icad inc.

Good afternoon, ladies and gentlemen, and welcome to the ICAD Inc. First Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Tony Takazawa, Director, Investor Relations. Sir, the floor is yours.

Thank you, Matthew. Good afternoon, everyone. Thank you for joining us today for ICAD's First Quarter 2022 Earnings Conference Call. On the call today, we have Stacy Stevens, our President and Chief Executive Officer, and Charlie Carter, our Chief Financial Officer. Before turning the call over to Stacy, I would like to remind everyone that we will be making forward-looking statements on the call today. These forward-looking statements are based on ICAD's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release and our filings with the US Securities and Exchange Commission. ICAD undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I would also note that management 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. With that, I'll turn the call over to Stacey.

Thank you, Tony, and good afternoon, everyone. I will begin with some high-level comments on our first quarter results and then provide additional granularity around the current business environment and key areas of focus for the company for the rest of 2022. As we indicated in our pre-release on April 21st, Q1 has been a period of rapid change for our company. As we announced the appointment of Timothy Norris Irish as Chairman of the Board of Directors, he will succeed Michael Klein who will remain as the Director of the Board. On behalf of the Board of Directors and our entire management team, I would like to thank Mike for his contributions as Chairman of the Board over the past three years. And we are excited to welcome Tim as he offers tremendous insight and decades of relevant experience in corporate leadership and health technologies, along with a proven track record of leading innovation and strategic change. We also recently announced that our Chief Financial Officer, Charles Carter, will be leaving the company for personal reasons. Charlie will continue to serve as CFO to assist with the transition of his responsibilities until his successor is in place. I would also like to thank Charlie on behalf of the Board of Directors and the entire ICAD team for his work as CFO over the past year. He has played an important role during a period of transition for the company, and we appreciate the contributions that support our company's future success. We have previously shared that we believe we are currently at an important inflection point that offers significant potential across both sides of our business. With a robust portfolio of world-leading, differentiated solutions in large, underpenetrated markets in the detection segment, and the expansion of ZOFT in promising applications such as the treatment of brain tumors in the cancer therapy segment, our team has been laying the foundation for a path to continued success this year. We plan to continue to leverage the strength of our robust portfolio of powerful solutions in 2022 and beyond by expanding access to the technologies in our existing portfolio. aggressively targeting broader market opportunities and offering more flexible ways for our technologies to meet customer needs. Based on what the team accomplished in Q1, I believe that we have the right plans and the right team in place to successfully execute our strategic vision and elevate the company and our technologies to new heights. Although the global pandemic continued to present challenges in the earlier part of Q1, We are thankfully beginning to return to a more normal environment as COVID-related restrictions are beginning to loosen in many areas around the globe. This has, in many cases, resulted in a more positive customer environment and better access to decision makers. We saw particularly positive progress in the EU as COVID restrictions began to ease and traditional business activities such as cross-border travel began to open up once again. From a supply side perspective, we proactively took a number of steps starting last year and continuing into Q1 to reduce the potential for supply chain disruption. While this resulted in higher than anticipated cash burn, we believe it was prudent to establish an inventory cushion to protect against component shortages and inflationary price increases, and we believe we are now well positioned to weather any potential short-term disruption that may come the rest of the year. Moving forward in 2022, we plan to burn substantially less cash in the subsequent quarters, and we have developed plans for a range of scenarios that should allow us to conserve and ultimately generate cash in 2023. Taking a closer look at Q1, ICAD's total revenue was $7.52 million. This is on track with the expected trajectory we previously laid out and is a particularly encouraging result given continued COVID headwinds early in the quarter and the fact that we were simultaneously overhauling our commercial infrastructure to position the company for long-term success. Overall, our Q1 results provide a solid foundation to build on for 2022, and I would like to express my sincere gratitude to our hardworking and dedicated teams for their laser focus and execution in achieving these results. Looking at the detection business, the key aspects of our plan are to increase our penetration of the broader available market and to better address the needs of the emerging enterprise level customers. However, both initiatives require different sales approaches and skills than what we have emphasized in the past. And it became clear that the skills enabling our early success were not the same skills that we needed to be successful moving forward. As a result, we have worked diligently to adjust our sales motion and have made great progress in enhancing our commercial infrastructure with new and highly successful sales personnel in key territories across the U.S. Although these changes are recent, they are already having a positive impact on our business. In Q1, we saw continued positive momentum in our goal to further penetrate the broader available market, and in parallel, we have implemented several initiatives continually drive our growing pipeline. We recently announced particularly positive momentum for Profound AI among customers equipped with the leading provider of 3D mammography systems, with customers continuing to report ongoing workflow advantages and clinical superiority with ICAD's suite of AI-powered breast health solutions compared to other breast AI solutions. Some of these customers have been and will share their experiences using Profound AI in our new Profound Insights, Profound Impact webinar series, which we recently launched and will run through the rest of the year. As expected, our Salesforce's skill sets and relationships are proving to be a key element that is enabling us to successfully reach new customers. For example, in Q1, our team solidified an enterprise deal with one of the largest world-renowned academic research