icad inc.

Good day and welcome to the ICAD Incorporated second quarter 2024 earnings call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Roslyn Christian of Investor Relations. The floor is yours.

Thank you, Operator. Good afternoon, everyone. Thank you for joining us today for ICAD's second quarter 2024 earnings call. On the call today, we have Dana Brown, our President and Chief Executive Officer, and Eric Longfist, 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 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. Also, please 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 gap to non-gap measures at the end of the earnings release. And with that, I'll turn the call over to Dana.

Thank you, Rosalyn, and good afternoon, everyone. I opened our last call recapping the progress we have made executing a three-phase transformation plan. We completed phases one and two, in which we focused on stabilizing our cash burn, strengthening our leadership team, and divesting the ZOFT business. Phase three, investing in growth initiatives, began in first quarter 2024, with a focus on expanding into key accounts and new markets with our existing solutions. This phase is focused on maximizing revenue from our sizable install base, upgrading customers to new versions, including the transition to cloud or SaaS, and accelerating deployment across large national accounts. This quarter continued the strategic momentum from Q1, during which we secured numerous new deals, announced the commercial availability of our profound cloud platform, and reported growth in our ARR metrics. I'm pleased to announce Q2 was another successful quarter for ICAD, with revenue growth of 21% compared to the second quarter of 2023. Before we dive into the highlights of this quarter, let's take a moment to step back and review the sizable market opportunity ahead of us and how ICAD is positioned for long-term growth. First, ICAD is the leading provider of AI-powered breast cancer detection solutions. Our technology is backed by over 50 clinical studies and has received global clearances including FDA clearance, CE marking, and Health Canada licensing. With a 52% reduction in reading time and enhanced clinical performance, our solutions deliver superior accuracy and efficiency, which we believe significantly elevates us above our peers. Second, we all need to keep sight of the fact that the market for AI in mammography is vastly underpenetrated, with only 37% of U.S. mammography sites currently using AI. This presents a substantial opportunity for ICAD to expand its market leadership globally. Third, while we're still a relatively small company, we have a global presence with more than 4,000 lifetime customers across 50 countries. Fourth, our strategic partnerships, including a 20-year collaboration with Google Health, enhance the strength and precision of our technology, and expand access to millions of women and providers worldwide. These partnerships not only validate our technology, but also provide a robust platform for future innovation and growth. Finally, with the release of our cloud platform, we're at the front end of evolving to a SaaS model. This shift is not only creating a more robust service offering for our customers, given its ease of integration and faster deployment, but will also create a more predictable high margin economic engine. It will take some time, but as SaaS grows sequentially as a percentage of our revenue, this transformation should ultimately drive enhanced profitability and cash flow. While early days, the adoption of our SaaS offering has been going better than planned. With our leading technology, significant market potential, global scale, strong partnerships, An exciting strategic shift to SaaS, ICAD is well positioned to capitalize on the vast opportunities ahead. Now let's discuss the Q2 deal highlights. In the second quarter, we closed 60 perpetual deals, 29 subscription deals, and 10 cloud deals. Some of these included Windsong Radiology, one of U.S. Radiology Specialists Incorporated's national network of premier providers of diagnostic imaging services. They signed a three-year deal for profound detection and profound density on profound cloud. Winsome provides over 100,000 exams a year. Steinberg Diagnostic, located in Nevada, reduced their hardware footprint and migrated to ICAD's cloud platform. In fact, their CIO noted it was the smoothest cloud conversion they had experienced. Steinberg provides over 75,000 annual exams and made a four-year commitment for profound detection and profound density. Baylor Scott & White Health System signed a three-year subscription agreement for eight of their sites, securing a long-term commitment for profound detection 2D and 3D. We closed our first opportunity with Change Healthcare, one of our PACS partners, for Washington Hospital in California. This was also a subscription deal. And through our Ferrum partnership, we're expanding at Sutter Health in Northern California. We're expanding to four more locations for a total