Expert System S p A : December 31, 2020 results approved

Expert.ai: December 31, 2020 results approved

Recurring licenses represent 89% of total licenses, a strategic area of focus for the Group in 2020 +39% corporate sector revenues in the USA thanks to the acquisition of important new customers

32% growth in indirect sales

Cash positive Net Financial Position with significant amount of cash to face future challenges

Excellent results in strategic business areas and "Path to Lead" objectives confirmed until 2024

• - Value of Production: Euro 37.4 million (Euro 39.7 million)1

• - Total Revenues2: Euro 30.6 million (Euro 33.7 million)

• - EBITDA: Euro -1.9 million (Euro 5.5 million)

• - EBIT: Euro -9.5 million (Euro -2.9 million)

• - NFP: Cash positive Euro 20.9 million (Euro -2.8 million)

• - Shareholders' equity: Euro 44.6 million (Euro 20.9 million)

Modena, March 29, 2021

The Board of Directors of expert.ai, the premier artificial intelligence platform for language understanding, met today and approved the Group's Consolidated Financial Statements and Draft Financial Statements as of December 31, 2020.

• 1 Financial data in brackets refer to December 31, 2019

• 2 Sales (net of change in inventories) plus Other revenues

Walt Mayo, CEO of expert.ai commented:

"The past year has been transformative for expert.ai. We focused on one goal - to set the stage for global leadership as the reference platform powering language understanding in any application or process across any domain. Building on this goal, we defined our strategy, raised growth capital, strengthened our team, and reshaped our business model to grow faster.

The hard work of the past 30 years has uniquely positioned us for growth. Today, there is a clear appetite for AI solutions that deliver in practice, not just in theory. Language understanding technology is moving rapidly toward mass adoption, and our team, technology and know-how are equal to the business opportunities that this market offers.

Following a year where we executed well to our strategy in focusing on recurring SaaS revenue, scaling through partners and scaling in the US, we will accelerate growth in our go to market through top-down enterprise sales in core verticals and a bottoms-up product range that increases awareness and conversion. We will expand channel relationships and partnerships with technology companies seeking the best of language understanding capability. By establishing product leadership through our offerings - from cloud-based SaaS NL API introduced in 2020 to our end-to-end natural language understanding platform coming out in 2021- we will concentrate relentlessly on being fast, focused and bold.

There is nothing easy about the journey ahead. But building on our success delivering real value to customers and with the hard work of our incredibly talented team we will meet these challenges head on."

***

Main consolidated economic and financial results as of December 31, 2020

Value of Production was Euro 37.4 million, compared to Euro 39.7 million in fiscal year 2019.

Total Revenues as of December 31, 2020 were Euro 30.6 million, recording a decrease of approximately 9% compared to December 31, 2019 (Euro 33.7 million). The variance is mainly attributable to the perpetual licensing component of Euro 2 million, which was primarily due to the impact of COVID-19 on sales activities in the Italian and international government sectors, and to reductions in the areas of maintenance of Euro 0.7 million, and professional services of Euro 0.6 million. In contrast, recurring licenses increased, growing by 8% compared to 2019, representing 89% of total license sales (76% in 2019), which confirms the Group's emphasis on the main strategic areas of focus.

The total recurring sales component (recurring licenses plus maintenance) represents more than half of total sales in 2020.

The indirect channel also grew by 32% in fiscal year 2020, representing 14% of total sales compared to 10% in 2019.

EBITDA is negative Euro 1.9 million (positive Euro 5.5 million as of December 31, 2019). The decrease in EBITDA for fiscal year 2020 compared to fiscal year 2019 is closely linked to the trend in sales. It is also influenced by increased expenses to implement the Strategic Plan "Path to Lead" 2020-2024 (Plan), linked to the technical personnel and investments in sales and marketing especially in the US market, where corporate revenues grew by 39% compared to 2019, with a significant share of around 55% represented by new customers, including AEGIS Insurance Services Inc., Patra Corp, and The Associated Press.

EBIT was negative for Euro9.5 million (negative for Euro2.9 million as of December 31, 2019), with amortization of intangible assets of Euro7.3 million, which is mainly related to capitalised development costs.

Financial management showed a positive result of Euro 3.1 million (compared to positive for Euro 2.1 million as of December 31, 2019), which was essentially due to the significant capital gain realized from the sale of the equity investment in CY4Gate S.p.A.

Net result showed a loss of Euro5.4 million (loss of Euro1.0 million as of December 31, 2019).

The Net Financial Position was positive at Euro 20.9 million, a significant improvement compared to the net financial position of Euro 2.8 million as of the previous year, mainly due to the successful conclusion of capital increase transactions, which provided total funding of Euro 28 million, and the sale of the equity investment in CY4Gate for Euro 5.3 million.

Shareholders' equity was Euro 44.6 million, compared to Euro 20.9 million as of December 31, 2019.

Compared to the Plan objectives, which forecast revenues of Euro 33 million for December 31, 2020, the variance is mainly attributable to the perpetual licensing component for the Italian and international government sector where sales activities were significantly impacted by the COVID-19 emergency and to the reduction in the professional services component. Compared to the Plan's EBITDA value of Euro 2 million, the deviation is closely linked to the trend in sales and is influenced by higher investments in sales and marketing, sustained in the US market.

***

Main economic and financial results of Expert System S.p.A. as of December 31, 2020

Revenues from sales amounted to Euro 19.3 million (Euro 20.6 million in 2019). Value of Production was Euro 26.9 million (Euro 26.2 million in 2019). EBITDA was Euro 3.2 million (Euro 5.5 million in 2019). EBIT amounted to Euro -1.3 million (Euro 0.8 million in 2019). The Net result is positive for Euro 2.4 million (Euro 2.6 million in 2019). The Net Financial Position is cash positive at Euro 20.0 million (Euro 5.4 million as of December 31, 2019). Equity amounted to Euro 78.9 million (Euro 48.4 million as of December 31, 2019).

***

Proposed allocation of profit for the year

The Board of Directors resolved to propose at the Shareholders' Meeting to allocate the profit for the year of Expert System S.p.A., amounting to Euro 2,379,655.45 as follows: Euro 21,521.74 to increase the legal reserve, and Euro 2,358,133.71 to increase extraordinary reserves.

***

Main corporate events occurred in 2020

New appointments and companies