iCAD, Inc. (NASDAQ:ICAD) Q1 2023 Earnings Call Transcript May 15, 2023

iCAD, Inc. misses on earnings expectations. Reported EPS is $-0.14 EPS, expectations were $-0.11.

Operator: Good day, everyone, and welcome to the iCAD, Inc. First Quarter 2023 Earnings Call. At this time all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Linnell Faber. Ma’am, the floor is yours.

Linnell Faber: Thank you, operator. Good afternoon, everyone. Thank you for joining us today for iCAD’s First 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’s 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 and our filings with the U.S. Securities and Exchange Commission.

iCAD undertakes no 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. Management believes that these measures provide meaningful information for investors and reflect the way they view the 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.

Dana Brown: Thank you, Linnell, and good afternoon, everyone. Let’s begin with our business update. As mentioned on our previous call, we are exploring strategic options for the Xoft business that could accelerate the accessibility of this technology and provide more focus and synergies to its growth. While we explore these options, we continue to operate the business and customers worldwide continue to treat patients with this targeted therapy. And while we retain stack to support sales and services, revenue for Q1 was 18% lower than our budget coming in at $1.43 million versus $1.7 million. Sales have slowed as customers and distributors are cautious about the business’ future. To address these concerns, we’ve redeployed some internal resources to better support Xoft sales.

I am pleased to report that the body of evidence supporting Xoft continues to grow. Compelling new research was published last quarter in the peer-reviewed journal of Contemporary Brachytherapy. In the longest-term study of Xoft skin eBx to-date, researchers confirmed Xoft is a safe and effective treatment for non-melanoma skin cancer with 98.9% of patients remaining recurrence-free at a median follow-up of 7.6 years. This study adds to the body of clinical evidence that puts Xoft skin eBx on par with Mohs surgery in terms of safety, efficacy and reoccurrence rates, but with fewer side effects and more comfort and convenience for patients. We remain confident that the Xoft technology has the potential to positively impact the lives of cancer patients and the providers who care for them on a global scale.

We’ll provide further updates on its strategic options at the appropriate point in time. Turning to the detection side of our business, as mentioned on our prior earnings call, while both the therapy and detection lines of business have great market opportunity and potential, we believe our core competencies and focus need to be solely on detection and our strategy around AI. But before we go into Q1 results, I want to take just a moment to speak to this week’s news. I’m sure many of you saw the U.S. Preventive Services Task Force announcement from earlier this week. They’ve published new draft mammography guidelines, which recommend women of average risk begin screening mammography at age 40. With 20 million women in the U.S. between the ages of 40 to 49, these recommendations offer the potential for our technology to benefit more women and improve providers’ ability to meet the increased demand for these services.

However, although mammography is the gold standard for breast cancer screening, it can still miss about 20% of breast cancers present at the time of screening. Mammography also cannot determine a women’s risk of cancer developing in the short or the long-term, and the new guidelines do not specify how a woman would know if she’s of average risk. Our breast AI suite comprised of detection, density and risk, maximizes the effectiveness of mammography. Our detection solution delivers up to two times the clinical performance compared to leading competitors and is clinically proven to improve accuracy and efficiency for radiologists. In a recent study, our detection solution was shown to catch up to 23% more cancers that might have otherwise gone undetected.

Our density solution not only meets the needs recently outlined by the FDA, but it has long been used worldwide to enhance patient care and personalized results. And our risk solution is up to 2.4 times more accurate than traditional risk models. Our leading-edge AI portfolio is the only commercially available 360-degree solution clinically proven to assist clinicians in daily practice to detect more cancers, evaluate breast density and identify women at high risk of developing breast cancer. And with the recent U.S. Preventive Services Task Force guidelines, it’s clear that our technology is more relevant than ever. So back to our Q1 updates. First of note, we strengthened our leadership team with seasoned leaders poised to execute our strategic vision and grow our business.

In Q1 of this year, we brought on Bill Keyes as Senior Vice President, U.S. Commercial Sales. As a seasoned leader with more than 35 years of healthcare technology experience, Bill brings to the team a consistent track record in building and leading sales teams, driving growth via enterprise sales and expertise in Software-as-a-Service. We also recently welcomed to the team Vasu Avadhanula as our new Chief Product Officer. I’ve worked with Vasu over the past several years and can attest that he is an outstanding leader with 25 years of product development, business analytics and technology innovation experience. Vasu most recently served as Vice President, Health Technology and Digital Transformation at Susan G. Komen. Vasu has a track record of turning new ideas into successful products that disrupt the status quo and enhance the customer experience.

In his last role at Susan G. Komen, Vasu was instrumental in the success of Komen’s direct-to-patient programs and services, including the development and launch of Komen Health Cloud, a Software-as-a-Service patient engagement platform as well as share procurers, the first patient-powered breast cancer research registry. I’m pleased to welcome him to our team and look forward to incorporating his unique perspective into our future roadmap. Continuing to strengthen our leadership team, we also recently welcomed Michelle Strong as our new Chief Operations Officer with more than 25 years of experience in marketing and healthcare technology, most recently serving as Vice President of Marketing Strategy at Susan G. Komen. Michelle is a seasoned leader who excels as strategically building and growing organizations, tackling challenging initiatives and developing strategic partnerships.

