Aiforia Technologies Oyj (AIFORIA) Earnings Call Transcript & Summary

Good morning, and welcome to Aiforia's earnings announcement from 2025. My name is Jukka Tapaninen, Aiforia's CEO. So let's move forward. Today's agenda, so I will give the highlights on the second half of the year plus the fiscal year '25 and some highlights on our strategy execution. And at the end of the sessions, we have a Q&A. So let's get started. So last year, so I've been always saying so that we've been moving forward as planned on this journey we have. And after the IPO when we decided to move to a clinical and focus on that side of the business. So we've been building a really nice portfolio on the market and I will cover that a little bit later. So -- but now we started to see a traction on the revenue side as well. So we've been focusing on building the portfolio, getting the first flagship customers in. And now the company is kind of moving to a more kind of a scale-up phase. And last year, so we did the 68% growth on the clinical sector revenue. So -- and for that number, so we are very, very happy from Aiforia side. And that growth was actually, of course, due to the fact that we have that interesting portfolio. So we've been increasing some new AI models so that we have more coverage. And at the same time, so we've been introducing a lot of reselling partnerships and strategic partnerships and Siemens Healthineers is one of those that we expect to be really, really important going forward. But -- so we've been moving forward in multiple fronts, increasing the portfolio, getting more traction in the market with the customers and expanding the network what we have. And as we are in a clinical business, so then the regulation is really important part. And currently, we have the biggest portfolio in the market. So we covered kind of a big part of the clinical workflow. So we got the IVDR certification last year, so and introduced 5 AI models on that side. And totally, currently, we have 11 CE-IVD marked solutions in a portfolio on 2025. Actually, one more because in '26, we got one additional one, but I'll come back to that later. And at the same time, so we've been investing heavily on the latest technologies. So meaning that, okay, so speeding up our own product development and those activities. But at the same time, all the different kind of functions in the company so that we've been going through and see where we can use AI to increase the efficiencies and the profitability of the company. But -- so it's multiple actions going on. So -- but I will cover some of those in the detail. So this is our customer list. So there are some of that I have already been introducing. For example, Mayo Clinic, it's first clinical customer for us and has been there for multiple years, still going strong. So they have a breast cancer suite in a production already since '23. So there's a lot of pathologists using the development platform. And we are kind of innovating and developing new tools with Mayo Clinic. So -- and -- but I have to say from the U.S. market, we also got one of the world's leading cancer centers as a customer in the Q4. But unfortunately, we are not allowed to tell the name of the customer. So that's why we made that nice release. And once we get the approval to kind of release the name, so we will do so. But I have to say that, okay, so the U.S. market is also kind of moving forward. We did some changes in the organization last year so that it's more aligned with the strategy of the company. So we have the new presales, sales and delivery capabilities in a country, so and healthy pipeline going forward. So that's something that U.S. is definitely one of our key markets. So then all of these others, I would say that big progress last year, so we did -- so we got more deals from Italian markets. So we got the Lombardy Region, which is a really big one. So it's a 10.5 million people, 32 hospitals, and we started to deliver in Q4. So it's in the early phase of delivery, and we already booked some of the revenue out of that deal. So -- but that's really kind of an interesting and nice case. And the same as France. So the first big clinical customer for us was Hopitaux de Paris, so the Paris Hospital region. So -- and that is the biggest one in Europe. So it's 38 hospitals in total. And we started to deliver that. So we started to deliver with the prostate solution, and they are really happy and it's in a production in 2 hospitals now. And I just wanted to point out that so that even though this is kind of, yes, over 10 or 15 customers that we have here. And our ambition is to move to 50 clinical customers that has an opportunity to give us a kind of over EUR 0.5 million recurring revenue. So we are on that track. And Paris is a good example. So out of 38, 2 hospitals with the AI model. And now we have multiple AI models to deliver, plus we have a lot of upsell to do in that particular customer. But the other thing about France, at this point of time, I would like to point out also that we have been investing in France. So we built a full team. We put a legal entity in place, and we have got a lot of traction. So -- and there's also a lot of government support on accelerating the AI in a country. And we are actually the only AI company that was chosen on those programs. So -- and Nantes is an interesting example of that, but we have also Institut Curie. So it was a big win from a competition. And we expect that France will be in '26, one of those kind of big markets for us alongside with Italy, alongside with the U.S. and the Nordic countries. But maybe one number because everybody is always interesting about numbers so that currently, this list gives