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spk01: Thank you for standing by. This is the conference operator. Welcome to the ICAD, Inc. Third Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Brian Ritchie from LifeSci Advisors. Please go ahead.
spk09: Thank you, operator, and good afternoon, everyone. Joining us today from ICAT are Michael Klein, Chairman and Chief Executive Officer, Stacey Stevens, President, and Charles Carter, Chief Financial Officer. Earlier this afternoon, ICAD announced financial results for the three and nine months ended September 30th, 2021 in a press release, which is also available on the ICAD website. Before we begin, I would like to caution that comments made during this conference call by management contained forward-looking statements, involved 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 reflect the way they view the operating performance of the company. You can find a reconciliation of our gap to non-gap measures at the end of the earnings release. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, reforms 10Q and 10K, which are 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 9, 2021. ICANN 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, please go ahead.
spk08: Thank you, Brian. Good afternoon, and thank you for joining us on our third quarter update call today. I'd like to begin with some high-level comments on our performance and achievements in the third quarter and provide an update on the current business and operating environment as we enter into the fourth quarter of the year. I will then pass the call over to Charlie, who will provide a detailed financial review, which will be followed by Stacey's more granular business update. As presented in our earnings release, ICAD's total revenue for the third quarter was 9.4 million, which represented a 20% increase sequentially and a 31% increase over the third quarter of 2020. Third quarter 2021 revenue was driven by sequential and year-over-year growth in both detection and therapy. In detection, we achieved growth of 26% over the second quarter of 2021 and 14% year-over-year. In therapy, we generated an increase in revenues of 10% as compared to the second quarter of this year and 83% year-over-year growth. In the third quarter, detection product sales were driven by sequential and year-over-year increases of 41 percent and 15 percent, respectively, and U.S. product AI detection revenue growth of 56 percent over Q2. Importantly, we expect this sales momentum to continue with the recent commercial launch of our new 3D risk assessment offering, which Stacey will highlight further shortly. Overall, despite the continued impact from a slightly elongated sales cycle, which we saw emerge in Q2, we saw a recovery in detection sales momentum in Q3. We did see modest headwinds in the OEM portion of our detection business as a supply chain issue for the underlying hardware manufacturers impacted the OEM mammography vendor shipments of previously ordered imaging equipment. This had a modest tempering effect on our AI product sales in Q3. The growth in our therapy business during the third quarter was driven by sequential and year-over-year increases in Zoth product revenues of 34% and 188% respectively, another key indicator of the strength in our business. The significant growth in therapy was the result of several factors, including the sale of 28 ZOFT controllers year-to-date, the majority of which were due to the continued surge in dermatology controller installations, which are being propelled by the emergence of positive shifts in reimbursement, payer coverage, and regulatory changes. Stacey will provide additional detail on this momentarily. Turning now to cash management, our ability to prudently manage cash in Q3 was an important focal point as revenue momentum rebounded. We expended $2.1 million of cash in the third quarter of 2021, leaving us with a strong cash position of $35.8 million to support our continued top line growth. In summary, despite the complex business environment characterized by a slightly longer enterprise sales cycle in our detection business, a modest supply chain trickle-down effect, and a perceptible yet waning COVID environment, we are pleased to continue on a balanced growth trajectory while appropriately managing costs. While we are excited about the formal launch of an entirely new product category, our risk assessment offering for 3D mammography, which looks one and two years ahead, that launch occurred in the final few days of Q3, just before Breast Cancer Awareness Month in October. And we're looking forward to leveraging the benefits of this product as it matures in 2022. Further information on this exciting product offering will be the cornerstone of ICAD's Investor Day that is scheduled for next Thursday, November 18th, and will provide additional color on both the detection and therapy segments of our business. This event will feature exciting product developments and interviews with several new key opinion leaders. With that, I will now turn the call over to Charlie for our detailed financial results. Charlie?