institutions with multiple locations throughout the US. as well as several other key contracts with high profile facilities across the country and worldwide. We are pleased with the early success we are seeing and excited by what we can accomplish moving forward. Another key aspect of our plan is to better address the needs of enterprise level customers who are becoming a very important opportunity in the detection market. These customers are very attractive as they generally represent larger installations with longer term strategic partnership opportunities. We are seeing increased traction with these customers and we have evolved our sales approach and leveraged the skill sets of our enhanced commercial team. Our strategic plan also includes providing customers more flexible ways to procure our technology. These efforts include expanding our legacy partnerships to now include various PACS vendors and working with AI aggregators. We were pleased to see some of these partners contribute to our overall revenue in Q1. As mentioned on the last call, we began testing a subscription model in Q1 for some customers who prefer the operational expense approach due to budget constraints. Historically, the purchasing model in the detection business has been a capital investment decision and a perpetual software license purchase, but we have learned that some customers may prefer a more flexible payment plan. The subscription model allows a segment of our customers the ability to acquire our technology when capital budget is not available and also begins to build an installed base that we believe will generate long-term recurring revenue for the company. While there is growing customer interest for this model, we still expect it to be a small percentage of our overall revenue in 2022, and we continue to lead with a capital model. We are also making great strides as we continue to collect additional clinical data to support our leading-edge Profound AI RISC product. We believe that this first-in-kind technology not only has the potential to change the landscape of breast cancer screening, and also that short-term personalized risk assessment should become the standard of care for women. The portfolio of evidence supporting this technology continues to grow, with four studies currently underway. We look forward to seeing research presented from some of these studies at upcoming trade shows in Q2, including the International Workshop on Breast Imaging, which will take place in Belgium later this month, and the European Congress of Radiology, which will take place in Vienna this July. While we are proud to report that we have a growing number of early adopters of this technology, we expect that the additional clinical data will make the use of profound AI risk even more compelling for clinicians looking to improve breast cancer screening outcomes. In addition, we are exploring various product and pricing combinations that could help drive adoption of this capability moving forward including a bundled pricing model where all of our breast AI technologies can be adopted together as a premium package. Now turning to our therapy business. Revenue in the therapy segment fell short of our expectations due primarily to a restructuring of one of our dermatology partners who is presently positioning itself to go after the derm opportunity in a more accelerated fashion, including adding additional sales resources on their end. We fully expect this segment to rebound considerably in Q2 and expect our U.S. dermatology business to continue to be the primary growth driver for ZOFT in 2022. We are currently installing our first ZOFT system for skin in Florida in Q2 with our partner Dermatherapies and expect to convert several more new customers in this key market in the months ahead. We also have successfully onboarded our West Coast partner, Dermacure RT, and expect to see several more key placements in Q2 as a result of this strategic relationship. With the COVID restrictions beginning to lift in many areas earlier this year, I'm happy to report that we were able to attend multiple in-person trade shows in Q1 that have stimulated our already growing pipeline of dermatology prospects. With more conferences and events planned in Q2 in various geographic locations, We look forward to continuing this momentum. Additionally, we continue to advance the GLIOCS trial, our multinational clinical study examining the use of interoperative radiation therapy with the ZOFT system for the treatment of recurrent glioblastoma. Researchers have now treated five patients under GLIOCS protocol to date at Providence St. John's, and we expect to have at least 10 patients treated with ZOFT brain IORT by the end of Q2, while concurrently adding multiple new sites in both the U.S. and global markets. For example, recently, doctors at Cesaris University in Cesaris, Spain, have successfully treated multiple cases of recurrent glioblastoma with the ZOFT system in preparation for beginning the GLIOCS trial. This facility has also used ZOFT EBX to treat patients with brain metastases, rectal cancers, and head and neck tumors. We are also encouraged to see more facilities adding new indications for the ZOFT system as it provides a practical solution that offers the potential to optimize treatment times and reduce side effects, which ultimately enhances patient care. For example, clinicians at the Miguel Cervet University Hospital in Zaragoza, Spain, have recently utilized ZOFT-IORT in their cancer treatment regimen for sarcomas and brain metastases. Notably, this facility has been using the ZOFT system for the treatment of breast and gynecological cancers for years, with now more than 700 breast cancers and 200 gynecological cancers treated to date. We are also continuing to see interest in forward momentum in ZOFT in other global markets, with a significant sale in Taiwan in Q1. Now looking at our international AI business, as noted earlier, we continue to see improvement in the selling environment, especially in the EU. This can be attributed in part to a reduction in COVID restrictions and the introduction of a subscription pricing alternative. We expect our European business to continue to contribute more revenue than has been the case in the past two years where this geography was hard hit by COVID constraints. We remain optimistic as we look ahead as we believe we now have a stronger commercial infrastructure in place and a solid and growing pipeline to ensure the trajectory we are on will continue to position the organization for success and bring our world-leaning portfolio of innovative solutions into the hands of more clinicians worldwide. We remain very confident in the unique value our portfolio of technologies offers and I believe we are successfully navigating the changes necessary to capture more of that opportunity and drive growth through 2022 and beyond. With that, I will now turn the call over to Charlie to walk you through the financial highlights from the quarter. Charlie?