us a bit over EUR 2 million recurring revenue. Potential of this list is something like EUR 7 million, EUR 8 million. So when we get it in a full speed. And then keeping in mind so that our ambition is to grow, let's say, 50 similar type of organizations and plus the other business so that this is how we are going to start scaling up the business. On the investment side, so yes, somebody noticed that, okay, so we have a certain cost level and certain investment in place. So we've actually been reducing our overall kind of investment level a bit. But we keep on really going on and investing on development because that's the key. So we are in the top of the technology really deep on this. So -- and we've been leading the game with our offering, and we need to make sure that, okay, so we stay there. And a couple of things. So on the clinical side, obviously, we've been using the latest technologies so that we can do the actually development of AI models quicker. So it used to be sort of the typical kind of delivery time for AI model was 18 months. Now we have this vision transformer technologies, foundation engines, all the nice things that we get from the latest technology. So we think that we can reduce the development time from 18 months to 8 months. So significant kind of a reduction on that. So -- and it's a quicker to money on things when we decide to kind of build something and when we can actually commercialize it and change it as a revenue to our books. So -- and customer deployment is another thing as well. So sometimes somebody has been questioning so how long time it will take that we deliver. So -- but if we look at the current situation, so we've been using the latest technologies on kind of speeding up those processes. And we can actually deliver less than 4 weeks. So of course, there's a certain kind of prerequisites that has to be in place. So the customer needs to have the scanners. They need to have the LIS systems. But if you look at the Aiforia's capabilities on delivering quickly, so we can do that. So that's not kind of blocking us on scaling up the business at all. So then, of course, as I said in the beginning, so we've been focusing on kind of using all of those AI tools for internal productivity things and not only on the product development, but in all functions. So whether it's a hire to retire process or kind of order to cash process or any of those core processes. So we have invested already at time, and we continue to do that so that, okay, so how we can actually leverage and do things quicker, better, higher quality and so on. So -- but the first big, big kind of steps forward has been in R&D, improving the product quality, improving the kind of connectivity to all the surrounding systems and generalizability of the product so that so we can -- easier way to kind of replicate what we have actually built. But that's why -- so EUR 6.6 million on investment on this side. So I mentioned about the IVDR. So that's a big thing. So -- and it's one of those modes on getting to a clinical side of a business. And we are extremely happy so that we actually chose to be in a clinical market. The large volumes, bigger deals, continuing business on those customers, but also that, okay, so it a little bit blocks the competition also because it's a regulatory approved process. So whatever happens in the world, so they need to comply with the regulation so that companies are able to sell in this market. So -- and as I said before, so we are leading the pack on this side. So we have really nice offering. So -- and I'll come back to that in a second. But last year, so we got the IVDR. We got the first IVD regulated products under that regulation. So -- and this year, already kind of introduced the gastric. And the whole point is that getting the IVDR, it's a bit of a kind of effort to make that happen. But once it's done, so then it's quicker to kind of build new AI models and release it under that regulation. So -- but we have done the heavy lifting, and now we need to kind of let's say, monetize that investment what we've been doing. So -- but -- okay, so I'll come back to products a bit later. But then -- so as a result from '25 in brief, so we grew 24%. And also the growth was actually kind of accelerating in the second half of the year. And then we are extremely happy that the clinical side of the business was picking up nicely, 68%. EUR 6.6 million investment and EBIT and EBITDA, so both improved. So -- and that was according to our plan. So we made some extraordinary investments last year on a strategy session, revising that. So we did some kind of extra recruitment costs for the leadership. So -- but all in all, so we were on a track with the cost levels, and we were happy so that it was going down. The employee number was staying quite stable. And then we have a nice amount of cash at the end of the year. So we have a decent runway in front of us. Majority of the business was coming from a European key markets, 12% from Finland, North America, 20%. So -- and for '26, I think that this pie will look more or less the same going forward. But the important thing, as I said, so it's that we finally see the growth happening nicely on the revenue side. So on the left-hand side, you can see the full year, 24% clinical side, plus 68%. Actually, the kind of growth was accelerating in the second half of the year. So that was a plus 45% comparing the previous year and the clinical part was growing 65%. And we actually got some nonclinical deals as well. So the nonclinical was in the second half staying more or less flat. But overall, in the '25 numbers, so we are happy. So it was according to our plans. And of course, as I