Aiforia Technologies Oyj (AIFORIA) Earnings Call Transcript & Summary

Good morning, and welcome to Aiforia's First Half Earnings Announcement event. So today, we have, yes, actually 2 presenters, myself and our CFO, Antti Ojala. So we start first with the business highlights, what happened in the past 6 months. And after that, we go to the numbers side of the event. And after that, of course, there's room for questions and answers after that. So it has been an interesting first half, I would say, we have been moving forward gaining new customers. So as you may know and remember, we already have a contract with AP-HP. So the Paris Hospital region, which is the biggest one in Europe. So it has 38 hospitals, and they are already kind of successfully using in production our prostate models. And in the first half of the year, we got an additional 5 hospitals from that group, so which is a really good achievement on that side. And France as a market is also interesting in that sense so that they have this program in place from a government to fund the first 2 years usage for AI models. And Aiforia is the only solution, AI solution for diagnostics that has been accepted on that one. So that's why we have been fairly successful in the French market and expect that, that will be a major market in the coming months and years to go. The other kind of significant deal what we made was in Spain. So we already have in Spain, Castile and Leon region, which is a quite significant one. And now we got an additional kind of health care region in a country. So that's moving forward nicely. And of course, there has been some smaller deals happening. But I think these were the kind of clinical side, the major achievements from the first half. So then the partner network because this is an ecosystem play. Because we do AI solution to support the diagnostic decision-making in a pathology. So kind of analyzing those cancer samples and supporting the decisions and a diagnosis on that. But there are plenty of other kind of components, software vendors and hardware vendors that we need to partner with. So we are collaborating already with all the major scanner manufacturers. Then there are also image management vendors like Proscia. And Proscia is one of those new partnerships what we have. And it's a logical one because already last year, so when Siemens chose us to be part of their program, so Proscia was already there. So Proscia is providing the image management part, and we are providing the AI-assisted diagnostic part on that offering. But Proscia was the one of the kind of -- one of the many, but one of the meaningful partnerships in the first half. And of course, we did the IPO, as you remember, back in '21. And when we did it, so we promised that, okay, so we start building a portfolio for clinical side, and we start focusing on getting the first referenceable customers on a clinical market. And I'll come back to the customer side in the next slide. But also on the product side, so we've been moving forward nicely. So I think we have the best portfolio, most competitive portfolio in this market. So we have currently 12 CE-IVD-marked solutions. And in the first half of the year, we added additional 2 models on a portfolio. And one of our targets was that we have a kind of portfolio of AI tools that covers more or less 80% of the typical clinical workflow. And that target was by the end of the decade. And we are in a good speed on that. So we are clearly over 50% of the kind of workflow coverage. So from a solutions side, so we are moving forward nicely. And also, we are adapting new technologies as well. So foundation engines, foundation models and upgrading the kind of offerings in today's standards. But that's moving forward really, really nicely. And of course, as we are a growth company and investing heavily on R&D, investing heavily on building the market, so we need funding. And we have done 2 major activities in the first half of the year. First of all, negotiating with the EIB, the loan arrangement with them. And Antti will cover that a little bit more in detail later on this presentation. And then we did this direct share issue in June. But all in all, our financial position getting much, much better by doing these 2 activities. And it also kind of tells that the market still trust the industry and us on performing in this market. All right. I would say that this is probably the most meaningful slide on my presentation, so the customers because this is a new industry. And some companies, some competitors have some solutions for one particular problem, prostate or breast, but we have that wide portfolio. And very few companies have all the regulatory part sorted out so that having the CE-IVD, having all the kind of security-related certification is in place so that you can actually sell to this market. But then the last point is that, okay, so you have been actually selling and delivering and the customers are using it. And you see on the right-hand side that barometer or kind of a volume button so we just listed the customers what we have because now the complexity here is that we have closed really nice deals, but then who has been starting to use the solution. So not all are in the full production. None of them are actually in a full production. With the Mayo Clinic, so we are really successful 4 years ago, we already made a deal. We have delivered the breast cancer suite, and it has been in the production for multiple years. But there's a lot of upsell opportunity in the Mayo Clinic as well. Same with a couple of others. I would mention the NHS already 3 years ago, done deal. So now it's implemented. We have got the money from the deal and customer starts using it now. But it's not in the production yet, which is interesting. But there are multiple reasons why the customers are not starting to use it immediately. So our delivery is fairly fast. So we can deliver our software piece in a month, more or less. But then you have a complexity of this -- all the other solutions. So some customers are upgrading their LIS systems, and we need to wait until that is done. Some customers have not yet invested enough scanners so that they would have kind of digital images enough, so to kind of ramp up the volume. But all are moving forward on that track because scanners are quite expensive investment, image management systems as well. But the gains are coming from AI and digital and AI-assisted diagnostics. So in a way, we are in a good position. But unfortunately, there's a certain kind of a time lag from kind of closing the contract when the customer starts and start using it. And on that parameter, the green