icad inc.

Greetings and welcome to ICAD Inc. Fourth Quarter and Full Year 2021 Earnings Conference 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Ritchie, LifeSci Advisors. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Joining us today from ICAT are Michael Klein, Chairman and Chief Executive Officer, Stacey Stevens, incoming Chief Executive Officer, and Charles Carter, Chief Financial Officer. Earlier this afternoon, ICAD announced financial results for the three and 12 months ended December 31st, 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 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 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 financial filings with the Securities and Exchange Commission, including, without limitation, the forms 10-Q and 10-K. which identifies 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, February 28, 2022. 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, please go ahead.

Thank you, Brian, and good afternoon, everyone, and thank you for joining us on our fourth quarter and full year update call today. To begin today's call, I would like to remind you of the planned CEO transition we announced in December of last year. I am delighted to welcome Stacey Stevens as ICAD's new Chief Executive Officer, effective tomorrow, March 1st, 2022, at which point I will transition to the primary role of chairman of the board. On behalf of the board, I want to reiterate our support of this world-class management team. It has been a privilege to work closely with Stacey for the past three years, and most especially during this transition period. She brings a relentless focus on leading change and a proven track record of driving growth and innovation. As a company, our focus remains unchanged. We continue to evolve our business and technology, drive sustained market leadership, and aim to create additional significant shareholder value. To this end, we were thrilled to recently appoint two new members to our board of directors, Dana Brown and Timothy Norris Irish, who each offered tremendous insight and decades of relevant experience in corporate leadership, brand stewardship, and health technologies along with proven track records of leading innovation and strategic change. Ms. Brown is currently the Chief Strategy and Operations Officer at Susan G. Komen, the world's leading nonprofit breast cancer organization. She brings over 30 years of industry experience in technology and advocating for improved access to high-quality care, offering direct patient support and empowering people with better solutions to optimize outcomes for patients in an equitable and responsible manner. Timothy Irish is an industry leader with global expertise across the life sciences and healthcare sectors with a foundational understanding of AI-based cancer detection and therapy capabilities that improve patient experience and outcomes. He is currently professor at the Business School at King's College London, a trustee of the Picker Institute Europe, a member of the Alzheimer's Society, as well as several other advisory director or trustee roles to companies in Europe and the United States. He has served as vice chair of the National Institute for Health and Care Excellence, or NICE, otherwise known as NICE, in the United Kingdom, and therefore clearly understands the area of healthcare economics. These appointments offer ICAD a unique and fresh perspective into areas that stand to benefit both from the detection and therapy sides of our business, while also underscoring the company's firm commitments to empowering clinicians and generating better patient care outcomes. In addition to their relationships, in many areas of the global healthcare economy, they are already proving invaluable to ICAT. We remain confident in the clinical and health economic value proposition, our world-leading product portfolio delivers to our customers. And I look forward to continuing to work alongside Stacey and the rest of the management team, as well as the board, as we further advance and grow our business. With that, I will now turn the call over to Stacey to discuss the fourth quarter and provide comments on the current business and market environment.

