ICAD Inc (ICAD) 2023 Q3 法說會逐字稿

Good day, everyone, and welcome to the iCAD, Inc. third-quarter 2023 earnings call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Leonor Faber. Ma'am, the floor is yours.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for iCAD third quarter 2023 earnings call. On the call today, we have Dana Brown, our President and Chief Executive Officer; and Eric Lonnqvist, our Chief Financial Officer.

Before turning the call over to Dana, I would like to remind everyone that we will be making forward-looking statements on the call today. These forward-looking statements are based on iCAD current expectations and are subject to uncertainty and changes in circumstances.

Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release in our filings with the US Securities and Exchange Commission.

I can't undertakes an obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I would also note that management will refer to certain non-GAAP financial measures, which management believes that these measures provide meaningful information for investors and reflect the way the view operating performance of the company.

You can find a reconciliation of our GAAP to non-GAAP measures at the end of the earnings release. With that, I'll turn the call over to Dana.

Thank you, Leonor, and good afternoon, everyone. Let's begin with our business update. On October 23, we announced that Elekta, a world leader in brachytherapy solutions acquired Xoft. Our therapy subsidiary for approximately $5.5 million and assumed liabilities.

As previously disclosed, we have been in the process of it exploring strategic options for Xoft business that would accelerate the accessibility of this technology and provide more focus and synergies to its growth.

We're pleased that Elekta has acquired dissolve subsidiary along with both the technology and the team. We're confident that that's our technology under the leadership of John Lapre will continue to positively impact the lives of cancer patients and providers who care for them on a global scale.

Elekta took over the business effective immediately upon signing and have completed their final payments. Later in this call, Eric will provide further updates on the transaction and its impact on cash and balance sheet and operations. Our thanks to the outstanding work of the Craig-Hallum Capital Group who served as advisors to us for this transaction.

Let's now turn to the detection side of the business as we close out six months since our leadership transition and finalize our growth plans for 2024 and beyond, it's important to recap the trajectory of changes we've made and how those changes are setting us up for future success. In just six months, we've made substantial progress executing a three-phase transformation. Phase one, was realigning our base. Phase two, strengthening our foundation and Phase three investing in growth initiatives.

Let's start with Phase one, realigning our base. In the past six months, we have stabilized the business, the reducing our cash burn EBITDA, which we now view as a relevant metric to indicate operating cash flow was a loss of $1.1 million in Q3 2023 versus a loss of $3 million in Q1 of 2023.

This represents an improvement of nearly $2 million a quarter. We reduced our cash burn year-to-date. FY23 total cash of $4.4 million, which excludes one-time cash infusions like our projected Xoft proceeds, compared to full year FY22 cash burn of $13 million. We believe cash burn has stabilized.

We've continued to manage the shift to a subscription base annual reoccurring revenue cycle. We will talk more about ARR growth later in this call. But in summary, we had a 30% increase in ARR. Since the start of the subscription transition, we've achieved 16% compounded annual growth rates and total ARR over the two-year period or through the end of Q3 2023. And we've completed the realignment of our cost base for our core business, and I'm pleased to affirm the company does not need to raise additional funding to pursue growth initiatives.

In Phase two, strengthening the foundation In the past six months, we have expanded our leadership team with the appointment of our permanent CFO, Eric and the addition of a COO, Chief Product Officer, Vice President of Marketing and Vice President of Customer Success. We're also making good progress in recruiting new board members.

We've upgraded our brand by transitioning from a product focused to patient centric value proposition. Resulting in our new tag line, creating a world where cancer can't hide. You'll see more of the rebrand launch in Q4, and we've developed and launched targeted Legion programs.

Previously, a reliable and consistent inflow of new leads and a documented and measured pipeline management process did not exist. We've revamped our commercial model, reorganized our team structure, how we target and segment our markets revised message in pricing and account management strategies.

We've announced game changing collaborations with the steam partners, exemplifying our company's commitment to creating the world's most pervasive and personalized suite of AI cancer detection solutions for our shareholders and stakeholders

To recap these partnerships, we signed it 20 year worldwide development and commercialization agreement with Google Health to integrate Google's AI technology with our profound detection for 2D mammography for use upon regulatory approval as independent reader for breast cancer screening. We signed a strategic multiyear commercial agreement with Radiology Partners, the nation's largest radiology practice, providing 15% of all US mammography screening through its owned and affiliated practice.

and access to the company's breast AI Suite to thousands of physicians and millions of patients in the US. We've just rapped up our testing phase and will begin the next phase of identifying and coordinating the roll out with Radiology Partners across its network of facilities.

