Teneo AI AB (publ) (TENEO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Artificial Solutions invitation to presentation of Q4 report 2021. [Operator Instructions] I would now like to turn the conference over to Per Ottosson, CEO. Please go ahead.

Good morning. Thank you all for tuning in today to our Q4 2021 results presentation. Our PowerPoint, you can find that on artificialsolutions.com, Investors and Quarterly Reports. So please go in there and click it since we're not sharing that obviously over the phone. So good morning. It's been an interesting Q4, and I can say that at this point, we have done our transformation. And 2022 will be the focus of scaling up from the position we're in. We're now transformed fully into a Software-as-a-Service company. So some of you may or may not be familiar with the company. I'm going to go through a bit about us as well, and then talk more about the financials for the quarter and what our other achievements are for the quarter. The 2 people -- and now I'm on Slide 2. The 2 people talking today is me and Fredrik Torgren. And suffice it to say that we've done transformations and turnarounds and scale-ups before, and we are hoping to achieve the same here, of course, and we're halfway through this journey. I will talk on Slide 3. Again, for those of you who are not familiar with what we are and what we do, this is a presentation on -- or a schematic to show the space that we are in. The space we're in, it's called conversational AI, which is a subset of the AI software industry. And it's a subset, which is worth roughly SEK 130 billion and has a CAGR of 22%. So this is a market that attracts a lot of attention right now. And we were very early in this market. We started already back in 2021 (sic) [ 2001 ] when people were running around with Ericsson T28 flip phones. This market is all about a customer, an employee, a citizen coming into a system and asking something. That's the left part of the schematic. Can you help me, that could be a service request. I have a question, that could be an information request. I need to get this done, an action request. And so requests of different kinds and sorts and asking for some kind of action usually come in to a human. With conversational AI, they come into what we like to call the bot. And the bot now needs to interpret what is it that this person say? Do they want something? Did they give me any places, other details, such as names? Is there a date in there, maybe? What kind of request is this? What are they asking for? Is the user happy, upset? Have we interacted before? All that the bot now needs to understand and then also potentially take the action. Best of breed in the industry today is that 20% of the total interaction from the left to the right can be managed by the bot. And typically, this is that you've trained the bot on a few use cases where the bot can manage it themselves. Our one example that we have today, which is also a measured transactional Net Promoter Score in this in Swisscom. And there are 1.8 million phone calls coming from the left, the bot interpreting those. And in 20% of those cases, the bot actually also responds and manages the full interaction. Now that obviously is a good ROI. So there's a lower cost since there's no human involved in answering. But interestingly enough, there's also an 18-point transactional NPS. So the Net Promoter Score, the customer satisfaction goes upward 18 points with a bot answering versus the human answering. So that's the industry we're in. We are leading in this industry, and we also have some of the foundational patents in this industry because we started really early. So the stage we were at in 2014 with Ask Anna is where most of our competitors are at today. And what we built during that period, the technology we built during that period is what we're now bearing the fruits of in a Software-as-a-Service model, and that's what we're scaling up during 2022. I'm going to move to Slide 4, give a bit more information about us and a bit more flavor about our business. We were founded in 2001. Again, that's a long, long time ago. That's before the iPhone, before the iPad, before even some of our employees were out of school. And this is interesting to us because we made many of those learnings that others have made early on. And those who are doing it today, we actually saw recently in the Swedish media, a large Swedish public organization who said they've now been added for 3 years. And basically, the feedback that they gave in that interview was the feedback that we got from IKEA in 2014. So we started building our platform after receiving feedback like that from our customers, and that's what's achieved this great platform that today has a patent value. And you see that at the bottom left of the text and also bottom left of the squares, SEK 1.6 billion is the patent and IP portfolio valuation that we conducted during Q4. This was done by a company called OxFirst. OxFirst does this for many companies, one of the more notorious ones this year was Philip Morris, which has also been -- that report has been waltzing through the European Union, all sorts of instances, and it's quite a reputable organization. So they value our patents and IP to be SEK 1.6 billion. Now we use those patent and IP, of course, to provide our Software-as-a-Service service. We are out licensing them as such. So we believe that our technology advantage is what provides an advantage to customers. What we do is we have an 86-language support platform, where you build easily and you maintain easily a solution within the conversational AI space. And those are the 2 