She specializes in the implementation of new business strategies that broaden awareness, bolster brand equity and drive revenue growth. Under Michelle’s leadership, Komen’s brand health experienced significant improvements year-over-year, resulting in increased revenues and stakeholder engagement to advance its mission to save lives from breast cancer. I’m pleased to welcome her to the team and confident that her unique set of skills and expertise will be instrumental in our go-to-market success. Additionally, I’m pleased to report that we’ve completed our search for a full time CFO as the Board of Directors appointed Eric Lonnqvist as our new Chief Financial Officer. Eric has demonstrated strong financial acumen and a commitment to excellence in his most recent position as iCAD’s Vice President of Financial Planning and Analysis.

Eric has been with iCAD for over three years, and during that time, been a strong and stable leader through leadership and market changes. Eric’s leadership style, combined with a strong financial and business acumen will be instrumental in leading the financial operations of the company. Eric has more than 15 years of finance and accounting experience in the medical device and technology industries, and you will hear more through Eric later on this call. The addition of these seasoned executives will accelerate key initiatives in the company’s strategic plans, such as new partnerships with patient advocacy groups, pharmaceutical companies and payer organizations. With these important changes to our leadership team, we’re confident we have the right people in the right roles at the right time to help us achieve our vision of offering the most pervasive and personalized breast screening AI technology.

And while we work on these exciting transformations as a company, compelling new research continues to validate the benefits our breast AI portfolio offers to clinicians and patients. In March, at the European Congress of Radiology Meeting, commonly referred to as ECR, we were pleased to again see physicians share their real-world clinical experience and evidence that iCAD’s breast AI suite has a positive impact on cancer detection and women’s lives. In the research presentation session at the meeting, Dr. Kathy Schilling, the Medical Director of the Christine E. Lynn Women’s Health & Wellness Institute at Boca Raton Regional Hospital presented findings from a study that found our profound AI detection solution increased the cancer detection rate among nine dedicated breast imaging radiologists by 23% without increasing the rate of recalls.

This improvement was so significant the media took note. Both Fox and CBS covered the study in nationally syndicated segments featuring iCAD and Dr. Schilling. Dr. Schilling will be sharing more about this research along with our clinical experience, best practices and compelling case studies demonstrating the unique benefits our technology offers and our upcoming ProFound Insights, ProFound Impact Webinar on May 24. We invite all of you to join us for this webinar. New clinical evidence supporting ProFound AI risk was also published in the Journal of Clinical Oncology last quarter. According to the study findings, ProFound AI risk for 2D mammography is more accurate than Tyrer-Cuzick Version 8, a commonly used lifestyle risk model. And of note, our ProFound AI risk was found to be more accurate for both short-term and long-term risk assessments.

Physicians have traditionally estimated breast cancer risk by examining the patient’s known risk factors such as family history. But about 85% of breast cancers are current women who have no family history of breast cancer. Our risk solution accurately identified 20% of breast cancers as high risk compared to only 7.1% for Tyrer-Cuzick. With iCAD’s risk solution, patient care has never been more personalized. By empowering radiologists with more information about a woman’s specific risk, they can tailor breast cancer screening and maximize mammographies effectiveness, which ultimately leads to finding cancer sooner, reducing cost to the overall healthcare system and most importantly, saving lives. Also in the first quarter, the FDA announced the implementation of a national dense breast reporting standard, which is a significant advancement in healthcare for women as nearly 50% of all women aged 40 and over have dense breasts, one of the strongest and most prevalent breast cancer risk factors.

However, dense breast notifications are only as effective as the assessment themselves. As studies show wide variation in visual assessment agreement, and radiologists may even disagree with their own assessment year-to-year. This can be confusing for patients, lead to unnecessary additional imaging and increase patient and facility costs. ICAD’s breast AI suite empowers clinicians to lead the way in breast care. And our customers using our density assessment solutions are well equipped to provide accurate breast density assessments, and we expect more facilities to demand this technology as they work to bring care standards in line with new federal regulations. Turning now to our operations outside of the U.S., as I just mentioned, Q1 was marked by a very well-attended ECR meeting in Vienna.

We connected many of our distributors with potential customers from all over the world. We also hosted a special evening event featuring talks from renowned leaders in breast imaging AI, including Dr. Kathy Schilling and Dr. Axel Grawingholt, who shared compelling testimonies and clinical case studies demonstrating the power of our technology to an audience of more than 100 radiologists. Also, our team was pleased to partner with GE in a workshop for radiologists. On the sales side, iCAD will be expanding into one of the largest screening regions in German-speaking Switzerland. This will be the first screening program that will use ProFound AI detection and ProFound AI risk in their review process. With the expansion of our distribution territories, iCAD’s visibility continues to grow on a global scale.