said, so now we are entering the scale-up phase and the revenue growth definitely will be in our focus. So then strategy. So this is the slide that I've been showing in the previous kind of announcements as well. The market is there. So -- and it's absolutely kind of turning on last year, this year. So need is there. So the amount of samples that you need to diagnose is growing. At the same time, the number of pathologist is staying the same or decreasing. And I can give you one example from our good customer from Italy. So large hospital region. So they have a 409 pathologists currently. They told us that next 2 years, [ Hamit ] will retire, only 9 new people coming on board, meaning that they roughly lose 25% of their workforce in the next 2 years. And that was the reason why they are investing in a digital pathology and AI because they want to be more productive and cover that gap that they will face in the next coming years. And that was just one concrete example. But on the other hand, so it's the same thing in all the countries so that lack of resources, and that's why the automation. So there is no -- absolutely no question whether the kind of AI and this whole thing will move forward. And if you look at the process where we are, so we are talking about the laboratories where you get the tissue samples in. So they will be prepared -- kind of prepared, put it in a glass light, put some staining, so then digitize with the scanner and then share it to pathologists for diagnosis. Our part is to support the diagnostic decision-making. So we show the image where the problems are, and then we also kind of populate the report. So we show the numbers as well. We do the quantitative analysis. And we cover, for example, the full breast panel so that they can actually make the diagnostic decision based on that and then it goes to a treatment. The interesting thing is that as the market is picking up, I would say that, okay, none of the other kind of vendors in display are able to sell anything. Of course, they sell something. So -- but all the scanner sales, laboratory information system sales, image management system sales are linked to AI. If they don't have an AI story, so where do you actually get the kind of return on investment. So then it's not happening. So that's why it's extremely easy now to make partnerships. And as I said before, so I think in some point of time, there will be some consolidation happening as well because AI is driving the demand on this market. So from our side, so we are top of the curve on technology. So we were the first company to go on a deep learning-based AI back in 2015, building that platform and then eventually the AI tools. Now we are using the vision transformers and foundation engine, which is actually patent pending. So -- and that links to kind of different foundation models but we are leading the pack on the kind of technology side. And we can provide information for pathologists so that -- which is really accurate, and we can go much deeper than most of the competition. Then the business model is scalable so that once you get in, so we are kind of talking about the recurring revenues. And we haven't seen any churn with our customers. So I'm sure that will be in some level in the future for sure, but no local churn so far and no revenue churn so far. So we are in an upselling mode at the moment. Then interoperability is a big thing so that when you sell to a hospital or laboratory, so you are not there alone. You need to be able to support multiple surrounding systems, and we have done that. So we are supporting all the major scanners, LIS systems, image management systems and so on. So this is really a key so that the whole business is not just building an algorithm. So it's really kind of providing a solution, which is robust and it's regulatory kind of approved and you can actually deploy and maintain. So about the clinical suite. So we've been looking at the major areas where we build the offerings. I mentioned the breast cancer, but there's a lung, colon, prostate, lymph node, gastric and so on. So major organs, and we are having a supporting solutions for those. Breast cancer is a good example from that perspective so that -- when the pathologist is doing the diagnosis, so they need to do so-called breast panel and that panel contains 6 different kind of areas, and you need to be kind of diagnosing all of those. So when you offer some solution for that area, it's good to have coverage for full of those 6 because then you can automate everything. So if you have a partial coverage, so then you do some things automatically and some manually, but we are the only vendor who can actually provide the full panel for the end customers. And then think about the commercial point of view. So because when we sell, so there's an idea so that you need to convince the user Yes, we can do that. So -- and then you need to convince the IT so that you can support, you have all the connections to surrounding system. Then you have the budget owner who makes the decision. And then it comes back to the question where the ROI is coming from on this play. And it's definitely one thing is that, okay, so you can do things much faster. You can do double or triple amount of work with the same time. You can do it with a higher quality, less errors. So that's a big, big portion as well. And the other interesting thing was that now we have some data from a customer so that you can avoid on ordering more expensive staining. So for example, in Paris, with the prostate cancer, so they were estimating that they needed to order every second case, so they needed to order an IHC staining, so which is roughly about EUR 50 per