Quaterly Report January to March 2020

Strong growth and solid progress on key indicators

JANUARY TO MARCH 2020

• Order Intake was 19.5 MSEK (16.8)
• Order Backlog increased to 56.3 MSEK (40.8)
• Net Sales totalled 15.3 MSEK (12.6)
• Gross Margin increased to 60% (50)
• Usage Revenue increased to 26% (12)
• Adjusted EBITDA was -25.1 MSEK (-27.7)
• Earnings per share -0.7 SEK (-2.7)

EVENTS DURING THE QUARTER

• The Rights Issue raising a total of 120.5 MSEK was fully subscribed with the issue of 18.5 M shares
• Swisscom extended their commitment with a 10.6 MSEK three-year agreement
• Signed two additional new customers, a large Scandinavian financial company & a global management consultancy
• Partnerships announced with Babel and CSG, both leading Systems Integrators
• Took steps to maximize cash resources during Covid-19 lockdown period

EVENTS AFTER THE QUARTER

• Launched Tiva, an artificially intelligent virtual assistant to allow organizations to rapidly deploy automated HR and IT support to employees working remotely due to the COVID19 pandemic.
• Partnership announced with UiPath a leading Robotic Process Automation provider

KEY FIGURES

CEO STATEMENT - LAWRENCE FLYNN

The first quarter of 2020 has shown strong growth against the same quarter last year in a number of key indicators and our revenue mix continues to move towards the more profitable License and Usage. This is all the more gratifying in the context of the global Covid-19 crisis.

Q1 Indicators

I was delighted that during the first quarter we were able to advise the market that our existing customer, Swisscom, had extended their existing agreement with us for a further three years, worth a minimum of 10.6MSEK. This agreement covers both their Customer Service and Smart TV solutions. The agreement coincided with Swisscom taking their TV solution live and, during Q1, we saw their usage successfully grow from less than 5,000 sessions a day to more than 50,000 a day!

This success follows last quarters expansion at a USA telecoms provider, where they expanded their solution to their entire broadband customer base. I believe these together provide a very strong endorsement of our high – margin license and usage fees-oriented business strategy. I look forward to seeing a number of other pilot implementations which we signed last year, and are currently under way, developing into full deployments with the associated increases in revenue.

We also closed another two new name accounts in Q1, this time a Swedish financial institution and a global consulting company with an internal HR project. The first agreement was concluded right at the very end of the quarter, when both companies had closed their offices and both parties signed the agreement whilst working remotely. I was much encouraged to be able to conclude new account business against the backdrop of the crisis and continue to see signs of similar activities in our market this quarter.

Driven by these and other success, our Usage Order Intake grew by 127% (7.6 MSEK) and Usage Revenue by 170% to (3.9 MSEK). For the first quarter ever Order Intake for Usage was the largest contributor ahead of licenses and services. License Order Intake grew 19% (7.6 MSEK) and License Revenue by 34% to (5.2 MSEK). All of which driving an increase in overall revenues compared to the same quarter last year of 21% to (15.3 MSEK). All very positive moves in the right direction.

Order backlog grew a healthy 38% with the largest growth in the highest Gross Margin types, Usage at 58% growth and Licenses at 51%.

Usage

Usage of Teneo solutions were positively impacted during the quarter both by more customer deployments coming on stream as planned and also, in certain cases, lockdown induced demand increases. Overall the growth in volumes from the same quarter last year is 46%, while quarterly growth from the previous quarter is 18%. Volumes from customers on our usage-based business model has seen an increase of 551% over the same quarter last year and the growth over the previous quarter is 91%. This trend, indicated in the following chart including April 2020, is very encouraging.

Partners

Another key area of success in Q1 came from the continued Order Intake growth of our Partner channel where we continue to leverage their coverage and their expertise with 82% of orders by value (63% Q4 2019) received in the Quarter coming from our Partner channel.

Partners are a key element of our growth strategy as they provide access to executive level relationships across a huge customer base, a vast pool of professional services talent, existing projects,  geographies where we have no “on the ground” representation and they help our customers to de-risk projects. During the quarter we added a number of key new partners to our portfolio, with both Babel and CSG as System Integrator partners and, importantly Blue Prism, adding another market leading partner in the Business Process Automation space as a technology partner. After the end of the quarter, UiPath joined Blue Prism as a key partner in the Business Process Automation space.

