ICAD Inc (ICAD) 2018 Q3 法說會逐字稿

Good day, and welcome to the iCAD Inc.

Third Quarter 2018 Earnings Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Jeremy Feffer.

Please go ahead, sir.

Thank you, Jessica, and good afternoon, everyone.

Thank you for participating in today's call.

Joining me from iCAD are Michael Klein, Chairman and Interim Chief Executive Officer; Stacey Stevens, Chief Strategy and Chief Commercial Officer; and Rich Christopher, Chief Financial Officer.

Earlier this afternoon, iCAD announced financial results for the 3-month period ending September 30, 2018.

Before we begin, I would like to caution that comments made during this conference call by management that contain forward-looking statements involve risks and uncertainties regarding the operations and future results of iCAD.

I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 10-Q and 10-K, which identify specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 13, 2018.

iCAD undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, it's my pleasure to turn the call over to Michael Klein.

Mike?

Thank you, Jeremy, and good afternoon, everyone, and thank you for joining us today.

I am pleased to have the opportunity to speak with you today as I'm extremely excited to have been recently appointed the Executive Chairman and Interim CEO of iCAD.

While Stacey Stevens, our Chief Strategy and Commercial Officer; and Rich Christopher, our CFO, will review the financial and operational highlights of the quarter, I'd like to take a moment to introduce myself and provide personal insight into what compelled me to accept this position.

First and foremost, I've spent 30 years in the medical technology industry, approximately 20 of which have been spent in the area of image interpretation and analysis and, certainly, in computer-aided detection, or CAD.

I've also spent nearly a decade in the therapy area with my prior experience at Xoft and when I was -- when it was a start-up, as well as running the commercialization efforts at Varian Medical Systems, as we launched and ramped the rapid movement into intensity-modulated radiation therapy, or IMRT.

Most recently, I was Chief Executive Officer at SonaCare Medical, a global leader in minimally invasive high-intensity focused ultrasound.

Our focal therapy approach to prostate cancer could best be described as a lumpectomy for men.

It's worth noting that prostate cancer represents a new frontier for medical imaging.

Image interpretation and CAD technologies are becoming an enabling and, perhaps, even an essential element in the targeting necessary for focal prostate cancer treatment as well as adjunct treatment following radical procedures.

Said another way, lumpectomy for men is now being performed for low- to intermediate-risk patients.

In many ways, prostate cancer is now mapping towards the breast cancer model, where the preservation of tissue is extraordinarily important and desirable or achievable with certain patients and may correspondingly result in a vastly reduced amount of side effects and along with high clinical efficacy.

Previously, I served as Chairman, President and Chief Executive Officer of R2 Technologies, a pioneering breast and lung cancer CAD company.

R2 was a competitor of iCAD and a first mover in the CAD area.

It is the first company to obtain a PMA in both breast cancer and lung cancer, along with a robust CPT 1 code for CAD that offered favorable economics, and this helped catalyze the early adoption of CAD.

The company was sold to Hologic for $300 million in 2005, after achieving annual sales of over $55 million.

Following my tenure at R2, I served as President and Chief Executive Officer of Xoft through its acquisition by iCAD in 2010.

I believe it's fair to say that I have a somewhat unique depth of knowledge and experience in both areas of iCAD business on both the computer-aided detection side and the therapy side.

In both businesses, I have developed commercialization strategies, achieved a depth of familiarity with the sales procurement cycle, the key competitors, the top sales and software personnel and the essential luminary sites and key opinion leaders that are a requisite for success.

I am very familiar with the appropriate FDA sections to work with as well as the coding and reimbursement nuances for each business.

These, as we all know, are key drivers for success.

Having been Chairman and CEO of both R2 and now iCAD, I am intimately familiar with the evolving generations of CAD technology, from the first generation with analog film to the second generation of digital mammography and now, the third generation, with 3D tomosynthesis breast imaging.

With each generation, we have exponentially increased the volume of imaging information generated, and with that, the need for interpretation and workflow tools has increased correspondingly.

I can tell you with great confidence that the company's unique AI technology has the potential to significantly transform cancer detection and workflow and be the clear leader in what I refer to as the third generation of CAD.

This potentially -- rather, the potentially transformative reader study results, the basis of our 3D tomo release and pending approval, is an area that Stacey will detail in her remarks.