Thank you very much, Mike, and good afternoon, everyone. I want to take a moment to acknowledge and thank Mike for his significant contributions as CEO over the last three years. He has been instrumental in expanding the company's robust portfolio of cancer detection and therapy technologies. I have enjoyed working closely with Mike to extend ICAD's leadership position in these markets over the last few years, and I'm looking forward to continuing to work together on the board. Now, moving on to the quarter, I will begin with some high-level comments on the fourth quarter results and then provide additional granularity around the current business environment and detail the key areas of focus for the company in 2022. As we indicated in our pre-release on January 3rd, the surge in the Omicron variant in December had a significant negative impact on our customers' purchasing plans and our fourth quarter results. In December, our customers began expressing a singular focus on surging COVID-19 infection rates and the resulting severe staffing shortages and resource limitations, which made the processing of new purchase orders challenging. These extraordinary circumstances caused the postponement of several larger enterprise deals that had been expected to close in the quarter. Additionally, the effects of this recent variant were felt within our own team as approximately a third of of our global sales staff was afflicted with COVID-19 in December. Historically, we generate about 60% of our fourth quarter revenue in December, so the COVID-19 related dynamics we experienced had a significant impact on our business in the quarter. ICAD's total revenue in Q4 was 7.8 million, down 25% from Q4 of 2020. However, in Q4 of 2020, our results included a single large detection order and represented $2.8 million, which does impact the comparison to Q4 of 2020. Our Q4 2021 detection revenue coming from the hospital segment was heavily impacted by COVID dynamics and postponement of larger deals, resulting in revenue of 5.5 million, a decrease of 32% in the quarter. The therapy business had revenue of 2.3 million in Q4, essentially flat with last year. For the full year 2021, ICAD total revenue grew 13% over 2020. Two months into 2022, we are very encouraged to see some gradual improvements in the market. As the Omicron surge is starting to subside, customers are now focused on non-COVID related business. I believe that we are currently at an important and exciting inflection point in the company from both a product and an operational perspective. We have a robust portfolio of superior technologies for the detection, risk assessment, and treatment of breast and other cancers. We are going to market today with a superior clinical and economic value propositions that are making a major contribution towards better patient care. And we're operating today in very large, under-penetrated markets with a product set that is simply unmatched by any other company. A key theme for us this year is focused. focus on driving increased revenue growth from our existing portfolio of leading solutions. To this end, we are improving our commercial sales infrastructure, sharpening our focus to maximize our access to the entirety of our large addressable market, and helping customers to adopt our technologies in more flexible ways that meet their evolving needs. There are a number of actions that we have taken to better penetrate our existing opportunities. Enterprise-level purchasing of AI solutions is a relatively new approach for some of our customers, and we are evolving our ability to address these opportunities, including the addition of more enterprise-specific sales personnel and streamlining and enhancing our ability to address enterprise-level security requirements. Over the course of the last couple of months, we have moved aggressively to enhance our commercial infrastructure with new, highly successful sales personnel in key territories in the U.S., These new team members have skills that will help us better address the enterprise-type opportunities. In addition, they have the capability and experience to drive higher penetration of our solutions into the broader competitive installed base. Up until recently, we have been primarily focused on a smaller segment of the market due to historical partner and compatibility factors. These new sales resources plus broader technology compatibility now opens up a much larger addressable opportunity for us moving forward. We are pleased to see our customers increasingly comfortable separating the decision of mammography hardware from AI software and have had success in penetrating a number of competitive accounts based on the differentiated clinical performance of our product. We are also adding more flexible ways for our customers to start using our technologies. Customers now want to procure the technology from multiple different sources, including imaging companies, PACS companies, and AI aggregators. Therefore, our commercial strategy now includes focused initiatives and personnel to maximize revenue from each of these channels, which also provides us multiple entry points into our customers. For example, in Q4, we partnered with Arteris, a leading cloud-based medical imaging platform. We have enabled our technologies to run seamlessly on their platform for those customers that want to access our technology via that approach. In addition, customers are looking for choice in how they pay for the technology. Historically, the purchasing model in the detection business has been a capital investment decision and a perpetual software license purchase. And we expect the majority of our customers will continue to favor this approach. However, incrementally, there are some customers looking for additional purchasing options as they are faced with capital limitations or budget timing challenges. One of these options is a subscription model where the customer pays a subscription fee each period, often monthly. The appeal of this approach is that the acquisition cost becomes an operational expense over time as opposed to an upfront capital budget investment. We are always focused on being responsive to the needs of our customers, so we are currently evaluating the subscription model. We want to understand the nature of this potential demand and particular customer requirements. We are also assessing what offering this option would mean to our operational and financial model. This evaluation will likely take a few quarters, and over that time, we expect that subscription type revenue will represent a small percentage of our total revenue, particularly in the first half of the year. We will closely monitor any market changes and update you on our learnings and potential plans as the year progresses. All of these enhancements that we are implementing to our go-to-market approaches are establishing a very strong foundation for the phased-in launch of our Profound AI risk offering. The primary focus in the first half of the year will be on building a robust body of clinical data regarding the performance of the algorithm on a larger, more diverse patient population. Currently, we have four studies underway to build our portfolio of evidence and support for both the patient and clinician. This evidence is a critical step to then being considered for and ultimately embedded in clinical guidelines from leading national organizations. The latest version of profound AI risk offers the ability to factor in ethnic and racial backgrounds in the assessment of the score, offering an inclusive approach to precision screening. We are proud of the leadership position we are taking in transforming mammography screening from what is today an age-based screening paradigm to what we believe will become a risk-adjusted screening paradigm truly personalized for each woman. Now turning to our therapy business. We achieved strong success in our dermatology segment in 2021 and expect our U.S. dermatology business to continue to be the primary growth driver for this segment in 2022, driven by recent positive shifts in reimbursement and regulatory changes. We are pleased with our growing pipeline of dermatology business and continue to work successfully with partners to further penetrate this large market segment. Additionally, we continue to advance our multinational clinical trial, looking at the use of our technology for the treatment of recurrent glioblastoma and expect to have at least 10 patients treated by the end of Q2. Looking now at our international business, sales continue to be sluggish in Q4 2021 outside of the U.S. due to the ongoing and reinstituted COVID-19-related restrictions in most of Europe. Limited travel reduced the more effective in-person access to decision makers throughout 2021. Looking ahead, we do expect some recovery in our international business in 2022, as our field organization has very recently been able to travel between countries, again, able to access decision makers in person. With that said, we expect the majority of our growth in 2022 to be driven by the U.S. market. Finally, Charlie will detail our financials momentarily, but I'd like to highlight that our ability to prudently manage cash in Q4 remained an important focal point. We utilized 1.5 million of cash in the fourth quarter of 2021, leaving us with a strong cash position of 34.3 million to support our growth initiatives in 2022. We look forward to providing you with additional updates as we continue to advance our business and leading innovations, drive sustained market leadership and work to create long-term shareholder value. With that, I will now turn the call over to Charlie for his review of our financial results.