spk04: Thank you, Mike. Good afternoon, everyone. I'll now summarize our financial results for the three months ended September 30th, 2021. Third quarter 2021 total revenues were $9.4 million, which represented an increase of $1.5 million, or 20% over last quarter's total revenues of $7.8 million. Third quarter 2021 total revenues also represent an increase of $2.2 million or 31% over total revenues of $7.1 million recorded in the third quarter of 2020. Third quarter 2021 detection revenues were 6.0 million, which represented an increase of $1.2 million or 26% over last quarter's detection revenues of $4.8 million. driven by a 41% increase in detection product revenue, offset by a modest 4% decline in service revenue. Fewer product placements last quarter drove the decline in service revenues in the third quarter of 2021. Third quarter 2021 detection revenues also represented an increase of $0.7 million, or 14%, over detection revenue for the third quarter of 2020. Therapy revenues were $3.4 million in the third quarter of 2021, representing an increase of 10% over last quarter's therapy revenue of $3 million, driven by a 34% increase in therapy product revenue, offset by a 10% decline in service and supplies revenue. Third quarter 2021 therapy revenue also represents an increase of 82% over the third quarter of 2020, driven by a 188% increase in therapy product revenue and a 25% increase in service and supplies revenue. Moving on to gross profit, on a percentage of sales basis, gross profit was 72% for the third quarter of 2021 compared to 71% for both the second quarter of 2021 and the third quarter of 2020. On a pure dollar basis, gross profit for the third quarter of 2021 was $6.7 million which was $1.2 million, or 21% greater than last quarter's gross profit of $5.5 million. Gross profit for the third quarter of 2021 was also $1.7 million, or 34% greater than the second quarter 2020 gross profit of $5 million. The changes in gross profit were related to product mix effects and revenue increases. Total operating expenses for the third quarter of 2021 were $8.9 million, an increase of $.5 million, or 5.8% over last quarter's operating expenses of $8.4 million. Total operating expenses for the third quarter of 2021 also represented an increase of $2.2 million, or a 33% increase from $6.7 million in the third quarter of 2020. during which a number of employees remained furloughed due to the COVID-19 pandemic. Our operating expenses continued to be focused on supporting growth of top line revenues. Moving on, our third quarter net loss was $2.2 million, or $0.09 per share, which is $1.1 million, or 34% less than last quarter's net loss of $3.3 million, or $0.13 per share. Third quarter 2021 net loss was $0.4 million or 21% less than the third quarter 2020 net loss of $1.8 million or 8 cents per share. Non-GAAP adjusted EBITDA for the third quarter of 2021 was a loss of $1.4 million, which represented a decrease of $0.8 million or 35% compared to last quarter's loss of $2.1 million. Third quarter non-GAAP adjusted EBITDA represented an increased loss of $0.4 million, or 40% over the third quarter 2020 loss of $1.0 million, which reflected a number of employees remaining furloughed due to the COVID-19 pandemic. Non-GAAP adjusted net loss for the third quarter of 2021 was $2.2 million, or 9 cents per diluted share, which is a reduction in non-GAAP adjusted net loss of $0.6 million or 22% from $2.8 million or 11 cents per diluted share for last quarter. This also represents a non-GAAP adjusted net loss decrease of $0.5 million or 28% compared to non-GAAP adjusted net loss of $1.7 million or 7 cents per share for the second quarter of 2021. This metric for the third quarter 2021 reflects immaterial adjustments to gap net loss, while there were adjustments primarily for severance and furlough expenses incurred in ICAD's response to COVID-19 business conditions in the third quarter of 2020, and the non-cash recording of a loss on debt extinguishment in the second quarter of 2021 related to the company's elimination of its long-term debt. Moving to the balance sheet, as of September 30th, 2021, the company had cash and cash equivalents of $35.8 million compared to cash and cash equivalents of $27.2 million at December 31st, 2020, and $37.9 million at June 30th, 2021. We will continue to manage our cash resources to drive top-line growth and expand our global product and service penetration to our primary markets, breast cancer detection and cancer therapy. This concludes the financial highlights of our presentation. I will now pass the call over to Stacey. Stacey?
