Thomas Koponen: Report call and webcast. My name is Thomas Koponen, Director of Investor Relations, and with me presenting today is CFO, Indiresh Vivekananda. We will be going through the presentation in 30 minutes with questions and answers included. If you have any questions, you can submit them in the Q&A box below. Without further ado, please go ahead, CFO Indiresh Vivekananda.
Indiresh Vivekananda: Thank you. Thank you, Thomas. Good morning, everyone. Thanks for joining this call. We will 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 MVNX deal in Africa, one DevOps in MTN OpCo, and a multi-year ARR deal from LATAM. In addition to that, we also went live in four different geographies, in different OpCos. Some of the 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 we have delivered. AI operational efficiencies, in effect across the views. As you know that the AI is now into everywhere, and every product of Tecnotree, we use the AI, and that has already making us more efficient.
Indiresh Vivekananda: In AI, embedded features in all our products with strong market-driven roadmap. Further on, some of the recognitions, what we got. We were finalist at Glotel Awards 2026 with MTN for BSS/OSS modernization and for AI-led capability development on our Moments platform. As you know that we are also recognized by Gartner in five hype cycles. Our AI investment is being recognized by Tecnotree because as it appears in five Gartner hype cycles as a content. Can we move to the next slide? Now let us dive into some of the financial numbers. First, I would like to talk about the numbers of Q1 to Q3, what we have some of the key metrics for this YTD numbers. The free cash flow for this first nine months is at EUR 3.9 million against EUR 3.2 million we achieved last year, which gave us a 21% increase year on year.
Indiresh Vivekananda: The revenue, we grew by 7.8%. This is in the real currency. Compared to EUR 52.8 million, we did EUR 57 million. In constant currency, we did slightly better at 9.5%, from EUR 52.8 million to EUR 57.8 million. On the EBIT, that is earning before interest and taxes, we grew by 43.8%, from EUR 13.2 million to EUR 19 million in the first 9 months. The net income as a result of all the operations, it grew by 23.8%, from EUR 6 to 7.4 million. 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, first nine months, it was at 12.9%, and this year, it is 12.1%, 80 basis points lower than the last year. The annual recurring revenue last year was at EUR 25.1 million, grew by 6.8% to EUR 26.8 million this year.
Indiresh Vivekananda: The DSO days last year was 154 days, has come down to 148 days as at the end of September, a 3.9% reduction. The order backlog remains consistently at the same level, about EUR 105 million. Can we move to the next slide, please? Now, I want to draw attention of the audience here for the YTD financial performance in the last 4 years. In the last 4 years, our revenue for the first 9 months have always been above EUR 50 million, and this year, probably this is the highest among the last 4 years. The EBIT is also highest in the last 4 years at EUR 19 million, and financial items was substantially higher at EUR 9.1 million 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 EUR 5 million, what we undertook in Q2 of the current year.
Indiresh Vivekananda: The taxes remain consistently around EUR 2.5 million. The net income, in spite of that high write-off, remained at EUR 7.4 million, almost in line with the earlier years. The cash inflow is also at a high compared to the last 4 years, again, ballparking at EUR 40 million-plus in the last 4 years. The order received is also around the same range as earlier years, except in the last year, we did get couple of large orders, which boosted our order intake in 2025 first 9 months. The order backlog, since we had a higher order intake, plus the new order received as reduced by the revenue recognized, remains strong at above EUR 105 million. The earning per share is at EUR 0.34, in line with the last year and slightly lower than 2024. And for 2023, I want to draw the attention that was calculated based on the pre-share split numbers.
Indiresh Vivekananda: Can we move into the next slide? Now, let us look at only this particular quarter performances. As you can see, we have brought a consistency in our revenue earnings over a period of time. Current year, it is at EUR 20.2 million, which is in line with the earlier years, around EUR 18 million-plus in each of the last Q3 in the 4 years. The EBIT is at high level at EUR 5.8 million, compared to the previous years at EUR 3.6 million. The financial items is at higher at EUR 1.6 million, and taxes at EUR 1.2 million. Net income is in line with the last year numbers at EUR 3 million, compared to EUR 3.4 million in the last year, slightly lower than EUR 4.1 million we achieved in 2024, and higher than, or at the same level as we did in 2023.