Good afternoon, everyone, and thank you, Stacey. I'll now summarize our financial results for the fourth quarter, and the year ended December 31st, 2021. Revenues for the year ended December 31st, 2021, were $33.6 million, an increase of $3.9 million, or 13% over fiscal 2020. The detection segment revenue was flat at approximately $22 million with a $.6 million reduction in product revenue offset by a similar increase in service revenue. The therapy segment revenue grew $3.9 million or 51% to $11.6 million for full year 2021. The increase in therapy revenues was primarily due to a 112% increase in product sales and a 20% increase in service. and supplies revenue. Total revenue for the fourth quarter of 2021 was $7.8 million, down 25% from the prior period. As Stacey mentioned, the Omicron surge was a significant headwind in the quarter that impacted our customers' operations and our ability to close business. This impact was felt primarily in our detection business, which was down 32% in the fourth quarter versus last year. the therapy business was relatively less effective with a decrease of 1% from last year's fourth quarter. Moving on to gross profit. On a percentage basis, gross profit was 73% for the fourth quarter of 2021 compared to 71% for the fourth quarter of 2020. On a pure dollar basis, gross profit for the fourth quarter of 2021 was $5.7 million as compared to $7.5 million in the fourth quarter of 2020 reflective of the reduction in revenues related to COVID-19 effects. Total operating expenses for the fourth quarter of 2021 were $9.9 million, a 10% increase from the fourth quarter of 2020. The company remains committed to prudently managing operating expenses with a selective focus on spending to support revenue growth and maintaining the clinical superiority of our technology. Operating loss increased to 4.1 million in the quarter ended December 31st, 2021. This increase in operating loss was predominantly due to the COVID-19 related impact on detection revenues. Operating loss represented 32% of revenues in both of the years ended December 31st, 2021 and 2020. Gap net loss for the fourth quarter of 2021 was 4.1 million dollars or 17 cents per diluted share compared with the GAAP net loss of $1.6 million or 7 cents per diluted share for the fourth quarter of 2020. This year-over-year increase is primarily due to the COVID-19 related impact on revenues. Non-GAAP adjusted EBITDA for the fourth quarter of 2021 was a loss of $3.3 million. Non-GAAP adjusted net loss for the fourth quarter of 2021 was $4.1 million or 17 cents per diluted share. Moving on to the balance sheet, as of December 31st, 2021, the company had cash and cash equivalents of $34.3 million compared to cash and cash equivalents of $27.2 million at December 31st, 2020. Cash and cash equivalents used during the fourth quarter were $1.5 million. This concludes the financial highlights of our presentation, and I would now like to turn the call back over to the operator.