spk00: Thank you, Charlie, and good afternoon, everyone. We remain encouraged by the overall performance of our business in the face of the ongoing pandemic-related operating dynamics that have continued to affect so many companies worldwide. We continue to experience balanced performance and believe we have significant opportunity for further growth across both the detection and therapy segments of our business with a robust portfolio of advanced technologies for the detection and treatment of cancer. With that, let me now provide some color on the drivers of our third quarter results, beginning with detection. As you recall, in the second quarter, total revenue was negatively affected by longer than expected enterprise sales cycles, which impacted the timing of several large transactions. At that time, we said that our expectation was that these deals would close by year end, though not all in the third quarter. This is indeed the scenario that played out in the third quarter, as we were successful in closing many, but not all, the enterprise deals that were not completed in the second quarter. Importantly, these enterprise sales opportunities, which will remain an important part of our pipeline, increase our average deal size. Therefore, while these enterprise deals are more complex and extend the sales cycle, We strongly believe that the benefits greatly outweigh the potential for somewhat elongated timelines to close. Another critical aspect of these large transactions is that the enterprise customers represent a call point that links the clinical, economic, and now IT-centric decision makers, usually a CIO, who is often quarterbacking these discussions. These CIO-inclusive deals present us with a highly receptive and AI-centric and knowledgeable customer that provides a clear advantage to ICAD. This relationship allows us to speak a common language and engage in more informed discussions. It even provides us the opportunity to illustrate our clinical performance superiority, workflow improvements, and a broad healthcare economic value proposition across all of ICAD's profound AI offering. I'd also add that IT departments within hospitals now often have their own budgets that we can access, as opposed to solely relying on the radiology capital equipment budget. This of course reduces the competition for budget dollars for us. In order to adapt to this evolving sales environment, we have been reorganizing our sales force in an effort to optimize our engagement with these new decision makers by redeploying more enterprise related personnel to the customer facing sales process. Of significance, enterprise customers will now be a priority call point for our new 3D risk assessment offering which as Mike prefaced, we launched at the end of September, just ahead of Breast Cancer Awareness Month. The launch of the latest version of Profound AI Risk was a significant achievement for ICAD as this leading edge technology is the world's first commercially available clinical decision support tool that provides an accurate short-term breast cancer risk estimation that is truly personalized for each woman. This easy to implement solution provides superior insights that empower clinicians to tailor a woman's breast screening regimen, and potentially identify cancers earlier. The latest version of profound AI risk offers the flexibility to work with 2D and 3D mammogram images with unprecedented accuracy. With over a 20% improvement relative to conventional lifetime risk models in AUC, which is a metric that combines sensitivity and specificity, and even 10% higher than our own previous version of the technology, our two-year risk model that was released last year, the latest version offers superior performance and accuracy in assessing short-term risk compared to both its predecessor and traditional commonly used lifetime breast cancer risk models. Additionally, this technology is globalized by design with its ability to provide a one, two, or three-year risk estimation, as well as country-specific screening guidelines and incidence and mortality rates, further personalizing the results. The latest version of profound AI risk also now offers the ability to factor in ethnic and racial backgrounds in the assessment of the score, offering an inclusive approach to precision screening. The COVID pandemic exposed multiple weaknesses in our healthcare system, including racial disparities in breast cancer screening, The pandemic also highlighted the need for risk-based screening. When at the height of the pandemic last year, several medical societies recommended that women of average risk postpone mammograms until the threat of COVID had passed. As mammography screening begins to evolve from what is an age-based screening protocol to more of a risk-based screening protocol in the years ahead, ICAT is on the leading edge of this shifting new paradigm. Additionally, on our last call, we noted that we had recently received FDA clearance for Profound AI version 3.0 for Tomo, which offers enhanced clinical performance benefits, including up to a 10% improvement in specificity performance while maintaining an industry-leading high sensitivity level. We have now released the 2D version of the improved algorithm, which shows similar improvements over the previous version into the European market. As we have discussed previously, 2D is still a growing market OUS, and this new 2D version of Profound AI should help us further penetrate the market in Europe. Moving on, the supply chain issues affecting businesses globally have, not surprisingly, impacted some of our OEM customers. The pace at which some of these OEM customers sell mammography hardware systems into the market has slowed somewhat during recent months, a trend that we expect to continue throughout at least the fourth quarter. To help put this into context, approximately 30% of ICAD sales are to OEMs. So there is some modest but discernible filter down to our business. We are continuing to monitor and manage through the supply chain issues of our OEM customers. I should note that we have no direct supply chain issues ourselves. We have been able to source product without delay and anticipate continuing to be able to do so for the foreseeable future. In addition to these modest supply chain issues, our European business in particular continued to experience some COVID-related slowdown in Q3. Now moving on to the therapy side of our business, we continue to generate strong revenue growth driven by our current applications in skin and breast cancers, and we remain focused on advancing emerging applications such as neuro through our clinical trials, registry, KOL sites, and pre-commercial efforts. In Q3, the Zoss business recorded $3.4 million in revenue and has now shipped 28 controllers through the third quarter of 2021. The breakdown of the seven new systems in Q3 was a mix from the US and OUS markets in the skin and breast IORT segments, as well as four breast IORT systems that went to China. The skin business continues its resurgence with sales in key states such as Florida, the launching of our new partner covering the West Coast in Dermacure RT, and a pipeline that continues to grow significantly quarter to quarter. Our growth in dermatology is being driven by more favorable reimbursement trends, as well as the easing of certain state limitations requiring radiation oncology onsite monitoring of treatments. Due to these beneficial operating trends in dermatology, we are restarting the collection of the five-year data from our skin study, which was initiated in 2017. The objective is to complete this exercise in 2022 and begin leveraging this data with negative policy private payer networks and key societies to build consistency of reimbursement across the Medicare and the private payer network in the U.S. Moving on to emerging clinical applications for ZOFT, new data supporting ZOFT brain IORT was presented at the American Association of Neurological Surgeons 2021 Annual Scientific Meeting in August. And we issued a press release at that time detailing the promising results. We are very pleased to report that this research has now been accepted for publication in a peer-reviewed journal, Surgical Neurology International. Additionally, we have started the execution of new neuro sites with our GLIOX clinical trial. We consented patients this week, and we expect to treat our first patients this month. The initiation of this trial has taken longer than expected, largely due to COVID recovery in hospitals impacting the process related to the startup of clinical trials. A commercial launch with this FDA cleared offering is now tracking for the second or third quarter of 2022. So as we reflect upon our progress and achievements for the first three quarters, we look ahead to Q4 and 2022 with continued enthusiasm. We look forward to providing you with additional updates as we continue to advance our business and technology, drive sustained market leadership, and create additional shareholder value. We will now open the call for questions. Operator?