And we've secured the largest subscription deal to date with a prestigious multi-specialty academic medical center renowned for exceptional health care services and ranked as one of the two hospitals in the US. And last but not least, the divestiture of DOS, coupled with realigning our cost basis and strengthening key foundational building blocks.

We've completed the necessary steps to streamline operations and put all our focus and the scaling the profound AI Breast Health business. Immediately prioritizing expanding our sales and partnership models to grow revenues, which leads us to Phase three, investing in and launch and growth initiatives.

On the prior two earnings calls, I've noted we are actively assessing and modeling revenue growth and market expansion scenarios. We've aligned on a three-phase approach; Phase one, expanding our existing accounts, Phase two, growing our channels, both direct and indirect and Phase three entering new markets.

These phases will overlap. However, we've clearly defined dates engage, which are measurable criteria to act as triggers within a Phase to open the gate to enter the next phase. We have orchestrated these phases to maximize growing annual recurring revenue while keeping burn in check, which is why we believe we do not need to raise additional funding to pursue the growth initiatives in Phase three

Let's take a few moments embrace these phases down.

Phase one is expand existing accounts. This phase is focused on maximizing revenue from our sizable installed base, including reengaging customers who've lapsed on annual maintenance service agreements are behind in upgrading to new versions, including the transition to cloud, winning back lost or deeply less customers and accelerating deployment across large national accounts

For example, I just mentioned our strategic multiyear commercial agreement with Radiology Partners. Radiology Partners is a leading provider of mammography services of women across more than 3,200 facilities, including 17 of the 20 largest health systems in the country. We're honored that Radiology Partners had selected iCAD as a provider of breast AI technologies, and we're working closely with Radiology Partners to actively deploy iCAD's advanced technology through their cloud to their network of facilities.

The initial order from Radiology Partners recognize in first quarter of this year represents less than 5% and of the total potential from this partnership. It's a long-term relationship that will take time to adopt and rollout across their large enterprise.

And while you've heard us announce in past quarters, winning deals with large enterprise customers like Solus, Radiology Partners, Simonette, Ascension and Cleveland Clinic, who collectively serve about 15% of the US mammography screening market. Great potential lies ahead for iCAD as many of these customers are in the early stages of rolling out our technology and are continuing to expand into more sites in markets each month.

The focus of this phase is to accelerate deployment of our technology across these national and regional accounts as well as re-engage approximately 1,000 of our 4,000 customers who've lapse on their maintenance agreements for who are operating on older software versions.

Moving to Phase two, which is growing channels, both direct and indirect. This phase is focused on accelerating winning new business in both the US and OUS through growing our direct sales force and establishing new distribution partnerships backed by science, clinical evidence and proven patient outcomes are profound breast health suite solutions of cancer detection, density assessment and risk evaluation provide an unmatched approach to accurately detecting more cancers earlier providing certainty in peace of mind, providers and patients.

Our mission is to see that these solutions are deployed universally as part of it standard of care for breast health. In order to achieve our vision of a world where cancer can't hide.

We're pursuing a large addressable markets, where significant patient need exists. Globally, more than 31,000 mammography systems serve approximately 250 million women in the age range recommended for annual mammograms. Yet recent research indicates only 37% mammography sites are currently using artificial intelligence.

In the United States, for example, there are 8,800 certified demography sites of the 37% of sites using AI, we have one-third of that market. Expanding into the 63% of the market that is not using AI plus additional wins in this segment using AI, but not profound results in significant opportunity for new business. We believe US sales have declined due in part to a significant reduction in the sales force that occurred in FY22.

In the US, we currently have six sales reps versus 12 in Q3 of FY22. After a thorough analysis of rep performance over the past three years, we believe adding additional sales reps focused on new business. Given our large addressable market opportunity I just discussed and reps focused on large national accounts like Radiology Partners will lead to revenue growth.

We just to Phase three entering new markets. After measurable progress in Phases one and two will begin Phase three, most likely in FY25. As mentioned on prior earnings calls and as just one example of growth is our work with polysomnography to commercialize our heart health solutions, which was previously referred to as breast arterial classification.

In forth quater 2022, we announced the development and commercial collaboration agreement with Solus. This collaboration is focused on using mammography to define cardiovascular risk, a new application that could identify millions of women at risk for heart disease, using data obtained from the mammogram. With heart disease being the number one killer among women in the US.

