Spectral AI, Inc.

Good day, and welcome to the Spectral AI Inc. Second Quarter 2024 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Devin Sullivan of the Equity Group. Please go ahead.

Thank you, Nick. Good afternoon, everyone. Thank you for joining us for Spectral AI's 2024 Second Quarter Financial Results Conference Call. Our speakers for today will be Peter Carlson, Chief Executive Officer, and Vince Capone, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements may be made that constitute forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the company's strategy, plans, objectives, initiatives, and financial outlook. When used during these discussions, the words estimates, projected, expects, anticipates, forecast, plans, intends, Believes, seek, may, will, should, and variations of these words or similar expressions or the negative versions of such words or expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions, or results and involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, many of which are outside the company's control. It could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. As such, investors are cautioned not to place undue reliance on any forward-looking statements. Investors should carefully consider the foregoing factors and the other risks and uncertainties described in the risk factor sections of the company's filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. With that said, I would now like to turn the call over to Pete Carlson, Spectral AI's Chief Executive Officer. Pete, please go ahead.

Thank you, Devin, and good afternoon, everyone. We appreciate you joining us today for our second quarter financial results conference call. We had strong revenues in the second quarter, and I'm pleased to say we are making significant progress in advancing our proprietary AI-driven DeepView system wound assessment platform technology. Our focus as a company is to achieve product commercialization for a technology that we believe will improve patient outcomes while providing tangible economic and operational benefits across the healthcare system. We have spent more than 10 years creating the DeepView platform, which we believe is the only AI-driven predictive medical diagnostic tool that supports the delivery of a fast, accurate, and informed wound assessment. The development of DeepView reflects more than $250 million of non-dilutive government awards, multiple successful clinical trials that validate the accuracy and utility of our technology, and a commitment from a dedicated group of executives, engineers, clinicians, and partner institutions. The evolution of our business from an exclusively clinical development stage company to development along with product commercialization will manifest with the first commercial sales of our DeepView technology for the burn indication in the United Kingdom later this year. Although the initial impact of these commercial revenues will be modest, The validation provided by this landmark achievement should prove to be significant with respect to our plan submission to the FDA in 2025 and the long-term commercial success of the DeepView system as a platform technology. I'll spend some time discussing our recent achievements and highlighting the catalysts we expect over the next several quarters. In addition to preparing for the commercial availability of DeepView for burn in the United Kingdom, we are taking important steps to establish a commercial presence in the United States and, over the longer term, other geographies. We deployed a total of five DeepView AI burn devices at facilities across the UK following the February 2024 receipt of UKCA authorizations. These initial deployments increase clinical familiarity of the device in advance of commercialization, provide real-world data that enhances the AI algorithm, and allow us to partner with these institutions as we gain a better understanding of how to commercialize, train, and deploy future units. I'm pleased to announce that we have exceeded 85% enrollment of our desired total subject count at burn centers for our U.S. burn pivotal study and expect to complete enrollment for this portion of the study shortly. As a reminder, it was just last month that we achieved 100% pediatric enrollment at burn centers. This burn pivotal study is one of the largest burn studies ever conducted in the United States. It is designed to validate the AI-driven algorithm used by DeepView and will be the final clinical trial before we seek FDA approval in 2025. We've expanded the total number of US clinical sites to 16, comprised of both burn centers and emergency departments, or EDs. Enrollment at EDs will continue into 2025, as some of those sites are just now beginning to enroll, And more generally, conducting trials in EDs have longer enrollment periods than centers focused on a particular single practice. Why two different sites for the pivotal study? That reflects the structural limitations of wound care for burns in the United States and how we believe that DeepView can address this care gap. In a nation of more than 330 million people, there are approximately 125 burn centers across the US and less than 250 burn surgeons. Inversely, while the number of emergency department number exceeds 5,000, they are generally limited in having burn care specialists on staff. To that end, Any efficiencies that can be introduced to