It has the potential to facilitate vast improvements in workflow and reading time, along with improved clinical efficacy and performance.

Achieving a quantum leap in sensitivity, while improving specificity or fewer false positives, is a clear and almost mind-bending breakthrough.

Usually, improvements in sensitivity come at the expense of false positives, not the improvement in specificity or the lowering of false positives that we are now seeing.

iCAD is now in a unique position of having perhaps the world's largest database of CAD-interpreted breast images, derived from multiple imaging companies.

iCAD is now in what I would consider to be the very enviable position of being able to curate, compare and correlate vast imaging data sets.

This allows for the optimization of algorithms that incorporate patients' unique characteristics and potential risk factors.

These characteristics may include patients' genetic predisposition, age factors, body mass index and, potentially, even lifestyle characteristics.

The result will be an even more intelligent set of algorithms that will, in time, allow us to move well beyond the ability to detect.

Future AI-based algorithms will move us into the realm of predictive analytics and more individualized risk assessment tools.

The implications for enhanced care, risk-adjusted, personalized screening regimens and risk-assessed treatment protocols is very dramatic.

This is the next frontier.

This is indeed a game-changer.

What comes along with the advances in artificial intelligence may, in actuality, be true intelligence, where the capabilities of physicians, working in combination with AI tools, may take us beyond practicing medicine and perhaps towards perfecting it.

This may lead us to previously unimaginable areas of patient care and clinical care efficiency.

This new frontier represents the fourth generation of CAD and moves us towards true AI imaging.

It's worth noting that the above solutions will further move us up the value chain and closer to end user customers, physicians and perhaps even patients.

This was the original go-to-market strategy that led to the early widespread adoption of CAD.

Rapid adoption in its early days was powered by scores of luminary physicians, many at NCI hospitals, working in harmony with companies to solve an urgent problem and the incumbent need that presented itself as a volume of images was virtually exploding with the advances in medical imaging, while the inherent capability to read vast images remained steady state.

This dynamic has and will allow novel technology that solves pressing clinical workflow problems to be pulled through channel in a way that is well aligned with the needs of physicians and is aligned with the emerging and accelerating value-based bundled care dynamics that we see in the market.

This is truly an example of where the past may indeed be prologue.

So it has been a long journey from analog CAD to digital 2D CAD and now, 3D tomo CAD.

We intend to lead the way in 3D CAD and play a leadership and perhaps even an ambassadorial role, as we navigate both near-term opportunities and move towards the new horizon of personalized detection tools and risk assessment.

This is truly the answer to the question of why I am beyond excited and feel even compelled to be a part of iCAD, particularly at this point in time.

Now I would be remiss if I didn't make comments about the therapy business, especially since I spent several years as a CEO of Xoft, as we were developing and launching the technology.

From its inception, the dream and the ultimate value proposition of Xoft was to move from the discovery of disease to the recovery from disease, and to do so with expediency.

With recently published and very robust clinical data, now tracking over 1,000 IORT treated patients, up to, in many cases, 55 months, we are seeing a recurrence rate that rival that of radiation therapy procedures that, as we know, can take up to 6 or even 8 weeks and require a shielded room.

The ability to offer a single intracavitary treatment with Xoft electronic brachytherapy solution that can be delivered realtime in an unshielded room on demand and immediately post lumpectomy is a reality now.

Well, we are now approaching a tipping point in terms of accepted clinical efficacy, aided generated and published and an expanding number of actively treating sites.

This is earning Xoft a meaningful place in the spectrum of cancer care treatment options.

Whether it's used as a boost to external beam radiation therapy to reduce the number of fractions or a single intracavitary 10-minute treatment, electronic brachytherapy now has the emerging body of clinical outcomes data and the reimbursement codes, the regulatory clearance and the growing number of treatment sites as well as luminary sites to move forward at a more rapid pace.

This, amplified by key opinion leader support, is an essential accelerant for Xoft to play a deeply meaningful role in the oncology ecosystem, both today and in the future.

Now while many of my comments are intended to provide some directionality or trajectory for CAD and are somewhat visionary in nature, we have important and meaningful near-term goals and financial expectations.

I look forward to working with the executive management team as we execute upon our strategy to grow our business in the mid- to longer term while absolutely ensuring a clear-eyed focus on near-term financial, operational and commercial success.

