icad inc.

Good day and welcome to the ICAD Inc. Fourth Quarter and Full Year 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, Lenore Faber. Ma'am, the floor is yours.

Thank you, Operator. Good afternoon, everyone. Thank you for joining us today for ICAD's Fourth Quarter and Full Year 2022 Earnings Call. On the call today, we have Dana Brown, our President and Chief Executive Officer. Before turning the call over to Dana, 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. ICANN 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 the reconciliation of our GAAP to non-GAAP measures at the end of the earnings release. With that, I'll turn the call over to Dana.

Thank you, Lenore, and good afternoon, everyone. For those of you I haven't had the opportunity to meet, I want to introduce myself. My name is Dana Brown, and per our March 13th leadership transition announcement, I'm the new president and CEO for ICAD. I've been a member of ICAD's board of directors for the past year and stepped into the chairman role in January. I want to take a few moments to tell you about my background and why I'm uniquely qualified to lead ICAD at this point in time. I spent the first 25 years of my career in the technology industry as a founding member of multiple successful ventures, including co-founder and chief marketing and business development officer for MetaSolve Software. MetaSolve was essentially ERP for telecom, media, and internet providers. During my tenure, we became a category killer, consistently winning deals against many of the larger players of the time, including Lucent and Telcordia. At the time, we had a unique business model choosing to focus our efforts on building disruptive, innovative technology while partnering with entities like EY for implementation services, who at one point in time had a $50 million backlog for our projects. I was responsible for our business development strategy with rigor. We continuously evaluated by builder partner options as ways to grow our footprint across technology markets and geographies. We implemented an aggressive acquisition strategy, enabling us to accelerate getting to market faster than our competition. We originally developed the platform for the mainframe environment. Now I'm really dating myself and subsequently ported it to client server and later redesigned it to be fast. My co-founder and I took the company public, and it was later acquired by Oracle, as it was and still is one of the largest enterprise systems ever built on the Oracle suite. After Metasolve, I became CEO of Ipsum Networks, which was a network performance management software company credited with pioneering route analytics technology, and it was acquired by Cisco in its early stages. I went on to be on the turnaround team of other tech ventures in the content delivery and mobile space. until 12 years ago when I made a shift from the tech sector to the nonprofit sector. I joined United Way Worldwide as its first chief digital officer and architected a co-development partnership between United Way, a 140-year-old, $5 billion global nonprofit, and Salesforce, a 24-year-old, eight-year-running, world's most innovative company, an unlikely partnership to build a new cloud called Philanthropy Cloud. It's a platform that empowers corporations to put their values into action. It extends each company's reach by engaging its customers and employees in philanthropic endeavors, enhancing brand reputation and awareness, attracting and retaining top talent, and delivering greater impact. Most recently, I served as a Senior Vice President, Chief Strategy and Operations Officer for Susan G. Komen, the world's leading breast cancer organization. Komen has invested more than $3.3 billion in groundbreaking breast cancer research, community health outreach, advocacy, and programs in more than 60 countries. At Komen, among leading other strategic initiatives in our turnaround and transformation, I led our efforts to create My Komen Health, the first patient care team and researcher engagement platform. designed to guide patients through the end-to-end breast cancer journey with access to experts, resources, and aid, as well as Share for Cures, the first ever patient-powered breast cancer research registry, storing information ranging from determinants of health, risk profiles, health status, including documentation of care delivery, such as diagnoses and interventions, all gathered from digital and non-digital EMR, EHR data, as well as genomic data. To summarize, and not to be trite, but I've been there and done that. I've built companies, teams, and products from the ground up. I've leveraged partners to create scale, become the category leader, and amassed an ecosystem that's thriving and sustainable. I've led product strategy through seismic shifts and underlying platforms and licensing models, and I've been responsible for changing business models, ways of doing business, through challenging turnarounds, implementing sizable cost reduction measures, while simultaneously diversifying revenue streams. And now I'm honored to be leading