This collaboration that only offers the potential to address a significant unmet need in patient care, but also to penetrate a sizable new market. This product is currently available for investigational use only as we go through the FDA approval process many more to come Just to reiterate, once we reach critical mass and Phases one and two that warrant and enable us to expand our focus will update you on our growth initiatives.

Look, now turn to a few breif Q3 highlights. Our sales force continues to secure opportunities with some of the most esteemed and prestigious health care facilities worldwide. Among the new licenses sold last quarter, we also secured our first two customers through our AI platform partner, Firm Health, Sutter Health and Radiology Associates of Albuquerque.

Firm Health is a leading AI platform provider, delivering access to the most innovative and impactful clinical AI technology on a single platform. We expect additional expansion with fairement in Q4 and beyond, with significant near term expansion opportunities within the Sutter Health Systems, which encompasses more than 20 sites.

We also expanded deployment with our key partners Solus mammography, adding two new solar sites in Texas. We expect continued expansion with Solaris across new US markets in Q4 and beyond. As the Solus this model of personalized care continues to expand nationally.

Solus mammography has approximately 115 sites nationwide and to date, we've implemented our solution at 85% of those sites. We also continued expansion within the government sector, adding the procedures Walter Reed, National Naval Medical Center and the VA Medical Center in Birmingham, Alabama. Reinforcing the strategy and near to revenue opportunities in Phase one, expanding into existing accounts

You've heard us announce in past quarters winning deals with large enterprise customers like Solus, Radiology Partners, SimonMed, extension in Cleveland Clinic, who collectively serve about 15% of the US mammography screening market. Great potential lies ahead for iCAD as many of these customers are in the early stages of rolling out the technology and are continuing to expand into more sites in markets each month

During the past quarter, we also achieved several key milestones with our OUS sales channel. Further expanding the growing global reach of iCAD technology. Our direct sales force in France achieved a groundbreaking milestones by finalizing its most significant deal to date, 13 ProFound AI license result to a leading radiology group in Dijon France.

Our OUS team also signed in onboarded to new distributors to oversee operations in the United Arab Emirates and Slovenia, Croatia. Our Benelux distributors not only secured a pivotal deal with Brussels University in Belgium, but also expanded their support to the Luxembourg screening by adding 8 density assessment licenses alongside the existing detection licenses sold in Q2. And several first smart to 3D with the Saudi Arabian distributors completing their first customer sale for ProFound AI 2D, 3D and the first customer site installed occurring in Turkey

And lastly, a preview of our showcase at RS&A 2023, occurring November 25 to 30. At RS&A, iCAD we'll be demonstrating new AI powered innovations in mammography, highlighting new product enhancements, partnerships and workflow solutions featuring our profound Breast Health suite.

We're feature in four clinical abstracts, including presentations from both Dr Axel Gräwingholt of Radiologie am Theater, Paderborn, Germany, and Dr. Michael Eriksson of the Karolinska Institute on new data, highlighting profound risks, short term risk assessment capabilities for evaluating development of breast cancer in the next one to two years.

Including a multinational validation of a clinical image-based, AI risk model for individualizing breast cancer screening. Presentations from both Dr. Sharad Patel of Solis Mammography and Dr. Thu Ha Dao of Henri-Mondor Hospital on the novel application of deep learning AI to detecting quantified breadth, arterial classifications on digital mammography

As I mentioned earlier, this solution is not yet been cleared by the FDA for commercial use. It's being used in investigational mode only at this time and expect clearance in late 2024. And Emily Conant, Professor of Radiology and the Vice Chair of Faculty Development and the Department of Radiology at the University of Pennsylvania, Prelman School and School of Medicine and past president of SDI, will be highlighting new data from iCAD's fourth generation enhancements during the AI showcase theater presentation titled from pixels to practice harnessing innovations in breast AI to improve patient outcomes.

We will also be demonstrating new product enhancements, including our new profound detection version 4.0 and density version 4.1 solutions that streamline workflows provides support for analysis of prior mammograms, identify cancers, even earlier with more accuracy and lead to improved patient outcomes

I continue to be optimistic about the company's prospects with a portfolio of market-leading first encoding technologies. We are addressing significant unmet needs in global health, and I'm confident that we are taking the right steps and we're building the right team to ensure continued growth for the company and create additional shareholder value

In summary, we're taking decisive actions to drive rapid transformation within the company, prioritizing stability, cash preservation and the development of a strong competitive long-term strategy. Our goal is to diversify our revenue stream and reduced customer concentration, ensuring a more sustainable and resilient future

I'll now turn the call over to Eric for a detailed review of our Q3 2023 financials.