Good afternoon, everyone, and thank you, Stacey. I'll now summarize our financial results for the quarter ended March 31st, 2022. Total revenues for the quarter were $7.5 million, a decline of $1.1 million, or 13% from the first quarter of 2021. The detection segment revenue was $5.5 million, down 3.5% from last year. Within detection, the first quarter 22 product revenue was $3.9 million versus a strong comparable first quarter of 2021 that was up 34% over the prior year. Product revenue declined year over year largely due to lingering COVID-19 impact in early Q1-22, causing access to decision makers to be challenging, especially for large deals, and the restructuring of our commercial team in the United States. Detection service revenue was $1.7 million, up 6.4% over the prior year. The therapy segment revenue was $2 million down $923,000 or 32% versus the first quarter of 2021. Therapy product revenue was $696,000 down 50% year over year against a very tough comp from last year. Services revenue were 1.3 million down 15% year over year. As Stacey mentioned, the decrease is primarily due to a restructuring of one of our dermatology partners as they restructure and are focused on quickly growing their sales and support infrastructure. We expect therapy revenue to improve in Q2 and the remainder of 22. Moving on to gross profit. On a percentage of revenue basis, gross profit was 71.5% for the first quarter of 22 compared to 72.8% for the first quarter of 2021 with the reduction related to temporary lower average selling prices for certain Zoff supplies. On a pure dollar basis, gross profit for the quarter was $5.4 million as compared to $6.3 million last year, largely reflective of the reduction in revenues. Total operating expenses for the first quarter of 2022 were $8.9 million, a $1 million or 14% increase year over year. Operating expenses in 22 included a $300,000 increase in the reserve for doubtful accounts reflecting the general global economic concerns and potential elevated risk to trade receivables. This is mostly a general reserve increase and is not related to any material known defaults. The operating cost increase also reflects lower expenses in 2021 due to lingering COVID-19 reductions in employee levels as compared to full staffing and additional costs related to building the U.S. sales team capabilities this year. The company remains committed to managing operating expenses with the selective focus on spending to support current revenue target achievement and future revenue growth, while maintaining the clinical superiority of our technology. Operating loss was $3.5 million in the quarter ended March 31, 2022 versus $1.5 million in the quarter ended March 31, 2021. This increase in operating loss was due to lower revenues and higher operating costs in Q122 versus Q121 as already discussed. Gap net loss for the first quarter of 22 was $3.5 million or 14 cents per diluted share compared with a gap net loss of $1.6 million or 7 cents per diluted share for the first quarter of 2021. This year over year increase represents the change in operating loss offset by $100,000 of interest expense in Q1 2021. Non-GAAP adjusted EBITDA for the first quarter of 2022 was a loss of $2.7 million versus $0.4 million in Q1 2021. Non-GAAP adjusted net loss for the quarter was $3.5 million or 14 cents per diluted share compared to $1.6 million or 7 cents per diluted share in Q1 2021 reflecting few adjustments to gap net loss in each period. Moving on to the balance sheet, as of March 31st, 2022, the company had cash and cash equivalents of $29.8 million compared to cash and cash equivalents of $34.3 million at March 31st, 2021. Cash and cash equivalents used during the first quarter were $4.5 million. As Stacy mentioned, ICAT is de-risking supply chain elongation by adding inventory. The increase in inventory levels and the timing of the payments had a large impact on cash use in the quarter. While we do not expect to see a similar uptick in inventory levels moving forward, we do believe maintaining this increased inventory level will de-risk the supply chain for the remainder of 22. There were also some non-cash impacts to our working capital in the quarter due to changes in our accounts receivable. Roughly half of the change was due to unbilled contract assets moving to accounts receivable upon invoicing. The remainder was primarily due to the difference in the strength of business at the end of Q1 versus Q4. The COVID-19 related decrease in December 2021 sales resulted in a lower accounts receivable balance, while Q1 2022 reflected ICAD's traditional monthly pattern with the majority of sales occurring in the third month, resulting in a higher relative accounts receivable balance at the end of the quarter. This concludes the financial highlights of our presentation. I would now like to turn the call back over to Tony to lead the Q&A.

