Tecnotree (Helsinki:TEM1V) Q3 2026 Earnings Call

0:00 Good morning and welcome to TechMetree Q3 2026 Earnings Report Call and Webcast. My name is Thomas Caponin, Director of Investor Relations, and with me presenting today is CFO Indira Sridharananda. We'll be going through the presentation in 30 minutes with questions and answers included. And if you have any questions, you can submit them in the Q&A box below. Without further ado, please go ahead, CFO Indira Sridharananda.

0:29 Thank you. Thank you, Thomas. Good morning, everyone. Thanks for joining this call. We'll walk you through the quarterly results what we announced yesterday. Let me start with some of the business updates. As you can see, the key deals in Q3 was we got one BSS deal in the APAC, one MBNX deal in Africa, One DevOps in MTN Arco and a multi-year ARR deal from Lata. In addition to that, we also went live in four different geographies in different Arcos. And some of the achievements, technical achievements, what we did in this quarter was 279 features delivered in Q3. Overall, this year, we have done more than 700 features which were delivered.

1:26 AI operational efficiency is in effect across the views as you know that the AI is now into everywhere and every product of technotree we use the AI and that has already making us more efficient in AI embedded features in all our products with strong market-driven program further on some of the recognitions what we got we were finalists at Global Awards 2026 with MTN for VSS OSS modernization and for AI-led capability development on our Modus platform. And as you know that we are also recognized by Gartner in five high cycles.

2:17 Our AI investment is being recognized by Tecnotree because as it appears in five Gartner's Now let's dive into some of the financial numbers. First I would like to talk about the numbers Q1 to Q3 what we have the some of the key metrics for this Y2D numbers. The free cash flow for this first nine months is at 3.9 million against 3.2 we achieved last year. which gave us a 21% increase year on year. The revenue, we grew by 7.8%. This is in the real currency. Compared to 52.8, we did 57 million. In constant currency, we did slightly better at 9.5% from 52.8 to 57.8.

3:14 On the EBIT, that's earning before interest and taxes, we grew by 43.8%. from 30.2 to 19 million in the first 9 months. The net income as a result of all the operations it grew by 23.8% from 6 million to 7.4 billion. Next slide please. Some of the other financial parameters also I want to draw the attention are the investments in the capex to the sales ratio. Last year Leena Koskelainen The order backlog remains consistently at the same level above 105 million. Can we move on to the next slide please?

4:30 Now, I want to draw attention of the audience here for the YGG financial performance in the last four years. In the last four years our revenue for the first nine months have always been above 50 million and this year probably this is the highest among the last four years. The EBIT is also highest in the last four years at 19 million and financial items was substantially higher at 9.1 compared to the earlier years. I want to draw attention here The financial items was higher, substantially higher, due to a one-time write-off of 5 million what we undertook in Q2 of the current year.

5:18 The taxes remained consistently around 2.5 million. The net income, in spite of that high write-off, remained at 7.4 million, almost in line with the earlier years. The cash inflow is also at a high compared to the last four years. Again, ballparking at 40 million plus in the last four years. The order received is also around the same range as earlier years, except in the last year, we took a couple of large orders, which boosted our ordering day in 2025, the first nine months. The order backlog, since we had a higher ordering day, plus the new order received as reduced by the revenue recognize, remains strong at above 105 million.

6:09 The earning per share is at 0.34 in line with the last year and slightly lower than 24. And for 2023, I want to draw the attention that was calculated based on the pre-share split numbers. Can we go into the next slide? Now, let's look at only this particular quarter performance. As you can see, we have got a consistency in our revenue earnings over a period of time. Current year is at 20.2, which is in line with the earlier years on 18 million plus in each of the last 2-3 in the 4 years. The EBIT is at high level at 5.8 compared to the previous years at 3.6.

7:02 The financial items is at higher at 1.6. and taxes at 1.2. Net income is in line with the last year numbers at 3 million compared to 3.4 in the last year, slightly lower than 4.1 we achieved in 2024 and higher than or at the same level as we did in 2023. Cash flow, again as I can share, as we shared in our financial report, is at highest level in the last 4 years in a particular quarter at 18.1 million. Order receipt is at 19.1 consistently around that is what we achieved in the last couple of years. Last year it was slightly lesser in Q3 at 12.5 and order backlog as we called out earlier is above 105 million.

