Tecnotree (Helsinki:TEM1V) Q1 2026 Earnings Call

0:00 Good morning, and welcome to Tecnotree q one twenty twenty six earnings call. My name is Thomas Kuponen, director of investor relations. And with me today is CFO, Indraj Srivukananda. Before we start, I'd like to read out a statement. The online presentation will be led by Indonesia Vukananda, CFO, following the commencement of the voluntary recommended public cash tender offer by Resilience Investment Holdings Ltd on 02/05/2026. Investor and analyst communications during the offer period, including all IR calls, are being led by mister Vivekananda. As previously disclosed, CEO Padma Ravichandr is a member of the bidding consortium, and this arrangement has been made to ensure appropriate governance during the offer period. Miss Ravichandr continues in her role as CEO responsible for the company's day to day operations.

0:50 We'll add questions to the end of the presentations. Without further to add, please, mister Vukananda, go ahead. Thank you, Thomas. Good morning to all the investors who joined the call. Let's start recollecting our q one performances which we published yesterday. I would like to start with some of the basic key metrics in this quarter. Let's start with the free cash flow. Free cash flow in this current quarter was comparatively lower, €200,000 against 1,000,000 what we achieved last year. Revenue in constant currency was at 17,100,000 against 16.9 what we had achieved last year. A slight 1% increase compared to last year.

1:43 Revenue in real terms was against very slightly lower at 16.8 compared to 16.9 of last year. EBIT current quarter was at highest slightly again at 4.6 against 4.5 of last year. The net income in q one twenty six was 2,100,000, slightly above compared to 1.5 which we achieved in the last year same quarter. Can you move to the next slide? I'm continuing with some of the key metrics here. The CapEx to sales as a percentage of the capital lump capitalization, what we do against the sales.

2:29 Last year, it was at 15%. This quarter, we have brought it down to 9.5%. ARR current quarter is at 6,400,000, and last year, 7,600,000. The DSO days, current year is at hundred and ninety six days against one fifty five last year. We'll go through some of these numbers in detail in my presentation later. The order backlog is at 105,000,000 against 70,000,000 last year, a substantial increase. Now the same the income statement. Let's compare it with not just last year, but two years prior to that from '23 onwards and see where we stand.

3:22 The revenue is at 16.8 in the current quarter, 16.9 last year, and 16.3 in '24 and fifteen 0.5 in 2023. The EBIT has been the highest in the last four years at 4.6. Financial items is at 1.9. Taxes, 700 in the current quarter. And the net income, again, has been the highest in the q one among the last four years at 2.1. I want to call out certain things here. The revenue in real terms decreased slightly from the previous year. However, in constant currency, we are slightly above the last year.

4:09 The EBIT margin, there's a increase of 50 basis points from 26.9. We moved up to 27.4%. Profitability was supported by favorable forex movements in this quarter. Now coming to the actual cash collections. This quarter we collected 12,400,000 against 14.3 we collected last year and 9.5 in '24 and 15,000,000 in '23. Free cash flow, which is a result of the collections in this quarter, was impacted by lower collections in The Middle East leading to a buildup of consequentially the increase in the receivables and consequent again to increase in the DSO days.

4:58 The order received, we had a good quarter at fifteen point five, which is the highest among the last four years. Order backlog, which is a combination of the new orders and the revenue we accrued, is at 105, probably one of the highest compared to the last four years. And the earning per share is constant at €1 point €1. At this point, I want to draw attention to the two facts. Order backlog is 50% higher compared to the last year, And our EPS numbers for this quarter is on the increased capital post the CCD conversions which happened in this quarter.

5:44 Let's move to the next slide. We'll again look into a little bit more granular detail. I want to recollect the 2026 guidance on the revenue we had given at low to mid single digit percentage growth in constant currency. In q one twenty six, we have achieved 16.8 in real terms, which is 0.2% lower than the last year. However, in real constant currency, we achieved 17.1 on which we have been giving the guidance, which was at 1% higher compared to the last year same quarter. Revenue growth was slightly impacted by the geopolitical conflicts in Middle East, which we are already aware of. And delivery rate quarter driven by ongoing large transformations ensured that we are able to achieve the revenue in this current year at 17.1 in constant currency.

6:47 Stable demand for product portfolio. In the previous slide, I shared the orders what we got, which is at 15,000,000, which is highest in the last four years in the q one. That was a result of the stable demand for our products. Now if I look at the q one and q one of last year and this year by revenue type, our license revenues have come down from 4.2 to 2.1 in the current year. The delivery revenue, however, has gone up from 5.1 to 8.3 and the ARR has slightly come down from 7.6 to 6.4. I want to draw the attention of the investors on one fact of revenue at Tecnotree. Most of our revenues are cyclical in nature, which means that we sell a license, then we implement it, which is the delivery, and then that moves into ARR model.