Good afternoon, everyone, and thank you, Dana. I'll now summarize our financial results for the third quarter ended September 30, 2023. Please note that these results exclude the divested Xoft segment's. Results relating to Xoft segment are presented in note two of our 10-Q.

Revenue for the quarter was $4.1 million, a decline of $0.3 million or 7% in the third quarter of 2022. Third quarter 2023 product revenue was $2.2 million, down 15% over the prior year. The decline is attributable to a variety of factors, including our transition to subscription, longer purchasing cycles, increased competition and budget constraints. Deduction service revenue was $1.9 million, up 3% over the prior year

Moving on to gross profit. On a percentage of revenue basis, gross profit was 86% for the third quarter of 2023. It was up from 85% the third quarter of 2022. On a pure dollar basis gross profit for the quarter was $3.5 million as compared to $3.7 million last year. Largely reflective of the reduction in revenues.

Total operating expenses for the second quarter of 2023 for $4.7 million, $2 million or 29% decrease year-over-year. This improved run rate reflects the implemented cost-cutting measures previously announced. Operating loss was $1.2 million in the second quarter of September 30, 2023, versus 3 million in the quarter ended September 30, 2022.

GAAP net loss for the third quarter of 2023 was $1.4 million, or $0.05 per diluted share compared with a GAAP net loss of $3.9 million, or $0.15 per diluted share for the third quarter of 2022. Non-GAAP adjusted EBITDA for the third quarter of 2023 was a loss of $1.1 million versus $3.4 million in Q3 2022.

Non-GAAP adjusted net loss for the quarter was $1.4 million, or $0.05 per diluted share compared to $3.9 million or $0.15 per diluted share in Q3 2022, reflecting a few adjustments to GAAP net loss in each period

Moving on to the balance sheet as of September 30, 2023, the company had cash and cash equivalents of $19 million compared to cash and cash equivalents of $21.3 million on December 31, 2022

During the third quarter, the company generated net proceeds of approximately $1.8 million from the issuance of 958,248 shares of common stock in the at-the-market or ATM offerings at a weighted average price of $2.26 per share. In addition, Xoft sale in October 2023 resulted in net cash proceeds of $4.8 million. At the sales off occurred on September 30, 2023, our cash balance would have been $23.8 million.

Accordingly, we have sufficient cash resources to fund our planned operations with no need to raise additional funds.

The steady shift to recurring revenue model from a perpetual model has numerous benefits, including better visibility, more efficient expense management and an improved ability to predict future cash flow. It also has risks including short term, lower GAAP revenue and negative cash flow impact for the next three years As noted in previous earnings announcement, our plan was to bring back the annual recurring revenue ARR metric once it had become a reliable and growing portion of our revenue mix.

In addition to the previously disclosed subscription ARR metric we are introducing three new ARR metrics. Total ARR or TARR, represents the annualized value of subscription license maintenance contracts and active cloud services at the end of a reporting period. Maintenance Services ARR or MARR represents the annualized value of active perpetual license maintenance service contracts at the end of the reporting period.

Subscription ARR or SARR represents the annualized value of active subscription or term licenses at the end of our reporting periods. Cloud ARR or CARR. represents the annualized value of active cloud services contracts at the end of the reporting period.

As of the end of Q3 2023, total ARR or TARR was $8.3 million. Maintenance services they are for MAR was $6.9 million. Subscription ARR for SARR was $1.4 million. Once we release, our commercial cloud platform will begin tracking cloud ARR.

In addition to the recurring revenue metrics noted above, we will begin to disclose the total number of orders relating to perpetual product subscription and cloud deals. The intent of this metric is to illustrate the pure volume of sales, but not the complexity of multiple GAAP revenue streams.

We are pleased to report that in Q3 2023, we closed 60 perpetual and seven subscription orders. This brings our year-to-date total to 193 perpetual and 62 subscription orders This concludes the financial highlights of our presentation. I would now like to turn the call back over to the operator to lead the Q&A

Certainly everyone at this time be conducting a question and answer session.

Per Ostlund, Craig-Hallum Capital Group.

Good afternoon, Dana and Eric. Congratulations, first and foremost, on the Xoft divestiture. It's nice to see a resolution there after the process really didn't start that long ago. So congrats on that. Lot of place and we could go here, I think, obviously, looking at the release and seeing the Xoft businesses now in the discontinued operations, I guess, it does really highlight the margin profile of the standalone detection business

So maybe just a couple of questions around that to start out if, I could the expense structure, looks like it came down by about a third from year over year, the operating expense structure, you've done an admirable job there and spoken at length about that over the last couple, of course, is there more to go there on that front?