7:55 The earning per share is at 0.13 in the current year. Can we move to the next slide? Now, let's go a little bit deeper into some of our financial performances. As you can see, we have given a guidance earlier at the beginning of the year that our revenue will grow between low to midpoint single digits in constant currency. However, a few days back, we reassessed the numbers and the board gave a guidance revision and changing it The Q3 up to Q3 first 9 months as we saw earlier we did 57 million at 7.8% year on year growth. In constant currency we were at 27.8 giving us a growth of 9.5% year on year.

8:56 Again, if I compare the YDD numbers in revenue bank, we maintain the license revenue at almost same level as last year. The delivery revenue went up slightly and the ARR revenue also went up a little bit higher. And when you look at the geographical area by region, Again, this depends on our revenue models of getting the revenue when we get the orders in different regions. The Europe and America was slightly lower, which was compensated by increasing revenue from VIA and APAC. Again, order backlog, as you can see, since my revenue in this year has been slightly lower in Europe and America, I have a higher backlog. to deliver in Europe and America and almost consistently at the same level India and APAC.

9:53 Can we move to the next slide please? Now, I want to also draw attention about our EVIT performance. The EVIT is at 19 million which was compared to 13.2 million what we did in the last year which gives us an increase of 43.8% year on year.

10:17 The EBIT margin, the EBIT earned against the revenue is at 33.4% against 25% in the last year.

10:27 Let's call out what are the main drivers for increase in our EBIT time. operational discipline and platform scalability and also we did a lot of cost efficiency programs which we started in 24-25 they are giving us the full period effect now increased automation of internal functions and maintenance through company's AI operations capabilities personal cost declined year on year despite the headcount increase driven by lower cost delivery and AI can move to the next slide, please. Some more highlights on free cash flow. The free cash flow in the first nine months has been at 3.9 million against 3.2 million what we got in the first nine months in the last year, about 21% year on year.

11:50 Q3 free cash flow is at 1.8 million against 1.2 we achieved last year at the same quarter. I want to highlight the tenth consecutive quarter of positive free cash flow is what we are seeing. Let's look at what are the things that are driving this free cash flow. One is the operating cash flow at 10.8 million. Cap is at 12.1% of the revenue. Cash managed through a concept, a internal philosophy what we adopted. That's think cash and do cash program and a milestone based NYC. Mid-list collections affected the geopolitical situation and our Q4 focus is on converting the converted milestones into cash summary of that last year we did 3.2 million free cash flow in the first 9 months that went up to 3.9 million in the current 9 months as you can see in 2024 whole year we were free cash flow negative at 7.7 million and in 2023 The negative came down to 4.8. And in 24, it still came down. It was still negative at 1.8, mainly driven by the high negative cash flow in the Q1 of 2024.

13:15 Thereafter, we changed the policy of think cash to cash and the invoicing milestone, the method of selling to AR, more focus on the ARR. That started giving us the results in 2025. We earned a free cash flow positive of 4.6 and in the current year, the first 9 months, we have achieved 3.9 million. Can we move to the next slide? I also want to draw attention of our receivables. As you can see that my AR receivables have slightly gone up. The grass receivables from 32.2 million to 35.2 million. The receivables about one year has increased mainly due to certain delayed collections from certain geopolitical regions what we witnessed earlier however as a company we conservatively estimate and evaluate the receivables consistently and constantly and we have made an additional provision in the current year last year at December we had a provision of 2.8 million and we have increased that provision to 4.3 million as of September.

14:33 Further, the other thing I wanted to share was on the DSO trend, which shows that our business has been cyclical for a very long time. The DSOs used to go up in a particular quarter and come down on a subsequent quarter. But in the last two quarters, we have been able to sustain it at around 143 and 148 days. Can you move to the next slide? Again, we know the geographies we work in and most of them do have a currency risk. What are the things that affected or impacted or helped the company's performance in this year? Favorable forex movement supporting the profitability.

