icad inc.

Greetings and welcome to the ICAT Incorporated Third Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, November 5, 2020. I will now turn the conference over to Jeremy Pfeffer. Please go ahead.

Thank you, Mike, and good afternoon, everyone, and thank you for participating in today's call. Joining me from ICAD are Michael Klein, Chairman and Chief Executive Officer, Stacey Stevens, President, and Scott Ariglato, Chief Financial Officer. Earlier this afternoon, ICAD announced financial results for the three and nine months ended September 30, 2020. Before we begin, I would like to caution the comments made during this conference called by management contain forward-looking statements and involve our expertise regarding the operations and future results of ICAD. I would also like to note that there are certain non-GAAP financial measures management believes that these measures provide meaningful information for investors and reflects the way that they view the operating performance of the company. You can find a reconciliation of our GAAP to non-GAAP measures in this earnings release. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, Forms 10Q and 10K, which identify specific risk factors that may cause the actual results or events to differ materially from those described in the forward-looking statement. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 5, 2020. 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. I would like to focus my comments today on four key areas. Number one is the sales momentum we are experiencing in our business. Number two, the launch of our innovative risk assessment software, which is the only breast cancer imaging product in the market offering a near-term two-year risk assessment score, a score that indicates the future likelihood of disease. And number three, our recent distribution agreement with Change Healthcare, which opens up an expansive new sales channel of enterprise-oriented integrated delivery networks. These are clusters of strategically important clinical sites, often with one or more major academic medical center at the core. And number four, further acceleration of ZOFT IORT offering for brain cancer, which is now rapidly moving into multi-site, multi-national trial that will further validate ZOFT technology, all while simultaneously illuminating the often overlooked fact that ZOFT is already regulatory cleared and commercially available. I'd like to start highlighting a few financials, which will also address the first point above, specifically that of ICANN's sales momentum. ICANN's third quarter total revenue of $7.1 million represents a 28% growth over our second quarter. We are pleased to report that the revenue growth for our flagship high margin profound AI technology grew 44% over our Q2 2020 revenue. In our detection business, we anticipate hitting an emblematic milestone in the coming months. This is the upcoming 1,000th installation of Profound AI since our first install in early 2019. Over one third of these installations will have occurred during the course of this pandemic. This makes us especially proud to rapidly approach this milestone. We also anticipate the launch of our next generation Profound AI offering in the first half of 2021. All that we have learned along with a trove of imaging data that we've gathered since our launch of Profound AI will soon manifest in an even more intelligent Profound AI 2021 release in the first half of next year. We believe that this next generation release of Profound AI will continue to drive broader market adoption and expand our first mover advantage via unparalleled AI performance and what customers will see as a steady cadence of ever-improving AI offerings. Our value proposition is highly extensible, as there are few, if any, technologies that get better with use. We also anticipate deeper penetration into accounts as we begin to upgrade and expand our substantial install base with next generation AI technology. While our growth of AI offering and offerings is the core value driver for ICANN, we also had significant growth in our therapy business. Q3 product sales increased 250% compared to Q2 product sales. Though on a small base of Q2 revenues, We are pleased with the robust growth of Zost Capital Equipment. Zost product sales in Q3 also increased 59% over Q3 of 2019. It is worth noting that in Q3, total international sales represented 25% of ICAD revenues. In addition, Q3 2020 OUS revenues grew 80% over Q2 and actually grew 100%. over Q3 2019. Our investments in targeted international commercial initiatives and the expansion of our distribution network is beginning to pay dividends. Our growing OUS business, along with our multiple sales channels and a broad geographic go-to-market strategy, allows ICAT to have a balanced sales growth portfolio. We can now sell in over 25 countries. We believe this helps us mitigate single market challenges and provides a level of insulation should a single geographic area have a brief period of disruption. Now, while we achieved the mentioned 28% ICAD revenue growth in Q3, we simultaneously maintained the 21% operating