Tecnotree Corporation Half-Year Report 1st Jan - 30th Jun 2024 (unaudited)

Tecnotree achieves positive free cash flow for the quarter, sustaining revenue growth.

First half (January-June 2024)

• Net sales of EUR 34.9 (34.8) million.
• Net sales in constant currency of EUR 40.8 (38.8) million
• Adjusted operating result of EUR 10.9 (9.8) million.
• Adjusted operating result margin of 31.1% (28.1%).
• Operating result of EUR 8.0 (9.8) million.
• Foreign exchange losses of EUR 2.5 (1.9) million
• Adjusted result for the period EUR 6.6 (5.5) million.
• Result for the period EUR 3.7 (5.5) million.
• Gross cash inflow from operating activities EUR 7.3 (6.4) million.
• Earnings per share were EUR 0.22 (0.02*)

Second quarter (April-June 2024)

• Positive free cash flow of EUR 0.8 (-0.8) million.
• Net sales of EUR 18.7 (19.3) million.
• Net sales in constant currency of EUR 20.2 (20.8) million
• Adjusted operating result of EUR 6.4 (6.2) million.
• Adjusted operating result margin of 34.4% (32.1%).
• Foreign exchange losses of EUR 0.8 (0.9) million.
• Adjusted result for the period EUR 5.0 (6.2) million.
• Result for the period of EUR 2.1 (3.7) million.
• Gross cash inflow from operating activities EUR 6.3 (1.6) million.
• Earnings per share EUR 0.12 (0.01*).
• Order book at the end of the period EUR 72.6 (68.4) million.

* On 19 April 2024, Tecnotree executed a reverse split, i.e. the reduction of the number of shares where every 20 old shares in the company corresponds to one new share.

[][]
Key figures, MEUR 4-6/2 4-6/2 1-6/2024 1-6/2023 1-12/2023
024 023
Net sales 18.7 19.3 34.9 34.8 78.4
Adjusted operating result [1] 6.4 6.2 10.9 9.8 23.8
One-time items -2.9 0.0 -2.9 0.0 0.0
Operating result 3.5 6.2 8.0 9.8 23.8
Result before taxes 2.9 4.2 4.9 6.9 13.9
Adjusted result for the period 5.0 3.7 6.6 5.5 13.9
[2]
Result for the period 2.1 3.7 3.7 5.5 11.2

Earnings per share, basic, EUR 0.12 0.01 0.22 0.02 0.04

Order book 72.6 68.4 72.6 68.4 80.2

Gross cash flow from operating 6.3 1.6 7.3 6.4 17.4
activities
Change in cash and cash 0.4 -0.2 -4.0 -1.6 8.6
equivalents
Cash and cash equivalents 0.0 0.0 16.8 10.7 20.8

Equity ratio % (Equity/Total 65.6 77.4 67.5
Liabilities)
Debt Equity ratio % 5.3 -4.4 6.6
(Debt/Equity)

Personnel at end of period 852 895 883

1 Adjusted operating result =
operating result before one-time
items.
2 Adjusted result for the period
= result before one-time items.

One-time expenses included provision of EUR 2.2 million on sale of business assets, EUR 0.7m of an additional impairment of product development assets. 

Prospects 2024

Tecnotree expects in 2024:

•    Free Cash Flow of EUR 2-5 million in H2 2024 (Free Cash Flow = Operating Cash Flow - Capital expenditures)

•    Revenue to be higher by 2%-7% compared to 2023

•    Operating profit (EBIT) to be higher by 7%-15% compared to 2023

The company will continue its focus on increasing license sales, while evolving its delivery model to an Annual Recurring Revenue model. This will ensure that the company will have more predictable and stable quarter on quarter revenue. However, revenue will be impacted in the shorter term. The telecom industry growth is poised at 2.1% annually from 2022-2027 and Tecnotree has been growing above the market. Further, given the uncertain global economic scenario, the company expects 2%-7% growth in revenue compared to 2023.

In 2024, the company is expecting higher cost optimisation which will result in higher operating profit of 7%-15% compared to 2023. 

The outlook is based on the constant currency terms.

From the CEO's desk

Sustained Quarterly Growth in Revenue with A Positive Turn on FCF and Improved Collections Amidst Turbulent Market Conditions.

In the second quarter, Tecnotree achieved a 15% growth in revenue compared to previous quarter and it was EUR 18.7 (16.3) million. In constant currency terms, Tecnotree achieved a 5% growth in revenue in in the first half and it was EUR 40.8 (38.8) million. While in real currency terms, we have maintained stable revenue of EUR 34.9 (34.8) million, despite slowing market growth in Telecom sector. This validates that Tecnotree's investments in our product stack continues to garner strong demand. The company added 6 new customers in growth markets, including MTN South Africa, Global HITSS Solutions Mexico, MiFibra Peru, Movttel Participacoes Brazil, Absa Bank Uganda, and Safaricom Kenya. Furthermore, Tecnotree announced strategic partnerships with Bytedance, HCLTech, and Emirates Integrated Telecommunications Company (procurement arm for Etisalat, Du and Virgin Mobile) to deliver AIML-powered BSS solutions for global telecom companies. Additionally, Tecnotree has growing recognition by industry analysts and forums such as Gartner, TM Forum and Precision Reports that strengthens our position in North America and Europe. 