Thank you. At this time, We will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Per Ostlund with Craig Holland. Please go ahead.

Thank you. Good afternoon, everybody.

Hi, Per.

Hi, Stacey. I'd like to start out with a question on the commercial pivot. I guess we'll call it a pivot and maybe a couple parts to this. So you mentioned in your prepared remarks that you've added some enterprise-level sales personnel. I'm curious if if this is an expansion of sales territories or if this is, you know, bolstering, I think you used the word bolstering, is it bolstering some key territories where maybe some of those larger enterprise-type customers reside? And then the second part of that question is, you've spoken in the past a little bit about, and you alluded to it in your prepared remarks as well, targeting some more of those whole logic-type customers that maybe you hadn't gone as directly into. at before, and I'm curious as to sort of the early learnings that you've had there, early successes that you've had there as you've gone out and been more direct in marketing to that account base and the receptivity of those clients.

Yeah, sure. Thanks for that, Per. So when it comes to the changes that we've made in the commercial infrastructure, I think it's been a combination of both, right? sort of restructuring some of the territories to put greater focus in some areas of the country where we didn't think we had enough focus, but yet we were building a strong pipeline of opportunity, and also bolstering other areas. We've taken a little bit of a different approach to the enterprise. We used to have a couple of dedicated folks who were working on the enterprise, but these enterprise deals are continuing to grow as an overall percentage of our pipeline. And we decided that we really just needed more focus on the enterprise deals, even throughout our entire direct sales team, right? Every sales rep has some component of enterprise deals within their territory. So not only have we added new resources that have strong experience selling to the enterprise, but we also have provided additional training and put new processes in place to really enhance the success of the existing resources as well. So we think that this dynamic will continue. Of course, it's a great dynamic, even though the enterprise deals are more complex and can take a little bit more time. They do allow us to penetrate the market faster and to grow adoption of the product. We think it's a positive dynamic, and that's why we're putting increased focus on it so that we can try to go after these deals with a larger group of people and also take steps to sort of shorten the sales cycle from what it is today. I think second part of your question was penetrating the competitive install base. And I think this is a really important one and really important to our growth in 2022. If you look historically at the approach that we've taken, we're really, the majority of our business has come from a smaller segment of the market. And that has been, you know, due to kind of some of our legacy partnership relationships. And also, we did not have full compatibility with with the full product line from our competition. Now we've sort of brought together full compatibility up and down the product lines. In fact, no other competitor in this space has the compatibility that we have with Profound AI. And some of the reps that we've brought on as part of the improvement in the commercial infrastructure actually have experience selling to these customers in the competitive install base. It's a combination of a number of things, and we're also utilizing an inside sales team and a very focused marketing team to drive a larger pipeline of business in these accounts. So we think all of this together will create a larger pipeline that will translate into better growth in 2022. Okay, excellent.

I should have led with my congratulations to you, Stacey. Your appointment is well-deserved. I think we all agree on that. At a very, very high level. No, you're very welcome. I suspect that with the closeness that you and Mike have worked together in the last few years, maybe there's nothing seismic. on the horizon, but curious, when the nameplate changes over tomorrow, given you've been there about 15 years, a little over 15 years, are there strategic priorities that maybe you move to the front of the line a little bit when you have, you know, more of the influence, I guess we could say?

Yeah, great question. So, I think that We have tons of opportunities in ICAT on both sides of our business, right? We have core technology that we have applied today in breast and some other cancers that have almost unlimited potential in terms of expanding to new clinical application areas, and we will do that over time. But in my mind, as I said in the script, the name of the game in 2022 is focus, right? We have a world-leading portfolio of differentiated solutions that are unmatched by any other company, and we're only about 10 or 11 percent penetrated into a very sizable market opportunity, right? So, we are going to focus and really put all of our resources and investment on driving more revenue growth from the products that we have today, given there's so much runway in front of us. Over time, we'll expand out into other clinical application areas on both sides of the business, but we think our best path to success is driving more revenue growth with the world-leading products that we have today, and that's why we've made a lot of those changes in the commercial infrastructure that we were talking about earlier.

excellent um one last one um and i promise i'll let somebody else ask a question um based on your remarks um as it pertains to the subscription model it sounds like you know maybe that's in a little bit more of an evaluation phase still and that maybe as we're looking to to model your business here in 2022 much less beyond that but in in 2022 It sounds like maybe we should be, you know, thinking of ICAD's business, ICAD's detection business specifically, as for the most part, the way we would have modeled it, you know, historically would still prevail with maybe just a small percentage shift. Is that the right takeaway there?