spk01: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. And if you have any further questions, you are more than welcome to re-queue. To join the question queue, you may press a star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Per Oslund with Craig Hallam Capital Group. Please go ahead.
spk11: Thanks. Good afternoon, everybody. I want to start out by talking about the elongated sales cycles that you talked about cropping up a little bit last quarter, and I think that it's certainly sensible given the number of constituents that have to come to the table. You alluded to it earlier in your prepared remarks to IT and finance and what have you. Given the larger deals that structurally are involved with these enterprise customers. Are there any competitive influences that you're seeing in terms of elongating those sales cycles, or is it really just as simple as it being the number of parties that have to come to the table to make the deal happen?
spk08: Per, let me answer the back end of that question, and then I'll have Stacey elaborate on the overall sales cycle itself. As you know, for some time we've had a first mover advantage and we often say a bit of a sole advantage in that the competitive landscape for AI in terms of the results that we generate with our trifecta results put us in a bit of a unique position in terms of sensitivity, disease detection, specificity, meaning fewer callbacks and reading time. We have had very minimal competitive dynamics in virtually all of these situations that we're referring to with an elongated sales cycle. Sometimes we do hear now that there is another offering they could be looking at, but we do not know of a singular case where we have lost or had a significant delay even in the procurement cycle because of the competitive dynamics, just given the clear differential between this offering and others that are out there. Specifically on the elongated cycle itself, I'll let Stacey comment a little more specifically on that.
spk00: Yeah, sure. Thanks, Mike. So I think I'd add a couple of things to what Mike said, Per. Really, the competitive environment is largely unchanged, right? We still have substantial superiority in clinical performance and workflow. And one dynamic we're seeing that's very positive is we're seeing more customers separating the purchase decision of the AI software from the purchase of the hardware and the mammography gantry. We're also seeing some RFPs in the U.S. that are specifically sourcing AI software separate from the gantry. So, you know, the combination of our latest improvements in clinical performance and the launch of our risk offering really we feel is extending our lead relative to our competitors, particularly in the enterprise where they do tend to have, you know, a lot of interest in the risk solution. And the other thing I would say is that we've really adapted to this evolving sales environment and we've now reorganized our sales force. in an attempt to really optimize our engagement with these new decision makers at the executive level. So we're redeploying some of our folks who have experience selling into the enterprise to really focus specifically on this list of targeted accounts that we're going after. And of course, the messaging is a little bit different when you go after an enterprise. Certainly, the clinical piece is important, but equally, if not more so, the economic piece comes into play and we're now able to really tailor our presentations unique to those particular enterprises and be able to show both the clinical and economic value that they can realize within their own system. So I think those are the two things that are putting us very much in a leadership position as we go after those deals.
spk11: Okay, great. That makes a lot of sense. I guess my follow-up on that is you've also talked about The extensive pipeline, as robust as ever, I think I've heard you say in the relatively recent past as it pertains to the enterprise customers. And you've also talked, Mike, in some investor events over the course of the year, you know, not guiding per se, but talking about some relatively heavy growth rates for the detection business. How catalytic to converting some of these enterprise customers that are in your funnel to how catalytic to achieving some of the growth rates that you've been talking about throughout the year is the 3D risk clearance that you got toward the end of September?
spk08: Yeah, it is clearly a differentiator pair. It has a catalyzing effect in that, as Stacey pointed out, it further differentiates. It's a value proposition that is uniquely geared to COVID and that the risk Some call it a prediction product. Not only can help in terms of future follow-up, but also in terms of scheduling who to bring back when. As you know, instead of 40 million patients being treated over the last 12 months, it's been less than 30 million. And each site is sitting there trying to figure out the best way to prioritize patients to come in first. The risk product is often our lead offering in going into these accounts as they try to get patients back to screening. I want to add one other point also, Per, if I could, and that is that these enterprise customers, and Stacey may have hinted at this in her script earlier, also have separate budgets than the hardware budgets that often exist when we're, let's say, going into an account that may be looking at hardware and software. So the separate budgets also acts as a catalytic effect, especially when combined with the risk offering, as you were sort of angling towards in your question.