expense reduction we achieved in the first half of this year. We were very diligent in maintaining our operating expenses at $6.7 million in Q3, the same level of expense we had in Q2. We therefore generated clear leverage in Q3 by growing our top line $1.5 million over Q2 with no corresponding increase in expenses. We are pleased that we achieved 44% growth in our profound AI product while keeping our expenses flat. This was a total company effort and an indication of rising to the occasion. Sales growth combined with cost control as well as productivity gains allowed us to significantly reduce ICAD's pre-tax loss to $1.8 million in Q3. We also maintained cash at just over $22.5 million. These numbers are part of a very deliberative plan and trajectory to achieve positive cash flow in EBITDA in our core detection and therapy businesses. For those who have asked about current market dynamics, particularly with this pandemic still with us, we continue to see fully open mammography screening sites, many with expanded hours and weekend time slots. Sites are now quite efficient at safely screening and scheduling properly spaced patients. The clinical community, as well as patients, are increasingly aware of the risk of delaying screening mammograms. With over 280,000 cancers detected in the U.S. each year and more than 1 million worldwide every year, breast cancer represents its own form of a pandemic. It's one that we've had every year for generations. It is well known that screening delays result in more serious, later-stage cancers. Clinicians, hospitals, industry, advocacy groups, and yes, even payers are all aligned in collaborative efforts to ensure that regularly scheduled screening mammograms continue and are performed with proper cadence. With that, let me move on to point number two mentioned above. This is the recent launch of our new risk assessment offering for mammography. Now, let me clarify that our profound risk product is not the same as our current profound AI offering. The current profound AI technology focuses on identifying cancers that may be detectable today. Profound risk focuses on tomorrow's possible cancers. Specifically, our risk product focuses on features that are suggestive of potential cancers that may emerge 24 months from now. Profound Risk provides a novel, one-of-a-kind risk assessment capability for clinicians and patients. It provides a personalized near-term risk score, again, looking forward 24 months. Current models are less precise and focus on either lifetime risk or five- and ten-year risk. Profound Risk is the productized outcome of an eight-year collaborative journey during which Hundreds of thousands of images were collected, and it is the result of intense efforts working with researchers at the prestigious Karolinska Institute. We believe that the fruits of this effort in many ways will define the future of risk-adaptive breast cancer screening. Let me offer one illustration of the potential value of profound risk. Through years of studying hundreds of thousands of images, we clearly observed that 9% of women have exceedingly high profound risk scores. Patients falling into this portion of the risk spectrum have an eight times greater likelihood of presenting with breast cancer in the next 24 months when compared to women who are in a general risk category. This same woman using today's advanced 3D chomosynthesis imaging supported by AI for detection may actually have an undetectable or sub-visual cancer as of right now. Radiologists supported with the world's best tools may detect no sign of cancer today, even though 9% of the 40 million women screened in any one year may have an 800% greater cancer detection risk two years from now. Now, simple math suggests a hidden impact of up to 3.6 million women each year in the U.S. alone, four times that worldwide. Now this, in our view, is truly a hidden pandemic. This data was presented at our recent Innovation Day and was published in a peer-reviewed radiology journal called Radiology just three months ago. The radiology publication, press release, and summary of findings can all be found on ICANN's website. Profound AI risk has now been introduced on a preliminary basis in both the U.S. and OUS markets. We will introduce profound AI risk for 3D mammography in the next several months in early 2021. With profound risk, we are introducing an entirely new category of breast screening care. One that may not be even on the radar screen of others operating in the breast cancer imaging area. Now, I want to be clear that we are being very thoughtful about the introduction of profound risk technology. We are following the rule that with powerful information comes a great sense of responsibility. So as such, we are actively collaborating with a broad array of top imaging professionals on how best to position and optimally deploy this AI technology. ICAD has a risk advisory board which is comprised of world-renowned academicians and clinicians from several, actually multiple, well-known sites. We are launching a product with a very high level of clinical engagement and involvement. We are launching