icad inc.

Greetings. Welcome to the ICAD Inc. Second Quarter 2023 Earnings 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. Please note this conference is being recorded. I will now turn the conference over to your host, Jessica Burns. You may begin.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for ICAD's second quarter 2023 earnings call. On the call today, we have Dana Brown, our president and chief executive officer, and Eric Lundquist, our chief financial 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 and 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 like to 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 that 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 Dana.

Thank you, Jessica, and good afternoon, everyone. Let's begin with our business update. On the therapy side of the business, revenue for Q2 was $1.7 million compared to $2.3 million for Q2 2022. We're continuing to make progress with parties interested in acquiring the therapy business. While we move forward with these discussions, we continue to operate the business and customers worldwide continue to treat patients with its targeted therapy. On the detection side of the business, we're continuing to make significant progress in positioning the company for growth. While revenue is similar to last quarter at 5.9 million, as noted on previous calls, we implemented several strategic changes earlier this year. including cost reductions to align and streamline our cost base, reducing annualized expenses by 4.3 to 4.6 million, and annualized cash burn by 4.9 to 5.2 million. We're pleased to report significant progress last quarter with game-changing partnerships, exemplifying our company's commitment to creating the world's most pervasive and personalized suite of AI cancer detection solutions for our shareholders and stakeholders. As announced earlier today, we executed an amendment to our development and commercialization agreement with Google Health, which number one, enables us to integrate Google's AI technology with our profound detection for 2D mammography for use upon regulatory approval worldwide as an independent reader for breast cancer screening. And number two, extends our partnership for 20 years. On a global basis, over 250 million mammograms are performed annually, with roughly 40 million of those performed here in the U.S. and another 40 million in the EU. Outside of the U.S., the conventional double reading workflow utilized by most countries, where mammograms are assessed by two separate radiologists, has become increasingly challenging due to the scarcity of radiologists worldwide. As the global radiologist shortage continues to impact patient care, healthcare organizations are seeking clinically proven solutions to help their radiology departments run more efficiently and adeptly handle the workload in front of them. Clinical studies are already underway to evaluate our technology as a second reader, and we look forward to sharing more about this research in the months ahead. You may have seen the recent surge of media coverage on the use of AI in mammography as a potential second reader, which has heightened awareness of this pressing need, underscoring the importance of a solution like ours among clinicians and consumers alike. Through this unique long-term partnership, ICAD will be leveraging differentiating combination of Google Health's intellectual property and AI algorithms with ICAD capabilities of profound detection to commercialize and bring to market a best-in-class second reader and first reader solution. Turning now to the recent announcement of finalizing our strategic multi-year commercial agreement with Radiology Partners. Securing this partnership represents another achievement for ICAD. Radiology Partners is a leading provider of mammography services to millions of women across more than 3,200 facilities including 17 of the 20 largest health systems in the country. We are honored that Radiology Partners has selected ICAD as its provider of breast AI technologies. We are working closely with Radiology Partners and actively deploying ICAD's advanced technology through their cloud to their network of facilities, significantly increasing the potential for adoption and driving improvements in mammography screening for countless women across the country. The initial order from Radiology Partners, which was recognized in first quarter 2023, represents less than 5% of the total potential from this partnership. It's a long-term relationship and will take time to adopt and roll out across their large enterprise. In addition, in second quarter, one of the largest outpatient imaging providers in the U.S., SimonMed, implemented the latest version of Profound AI across its enterprise of 170 locations in 11 states. With this cutting edge solution now available across SimonMed's entire network, we're pleased that it is assisting hundreds of SimonMed clinicians each day and millions of patients who are screened for breast cancer at SimonMed facilities each year. Our Salesforce continues to secure opportunities with some of the most esteemed and prestigious health care facilities worldwide. With new licenses sold last quarter to the Cleveland Clinic, TriHealth, Shutter Health, and St. Joseph's Health in Canada, we continue to expand use of our technologies by more clinicians and providers in the U.S. and worldwide. And while you've heard us announce in past quarters winning deals with large enterprise customers like Solus, Radiology Partners, SimonMed, Extension, and Cleveland Clinic, who collectively serve about 15% of the U.S. mammography screening market, great potential lies ahead for ICAD, as many of