Translation: Original published in Finnish on 12/4/2024 at 7:13 am EET.

Digital Workforce made minor refinements to its strategic priorities towards the end of the strategy period. The financial targets for overall growth remain unchanged, but the targets have been further broken down into organic and inorganic growth. In terms of profitability, targets were raised, which tilted the target update to the positive side. The company has a strong track record in the healthcare sector, which we believe is an increasingly important strategic focus, especially in Finland. Overall, we believe the targets are ambitious but achievable with good execution. Today at 3:00 pm EET, Digital Workforce will host a webcast to discuss the company's strategy and financial goals. The broadcast can be viewed here.

Strategic priorities were refined

Since going public in late 2021, Digital Workforce has refined its strategy and targets a few times. We believe this is natural and reflects the company's stage of development in the young but large automation market. The strategy has been refined in the past, naturally around competitive advantages for its own scalable Outsmart platform and for customers in the healthcare, banking and insurance sectors.

Digital Workforce’s updated cornerstones for the end of the strategy period are:

1. Digital Workforce aims to revolutionize the way large organizations do knowledge work. The company aims to expand its continuous services business and Outsmart automation platform with Enterprise AI Agents by creating customer value through knowledge work automation, supporting both growth and profitability.
2. Transformation of Outsmart automation services' core business: Digital Workforce strives to maximize customer benefits from its productized service offering. The company will improve the scalability of continuous services and the productivity of automation deployment through AI, enabling faster automation for customers.
3. The company aims to become a market leader in social and healthcare care pathway solutions, focusing on productized automation solutions for care and customer pathways. The company aims to renew the monitoring of long-term conditions, improving patient safety and the productivity of healthcare professionals. Our understanding is that this will happen initially in Finland in particular and then in other growth markets.
4. Through acquisitions, Digital Workforce aims to accelerate growth and strengthen the cornerstones of its strategy. In connection with the IPO, the company raised funds for organic investments and acquisitions. Most of this amount is still unused (H1'24 net cash 11 MEUR) and available for M&A activity. Organic investments are covered by the business and cash flow continues to strengthen the balance sheet. 

Growth targets divided into organic and inorganic

In terms of growth, the financial targets remain unchanged and the company continues to target revenue of 50 MEUR in 2026. The growth target has been refined and the company now aims to increase revenue organically by around 40 MEUR and through acquisitions by around 10 MEUR. The company aims to complete 1-3 transactions to reach the inorganic growth target of 10 MEUR. We think this is an ambitious target, but if the current trend continues and/or strengthens, it is realistic. The split between organic and inorganic growth makes the target clearer, as the previous target included acquisitions, but the organic growth target was somewhat unclear. Our current forecast is for revenue to grow to 35.5 MEUR by the end of 2026, slightly below the company's organic target of 40 MEUR. The company aims to increase revenue from continuous services to over 70% during the strategy period (Q1-Q3'24: 63%).

In our view, one of the most important organic growth drivers is the Finnish social and healthcare market, where the company sees significant opportunities in line with the priorities of the revised strategy. Here, the company will focus more on automating care and customer pathways. According to the company, there is clear potential for process automation to improve productivity in Finnish wellbeing services counties. Secondly, the utilization and automation enabled by AI is one of the main drivers of growth. Thirdly, geographically, the company continues to pursue organic growth, particularly in the Irish, UK and US markets. Through acquisitions, the company seeks to strengthen its in-depth expertise or technological know-how in healthcare processes and operations in key growth markets such as the United States and the United Kingdom.

Profitability target was raised quite clearly

In terms of profitability, the company raised its target and now aims to achieve an adjusted EBITDA margin above 15% by the end of 2026. The previous target was an adjusted EBITDA margin of over 10% by the end of 2026. In our view, the uptick in the profitability target is positive and, to some extent, increases our confidence in the future development of profitability. Our current forecast is for the company to achieve an EBITDA margin of 12% by the end of 2026, which is in line with the old target but slightly below the new target. In terms of profitability development, we see the growth of continuous services towards 70%, the productization of care chain services and growth in North America (where profitability is higher) as critical. The company has also made frontloaded growth investments, so there should be clear scope for scaling the overall fixed cost structure as growth continues.

The development phase of Digital Workforce and its large and growing international market will continue to require investments and thus be a "balancing act" between growth and profitability. However, the company's new financial targets better reflect its ambition to balance investment, growth and profitability.