Indiresh Vivekananda: Cash flow, again, as we shared in our financial report, is at highest level in the last 4 years in a particular quarter at EUR 18.1 million. Order received is at EUR 19.1. Consistently around that is what we achieved in the last couple of years. Last year, it was slightly lesser in Q3 at EUR 12.5. And order backlog, as we called out earlier, is above EUR 105 million. The earning per share is at EUR 0.13 in the current year. Can we move into the next slide, please? Now, let's go a little bit deeper into some of our financial performances. As you can see, we had given a guidance earlier, at the beginning of the year, that our revenue will grow between low to mid point single digit in constant currency.
Indiresh Vivekananda: However, a few days back, we reassessed the numbers, and the board gave a guidance revision and changing it to mid to high single digit growth in constant currency. Up to Q3 first 9 months, as we saw earlier, we did EUR 57 million at 7.8% year-on-year growth. In constant currency, we are at EUR 47.8, giving us a growth of 9.5% year-on-year. Again, if I compare YTD numbers in revenue type, we maintained 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 model of getting the revenue when we get the orders in different regions. The Europe and America was slightly lower, which was compensated by increase in revenue from MEA and APAC.
Indiresh Vivekananda: 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 in MEA and APAC. Can we move to the next slide, please? Now, I want to also draw attention about our EBIT performance. The EBIT is at EUR 19 million, which was compared to EUR 13.2 million, what we did in the last year, which gives us an increase of 43.8% year on year. The EBIT margin, the EBIT earned against the revenue, is at 33.4% against 25% in the last year. Let's call out what are the main drivers for increase in our EBIT. Operational discipline and platform scalability, and also we did a lot of cost efficiency programs, which we started in 2024/2025.
Indiresh Vivekananda: They are giving us the full period effect now. Increased automation of internal functions and maintenance through company's AIOps capabilities. Personnel costs declined year on year despite the headcount increase driven by lower-cost delivery and AI-augmented roles. EBIT margin, as I called out, last year it was at 25%, and current year it is at 33.4%. Again, CapEx to sales, which one of the parameters we tracked, it was at 11%, went up to 18% in 2024. We are bringing it down. Last year it was at 14%, and current year YTD, it's at 12%. Can we move to the next slide, please? Some more highlights on free cash flow. The free cash flow in the first 9 months has been at EUR 3.9 million against EUR 3.2 million, what we got in the first 9 months in the last year, about 21% year on year.
Indiresh Vivekananda: Q3 free cash flow is at EUR 1.8 million against EUR 1.2 million we achieved last year at the same quarter. I want to highlight the 10th consecutive quarter of positive free cash flow is what we are seeing. Let's look at what are the things that are driving these free cash flows. One is the operating cash flow at EUR 10.8 million, CapEx at 12.1% of the revenue. Cash managed through a concept, an internal philosophy what we adopted, that's Think Cash, Do Cash program, and a milestone-based invoicing. Middle East collections were affected, the geopolitical situation, and our Q4 focus is on converting the converted milestones into cash. Summary of that. Last year, we did EUR 3.2 million free cash flow in the first nine months. That went up to EUR 3.9 million in the current nine months.
Indiresh Vivekananda: As you can see, in 2024, whole year, we were free cash flow negative at EUR 7.7 million, and in 2023, the negative came down to EUR 4.8 million. And in 2024, it still came down. It was still negative at EUR 1.8 million, mainly driven by the high negative cash flow in the Q1 of 2024. Thereafter, we changed the policy of Think Cash, Do 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 EUR 4.6 million, and in the current year, the first nine months, we have achieved EUR 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 gross receivables from EUR 32.2 million to EUR 35.2 million.