case. So -- and now when they started using AI for prostate, so it's only 10% of the cases needs that more expensive staining. So the value prop and the return on investment is coming really from those angles. And then we go forward, of course, so then you go more prognostic and you have more kind of detailed data so you can do a better kind of treatment decisions and so on. And this is something that we haven't been talking about too much in these type of events. But at the end of the day, so the beneficiary here is the patient. So because you get faster first of all, that you have resources that you can do things. So you get your kind of diagnosis quicker and you can start the treatment and you are more accurate so that -- okay, so we give more data than a human eye can actually do with the eyeballing of those samples, so you can do a much more precise treatment decision. So -- but these are the expected benefits that we are providing. The other thing is -- and this applies to whole digital pathology and AI so that if you have some remote locations, so where you don't have a best experts, so then in a digital world and AI-driven world, so then you can get the same level of diagnosis in the remote locations as well. So it's kind of a more equal access to kind of a high-quality diagnosis and treatment. This is our current kind of offering, and this is one of our kind of longer-term ambition so that we cover 80% of the typical clinical workflow. And that was one of the things that we said during the IPO 4 years ago, so that this is what we are going to do. And we are actually moving really nicely forward on this process. So we have a coverage on 60% currently, and it's likely that we kind of reach the 80% by the end of a decade. So -- but idea was that, okay, so when you start automating those big workflows, it's good to provide enough solutions so that you don't need to have a kind of a multiple different vendors to -- for example, for the IT department to manage and having -- providing a different user experiences and so on. So our strategy is that, okay, so we have a full offering. We will be the leader in this industry, and that requires, of course, the best products in the market and the best coverage for clinical workflow. Last summer, so we did a strategy refresh, not the major changes. So -- but we were thinking about what are the growth drivers in the next coming years and in a longer time. I said, okay, so we invested in U.S., and it will kind of deliver a nice amount of revenue for us, good opportunities. I think in the European area, France, Italy, Spain, Nordic countries, U.K. so there's -- and now this year, by the way, so we are opening up the DACH area as well. So there's a lot of things going on. So there's -- in Italy, so the driver was the COVID recovery fund so that most of the hospital regions move forward with the AI because they got the initial investment. So -- and they have roughly 15 hospital regions so that we have 7 out of those as a customer. In France, the public sector is now supporting heavily on adaptation of AI. So -- and as said, so we are the chosen one as an AI vendor on that program. So we see that Europe will grow. And at the same time, so we grow our offering. So more apps and a little bit kind of upstream and downstream kind of expansion of our offering and then a fully integrated AI workflow so that we will kind of give more tools for pathologists to do their work. And then the global opportunities there because it's purely a global market. So -- and once we kind of capture the opportunity in a key market, so we can start kind of expanding globally. And we already have a nice customers outside of the core markets, but it means that, okay, so then we start investing and capturing the opportunity in a scale on those places. Then we have some approach for the prognostic models and some pharma companies have already approached us that, okay, so can we do a companion diagnostic type of a solution together with them. So -- and prognostic models, we have already built with the Mayo Clinic. And there's kind of a lot of expansion opportunities with current technology. So then business targets, objectives for next coming years. So we are not giving out the financial forecast yet. But we have, of course, internally a lot of ambitious what we want to do. But the first one so that achieve a financial independence by the end of '27. So we kind of changed a little bit the wording on this. So it depends that, okay, so if we see that the market is really kind of picking up, now it seems. So then we kind of really focus on investing on capturing the market opportunity because we think that, okay, so if you want to play kind of a global leader game, so then you need to be able to kind of capture the opportunity fairly quickly. So -- and then that we kind of keep our flexibility here. But it could be mean that, okay, so if we continue and we want to be profitable, so then we focus on that. So -- but we want to keep the kind of flexibility on that. It also means that, okay, so financial independence so that, so do we need to do an additional funding round so that type of things. But that's what we are kind of focusing on. The offering I mentioned already, the 50 accounts, yes. So that's a really concrete plan. So now we have roughly 15 clinical customers on that bracket and very detailed plan how we are growing to 50 and more. So we are, of course, not stopping there. So -- but that's the kind of a next step goal. So -- and then, of course, we have a nice technology that can be leveraged on multiple things, and we look those as an opportunities. But now, yes, so I stop here. So and there's some room for questions.