these customers are in the early stages of rolling out our technology and are continuing to expand into more sites and markets each month. We continue to see demand for our subscription model. As hospitals are continuing to recover from a financially distressing 2022, Amid several post-pandemic headwinds, including inflation, high labor expenses, and supply chain issues, our subscription model helps to eliminate barriers to adoption and provides a viable path for customers to purchase our technology without a significant capital outlay. We're pleased to report that we closed six subscription deals in Q2, bringing us to 15 year to date and offering long-term potential for reoccurring revenue in the years ahead. Of note, our agreement with the Cleveland Clinic represents the largest subscription deal for our company to date. As a prestigious multi-specialty academic medical center that is renowned for its exceptional healthcare services and ranked as one of the nation's top hospitals, this partnership not only reinforces ICAD's position as a trusted leader of mammography AI solutions, but also demonstrates the widespread recognition of the value we bring to facilities, clinicians, and patients. Last quarter, we were also incredibly honored to have received the U.S. General Services Administration's prestigious AI Healthcare Challenge Award for our Breast AI Suite. Our solution, profound detection, is already trusted by our government and military. As last year, the U.S. Department of Defense, the DOD, determined it met its stringent cybersecurity prevention threshold and granted the technology and authorization to operate, allowing its use in DOD healthcare facilities, which care for military service members, retirees, and family members. This recognition validates the hard work and dedication of our team in developing innovative solutions that positively impact patient care and healthcare providers around the world. Turning now to research progress, the body of evidence supporting our Breast AI Suite continues to grow. Research supporting our technology, presented in the first quarter this year at the European Congress of Radiology, or ECR, meeting in Vienna, continued to generate media attention throughout second quarter in nationally syndicated FOX and CBS segments. Dr. Cathy Schilling, the medical director of the Christine E. Lin Women's Health and Wellness Institute, at Boca Raton Regional Hospital discussed findings from her study that found profound AI helped nine dedicated breast radiologists at the facility find 23% more cancers without increasing the rate of recalls. Similarly, the Henry Ford Health System in Michigan recently reported their own real-world evidence, revealing an astonishing 23 to 27% increasing cancer detection rates using our technology. And our latest Profound Impact, Profound Insights webinar featured an esteemed breast imaging radiology from the Cleveland Clinic, Dr. Laura Dean. In our exclusive event, Dr. Dean shared how she and the other breast imaging radiologists at the Cleveland Clinic are using our Breast AI Suite to significantly increase cancer detection at the facility. She also shared incredibly compelling clinical case studies demonstrating how our technology empowers their team to find even small, subtle cancers, which tend to be the types of tumors radiologists fear most. During the past quarter, we also achieved several key milestones with our OUS sales channel, or outside of the United States, further expanding the global reach of ICADS technology. Our distribution channel achieved a major breakthrough in Luxembourg by securing the first countrywide implementation of profound AI for 2D mammography and 3D mammography. Although it's a small country, this is a remarkable achievement as each of the eight breast imaging sites across the country will now use ICAD's products in their diagnostic workflow, and they plan to integrate into their screening program. In addition, via expansion of our distributor territories, we secured our first sales in Turkey and the Czech Republic. Furthermore, our direct sales channel in France achieved success in a fiercely competitive market by securing a partnership with one of the largest radiology groups in the country, Oradonaze. The partnership with Oradonaze already has resulted in the sale of six Profound AI 2D and 3D licenses, and we anticipate further expansion to multiple sites nationwide. Through our OEM sales channel, we joined forces with GE to secure a significant Italian tender for 26 new mammography units, all to be equipped with PowerLook density assessment. The installation of these units is scheduled for later this year and will further extend the accessibility of our cutting-edge technology to women in Italy. On the clinical side, Dr. Dow from Paris, France, who's collaborating with ICAD on our breast arterial calcification, or BAC product, recently presented her findings at CISIM, a French breast imaging congress in May. And lastly, before we move to the financial update, I just want to remind you that we're actively assessing and modeling revenue growth and footprint expansion scenarios. As communicated on prior calls, we plan to update you on our strategic plan and relevant metrics and milestones on our third quarter earnings call. In summary, we're taking decisive actions to drive rapid transformation within the company, prioritizing stability, cash preservation, and the development of a strong competitive long-term strategy. Our goal is to diversify our revenue steam and reduce customer concentration, ensuring a more sustainable and resilient future. I'll now turn the call over to Eric for a detailed review of our Q2 2023 financials.

