Spectral AI, Inc.

Good day and welcome to the Spectral AI Inc. First Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a 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 touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Sarah Prendergast. Please go ahead.

Thank you, Nick. Good afternoon, everyone, and thank you for joining us for Spectral AI's 2025 First Quarter Financial Results Conference Call. Our speaker for today will be Vince Capone, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements made are 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 on this call, the words estimates, projected, expects, anticipates, forecasts, plans, intends, seeks, may, will, should, future, propose, 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 guaranteed 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 of the company's control. That can cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. As such, listeners 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 SEC, including our registration statement and the other documents filed by the company. 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 Vince Capone, Spectral AI's Chief Financial Officer.

Thank you, Sarah, and good afternoon, everyone. We appreciate you joining us today for our first quarter Financial Results Conference call. We are pleased to report we had a strong start to the year with significant accomplishments in the areas of product advancement and continued operating efficiencies. We also strengthened our financial profile and created a well-defined cash runway to support our growth initiatives throughout the foreseeable future. We have to evolve from a research company to a commercial organization and have a well-defined business focus for 2025 and beyond. We have had some significant developments as we move forward into 2025, which I'd like to address now. First and foremost, our FDA submission. Our team is continuing to work hard as we move towards our FDA de novo classification submission by the end of the second quarter of 2025. We are primarily focused as an organization on this goal, and we are on track to meet this timeline. Second, I'd like to talk a little bit about our burn validation study results. In March 2025, we also released the results of our burn validation study utilizing over 340 billion clinically validated data points. Our study, which began in January 2024 and concluded in March 2025, represented one of the largest burn trials ever conducted in the U.S. across burn centers and emergency departments. The goal of the burn validation study was to further demonstrate the innovative and versatile nature of Spectral AI's DeepView technology as well as its ability to predict burn wound healing potential on the first day of injury with greater performance and speed than the methods currently used today. As our results have shown, together with a rigorous statistical analysis, the DeepView system continues to outperform the clinical judgment of burn physicians by a large margin. We are very pleased with the results from the study, which we will be utilizing as part of our FDA submission for our de novo classification. Next, I'd like to talk for a few minutes about financing. As we also announced in March, the company successfully completed a debt financing agreement with Avenue Capital of up to 15 million in funding with an initial drawdown of 8.5 million. In connection with this debt financing, the company also raised approximately 2.7 million of equity financing from institutional and existing investors. With total cash on hand now of over $14 million and potential access to an additional 6.5 million of debt and a reduced operating burn rate, which I will discuss later, our company has significant financing in hand for the foreseeable future to enable us to accelerate our product commercialization efforts and our operations in the foreseeable future. Next, let me talk a little bit about our M-Tech development. We continue to drive the development of our DeepView system handheld device, the DeepView Snapshot M, as part of our M-Tech development contract. We've successfully assembled two development prototypes, each with fully functional hardware. This marks a key milestone in our development timeline. Looking ahead, the next major activities include advancing our industrial design, conducting environmental testing to evaluate the performance of the device under rugged and military operational conditions, and continuing our AI software development and integration to enable a total body surface area measurement and AI non-healing prediction functionality. We're on track for development of this technology and we will continue to build momentum through the next phases of this contract. Lastly, I want to talk a little bit about Spectral IP. This is our healthcare intellectual property focused subsidiary. We are fortunate to have a well-known expert in intellectual property, Eric Spangenberg, as our largest shareholder. As we previously stated, we named Eric as CEO of this subsidiary and his primary focus with respect to this entity has been to identify assets. This entity continues through its SEC registration process and it has recently filed an amended registration statement for its initial public offering. It is important to note once again that the activities of this IP focused subsidiary requires limited management resources and no additional capital from the company. Additionally, no core operating assets or intellectual property of the company will be involved in the subsidiary. With that, let me turn my comments over to our quarterly earnings. We have issued our earnings release this afternoon which contains additional details of our operating results and we will be filing our Form 10Q with the SEC later this week. With that in mind, I will focus my remarks on select highlights and key items. First off, we are pleased to report that research and development revenue for the first quarter rose 6% to $6.7 million from $6.3 million in the first quarter of last year. This growth reflects an increased level of activity under the Barta Project BioShield contract which was awarded to the company in September 2023 as we worked towards our FDA De Novo submission. Gross margin rose to .2% from .6% in the first quarter of last year due to the higher concentration of direct labor as a component of our revenue under the Barta Project BioShield contract. General and administrative expenses for the first quarter of 2025 were significantly reduced from $5.1 million in the first quarter of 2024 to $4.1 million in this quarter. The reduction in general and administrative expenses primarily relates to our focus on the Barta Project BioShield contract as we move to complete our De Novo submission by the end of the second quarter of 2025 with less work being done on other potential indications and continued cost cutting and efficiency measures of the company. The reduction in general and administrative expenses resulted in an operating loss for the first quarter of 2025 of only $896,000 as compared to a net loss of $2.1 million in the first quarter of 2024. We continue to drive operational efficiencies throughout the organization. Other income for the first quarter of 2025 was up $4.9 million from other expenses which accounted for an expense of $1 million in the first quarter of 2024 as the company recorded a decrease in the fair value of its publicly traded warrant liability of $4.4 million. This resulted in the company reporting net income of $2.9 million as compared to a net loss of $3.2 million in the first quarter of last year. At March 31, 2025, we had ,588,121 shares outstanding. Now moving over to the balance sheet, as of March 31, 2025, cash and cash equivalents totaled $14.1 million up from $5.2 million on December 31, 2024. This is primarily due to the company completing its financing as noted above. As stated earlier, this financing also includes a second tranche which would provide the company with an additional $6.5 million of debt and an attendant equity raise of another $7 million upon FDA approval of her De Novo submission. With our reduced spending levels, we believe this level of funding is sufficient to provide the company with the necessary capital throughout the foreseeable future. For 2025, we are reiterating our revenue guidance of approximately $21.5 million. This guidance does not include contributions from the sales of the deep use system for the burn indication in the UK or in Australia which if any are not expected to be material for this year. I want to thank you for your time and attention today and with that, Nick, let's open up the call for questions from our analyst.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause for a brief moment to assemble our roster. And your first question today will come from Ryan Zimmerman with BTIG. Please go ahead.