To this end, pending FDA approval for 3D tomo, as Stacey will talk more about during her remarks, we are certainly in an area where our internal calculus is focused on our near-term success while keeping in mind our longer-term goal.

In sum, we are firmly and enthusiastically focused on unlocking profound inherent value that exists in both iCAD's imaging and iCAD's therapy business.

We are very mindful of the exciting future outline while we are riveted on the near term to ensure we set and achieve the meaningful financial and operational goals that will enable us to earn our way into the exciting future outline and will enable iCAD to emerge as the long-term sustainable leader and industry pacesetter and pioneer in the AI imaging area.

And with that, I'd like to now pass the call over to Stacey.

Stacey?

Thank you, Mike, and good afternoon, everyone.

I'll begin my remarks with some brief comments on the financial results for the third quarter ended September 30, 2018.

I will then turn the call over to Rich who will review our financial results in greater detail.

After the conclusion of Rich's remarks, I will provide an update on our key growth programs prior to opening the call for questions.

With that, let me begin by saying that while we continue to face some top line headwinds, we achieved further gross margin expansion and significant reductions in both operating expenses and cash burn.

In our software business, mammography product revenue declined 13% year-over-year in the third quarter.

The most significant challenge we continue to face here is that business with our largest OEM partner, GE, remains relatively weak to date in 2018.

This weakness has been partially offset by stronger direct sales efforts throughout the year, but our relationship with GE has not been the growth driver we anticipated this year.

With that said, though, as the excellent, unprecedented results from our reader study would indicate, we see extraordinary sales potential with our new multivendor AI product for digital breast tomosynthesis and what will be a much larger addressable market going forward.

On the therapy side, our strategic decision to discontinue offering the subscription service model to customers and our skin brachytherapy business and focus on capital sales and recurring revenue continues to have a highly beneficial impact on our overall business.

Importantly, product sales in this segment increased 58% in the 9 months of 2018 as compared to the first 9 months of last year.

More on these topics later as part of the business update.

Now I will turn the call over to Rich who will provide additional financial details on the quarter.

Rich?

Thank you, Stacey, and good afternoon, everyone.

I'd like to review the company's third quarter 2018 financial highlights, which were disclosed in this afternoon's earnings release.

As I will only be discussing the highlights of our financial results for the third quarter, I would like to refer you to our quarterly report on Form 10-Q for more specifics and detail.

The company plans to file its Form 10-Q for the third quarter of 2018 with the SEC tomorrow.

Before I begin with the financial highlights, I would like to note that during my comments today, I will be referring to certain non-GAAP financial measures.

Management believes that these measures provide meaningful information to investors as well as better reflect how we view the operating performance of the company.

You can find a reconciliation of our GAAP to non-GAAP measures at the end of our earnings release.

With that covered, I will now summarize the financial results for the third quarter.

On a reported basis, total revenues for the third quarter of 2018 was $6.2 million, reflecting an $800,000, or 12% decrease from the comparable prior-year quarter.

It should be noted that there is a significant amount of noise in our reported revenue numbers due to the inclusion of revenues from discontinued operations, specifically MRI and skin subscription.

Excluding these revenues from both periods, quarterly revenues on an adjusted basis actually decreased $300,000 or 5% year-over-year.

As we examine our results by segment, let's begin with Detection.

Total revenue in our Detection segment for the third quarter of 2018 was $3.9 million, representing a $400,000 or 10% decrease from the prior year period.

The year-over-year change in our Detection revenues was almost entirely driven by a $400,000 decrease in product revenue.

More specifically, the quarterly variance was due to lower revenues associated with the sale of our 2D product software in the United States.

Shifting our focus to the Therapy segment.

Third quarter 2018 Therapy revenues totaled $2.3 million, down $400,000 or 15% as compared to the prior year quarter.

As detailed on previous earnings calls, the company made a strategic decision to exit the skin subscription business and successfully did so in the first quarter of this year.

Once again, this decision has created some noise in our top line numbers and has negatively impacted our year-over-year Therapy revenue results.

Excluding the impact of skin subscription revenue in both quarterly periods, adjusted therapy revenue actually increased by $100,000 or 6% year-over-year.

The $100,000 increase in adjusted Therapy revenue was a result of both incremental product and incremental service revenue in the third quarter of 2018.

Moving on to gross profit.