main factors today. There's quite a lot of competitors out there who try to build easily. So it could be a no-code approach where it's purely graphical. But you will hit the roof quickly on the volume side and the maintenance side of that. So we both build and run this for you in a better way. Our partners or customers, they do the actual building. We provide the platform that makes it easy to build. Our trailing or last 12 months ending December '21, so note that, that is not a classical Software-as-a-Service measure. We are still transforming from a licensed PS model, and we no longer had PS. And what you see now is that we actually are back on track where the software revenue now compensates for the fact that we removed our PS. We've sold that PS portfolio off, that's no longer with the company. That's being built by our partner for our customers today. But our trailing 12 months, and so that this is not forward-looking classic ARR, our recurring revenues are SEK 36.7 million. And that's the blue portion that you see at the top right of this slide, Slide #4 in our presentation. You see that the dark blue, that's what we are aiming to grow. So the total revenue now, you see is SEK 45.3 million, but the darker proportion of SEK 36.7 million. That's the recurring software revenue. And there, we have a growth of 18% and that's the one that we're aiming to grow now going forward. We financed during this year SEK 120 million plus SEK 250 million, SEK 250 million as a debt and SEK 120 million as equity, putting us on a solid footing going forward for this year. At the bottom left, you see some of our customers. And we have 7 new customers acquired on the Software-as-a-Service model this year, and some of those you see at the bottom left. Interestingly enough, these are the really large implementations, the really sort of stellar references that you want to have in this industry. And we're quite unique in having this reference base. So that's, of course, a very strong piece now as we're building out our sales and marketing organization during 2022. Our strategic partners, the ones that have really made a big dent this year is our relationship with Microsoft, where we're doing several campaigns together with Microsoft, also visiting the Mobile World Congress together in 2 weeks. We have CSG, have done several large engagements. And their total PS revenue on our platform last year was over $6 million. So they're making good money off of us today. CGI, similar type of numbers, also very good and generating a pipeline for us. Ernst & Young has also proven to be a very solid partner for us, being able to take the software and use it for things that we had not imagined before. So very interesting that our partners are delivering and that's really a point of strength as we go into 2022. I do want to mention that we have a 95% renewal rate in the last 2 years. We will start, as our legacy revenue decreases, as we convert our customers to Software as a Service, we will, of course, start reporting on real SaaS metrics. But a 95% renewal rate is very good. And with growth in our new SaaS customers that, of course, is going provide some good net retention rates going forward. The next slide is our executive management. I'm going to mention this again because this is a team that now is going to build this out. The sort of stable person in our company is Andreas Wieweg. He's been with us for a long time. He's the one that took all those learnings back in 2014 and started building the platform that we then patented and which is the basis for our Software-as-a-Service offering, which we're now taking to market in a strong way in 2022. Apart from that, the management team is new and quite experienced people from the Software-as-a-Service industry. And we feel quite secure that this is the team that's going to be able to build out our revenues now in 2022 and going forward. Next slide is #6, and these at some of the operational highlights for the year. So Q4 2021 was the final step in our transformation. We got Nicolas Köllerstedt, our CRO that you saw on the last slide. He came in from Snowflake to start building out the sales organization. And we now have a sales process. We are using a methodology called MEDDIC, which we have implemented. And we've started now recruiting sales into that sales motion. Currently, a small sales organization with 5 salespeople, 1 being focused on partners, but that is being built out during this year. So quite happy with the buildup in the salespeople we do have and with the new SaaS model and how it's being received in the market. We have happy customers. In my career, which is quite long in the software industry, I haven't really seen customers this happy. Partially, that's because of the SaaS, but also our on-prem customers, our legacy customers are quite happy with us as well. So we get some very good customer feedback at the end of the year and in Q4 as we had our sort of wrap-ups of the year with our customers. Very happy with that. I'm very happy with our product team and our customer success team and how they're delivering value to our customers. We are accelerating on growth. So we have traction now, 17% growth Q4 2020, versus Q4 2021, on the adjusted recurring revenues. Some of you may remember, if you're new [indiscernible] that we've taken the old upfront revenue recognition and adjusted that to be a month-of-a-month revenue recognition since we're no longer recognizing deals or revenues upfront. Our SaaS revenues are increasing. And we signed a number of new customer contracts and customer contracts during Q4. Very interesting, Banca Widiba, there's been a lot