icad inc.

Good afternoon, ladies and gentlemen, and welcome to the ICAD Incorporated Third Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ms. Lenore Faber, Executive Assistant to the Chief Executive Officer. Lenore, the floor is yours.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for ICAD's third quarter 2022 earnings conference call. On the call today, we have Stacy Stevens, our president and chief executive officer, and Steve Sarno, our interim 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 in our filings with the U.S. 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 will 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 GAAP to non-GAAP measures at the end of the earnings release. With that, I'll turn the call over to Stacey.

Thank you, Lenore, and good afternoon, everyone. As we close out another quarter and look ahead towards 2023, I continue to be optimistic about the company and its prospects. With a portfolio of market-leading, first-in-kind technologies, we are addressing significant unmet needs in global health, and I am confident that we are taking the right steps and that we are building the right team to ensure continued growth for the company and create additional shareholder value. That said, this is a transformational time for us in many ways. As we shift our business towards even more sustainable, future-driven models of business that are positioned to propel our company to new heights, in the last quarter we have continued to make significant strides to ensure we meet and exceed our desired endpoints. Looking at the detection side of the business, ICAD's Breast AI Suite remains the only complete AI solution for breast cancer detection, density evaluation, and risk assessment solution available on the market today. And we continue to see this world-leading technology as the ultimate value driver for the company. With strong competitive differentiation and a superior value proposition, particularly when it comes to efficiency, performance, and workflow benefits, underlying demand for our technology remains strong. But more importantly, our solutions continue to have a positive impact on patient lives. And we believe they will, over time, become standard of care. As we continue to assess future opportunities for our business, evolving customer needs, and our existing operations, it is clear that things will look different going forward, and this has necessitated several meaningful changes in how ICAD does business. The first is to optimize our operational model to better address our largest opportunities in the most effective and efficient manner. To that end, we are implementing major changes, one of which involves shifting to a more partnership-focused go-to-market approach. As an example of this is our new relationship with the largest radiology practice in the United States, Radiology Partners, which we announced this afternoon. I will discuss the rationale and benefits of this partnership in more detail later on the call, but we are very excited by the initial order we received this month that allows access to our technology to hundreds of thousands of patients, as well as the developing potential of this new relationship. Another major change is our ongoing transition to a subscription software model. This model offers a number of benefits for the company and our customers, as it offers an accelerated way for customers to adopt, deploy, and scale our technologies with significantly lower upfront costs compared to a one-time license sale. The subscription model also offers customers the ability to add new functionalities more easily than in a one-time license sale model and without costly capital outlays. This model not only drives significant long-term recurring revenue opportunities for the company, we believe it can generate at least twice the amount of revenue per customer over five years compared to the one-time perpetual model. We have also seen a marked increase in customer demand in this more flexible model with more subscriptions sold in Q3 than in the entire first half of 2022. And no subscription we have ever booked has ever been canceled. This validates our decision to move to this model and offers tangible proof of the strength of the underlying demand for our AI technology. However, as previously mentioned, Measuring subscription revenue in the near term poses a unique reporting challenge as the revenue it generates is recognized over time. Therefore, based on your feedback and in order to help our investment community better measure and follow the success of our transition, we are introducing a new metric, Subscription Annual Recurring Revenue, or SARR. At its most basic, SARR for a given subscription is the amount of recurring annual revenue that the subscription is expected to generate. Steve will further explain the specific SARR financial metrics shortly. As part of the transition to this new model, we are proactively aligning our cost structure to better match the revenue trajectory of these subscriptions and other anticipated recurring revenue models. To that end, we have proactively taken out over $3 million in annualized expenses while maintaining investments in key growth initiatives on a go-forward basis. We believe that as we evolve to a more efficient, partner-focused approach, this will ultimately enable a lower cost structure for the company. Very importantly, I want to stress that based on our strategic plan and including these cost reduction efforts, We do not have any plans to raise additional equity or debt at this time. Turning now to the third quarter, the environment continued to be overshadowed by macro factors continuing to impact and delay capital budgets, such as high inflation, rising interest rates, supply chain issues for some gantry manufacturers, and the associated concerns brought about by these issues. In addition, there are ongoing customer challenges with regard to staffing. This environment was fairly consistent with what we have seen so far this year. In fact, at least two major health systems have expressed a strong desire to acquire our AI solutions, but full capital budget freezes are causing delays to their purchase plans. It is this overall economic climate, along with the sharp rise in the number of subscriptions versus capital licenses, that contributed to our reported 6.4 million in total revenue. We are working diligently to mitigate these impacts via a heightened focus on subscription sales to drive long-term recurring revenue, company-wide expense reductions, and the expansion of strategic partnerships and enterprise deals, such as with radiology partners. We expect to announce