I think that's right in terms of how we see it today, Per. In Q4, we started to see increasing demand from our customers for an operational model by which to acquire our products. And the reason we were seeing this demand is actually a great one, right? This is coming from customers who really want to implement our technology. They really believe in the clinical and workflow value proposition that we're presenting. but they are budget constrained, right? And it could be a year before they get it in the capital budget or their budget cycle isn't coming around anytime soon, but yet they're anxious to deploy the technology, right? So they're looking for ways to pay for this outside of the capital budget and into more of an operational model, right? So I would say in the first half of the year that the operational model or what we're referring to as the subscription As I said before, we do believe that it's going to represent a very small piece of our business. And we're monitoring that closely. And we consider this a little bit of sort of the piloting phase, if you will, where we're understanding the customer need and we're responding to that. Once it does become a meaningful part of our revenue, then we will introduce a metric to track that and we will be super transparent about it going forward. But, of course, we don't want to introduce a metric until we're a little bit more confident of the trajectory and how much of a percentage of our business it will represent. So at a minimum in the first half of the year, we're expecting it to be a small percentage of the overall business.

Very good. Thanks for taking all the questions.

Of course.

Thank you. Our next question is from Marie Thibault. with BTIG. Please go ahead.

Hi. Thank you for taking the questions tonight, and congrats to you, Stacey, as well. Glad to have you leading the ship here. Thank you so much, Maria.

I appreciate that.

Yes, of course. Wanted to ask a question here about the postponed processes here on the enterprise deals. How soon could we start to see some of these processes restart, and can you give us a sense of kind of the value of you know, those purchasing decisions late in the year?

Yeah, in terms of the ones that out of Q4 that pushed into 2022? Exactly, yes. Thank you. Yeah, so we had several large enterprise deals that pushed primarily out of December. And, you know, this has been a dynamic, of course, we've been talking about for a couple of quarters now. And Each quarter, we close some deals from the previous quarter. So that backlog gets worked off a bit, and then oftentimes it gets offset by enterprise deals in the present quarter that push forward a bit. So it's not an exact science, but we certainly do continue to close deals from the previous quarter. And we have, in fact, already in Q1 closed some from Q4. It's, you know, they don't necessarily transfer quarter to quarter, right? So some of the deals from 2021 now will need to go back through the capital budget cycle. And, you know, this is what is part of what's driving a small amount of the demand for the operational model. In some rare cases, the budget gets diverted to some other type of technology, but almost all of these deals that have pushed forward are still active. and many of them are expected to close in 2022. So given this dynamic of, you know, the last few quarters where they push forward, our strategy to try to combat that, right, is simply to build a larger pipeline of deals, right, to mitigate against the risk of some deals slipping every quarter, right? If we have more deals that can sort of backfill, then we can, you know, not have as much of an issue that we've been talking about for a few quarters. So So it was a handful of deals. Some of them have already closed. And as I said earlier, we're trying to put in place on a number of different fronts some processes that will tighten up that sales cycle from what it is today. And today it can be a very wide range, right? It can be anywhere from a number of months to over a year, right? So we're really trying to get at what are the actions that we can take that will shorten that sales cycle and and allow us to be more successful closing those deals sooner.

Got it. That's very helpful. Thank you for that. If I could ask a two-part question very quickly here. You've mentioned broader tech compatibility. I know that ICAD had really great compatibility before. So what was missing that you are now able to cover in terms of system compatibility? And secondly, should we expect any change in the skin business on the therapy side? That momentum last year was Really great, and I'm wondering what we should expect in 2022. And thanks for taking the questions.