the workflow of the EDs by DeepView would yield significant operational and economic benefits, allowing the most severely injured patients to be more accurately triaged and quickly treated. At Byrne Centers, we believe that the predictive assessment offered by the DeepView technology can accelerate time to surgery for patients who require such treatment while avoiding unnecessary surgeries for those patients who are likely to heal on their own. At emergency departments, where we estimate that most burn wounds are initially assessed, DeepView can avoid unnecessary transfers to a burn center or trauma units, while adding confidence in deciding when a specialist should see a patient. In both scenarios, DeepView also provides uniformed imaging documentation, and standardized total body surface area, or TBSA, measurements. Reflecting the enrollment momentum in burn centers, we expect to submit the request for a de novo classification for use of DeepView AI Burn in burn centers in the first half of 2025. We believe this will result in commercialization in the US early in 2026. After receipt of the de novo classification for use in burn centers, we plan to immediately submit the request for 510 approval for use in emergency departments where we will have completed the remaining clinical trial work. We anticipate that the sequence of commercialization would begin with deploying the DeepView technology into those US burn centers to promote expert adoption of the technology, followed by the deployment into emergency departments where we would leverage this primary point of entry into the US healthcare system. Beyond the UK and the US, we have an opportunity to establish a presence for DeepView in multiple geographies, such as in Australia through our recent memorandum of understanding with Kali Novo Limited, one of the world's most respected providers of burn treatment solutions, and an established market leader. Under the MOU, Kali Novo will support our application to the Australian Special Access Scheme, or SAS, with a goal of allowing spectral AI to deploy two devices to lay the groundwork for an eventual commercial rollout based on clinical evaluations and experiences. A significant benefit of our years of developing both the image capture technology and the AI algorithm is how DeepView can be applied to potential indications that extend beyond our current focus. To that end, we are making great progress in the development of DeepView Snapshot M, a handheld version of our CART-based DeepView technology that is intended for burn wound assessment in a combat and military setting. Earlier this year, we inked a new contract valued at over $500,000 that brings the total for just the DeepView Snapshot M to more than $6 million. CPU Snapshot N is designed to be an integral part of the battlefield triage process by providing a quick and accurate wound care assessment so that soldiers with more severe burn injuries can be prioritized for evacuation. We believe that the potential applications of CPU Snapshot N extend well beyond military use to serve our first responders and other healthcare providers with that more mobile unit. We are presenting an abstract titled Advancing Combat Burn Assessment of Deep Views Handheld Device for Military Field Use at the upcoming 2024 Military Health System Research Symposium. This event is the Department of Defense's foremost scientific meeting, and we look forward to sharing our progress with the attendees. Now let's talk a bit about timing of revenues from our U.S. government contracts, which is helpful in assessing our future cash flows. Through the first six months of 2024, we have received approximately $12 million in cash payments from BARDA. primarily from the base phase of the project BioShield contract awarded in September 2023. This base phase of nearly $55 million will take us through the first quarter of 2026 in support of the clinical validation and FDA approval processes for the burn indication. The next phases, which we expect to commence no later than the first half of 2026, are estimated to be $95 million for feature enhancement, procurement, and deployment of devices to burn centers and select emergency departments across the US. Specific timing of amounts under these remaining phases are subject to discussions with BARDA. In summary, to date, BARDA has awarded contracts to Spectral totaling almost $250 million, and since 2013 has paid over $113 million to the company under these contracts. Total U.S. government contracts awarded to Spectral since 2013, which include MTEC and other government agencies, approximate $258 million. A couple more items to discuss before turning things over to Vince. We were very happy to announce that our stock was added to the Russell microcap index effective July 1st. We continue to strengthen our intellectual property moat and increased our granted patents from 20 to 26 from 20. We also have an additional 38 pending patent applications worldwide. Finally, regarding our newly formed healthcare IP-focused subsidiary, Spectral IP, we continue to identify potential intellectual property for acquisition and to assess alternatives to leverage those assets. As a reminder, the activities associated with this subsidiary require limited management resources and no additional capital from the company. Additionally, no core operating assets of the company will be involved in this subsidiary.