of talk about meta, Banca Widiba in Italy are actually using our software to provide a speech service in a meta-like VR banking service, which I believe to be one of the first in Europe and maybe even potentially globally. So quite an interesting use case as we're moving into the metaverse to see what that can give. Banco BPM, also a very good Italian customer, Italian bank. GrapeTree, interesting. They do medical staffing. So you would call that [Foreign Language], maybe in Sweden, in the Midwest and are expanding across the U.S. And this is -- our software is going to provide a way for them to provide better service to both their employees and their customers. Scania, a large truck maker, of course. ŠKODA, both of these being in the Volkswagen Group. And we're now working with other entities within the Volkswagen Group as well to expand. HelloFresh, very interesting in moving into new brands. And HelloFresh is launching new brands all the time, some very interesting developments going on there as well. And SelectQuote, which is a healthcare administration company back in the U.S., working to make health care plans easier to demonstrate and work on. What we're doing now is recruiting to -- on all the supporting sales activities. That's a big focus for Q1 to get people in. Of course, it takes a while to get them in and build that pipeline out. But in the meantime, of course, we're working on expanding the usage in our existing customers. The SaaS platform is providing revenues in a delayed fashion since we charge for API cost, but we'll go more into that as we [indiscernible] on. Capital Four has helped us with the SEK 250 million credit facility over 5 years. It's a PIK interest, meaning we pay the interest at the end. So very good for our cash position. And of course, we exited the quarter with a very good cash position, over SEK 100 million in cash. We have gotten another cash injection from research and development, and we got the improvement of our 2020 application for this, which is going to provide us with a cash refund in next year at the end of the year -- at the beginning of next year, of SEK 5 million. This is because we have most of our development in Barcelona. And in Spain, you get a cash credit for software developed in Spain. So this is quite beneficial for us. Also, Barcelona is very beneficial to us because it provides us with a very diverse workforce. So we're very happy in having our R&D sitting in Spain and in Barcelona. The next slide, I just want to provide some flavor to Software-as-a-Service. What's the big deal? Why are even our existing customers moving over to Software-as-a-Service. So to the left, you see a typical situation in a customer environment today. Customers who are maintaining our platform themselves, they need to maintain the servers, the network, the storage, all these different boxes and then the virtualization layer on top of that. And they need to monitor all of this and there's temperature, there's cabling, all sorts of mundane physical things that they need to manage. As they do that, there's a cost incurred in this, and this is a large portion of our industry today. Many of our customers have deployments that look like this and also many of our competitor customers had deployments that look like this. Our offering, software-as-a-service takes all of that away, you no longer need to maintain any of those boxes or networks or storage yourself. The second part of this is that when you no longer maintain it yourself, and we maintain one instance for all of our customers. Then to the right, you see a front page of WIRED, which was from December in 2021, as of the end of Q4. And what you see there is a picture of a big, big hole in the Internet, which was the Log4j, which is a logging product, which is open source and used, for example, in the Apache web servers and which is very commonly used across many companies today. I would estimate that there's hundreds of -- in any enterprise company today, there's hundreds of applications running Log4j. Now there was a hole in this, which wasn't necessarily a bug, but it was a hole that we found in this where -- that was found in this where you could basically submit a request to these servers and then take over the servers as administrator. Now if you were running these servers yourself, that meant that your IT department now needed to patch hundreds of servers. So not only it's not simple, right? You need to understand the context, you need to understand what versions you're on, and you need to build a patch for those servers yourself. We did this, of course. And within the first 12 hours, we had the first patch available. And as this vulnerability evolved, we were patching within the next 24, 48 hours along the way. So our customers that were on SaaS were protected the whole way. There's still companies out there and applications out there which have not been patched at all for Log4j, providing a huge security exposure to the outside. And in Sweden, we, of course, also had the Coop disaster in June -- I think, of July last year when you couldn't even go into a shop because they had their systems sitting on the left side, so in their own data centers. So the big advantages to our customers and really helping our customers move to SaaS quicker, which is what we're pushing and that's also, of course, what our revenue model has been built on, that we get more revenue as customers move to SaaS and grow, and they grow easier when they move to SaaS. So I wanted to explain that. And now I'm going to give it over to Fredrik to talk about some of the key financial highlights. Fredrik, our CFO, please.