profound risk with a very methodical and properly paced introduction. We believe this will lead to more robust adoption as we progress through 2021 and, of course, beyond. The third point mentioned above is our new agreement with Change Healthcare. and are now expanding focus on enterprise-level customers. When Change Healthcare spun out of McKesson in March of this year, they rapidly evolved from a packed vendor to a broad-based productivity and workflow solutions partner, offering decision support capabilities across broad networks of healthcare sites. Their value proposition has significant appeal. to large and sophisticated hospitals, particularly those that operate within integrated delivery networks or IDNs. These IDNs will now represent a larger portion of ICAD's go-to-market strategy. In partnering with Change Healthcare, we've opened up a new market and a new sales channel. And with this agreement, we effectively expand our commercial capability and will collaborate with multiple new sales specialists, who along with us will serve as the vanguard for an emerging pay-per-patient revenue model. And finally, to touch on point number four, my last point, I'd like to review some of the developments in intraoperative radiation therapy, or what we call IORT. Our key initiative here involves the treatment of recurrent glial blastomas, referred to as GDMs, and as we discussed at last month's well-attended Innovation Day, the updated data on glioblastoma showed significant improvement in overall survival and, as important, progression-free survival in patients with recurrent glioblastoma. Patients treated with Zost-IRT only in this trial, after they received a surgical rescission, dramatically had higher overall survival numbers and months of progression-free survival in comparison to patients who were treated with external beam radiation therapy, which was then combined with other systemic therapies, all after surgical rescission. The published data on the use of ZOF 10 to 12 minutes of radiation applied during surgery has caught the attention of physicians at luminary sites in both the U.S. and Europe and other parts of the world. It has earned us a seat at the table, which has taken the form of an international glioblastoma expert panel consisting of over 18 highly esteemed physicians represented by top neuro-oncologists, radiation oncologists, and neurosurgeons. The objective of this panel is to build consensus on our clinical trial design, the inclusion criteria, and the endpoints. The goal is to further validate Zost's glioblastoma capabilities and build upon the results of our ongoing study at the European Medical Center. First patient treatments for this multi-site international study will commence within the coming months. The study will enroll between 80 and 100 patients. over an approximate two-year time period. Progression-free survival will be one of the efficacy-based endpoints. It is a very meaningful endpoint that will prominently and regularly be reported on during the course of the next 24 months. We anticipate being able to potentially see initial data on disease-free progression, perhaps as early as mid-2021. Our efforts in glioblastoma are being led by Dr. Santosh Kesari, a world-renowned neuro-oncologist at the John Wayne Cancer Center. Now, I had the pleasure of conducting an interview with Dr. Kesari as part of our online innovation day in late October. You'll find the full interview replayed of Dr. Kesari describing the details of our study and the promises offered GBM on our website, and again, look for the Innovation Day video on our investor tab. So in summary, despite an evolving clinical operating involvement as we navigate our way through COVID, we have made significant progress on key themes, ones that I've mentioned above. And to briefly sum it up, one, we see significant revenue growth over Q2 across ICAD, and particularly in our high margin profound AI product offering, which grew 44%. Number two, profound risk for 2D and 3D introduces a new product category, a true game changer in breast cancer screening. In this area, we can clearly see that there are indeed few runners on the extra mile. And three, Our partnership agreement with Change Healthcare opens up a new sales channel, one potentially rich with opportunity from enterprise and integrated delivery networks. And finally, four, we are now on the verge of commencing an international clinical study for the treatment of glioblastoma with near-term deliverables that will likely be observable in mid-2021. We believe ICAT is well-positioned for sustainable success. We have significant growth catalysts in both detection and therapy businesses. We are confident that we have the right plans in place to execute on these opportunities. We are driven simply by a very key metric that we always keep top of mind. This is return on invested capital, ROIC, and anticipate continued positive movement towards our stated EBITDA and cash flow goals. Our strong cash position enables us to carry forth on the above stated objectives with an appropriate cadence. I'd now like to turn the call over to Scott Araglato. Scott?