spk11: Excellent. Very good. Thank you.
spk01: The next question comes from Dave Turkley with JMP Securities. Please go ahead.
spk07: Thanks. Mike, I was wondering if there's any way you could help us maybe try to quantify the impact of that cycle in the quarter. I'm going to be talking one, two, or three million dollars or any size of that would be helpful and maybe how it compared to the number that you saw in 2Q, bigger, smaller, how much, anything like that might be helpful.
spk08: Are you referring, David, to the enterprise customers?
spk07: Yeah, if you were looking at, yeah, specifically the longer cycle that you're seeing, is there a way for you to quantify that and then maybe talk about how it compared to, like, is it getting better or is it getting worse?
spk08: Yes, it's definitely getting better. And as we indicated earlier, At the end of Q2, we had a substantial number of deals that fell from Q2 into Q3. As Stacey may have indicated, we gained ground on these deals in Q3, closing the majority of those deals. The good thing is that more deals also enter the funnel. So we're definitely gaining ground. And one of the reasons we're gaining ground on this cycle is that we put in place in Q2 a sales organization specifically geared towards these enterprise customers. It used to be that reps were allocated on a regional basis. Now we have several reps that are allocated specifically for the enterprise customers, and they can work with them without being at the expense of some of the other deals they may be working on in a quarter. So we're definitely gaining ground on this, and I think we are going to catch up. with this within the next one to two quarters as we're fully, and that would include this quarter. And again, the funnel continues to grow, but these enterprise deals, which are roughly around 30% of our deals, some will probably grow to about 35% next year, we're very well positioned at this point in time to be able to gain traction on the remaining deals and those that will emerge.
spk07: Got you. And just as a quick follow-up, I mean, how much longer are you talking? Is it like taking an extra month or is it two months or just, I guess, thoughts on, you know, the actual time that it's getting deferred would be helpful. Thank you.
spk08: Yeah. They're averaging somewhere between four to five weeks, four to six weeks maximum. So that's what we saw. It was very important to us to track July. It's one of the reasons why we sort of moved our earnings into August. To track July, we're also tracking August. So we're looking at somewhere between a four and five, maybe at the onset, six-week elongation of what typically had been a 90-day cycle that now could be about 120 to 135 days at the longest for those specific 30% of customers that are enterprise customers.
spk05: Thank you.
spk01: The next question comes from Francois Brisbaugh with Oppenheimer. Please go ahead.
spk03: Hi, thanks. And just to hit on that, when you say the 30% that are enterprise customers, is that some of these customers were not always enterprise or were they always enterprise and then the process over there has changed with time?
spk08: You know, I'm glad you raised that, Frank, because it gives us a chance to clarify. We still look at the market as having two core segments, and that is the sort of academic sites, and we group sites either there or what we'll call the entrepreneurial sites. The academic sites tend to have, obviously, more of a desire for clinical data. The entrepreneurial sites tend to be faster moving. The enterprise customers can exist in both of these situations. Both of those segments have Economic buyers, when I say both, I mean the academic buyer and the entrepreneurial buyer has the economic buyer and the medical clinical buyer. But what's unique about enterprise customers that can exist in both segments is they have a third decision maker, a chief information officer that's trying to harmonize data, work with Epic, Cerner, with their PAC system. So it's now what was a... A two-person lead is now a triumvirate of decisions. So these enterprise customers represent about 30% in both of these segments. And they do add more time, but the good news is they have their own budgets for AI. They know exactly what they're looking for. They know the differentiation between us and anyone else. You can't fool them. And they're very, very sticky. When they make decisions, they make decisions for the long run, and to grow. So when we look at accounts like a Solus or Simon Med, these are big accounts that have more and more of these information officer types. These are, these accounts plan to significantly grow and their chief information officers when locked in, give us an opportunity for tremendous stickiness, if you will. So hopefully that clarifies the difference between the segments and let's say the style of buying.
spk03: Yeah. And that makes sense. So it's not that the enterprise is new is this position of chief information officer. or his involvement in the deal is new.
spk08: Yes. And this also, I'll say, a lot of people say, where did these come from? They were always there, but they catapulted forward in the late first and second quarter as a result of a lot of cybersecurity concerns, ransomware concerns, et cetera, as well as an opportunity for folks to take advantage of productivity dynamics during a relatively slower time of screening. So then when it came time to catch up, which is happening now, these productivity dynamics would be in place.