Thank you, Per. Thank you. So moving into the next slide, please, which kind of highlights the key financial highlights for the quarter. And from a CFO perspective, I'm very satisfied that we can actually show a number of metrics that are actually evidencing a lot that we are executing on our strategy in the way that we have guided for. And I think that is -- yes, I'm very pleased with that. So to summarize, I would say, our sales metrics in the quarter keep growing. Our SaaS business is also increasing in quarter, and we also secured financing for our operations, to summarize the quarter. Net sales adjusted amounted to SEK 10.2 million in Q4 2020, versus SEK 10.4 million in Q4 2021, so up 2%. And the adjusted recurring revenues amounted to SEK 8.1 million in Q4 2020, versus SEK 9.4 million in Q4 2021. So that is actually up 17%. And that is, as Per already mentioned, I mean, one of the key metrics that we are steering at the moment as we are also kind of transforming from a kind of non-SaaS software company with PS, into becoming kind of a pure SaaS company where we will focus more on the more kind of forward-looking metrics. But this is a very kind of good metric, and we're also very pleased that we can show a significant growth in this metric. The impact from our new 7 customers on SaaS is starting to be visible in our revenues, but still, as Per mentioned, ramping up. So we expect more to come. In December 2021, recurring revenues derived from SaaS customers is, as I said, increasingly important and constituted 25% of total adjusted recurring revenue. And this is, of course, a metric that we will track in order to see also the development of our execution of our plan. And we also expect this number to grow as we add more customers to SaaS and also as we are ramping up on those customers on API call volumes. On a rolling 12-month basis, the adjusted recurring revenues increased with 8%, versus Q4 2020 and amounted to SEK 36.7 million. And these adjusted recurring revenues in Q4 then also accounted for 90% of total sales, which basically means that we are again executing on our strategy and focus on growing the recurring revenue streams. And also, as Per mentioned earlier, the professional services revenues are according to plan, consequently also decreasing. So it's very much kind of we're executing on our plan, as I started off with. Also a positive thing is that we actually also report net sales growth on reported net sales, up 1% in Q4 2020 versus Q4 2021. And I think also, we have highlighted details on this kind of revenue recognition for our adjusted numbers in the quarterly report. And for those that are interested to looking more into details on that, you can also go into our quarterly report on Page 45 to get more information about that. We continue to keep a good cost control and reported adjusted EBITDA of minus SEK 16.6 million. And we also then -- when we closed the quarter, we also had a strong cash position, having SEK 112 million in the bank. So overall, we are on a positive revenue trajectory and our recurring revenues are growing in a good way, even if there is still limited revenue impact from the new customer wins during 2021. So in that regard, very positive if we look a bit ahead. Next slide, please. This is a summary slide on the key metric that we measure and follow in the company, and it's also kind of linked to the execution of our strategy. So our recurring revenues, license and support together with usage revenues in the old model and subscription fees and API call revenues under the new SaaS model. They are key for us as a SaaS company. And they are continuing to grow and is, as I said, a key metric for us in our focus on building a SaaS company, and also over a longer period of time, also creating long-term shareholder value. Therefore, it's really satisfying to see that we increased this from SEK 34 million to SEK 37 million in Q4 2021, a growth of 8%. And what is also good is that we also can see that the recurring revenues are also growing with 4%, Q3 2021 versus Q4 2021. So that's kind of trajectory we want to continue on and, of course, ramp up even more. And I already mentioned that we had 25% of revenues coming from SaaS customers in December. And I think that is also something that we track internally and also will show externally going forward as well. And also as a comparison, this 25% can be compared with 14%, which was the number in Q3 2021. So we are progressing on converting into the SaaS model, basically. And we also see continued strong commitment and high interest on our SaaS offering from our existing customers, and we expect many of them to join the SaaS model in 2022 as well. So we go to the next slide. We show this in previous presentations as well. So we have, as we have guided, we keep good cost control. The ones of you that have followed us, you are well aware that we did significant kind of OpEx reductions in Q4 2020, which showed full effect in Q1 2021. And this cost reduction was basically done to align the new product-led SaaS strategy that we are now working on. And we continue to keep a low OpEx level. So the current annual run rate was SEK 117 million in Q4 2021. And consequently, I mean, the OpEx cost base being below SEK 10 million amount basically. And I think this is very much kind of in line with what we have guided for in previous quarterly reports and presentations. And going forward, I think we expect to increase OpEx somewhat from the Q4 levels and onwards, primarily as we're adding key commercial positions to further kind of execute on our new strategy and grow sales even more. But still, we keep a very kind of careful control of costs going forward as well. Next slide. And just quickly on the 5-year PIK loan that we secured in December. Per mentioned a bit about it, so we're not going to details. But we are very pleased with the financing, especially as it provides us with an even stronger cash position than we had before to carry out our strategy and execute on our strategy. We started, as you can see, the uses of funds table, to the right. We started the month with SEK 96 million in cash. And then we have received a gross amount of SEK 250 million from the new loan. And then we have done repayments of approximately SEK 200 million to former debt providers that we have had financing the company. With the financing, of course, our interest cost is being reduced with more than 7% units versus the previous debt financing. And especially good for us as a growth company, still cash flow negative. We don't need to pay any cash interest until after the 5-year period and as the loan is maturing so that's very good. And also, I think what is also worth mentioning is, of course, that the financing as such may seem high with 9.5% but I think that should also be compared with what the cost of financing with equity would have been, which I think would have been significantly higher. So all in all, very positive with the final thing and having it in place. And so I think very pleased basically with the final thing we have closed. And with that, we move to the next slide, please. A bit of continuation, I would say. I mean we mentioned on previous slide, we started Q4 with SEK 96 million in cash. And our liquidity has continuously been strengthened during the year. We -- as many of you are aware, we managed to close a successful directed issuance in Q2, providing us with SEK 120 million, excluding transactional costs. And then we closed the 5-year credit now in Q4, adding SEK 250 million. On top of that, we ended the year with SEK 112 million in the bank. But beginning of January, we also received SEK 6 million as an R&D cash refund that Per mentioned that we receive for the R&D work that we do in Spain. So further strengthening our cash position. So pro forma, we had SEK 118 million end of year. And all in all, I think the strong cash position in Q4 also enabled us to drive and execute on our strategy to 100%. So very pleased with this. And with that, I hand over to you, again, Per.

