Translation: Original published in Finnish on 2/21/2025 at 7:13 am EET.

Tecnotree will publish its Q4 report on Wednesday, February 26, at around 9.00 am EET. We expect reported revenue to have grown moderately, but the result to have been slightly below the comparison period. However, the forecasts are subject to considerable uncertainty due to significant differences between the company's reported and comparison figures as a result of major currency movements. The guidance suggests that the company's year-end free cash flow should be moderately positive, but the main focus is on the outlook for future cash flows. Comments on the recently announced deal will also be of interest. The company's webcast will not take place until February 28 at around 10.00 am EET (link here).

We expect revenue to have returned to growth

Tecnotree has given a guidance for its revenue to grow by 2-7% in comparable currency in 2024. For the first nine months, the company's comparable revenue growth was 11%, but reported growth was -4%. Our forecast expects reported revenue for 2024 to decrease by just over 1% and Q4 revenue to increase by just over 5% to 23.4 MEUR. The direction of exchange rate impacts has fluctuated during the year and the differences between comparable and reported growth have been large at times. Therefore, there is considerable uncertainty in our forecast. In general, the slowdown in revenue growth in the current year has been affected by Tecnotree's transition to the ARR model, which initially slows down revenue generation as one-off license revenues decline. To some extent, growth will also be negatively affected by a general cooling of market demand, as operators become more cautious about major technology transformations in the current business environment. However, the order book has remained at a fairly good level, although at the end of Q3 it was slightly below the comparison period (Q3’24: 75.1 MEUR, -3%).

We expect a small dip in the result

Tecnotree has given a guidance for its EBIT to grow by 7–15% in constant currency in 2024. We understand that the guidance refers to the reported EBIT (burdened by one-time write-downs of 2.9 MEUR in Q2), the change of which in constant currency has not been disclosed by the company (EBIT growth adjusted for one-time items and in constant currency +28%). In any case, we expect Q4 EBIT to have decreased to 6.9 MEUR (Q4’23: 7.9 MEUR). A significant part of the deterioration in earnings is explained in our forecasts by the increased level of depreciation. On the other hand, the operational profitability is supported by, among other things, the company’s efficiency measures, for which the company has commented that it expects savings of 4.5 MEUR for the current year (7 MEUR in 2025).

However, given the poor quality of the company's earnings, the focus is on cash flow. The company's H2 free cash flow guidance is 2-5 MEUR. In Q1, free cash flow was 1.7 MEUR (excluding currency translation effects), so the guidance also indicates a positive cash flow for Q4. However, instead of individual quarters, it is important to monitor cash flow over a longer period. For the full year 2024, free cash flow will be in the range of -1.8 to 1.2 MEUR, according to the guidance.

Spotlight on outlook for cash flow and geographic expansion

In our view, a critical element of Tecnotree's investment story is the development of its cash flow profile, as historically the company's income statement figures have not reflected the cash flow generated by the company. The company has already provided cash flow guidance for 2025, according to which it expects free cash flow to exceed 3 MEUR. We do not expect this to change, but we are working to gain more clarity on the longer-term cash flow outlook. Regarding revenue and EBIT, we expect to receive guidance in the context of the financial statements. For 2025, our forecasts expect revenue to grow by 3% to 79.9 MEUR and the EBIT to remain broadly stable (forecast 23.2 MEUR). This year, however, EBIT is still burdened by increasing depreciation levels in our forecasts, and at the EBITDA level we expect the company to achieve significant profit growth. This year's growth will be supported, among other things, by the company's announced agreement with a US Tier 1 operator, although the size of the agreement is not yet known. We see this as a significant opening for the company in the developed markets, and we will seek to clarify the details of the deal in connection with the Q4 results.