On a pure dollar basis, gross profits for the third quarter of 2018 was $4.7 million as compared to $4.6 million in the third quarter of 2017, a $100,000 quarterly improvement.

On a percentage basis, gross profit for the third quarter of 2018 was 77% as compared to just 66% in the prior year quarter.

This reflects an impressive 11% improvement year-over-year.

Both the gross profit dollar and the gross profit percentage improvement were primarily attributable to the company's exit from the skin subscription business.

As for operating expenses, operating expenses for the third quarter of 2018 totaled $6 million.

This represented a $5.6 million or 48% decrease from the third quarter of 2017.

It should be noted that the prior year quarter included a $4.7 million impairment charge related to our Therapy business.

Absent this charge, operating expenses decreased $900,000 or 13%.

The year-over-year decrease in our operating expense is reflective of both lower sales and marketing costs as well as lower research and development costs.

Summarizing our profit metrics.

GAAP net loss for the third quarter of -- was $1.7 million (sic) [$1.4 million] or $0.08 per share compared to a net loss of $6.9 million or $0.42 per share in the comparable prior year quarter.

The $5.5 million year-over-year improvement in our net loss was due to the absence of the $4.7 million goodwill impairment charge as well as lower operating expenses.

On a non-GAAP adjusted EBITDA basis, the net loss for the third quarter of 2018 was $400,000.

This represented a $900,000 improvement over the prior year.

The improvement in our loss was primarily driven by lower operating expenses.

Moving now to the balance sheet.

We ended the third quarter of 2018 with $6.8 million in cash on hand.

This compares to the $9.4 million we had on hand as of December 31, 2017.

The company continues to prudently manage expenses and, as a result, cash burn in the third quarter of 2018 totaled $1 million.

In summary, the key takeaways from the first 9 months of 2018 are as follows.

We are managing through top line headwinds in our base business.

Our overall revenue's excluded revenues from discontinued operations for the 9 months are essentially flat at $18.1 million year-over-year.

Our strategic decision to exit the skin subscription business continues to pay dividends.

Gross profit percentage grew from 68% during the first 9 months of 2017 to 75% in 2018, reflecting a solid increase of 7%.

We are effectively managing our operating expenses, which were down $4.5 million or 19% year-over-year for the first 9 months of 2018.

And lastly, we are showing a significant reduction in our cash burn.

Excluding one-time items in both periods, cash burn through the first 9 months of the year dropped from $6.1 million in 2017 to $2.6 million in 2018, a $3.6 million or 57% improvement year-over-year.

So in closing, the company is exercising appropriate resource management and cost control.

We're awaiting FDA clearance of our new multivendor AI product for digital breast tomosynthesis.

We anticipate this product will become a significant source of revenue for iCAD and will help drive the company towards profitability.

This concludes the financial highlights section of our presentation.

Now, I'd like to turn the call back over to Stacey.

Thank you, Rich.

So let's begin with our Cancer Detection business.

While the demand for our AI solution for tomosynthesis remains strong and growing, as you know, our total addressable market today is limited to GE system.

As such, the new AI product for digital breast tomosynthesis is critical to our long-term growth as it will be available on all of the major suppliers of 3D mammography systems, which significantly expands our addressable market.

In fact, we believe the market for our new AI product for tomo represents an addressable opportunity of approximately $500 million over the next 5-or-so years, with half of that available to us to target immediately upon launch of the product.

So let me now provide you with an update on this new AI solution for tomo.

Let's begin with the U.S. status.

As we said on our last call, we filed with the FDA at the end of May of this year.

The most significant component of the supplement was the results of our clinical reader study.

As a reminder, this study was comprised of 24 radiologists, reading 260 3D mammography cases, of which 65 were cancer cases.

The reader protocol was to read the cases twice, once without the use of our AI software and, after a 30-day washout, read the same 260 cases with the use of our new AI software.

The results of this study were unprecedented and truly extraordinary.

Overall, the reader study demonstrated significant positive results related to clinical performance and workflow efficiency.

Specifically, the data demonstrated that when our AI product was used to read the cases, radiologist's Cancer Detection accuracy or sensitivity improved by an average of 8%.

In addition, radiologist's specificity or the ability to accurately detect false positives also increased by an average of 7%.

This outstanding performance also resulted in a 7% reduction in unnecessary patient recalls.