Good afternoon, everyone, and thank you, Dana. I'll now summarize our financial results for the second quarter ended June 30, 2023. Total revenue for the quarter was $5.9 million, a decline of $1.7 million, or 23% from the second quarter of 2022. Although this is down from last year, it is generally in line with our expectations. The detection segment revenue was $4.2 million, down 21% from last year. Within detection, second quarter 2023 product revenue was $2.3 million, down 34% over the prior year. This decline is attributed to a variety of factors, including our transition to subscription, longer purchasing cycles, increased competition, and budget constraints. Detection service revenue was 1.9 million, up 3% over the prior year. The therapy segment revenue was 1.7 million, down 0.6 million or 26% versus the second quarter of 2022. Therapy product revenue was 0.3 million, down 66% year over year. Services revenue was 1.4 million, up 6% year over year. Moving on to gross profit, On a percentage of revenue basis, gross profit was 74% for the second quarter of 2023, which was up from 73% the second quarter of 2022. On a pure dollar basis, gross profit for the quarter was 4.3 million as compared to 5.5 million last year, largely reflective of the reduction in revenues. Total operating expenses for the second quarter of 2023 were 6.3 million, a $2.3 million or 27% decrease year-over-year. This improved run rate reflects the implemented cost-cutting measures previously announced. Operating loss was $1.9 million in the quarter ended June 30, 2023 versus $3.1 million in the quarter ended June 30, 2022. Gap net loss for the second quarter of 2023 was $1.8 million or $0.07 per diluted share compared with a GAAP net loss of 3.1 million or 12 cents per diluted share for the second quarter of 2022. Non-GAAP adjusted EBITDA for the second quarter of 2023 was a loss of 1.5 million versus 2.7 million for Q2 2022. Non-GAAP adjusted net loss for the quarter was 1.6 million or 7 cents per diluted share compared to 3.1 million or 12 cents per diluted share in Q2 2022. reflecting a few adjustments to gap net loss in each period. Moving on to the balance sheet, as of June 30, 2023, the company had cash and cash equivalents of $19 million compared to cash and cash equivalents of $21.3 million on December 31, 2022. This concludes the financial highlights of our presentation. I would now like to turn the call back over to the operator to lead the Q&A.

Certainly. 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. Your first question for today is coming from Per Aslan with Craig Hallam Capital.

Thanks. Good afternoon, Dana and Eric. I want to start with today's announcement. Might as well. It's a nice headline with Google Health. Great to see that relationship expanding. I'm curious from the standpoint of replacing one part of the double read paradigm Is that going to be a country-by-country effort across the globe? And how much momentum really is there in that regard? And the reason I ask is because I feel like the inefficiency that comes with the double read, the radiology shortage, these things are things that we've talked about at several RSNAs now. So I'm just curious if we're really nearing that sort of a tipping point now where maybe you know, these things have kind of conspired together and now the AI proliferation and your relationship might really be leading, you know, leading to the point where that double read can start to go away worldwide.