ones are the ones who are actually in the production. The yellow ones are that has been delivered and the production routine use is just starting. And then you have a list of customers that okay, so contract has been done, and they will start using it. But there's a little bit of delay when it happens. But all in all, we have roughly about 20 clinical customers today. And when everything is in the kind of up and running in the right volume, so there's already kind of a significant revenues coming from that side. But there is this kind of a time issue on a place so that when it happens. But these are all happening for sure, but okay, so the timing is the thing. And the positive thing is that, okay, like in Paris, so we have already multiple hospitals, and we have a few of them in the production already. So when we now sign up with those additional 5 hospitals, it means that, okay, the core software and all the surrounding system have been implemented and all the integrations done. When they start using it, so it's actually happened much faster than in a greenfield customer. So if you work with the customer that, okay, so goes to first to digital pathology, then goes to kind of AI-assisted diagnostic. So then there's a time lag. So when they transform the organization, get all the kind of tools in place and then they start using it. But when we sell to these customers who already have something in a production and we upsell, so then it happens really fast. So there's kind of a different type of customers in a play. And so that links a little bit back to the previous slide. Because we have at least -- yes, we have 2 kind of different type of revenue generation models in place. We have right to access, right to use. And the difference is that, okay, so if we implement the software on customers' cloud or on-premise, so then it's a right to use. And when the kind of software is implemented on Aiforia-hosted cloud, so then the revenue recognition will happen in a different way. And we used to have a little bit more on these right-to-use customers, and it will show a little bit on our numbers as well that you could recognize when the kind of usage started, the whole block and when it's in Aiforia environment, so then the recognition will happen over the years. It's a kind of a software-as-a-service type of model that we are going more and more. But in the long run, I think that's really sustainable and a good model to go forward. But just that the case there are different type of models in place, plus then 2 types of customer. So if it's a totally new greenfield customer or is it already an existing customer. And I can give another example. Paris was one, but we have this big deal in Lombardia. So they haven't -- we have implemented the software, and we could recognize something last year. But there's 32 hospitals, and there's a certain plan. So when they start kind of hospital by hospital and start using it. And it's a 3-year plan so that, okay, when they ramp up the production in that organization. Eventually, it will be really good, profitable large customer for us, but it happens step by step. So when you kind of maybe sometimes when we say that, okay, we close a deal with a customer who has 1 million slide, so then somebody calculates that immediately, it's a revenue like that. It will be, but it's kind of -- it needs to go through those steps step by step. But just to -- and we can, of course, answer some questions on this topic on a Q&A part. The other positive thing is that the market is there. So the demand need for these solutions hasn't changed, so that's the case. So it's growing. So there are a couple of drivers for that. Cancer cases unfortunately going up. So the demand is there. So on the other hand, the number of pathologists is kind of staying the same or going down. And there was a statistics from the U.S., but applies all over the world quite well. 40% of the pathologists are over 60 years old, meaning that, okay, now on the other side, so the volume is picking up. So you need to do more. And at the same time, in the next coming years, most of these or at least kind of some of these people are going on a retirement and then the people who can actually handle that manually, it's disappearing. And I told last time this example already, but like in that Lombardia case, so they have 409 pathologists, 100 is retiring in the next 2 years and only 9 new one is coming in. So they roughly lose over 25% or 20% of the workforce, and that's the reason that they have to go on modernization and start using the latest technology. So the demand is there, need is there. So that's for sure. And then, of course, the expectations for the diagnostics and diagnosis is getting more and more kind of higher. So it's more complex. You test multiple things. So you want to give the patient a better treatment and more precise treatment. So in a way, the complexity is going up. And then the kind of capabilities to eyeball those samples with the human eye, it doesn't give the results or precise results that you need for the kind of next steps for the treatment or medication decisions. So all of these drivers are kind of moving on that direction that the market is there, market is growing. And on that topic, so a little bit modified or we modified the slide on the workflow because we've been always talking about the -- taking the physical samples in preparing the kind of slides, putting the staining, doing the scanning. But then if you look at the digital pathology market and AI-assisted diagnostics market, so that's one part. And in this area, so there's a lot of interest in the ecosystem. So there has been lot of partnering happening already. So some really nice big acquisitions happening. But the thing is that when you sell scanners, when you sell the image management, you can't sell it without having an AI story on top of that because AI is bringing the value on this whole play and that's the position where Aiforia is. And on our market, so it's going to grow nicely, plus 17% on an annual basis going forward. And it's a new market, so we need to get in. We have a fantastic offering. So we have the references. So we are in a good position on that. But we are also thinking that, okay, we also want to expand our footprint in a customer and making Aiforia more strategic in that sense. If we talk a little bit about the image management and workflow, so we work with all the kind of major companies on that side and having an integration. But every single one of these 20-plus customers on the clinical side, what we have, when they get an AI-driven results, they look at the images, look at the reports, everything