Revenue

In the first half, Tecnotree's revenue recorded increase to EUR 34.9 million compared to EUR 34.8 million last year. In the second quarter, the revenue was EUR 18.7 million compared to EUR 19.3 million last year. The second quarter recorded a stronger growth in revenue EUR 18.7 million compared to the first quarter EUR 16.3 million. The revenue retired included new orders from LATAM, MEA and recurring revenue from existing customers globally. The nature of the demand included enterprise BSS, OSS, Marketplace and Fintech solutions. Revenue was also strengthened by several project completions in AIML, VAS and BSS transformations in multiple Tier 1 and emerging markets such as Telenor Norway, MTN Group multiple countries, Ooredoo Group, Omantel and Zain Group. During the year 2024 Tecnotree has made significant inroads into the Tier 1 North America and Western Europe telecom operators through strong Systems Integrator partnerships with HCL Tech and others.

Cost

Tecnotree began cost optimization last year and continue to embark on a global initiative targeting significant cost optimization also in 2024. The total operating expenses excluding one-time expenses in the first half were 66% of the revenue compared 70% in 2023. During the second quarter, Tecnotree announced completion of the global business rationalisation and personnel-related restructuring, which started in the first quarter of the year. Headcount reductions continue and 5% of headcount reductions have been achieved in the second quarter. Tecnotree estimates that the saving impact of these cost efficiency actions will result in cost savings of EUR 4.5 million in the second half of 2024 and further EUR 7 million in the year 2025. Tecnotree consolidated the erstwhile real-estate and healthcare businesses in North America to focus on telecommunication IT transformations.

CCD

Tecnotree has totally collected EUR 23.1 million till date. The remaining EUR 20 million CCDs will be paid for by Fitzroy on or before Q4 2025 as earlier announced.

Profitability

The adjusted operating result in the first half increased by 10.7% to EUR 10.9 million compared to EUR 9.8 million last year. The adjusted operating result in the second quarter increased by 3.8% to EUR 6.4 million compared to EUR 6.2 million last year.

Tecnotree is continuously monitoring and evaluating the quality of its assets to ensure consistent and conservative assessment of its asset value. In line with this principle, Tecnotree prudently recorded one-time expenses of EUR 2.9 million related to the termination of business and impairments.

Tecnotree earns revenue in multiple global currencies and predominantly in US dollars. In the second quarter, Tecnotree managed to reduce exchange risk and the exchange losses in the quarter were EUR 0.8 million compared to EUR 0.9 million last year. Tecnotree continues to aggressively explore opportunities to minimize the negative impacts of exchange rate volatility. Stable revenue, strong focus on opex and cost reduction initiatives have resulted in a positive impact on the operating result and have enhanced free cashflow to a positive EUR 0.8 (-0.8) million in the second quarter.

Collections

The overall collections for the second quarter totalled to EUR 16.6 million compared to EUR 9.5 million in the previous quarter. In constant currency the collection would have been EUR 19.4 million. The accounts receivable balance reduced by 10.6% to EUR 32.6 million at the end of the second quarter, compared to EUR 36.5 million at the end of first quarter. Tecnotree continues to track cash collections closely resulting in substantially improved DSO days by 21.2% to 170 (216) days in the second quarter.

Order Book

In the first half, Tecnotree's order book increased 6.1% compared to last year and was EUR 72.6 million. The growth came from LATAM, Middle East, Africa and APAC. The order book continues to have a strong backlog of digital transformation projects, ARR and growing demand for AIML, Fintech and Moments Marketplace and ecommerce platform.

Recognitions

Tecnotree was recognized in the June 2024 Gartner® Magic Quadrant™ for AI in CSP Customer and Business Operations, highlighting its leadership and innovation in the industry. Tecnotree was also highlighted in three Gartner Hype Cycles for 2024: Enterprise Communication Services, Private Mobile Network Services, and Operations & Automation in the Communications Industry. The company received recognition for its Partner Ecosystem Management Platforms for CSPs and CSP Digital Marketplaces.

Tecnotree Moments in Q1 2024 was also selected as a finalist in the prestigious TMForum 2024 Excellence Awards in the category of network monetization, for enabling B2B2C network monetization in healthcare.

In alignment with the `Think Cash Do Cash' initiative, earlier announced, the company focus for H2 remains on stabilizing revenue growth, optimizing the cost, increasing the collection of receivables and ensuring a consistent positive operational cashflow in 2024.

In addition, it is important to note that our cost reduction initiative has been fully supported by our board members who have agreed to a fee reduction in their remunerations for 2024.

Tecnotree Corporation
Board of Directors