Hey, Per. Thanks for the question. So, it's a, there's a, I would say, a little bit of layering, right, in terms of the speed with which countries and then individual imaging centers will adopt it. So first, I would say we're definitely seeing momentum. In fact, you may have seen news in the recent press. And if not, we can be sure to provide you with some links to it about this work happening in Scandinavia. So they've kind of been on the leading edge, if you will, of kind of trialing this. There are already clinical studies underway in the UK that will begin kind of stepping into and participating, you know, with Google. But in terms of the regulatory approval, you're right. It is going to be, well, first of all, if you're talking European Union, you know, you have a block of countries, right, that go together to define regulatory requirements. So, you know, once, for example, we receive EU approval, then that's going to make it easier in the countries that accept that regulatory, I'll say designation, versus other countries around the world may have their own regulatory requirements that they need us to go through. Occasionally, countries will also want some proof, I'll say, that their population can benefit from this specific type of work. But I also think as time goes on, we're going to see a little bit more acceptance of research work that's done in another related, perhaps even neighboring country, also, you know, satisfying, if you will, the information needs for a particular country before they approve the technology. Because you're right, you know, the efficiencies that are gained are immense, especially in today's not only radiologist shortage but but also in terms of price points and the ability to retain those radiologists. So I think it's going to pick up speed. I think if you're thinking about the U.S., I do think we're going to continue to lag for a lot of different reasons. So I think you're going to see outside of the U.S., particularly in Europe, And in Asia Pacific, you're actually going to see them pull ahead in terms of deploying the technology in this manner.

Okay. Okay. That makes sense. Let me turn to the other headline or recent news item from Friday afternoon, the announcement of the at-the-market facility, you know, up to $25 million. Given that you ended second quarter with about $19 million in cash, it looks like you've only used about $600,000, $700,000 during the quarter. You've been putting efforts in place to cut costs further. You could be poised to be taking some cash in from a potential divestiture exhaust. So I guess I'm curious at a big picture level, kind of what was the thinking in terms of putting the program in now? And are there areas of investment, opportunistic investment that you're seeing right now that you might want to be capitalizing on, such as some of these clinical investments?

Yeah, yeah. So great question. So at a high level, we put the ATM in place because my understanding, again, reminding everybody kind of five months, five and a half months, if you roll into the role, is the company has had an ATM in place a couple of different points in time in the past. And I think just to be honest, in terms of various management and leadership transitions, it had lapsed. So just to be prudent, we wanted to get one filed and active. To your point, it might be opportunistic. There may be an opportunistic need for it. There may be also a very strategic need for it. Right now, today, we're still working through our analysis, as I mentioned, on the strategic options that we're evaluating, ways to expand the business. We've mentioned this on prior calls, going direct to patient, working with large employers, particularly that are self-insured or that have large employee wellness programs that they fund. going deeper into breast health. So beyond just mammography, perhaps, you know, ultrasound, MRI, you know, five months ago, I wouldn't have dreamed that this Google 20 year Google relationship was going to happen this fast. So, and you're right to, you know, make sure we have, I'll say first mover advantage and really leverage the strength of this partnership. We need to be prepared to, to support the regulatory approval process in parallel in many countries or regions at the same time. So we have some analysis going on to make sure we understand the resource needs for that. Even Red Partners, right, which we announced I think now probably a week and a half, maybe two weeks ago, securing that deal, that's a long-term relationship. And, you know, we'll take us, you know, honestly, a few years to roll out across their network because it's so vast, as well as, you know, new technology and new solutions that together with Red Partners, we think of and innovate and develop. So to use a phrase from my Texas background, it's a little bit fixing to get ready. So making sure that we just have a mechanism in place. If and when we have, you know, support from our board, And we have the, I'll call it the supporting ROI models to substantiate using any additional funds.

Sure, that makes perfect sense. Okay, one more quick one for me. Speaking of big deals, congratulations on the Cleveland Clinic subscription sale that you referenced. realizing, like RAD Partners, it may not be as large a network, but realizing that it is a more complex organization, how do you think about, you know, how many locations are we talking about? Did they take on the full product suite? And when do we start thinking about a P&L impact there? And over a number of quarters.