Indiresh Vivekananda: The receivables above one year has increased, mainly due to certain delayed collections from certain geopolitical regions, what we witnessed earlier. However, as the 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 EUR 2.8 million, and we have increased that provision to EUR 4.3 million as at September. 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 we move to the next slide?
Indiresh Vivekananda: 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. We did have a foreign exchange gain of EUR 1.7 million against a loss of EUR 3.9 million last year. We reduced our frontier currency Forex exposure to 11%, and strategic focus on tier 1 accounts and growth in mature and dollar-denominated markets continue as a part of Tecnotree strategy. 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.
Indiresh Vivekananda: However, this year, we have seen there seems to be a consistent numbers between dollar and euro so far in this year, given that the dollar fell by more than 13% in the last year. 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 will briefly walk through the balance sheet of the company in the last three years as at the end of September. As you can see, there has been an increase in intangible assets. These are all the product development investment, what we make in the company.
Indiresh Vivekananda: While that 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 receivable, they seems to be around the same ballpark number as on December compared to the December numbers. However, the cash and cash equivalents has gone up to EUR 22.1 million compared to EUR 18.9 million as at December end. The convertible debentures, which the company had issued. At the end of last year, we had EUR 23.1 million of the CCDs outstanding, and except for EUR 300,000, rest of the CCDs have been converted into equity. That is why you see a substantial increase from the equity numbers as at December to the September current year numbers. I would like to go to the next slide, please.
Indiresh Vivekananda: I want to now reiterate the guidance, what we have 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 have given is on the revenue, which is at mid to high single-digit percentage growth, and on the free cash flow, above EUR 5 million. What are the key takeaways for us? Revenue is up by 7.8% and 9.5% in constant currency. That guided us to increase our guidance now. The EBIT is up 43.8%, driven by mainly the AIOps automation. Tenth consecutive quarter of positive free cash flow of EUR 3.9 YTD, up by 21%. Order book continues to be above EUR 105 million, and we had a EUR 17.5 million three-year ARR deal, which we announced in August with a tier 1 customer.
Indiresh Vivekananda: Q4 focus is converting the order book and completed milestones into cash. Can we move into the next slide? This was my presentation, and now I hand it back to Thomas, and if there are any questions, we can address that. Back to you, Thomas.
Thomas Koponen: Thank you, Indiresh. I am just sorting through the questions.
Thomas Koponen: As there are quite a few, but before we begin, I would 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?
Indiresh Vivekananda: Thank you. Good question. The nine-month revenue growth in 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 thing. 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 EUR 4 million, and this year we have given a guidance that we are expected to collect above EUR 5 million. We want to keep the guidance at this point at the same level. While the revenue, we are confident of growth in mid to high.
Indiresh Vivekananda: We are also following the guidance, what we are given on the free cash flow, which is above EUR 5 million.
Thomas Koponen: Yes, there is a few more. Are collections improving?
Indiresh Vivekananda: 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 EUR 3.9 against EUR 3.2. The DSO days also from 154, it has reduced to 148. We are making conservatively and adequate provisions and following the collection actions. 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. We hope, the Middle East situation, the impact what it has, we will be able to keep our guidance, the confidence what we have. That is why we have kept the guidance unchanged as far as the QIP is concerned.
Indiresh Vivekananda: To that extent, yes, the collections are improving is what I can confirm.
Thomas Koponen: Why are stronger operating profits not producing higher EPS?
Indiresh Vivekananda: 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 is only about EUR 400,000 is the shortfall. YTD, if you look at it is mainly, I would say that the EPS is calculated this year on the capital, which is increased due to conversion of the CCD. So the base on calculating the EPS has gone up, and the taxes and certain financial expenses have gone up. That is why while the EBIT is high, EPS looks slightly lower. 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. Nine months basic EPS was 0.34 versus 0.35, despite net income growth of approximately 24%.
