaps be a bit kind of countercyclical in a sense that it could actually be to some extent positive for our business and also that large clients are inclined also to focus even more on the cost sides.
Coupled with obviously as we have mentioned on the NPS scoring that at the same time, getting better kind of customer satisfaction. So all in all, I think, we believe that, yeah, the market is with us and don't really see any negative impact from the surroundings around us. That's how we perceive things in the current market environment anyhow.
Oh, very good. Thank you. Thank you a lot. That will be all for me.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, you may press star and one on your telephone. Seems like there are no more questions at this time, and so I would hand back to Per Ottosson.
Well, thank you all very much for listening in to our Q2 and July numbers. We are very happy with the SaaS moving forward. Very positive experience here from the team both with our platform and with our customers and their satisfaction with it. Thank you very much all, and I hope to speak to you soon again.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.