Thanks, Charlie. Matthew, can we open up the lines for questions, please?

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Per Hosland from Craig Hallam. Your line is live.

Thank you. Good afternoon, everybody. Let's start with the efforts to kind of reconstruct the commercial effort, the commercial team. I think, Stacy, if I recall correctly, you had about a dozen salespeople on the detection side. And I think there were going to be about half kind of turning over there. you know, either, you know, within or outside of the company. Just curious as to where that stands, if all of the territories have been filled, if there's anything that you're still kind of in need of resource-wise on that front and bigger picture, what kind of maturation process or timeframe do you typically think about as you add new people to the organization?

Yeah, sure. Thanks for that, Per. So I'm really pleased with the progress that we made in kind of overhauling the commercial infrastructure during the quarter. We moved very fast. We worked with a top tier sales recruiter. We were able to attract great talent. As you mentioned, we turned over about 40% of our U.S. sales team. And I would characterize it as we're about one hire away from having kind of the full team in place that we'd like to ideally have. and we're expecting to fill that last territory by the end of this month. So we're really pleased with the progress. The new reps have all, except for that one that we haven't filled yet, they've all been fully trained and they are all already contributing revenue to our pipeline of opportunity. So we're really pleased that we were able to accomplish this so fast in the quarter, a lot of these folks come from a background that makes the onboarding process a little bit easier and faster. There's not as much of a ramp-up time. Some of them came from within the same industry. So there's always a little bit of time to get fully productive, but I'm very confident that as we move through Q2 that we'll have our entire team fully productive and kind of firing on all cylinders.

Okay, great. That makes sense. maybe dovetailing off of that, and you alluded to it without mentioning names, but as I understand it, I think there was at least maybe one or two people that joined your organization from the leading 3D mammography OEM out there. Correct. When you bring somebody like that in, and ICAT is hardly the first company to make a competitive hire like that, but You have embarked, I think, more aggressively in the last few months on going after that OEM customer base in terms of putting profound AI in over what type of competitive offering they might have. In terms of that kind of timing where you're going out more aggressively at that end user base, How important and how helpful is it to have somebody or somebodies, plural, coming over from that other organization in terms of going out and targeting those people? And then maybe related to that, how much sharing of best practices is there? So if somebody comes over from WholeLogic and is targeting one territory, is there any – you know, kind of tacit effort to sort of share some knowledge across other territories given, you know, those people's knowledge of where they came from.

