Aiforia updated its business targets

Translation: Original comment published in Finnish on 1/22/2024 at 7:36 am EET

Aiforia updated its short- and mid-term targets and provided specified strategic priorities, which in the big picture were largely in line with our expectations. Aiforia in practice achieved its previous short-term targets, and the new targets concretize the business progress in the short term. The company is also aiming for positive profitability by the end of 2027, which is in line with our forecasts.

We find the strategic priorities to be in line with the needs of the growth company

The specified strategic priorities are: Growth, product, people.

In growth or commercialization, Aiforia’s strategy is to strengthen its own sales power, especially in Europe, the US and other key markets. In addition, it aims to establish new strategic partnerships next to Epredia among scanner manufacturers, workflow management software providers and system integrators. Aiforia’s goal is to scale its business by acquiring new customers, increasing sales within customers and establishing key strategic partnerships. In our view, partnerships are key in scaling sales, as the company’s resources are limited on a global scale and the market is opening up quickly. The company has already cooperated with several partners, of which the Veneto and Catania contracts are good examples.

The focus areas of product development are future-proofing, transparency, ease of use, and security In addition, the company will continue to develop features to further enhance the customer experience and make necessary investments to adapt to the regulatory framework in different markets. Aiforia has also done a lot of invisible work in generalizing its platform to different user interfaces.

The company made personnel its third priority. In a company the size of Aiforia that scales its business globally, successful recruitment and keeping the right people in the company is extremely critical.

Updated short-term financial targets reflect the strategic priorities

Aiforia’s updated short-term business targets for 2024-2025:

• Expand pre-clinical offering with new AI models and study-centric GLP (Good Laboratory Practice) workflow
• Expand clinical offering with 10 new regulatory-approved AI models
• Form at least three new strategic partnerships
• Achieve 15 key accounts (potential for over EUR 500,000 in annual recurring revenue)
• Achieve a positive cash flow from operating activities.

The short-term targets contained no surprises, but they once again bring more specificity to business development in the short term On the preclinical side, introducing a user interface designed for the GLP workflow is, in our view, valuable for long-term competitiveness. The 2022 changes in the regulation of in vitro diagnostic (IVD) medical devices in Europe clogged up the regulatory pipeline, which we believe is now gradually opening up. The company is now aiming to introduce 10 new CE-IVDR-marked AI models over the next two years. We consider success in this critical in term of competitiveness to continue to be successful in Europe. We believe the company is well positioned to succeed in this goal. Aiforia plans to launch its first IVDR-approved AI model in 2024.

The company plans to achieve 15 key accounts with potential for recurring annual invoicing of over EUR 500,000. We believe that the target is relatively well in line with our revenue forecasts. We currently consider that Mayo and Veneto of Aiforia's existing customers can be clearly labeled key accounts. Wake Forest and City of Hope are very high potential accounts, but at the current contract stage we do not believe these are counted as key accounts. The NHS framework agreement, where the first contract has been realized, could also be included here.

Business profitability included in long-term targets

Aiforia’s updated mid-term business targets by the end of 2030 are:

• Create a product offering that covers 80% of the pathologist’s diagnostic workflow
• Achieve profitable business by the end of 2027
• Achieve revenue of over 100 MEUR
• Leverage technology beyond diagnostic support for pathologists
• Achieve 50 key accounts (potential for over EUR 500,000 in annual recurring revenue).

As a new target, the company now aims to turn its business profitable by the end of 2027. This goal requires very strong growth, but we believe it is achievable. According to our forecasts, the company would turn close to profitable during 2027 measured by EBIT (2027 net earnings forecast: -1.6 MEUR). In 2027, we expect the company will reach a revenue level of some 28 MEUR and that the operational cost structure will roughly double from 2023. The mid-term targets raised the minimum potential of key accounts to EUR 500,000 (was EUR 250,000).

A new target is also to open up new industry verticals outside of pathology. We believe Aiforia's software can be useful for any need with large image sizes and lots of pixels to be analyzed. A possible example could be satellite image interpretation. We feel the goal is interesting and naturally has huge potential, but the company’s strengths are clearly in pathology in the short term. A key benefit of Aiforia’s software is the ease of building new image recognition models, which we believe could still be useful in other application areas as well.

Achieving 20,000 end-users was removed from the targets and positive cash flow from operations at the end of 2025 was moved to short-term targets. In our view, the end-user-based target is less relevant in the current development phase, as the focus of the company’s business is shifting to clinical clientele and value creation is driven by the number of samples diagnosed with the company’s software rather than the number of users.