icad inc.

Greetings. Welcome to ICAT Incorporated fourth quarter and full year 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now turn the call over to your host, Jeremy Fedber. You may begin.

Thank you, Stacey, and good afternoon, everyone. 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 12 months ended December 31st, 2020. Before we begin, I would like to caution the comments made during this conference call by management contain forward-looking statements, involve risks and uncertainties regarding the operations and future results of ICAD. I would also note that management may refer to 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 at the end of 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 actual results or events to differ materially from those described in the phone 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, February 24th, 2021. ICAD undertakes no obligation to revise or update any statements to reflect events or in 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'd like to begin by highlighting a few financial highlights with a particular focus on ICAD's top-line revenue momentum. ICAD's fourth quarter total revenue of $10.5 million represents a 47% sequential growth over third quarter. We are pleased to report that revenue growth as our flagship high margin profound AI offering grew by 70% over our third quarter revenues. To further punctuate the performance of profound AI in the U.S., our most profitable market, total sales of AI and services collectively grew on a sequential quarterly basis by an even greater amount, 72%, from Q3 to Q4. It is also noteworthy that this substantial quarterly growth also represents a 21% increase in detection product revenue over the fourth quarter of 2019, which was the prior high watermark for profound AI sales. In our detection business, we recently achieved a critical milestone, the installation of Profound AI system since our product launch in early 2019. We believe it is particularly noteworthy that nearly 40% of these 1,000 installs have been installed during the course of this pandemic. We see ourselves currently in an enhanced position to offer a steady flow of new AI offerings, product offerings that we anticipate bringing to market with an accelerating cadence. ICAD's newest offering, Profound AI for Risk Assessment, is a product that looks into the future and provides unique and personalized probability score for potential future breast cancers. Profound risk assessment can find cancers that are not visible or discernible today, yet may still exist in a sub-visual range. Our cutting-edge AI risk algorithm can see these cancers two years before they enter a physician's visual field, and in doing so, provides a unique future risk score for breast patient's examination in the future. With our new risk product, this would be in addition, which would be in addition to a score for breast cancer today, we result, we wind up with two products, two scores versus one today, one for the future and one that examines risk today. I'm sorry, that examines detection today. We now have a total of 7,500 2D and 3D installations. We see this along with our unique ability to integrate with all mammographic systems, workstations, and PACS providers as a significant barrier to entry. As I've said in the past, there are over 1,800 different combinations of technology when all put together that we've had to solve over many years to be able to apply our solutions into the market. In addition, in the area of risk assessment, we believe that we are years ahead of foreseeable competition. Our risk assessment software took eight years of intense effort and literally hundreds of thousands of images. Its launch into the U.S. and OUS breast cancer screening market could not have occurred at a more opportune moment. We are now well positioned with a novel product offering optimally suited for a pandemic where it can assist with the scheduling and prioritizing of patient screening for breast cancer. Now, moving in parallel, With the growth of our AI offering, we also experienced significant quarterly growth in our therapy business, with ZOFT new product sales and installations in Q4 2020. ZOFT new equipment revenues and the installations of new systems at sites are lead indicators for following recurring revenue sales. Post-install sales tied to procedure volume represent the majority of ZOFT's quarterly sales volume. Recurring disposable sales and X-ray source usage volume also have a significantly better profit margin and profile than the initial equipment sale. We deploy a classic razor, razor blade model, EDSA. While as a total business, ICAD achieved the above mentioned sequential revenue growth of 47% Q4 over Q3, ICAD also grew 11% over Q4 2020. Simultaneous with this, we decreased our operating expenses in Q4 by 3% from prior year Q4. Thus, we have realized both leverage and a surge in productivity while our development teams have achieved growth of products and release of products at an accelerated pace. Sales growth combined with cost controls and the above productivity gains allowed us to reduce ICAD's pre-tax loss to 1.5 million in Q4, 16% lower than Q3 losses and 50% lower than Q4 2019. We also ended the year with cash and cash equivalents of 27.2 million. These numbers are the result of a very deliberate effort and planned trajectory to achieve positive cash flow and EBITDA in our core detection and therapy businesses. It is also worth noting that we are achieving a goal that I'd like to refer to as frictionless procurement. This is a dynamic where sites can access ICAD technology by their choice of either an OEM mammographic system, their local distributor, mostly OUS, through PACS providers, or through our own direct sales force. In addition, we have also introduced what I'll refer to as frictionless pricing. This will increasingly characterize our go-to-market approach. as customers are now able to purchase via, one, upfront licenses with recurring annual service fees, or two, monthly subscription pricing, or three, purchasing on a SAS basis, which is fundamentally a payment for each patient analyzed. We are excited about the continuing emergence of subscription and SAS pricing. Though still in the nascent yet growing stage of adoption, profound AI systems secured through these vehicles will increasingly generate recurring and predictable revenues. Revenues that will move our already high margin products to an even