Thank you very much, Fredrik. So I'm going to go through quickly, on Slide 13, our business model. Again, some of you have seen this before, but I want to highlight how it works and also give a bit of understanding to the delays that you will see in revenue from our SaaS customers, but how that actually works over time. So on Slide 13, you see to the left. That's a large customer and a small customer. We basically -- that's just for modeling purposes. Of course, there's customers that are in between the 2. And to the right, you see the pricing, and that makes up those bars on the left. So to the right, this is all subscription revenue. First of all, you need to pay for access to the development platform, and this is called Teneo, the whole product set is Teneo. And so you get Teneo, you start working, you start building. And for a smaller customer, they might pay us EUR 7,500, assuming they need 5 seats. A larger customer, maybe need 7, 8, 9 seats, and they would pay EUR 10,000 per month to us. We actually charge the same in dollars. So it would also be $10,000, if so, slightly less for the U.S., which is common for SaaS and for software companies. Then the big one that is the one that, of course, is generating revenues over time is the API call revenue. And this is when you deploy. So you've built your solution, you're deploying it. Typically takes 6 to 9 months for a smaller customer, 9 to 12 months for a larger customer. And then as you deploy, you will start ramping up gradually to more and more conversations, which then gives more and more API calls. And we estimate in our modeling that large customer is EUR 24,000 per month in API calls and a smaller EUR 2,000. We already now see that we're going to have customers that are larger than the EUR 24,000. On the other hand, we have a few that are going to be smaller than this EUR 24,000, so we think this is a good average. And then we have data, which is basically a data analytics platform connected into the Power BI platform on Microsoft. That's the -- that revenue is going to be around 10% of the API calls in our model. We have a few trading and expert services that we provide usually to the partner, and those are small revenue, which don't really -- don't really have a big impact. So the big impact is that blue portion, which is the API calls that you see here, the 2.9 in the large customer, that's what we're after. That's what we're aiming for. So with that, let's have a summary slide before we go into Q&A. So what are we? We are a horizontal technology delivered as a Software-as-a-Service platform, built with our experiences from 2001 and patented and lots of forward citations on our patents, which meant that our patents and IP were valued by OxFirst at SEK 1.6 billion in the report produced in Q4. We have growth in our recurring revenues, 17%. Obviously, now that we start focusing on building out sales with Nicolas Köllerstedt, our new CRO that came in from Snowflake, and with the marketing engine, we're going to be aiming at growing that more. Of course, also aiming to grow that at existing customers with our customer success organization. We've implemented cost reductions during 2021 and are now at a 34% lower cost than we were before. And that's the basis that we start building from. We are working with Microsoft as a, what's called an IP co-sell incentivized partner, meaning that a Microsoft salesperson has all incentive to work with us, to actually get commission for working with us. And we help them build out on their 1,700 plus LUIS customers. Now this is very key to our go-to-market motion. We do that together with Microsoft partners as well. So as many of these customers are Microsoft partner customers. And that's where we're building our sales organization on top of, with partnerships, going direct to our customers, but obviously leveraging the strength that Microsoft has in these customers. The team that we've -- that has come in, to a large extent, comes from a company that is in the same industry. And that company was valued at SEK 13 billion last year. I was, of course, early in building that, but a large portion of our team mostly also comes from that. So we've done this before. We scale the Software-as-a-Service solution in the conversational AI space before. Our market has a 22% CAGR and is worth about SEK 130 billion in 2022. This is, of course, a market that attracts a lot of companies, but we believe we have the strongest technology. Now we also need to build the strongest marketing and go-to-market organization in that. Interestingly enough, another aspect of going from SaaS -- going from on-prem to SaaS is that deploying in the Microsoft Azure cloud and our default deployment is in the Microsoft Azure cloud in Sweden. So since they have a regionalized cloud, that actually provides a carbon reduction of 84% to our customers according to calculations, if you use the Gartner carbon dioxide calculator. So that's also quite substantial. We will be moving into a much better environmental aspect as well as we move from on-prem to SaaS. So going forward, we have a good position there. So that's a summary of where we stand. A good position starting in 2022. We still already that, even though we've removed PS, our revenue is growing again. So very happy with that. With that, I leave it over to Q&A.