7:43 This quarter, we had a higher deliveries for the orders what we already had, and that drove our higher revenue in the delivery in this quarter. Again, if you look at where I'm earning the revenue from last year to this year, the EUs and Americas was at 2.7 last year, substantially increased to 4.2 in this quarter, and EMEA and APAC came down slightly from 14.2 to 12.7. Again, if I look at it, the order backlog, what orders I'm carrying from which region? Europe and America has almost doubled from 12.1 last year to 25.6 in this year, and EMEA, APAC has also grown from 58.2 to 79.9.

8:37 Moving to the next slide, please. Now again, on the EBIT, if you look at in my current quarter, year on year, I have grown my EBIT by 1.8% to 4.6 compared to 4.5, And EBIT margin has gone up by 50 basis points from 26.9 to 27.4. Now let's look what are the top EBIT drivers. The CapEx to sales is in spite of reducing my CapEx from 15% to 9.5% of my revenue. My EBIT has grown. The operating expenses remain fairly stable year on year with reduced product capitalization offset by increase in travel expenses to support large scale transformation, especially during the war situation what we face in Middle East.

9:31 The EBIT margins evolution, if you look at it last year, as we said, was five 4.5 in absolute terms and current year 4.6. The margin has expanded from 26.9 to 27.4%. And also I want to draw this one attention to of our investors. The CapEx to sales trend, we have given an earlier guidance on that, which had reached 18% of my revenue in 2024 is steadily coming down. Last year, we were at 13%, and current quarter, we are at less than 10%. Can we move into the next slide? I explained that we had lower collections in this quarter, especially due to the geopolitical situation in The Middle East. Look at my receivables.

10:29 The actual receivable is $388,200,000 against last year 32.2. If I break this down into the aging bucket, you can see that last year, 34% of my receivables was not due. However, current year it is 27%. Where the moment has happened mainly is between ninety to two seventy days, which was 3% last year to 28% in the current year. However, more than one year has fallen from 31% to 24%. This is mainly due to the collection which were, not happened, what should have happened in the third month of the last quarter due to the situation in Middle East where I have a large number of customers.

11:20 Below I'm providing in the last ten, three years, how many days or days are moved. Again, as we know in Tecnotree, collections is also cyclical while we are trying to stabilize it. It was a two turn. It came down up to one forty five in q three of twenty four, again, started going up. In the last year last quarter, it fell down to one forty eight. And again, this quarter, because collections were lower, my DSLRs are high at one ninety six. Now let's look at some of the currencies where we are facing the risks. In current quarter, q one twenty twenty six, we had a fairly favorable forex movements supporting the profitability.

12:13 Exchange rate differences in financial items for the first quarter was 1,000,000 driven by slight strengthening of UST and weakening of INR where majority of my cost comes against the euros. The Q1 twenty six, we reduced our frontier currency exposure to 3% while it looks 12 percentage points reduction from the previous year where we were at 15%. Strategic focus on tier one accounts and growth in mature and dollar denominated markets continue as a part of our company strategy. I also had given how the USD euro trend move. And it is still little bit uncertain, and we should wait for a longer term to see where it stabilizes.

13:04 Just to call out, last year, the dollar to euro, the dollar depreciated by about 15%, which also affected us last year. If I look at the q one twenty six numbers, it's again, 15% last year was denominated by volatile currency, mainly the Argentinian currency and the Nigerian currency, and that has come down substantially down to 3% in the current quarter. Can we move on to the next slide? Now let's look at the balance sheet at a high level. The intangible assets, which is at 49.5, continues to be stable at the same level as at the end of previous quarter.

13:52 This is mainly due to reducing the CapEx to the sales as a percentage. And as I shared earlier, because of lower collections, my trade receivable has gone up in this quarter. However, the other receivable has slightly come down. The shareholders' equity as a result of the conversion of convertible debentures into equity has increased. And as consequently, compulsory convertible debentures have also come down. Again, I want to draw out the other numbers on the liabilities are fairly consistent with our previous numbers, except the trade payables has slightly gone up, again, due to cash management due to the lower collections. Can we move into the next slide?

14:46 Now at this point, I want to bring the attention on the guidance what we have given. The guidance for 2026 is a continuation of our strategy to drive higher returns and more free cash flow for our shareholders. Revenue in constant currency, low to mid single digit percentage growth, and free cash flow above 5,000,000. The assumption for the free cash flow is based on the company's current market outlook and exchange rate assumption, especially what we faced in the last year due to the devaluation of US dollars against the euro. Can we move on to the next slide, please? Before I end my presentation, I want to draw attention of the shareholders on the public tender offer.