this incredible company. Working alongside our talented team, our board, our clients and partners, I'm committed to upholding our vision to be the world's most pervasive and personalized suite of AI cancer detection solutions, changing lives for patients around the world and creating value for our shareholders and stakeholders. I'm uniquely prepared to leverage my experience and expertise to position this company for future growth. So enough about my background. Let's dive into our business and financial update. While both the therapy and detection lines of business have great market opportunity and potential, we believe our core competencies and focus need to be solely on detection and our strategy around AI. Therefore, we recently announced the company is exploring strategic options for the Zoft business. We remain confident that the ZOFT technology has the potential to positively impact the lives of cancer patients and the providers who care for them on a global scale. As we move through this time of transition, we want to explore strategic options that could accelerate the accessibility of this technology and provide more focus and synergies to its growth. We've hired two banks to help us explore these options. Retaining these two banks was driven by inbound relationship-based strategic inquiries. As we explore these opportunities, we've reduced operational costs and overhead for that line of business. We have streamlined operations to focus on what's essential to servicing and supporting new sales, as well as our existing installed base, resulting in an annualized decrease in expenses of $1.3 million. Moving to the detection side of our business, in the battle against cancer, We believe early detection and diagnosis is a key part in transforming the patient journey and quality of care. Breast cancer is the most common cancer in women worldwide and the second leading cause of cancer death among women in the US. With ICAD's early detection technology, we have the ability to detect cancers early, giving individuals the opportunity for more positive outcomes and more lives saved. As mentioned on previous calls, An important change for our company, driven by customers on the leading edge of the adoption curve, is a transition of our business from a perpetual license on-premise technology model to a more sustainable subscription-based license and SaaS or cloud-based technology platform. This business model and technology platform change is important as over time, it ensures a steady, reoccurring revenue stream that can grow more quickly and enable us to invest more in our products and services to meet our customers' needs now and in the future. Combining the subscription method of payment with the SaaS method of deployment offers an accelerated way for customers to adopt, deploy, and scale our technologies with significantly lower upfront costs. SaaS implementations enable customers to leverage new functionality more easily and quickly without costly capital outlays associated with traditional model. While demand continues to be promising for this model, we're still in the early stages of the adoption curve, and the percentage of our overall revenue from subscription licenses remains small. You'll hear more from us on this metric as it becomes a more significant percentage of our overall revenue. As noted in our earnings call announcement, we have implemented further cost reduction measures to continue to align and streamline our cost base. We're focused on creating a broad and long runway needed to change the business while we run the business. It's a reset and recalibrate year for us, and we're already making important changes. We recently made several changes to the operations, which have reduced annualized expenses by 4.3 to $4.6 million. And annualized cash burn has been reduced 4.9 to 5.2 million. As a result, together with exploring strategic options for the therapy business, we're now projecting to be cash flow positive and return to profitability before the end of 2024. We believe these changes give us the runway needed to successfully navigate our business model transition without needing to raise additional capital. I also want to be clear that transitioning our business model isn't just about moving to a SaaS subscription platform. We're going through a rigorous and thoughtful process to evaluate a range of growth opportunities, such as going direct to patients, working with our industry clinical partners with offerings like a new GPT-powered digital care platform, access to elective risk assessments, and other personalized predictive scoring solutions. We're looking at pursuing payer and reimbursement strategies to get risk assessments and AI-RED screenings covered. particularly for women with dense breasts as early detection can save thousands of dollars in medical expenses incurred with late stage diagnoses in their courses of treatment. We're partnering with large employers with women's health initiatives to provide AI powered mobile screening services on campus. We're looking at supporting patient advocacy organizations on