In addition, the superior performance, when using our new AI product for tomo, was accomplished with an average reduction in case reading time of nearly 53%.

We also submitted substantial additional test data to the FDA on the performance of our new product.

In this test scenario, 3D tomo cases are processed using the new algorithm without radiologist's involvement or, as we describe it, stand-alone testing.

When we tested the cases on a stand-alone basis, the Cancer Detection accuracy of our product was 14% better than the average of the 24 radiologists when compared to their performance reading the cases without the new product, and it actually outperforms 22 out of the 24 radiologists, again, groundbreaking results that have never been achieved with this type of product.

Full results from this reader study will be presented at the RSNA annual meeting later this month, but I'd like to emphasize here how novel the ability to show improvements in sensitivity, specificity and reading time truly is.

In summary, these exceptional data demonstrate that our new AI product for DBT helps radiologists achieve superior Cancer Detection, dismiss more false positives and reduces their average reading time by more than 50%.

We are highly confident that, when approved, our new AI product could be a game-changer in this marketplace.

Now for an update on our FDA submission.

We submitted responses to a list of questions included in our recent letter from the FDA last week.

The letter did not outline issues or questions that caused us any serious concerns, rather, they were clarifying in nature.

We have had subsequent discussions with the FDA since submitting our responses to their questions and remain highly confident that our new AI product for tomo could be cleared in the fourth quarter of this year.

Importantly, we have put a very strong commercial plan in place in preparation for the launch of our new AI product.

Over the past couple of months, we've effectively doubled the size of our U.S. sales force, and we have fully trained them.

We have also deployed a call campaign to raise nationwide awareness for our new product, secure in-person demos at the RSNA and generate early sales leads for our team that can be pursued as soon as the product is cleared by the FDA.

So we'll be ready to hit the ground running in the U.S. from a commercial standpoint immediately upon approval.

We plan to formally introduce our new AI product for tomo at the RSNA meeting later this month in Chicago.

We're going to have a significant and truly exciting presence at RSNA.

This is the largest and most important radiology industry conference of the year, and it represents the ideal venue to introduce our revolutionary product.

As I noted earlier, full results of the reader study will be presented at RSNA.

These data will be presented by the study's principal investigator, Dr. Emily Conant, from the University of Pennsylvania, in a podium presentation entitled Improving Accuracy and Efficiency with the Concurrent Use of Artificial Intelligence for Digital Breast Tomosynthesis Screening.

In addition, iCAD's Vice President of Research, Dr. Senthil Periaswamy, will deliver a theater presentation entitled How AI Can Improve Diagnostic Performance and Reduce Reading Time in Breast Tomosynthesis.

We will also host an evening reception featuring leading experts in AI for digital breast tomosynthesis, and finally, we are really looking forward to unveiling the new name for our AI product for tomo in a couple of weeks at RSNA.

Now moving on to our progress for our new AI product for tomo in Europe.

Similar to the U.S., we have been focused on expanding our distribution capabilities and have recently added distributors in the U.K., Ireland, Portugal and Switzerland, and we are very close to signing agreements in a number of other key countries.

We now have established a number of reference sites in several countries with customers who are using Hologic, GE and Siemens tomo systems.

Finally, we intend to continue investing in the development of a broader road map of AI software solutions based on machine and deep learning, our robust and highly innovative platform as well as significant advanced engineering and development expertise in this area, in combination with our unique access to very large amounts of data will support our efforts to further expand our portfolio of solutions over the near and longer term.

Now shifting to Therapy.

I would like to begin with an update on our skin and IORT brachytherapy businesses.

Following our strategic decision to discontinue the subscription service model to customers in our skin brachytherapy business, trends in our product revenue, margins, cash flow and cash burn, all continued to improve.

Specifically, adjusting revenues for the subscription business, Therapy revenues were up 17% year-over-year in the first 9 months of 2018.

Product revenue in the therapy segment was up 54% in the first 9 months of 2018 as compared to the same period last year.

IORT system sales in the U.S. were the biggest contributors to the year-over-year product revenue growth.

Shifting to Breast IORT, this business continues to perform very well in 2018.

Increased interest in the U.S. continues to be driven by growing favorable clinical data.

Most recently, we announced positive results from a long-term independent study conducted with the Xoft accent electronic brachytherapy, or eBx System, for the treatment of early-stage breast cancer using IORT.