of eight locations out of 31 using ICAD. This is a cloud deal for us, and we're pleased to report they're experiencing very fast turnaround times under four minutes round trip. We've also improved their cancer detection rate from 4.8 to 6.3 per 1,000, a 30% improvement. Moving to partnership updates, in April, we announced our partnership with Densitas. Through this partnership, ICAB will be reselling Intellimamo and Intellimaven, products designed to offer a scalable, sustainable, quality assurance system tailored for mammography facilities to maximize operational efficiency, optimize compliance with the FDA's Mammography Quality Standards Act, EQIP, and meet ACR accreditation standards. Sensitas operational AI solutions in Telemamo and IntelliMaven, together with ICAD's AI-powered Breast Health Suite, elevate the standard for image quality, screening, and diagnostic accuracy in comprehensive care with state-of-the-art AI innovations. This synergy ensures that every woman receives the most precise and personalized care journey possible. In November, we announced our intent to partner with CancerIQ, and we formally executed this partnership agreement in April. CancerIQ helps providers traverse the challenges of managing cancer risk assessments to offer more personalized, evidence-based care pathways that lead to early cancer detection and prevention. Integrated with leading EHR workflows, CancerIQ's lifetime risk calculator offers Tire Cusick scores 7 and 8, Gale, and NCCN guidelines. Coupled with ICAD's density and short-term AI risks from the profound suite, clinicians will have a clear picture of a patient's future breast cancer risk and if breast cancer is detected today. Through this partnership and the combination of our solutions, we will provide a seamless way to uniquely inform physicians and patients of cancer risk. across a variety of assessment models, spanning from one year to lifetime risk, leading to earlier detection of breast cancer when treatments work best, are less invasive and costly, and outcomes are improved. In second quarter, we also expanded ICAD's global reach. We secured a deal for eight detection and density licenses to a prestigious health group in Dusseldorf, Germany. We have a growing pipeline for our cloud-delivered solutions in Europe, Israel, and Arab Emirates, with several of the opportunities being quite large. Availability of ICAD's commercial cloud platform also enables us to target small practices that we were not able to reach with our previous on-prem deployment model. And lastly, expansion opportunities are well underway in Chile, Argentina, Mexico, and Japan. We expect to be active in these countries in the next 12 months. Turning now to marketing and a quick review of our second quarter conference and publication activity. In April, we participated in SBI, the Society of Breast Imaging Symposium held in Montreal, Canada. With over 1,600 attendees, nearly 90% of which are trained breast imagers, this is the largest dedicated meeting for key ICAD targets. This show delivers strong leads to our sales pipeline and advances the stages of deals in progress. Over the course of the show, our team gave over 100 demos of the profound suite of solutions. Of note, Dr. Sherwin Chu, a breast imaging fellow at Washington University School of Medicine, received the Wendell Scott Research Award for his paper, The Impact of Clinical Implementation of an Artificial Intelligence Program on Screening Mammography Outcomes, which highlights the potential of AICAD to improve cancer detection rates and recall rates in clinical settings within the U.S. The award is presented to the most outstanding abstract submitted by a breast imaging fellow to the symposium. In May, we participated in HCP, the HealthConnect Partners Radiology and Imaging Reverse Expo in Dallas. The audience focus is radiology and imaging directors, healthcare administrators, and executives. It's a more intimate and exclusive setting with only 90 attendees. We had over 50 meetings, which resulted in several new, larger opportunities that are underway in the sales process. In May, we also participated in our gantry partners, Siemens Innovations for Healthcare 2024 in Orlando, Florida. Over 900 of Siemens customers were present. And lastly, to round out the quarter, in June, we participated in another important and large show for us, SIM, the Society for Imaging Informatics and Medicine. With an audience of over 1,500 attendees, it's a very technically focused show with an audience of clinicians, imaging IT professionals, scientists, and developers. At the show, our team delivered numerous demos and met with multiple current and new partners, OEMs, PACs, and AI platforms. Also at this show, Dr. Mark Trail, a key KOL for ICAD, delivered his abstract titled Change in Image-Derived AI-Based Risk Scores to Identify Women at an Increased Likelihood of Breast Cancer. This retrospective study analyzed risk score changes between prior and current DBT mammograms in cohorts of 514 controls and 52 cancers. Profound