15:23 We did have a foreign exchange gain of 1.7 million against a loss of 3.9 million last year. I also want to call out how the dollar to euro has been moving. When we moved our strategy into dollar, in a way it stabilized our financial numbers But when the dollar depreciated heavily against euro, that also impacted our numbers while we report in euro. However, this year we are seeing there seems to be consistent numbers between dollar and euro so far in this year, given that the dollar fell by more than 13% in the last year.

16:20 The other thing we kept as a parameter was how do we reduce our exposure to frontier currencies? Last year it was 16% of our revenue was coming from the frontier currencies and today we have reduced it to 11%. Can we move into the next slide? Now, I'll briefly walk through the balance sheet of the company in the last three years as after the end of September. As we can see, there has been an increase in intangible assets. These are all the product development investment, what we make in the company. While it has gone up again, as I explained earlier, we have brought down the percentage of investment as a percentage of revenue lower than the last year. The other point I wanted to bring out was on the trade receivable and other receivables, there seems to be around the same ballpark number as on December compared to the December numbers. All of the cash and cash equivalents has gone up to 22.1 million compared to 18.9 million as at December end. The convertible debentures, which the company had issued, At the end of last year, we had 23.1 million of the CCDs outstanding and except for 300,000 euros, rest of the CCDs have been converted into equity.

17:49 That is why you see a substantial increase from the equity numbers as of December to the September current year numbers. I would like to go to the next slide, please. I want to now recreate the guidance what we are given. The guidance for 2026 is continuation of our strategy to drive higher returns and more free cash flow for our shareholders. The guidance we are given is on their revenue, which is a mid to high single digit percentage growth and on the free cash flow above 5 million. Can we move to the next slide? What are the key takeaways for us? Revenue is up by 7.8% and 9.5% in constant currency.

18:44 That guided us to increase our guidance now. The EBIT is up 43.8% driven by mainly the AIOps. Tenth consecutive quarter of positive free cash flow of 3.9 YTD up by 21% order book ad continues to be above 105 million and we had a 17.5 million 3 year ARR deal which we announced in August with a Kiowa customer Q4 focus is converting the order book and completed milestones into cash Can we move to the next slide?

19:32 This was my presentation. And now I hand it back to Thomas. And if there are any questions, we can address that.

19:44 Back to you, Thomas. Thank you, Indiresh. And I'm just sorting through the questions as there are quite a few. But before we begin, I'd like to read out that the Q3 webcast concerns only the Q3 financial results which were published yesterday on our website and as a stock exchange release. Any other developments requiring public disclosure will be announced through a similar stock exchange release and questions not relating to the Q3 report and its contents will not be addressed on this call. The first question, why have you raised guidance but left free cash flow unchanged?

20:30 Thank you, good question. The nine month revenue growth, the constant currency has been at 9.5%. It was looking to exceed the earlier guidance what we had given that is low to midpoint percentage growth, I think. so the board took a decision to update the revenue guidance I want to call out one fact which is a reality in most of the business that the cash flow need not necessarily follow the revenue growth while the revenue has growth in 9.5% in constant currency we have already given a guidance last year the guidance was above 4 million and this year we have We are also following the guidance what we are given on the free cash flow which is above 5 million.

21:51 Yes, there's a few more. Are collections improving?

21:58 Yes, it is. A couple of things gives me confidence to say that. One is our free cash flow has improved significantly compared to the last year to 3.9 against 3.2. The DSO says also from 154 it has reduced to 148. and we are making conservatively and adequate provisions and following the collection actions and in this quarter we had a very high collection and overall this year the cash collection has been very high but again I also want to call out that the middle east situation has not completely out of the impact what we are having it still continues to affect our collections and we hope the Middle East situation, the impact what it has, we will be able to keep our guidance, the confidence what we have.

22:56 That is why we have kept the guidance unchanged as far as the skip is concerned. And to that extent, yes, the collections are improving is what I can confirm.

23:10 Why are stronger operating profits not producing higher EPS?

23:16 Okay, again, nice question, thank you. If you look at the YTD versus Q3, if you look at the difference between last year YTD and current year YTD, it's only about 400,000 is the shortfall. YTD, if you look at it, it's mainly, I would say that the EPS is calculated this year on the capital which is increased due to conversion of the CCDs so they based on calculating the EPS as gone up and the taxes and certain financial expenses have gone up that is why while the EBIT is high, EPS looks slightly lower.

