Digital Workforce Q3’24 flash comment: A positive review overall

Translation: Original published in Finnish on 11/1/2024 at 8:56 am EET.

Digital Workforce, the software robotics automation pioneer, published its Q3 business review this morning, which on the whole was well in line with our expectations. Revenue grew well and was in line with our expectations. In absolute terms, the operating result was slightly below expectations due to accelerated AI investments and recruitments. In addition, the company said it had launched several new projects during the summer holiday period, which we believe will support continued growth for the remainder of the year.

Revenue grew well and was in line with our expectations

Digital Workforce's revenue grew by 10% to 6.6 MEUR in Q3, fully in line with our expectations. By business lines, the revenue of Continuous Services increased by 16% to 4.4 MEUR (forecast: 4.3 MEUR), while Professional Services decreased by 1% to 2.2 MEUR (forecast: 2.3 MEUR) during Q3. Both business segments thus grew almost in line with our forecasts, with the higher-value Continuous Services revenue slightly better than expected.

The company said it had launched several new projects during the summer holiday period as well as grown its healthcare business and its team of industry experts. The number of employees increased by 6 to 183 in the quarter. In the social services and healthcare sector, the company won important new customers in Q3 and was successful in contract extensions, especially in Finland and the UK. We believe this will support further growth.

Operating result slightly below expectations, as revenue growth did not scale with the result as expected

Digital Workforce's gross profit was 2.2 MEUR or 33% of revenue in Q3, down from 37% in H1, but almost in line with the comparison period. EBITDA was 0.18 MEUR, slightly below our forecast of 0.31 MEUR in absolute terms. EBITDA included a small one-off charge of 0.04 MEUR related to restructuring. EBITDA-% was therefore 2.7%, which was in line with Q2 but below our forecast of 5%. Relative to the comparison period (-1%), the improvement in profitability was supported by the closure of the Danish and Norwegian offices at the end of last year, administrative efficiency measures and revenue growth. The improvement in profitability was limited by accelerated investments in AI-based solutions and new hiring. In other income lines, we estimate that financial income was better than expected, with earnings per share in line with our expectations at EUR 0.02.

Guidance reiterated as expected; revenue and profit expected to grow in 2024

The company estimates that full-year revenue in 2024 will be higher and adjusted EBITDA will be positive and improve compared to 2023. Prior to the Q3 business review, we expected that the company’s revenue would grow by 10% and EBITDA would be 1.2 MEUR or 5% of revenue in 2024 (2023 adj. EBITDA 0.2 MEUR). We do not expect to make any major changes to our forecasts.