With the mean follow-up of 55 months, outcomes published in the American Journal of Surgery show that breast cancer recurrence rates of patients who were treated with IORT using the Xoft system and complied with adjuvant medical therapy were comparable to those seen in the cornerstone TARGIT-A study, which evaluated IORTs in different technology.

To date, this study presents the most long-term research of IORT using the Xoft system published in a peer-reviewed journal.

Another recently published study reviewed the results of 1,000 early-stage breast cancers at 3 years median follow-up, also demonstrating low rates of recurrence and complications.

Results from patients treated with Xoft breast IORT in these studies are consistent with the results from a growing body of additional positive clinical research assessing outcomes of IORT for breast cancer treatment.

During the third quarter, we placed 3 IORT systems worldwide, and we have now sold more systems through the first 9 months of 2018 than we did in all of last year.

We are pleased with our growing installed base, which currently includes approximately 40 U.S. centers and over 50 OUS centers treating patients with IORT and/or GYN applicators.

Also in the third quarter, we completed the installation of our first system in India, where we have now begun treating patients.

And looking ahead, we are installing our first 2 systems in China in the fourth quarter with significant treatment potential in 2019.

We also experienced 10% growth in disposable IORT balloon applicators sales in the first 9 months of 2018 versus the first 9 months of 2017.

We're pleased with this case and expect that total unit sales and procedure volume will exceed 2,000 worldwide in 2018.

While a lengthy sales cycle has become the reality in this segment, we anticipate continued progress in system placements in the fourth quarter of 2018 and into 2019, both in the U.S. and internationally.

We also remain very focused on expanding additional opportunities in multiple key emerging OUS markets, including India, Saudi Arabia, Egypt, Colombia and other countries as well.

So in our therapy business, we remain focused on growing our base of capital customers and increasing recurring revenue from each site as the treatment volume increases.

I should add that we also continued to experience strong global market interest in general IORT applications, including prostate, brain and rectal cancer treatment, and we have active projects underway to commercialize new applicators in the future and open up additional market opportunity.

Before I open up the call for questions, I'd like to mention the recently completed ASTRO meeting, which was highly successful for us.

Of note, we had multiple external clinical experts in electronic brachytherapy, discussing the Xoft system in our booth with other interested clinicians.

In addition, Dr. Nisar Syed, from MemorialCare Center Institute Long Beach Memorial Medical Center, delivered a well-attended oral presentation entitled Technique and Preliminary Results of a Multi-center Trial of Intraoperative Radiation Therapy Using Electronic Brachytherapy at the Time of Breast Conserving Surgery for Early-stage Breast Cancer.

This study has now reached full enrollment, with over 1,200 patients with a median follow-up of approximately 2 years, and the early results are very promising.

Now we will open up the call for questions.

Operator?

(Operator Instructions) We'll go now to Per Ostlund with Craig-Hallum Capital Group.

There was a tremendous amount of color.

I appreciate all of that in your prepared remarks.

I guess, we should start with the Tomo 2.0 and the upcoming download at RSNA, and it sounds like you've got around a lot wrapped around that, and it sounds like a lot has been laid from a commercial groundwork standpoint.

I guess, Stacey, going back to your comments on FDA, it sounds like -- coming out of the second quarter, it sounds like there was really nothing from a deal breaking standpoint.

It sounds like you're more or less affirming that here as well that it sounds relatively procedural at this point.

Is that a fair assumption?

And then discussing the commercialization side, you talked about bolstering the sales force.

Wondering just a little bit, if you can talk to conversations with the OEMs themselves, if you've begun those and what sort of groundwork is being laid there.

We'll start there.

Sure.

Sure.

Absolutely, Per.

So let me give a little bit more color on the status of the FDA.

So we received a letter from the FDA on October 25, and the letter primarily requested clarifications, changes, wordings, very minor sort of additions to labeling.

There were no new substantive concerns.

On November 2, we met with the FDA via teleconference to get clarification on their questions.

That meeting went extremely well and assured us, and they assured us that our strategy to respond to the FDA was very much in agreement with their expectations.

Between November 2 and November 6, we had several further email and telephone conversations with the FDA to further assure that our responses to their questions would meet their expectations, and we formally responded to FDA, which they received on November 7. So we're very, very confident that we're in the very final stages of this approval.