Indiresh Vivekananda: This current year EPS is impacted by the EUR 5.2 million impairment which we took in Q2.
Thomas Koponen: Fourth question, are the margin gains sustainable in your business?
Indiresh Vivekananda: Of course. If you look at the a little bit history I want to take here. If you follow the companies for the last couple of years, the Q2 2024, we changed or we started the journey with a restructuring business. As you could see, in 2023, we had a negative free cash flow of EUR 7.3 million, and Q1 of 2024, around EUR 4 million of negative free cash flow. So that made us to think a new policy, and internally we call it as Think Cash, Do Cash. We changed the way we are operating. Earlier it was mainly the licensing, a long delivery, and a go live with the customer. We started moving that business mainly into ARR business, which will stabilize our revenue, which will stabilize our cash flow.
Indiresh Vivekananda: As you can see in the last 10 quarters, we have continuously a free cash flow, which means that the margin gains, whatever we have attained, is definitely sustainable going forward.
Thomas Koponen: Thank you, Indiresh. If you could keep your answers even shorter, just to get through all the questions.
Indiresh Vivekananda: Okay.
Thomas Koponen: How strong is the recurring revenue and new orders?
Indiresh Vivekananda: We have multiple sources of revenue, as I just explained in the previous thing. We have license delivery, ARR for the orders. ARR cyclically increases later over a period of time. The way it works is first you give a license, then you deliver, and then the ARR by way of MS DevOps and AMC starts. That is how it happens. Whenever you get a new order, it always is followed by ARR, which will come cyclically at a later time.
Thomas Koponen: Why pay a dividend now?
Indiresh Vivekananda: Okay. Yes. Again, I want to go back to few months thing. When the board met for considering the financial results to be considered in the AGM, the board did not recommend any dividend because there was a tender offer that was going on at that time. 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 EUR 4.6 million. To that extent, 10% of that is what was the company's policy, 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.
Thomas Koponen: Thank you. You raised your revenue growth guidance partially due to 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. Could you quantify Q3 order intake or book to bill and explain why the stronger order intake is not yet visible in the order book?
Indiresh Vivekananda: 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 cumulatively out of the old order plus the new order what I got. So when I maintain an order backlog of consistently above $105 million, this means that whatever the new orders I got, to that extent, I am already generating the revenue. The revenue need not come just from the current orders, but from the order backlog also. The current revenue is a combination of revenue that comes out of the previous orders, plus the current orders, what comes in.
Indiresh Vivekananda: That is how my order book is consistently around $105 million, which means that I still have so much of order backlog to be delivered over a period of time.
Thomas Koponen: Thank you. There is a link, I will just read it out loud because you were kind of already answering it. Free cash flow was EUR 3.9 million for the first nine months, and your full year guidance remained above EUR 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?
Indiresh Vivekananda: On the free cash flow, we are given a guidance of above EUR 5 million, and so far we have collected, have a free cash flow of EUR 3.9 million, and we have not changed the guidance for the full year, which means that we are still committed to the free cash flow guidance of above EUR 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. While over a period of time, while it has changed, it is not completely out of the thing. We are still facing a little bit challenges in the Middle East, and hopefully we will be able to overcome. On the credit risk, we constantly evaluate the quality of the receivables.
Indiresh Vivekananda: I explained earlier, we did take some additional provisioning wherever we need, and that is what I want to place for this group.
Thomas Koponen: Thank you. There are some questions which I have answered that we will be giving out 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 has been no more submissions, so I will end the call. I will remind that if you do want to see Tecnotree, we are at AfricaCom 2026 in South Africa on 17 to 19 November. Same dates, we are also at TM Forum Innovate Asia 2026. You can find more details about this on our LinkedIn page. The company will be issuing a stock exchange release when the Q4 earnings call and report date will be set. Those will be also announced via stock exchange release when those are set. Thank you for joining us today, and see you next time. Bye.
Indiresh Vivekananda: Thanks.
Operator: Goodbye