from an Aiforia viewer. So basically, we are there already on the image management side. What we are missing is a little bit on a workflow management, a little bit on storing the images, the back side of that market, but we are already heavily in on the image management side. But as I said, so we are kind of focusing on getting a solution which is an AI native diagnostic tool for these kind of samples. And that includes some of the functionality from an image management side. So meaning as our addressable market is growing on that direction. And then to the other side, so we already have a predictive model done with the Mayo Clinic for the colorectal cancer so that you can predict the patient outcome and link the treatment on that information. But we also, this week, some of you may have noticed we announced a partnership with a Swedish company who's doing prognostic models as well. And that's the next step. So when AI has done the diagnosis for the H&E slide and IHC slides, they can now order a report through the Aiforia viewer. So just one click, and it gives a risk assessment for the breast cancer cases. So that's additional business. But this is a kind of a market that is only available when the AI is in place. But it's definitely going to that direction. And the value add is getting more -- it's getting higher and higher for the AI on that side. My point here is that, okay, so we are in an interesting market in a key position on that, plus we are a little bit expanding our addressable market that we are having a more kind of a complete solution to offer and a bigger part and being more strategic for our end customers. So that's kind of a big picture. So on the product side, so this is a really competitive offering what we have. And typically, when we go to head-to-head comparison, we win. So that's all really good news. And our kind of idea when we started to build this one was that we are not just focusing on one algorithm, but we're actually providing a platform and enough solutions so that you can cover majority of the workflow and giving kind of one user experience and solid results for the users. But then the tactical things as well because of course, we recognize that what was the financial results and of course, telling those reasons so why the kind of revenue recognition is a little bit delayed. But we have done some changes on a tactical level. So we will actually have a new Chief Commercial Officer. He starts next week. So we've been recruiting more direct salespeople. And really shifting the company on focusing on scaling up phase. And on a scaling up, we have these elements so that we have the direct sales that needs to be really strong. And I expect that, that will perform most of the deals what we will get going forward. But at the same time, so we invested on building up the channel. And we have actually kind of a loose reselling channel network globally over 30 companies, but I would say that a handful are really relevant. But we set up an organization so that we can support and train the partners and scaling up the business through the channel. So that was one of the concrete actions what we did now. And we have certain markets like the Nordics, we have France, we have a U.S. where we have kind of a good -- and Italy, where we have a good kind of direct salespeople in place, but then we have markets that, okay, so we need to address through the partner network. So we want to kind of scale up this and put it in a more professional level how we manage this. The other concrete thing what we did, so we have also kind of a separate team for customer success management in that sense. So now when we start having enough customers, so plus 20 clinical customers, really important thing is that they actually start using it in a kind of real-life production. And we want, of course, to find new opportunities how to expand the footprint, how do we kind of add more AI models in the portfolio and so on. But being with the customers and seeing where the bottlenecks are, what issues they have, sort those issues and then upsell and make sure that the customers are happy and they are using our solutions. But those 2 concrete kind of organizational changes, plus then, of course, in sales and marketing overall. So we've been kind of looking at kind of new ways, how do we find kind of potential customers, those ones that fits our kind of ideal customer profile, then we set up all the kind of basic things that, okay, so you qualify those and see that where do we actually invest, where do we have a good opportunity to close and win. So then we put on our investment. But I don't want to go too much on the tactical here, but I just wanted to show that we have been taking and continuously kind of follow up this so that, okay, what works, what doesn't work and then try to improve the activities what we have on a go-to-market side. Then business targets midterm, nothing has changed since the last time. But we are looking for the financial independence by the end of '27. So we can cover this on the next part and the questions as well. But it means that so that we, of course, expect the sales going up and we need to control the costs what we have and see that the financing is kind of in good shape so that we can continue. But we see this market picking up and we are ready to invest. We are ready to kind of capture the opportunities. And I mentioned this portfolio, 80%. We are well on track on that side. So the offering is good. And we will add a few more models, but already we have enough to sell. So having a kind of a good solid quality product is not anymore a problem. So we have the portfolio and now it's time to kind of monetize that, I would say. Then achieve 50 key accounts. So we have 20, and we aim to go to 50 or even more. So 50 is a number. But it just tells you that, okay, we want to get a bigger organization, where we have a significant volumes. And 500 -- they should all have a kind of more than EUR 0.5 million annual revenue potential in place. So it doesn't happen immediately, but it has to be a sizable organization that we can grow in that level. And then it's a good profitable business for us and it's a good business and good acquisition for the customer as well. And then, of course, the technology. So we will kind of -- I told you about the markets and how do we expand and what type of ideas we have there, a little bit on the image management side and the prognostic side, but kind of playing the major role as a leading AI diagnostic platform in the diagnostic area. But that's it from my side, and I'll be back answering your questions. But now I will hand it over to Antti to continue.