And I think our confidence in this is shown by the fact that we do intend to launch the product at RSNA, right?

RSNA is in a couple of weeks.

It's the most important radiology meeting of the year.

It's attended by 50,000 people, and we're planning a very aggressive product launch.

And if we have to have this disclaimer, saying, we're still pending FDA, we will do that.

But our confidence is high enough that we want to go forward and have a very aggressive product launch that will feature a new booth property with new branding elements.

As I mentioned earlier in the script, a number of different presentations on our clinical study, a separate presentation in the AI pavilion of RSNA.

We're also hosting a customer reception.

The first night of the show, we'll be having speakers talking to our AI solution, and we're wrapping around that a very aggressive PR strategy with several press releases in play, several strategic ad placements, some of them are already live in Europe, and we have several international advertising campaigns running through RSNA end of the year.

We're making a lot of updates to our website and all of our customer-facing material.

So we're really taking what I would call sort of a surround-sound approach to this, really firing on all cylinders and making sure that we are truly ready to hit the ground running the day that this FDA clearance arrives.

So that's it on the FDA.

Maybe I can address your OEM question now, Per?

Sure.

So I would say that we have had very productive conversations with all of our OEM partners, and I would say, we're expanding our OEM partnerships as well.

So historically, we consider our OEM partners to be the imaging companies, GE, Siemens and Hologic, but we're finding that there's tremendous interest from the leading PACS companies to want to be able to get involved in the sales process for our new Tomo AI product.

So we have had some extremely positive discussions with all of the leading PACS players, many of them will be featuring our product in their booths as well, and we feel that this is going to be another productive partnership to get the product into the market quickly.

We know that the PACS company -- in mammography, a lot of customers are moving from reading mammography off of independent review workstations to reading off of PACS.

And many of the PACS companies are building extended breast cancer -- breast imaging modules, and they're very excited to have our CAD product to go along with that.

So we've got sort of a larger field of partners here that we're working with, and all of them will be ready to go at the time of launch.

Some of them, we have formal contractual agreements with, some of them are still in play.

But we intend to hit the ground running ourselves regardless.

As I said, we're doubling the size of the sales force.

Out of the gates, if you look at the latest MQSA data, there are now 6,800 Tomo systems installed in the U.S. alone.

That is our target market right out of the gate is to go after all of those units, in addition to the 350 to 400 new tomo systems that are being sold every quarter, right?

So there's a huge market opportunity out there.

We wanted to take greater control of our destiny and go after that business more in a direct fashion as well, which is why we have augmented the sales force the way we have.

We have them trained.

In fact, we have several here, actually, this week that are brand-new and onboard and getting trained.

They're incredibly enthusiastic.

The team cannot wait to hit the ground running, and we expect that there is going to be a much greater addressable market opportunity right in front of us as of the day that we receive clearance.

That's fantastic.

That's very exciting.

If we could talk about IORT for a second, as well.

You mentioned the studies there, as well, that the 2,000-plus patient, the Hoag study, and then the other multi-center study more recently published.

It sounds pretty clear that, that's driving an inflection, maybe an interest in the U.S. market.

I think OUS had been maybe the leader for you guys more recently, but it seems like maybe the U.S. is catching up.

Is that a fair statement?

And I guess, maybe as we look at the data, the more recent data with the 55-month follow-up, are we kind of into the point at this stage of the game where that data, that median follow-up time is getting long enough that it's just not a viable pushback point anymore?

Yes.

It really is, Per.

As you know, it used to be that there were 2 things that were holding back more rapid adoption of IORT in the United States.

One was maturity of the clinical data and the other was still the gap in reimbursement to the radiation oncologist when compared with external beam radiation.

The issue around the data is really resolving.

As these studies continue to mature, they continue to get a lot of play at the meetings and in the journals and, most importantly, the data continues to be positive.

So each year that we go by that we have an additional year of follow-up on all of these studies, the lack of data becomes much less of an issue sort of holding back adoption.

So I think this past year to 18 months has been a time of incredible momentum for IORT, and there's been a lot of exposure to it and it's becoming much less of an issue.

And I do think it's had a very big impact in terms of helping to drive adoption, particularly in the U.S.

Excellent, excellent.

One question for Rich.

We'll get him involved here for a second.

So I think that the EBITDA performance, the margin profile, I think it's very, very obvious just how much that's improved since the decision earlier this year on the skin subscription side of things.