[Operator Instructions] The first question is from the line of Forbes Goldman from Redeye.

So 8 customers in the current SaaS model, how many of these would you say are live with their solutions and how many are still in development?

About half of them are live. But they go live with -- typically, what they do is they need to go live with 1% of traffic. And then 5%, so they scale as they're testing the solution and testing the customer satisfaction solution. So half of them are live. Half of them are still working to go live, and those half that are live are ramping.

All right, interesting. And when would you say the time period from initial -- initially going live to complete ramp-up. Is that 6 months, 12 months?

So this is something that we still estimate since our delivery model has changed. And I -- we don't typically control -- we don't control the project anymore, right? So that -- used to be that we also sold the project. So it depends a bit on the customer and the partner, but we believe 9 months to be the average. So once you go live -- so it takes about 6 to 9 months to go live and then 9 months to ramp from 0 to 100% of the traffic that they're aiming to do in their project, which could be probably some of the large tech firm that we may not mention the name of, but that we have released that we did a deal with them. So they started their implementation in May of last year. So they've gone live, but they've gone live with the U.S. and Japan. And then they have another 60 countries and another 3 business lines that they're ramping during this year.

Okay. Great. So you're building out the sales team. Are you finding challenges to find the right people for the job? And how many people do you expect to recruit this way?