Okay. Thank you, Jukka, and good morning, everybody, also on my behalf. Like already mentioned, my name is Antti Ojala, I'm the new CFO in Aiforia. It's my pleasure and honor to be here giving a presentation first time in the earnings call. Before starting, I just want to remind that the numbers in the parenthesis in the financial part are from the reference period H1 2025. The group revenue was EUR 753,000. Last year, during the same period, the revenue was close to EUR 1.4 million. From a geographical perspective, 43% of the revenue came from Europe and other regions. 1/3 of the revenue came from North America and 24% came from Finland. As a Finnish company, we are happy that we have good Finnish customers. And it is also important that we can show good presence in the domestic market. The investments during the period were EUR 2.9 million. Last year, same period, the investments were EUR 3.7 million. The investments were mainly capitalized R&D expenses. EBITDA of the reported period was minus EUR 4.7 million. Last year, on the same period, the EBITDA was minus EUR 3 million. The EBITDA was impacted obviously by decrease in revenue, but there was also one large one-off noncash item of EUR 1.1 million that was related to a decision to extend the subscription period of employee stock option plans. The EBIT was further impacted by increase in the depreciations and amortizations in accordance with the plan. The number of employees stayed almost on the same level as last year on the average basis and our number of employees on average was 68 employees during the first half. The cash at banks was EUR 9.9 million at the end of June '26. Last year, end of June, the cash at banks was close to EUR 12 million. The order book was EUR 3.5 million at the end of June '26. The order book stayed actually on the same level where it was at the end of December last year. However, the order book decreased by 32% from H1 '25. And like you can see from this graph, the decrease already happened during H2 '25 when part of the H1 order book was recognized as revenue. It is now important to actually note like Jukka already also mentioned that we have different kind of agreements in the order book. Some orders are short term, but there's also orders related to multiyear agreements. And in those multiyear agreements, the revenue will be recognized more or less evenly throughout the agreement period and actually on monthly installments in case of right to access customers. The revenue decreased by 46% from last year H1. The decrease was driven by a decrease in clinical revenue. The clinical revenue decreased by 57%. However, it's important now to actually go back to the previous slide and remember that the order book of EUR 3.5 million included EUR 2.8 million of order book for clinical business. The H1 '26 revenue was negatively impacted by delays in some customer cases. And then when we look at the H1 and of last year and H1 of this year, like Jukka already indicated, there's different kind of revenue recognition happening between these 2 year halves. This year, you have, we can see that almost entirely the revenue is annually repeatable, meaning that it either comes from annually recurring license fees or it's based on the huge usage during the period. On the other hand, when we look at last year H1, we had there revenue recognized from multiyear agreements on a single point of time. Today, when we look at the agreements that we have and also agreements that we are negotiating with the customers, we are clearly seeing that the market is more evolving towards right to access type of agreements where the revenue is recognized more evenly over the agreement period. And then lastly, about financing. So like Jukka already mentioned, we had the equity financing round, but this time, we are also happy to discuss other news in the financing space. So we have signed a venture debt loan agreement with European Investment Bank for up to EUR 20 million. The agreement was signed 1 month ago at the end of July. The loan agreement includes 3 different tranches, EUR 5 million, EUR 7 million and EUR 8 million, and each of these tranches has their own availability period. The longest availability period is 36 months from signing the agreement. EIB made a thorough due diligence on Aiforia during the negotiation phase and decided to commit to us. We see that this is a very valuable external validation on Aiforia case. The loan financing complements equity financing while it limits immediate dilution as the related warrants are synthetic and will be settled in cash. The company intends to use the loan financing to accelerate the product development, and it also supports the commercial expansion. The contract has been signed, but none of the tranches has yet been raised. Each of the tranche is conditional on certain milestones, for example, related on revenue. So we can conclude on this that the capital is available as soon as we deliver results to EIB. And that would be all from my side. Thank you very much, and we can move to Q&A.