Yeah, sure, absolutely. So when it comes to the compatibility question, we today have greater compatibility than certainly any other competitor in the space. The one compatibility that was lacking for us was compatibility with the latest generation Hologic hardware. It's called Clarity HD. Right. And it took us a little while because we had to wait for enough customers to purchase that hardware so that we could collect the data and test the algorithm on it. Right. And put it through an FDA approval process. So we now do have that compatibility. So we now have full compatibility, not only with the entire Hologic Tomo product line, but with every other major mammography vendors complete product line. And that is not a claim that any other competitor in the AI software space for mammography can claim. So it's a very big differentiator for us. On the skin therapy side, we're very optimistic about the skin business going forward. We had a great year, obviously, in 2021. We continue to be very pleased with our relationship with our partners. There is a large and growing pipeline of opportunity, and we expect that dermatology will continue to be a meaningful part of the therapy overall revenue, a major driver of growth again in 2022. Thanks so much. Sure. Thank you.

Thank you. Our next question is from Frank Takanan with Lake Street Capital. Please go ahead.

Hey, thanks for taking my questions. Just a couple from me today. I wanted to start with a little bit more broad market related question. I know you speak to a 10 to 15% penetrated into the market. So I was really hoping we could target that other 85 to 90%. So first, could you kind of frame up what percent whole logic holds of the aggregate market? And then second, when you think about that 85 to 90% of the market, maybe give us a little bit of a feeling on what portion you feel is most likely interested in a subscription model versus a capital sale given some of those maybe lower volume where a subscription model could make a little bit more sense.

Sure, Frank. So the way to think about how we size the opportunity today There are approximately 11,000 3D mammography systems in the U.S. market alone. It's a little bit different OUS where there's more of a 2D market than in the U.S., but if we take the U.S., there are approximately 11,000 tomo systems that are installed today, and they are growing at a rate of about 300 a quarter. If you look at that 11,000, close to 9,000 of them are Hologic systems that are in the market today. So that's why some of the comments earlier about really sort of tuning some of our sales efforts to address that large install base. And we think we're in a great position to do that because the AI software that is offered by Hologic is not compatible with their full product line without a hardware upgrade to the latest generation. So there are thousands of older Tomo systems in the market that have no AI solution attached to them today. So that's certainly going to be a large part of our strategy going forward. A lot of our attachment rate in that initial sort of 11, 1200 profound AIs that we've sold in the US has been outside of the Hologic install base. The good news is that we have landed some of the largest and highest profile Hologic accounts. they're very happy with our product and they have become they have radiologists who have become evangelists for our products spokespeople have done marketing with us who are speaking out on our behalf and so that's going to be really helpful as we go more aggressively after this segment of the market as a way to drive growth in 2022. okay and i just wanted to follow up with one on uh seasonality normally we see a step down from

the fourth quarter of a year to the following first quarter following it. With the different moving pieces, I was hoping you could just kind of speak directionally to how you think about seasonality, given some enterprise slipped into Q1. We had some Omicron impact in Q4. I just wanted to see if we could level set the thought process around seasonality for this year.

Sure. Let me let Charlie take that question.

Frank, to help you understand how we're thinking about seasonality, 2022 and the flow of business throughout the year, it's probably helpful to think about it as two halves of the year. When we look at the first half, we think it'll be somewhat flat with the first half of 21, primarily due to lingering COVID effects and operational changes. So Q1 will likely be sequentially down from Q4, but not as sharply as in past years. Looking at the second half of 22, we think growth will be more normalized, somewhere near the 30% with the easier comparison in Q4. Okay, that's helpful.

Thanks for taking my questions. I'll stop there.

Okay, thanks, Frank.

Thank you. Our next question is from David Ducali with JMP Securities. Please go ahead.

Yeah, hi, this is actually Danny on for Dave. Just a few quick questions for me. First, just following up on the sales restructuring efforts and the additions that you've made there. Just curious how much of an incremental expense you should consider this to be in 2022? And then could you give us any color on how long these types of reps typically take to mature and move towards peak productivity? Thanks.

Yeah, thanks Danny for that. We actually are not expecting incremental expense associated with the new hires. In some of the territories, you know, we've had some turnover in the field organization, and the reps that have come in are replacing others that have gone out. So when all is said and done, the expense associated with the field organization will be largely the same that it was in 2021. Sorry, what was the second half of the question?