15:38 On January 27, the company announced that Resilience Investment Holding, acting on behalf of a consortium comprising of Helios Investment Partners, Fidro Investments Limited, and Padma Revichander, together called its consortium, has made a voluntary recommended public all cash tender offer for all the issued and outstanding shares and certain other equity securities of the company. On twenty fifth of March twenty sixth, we announced that the process for obtaining the necessary regulatory approvals from some of our global operations are still ongoing. This is what we understood from the tender tenders, and that will not be completed within the initial offer period. So the offeror has decided to extend the offer period for the tender offer to expire on 06/03/2026 at 4PM finish time.

16:37 One more, sharing of the information. The annual general meeting has changed its date to Friday, 05/29/2026, and further details will be shared soon. Now as a CFO, if I were to ask what are my key takeaways in this quarter, we have a strong order backlog and a stable revenue growth during the uncertainties. We have a continued demand for the product portfolio, 15,000,000 in real terms and 35% year on year growth, delivery led quarter driven by ongoing large transformations, lower free cash flow due to weaker collections impacted by elevated geopolitical risk in The Middle East. Weaker collection in Middle East led to buildup of receivables and increase in the DSO days.

17:31 I also want to draw attention that we have approximately 30% of our revenue exposure to the Middle East region where the current geopolitical situation has introduced a near term uncertainty in project delivery time lines, collections, and operating cost. The company's financial guidance for '26 issued on 01/27/2026 and confirmed on 02/25/2026 remains unchanged at this point. However, we acknowledge that there's an evolving situation, and this warrants continued close monitoring. With this, I hand it back to Thomas. And if there are questions from our shareholders, we can take it now.

18:20 Answer this in the presentation, but it's in the question. So why is the tender offer period extended? Is this linked to the regulatory delay with the takeover? Good question. As you know that we are a global company. We have operations in multiple geo locations, and certain geographies do require a specific approval to the tender offer, which are the I understand the offeror are taking the approvals from them, and they intimated that they are facing certain delays in certain geographies, which resulted in they have extended the offer period.

19:05 That's basically to get the approvals in certain geographies. You cite in your report increased travel costs. Can you talk about the extra costs that you are facing? For example, travel, hardship, insurance, evacuation costs. Thank you. That's a that's a good question. As far as the insurance are concerned, we do have sufficient insurance coverage on our assets, including on our people. But the in this quarter, my travel cost did increase. One, basically because some of the employees who were in this danger zone had to be evacuated and we had to be brought it back to a safer zone that did incur our cost. And in certain places, the customers insisted on having our people in their location, which also increased our cost.

20:02 So these are the two reasons, mainly the evacuation cost. And also mind you, sometimes if I need to get them, say, from Middle East to any geography, the flights were not directly available. So I had to take them into different locations and get them into a safer place. So there are some of the reasons which increased our cost in this quarter. Okay. And then we have some translations going on. Just a few minutes. Mhmm. To transfer and finish, or then I can just do If straight you can give a comment, did your did the write downs come from The Middle East? Or the you mentioned you mentioned the provision the charge against receivables.

20:48 No. We have completely out of our the Iran business, and they do not specifically relate to Iran. There are different customers in different geographies. And actually, I'll just say that and finish first. So in English, it'd be loans were repaid by 400,000. Is reducing the loan to value ratio a strategic goal of the company? Sorry. Can you repeat that? Loans were repaid by 400,000. Is reducing the loan to value ratio a strategic goal of the company? Let me tell you. The the the intention or the or the policy of the company is to raise funds that are required when they are required.

21:45 And I think we had explained this also at some point of time that then these are the some of we call it as some of the discounting of the temporary bills, which we do it based on the certain credit facilities extended by banks in certain geographies. Yes. The intention is to minimize the borrowings, but if the situation requires and if they are required for my operations, we have the ability to get them and make best use of our assets. Thank you. It's unfinished, so when will the webcast be available? The webcast will be available today after we have just cut the the beginning, and then probably in an hour or two whenever we get that upload to the website.

22:37 And then there are questions related to the tender offer. Unfortunately, we are unable to take questions related to the tender offer or things regarding the tender offer period activities as we can only be limited to the q one Tecnotree results. And I think we have run out of time. So I think without further to do, I'll say that in one month time, the AGM will be held. Hopefully, we'll be coming with information soon. And the next time we will have a earnings call report will be the h one twenty twenty six earnings call in August 4. But in one month, the AGM is planned to be held. So please stay tuned for news on that and the stock market and on our investor websites.

23:24 Is there anything that you'd like to say, Indraj, before we end the call? Just thanks the investors for joining this call and asking the questions, and see you soon in the AGM. Alright. Thank you, guys, and have a good day. Thank you.