more attractive level. We anticipate that over time, predictable recurring revenues will also mitigate seasonal fluctuations as screening procedures flow more evenly than healthcare procurement cycles. As we reflect on 2020, we effectively lost a full quarter of selling. Even when customer doors were open, we experienced distracted clinical and administrative decision-making. It took almost four and a half months until midsummer before sites returned to full screening with 100% of sites open. Active screening has sustained throughout the fall and winter months and now well into 2021. As you may recall, Q3 detection AI product sales grew 44%, over Q2, and as stated above, Q4 detection product sales grew sequentially 70% over Q3. With this as an overview of our recent performance and sales momentum, let me provide some brief commentary about our new risk assessment offering. ICAD's new profound AI risk offering is now available for the large 2D mammography market. As we've said in earlier calls, in many parts of the world, the 2D market is larger than the 3D market. In the coming months, our risk offering will be available for 3D mammography systems as well. This means that we will shortly have not one, but two breakthrough and novel first mover AI offerings for both 2D and 3D mammography. Both will be offered in the U.S. and OUS, and both will be sold through all channels and utilize the aforementioned range of pricing vehicles. Through the use of frictionless customer purchasing, we are increasingly using the best demonstrated practices of leading software companies, practices that have successfully been pioneered to achieve dramatic growth and value creation. With that, let me highlight two large deals we closed in Q4, Solus Mammography and Wake Radiology. Our five-year deal with Solus represents the single largest deal in ICATS history. It includes both profound AI for detection and profound AI for risk assessment, and it covers 160 mammography systems. SOLUS operates in more than 80 branded centers in 11 states, as well as seven offices in the D.C. capital vicinity. Further, SOLUS has stated its intention to triple its installations and market size and reach over the course of this agreement. SOLUS is uniquely skilled at raising patient awareness of their unique mammographic capabilities. This approach attracts and increases patient flow in their AD-served markets. We see this agreement accelerating the adoption of profound AI by other screening centers adopting within these AD catchment areas. It is our belief that a deal of this magnitude with a clear industry leader validates ICAD's drug-based clinical utility workflow capability, and economic value proposition. The fact that SOLUS was a flagship site for Holivic's 3D mammography system now vastly expands ICAT's footprint as a provider of AI for all mammography vendors and healthcare systems. Now, our agreement with Wake Radiology, North Carolina, is the largest provider of 3D mammographic services in North Carolina, and it covers 22 systems in many new and important markets. It is another example of the cascading impact of Profound in essential markets and key cash flow areas and where we see the adoption at one notable site influencing or prompting the sale and adoption in other sites or at other sites in local markets. Wake's use of Profound detection AI provides them with a significant differentiator against market competitors. They highlight a profound AI in their own self-generated media campaign and press release once about a month ago. This is yet another Hologic mammography site and further expands our well-balanced sales reach across all available mammography systems. Finally, I'd like to review some developments in intraoperative radiation therapy, or IORT, related to the treatment of glioblastomas on a recurrent basis, also referred to as GBM. As we've discussed, At our well-attended innovation day in the fourth quarter and at our last earnings call, the updated data on glioblastoma showed continued and, in fact, rather dramatic improvement compared to the control group. In the endpoint areas of overall cancer survival, as well as progression-free survival time, dramatic results were seen. Our new study is now enrolling and is designed to further validate these outcomes at prestigious sites in both the U.S. and in Europe. Dr. Santosh Kesari, a nationally prominent neuro-oncologist at the John Wayne Cancer Center, will serve as the principal investigator of our trial, and in the trials off the IORT will be used to treat our current GBMs following surgical excision of the malignancy. It will be compared to the current radiation therapy standard of care, and the trial is now underway, and sites are now recruiting for our patients. The trial design and details can be found at clinicaltrials.gov. The primary outcome of this 80 to 100 patient trial will be an assessment of overall patient survival. The secondary endpoints will be to assess the pattern of disease progression, potential adverse events, and quality of life. This is not an overly long or expensive trial since most sites already have access to ZOFT FDA cleared technology. We anticipate the first patient treatments in the weeks ahead. We also anticipate that preliminary data will be submitted for presentation By the end of this year, 2021, ZOFT therapy can be delivered real-time at the same time as the surgery and offers an important advantage, especially during COVID. Other forms of radiation therapy typically require the need to wait four to five weeks post-surgery before commencing treatment. ZOFT offers real-time on-demand treatment for a disease that typically grows as rapidly as 1% per day. our technology offers a unique clinical advantage and a chance to impact the disease progression that typically moves quickly and do so at a significant and earlier stage. So in summary, we now see ourselves operating with high momentum in a vastly improved clinical and economic environment in spite of COVID-19 and perhaps in some ways because of it, we are making significant progress and making important leaps forward throughout our business. Both our detection and therapy segments are at a clear and palpable inflection point. With continued growth rates anticipated, we have an increasingly strong balance sheet and will continue our steady march towards positive EBITDA and cash flow. And with that, I'd like to turn the call over to our Chief Financial Officer, Scott Araglato. Scott?