Okay. Thank you, Antti. Any questions?

Antti from Inderes. Maybe starting from the kind of feeling among your clinical customers, like looking at the market, there seems to be still a clear need for the efficiency solutions and changes the way pathology is done. In a certain sense, it just feels that the sense of urgency hasn't been as high so far. But have you seen any change in that given that the kind of customers they are taking time to take the solutions in the use. Are they kind of feeling the pressure mounting in the background? Or how do you see the sentiment changing?

I think the timing is getting better and better on this topic. So because we have those few customers who are in a production, one in Finland, so which is kind of moving forward really nicely. So they are actually kind of consuming more than they originally planned. So the thing is that once they start using our solutions, so they are not going to go back. But then the challenge is, okay, so as I mentioned before, you need to have all the components in place, you need to do the organization. I think some organizations are underestimating all the transformation in the human side so that you change the organization habits. But once they start using it, they are not going to go back and they are really happy. And that's a positive and really comforting news for us. The other one is Paris. So they have this prostate in the production. And they told also publicly so that they are extremely happy on this. So they would never go back to the old habits. We have some customers as well because that tells me the concretely the market sentiment. So we have a big customer in Italy. What we delivered already a couple of years ago, they didn't have the scanners. And it took for them actually 3 years to get finalized the scanner kind of a purchase. And now they are coming next week according to yesterday's information, but they are getting it finally. So meaning that, okay, so everything is implemented. Once they get the scanners in place, they get the digital slides, so then there's an opportunity to kind of pick up the volume. So it has been taking far too long, but okay, so it's happening. So -- and positive thing was also I was visiting a U.S. customers a couple of weeks back, and they are very large organizations. And now it's totally different than it was a couple of years ago. They didn't have the scanners. We visited the one that has bought already 36 scanners, the full new laboratory. They bought an image management system, and now the next step is to kind of finalize the whole project with the AI. So you need to have those steps in place. And you always a little bit underestimate the time how long it will take from one point to another because already 3, 4 years ago, it was obvious that this market will be the driver and it will happen. But okay, now it seems that when you get all the components in place, so then it starts happening, and it can start happening quickly. The other thing is obviously the demand is there. So as I mentioned that 40% of the pathologists are over 60 years old. So meaning that, okay, eventually, it has to happen because the case volume is there, it's growing, so -- and then the capacity, how to handle it, it's going down. So all the drivers are there, but we'll see.

And maybe continuing on what you just said there with some customers investing in scanners before they start talking to you about AI. Is it fair to say that in the past, it's been a little bit the other way around that they get excited about AI and then they realize the scanner needs and what they need to build. And now that they're kind of more focusing on infrastructure first and then coming to you, do you see a shift of that sort?

Yes. Okay. We have some customers, and I still believe that logic. So when we negotiate, we said, okay, once you implement the laboratory information system and image management system, it makes sense to implement all the AI components. And that's what they did. But then they were kind of delayed on the -- actually getting the hardware in. So -- but the good thing is that now it's everything is implemented. But then it goes the other way around with some customers, but I don't see the kind of a big shift on that. So the scanners are good today, so that, okay, so you have a multiple choice with the high-quality scanners, you get the high-quality images. So that's not a problem at all. and also all the kind of technology, software technology components are in a solid level so that you can actually do and you start having a referenceable customers, which is really important so that we have people who are willing to talk about Aiforia implementation, how they're using it and how they are happy and that speed up the kind of adaptation for the next customers to come.

Maybe going to geographies a little bit. Europe has obviously been the strong market so far with most customers coming from there. U.S. has taken longer time. How does that market feel to you right now? Are there kind of more movements happening there? Is the regulatory landscape going to a good direction? How do you see it?

Meaning U.S.?

U.S., yes.

Well, yes. I spent 3 days, I visited 3 very large customers. And I think they are all ready to move forward. The regulatory part is not the problem. So they use the LDT, Laboratory Developed Tests process so that they can qualify themselves. So there is no competition. There are a couple of companies having something on an FDA approved, maybe the viewer or something but not the solution. So there's no competition that would have an FDA-approved offering in place. Everybody used the LDT and then it's a kind of -- but those are different than the European ones. So they are kind of private organization, nonprofit organization, but the decision-making is different comparing the European public sector heavy tendering processes and so on. But in the U.S., they want to test, they want to take a pilot, so they evaluate themselves and when they are ready to go, they go. But I see that the U.S. is picking up as well. But then for Aiforia, the question is so where we should focus. We definitely keep our kind of a presence in the U.S., but European market is really the one that we have the biggest advantage at the moment.