There are challenges, of course, in recruiting right now, I would say, especially in the U.S. with the wage inflation and lots of still venture capital going into our business. But we -- what we've done is we first trained on the profile so that we know exactly the sales model is with partners. So we go direct to the customer, but we will always fulfill together with a partner unless the customer happens to be very -- a few of our customers are very technically astute and can build themselves. And then, of course, there wouldn't really be a need for a partner. But -- so we have now find the profile and now we're searching for the profile, and we are building a good pipeline of that profile. So I think we'll be able to have a good sales portion aboard before the end of Q2 and ramped up. So it also takes about 3 months to ramp them up, of course. We have 2 started this at the beginning of this quarter and we expect them to be quite productive in the Q2.

Great. So when thinking about your customers, do you expect any particular industries to make a push this year? And do you have any control over that? Or would you say that your customers, it's very much driven by your partners?

It is driven by the partners. We, of course, will pick partners and focus together with partners on the industries that we see the most potential. And the most potential for this year is telco, where, together with Microsoft, we are at the Mobile World Congress talking about our great joint references in the telco space, such as Telefónica and A1. And this is a big focus also for the telcos as we speak as they are moving their contact center platforms into the cloud. This enables much bigger usage of the type of technology that we provide. So big focus for us is telco. And then it's the retail space where we see expansion in our existing retail customers but also see a large movement in retail where several large retailers are now in discussions with us about all sorts of new business models built on top of this technology. So those will be the 2 focuses. But then there's always banks and insurance that also come in. But the 2 big ones will be telco and retail.

Thank you. So you've announced a lot of customers in the new model, almost all are very big companies, if not all. But you do have an effort as well to push against -- to gain some smaller customers. So have you noticed any particular traction in that area yet and their usage of your platform?

No. We actually found that the smaller customers are lacking some functionality, which we are in early access beta right now and that we're introducing in the beginning of Q2. So the smaller customers base, it requires today a bit more -- that they are a bit more technically astute themselves to be able to utilize the product. So that's something that we're working on and the pipeline there is somewhat small -- it's not growing at the same pace as it is on the, what I would call the enterprise space. So that's quite correct, Forbes. It's -- the customers we announced, with the exception for GrapeTree, which we also just announced now with the report, all of them have been larger customers, yes.

All right. And I remember from a previous conference call, you mentioned something about a security framework that would have to be developed to get existing customers in the U.S. and Switzerland, the transition to the new model. Do you have an updated timeline of what's going on with that?

Yes, the timeline is that we're done with this at the end of this year. That's what our timeline points to. Customers that we're discussing with, such as the large telcos in the U.S., are now fine with the security framework. So as long as we execute on our plan, but -- they would be willing to move over. So they're looking at planning for how to move over to SaaS also in the U.S. So we've designed it, and we're now working to essentially get this certified by auditors during this year. so that in Q1 2023 it will also be certified, but customers are happy to move over even before certification, as long as the process is -- as long as we're in the process. And also maybe the Log4j has also given customers some time to think because maybe it's not more secure to be on-prem because it took a long time for some of them to patch their on-prem solutions, which are, of course, exposed to the Internet. That's the point of our solutions, typically. So that also gives a good push to customers to move to SaaS.

Great. And I'll finish off with one more question. So you have an excellent cash position now, more than SEK 100 million, which is a great improvement compared to previous years. How do you expect to utilize the funds now in the near term?

Sales and marketing. The product is there. SaaS is done. It's all done. So now it's sales and marketing.

[Operator Instructions] The next question is from the line of [ Laurie Holden ], private investor.

Congrats on very nice progress on transitioning the legacy base to the new SaaS model during the quarter. You have previously mentioned on the Q2 call that you had about SEK 6.5 million per month worth of usage if the existing customer base were to over as well. And that would mean around SEK 80 million in ARR, if all existing customers switch to SaaS. And then in the Q3 call, you said you expect basically all legacy customers to switch to SaaS landing during 2022. And I think this is time. So maybe, could you elaborate a little bit on this process and the possible usage volumes that you expect to switch over in this year and possible usage volumes that might not be switched over in the near term, kind of.