additional key partnerships in the near term. Taking a closer look at the detection business, total detection revenue in the third quarter was $4.4 million, down 27% year over year. Although this quarter is particularly challenging to compare as Q3 of 2021 had not only multiple significant enterprise deals, but also a large inventory bulk purchase from one of our OEM partners. As previously mentioned, demand for our breast AI solutions remained strong as evidenced by the growth and success of the subscriptions. In fact, further accelerating subscription sales is assisting us in overcoming several macro and capital budget challenges. due to the favorable economics for the customer, while also enabling us to further penetrate key enterprise customers. We have also made great progress in expanding our strategic partnerships across the industry, including today's announcement of our developing nationwide agreement and first order with Radiology Partners, the largest radiology practice in the U.S. Nationally recognized for their clinical leadership in mammography, Radiology Partners provides mammography services to millions of women per year across more than 3,000 facilities, including the top 10 largest health systems in the country, making them an exceptional partner. This collaboration is expected to solidify ICAD's position as Radiology Partners' provider of breast AI solutions and will leverage Radiology Partners' clinical expertise, scale, and leadership position to expand access to ICAD's Breast AI Suite to potentially thousands of physicians and millions of patients. ICAD's technology can be deployed to the Radiology Partners Network via RP Cloud, significantly increasing the potential for adoption across their network of practices and unleashing the ability to improve mammography screening for millions of women across the country. This type of strategic relationship is a prime example of our more targeted and efficient go-to-market approach. We expect to explore similar partnerships in the future to further broaden access to ICAD's Breast AI Suite. Last quarter, we also announced an exciting partnership with Solus Mammography, the largest independent provider of breast screening and diagnostic services in the US. This multi-year strategic research and commercial collaboration is expected to result in a powerful AI solution that will quantify the presence of breast arterial calcifications in a mammogram to assess the risk of cardiovascular disease. With heart disease being the number one killer among women in the US, this collaboration not only offers the potential to address a significant unmet need in patient care, but also to penetrate a sizable new market. Given that approximately 40 million women are screened in the US annually, the evaluation of breast arterial calcifications at the time of breast cancer screening could be a simple and efficient way to screen millions of women at risk for heart disease each year as part of an overall preventative care strategy. ICAT and SOLUS have worked closely together over the last two years in the fight against breast cancer through the application of our Breast AI Suite across SOLUS's more than 100 locations. And we look forward to working with their exceptional team to expand on our shared mission and take on one of the greatest threats to women's health. In order to better support the expected expansion of the detection business, we are taking bolder steps to optimize our commercial team, particularly in the United States. As we have reported in previous quarters, we have been working to strengthen our organization throughout the year with new skill sets we believe are crucial to achieving our goals in the future. We have gone a step further and are now in the final stages of bringing on a new commercial leader for the detection business who will focus exclusively on driving sales in the United States of our breast AI suite. We believe this decision will enable greater focus and execution on our growing pipeline of opportunities as we move forward. Now turning to our therapy business. Total third quarter therapy revenue was $2 million. Similar to Q1, the results were impacted by the slower than expected ramp of one of our partners as they conducted a second financing round, as well as our own decision to stop taking additional orders from partners with aging accounts receivable. There continues to be strong underlying customer demand from dermatologists, and we are working to bring at least one new partner on, which we expect to improve results in this segment in Q4. In terms of other application areas, we continue to progress our brain clinical study and expect to see early positive report on the safety and feasibility of the treatment to date, presented at the upcoming Society of Neuro-Oncology annual meeting later this month. We also have new updated data with longer patient follow-up for both our breast and skin applications, both of which have been submitted for publication in peer-reviewed journals and for presentation at major upcoming industry events. I am also pleased to report that the Steve Biko Academic Hospital in Pretoria, South Africa, recently became the first site in Africa to offer GYN treatments with ZOFT. Gynecological cancers are some of the most common cancers among women worldwide, but Africa represents 20% of the world's new cervical cancers each year, and cervical cancer is the most common cancer in South Africa. Due to its small footprint, mobility benefits, and low-energy, high-dose treatment, the Zoff system is particularly well-suited to address these health challenges. So, in conclusion, we made significant strides over the last quarter that will continue to yield benefits in the months and years ahead. We know that there continues to be strong demand for our AI technology, especially as indicated by strong interest in the subscription offering. We are demonstrating success in the transition to subscription as evidenced by the growth in ARR and booked ARR, including backlog. We are proactively aligning our cost structure to better match the flow of business. And importantly, market leaders such as Radiology Partners and SOLUS are providing us with an efficient path to market while also demonstrating their belief in our capabilities and future as they expand more of their business on ICAD technology. While the near-term reported results are not ideal, I believe that these encouraging data points are indicators that we are making the right changes and that ICAT is correctly positioning itself for success moving forward. With that, I will turn the call over to Steve for a detailed review of our Q3 financials.