spk03: That's extremely helpful. And then on the OEM impact, the supply chain issues, you don't seem to be having supply chain issues, but the clients are. Can you just give any more color on that and the impact that it might have had, you know, percentage-wise or kind of a ballpark on your numbers in this quarter.
spk08: Yeah, I'm going to let Stacy handle that because she was front and center on this dynamic this quarter.
spk00: Yeah, sure. Hi, Dave. So, you know, what – hey, how are you? So what I mentioned a little bit in the script is that some of our OEM partners have been facing supply chain issues relative to the mammography systems themselves, right? And so that impact has trickled down to us in some cases, due to the fact that in some of these cases, right, the sale of our AI is tied to a new gantry sale. But it wasn't everywhere, you know, it was a modest impact. And we estimate that the impact on our business in Q3 was in the neighborhood of about $500,000. And it was related to one OEM partner.
spk03: Okay, great. Is that kind of a hiccup like the enterprise sales of the last quarter? Is that something you'd expect to not be a problem going forward? Or is it very difficult to say how these supply chain issues could get resolved here?
spk00: Yeah, I think what we're hearing from some of our OEM partners, and they've reported this publicly, is that the expectation is that the supply chain issues will persist at least through the next quarter, maybe into the very beginning of 2022. But again, we don't expect it to have a major impact. Our OEM business is about 30% of our overall business, and we're talking about one OEM within that. So it's a modest impact. I think we'll see a little bit of it in Q4, and then hopefully it should start to subside as we get into next year.
spk03: Okay, thank you.
spk01: You're welcome. The next question comes from Frank DeKinnen with Lake Street Capital Markets. Please go ahead.
spk10: Hey, perfect. Hey, thanks for taking my questions. I wanted to start with a level setting question on the installed base. Maybe just give us an update where total profound users stand today. And then if you could give us a taste for just some of the penetration of the different products into those accounts as well as the inherent cross-selling of risk into some of the AI accounts and vice versa, if that's the case as well.
spk08: Yeah, we reported, Frank, at the end of last year that we were crossing over the 1,000 threshold, and as of the end of Q3, we're a little bit north of 1,300, 1,350 installs for profound AI, and that would be both 2D and 3D. A certain number of our accounts also would have our density product, which is sold as a separate offering that goes into some of those installations. And as we now launch both 2D and 3D AI, what we obviously intend to do is go back to our installed base of, let's say, 1,350 profound detection systems and install into those as low hanging fruit, the new looking forward risk slash prediction software. But by the same token, these also represent the risk prediction or risk assessment product represents an opportunity for us to go into nascent accounts where we don't have 3D profound AI detection at all. And a lot of cases that's now becoming our door opener. especially since we just launched this product on 3D, a longer-awaited launch. We launched it right at the end of September, right before Breast Cancer Awareness Month. So I think we'll be seeing a blend of what you might say same-store sales in the sense that or upgrade to existing profound detection installs and then some newer accounts, nascent accounts that we hadn't penetrated at all, in many parts leading the way will be the risk prediction product.
spk10: Got it. That's helpful. And then secondly, what's the size of the selling organization right now, and how much has that grown since the beginning of this year, as well as what portion of those are now dedicated enterprise sales folks?
spk08: Yep. The Salesforce today is accounting management, about 13 people in the U.S. We have additional people outside the U.S. in Europe on the ground in countries like France and beginning to place in Germany and in the U.K. We also cover 20 countries with distributors worldwide. We also have other channels that we cover as well. Those are our direct salespeople. We have people that are dedicated to working with our PACS channel, our OEM channel, and also working with our distributors. So we do have people who are allocated for both direct sales, which remain about 70% of our sales, and the other channels in total about 30%. That should give you a feel for... the amount of sales that we've deployed. And I do want to say that as we expect our sales to continue to grow, that we feel like we're pretty built out on the sales side in that we, instead of building out horizontally, we've stratified the sales team. And I should double back on your question and say that of those 13 people, including management in the field, there are about three to four of those people that are dedicated to the enterprise sales. So that would be another way of saying that 10 people are geographically bound and three people are focusing on the enterprise sales wherever they are. And this really unlocks sales productivity because we're now able to have somebody calling on the local, you might call them single, double, triple in terms of hits accounts, and then someone that could be working on the longer cycle, home run, two and three, four run homers on the enterprise side, And they can be working in the same geography without borrowing from each other's time. And that was something we did in Q2 and was one of the things that we really wanted to adapt to with the enterprise sales cycle. So hopefully that gives you an answer to the sales mix you were looking for.
spk10: Yeah, that's perfect. I'll stop there. Thanks for taking my questions.
spk01: The next question comes from Chris Pasquale with Guggenheim. Please go ahead.