24:04 The Q3 net income fell by about 13% despite the EBIT growth which we explained mainly it is due to the financing cost and the CCD dilution 9 months basic EPS was 0.34 versus 0.35 despite net income growth of approximately 24%. And again, this current year EPS is impacted by the 5.2 million impairment which we took in Q2.

24:36 Fourth question, are the margin gains sustainable in your business? Of course.

24:43 If you look at the, a little bit history I want to take here. If you look at, if you follow the companies for the last couple of years, the Q2 2024, we changed, we started the journey with a restructuring business. As you could see, in 2023, we had a negative pre-cash flow of 10%. Leena Koskelainen Leena Koskelainen Leena Koskelainen Leena Koskelainen Leena Koskelainen Leena Koskelainen Leena Koskelainen Leena Koskelainen Leena Koskelainen

26:05 How strong is the recurring revenue and new orders?

26:10 We have multiple sources of revenue. As I just explained in the previous thing, we have license, delivery, ARR for the orders. ARR technically increases later over a period of time. The way it works is first you deliver, first you give a license, then you deliver, and then the ARR by way of MSO DevOps and AMC starts. That is how it happens. Whenever you get a new order, it always is followed by a ARR which will come cyclically at a later time.

26:43 Why pay a dividend now?

26:46 Okay. Yes. Again, I want to go back to few months thing. So, when the board met for considering the financial reserves to be considered in the AGM. The vote did not recommend any dividend because there was a tender offer that was going on at that time. And after the tender offer did not materialize, as you know that, we have a dividend policy tied to the free cash flow where we have said that 10% of the free cash flow minimum we are going to give it back by way of dividends to the shareholders. Last year, our free cash flow was 4.6. To that extent, 10% of that is what was the company's policy.

27:38 And that is how the board took a decision to recommend it to the shareholders. Last week, there was an extraordinary general meeting of the shareholders who approved the payment of that dividends.

27:51 Thank you. You raised your revenue growth guidance partially due to the stronger than expected order intake. However, the order book was 105.6 million at the end of Q3, almost unchanged year on year and below 107.5 million at the year end 2025. Did you quantify Q3 order intake or book to bill and explain why the stronger order intake is not yet visible in the order book?

28:24 Okay, if I understand the question, the question is why my order book has not grown beyond 105 million. Let's understand what is an order book. Order book is a net result of the order what I have at the beginning of a period, the new orders what I get at a period, and what is the revenue I convert through it. Oyj, Leena Koskelainen Thank you. And there's a link, I'll just read it out loud because you were kind of already answering it.

29:40 Free cash flow was 3.9 million for the first nine months, and your full year guidance remained above 5 million. You also mentioned that collections in the Middle East are still slow. How confident are you about collections in Q4? And is there any further material credit loss risk?

29:58 On the free cash flow, we are given a guidance of above 5 million. And so far, we have collected, have a free cash flow of 3.9 million. and we have not changed the guidance from the whole year, which means that we are still committed to the pre-cash flow guidance of above 5 million. The Middle East collection, yes, it did affect us very badly in the Q1 of the year when the situation changed in the Middle East. Well, over a period of time, while it has changed, but it is not completely out of the thing. We are still facing a little bit of challenges in the Middle East and hopefully we'll be able to overcome. And on the credit risk, we constantly evaluate the quality of the receivables. I explained earlier we did take some additional provision wherever we need and that's what I want to place for this group.

30:59 Thank you. And there are some questions which I've answered that we will be getting at a stock exchange release when developments come to our attention. So I will not be able to ask those questions here at the end. There's been no more submissions. So I will end the call, but I will remind that if you do want to see Technetree, we are at AFRICOM 2026 in South Africa in 17th to 19th of November. Same dates, we're also at PM Forum Innovate Asia 2026.

31:32 You can find more details about this on our LinkedIn page.

31:36 and the company will be issuing a stock exchange release when the Q4 earnings call and report date will be set. So those will be also announced via stock exchange release when those are set. Thank you for joining us today and see you next time.