Oh, just how long these types of reps take to onboard and mature and move towards peak productivity or just become more productive. Right.

Yeah, we typically think of it as being about a quarter, right? The good news is that the new personnel that we've brought on are highly experienced in the space that we're operating in. And in some cases, the reps actually were calling on the exact same customers in the same territory. So that always makes the onboarding faster. But we typically think of it as about a quarter, right, to get everybody trained and and up to speed and fully productive. So we've moved extremely quickly in doing this. We started before the end of the year, and we moved very fast with a top-tier sales recruiter in the last two months, and we're getting everybody trained and onboarded, and we expect to see productivity out of these reps, certainly in Q2.

Great. Thanks for the questions, and congratulations.

Thank you. Thank you so much, Danica.

Thank you. Our next question is from Frank Bezboa with Oppenheimer. Please go ahead.

Hi, this is Daniel on behalf of Frank Bezboa. Thanks for taking the question. Could you add some color on the distribution agreement with our terrorists?

Sure. So what we're finding from our customers today is that They want to acquire our technology from different channels, right? In the past, the AI part of the sale either came from ICAT or came from an imaging company. And now increasingly, our customers want to potentially purchase it from a PACS company or, you know, what an emerging channel is these AI aggregators like Arteris. And The difference with Arteris is that they are able to offer a cloud-based solution, and the customer can acquire the technology and pay for it on more of a SaaS-type model. So for the very small percentage of our customers who are looking for a solution like that, we have this partnership in place. Arteris is also... going into a different call point in the hospital, right? They are typically going in through IT. So these typically would be deals that we really wouldn't necessarily know about or be accessing. A lot of our deals begin at the clinical level in the mammography department, although certainly there's a lot more IT involvement than there was in the past. This just represents a new way for a certain small subset of our customers that we expect will probably grow over time that want to implement the technology in that fashion so that they have a cloud-based option until we have our own cloud-based model, which we expect to have about a year from now. Great.

Thanks for taking the question. Congratulations, Casey.

Sure. Thank you so much. I appreciate it.

Thank you. Our next question is from Yale Jan with Laidlaw and Company. Please go ahead.

Good afternoon, and thanks for taking the questions as well as congrats, Stacy. Thank you, yeah.

Thank you so much, yeah.

No problem. And the first question is that given that the therapy product seems much lower in the fourth quarter compared to the previous three years, Was that mainly COVID situations or Omicron situations, and do you anticipate this to bounce back this year?

Yeah, so we felt less of an impact in the dermatology segment of the therapy business from Omicron because a lot of that business goes down outside of the hospital in dermatology practices through our partners. It was really just a timing situation on deals. Q4 was a bit of an anomaly relative to the other quarters for our dermatology business, but it does not diminish the fact that we still have a very robust pipeline of dermatology deals. We expect to sell significantly more dermatology systems in 2022 than we did in 2021, and we have a growing pipeline of opportunity. So nothing to read into that in terms of the lesser performance in Q4.

Okay, great. That's very helpful. Maybe two quick ones. First one is that in terms of subscription versus licensing model for the enterprise accounts, do you anticipate that what might potentially might be the breakdown of that? Do you guys have some sense of that and try to align your selling effort toward that as that could be the future, really a bigger piece in your revenue income?

So, you know, this is Charlie. We're still working through different models, and we're testing the market and evaluating different models. So we are not expecting it to be a significant portion of the business, at least in the first half. So we'll keep you posted as we find out more. There are a lot of different variables, and we're trying to work through them all.

Okay, maybe the last question here is that in terms of the Hologix accounts, which is obviously important, so custom-based there, do you anticipate most of your revenue or custom will be the older Hologix machine holder, or you feel that you can also potentially also compete with their newer machine, even they do have their AI system as well? And thanks.

Right. Yeah, no, it will be a combination of both. We have had success winning some larger deals where the customer has the latest and greatest platform from Hologic. In fact, it probably represents the majority of our Hologic installations at this point. But we do think that the older Hologic systems are a great opportunity, right, because many of the competitive products, including Hologic's own AI product, is not compatible with with those systems without a hardware upgrade that costs, we're told, between $75,000 to $100,000, right? So those represent a great opportunity for us to go in and offer those customers a fabulous clinical and workflow proposition that can really help them improve patient care. So that's a big part of our strategy is to go after that segment. But to date, it's been both, the legacy ones and the newer ones.