the front lines of tackling health disparities and utilizing aid programs to help all women get access to the breast health care they need. And we're looking at expanding our cloud-based AI platform to address other cancers and modalities. We have strong existing partnerships that can help us mitigate the risk of expanding into these new initiatives. Partnerships like our strategic development and commercialization agreement with Google Health to integrate its artificial intelligence technology into our breast AI suite. As previously discussed, this is the first commercial partnership Google Health has entered into to introduce its breast imaging AI into clinical practice. And it is positioned to improve our market-leading breast cancer AI solutions for mammography, as well as expand access to our technology to millions of women and providers worldwide. Like our partnership with Solis Mammography, the largest independent provider of breast screening and diagnostic services in the U.S., Solis is the first in the country to offer profound AI risk with a new direct-to-patient program called MAMO+. Additionally, last quarter, we announced a new development and commercial collaboration agreement with SOLUS focused on using mammography to define cardiovascular risk, a new application that could identify millions of women at risk for heart disease using data obtained from their mammogram. With heart disease being the number one killer among women in the U.S., 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. And lastly, I would be remiss if I didn't mention the ability to further leverage our existing partnerships with top medical technology companies like GE and Siemens, and of course, our developing relationship with RAD Partners. In summary, from a business standpoint, I'm focused on creating runway, preserving cash, and building a defensible and competitive long-term strategy that diversifies our revenue stream and smooths out our customer concentration. We expect to be able to share the metrics and milestones of our strategy in the third quarter of this year. I'll now summarize our financial results for the fourth quarter and the year ended December 31st, 2022. Revenues for the year ended December 31, 2022 were $27.9 million, a decrease of $5.7 million or 17% over $33.6 million in fiscal 2021. The detection segment revenue decreased $2.3 million to $19.7 million with a $3.2 million reduction in product revenue offset by a $0.8 million increase in service revenue. The therapy segment revenue decreased 3.5 million or 30% to 8.1 million for full year 2022. The decrease in therapy revenues was primarily due to a 2.8 million decrease in product revenue. Total revenue for fourth quarter of 2022 was 6.5 million, down 17% from 7.8 million in the fourth quarter of 2021. The detection segment revenue decreased 0.9 million to approximately 4.6 million with a 1.2 million reduction in product revenue offset by a 0.3 million increase in service revenue. The therapy segment revenue decreased 0.4 million or 17% to 1.9 million from the fourth quarter of 2021. The decrease in therapy revenues was primarily due to a 0.4 million decrease in product revenue. Moving on to gross profit, on a percentage basis, gross profit was 71% for the fourth quarter of 2022, compared to 73% for the fourth quarter of 2021. Gross profit for the fourth quarter of 2022 was 4.6 million, as compared to 5.7 million in the fourth quarter of 2021, reflective of the reduction in revenue. Total operating expenses for the fourth quarter of 2022 were 7.96 million, a $1.9 million decrease, or 19%, from $9.85 million in the fourth quarter of 2021. The decrease was related to cost-cutting measures implemented in 2022. The operating loss decreased $0.8 million to $3.3 million in the quarter ended December 31, 2022, from the same period in 2021. This decrease in operating loss was predominantly due to the $1.9 million decrease in operating expenses as offset by decline in gross margin from reduced revenue. Gap net loss for the fourth quarter of 2022 was 3.1 million or 0.12 per diluted share compared with a gap net loss of 4.1 million or 0.17 per diluted share for the fourth quarter of 2021. This year over year decrease in the gap loss per share is primarily due to the operating expense reductions. Looking ahead, following the 4.3 to 4.6 million of reduced annualized expenses, as I just mentioned, we are now projecting to return to profitability before the end of 2024. Non-GAAP adjusted EBITDA for the fourth quarter of 2022 was a loss of 2.8 million. Non-GAAP adjusted net loss for the fourth quarter of 2022 was 3 million, or 0.12 cents per share. Moving to the balance sheet, as of December 31st, 2022, the company had cash and cash equivalents of $21.3 million compared to cash and cash equivalents of $34.3 million at December 31st, 2021. Cash and cash equivalents from operating activities used during the fourth quarter of 2022 were $3.1 million. This concludes the financial highlights of our presentation. And I would now like to turn the call back over to the operator to lead us through the Q&A.