Artificial Solutions (NASDAQ:ASAI) strong operational and financial progress over the past 12 months includes a series of contract wins with major organisations, particularly via a growing base of Tier 1 systems integrator partners. The COVID-19 pandemic brings uncertainty, but Artificial Solutions continues to make progress due to healthy contracted backlog and ongoing sales cycles. Compared with the current market capitalisation of ca.SEK250m (€23m), the recent valuation of the patent portfolio alone came in at a midpoint of €128m, while our discounted cashflow analysis suggests an implied fair equity value of €116m.
- Continued strong customer momentum: 12 major new-name customers were added in 2019, taking the total to 31. Skoda (part of VW), Circle K (a Nordic retailer) and Swisscom extended their rollouts, while a large US telco (AT&T, we believe) is expanding from supporting 150,000 users to over 11m.
- Visibility for the next two quarters is relatively high: Much of the revenue reported in these periods will be drawn from contracted backlog. New product launches continue; the recent launch of the Tiva virtual assistant provides HR and IT support for remote working – a good example of innovation agility.
- Embedded in the revenue model is a high level of scalability: A new guidance metric anticipates that usage revenue, driven by increasing transaction volumes from the large customer wins, will represent ca.80% of total revenue by end-2022. These trends are highly positive for the margin profile.
- Financing: In February, Artificial Solutions completed a rights issue to raise SEK 120.5m (€10.8m), which is expected to take the business through to positive operating cashflow by end-2020. This raise precedes finalisation of the debt refinancing – we anticipate further announcements in coming months.
- Investment summary: The drivers of conversational artificial intelligence (AI) adoption are resilient and secular in nature, reflecting the growing adoption of automation technologies by enterprises globally. The growing number of case studies of major customers expanding their deployments of Teneo are consistent with the expected step changes in high-margin usage revenue.