Okay, great. Thanks, and again, congrats on your safety.

Thank you, Yao. Thank you so much.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. The next question is from Chris Pasquale with Guggenheim. Please go ahead.

Thanks, and congrats, Stacy. You guys have been talking about the need to add a subscription option in detection for a while now. And as you mentioned, it seemed to take on more urgency recently. So I'm a little surprised to hear that even 22 is still going to be slow in terms of making that transition. And I'm wondering, are you going slow because the demand is still limited at this point? Or is it because of the need to manage the cash flow hit from having too much of the business transition too quickly? Or are you having trouble finding a model that works for you guys?

Chris, this is Charlie again. I think that it's a combination of all of it. We need to get it right. And there are a lot of different moving parts. And until we actually move to SaaS, it's a little bit of a bridge. And we want to make sure that we are meeting the customer needs and also doing it in a way that works for us. And quite frankly, there's some operationalization issues that we need to work through and get right. So that's why we're taking a slow measured process in this is we just want to make sure that we don't come out too quickly and not meet the market where they want us to be.

But to be clear, right, the large majority of the demand in the market is still for a capital perpetual license, right? So for every customer that wants to move into this operational model, there are many more that still want to buy it on a capital purchase, the wide majority of the customers. Now, we could see that change as we go throughout the year. And in the back half of the year, we could see growing demand for it. So we're going to, you know, calibrate on that every quarter and keep track. And we're even managing all of our deals and our pipeline at that level to understand what model the customer will fit that customer best. And as we go through the year and we see how the market reacts, then we'll certainly calibrate and update that, you know, that fact. But right now, most of our customers still want to buy a perpetual license.

Okay. And how close are you to being able to offer a software as a service model that would, to Charlie's point, that would be kind of a full cloud-based system versus this bridge solution?

Yeah, sure. So we're probably about a year out from that. We have some technology hurdles to overcome with getting these very large file sizes of 3D mammography up to the cloud. And there's some work to do there, but we do intend to go in that direction. We do intend to have that as part of our offering, and the timeline is probably about a year from now.

Okay. And then on the therapy side, it seems like GLEOX is progressing slower than hoped. What are the biggest gating factors there? Are there any things that you guys can do to pick up the pace? And if you meet the target of 10 patients by mid-year, that doesn't seem like enough critical mass to really be able to show any meaningful data. So how far out are we looking before you realistically are in a place where you could have some results that are meaningful?

Yeah, I think we're likely about a year out from now. We're finally seeing progress relative to that clinical trial. Like many other clinical trials in healthcare during this period of the last couple of years, it's been very hard to get attention on these clinical trials, but we've seen a lot of progress in the last 30 days and expect to, as we said, treat at least 10 patients by the end of Q2, and that could be conservative. We expect that number to accelerate from there as we get into the back half of the year. So probably about a year from now, we'll be able to have the first report out. The good news is that even though we are slower than we wanted to be on this trial, We have continued to treat a lot of brain cancer patients, right? So there are, you know, a total of over 30 brain cancers that have now been treated at our site in Russia. We have treated about 15 brain metastases patients. So those are a different profile of patients than the recurrent glioblastoma. So we have some other exciting work and progress relative to treating brain cancer that is outside of that trial. that we'll also be reporting on at the appropriate time.

Thanks.

Sure. Thank you.

Yes, thank you. There are no further questions at this time. I'll turn the floor back to management for closing remarks. Thank you.

Okay, great. Thank you so much. I want to thank everyone for listening to the call tonight. I am truly thrilled to have the opportunity to lead ICAD's through the next phase of growth. I'm just so proud to work with such a talented and dedicated team here at the company and to be able to continue to bring innovations to market that are saving lives and improving lives for countless patients across the care continuum. So we look forward to providing you with further updates on our progress as the year goes on. Thanks to everyone again and have a great night.

Thanks. This concludes today's conference. All parties may disconnect. Have a great day.