Yeah. Yeah. So Cleveland Clinic is getting started with our core product, which is detection. So using it in screening mammography today. As with most of those large customers like that, or I'll say particularly innovative and kind of leading edge, they're taking a look at the density and the risk solutions as well. I would honestly need to check with our sales team to understand the full rollout timeline for Cleveland Clinic across all of their sites. And that's something that we can definitely follow up with you on. But I think similar to, you know, I mentioned in the update, I just, I wanted to make sure because I think, you know, there's a bit of a tendency once we announce a new customer to kind of like, okay, now, now move on to the next new customer, right? Instead of like, To your point, thinking about, okay, this is a customer with a couple hundred locations. They're not all going to be up and running. Not all of the radiologists will be up to speed. It takes time to kind of roll that out. And so there's additional revenue opportunity within these accounts because they may have gotten started with a pilot site or a proof of concept site. And then over time, as they deploy it to more of their locations and more of their markets, there's more upside potential for us. And so Eric and I are working on a way to model that, right? So, because it helps us think about it internally. It's a little bit of a matrix to model where we have different, I'll say, kind of product packages. Do they buy the whole bundle? Are they buying just a single product today? And then over time, you know, they may opt into deploying others. and then mapping that according to the number of sites they have and how they're going to roll it out. So we've actually started, I'll say, kind of that spreadsheet or that model, and that's one of the pieces of information that we hope to be able to distill and share more clearly when we get to the next quarter earnings call. We're hoping that there'll be some good metrics in there to educate everyone on to help you with your models as well.

Excellent. Okay. Thank you for all the answers, Dana. I appreciate it.

Oh, yeah.

Yep, no problem. Your next question is coming from Marie Seiboldt at BTIG.

Hey, Dana. Hey, Eric. This is Sam Liberon for Marie. Thanks for taking the questions this afternoon. I have a couple questions on the Google Health Partnership, and maybe I'll just take them one at a time here, but Have you guys submitted that integrated ALGO for CE-MARC yet? And if not, do you have any visibility about when you might submit it?

Yeah, we have not submitted it yet. Maybe I'll take your other question and I'm going to pull up the timeline while we're chatting. It's still a few months away, right, from being finished from the developer's point of view, right, and then kind of going through our own testing and test databases. So still development work in progress.

Okay. Okay, understood. And then, you know, have you guys disclosed, I guess, the financial arrangements, how they're structured, if it's a revenue share or licensing fee or anything you guys have shared publicly about the deal?

Looking to Eric here, if we've shared anything historically. So it is a revenue share. So we are, let me put it this way. We will be the device manufacturer of record, right? So that's why we have characterized it as a commercialization agreement. So we'll be the ones taking the technology to market and then selling it. And then we'll pay a royalty back to Google for, you know, use of their IP and in the effort. So Google is not actively selling AI technology to imaging centers and hospitals. They really want to be the R in R&D.

Okay. Okay, that makes sense. And maybe more of a higher level one, and it's kind of following up on Per's question here, but how incremental of an opportunity could this be, right? Because from our understanding and all the data, the detection now goes already quite good. So You know, is there a certain point where you might get an inflection? I guess I'm just trying to understand, you know, the opportunity here from the agreement.