Yeah, sure. No, great question. And it certainly has been very helpful to have some reps who sort of came from selling to the same customers in the same territory, right, who have been selling mammography, you know, with the leading provider of Tomo. So they have had a particularly fast ramp up. And in fact, even during Q1, we even had an order that was going to that vendor kind of changed over to ICAD. So I think it's really great when you have people that understand that it's important to separate the decision from the imaging hardware, separate it from the choice of the AI software, and that there are big differences in clinical performance. we've been very successful in being able to, at an increasing rate, convince our customers to separate those two decisions. And our pipeline of opportunity in that category has increased substantially, not only with some of the new reps that came on, but also with the reps that have been in place for a while. And we've had particular programs in place that measure you know, every individual's reps pipeline and what percentage of each deal is represented, you know, by the different mammography vendors. So I would say we've made progress across the board. There certainly has been sharing of information between our reps and that's always been the case, right? We have a small enough team where there's always even a weekly opportunity to share best practices among the team and competitive strategies. So we've had a lot of that going on. But I'm really pleased with the momentum and progress in terms of how our pipeline looks, not only in terms of its overall growth, but the profile of it and the mix of mammography gantries that are represented within it. And we expect that to continue to accelerate going forward.

Great. I'll ask one more. I promise, only one more. Bigger picture question on risk. Now that it's been out there a few quarters, Do you see risk as kind of almost like profound AI playing out in just another venue? And what I mean by that is I think when profound AI came out, and you may still run into this today, where you're almost selling against yourself because – A lot of clinicians probably had grown to be a little bit nonplussed by original CAD software, and you had to educate them as to why Profound was better. Is risk the same kind of playbook in the sense that older risk assessment models were not that great, and maybe now you've got to kind of re-educate or educate anew that user base as to why exactly profound risk is so much better, and in that vein, how critical are these studies that are going on right now going to drive that point home for your target market?

Yes, of course, and I think when it comes to profound AI risk, as we've said before, we're really leading a major paradigm shift from what historically has been an age-based screening paradigm in mammography to what we believe will become a risk-adjusted screening paradigm, precision screening, unique and individualized for each woman's unique risk profile. And we're certainly the only company that now is able to offer a short-term risk solution that can assess with around 80% accuracy which women are likely to develop breast cancer in the next year. There is nothing like this on the market, right? The existing models, like you mentioned, are lifetime risk models that have a lot of challenges, right? They, number one, are not very accurate. They're about 50 or 60% accurate. And they're also not very actionable, right? What do I do if I'm told I have a 50% chance of developing breast cancer in my lifetime? So we really believe that profound AI risk is going to make a major impact on breast cancer screening. And like we have said of all of our other products, we think the key to changing this paradigm is developing a very compelling body of clinical data. So a lot of our effort in the first half of 2022 has been on collecting more data on a larger, more diverse patient population to prove out the clinical performance. And we've made tremendous progress since the beginning of the year in that regard. We have four clinical studies that are underway. One of them is already having presentation coming up later this month and then again at the European Congress of Radiology in July. We have another one that we are in the final stages of collecting the data in about six months from now. We expect peer review publication on that one. And then we also have three cost-effectiveness studies around risk as well. So we've made a significant investment in these clinical studies, but we believe that they serve as a foundation and are really the necessary factor to get widespread adoption. And we're pleased with the progress that we've made, the results that we're seeing so far, and even our attachment rate of risk is continuing to grow. As I mentioned in the script, we're now sort of packaging. We're the only company that can uniquely pull together profound AI, profound density, and profound AI risk into what really is a premium AI offering. So we're doing that now and trying to position our technology as more of a premium bundle that really cannot be matched by any other company out there. And we're enthusiastic about the impact that that can have on the risk attachment rate as well.

As well you should be. Thanks, Stacey. I appreciate it.

Yeah, sure, Per. Thanks.

Thank you. Your next question is coming from Mary Tybalt from BTIG. Your line is live.

Hi, thanks for taking the questions this evening, Stacy and Charlie. Good luck to you on your next enterprise here. I wanted to start with the, I think, Stacy, you mentioned a deal that was solidified in Q1. Wanted to see if we could learn some more details about that, some of the things that led to that success, whether that revenue is going to be recognized here in Q2 or has already been recognized. And then just generally, any comments on the capital purchasing environment? It certainly sounded like it was looking a bit rosier, but would love to hear some more details there.