Yes. Fredrik, do you want to touch a bit on that? I'll just start maybe with the process of moving over to SaaS. Thanks. So from a process perspective, the first step is like Forbes just asked here, is for them to accept our SaaS as a secure solution for their environment. And we'll pass that point at almost all customers, I would say there's 2 customers left that have not really accepted that. And then the next step is to have the time for the actual migration because the on-prem customers typically have not been updating as we've gone along. Some of them are even on Teneo 5, whereas we're on -- the last on-prem was 6.2. Meaning that the customer also needs to migrate some of the functionality to move up, which means there's a project to it. And that means it needs to go into their planning on projects. And that's where we stand with most of these customers and making it a bit more difficult to make a real prognosis on that. But our intent is still to move all the ones over in 2022. And if there's any -- once they cannot be moved over, those would be either in Switzerland or would be banks. But apart from that, they should all be able to move over. So -- and of course, in Switzerland, we do have a big user, that -- a big portion of our usage that maybe would not switch over. And that has to do with the Swiss laws being different. So even though they're part of the EU EES, they still have other ways of looking at data privacy than in the rest of the world, I would say, even maybe apart from China. So to answer your question, most of it, but maybe not the majority of the volume. So it's one very large user, which in Switzerland, will probably remain. I don't know, Fredrik, if you want to comment a bit more on that -- for the numbers...

No, I think, first of all, [indiscernible] is one of the key drivers. I think kind of the challenge is also, as I think Per answered on Forbes' question earlier, in terms of the ramp-up. And I think that's also something we probably will look into Q1, but we also can see further kind of ramp-up on the new SaaS customers. Because I think those are the most interesting one from the API call volume perspective. And also just to put flavor, I think we are very much kind of ongoing on the transitioning of existing customers to SaaS. I think we mentioned a couple of them are also in the report as signed new SaaS agreement, that some of them are also kind of existing customers that we have converted. So I would actually say that we when we end Q1, we will probably have at least 10 customers on SaaS with the existing customer base that we have. And on volumes, I think we are working on to find a way -- good way to report this. And we'll do that going forward. One of the kind of things with our old contracts is that they are also not one-to-one completely linked to the volumes -- to the actual volumes. And then that can also be a bit kind of misinterpreted, I would say, if you will just plug the numbers one by one because that will not be translated into actual revenues at the moment. But over time, that's, of course, the interesting thing. But I think we will come back in Q1 and present a bit more flavor on the volumes, on the API call volumes.

All right. Great. Thank you for that. So in terms of Switzerland?

We didn't hear you. It cracks up a bit. In terms of Switzerland.

Yes. Yes. So do I understand that correctly, but it's mostly a privacy -- data privacy and regulation issue in Switzerland and [ not in terms ] of negotiation, your customers kind of want to switch over, but the regulations must be -- you must be compliant with that.

Yes. So it's -- the German regulator for telco is perceived as being the harshest in the EU. But then Switzerland takes that a few steps further, making it very difficult to utilize cloud services for banks and telcos in Switzerland.

Got it. So one last question for me. In the Q3 report, you mentioned 14% of revenues from SaaS. And now in Q4, 25% of revenues from SaaS. So that implies a very strong sequential growth of over 15% quarter-over-quarter. And is most of that growth from legacy customers that switched to SaaS as they, I assume they ramp up such revenues faster since they're already having a lot of usage or have any of the new customers kind of started to ramp up earlier than expected?

I would say still the increase is mainly coming from new customers that we signed in 2021. So the 7 that we have mentioned as new customers that also are SaaS customers, I would say that's where we see the new growth limited from companies that have switched over from the existing customer base. So I think all in all, looks very promising, I would say. So -- and we can clearly see that this kind of proportion will increase as we go.

Yes. That's great. One final. The 2 new Italian banks that you announced, are they not on a SaaS contract? Because I noticed that you didn't say SaaS in the report?

Sorry, I'm not quite sure I heard that.

The 2 new Italian bank customers?

Right. The Italian the banks at this point, we have not converted any of the banks into SaaS at this point.

All right. Got it. So those were legacy contracts that were signed, kind of.

Yes.

There are no more questions at this time. I hand back to Per Ottosson for closing comments.

Okay. Thank you all. We're very happy to share this Q4 with you. Great cash position. Growth is coming now in the SaaS model, and now it's all about building up marketing and sales. So hopefully, come back to you next time on that. So thank you all for your attention today, and thank you all for your confidence in us in building this company.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining. Have a pleasant day. Goodbye.

Thank you.