And sort of part and parcel with that, do you have a break-even revenue level in mind for the standalone AI business, whether it's on an EBITDA basis or cash flow risks?

Thanks, pair. So I'm going to turn the questions over to Eric, but just wanted to say thanks and thanks for the comments on Xoft. Just maybe one data point there, and we were thrilled that had elected to both the technology and the team came from, there was a great market potential, I think for Xoft technology is just really difficult to do with two very different lines of business kind of ended the same umbrella.

So I am pleased you're already kind of zeroing in on what the detection business looks like standalone. So because that's what we've been focused on and trying to get to on these calls. So with that, I'm going to turn over to Eric and so we can talk about kind of expense structures and where our thoughts are.

Thanks, Dana. I think on Xoft, with the furloughs and then all other things we did in the last three quarters, I don't think there's going to be as much savings next quarter. As you might expect if you're just looking at what we lost in the past historically, resolved and thing is going to come down significantly.

We had we'd pull back on clinical spend and an employee's fell significantly. So there could be some and we did release in our 10-K for the direct Xoft impact. So there was about a $377,000 loss in Q3, So that's called out. So that's what we lost from direct Xoft business. So might pick some of that up going forward I think it will be happy to be much more than that.

So I guess maybe on that points and some since one of the one of the discussion points in the prepared remarks, there is some growth initiatives. So if we look at the third quarter expense structure for again for detection stand alone on how much might actually need to come back now that you've got dissolved proceeds and that transaction is completed and decrease the home surveillance market facility, we feel good about your cash position.

Is there a spend that might need to come back now that you have that singular focus on AI, whether it is, sort of redeveloping the sales force your comments to Dana and how the direct forces is maybe down 50% year-over-year in terms of people, is that something that gets bolster. What else might just be bolstered now that you feel like your levels and are well on initiatives?

So your tracking right along with it. So we are going through an exercise right now to refine actually our budget for FY24 and so that we can get that approved by our Board and at the upcoming December meeting. But there are really two areas that we're looking at for investment. So with that, you know, I spent the money right or have any commitments out there, but it is what we are looking at so that we can determine with ROI would be.

The first one is on the sales team side, so how can we do some restructuring of the current sales team to get them better focused on new business versus ongoing account management . So what I talked a little bit about that, and we believe that we have a significant amount of kind of lapsed revenue, just to have had team members on top of ensuring that account state current on their maintenance support agreements if they had purchased it perpetual license. So kind of getting more of an account management focus to some members of the team and then bringing on some additional team members focused on new business.

And the second area that we're looking at is regulatory. So we're in a fortunate position now of having multiple product that have been developed over the last two years and multiple versions of those products and then the work with Google as well.

So we need to figure out how we can enable our regulatory team to work in parallel to multiple approval processes instead of being very sequential. So that way, we can begin to commercialize solutions in markets faster. So those are the two areas that we're looking at, so I think to your point, you've probably will see a bit of an uptick in spend. But, we're going to continue to be really conservative and cautious to use the phrase not get out in front of our skis in that regard, but there will be a little bit there.

Okay. That's more than reasonable. Actually, I'm going to come back to my first question. Just because the question was lengthy. Now that you have the detection business as really it's the singular focus, and the cost structures mostly I think I said at this point, is there is there a break-even revenue level in mind whether it's on an EBITDA basis or cash flow basis? Or is it too early to say?

I think ,-- all the initiatives in introspection. I mean we could look at the EBITDA that we released for this quarter and minus 1.1% and say if we had a much more sales have been breakeven. But I don't know that the cost structures completely solidified yet because there's lot we're looking at

Okay. That's fair. All right. I will let some other people ask some questions. Thanks

(Operator Instruction) That concludes our Q&A session. I'll now hand the conference back to Dana Brown, President and Chief Executive Officer for closing remarks. Please go ahead

Thank you, operator. In conclusion, we are making bold moves to rapidly transform this company with a focus on maintaining stability, preserving cash and building a defensible and competitive long-term strategy that diversifies our revenue stream and smooths out that customer concentration

Demand for our technology continues to be strong and the evidence supporting it continues to grow, and our team continues to secure opportunities with some of the most prestigious, an esteemed health care facilities worldwide.

I remain optimistic about the company and its future, and I firmly believe in a bright future, the company and our ability to generate significant shareholder value. Thank you and have a great evening

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.