With a pretty narrow negative EBITDA at $6.2 million of revenue, is it still reasonable to think that at $7 million, $7.5 million at a quarterly run rate that, that cash flow and EBITDA breakeven is achievable?

Or how do you think about that?

Sure, Per.

I can say confidently with the existing infrastructure and the existing expense level, $7.5 million, we would be breakeven and cash flow positive on a quarterly basis.

(Operator Instructions) We'll go next to [Kina Kay] with [Shartin].

Just first question about the pending product launch.

In terms of perhaps setting some expectations, how would you describe what you think the length of the sales cycle is for your new AI 3D tomo product?

Yes.

It's a great question.

So I think that when we get the clearance from the FDA, there is some initial, what I would call, sort of pent-up demand.

There are some customers who have indicated to us that lives require the technology as soon as we do have clearance.

After that, I think it's going to build over time, right?

So we still have to contend with budget cycles and the sales cycle, which for this type of product can range from several months to maybe up to 6 months, depending on budget cycles.

But there will be demos of the product that need to occur and further education of the market on the value of the technology, but the addressable market opportunity is orders of magnitude bigger than what we're playing in today, right?

The version 1 product, as you know, only worked with GE.

And GE has become sort of a 10% market share player in this business, right?

So being able to now address the whole market.

And if you think about the market in total, there's about 13,000 mammography systems in the U.S. at any given time.

And today, a little more than half of them have converted to tomo, so about 6,800, according to MQSA.

So as I mentioned earlier, this is really our target market, right?

And if you sort of consider the right mix of servers and licenses, that represents to us an addressable market that's around $300 million right out of the gate.

And over time, that will grow.

So I think it will start to build pretty quickly after we receive the FDA clearance, and then we'll continue to grow sort of sequentially every quarter through 2019.

And then a second question, with the upcoming RSNA meeting, beyond your presentation about your reader study, is there any other presentations that you would point investors to that would highlight the need for the benefits that you're bringing to the table, whether that's current reading workflow times or issues with equivocal results or increased call back?

Right.

So in addition to Dr. Conant's presentation on our clinical study, we are going to be having another presentation made in the AI Pavilion of the RSNA, and that's going to be made by Senthil Periaswamy, who is our VP of Research here, again, talking about some of the value proposition elements of AI, particularly for reading large tomo data set.

So those are really the 2 key presentations.

We also will feature what I would call sort of peer-to-peer presentations within our booth, and we'll have some different physicians in the booth at different times talking to customers, again, about the value proposition from an increased cancer detection standpoint, an improvement in specificity as well as the reduction in reading time.

So there's a few different ways that we'll be getting the word out and where customers will hear this message while at the RSNA.

Well, beyond your presentations, are there other ones being presented by others that simply discuss sort of the -- any current issues with 3D tomo?

Yes, I'm sure that there will be other presentations.

I don't have the list of them in front of me at the moment.

Whether they will be specific to tomo or other imaging modalities, AI will be the hot topic of this trade show as it was last year.

So I'm sure there will be a number of presentations on this topic, perhaps for mammography, but probably more likely for other imaging modalities.

But I'd be happy to follow up with you, [Kay] with more detail on that, after I go back and look at the agenda for the meeting.

And it appears there are no further questions at this time.

I'd like to turn the conference back to the speakers for any additional or closing remarks.

Thank you, operator.

I would like to close by reiterating our priorities going forward.

One, to maximize the commercial set -- success of our new AI product for digital breast tomosynthesis immediately upon clearance from the FDA.

And to reiterate again, the next version software will meaningfully address -- meaningfully expand our addressable market as it will be available for all of the major 3D mammography systems on the market today.

Number two, to continue to increase our capital customer base for IORT, skin and GYN customers globally, leveraging this momentum that we have from new positive clinical data.

And finally, to achieve meaningful timely progress in expanding our product road map and advancing our strategy to capitalize on the explosive growth in AI, leveraging our unique set of competencies and allowing us to establish a sustainable leadership position in high-growth markets globally.

With these closing remarks and a very strong level of enthusiasm for the future of our company, we thank you for joining today's third quarter 2018 conference call and look forward to updating you again, following the close of full year 2018.

Have a great day.

This concludes today's call.

Thank you for your participation.

You may now disconnect.