Sure, sure. Yeah, with regard to the environment, what I would say is that it's getting better with every month, right? Certainly our access to decision makers is getting a lot better as we go forward every month. It's still not like pre-pandemic levels, right? Because we still find that our customers still have a lot of distractions, a lot of issues that they're dealing with, in particular staffing shortages kind of across the board. So it makes it still a little bit sometimes hard to predict the timing on some deals, but it's significantly better than it was. We are able to travel to meet in person again, which has been very challenging for two years. So we're optimistic, and we're really glad to see our reps out and in their accounts again, both in the US and in Europe. With respect to the large enterprise deal, my first point that I'll make about that is that the imaging vendor who is in that account is predominantly made up of the vendor that is the leading TOMO provider. It's a little bit of a mixed lab. And, you know, the keys to closing that really were the clinical superiority that the customer found relative to profound AI, right? And the deployment of the technology across the enterprise was really to be able to provide all patients access to that same high-quality level of care, that same cancer detection accuracy, reduction in false positives, and reduced reading time. So we're pleased with that. A good chunk of the revenue from that was in Q1. However, you know, we do have a lot of, you know, service contract revenue and things that gets recognized relatively over time and technology protection type programs. So there is more revenue to come on that, but a good chunk of it did get recognized in Q1.

Okay, very good. So that sounds like it was a competitive win as well. Very good to hear. Very good. Okay. And maybe I could get a little more detail on what you're seeing so far with the subscription model. Any details you can offer in terms of, you know, the range of pricing you're thinking about or the length of some of those agreements? Would just love to hear more. Thank you.

Sure. So the subscription kind of played out exactly as we anticipated in Q1, right? We did see growing demand for that model, right? And there were some customers who we did take some orders under that model it was a very small percentage of our business really sort of immaterial not enough to even report it out and we expect that to grow over time but still overall be a small percentage of our overall revenue and in 2022 and once we you know decide that it is meaningful enough in terms of our overall revenue we certainly will be transparent about it and report a metric that will be easier to track. The timing of that is still unknown. What was great about it for us is that we were really trying to sort of achieve revenue targets and have the subscription revenue be incremental to that, right, and truly be for deals that there's no way we would have won otherwise, right? That customer has no capital budget and does not anticipate having capital budget certainly any time in 2022. So that's exactly how it played out in Q1. We got some customers that we would not have seen otherwise in 2022, but by offering them this flexible payment model where they can pay over the course of a couple of years, a little bit more than a couple of years, we're able to get them into the products and using Profound AI and recognizing the clinical benefits. So that's really going to be our strategy with every quarter, is to really try to make that subscription customer group be sort of incremental to our plan We do expect it to grow over time, and towards the end of the year, we may find ourselves in a situation where we have a higher percentage that are subscription, but right now, it's a small percentage of our business, and that's how we see it for at least the next couple of quarters.

Okay, very good. We'll stay tuned. Thanks so much. I'll hop back in. Thank you.

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

Good afternoon, and thanks for taking the questions. Just two questions here. The first one is about that academic institution you mentioned on the opening remarks. Could you elaborate a little bit more, and was that one mentioned a little bit earlier that you have recognized most of the revenue already, or that's a separate one? And then I have a follow-up.

Yeah, that is the one that I was talking about, right, that was a... you know, world-renowned academic research institution, a household name that everyone on this call would recognize. And we did, you know, it was deploying Profound AI at a number of sites throughout the country. And we did recognize, you know, a sizable percentage of the revenue in Q1. But as I mentioned, there's some ongoing service revenue and technology protection type revenue that we'll recognize in future quarters.

And if so, is that academic institution becoming one of a quote unquote newer expanded focus for you guys or you already have that beforehand, but probably a little bit more effort going forward to pursue those opportunities?

You know, it's becoming a greater percentage of our overall opportunity deal, right? We are seeing larger either health systems or multi-site academic research institutions, larger customers who are recognizing that if you don't have the technology in all of the hospitals or affiliated centers, that there is an inequity in care for patients. We hear that over and over again, where we might have started off a deal in one or two of the hospitals that are affiliated with a system, And the customer comes back to us and says, we don't want to offer women different access to care. And there's a clear clinical value in this product that's proven in clinical study. So these types of larger opportunities are becoming more and more a part of our pipeline. And again, they can take some more time to close, but I feel like we're getting our arms around some of the ways that we can manage that elongated sales cycle, whether it's better understanding our IT stakeholders, like the chief information officer, better understanding the timeframe to get through the legal requirements, right? So we're learning as we go. And I think over the last six months, we have learned a lot about how to approach these enterprise deals in a way that we can kind of plan for this elongated sales cycle and try to take some steps to proactively tighten it up. But this is great for us, right? It allows us to you know, get faster market penetration, get larger selling prices on every deal, and we're really pleased that a lot of customers are recognizing the clinical value that the product has in this way.