Yeah, yeah. So the second agreement, I'll say is the, I'll call it upside, I guess, opportunity, right? Like what makes this better, you know, than the first agreement that we had? It's really twofold. The first is the length of time. The first agreement was a five-year agreement. This takes us out to 20 years. It's huge, right? I was like, I still, sometimes I still, as you can hear, I was like, it's still a little like, wow. Um, especially in the world of technology, right. To think 20 years ahead. Um, so like it's a long-term committed relationship, as you can probably imagine, like we're envisioning lots of, of innovation, right. To happen along the way. So that's number one is just the length of time that we're going to be partnering. And then number two is the approved use of our combined efforts as a second reader or even an independent reader. So the first agreement I'll describe it as was really the purpose, right, or the permissible use was in a more traditional mammography reading setting, like honestly, like we have here in the U.S., I don't know, which is you go in for your mammogram, the patient, AI algorithm is running, it's helping the radiologist, but the AI algorithm can't run on its own. It's not independent, right? The radiologist has to use it. They have to, you know, agree with it. They can use it to support their findings or recommendations, but the AI cannot be independent. This is huge because this is now permitting the ability for this algorithm that we're jointly developing for us to apply, right, for regulatory approval, for it to be used independently, right, without, you know, that human involvement. So that really speaks to, I think, Google's confidence in the algorithm in ICAD. As you can probably imagine from a regulatory approval, you know, you're asking a piece of technology to tell someone whether or not they have cancer without involving a human in that process. It's a little scary, even as I say it, you know, out loud, just kind of like thinking through this. But, you know, as the algorithm is getting more and more and more accurate, which is what we're seeing in, you know, in our testing and such, I think that there's huge upside potential. Because, again, you are changing an entire, you know, say, countrywide standard of for the way in which mammography is delivered to their whole population. So, yeah, it's big.

Okay. Well understood. I appreciate the out of color there. I'll jump back in queue here. Thanks.

Your next question for today is coming from Yale Jen at Laidlaw & Company.

Good afternoon, and thanks for taking the questions. And I'm going to also start with the Google deals. First of all, I believe that the press release indicated for 2D only. What do you think the opportunity that is for the United States versus Europe or other countries which are more commonly using the 2D instead of 3D?

So the first agreement, which is still in place, is 2D and 3D. So this agreement builds on top of that. The reason this second press release is just talking about 2D is because the use of a second reader is really outside of the U.S. We do not have FDA approval. No organization does, right, to... not have a human radiologist in the standard of care, right, in the clinical pathways for mammography. So, you know, today it really doesn't apply to the U.S. And then outside of the U.S. then, the most common type of mammography is still 2D. But the agreement will enable us over time, again, back to that length of time, you know, we can use the core algorithms which is both 2D and 3D, at some point in time in the future when the U.S. does, you know, hopefully begin to embrace the second reader workflow.

Okay, great. That is very, very helpful. And maybe one more question on that, which is, you mentioned about the regulatory process besides the, so what, should we anticipate any sorts of prospective analysis or database in general for the approval? I understand there's a country to country or region to region difference, but overall, how should we see that?

You mean from, help me understand a little bit more. So you mean from like a timing standpoint?

In terms of the process or the study needed or database needed to be able to approve in the European countries.

Yeah, yeah. So it's a little bit, you know, remains to be seen. The first studies that we're doing are actually in the UK with the NIH. It's very, there are actually two studies underway. a third study kicking off here in the next few weeks that will be very, very large scale. So, you know, my gut says, you know, other countries are doing a bit of a let's watch and see. As we begin to publish the results of these studies, would they accept them, you know, as clinical evidence for their own populations? Or for whatever reason, right, would they want, you know, their own country by country study. I think, you know, from an EU standpoint, our hope is that the study that we're doing in the UK is the one that we, so I mentioned there are three studies, right? So the prior two studies are the ones that we're leveraging for the EU submission, which should help with several countries, right, that are a part of that, you know, that body. And then we'll have to, you know, just kind of learn as we go and as we watch the rate of adoption happen through other countries that do not accept the EU regulatory mark or the CE mark, what they may require.

Okay, great. That is very helpful. Maybe I can sneak in one more question.

Sure.

In earlier press release, you indicated there's a readout of AUC-ROC margin of 11 points. How should we read this data, in other words, the difference between the second reader versus the AI reader? And what does that sort of, that readout provide for people to think or the user to think?

I would say kind of at its simplest right way to kind of think about that percentage, that 11.5%, is that the algorithm is exceeding the average radiologist, I'll say AUC score, by that percentage. So 11.5% better in terms of the accuracy than the average radiologist. And this was a study involving six radiologists where the AI outperformed the six human radiologists.