Covid-19 - The Impact on Artificial Solutions

As a business, we are well used to leveraging technology for remote working. Therefore, when the decision was made to officially close our offices in March, we continued to function as normal and our customers continued to utilize our products and services without any appreciable change.

Almost immediately, we took steps to preserve our cash resources with a range of initiatives such as arranging the deferred expenditure on a wide spectrum of items including rents and taxes.

With people-related costs accounting for around 70% of our regular expenditure, we also made the strategic decision to furlough some staff supported by the various government support schemes available in the geographies in which we operate. In addition to furlough, many other staff have taken salary deferrals, including management, in order to manage workload and the company’s sustainability.

At the time of writing, we have saved or deferred a total of c.19 MSEK, are not currently planning any redundancies and remain confident of the mid-term opportunities.

Industry commentators believe that, whilst there is likely to be a short-term slowdown on economies overall due to Covid-19, in the mid to long term, there is likely to be a positive “accelerator” impact on Artificial Solution’s market, as CIOs plan and implement their future technology roadmaps. They will seek to maximize new opportunities as lockdowns soften, to benefit from greater automated customer interaction and to build resilience and sustainability of service into their business models.

I believe that the Teneo platform is ideally placed to deliver the combination of Conversational AI capabilities and enterprise features that CIOs will demand in a new world, learning to live with the impact of Covid-19.

Tiva

As a direct reaction to the Covid-19 crisis we built and launched Tiva, a business-focused, artificially intelligent virtual assistant to allow public and private sector organizations to rapidly deploy much needed automated HR and IT support to employees working remotely due to the Covid-19 pandemic.

Free to existing customers, Tiva is designed specifically to help organizations cope with the bombardment of requests and queries from their employees forced to work from home at short notice.

Launched as recently as the 14 April, Tiva is already in use by customers and a number of Partners. It is an excellent demonstration of the power of the Teneo Platform and the speed and depth of function that can be deployed.

New Market Guidance

Given the uncertainties caused by the Covid-19 pandemic it is appropriate to review existing market guidance. The company remains confident it will achieve Order Intake growth in line with or in excess of its market in general. The company also remains confident that the company will achieve a run rate gross Margin of 70% by the end of the financial year. Similarly, the company also believes that Usage Revenues will exceed 80% of turnover by the end of 2022. However, in terms of cash flow positivity, the uncertainties of the Covid-19 crisis, both positive and negative, are too difficult to accurately quantify at this stage. As a result, we will continue to monitor the impact of the crisis and revisit this element of guidance with our second quarter earnings release.

Summary

The first quarter of 2020 has been both successful and extremely challenging. We have taken adequate steps to protect the Company during the crisis. The nature and timings of outcomes remains uncertain, however I firmly believe that as the initial phase of the Covid-19 crisis comes to an end, Conversational AI will have become a key component in many enterprise road maps, providing Artificial Solutions with an immense opportunity – an opportunity we are ready to capture.

Artificial Solutions financial reports are available at the corporate website, https://www.artificial-solutions.com/investor-relations/as-financial-reports

For more information:

Lawrence Flynn, CEO, Artificial Solutions

Tel: +44 (0)1635 523267

Email: lawrence.flynn@artificial-solutions.com

This information is such that Artificial Solutions International AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out below, at 7.30 a.m. CET on May 18, 2020.

Artificial Solutions International is listed on Nasdaq First North Growth Market in Stockholm with short name ASAI. Erik Penser Bank is the Company’s Certified Adviser (www.penser.se, tfn +46 (0) 8-463 83 00, e-post certifiedadviser@penser.se).

Artificial Solutions® is the leading specialist in enterprise-strength conversational AI, a form of Artificial Intelligence that allows people to communicate with applications, websites and devices in everyday, humanlike natural language via voice, text, touch or gesture input.

Designed for the global enterprise, Artificial Solutions' advanced conversational AI platform, Teneo®, allows business users and developers to collaborate on creating sophisticated, highly intelligent applications that run across over 35 languages, multiple platforms and channels in record time. The ability to analyze and make use of the enormous quantities of conversational data is fully integrated within Teneo, delivering unprecedented levels of insight that reveal what customers are truly thinking.

Artificial Solutions' conversational AI technology makes it easy to implement a wide range of natural language applications such as virtual assistants, chatbots, speech-based conversational UIs for smart devices and more. It is already used daily by millions of people across hundreds of private and public sector deployments worldwide. For more information, please visit www.artificial-solutions.com.