Our regional partners are bringing in larger and more significant opportunities, and we’re seeing a significant uptake in demand for our subscription offering in Europe, where this is quickly becoming the preferred purchasing model. And lastly, before we move to the financial update, I also want to provide you a brief update on our business model transition. As noted on our last call, we implemented several strategic changes, including continued cost reduction measures to align and streamline our cost base, reducing annualized expenses by $4.3 million to $4.6 million and annualized cash burn by $4.9 million to $5.2 million, putting us on track to achieve our goal of profitability exiting 2024. We also noted on our last earnings call, we will revisit our subscription annual recurring revenue, or S-ARR metric when subscription deals make up a more material and consistent portion of our revenue.

Along these lines, we’re pleased to report that we closed nine subscription deals in Q1. While we believe the move to a subscription-based license model is good for our long-term future as it builds a more predictable and profitable revenue stream, it does create a short-term impact on revenue, because we’re only able to recognize a small portion of total revenue spread across the contract term. I also mentioned on the last call and earlier today that we’re going through a rigorous and thoughtful process to evaluate a range of growth opportunities. To recap, these include going direct to patients with offerings like a new GPT-powered digital care platform, access to elective risk assessment and other personalized predictive scoring solutions, pursuing payer and reimbursement strategies to get risk assessments and AI red screenings covered.

Partnering with large employers with women’s health initiatives to provide AI-powered mobile screening services on campus, supporting patient advocacy organizations on the front lines of tackling health disparities and utilizing aid programs to help all women get access to the breast healthcare they need and expanding our cloud-based AI platform to address other cancers and modalities. In summary, we’re making bold moves to rapidly transform this company with a focus on stability, preserving cash and building a defensible and competitive long-term strategy that diversifies our revenue stream and smooth out our customer concentration. We look forward to continuing to update you on the metrics and milestones of the strategy later this year. I’ll now turn the call over to Eric for a detailed review of our Q1, 2023 financials.

Eric Lonnqvist: Good afternoon, everyone, and thank you, Dana. I’ll now summarize our financial results for the first quarter ended March 31, 2023. Total revenue for the quarter was $5.8 million, a decline of $1.7 million or 23% from the first quarter of 2022. The Detection segment revenue was $4.3 million, down 21% from last year. Within detection, first quarter 2023 product revenue was $2.5 million, down 36% over the prior year. A portion of the decline is attributable to a greater number of subscription deals for the quarter over the prior year. Detection service revenue was $1.9 million, up 13% over the prior year. From a regional standpoint, Detection segment revenue for U.S. was $3.7 million, a decline of 19% from the first quarter of 2022.

The Detection segment revenue for OUS was $0.6 million, a decline of 35% from the first quarter of 2022. The Therapy segment revenue was $1.4 million, down $0.6 million or 28% versus the first quarter of 2022. Therapy product revenue was $0.3 million, down 59% year-over-year. Services revenue was $1.2 million, down 11% year-over-year. Moving on to gross profit, on a percentage of revenue basis, gross profit was 71% for the first quarter of 2023, which was in line with the first quarter of 2022. On a pure dollar basis, gross profit for the quarter was $4.1 million as compared to $5.3 million last year. This is largely reflective of a reduction in revenues. Total operating expenses for the first quarter – ended March 31, 2023, versus $3.5 million in the quarter ended March 31, 2022.

GAAP net loss for the first quarter of 2023 was $3.8 million or $0.15 per diluted share compared with a GAAP net loss of $3.5 million or $0.14 per diluted share for the first quarter of 2022. Non-GAAP adjusted EBITDA for the first quarter of 2023 was a loss of $3 million versus $2.7 million in Q1, 2022. Non-GAAP adjusted net loss for the quarter was $3.6 million or $0.14 per diluted share compared to $3.5 million or $0.14 per diluted share in Q1 of 2022, reflecting a few adjustments to GAAP net loss in each period. Moving on to the balance sheet as of March 31, 2023, the company had cash and cash equivalents of $19.6 million compared to cash and cash equivalents of $29.8 million on March 31, 2022. This concludes the financial highlights of our presentation.

I’d like to now turn the call back over to the operator to lead the Q&A.

Q&A Session

Operator: Certainly. [Operator Instructions] Your first question is coming from Per Ostlund from Craig Hallum. Your line is live

Operator: Thank you. Your next question is coming from Marie Thibault from BTIG. Your line is live.

Operator: Thank you. Your next question is coming from Yale Jen from Laidlaw & Company. Your line is live.

Operator: Thank you. Your next question is coming from Frank Takkinen from Lake Street Capital Markets. Your line is live.

Operator: Thank you. Your next question is coming from Franc Brisebois from Oppenheimer. Your line is live.

Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to Dana Brown for closing remarks. Please go ahead.

Dana Brown: Thank you, operator. In conclusion, we’re making bold moves to rapidly transform this company with a focus on stability, preserving cash and building a defensible and competitive long-term strategy that diversifies our revenue stream and smooth out our customer concentration. Demand for our technology continues to be strong. The evidence supporting it continues to grow, and we’re continuing to strengthen our team. I remain optimistic about the company and its future, and I’m confident we’re taking the right steps to ensure continued growth and create additional shareholder value. I look forward to updating you next quarter as we continue to get clarity on our strategy, expand our partnerships and drive towards increased shareholder value. Thank you, and have a great evening.

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