Okay, great. Thanks a lot and congrats on the progress.

Yeah, thanks.

Your next question is coming from Frank Tekinen at Lake Street Capital.

Great. Thanks for taking the questions. I was hoping to ask for a little more color on the radiology partners agreement. Can you share any of the financial specifics, whether that's on a per-use basis or maybe if you can quantify what the opportunity is for the entirety of the contract, understanding it's a multi-year effort, but just trying to frame up just how large of a partner that could be.

Yeah. I'm trying to think of like the simplest way to start the answer. So radiology partners is, I call them a bit of a hybrid. So we may have discussed this on past calls, so this may be a bit repetitive. But so radiology partners has their own owned facilities, right, where I'll say they own the facility, they provide, you know, the technology infrastructure, kind of in a managed services environment. as well as manage, you know, the radiologists that are actually performing the readings, right, doing the services. They have other centers for which they may just do a portion of those services. They're more, you know, subcontracted. And then they have some centers that they're really just providing the radiologist, you know, kind of staffing services. So, So there's a variety of types of, you know, I'll call it like ownership, right, or leasing arrangements that they have across those facilities. So the way we established the partnership with them is essentially like a reseller. So they're acting as a reseller within their own territory, right, which is defined as those 3,200 centers that there's a combination, right, of that facility. ownership model, right, or leasing model that I just mentioned. And so today they're planning on, you know, offering the technology to all of those centers through their cloud. So I just mentioned a few sentences ago, right, they have their own managed services. They have their own technology infrastructure. They had developed their own cloud environment. And so our technology is docked, right, or inserted into their cloud. And so the licensing mechanism, and then therefore the revenue mechanism, is on what we termed a per exam basis. So as their volume can increase, as they can bring on different types of arrangements with different imaging centers, we're really just tracking it based on number of exams. So the more they grow, then we can grow with them. We haven't finalized the rollout plan yet. That's work in progress literally right now. So again, I think by the time we get hopefully to the third quarter earnings call, we would be able to come back and like talk a bit with their blessing as well on what it looks like over the course of the next few years. So I'll just kind of pause there, see if I could raise more questions and answer.

That's good color. I appreciate that. And then maybe just for just one more question for me on the P&L operating expenses down at that $6.3 million. Can you just level set us all on where we stand as it relates to the cost cuts that have been implemented? And maybe said more directly, is this 6.3 million total OPEX on a quarterly basis a fair run rate to model off on a go-forward basis?

I'm going to let Eric chime in and take this question.

Sure. Yeah, I think the short answer is a fair estimate of the run rate going forward. Q1, we're at an $8 million OpEx for Q1. And then we announced the $4.3 to $4.6 million of projected OpEx cuts. That was the annualized. So being down about $1.5 million from that $8 million in Q1, this is pretty much where we expected. We are seeing a little bit of savings from the furloughs on the Zoff side as well. But I think all that should continue. So I think there are some kind of anomalies going both ways in this quarter, but I think they kind of offset each other and it feels like a good spot. I think you're really seeing that impact that we said was coming with the Q1 cuts.

Okay, got it. Thanks for taking the questions.

We have reached the end of the question and answer session, and I will now turn the call over to Dana for closing remarks.

Thank you, operator.

In conclusion, we're making bold moves to rapidly transform this company with the focus on maintaining stability, preserving cash, and building a defensible and competitive long-term strategy that we believe will diversify our revenue stream and smooth out some of our customer concentration. The future is bright. In fact, three of our independent directors have elected to take their compensation in equity. Demand for our technology continues to be strong and the evidence supporting it continues to grow. And as we discussed on today's call, our team continues to secure opportunities with some of the most prestigious and esteemed healthcare facilities worldwide. I remain optimistic about the company and its future. and firmly believe in the bright future of the company and our ability to generate significant shareholder value. I look forward to updating you next quarter as we continue to gain clarity on our strategy, develop our long-range execution plan, and drive towards this increased shareholder value.

Thank you and have a great evening.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.