Aiforia H2'24 preview: Building of growth prerequisites again under scrutiny

Translation: Original published in Finnish on 3/4/2025 at 7:42 am EET.

Aiforia, a software company automating pathology with AI, will publish its H2 report on Friday at around 9 am EET. The company's revenue has grown strongly in the second half of the year, driven by ongoing rollouts and a number of customer wins. Profit and cash flow are still significantly negative due to growth investments, but we expect the loss to narrow year-on-year. In addition to these figures, we are particularly interested in the progress of clinical customer roll-outs and the expansion of software usage, as well as the development of the order book and sales pipeline. These factors also affect the company's financing needs.

Clinical clients drive growth

We estimate Aiforia's H2 revenue to have grown by 40% from the comparison period to 2.02 MEUR. We see clinical accounts (especially Veneto and NHS, and several other smaller accounts at this point) as the main driver of growth. In total, to our knowledge, Aiforia has already won around 13 significant (clinical or intended for clinical use) customers, almost all of which have the potential to generate annual revenue of more than 1 MEUR (in some cases >10 MEUR/customer). The speed of deployment, therefore, has a significant impact on the company’s near-term revenue, and major forecast errors cannot be excluded. In February, the company announced new CE markings to support the growth of existing and new customer relationships, particularly in Europe. Compared to Aiforia's targets (~2030 revenue >100 MEUR), the reported figures will in any case still be very low. The order book has also continued its upward trend (H1'24: 3.2 MEUR), driven by customer wins, although we estimate this to be a minority of the company's revenue growth outlook.

Growth investments have kept profitability in the red, but we expect the trend towards cash flow neutrality to continue 

We estimate Aiforia’s H2’24 EBITDA to have slightly improved from the comparison period to -4.0 MEUR (H2’23: -4.7 MEUR) and EBIT to -6.1 MEUR (H2’23: -6.5 MEUR). The result is in the red because the company has made significant front-loaded investments in growth to implement its strategy, particularly in the form of sales, deployments and product development recruitment. We estimate that the largest size leap is over in the organization and expect that the earnings trend will gradually turn to a rise with revenue growth. Aiforia has also carried out cost savings measures to support profitability. Strong growth is critical to the company's value creation, so as long as growth continues, we are not yet concerned about losses. However, we also focus on the development of net cash and investments in the report. In spring 2024, the company raised approximately 10 MEUR in additional funding, and we believe that the company is well positioned to raise additional funds as long as customer adoption continues and the sales pipeline remains strong. If the growth we expect is successful, the company’s free cash flow will turn positive in 2028. Naturally, the company will not pay a dividend for 2024.

As usual, the key takeaway of the report is the updated visibility for growth acceleration

We feel that Aiforia's investment story is very promising, although due to the company's early commercial development phase, visibility to the success and intensity of growth is still limited. However, several customer wins in the clinical segment (e.g., Mayo Clinic/USA, NHS/UK, Veneto, Lombardy and Catania Health Authorities / Italy, Paris Health Authority, Fimlab / Finland, Castilla y León Health Authority / Spain and Memorial Hospitals Group / Turkey) have already broadened the company's growth base. However, Aiforia's regulatory strategy is somewhat open, especially in the US, where the FDA's requirement for separate approval of scanner/image recognition model combinations is much more stringent than the European requirements. The company originally planned to submit its first FDA application as early as 2024.

Before H2, our forecast for revenue growth in 2025 is 71%. We do not expect the company to provide guidance as, given the early stage of the company's development and the fact that individual customer accounts have a significant impact on revenue, visibility into the growth rate is likely to be limited even within the company. However, issuing guidance would be a strong signal of the company's belief in its growth and is obviously a positive thing. In addition to the growth figures, we focus on the update on the progress of the growth strategy: the progress of clinical customer deployment, the development of the order book and sales pipeline, additional sales possibilities thanks to the new CE markings, and the development of the cost structure. The company's valuation (2024e-2025e EV/S ~28-19x) still implies strong confidence in growth, but given the company's track record and customer wins, we believe there are also clear reasons to believe it.