Artificial Solutions (NASDAQ:ASAI.SE) 1Q results for the three months ended March 2019 confirm that the company remains on track to meet its FY’19 expectations. A number of new customer wins have been achieved, together with several extended and expanded commitments with existing customers. The strategic focus on increasing the proportion of revenue from systems integrator (SI) partners continues to pay dividends, with 50% of 1Q revenue from key partners. Notably, Capgemini and Deloitte were added to the partner list during 1Q. Enterprise interest in productive and scalable AI capabilities has never been greater, and we believe Artificial Solutions is well placed to benefit from this demand.
1Q’19 results: Revenue for the quarter was SEK12.6m (EUR1.17m), up 2% YoY, with an EBITDA loss, as expected, of SEK27.7m (EUR2.56m), vs. a loss of SEK20.9m a year ago (we use 10.8 SEK:EUR conversion rate). Order intake backlog rose to SEK40.8m (EUR3.78m), up 28% YoY, despite specific sizeable deals slipping into 2Q’19, some of which have since been closed.
Solid customer traction: Despite lengthy sales cycles that are an inevitable consequence of the focus on large, global enterprises, 1Q saw extensive customer activity. New contracts were signed with i) a US public sector organisation, ii) a major postal services organisation in Asia, and iii) a large airline. Existing contracts were extended with each of AT&T, Shell and Vodafone.
Partner revenue share growth: An important strategic initiative for a number of years has been cultivation of a productive base of SI partners. In 1Q, 50% of revenue came from partners, a metric that will oscillate quarterly. New partner additions in 1Q were Capgemini and Deloitte, the latter bringing the US public sector deal that was signed in 1Q, with further opportunities in the pipeline.
Valuation: Artificial Solutions trades on the Nasdaq First North exchange in Stockholm. A DCF analysis produces a mid-point-implied fair equity value of €97m, while a detailed valuation of the company’s intellectual property (IP) assets, comprising patents and software licences, undertaken in 2016, came in at $96m.
Risks: Competing with some of the world’s largest technology companies brings challenges, such as keeping pace with developments, retaining talented people and creating enterprise mindshare vs. strong brands. SIs are a route to market but may reduce the company’s visibility into potentially lengthy sales cycles, but, to date, Artificial Solutions has proven adept at managing these factors.