spk12: Thanks. Mike, I just want to circle back on the GLIOX trial and the IORT neuro indication. So you just consented the first couple of patients. You're talking about a commercial launch basically six to nine months from now. What's the gating factor on the commercial launch in terms of data that you want to have in hand at that point? And can you talk a little bit about, you know, milestones along that path, when we should expect to start to get some data, given that the enrollment has gotten up to a little bit of a slower start than you were hoping?
spk08: Well, because Stacey is going to be front and center on this issue next week at our investor day, I'll let her take that question.
spk00: Yeah, sure. Hi, Chris. So, you know, as I mentioned in the script, it took us a little longer than we expected to actually get the trial started. Us and Everybody else is trying to launch clinical trials during this time, but we were really pleased to see some patients consented this week, and we feel very confident that we should begin treating patients over the next couple of weeks. In terms of having initial data, we expect to have some initial data in about six months. This is a very different indication from, say, something like breast, where you need to have years of clinical data right before you are able to start convincing clinicians to shift treatment paradigms. You know, unlike some of these other cancers, glioblastoma is such a deadly cancer where patients have such a poor prognosis and the average length of time that they live is between 10 and 12 months. So you really don't need a ton of data in order to convince people to, you know, for this to be a viable treatment option for patients. We want to have about six months of data, you know, sort of replicating this Russian study that we already have very promising data out of. Before we do a full commercial launch, now that doesn't mean that we can't sell neurosystems today. We can sell a commercial neurosystem today. Everything is FDA cleared. There's nothing stopping us from doing that. But we feel to do the appropriate full commercial launch, we would want to have at least preliminary data in about six months' worth from our neural trial before we could go out and and really attack the market in a strong fashion. But it also helps that we're getting the Russian study published in a peer-reviewed journal. That's something we've been working on for a while, and just recently we're notified that, you know, that was accepted. So that will help us as well. So that's why we say kind of mid-next year is the timeline that we're expecting to really launch it commercially.
spk12: Okay, that's helpful. And then, Mike, just circling back to the detection business, You have a relatively challenging comp there in the fourth quarter. The elongation of some of these selling cycles has made the middle part of this year come in a little bit lower than we might have been expecting earlier. Do you think that business can grow in the fourth quarter? How are you seeing the situation on the ground today and with all the different macro dynamics? Is it slowing things down into year-end, or do you expect a normal push to be able to generate some growth in that business in the fourth quarter?
spk08: Well, Chris, good question. I look at the, one of the key numbers that I look at, and I'm sure others will as well, is the product growth for our detection business quarter over quarter. That 41% quarter over quarter, Q3 over Q2, of which 56% was the growth in U.S. detection product growth, is a very good harbinger going into the fourth quarter. We saw that at the end of last year, and it was the growth in Q3 of Q4 last year that we're comparing against, back to your specific point. So, yeah, we're feeling, you know, notwithstanding the comments mentioned earlier about some of the trickle-down supply issues, enterprise, we are clearly a, you might say, September through the end of the year company, typically. Notwithstanding the that are out in these markets. I do want to also say one other thing, Chris, on your last question, going back to the GLIOPS trial. It will not be the usual thing that stands in the way of adoption, that being reimbursement or FDA clearance. Those are already in place for the neuro product. So it would be the issues that Stacey was mentioning.
spk05: Great, thanks.
spk01: Once again, if you have a question, please press star, then 1. The next question comes from Marie Cibolt with BTIG. Please go ahead.
spk02: Hi, good afternoon, everyone. This is Sam Iber on for Marie. Thanks for taking the questions. Maybe just on a risk here to start, you know, about a little over a month since the launch here. Any color on maybe how some of those early conversations are going with enterprise accounts you talked about, economic pieces starting to come into play a bit. Any talk about alternative payment models there or any other color there would be great.
spk08: Thanks. Stacy, Charlie, maybe the two of you want to handle the two pieces of that.
spk00: Sure. I can talk a little bit about risk. You know, we're currently in the early adopter phase for risk, right? And we certainly have some of our top customers already adopting it and implementing it in their clinical workflow. But really, our biggest focus right now is on driving the global clinical studies to really prove the value of identifying the clinical and workflow benefits of the product relative to being able to allow our customers to segment higher risk women and and get them screened earlier, get those cancers diagnosed earlier, and really what is that impact on early detection and ultimately those women, right? So really developing a very strong body of clinical data will eventually allow us to get this product included in the clinical guidelines and then potentially later on make a play for reimbursement. So we really sort of see this rolling out in phases as the clinical data matures. We're currently conducting four risk clinical studies globally with an additional several planned next year. And we expect to see some results of some of these studies as early as in 2022. And that will really help us sort of accelerate adoption in the marketplace. So, you know, right now we're in the phase of really going after establishing KOL reference sites, creating case studies at the customer level, gathering testimonials, that kind of a thing that you would do kind of in this first phase or early adopter phase of the product lifecycle. So that was risk. And then was the second question alternative payment models?