AI risk predicts one-year breast cancer risk by analyzing mammographic features, density, and age. The results indicate that a change in an AI-derived risk score between a woman's prior and current mammograms is a strong predictor of breast cancer risk, with a two-fold increase in risk for every 0.2 unit increase in score. Notably, a significant proportion of women initially classified as low risk showed a substantial increase in risk at their subsequent mammogram. Outside of the U.S., we participated in ROCO Germany, held in Weisbaden, SRAM, the Spanish Radiology Society in Barcelona, the SIFM Congress in France, and SRC in Switzerland. We were featured in numerous publications in the second quarter, and I'll highlight just a few for you. First, a publication from the July issue of Radiology Imaging Cancer titled AI-Enhanced Mammography with Digital Breast Tomosynthesis for Breast Cancer Detection, Clinical Value in Comparison with Human Performance. This paper reported on the results of a study designed to compare two deep learning-based, commercially available artificial intelligence systems for mammography with digital breast tomosynthesis and benchmark them against the performance of radiologists. The two AI systems were hours and screen points. Of 419 female patients with a median age of 60 years, 58 had histologically proven breast cancer. The AUC was 0.86 for ScreenPoints Transpara and 0.93 for ICAD's Profound AI. Radiology Today featured insights from Dr. Kathy Schilling of Lynn Women's Health and Wellness Institute at Baptist Health Boca Raton Regional Hospital. Profound AI is featured, demonstrating how AI is revolutionizing breast cancer screening. helping their radiologists find 23% more cancers without increasing recall rates. In a webinar titled Revolutionizing Cancer Care, The Role of AI in Breast Imaging, Dr. Nikki Gidwani of Stony Brook Hospital highlights her personal experience with AI and the power of ICAD's newest algorithm. She discusses how comprehensive breast imaging centers are staying at the forefront with best-in-class AI cancer detection, risk evaluation, and breast arterial calcification assessment solutions. This webinar is available for replay via our website. And lastly, an op-ed from myself, titled Uniting for Health Equity, Addressing Breast Cancer Disparities, was published on Juneteenth by AntMini, a leading radiology news publication. The purpose of the op-ed was to acknowledge the persistent disparities in the realm of breast health, where minority groups face disproportionately higher risks of certain aggressive breast cancers and poor outcomes compared to white women. The statistics are sobering. Black women are not only more likely to be diagnosed with breast cancer at younger ages and later stages, but they also have a higher mortality rate. According to recent data from the American Cancer Society, black women are 40% more likely to die from breast cancer than white women. And this gap widens among younger age groups. Moreover, the Centers for Disease Control and Prevention report that black women have an 81% higher rate of triple negative breast cancer. an aggressive subtype that can be more challenging to detect and treat through traditional screening methods. This incident rate of triple negative is particularly concerning in light of the fact that black women are also given fewer digital breast tomosynthesis, DBT, or 3D mammograms than other racial and ethnic groups, even though DBT is better able to detect aggressive cancers, especially when complemented with mammographic artificial intelligence solutions. Black women face barriers to receiving the care they need due to a lack of representation in the healthcare system, lack of provider cultural competence, and substandard care. The use of patient navigators who facilitate communication and help to navigate the complex healthcare system along with enhanced physician education regarding health disparities, including the impact of systemic racism and implicit biases, could significantly improve breast cancer outcomes for black women. And advocating for the inclusion of mammographic AI assessments within breast cancer screenings adds an unbiased layer of informative data, as the algorithm isn't biased by the color of the patient's skin or where she lives. This dual approach of patient navigation and physician education, including unbiased AI, addresses both the interpersonal and systemic levels of healthcare, fostering an environment where Black women feel heard, respected, and adequately supported throughout their breast cancer journey. Globally, over 2.3 million women are diagnosed annually with breast cancer, and every 47 seconds, someone loses their life to this disease. Early detection is key in the fight against breast cancer, where the five-year survival rate increases to over 99% for a stage one disease. Yet over 20% of breast cancers are missed in traditional mammogram screening workflows, leading to advanced, late-stage diagnoses for many breast cancer patients. AI detection