Equity research Artificial Solutions: Outstanding NRR signals high value added and effectiveness

On Friday, April 19, 2024, Artificial Solutions (the company or ASAI) presented its Q1 report for 2024. Top-line figures were solid. Net sales grew by 26% YoY to SEK 17.1m, of which 99.4% was recurring revenue. SaaS ARR grew by an impressive 31% to SEK 37.2m, and SaaS API call volume grew by 40% to 23.8 million.

NRR remains at outstanding levels, more specifically at 141%, up from 134% in Q1 2023. NRR show the company’s ability to grow with existing clients over a certain period (12 months). It is thus a measurement of customer loyalty as well as product value-added and effectiveness. A figure above 100% signals that ASAI can increase revenue from existing clients – an important measure in the current growth strategy.

The chart below illustrates net sales and NRR development over the previous five quarters, Q1, 2023 to Q1 2024.

Key for NRR is the strong growth rates for non-SaaS recurring revenue, API calls, and SaaS recurring revenue, API calls that grew by 34% and 55%, respectively, in Q1 2024.

With a larger share of revenue coming from API call volume, the gross margin improved substantially to 79% (56%). The headcount is down to 59 (76), which has lowered personnel costs from SEK 25.3m in Q1 2023 to SEK 21.0m in Q1 2024. Meanwhile, operating expenses fell by 10% to SEK 37.8m, yielding an adjusted EBITDA of minus SEK 8.5m.

Cash flow from operating activities was minus SEK 7.9m, while the cash position at the end of the period amounted to SEK 24.6m.

To summarise the Q1 report, the good volume growth from existing customers is encouraging and validates the business model API call volume-based revenue. The company states that the pipeline of potential new large contracts is impressive and still intact, although the sales cycle has been longer than expected. ASAI aims to push sales efforts towards larger deals in the coming quarters to leverage from its portfolio of reference customers, however, in an OPEX-efficient manner.

A space attracting investor interest and funding

On Feb. 5, 2024, ASAI announced the outcome of the rights issue, which was carried out in January and February. Subscription interest corresponded to approx. 166% of the offer, implying outstanding demand in the current market. Meanwhile, kore.ai, the provider of enterprise conversational and generative AI platform technology, announced at the beginning of the year that it received a growth investment of USD 150m from FTV Capital and Nvidia, amongst others. In other words, investors’ interest in conversational AI is high.

Disclaimer

Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, is engaged in corporate finance and equity research, publishing information on companies and including analyses. The information has been compiled from sources that Carlsquare deems reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be considered a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the analysis are intended solely for the recipient.

The content may not be copied, reproduced, or distributed to any other person without the written consent of Carlsquare. Carlsquare shall not be liable for either direct or indirect damages caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments offer the potential for appreciation and gains. All such investments are also subject to risks. The risks vary between different types of financial instruments and combinations thereof. Past performance should not be taken as an indication of future returns.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be disseminated to such persons. The analysis is not directed at natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.

The analysis is a so-called Assignment Analysis for which the analysed company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for the usually fixed fee.

Carlsquare may or may not have a financial interest with respect to the subject matter of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.

The analysts Markus Augustsson, Niklas Elmhammer, and Christopher Solbakke do not own and may not own shares in the analysed company.