And maybe the follow-up question here really is that you mentioned earlier about bundling could be an approach that you help to increase the sales. Could you elaborate a little bit more? I understand maybe there's more things you don't want to talk about, but overall, how should we think about this particular approach, which has been practiced by many people in many sectors? And thanks.

Right. Yeah, sure. So what we're finding is a lot of times our customers might get capital budget once a year or maybe once every couple of years. And when they do, they want to make sure that they acquire the latest and greatest and sort of full portfolio of innovation that's available from us, right? So In the past, we've more sold things a la carte, and we're finding that if we position and message this differently, especially now that we're starting to get some results from the risk clinical studies, that was really an important piece of this, that we're able to go in with really powerful messaging that, again, no other company can match. There's no other company that can offer the level of clinical performance and profound AI, plus our breast density, and certainly no other company that has a short-term risk assessment solution like we do. We're in the early stages of this. We're just getting going with it, but we're finding already a lot of interest from our customers, and we're finding that our sales team is very interested in leading with this sort of premium bundle. as a way of sort of maximizing our differentiation versus all of our competitors.

Okay, great. That's very helpful, and congrats on all the progress.

Yeah, thank you, Yale. Thank you so much.

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

Great. Thanks for taking my questions, and congrats on all the progress.

Yeah, sure. Hi, Frank. Thank you.

Hi. So let's start with the funnel, if we can, funnel slash pipeline, if we can talk about that a little bit more. It sounded pretty optimistic, like things are looking up. So maybe just bring us a little bit deeper into pipeline prospects right now, anything you can share with us versus how it feels right now versus maybe last quarter and versus last year, and then how that plays into the expectation of a second half inflection in the detection business.

Sure. Yeah, so we're very pleased with the progress in our pipeline. As I had said on the call last quarter, we really weren't addressing the full market opportunity. You know, previously we were a little bit more reliant on some of our legacy partnerships and we didn't have full compatibility with our product line to Profound AI to all of the latest generations of the mammography systems in the market. Now we do, and so we're able to access the entirety of the market. And that has really made an impact on our pipeline and how it's building. So if you sort of layer on the changes that we made in the commercial infrastructure with now having access to the full availability of the market, we most certainly see that reflected in our pipeline quarter to quarter, even from a quarter ago to where we stand now. And we're very optimistic that We're on the trajectory that we had laid out last quarter in terms of, you know, seeing increasing, you know, growth and revenue each quarter. And, you know, we're very pleased with how the pipeline looks right now and the results of our efforts are definitely, you know, being successful.

Perfect. That's really helpful. And then maybe just to follow up on Marie's line of questioning on the subscription model, If you were to speculate, what portion of the 10,000 plus 3D systems do you feel are most interested in that flexible payment model? Or what portion do you feel are more interested in the capital equipment? Just kind of trying to get a feel for how you're viewing the market and what different models they may elect to pursue in future periods.

Yeah, that's a really interesting question, and it might not be the answer that you would expect, right? So we initially expected that maybe low volume centers or smaller entities with lower budget might prefer that type of a model. What we have found so far, and again, you know, this is a very small number of deals. They've been all over the map so far, right? They could be a hospital. They could be an imaging center chain. We don't really have enough data points yet to really say that there is one single profile that will fit this particular model. I think we'll get more color on that and clarity as we go forward, but right now it's too small to really classify it as any one particular type of customer.

Okay. Fair enough. I'll stop there. Congrats again on all the progress.

All right. Thanks, Frank.

Thank you. That concludes our Q&A session. I will now

go ahead okay thank you so much and I want to thank everybody for joining the call tonight we're very pleased with the progress that we've made in the past quarter and we look forward to providing you with additional updates throughout the rest of this year as we continue to advance our business and leading innovations really continue to drive sustained market leadership and, of course, work to create significant additional long-term shareholder value. So with that, I wish everyone a great night, and we'll talk to you next quarter.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.