solutions, when added into a radiology workflow, are proven to improve cancer detection rates typically greater than 23% when compared to traditional non-AI reader workflows. AI offers the potential to address disparities and improve outcomes by eliminating racial, geographic, and socioeconomic biases. ICAD is committed to this goal by ensuring diversity within its AI training datasets. By using large, diverse data sets representing a wide range of backgrounds, our profound AI breast health solutions deliver accurate and equitable results for all women, regardless of race or ethnicity. Through data transparency and continuous improvement, we strive to create a world where cancer can't hide from any patient population or community. With the availability of cloud-based AI solutions, geographical barriers are minimized. A mammogram can be uploaded, analyzed by AI, and reviewed by a specialized breast radiologist from anywhere in the world. This ensures that high-quality breast cancer screening and expert interpretations are accessible to all women, regardless of their location, thereby promoting equitable healthcare access and outcomes. Inclusivity in AI development and access is critical, ensuring that no community is left behind. Let's now turn to updates on our technology. Late last quarter, we announced commercial availability of Profound Cloud, built on the Google Cloud Platform. Our innovative Software as a Service, or SAS, platform provides medical providers with a cost-effective, secure, and scalable means to access and deploy the latest Profound Breast Health suite of AI solutions. Powered by Google's cloud architecture and health AI innovations, Profound Cloud integrates a lightweight edge client and cloud-based components. Together, they securely transport and process mammography screening data between imaging sources and the cloud-based AI. the process data is seamlessly delivered to systems that utilize AI outputs, including mammography review workstations, hacks, and image and data storage systems. As noted earlier, we've already secured multiple deals for our newly released cloud platform. Early performance results from the first 30,000 Profound AI cloud cases delivered an impressive processing time that's over 50% faster compared to many traditional on-premise deployment solutions. The healthcare landscape is shifting towards technology-as-a-service models, avoiding the pitfalls of investing in rapidly outdated hardware and software. As AI relies heavily on specialized hardware, like graphical processing units or GPUs, setting up and upgrading both software and hardware becomes increasingly complex. Cloud-based solutions, like Profound Cloud, address this challenge by providing software as a service to ensure that all customers access the latest technology without the initial hardware investment, support contracts, and constant updates. Moreover, Profound Cloud provides facility administrators the ability to update configurations and perform administrative tasks in multiple languages. Profound Cloud is designed to support patients, providers, and partners while facilitating the management of diverse data types critical for comprehensive healthcare analysis. This includes 2D and 3D mammography images alongside all cancer images, and in parallel, it stores limited images of benign, recall, and normal cases. ProfoundCloud also manages profound detection and density assessment results, radiology and pathology reports, while ensuring seamless access to critical diagnostic information. Importantly, Profound Cloud securely handles de-identified patient information and provider data, adhering to strict privacy and compliance standards. The comprehensive approach enables robust analytics for informed decision making. We're seeing greater than planned interest in our cloud platform, surpassing our initial expectations. This is good news for ICAD on many fronts, including ease of deployment and upgrades, faster releases of new features and functions for our customers, and long-term enhanced economics that drive sustained stakeholder value. Now we're at the front end of this business evolution, with significant transformation expected over the next three years. In the short term, as we promote and support more and more customers choosing our cloud platform, we will intentionally sacrifice immediate recognition of some gap revenue and cash flow as we'll recognize revenue and receive cash on a monthly basis rather than upfront. We will strategically deploy some capital from our strong cash position to support this strategy. And over time, this strategy should show strong economic returns as we become a more profitable company. Furthermore, as the reoccurring revenue build will be entering each quarter with more and more visibility and predictability. As an example of the reoccurring build, the 10 cloud deals closed in Q2 add in excess of $1.2 million to our backlog for both billings and gap revenue. I'll now turn the call over to Eric for a detailed review of our Q2 2024 financials.