Okay. So let's take some questions from the chat. We have received some from Julius Neittamo. Let's start by asking, can you talk about the scalability and revenue acceleration potential on the foundation engine as compared to convolutional neutral networks?

Well, the foundation engine, what we have is a technology that links to kind of -- kind of linked to multiple AI models. So currently, it speed up the development cycle for us so that -- and we see that, okay, so for the kind of market coverage and revenue, so it's important so that we have a wide portfolio and also that we have tools that are generalizable, meaning that, okay, so we can build solution that it's easier to adapt on different kind of stainings, different scanners, different kind of surrounding systems. So all in all, that's a core technology, but it will kind of speed up the kind of time to market from the development side.

Thank you, Jukka. Next question is about AI health care budgets are largely driving the market. How do you see AI budget progressing in Europe? We know that budgets are strong in France and Italy. How do you see budget availability for your technology in the rest of Europe?

Well, yes, so okay, so Italy and France, obviously driving that, but there are multiple other countries. And when we talk with public, it's a difference. So then we talk with the private. Private is more kind of a discussion about the ROI story and that we can provide. So public sector is kind of I would say, waking up in multiple occasions because you are doing a transformation. So you have a certain way of doing things in hospitals and health care systems and they need to change that they have a budget in AI as well and a digital pathology. So that's happening. But then there are some accelerating things in some countries so that the public sector is stepping in saying that, okay, so you will get the funding for next 1 or 2 years. And that way, you can start the projects. So -- and once you are in and you have done the transformation, it will continue. But there's a lot of things happening. So -- and there's also a drive for European AI and all of those things. So we are actually in a good spot. So if you think about the competition, so there are not too many European companies in this field. And so good progress on that side.

Thank you. Next question is on cost base and personnel expenses. Did H2 figures include some one-off costs related to streamlining the business?

Yes. Short answer. And then also, we did some leadership team recruitment. So there was some extraordinary costs from those recruitment processes.

And then one final question. Could you tell more about the competition? Which companies are doing same business with AI products?

Well, I don't want to start promoting the competition too much, but there's one Israeli company who's focusing on the clinical side of the business. Typically, and so far in every single case, so we've been beating them in a competition when it comes to kind of when the customer starts comparing the products. But that's a good competitor. So -- and then we have a couple of companies from a U.S. and Germany and Germany Mindpeak and Visio from Denmark. But they are not exactly comparing apples-to-apples. So they miss some functionality, and we have something else. And sometimes we cooperate with those companies as well in a way on this business. But -- and typically, the competition stops in a heat map level that they show the image and the areas that there might be some problems. But in our case, we do the quantitative piece and provide the ready-made report. So that differentiates us big time plus the kind of size of the offering as well.

And let's take one final question about the market sizes. What are the market sizes of the market, especially in France, Italy, Spain and U.K. based on the number of hospitals?

That's a good question. So I cannot give an exact answer. So we've been doing, of course, a business planning exercise where we categorize the hospitals on large, medium and small that are kind of according to our ideal customer profile, but we are talking about thousands of opportunities. And what I can say from our pipeline, so currently, we have on Monday when we last checked, so we had over 200 line items in the pipeline. So there is a demand. So they are, of course, not all clinical cases, but it tells that, okay, there's a lot of interest, but there is no limitation of the -- how many hospitals or how many clinics there are and what is the need.

Thank you, Jukka. Those were all the questions for today.

All right. Thank you so much. And at the end, so I just wanted to highlight that next events. So we are going to release the kind of report next week, so on 11th. So -- and then we have the Annual General Meeting on April 2. And the next kind of financial report comes out on August 28. But thank you.