spk02: Yeah, that's right. Conversations.
spk08: Yeah, I think that question was relating more to, let's say, subscription sales potentially. I just want to clarify because we have a different payment model in each. Yeah. Okay. So on that front, Charlie may want to give some comments in terms of what we may be looking at in terms of folks who may have an increased tendency to want to pay more on an as-you-go basis versus upfront. Charlie?
spk04: Yeah, I think the way we're approaching this is the market is demanding multiple offerings for various products. And we want to make sure that we provide them what they're looking for and also create a true subscription model rather than doing financing or different arrangements. So we are right now wrapping up the finishing touches on putting together a market-ready subscription offering with the ability to support it and make sure that it is exactly what the customers are looking for. So we're going to trickle into the market, do a couple of early cases in Q4, and then we assume that the market uptake from what we're hearing and the requests that we're getting, we will have a larger impact on a subscription model next year.
spk02: Very good. Thanks for taking the questions.
spk01: The next question comes from Yale Chen with Leila and Company. Please go ahead.
spk06: Good evening, and thanks for taking the questions. My first question is about the software that you mentioned that in the dermatology you have quite a penetration at this point in terms of revenue. Overall, at this moment, as you look forward, what do you think the sort of penetration level currently is? And do you anticipate this should exceed a couple years ago when the dermatology is the major sort of revenue sources of the soft?
spk08: Yeah, let me make a comment on this. And I'm glad you brought it up, Yael. I do want to reinforce that. that this return to health of the dermatology business is, again, it's fueled by no negative coverage decisions in place, improving reimbursement, and a regulatory environment that doesn't require or have as many conferences in terms of which physicians need to be in attendance. So that's allowing it to grow. The difference this time is that the sales a few years ago were largely placed on more of a consignment basis. And when that reimbursement, which was based on data that was sent out to maybe two or three of the fiscal intermediaries, in other words, about 30 to 40% of the country, when that dynamic of dermatology at that time was only as good as those two to three fiscal intermediaries that can overrule Medicare and only as good as the clinical data. We now have zero negative coverage policies in all 12, 13 areas of where Medicare would cover us. And that allows us to have a great degree of more comfort. Plus these units are sold, allowing us for a recurring revenue opportunity. We believe we're really still scratching the surface of dermatology, even with the high water mark of a few years ago. There are three to four million basal and squamous cell carcinomas, which is double that of all other cancers. So we believe that the opportunities that we saw a few years ago are opportunities that we can hit and exceed as we move forward. particularly with the new distribution agreements and partnership agreements we have in place and the momentum that we've built so far this year. And a lot of the dynamics mentioned really kicked in in the last six to nine months. So we have continued bullish sentiments on the dermatology part of Zoft.
spk06: Okay, great. That's very helpful. My follow-up question is that in terms of these enterprise accounts, presumably they are relatively larger. So are they typically just purchase few system at beginning and then maybe there will be a recurring purchase for fill up more of their organization or they are typically purchase more upfront and in that manner?
spk08: It's a good question, Yael. I would say they, They don't put a onesie-twosie at going in because there's a lot of upfront work to validate and to get it lined up. But that's not to say that it all happens at once. It typically occurs in waves. They may do one portion of the country, let's say the southeast, and then they might move to the southwest. Or they might do, for example, they might do the detection product first. and which has occurred in a couple of cases with big chains, and then they might come back and say, now we'd like to add the risk product now that you've got your 2D and 3D risk offering out there. So I would say that there can be a few that walk into it with a placement of 2Z or 3Zs, but the overwhelming majority of them are going to be a bolus of accounts, a bolus of installations, 20, 30, 40, up front that would then be followed by some subsequent ones, potentially of equal or even larger size.
spk06: Okay, great. That's very helpful to understand the dynamics in that size. Appreciate it.
spk01: This concludes the question and answer session. I would like to turn the conference back over to Michael Klein for any closing remarks.
spk08: Well, I want to thank everybody for joining us today, and we really do appreciate the interest in ICAD as we continue our growth trajectory with both of our businesses, all while managing costs. We look forward to providing further updates in the months ahead, and remember to please sign up for our Investor Day, which is just a few days from now, that being next Thursday, November 18th, at 3 o'clock p.m. Eastern Time. Thank you all for attending today's Q3 earnings report.
spk01: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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