Good afternoon. Thanks for taking the questions, Vince. On the guidance, I guess for 21.5 million, which is from Barta revenue. You are tracking ahead of that. Any pull forward there in terms of what you saw in the first quarter? Because if I hold everything steady, arguably, you will feel maybe a little bit better than what your guidance is calling for.

Yeah, Ryan, I appreciate the question. I think for us, we had a strong start to the year. It is reflective of our efforts to focus on an FDA submission by the end of the second quarter. I think the second half of the year is looking probably less revenue with respect to the Barta contract as we continue to work on further developments of the deep view system. But as of now, I think we are not that far through 2025. I think we are in the middle of the second quarter. And if we continue to outperform, we may restate guidance. But for now, we think the revenue guidance of 21.5 seems like a reasonable mark.

Yeah. I can appreciate that early in the year. That is fair. And then dovetailing into the next question, you are going to submit end of the second quarter. So any color in terms of how you are preparing for that submission, what you are doing to derisk the submission, any kind of flavor for your interactions with FDA at this point I think would be appreciated by investors.

Sure. No, Ryan, that is a great question. We have the benefit of a 12-year relationship with Barta. Barta has been very helpful with us. They have been a fantastic partner for us as we work through this process. We are working with them as part of our submission. The FDA, we have had over 10 pre-sub meetings with the FDA. We are working as an organization, frankly, very hard to get the submission in a form. We think the burn validation study results were also supportive. And we have identified the three metrics that we are confident the FDA is going to look at in our submission. And so, you know, to give some color there, I think we have done the things we can do to derisk our submission as best we can. And I think we feel confident on the outcome. But obviously, we don't control that. But Barta has been helpful. The FDA has been very helpful in our pre-sub meetings. And we are just really working aggressively as an entire organization to get that submission completed and in.

Okay. I will leave it there and hop back into you. Thanks for taking the questions,

man. Thanks, Ryan. And your next question today will come from Carl Burns with Northland Capital Markets. Please go ahead.

Thanks for the question. Congratulations on your progress. Just to kind of follow up a little bit, with respect to the ten pre-sub meetings that you had with FDA, have you incurred or been hit with any additional requests or deliverables that are in process? And if so, can you elaborate on that?

Thanks. Carl, thanks for the question and thanks for attending the call. No, I mean, we have kind of been walking through this process with the FDA over, you know, as we've walked through the submission process. I don't really want to get into specifics on the deliverables as part of our FDA submission. But suffice to say, when we released the press release in March, identifying how we've performed with our rigorous analysis and how the burn validation study performed with respect to dice score, sensitivity, specificity, you know, we're confident that those are benchmarks that the FDA is going to look at as we work through these pre-subs with them. So I think that we've tried to de-risk our submission as best we can. We feel, you know, we feel frankly excited as an organization to get the submission in.

Great, thanks. And then just to follow up on the general administrative, it seemed to be a little bit lower than expected in the first quarter. How do you see that for the balance of the year?

No, great. I appreciate you picking that up. Obviously, that has driven our results for the quarter. The idea that we are, no pun intended, burning less than a million dollars per quarter. We've focused somewhat on operational efficiencies. We see that in the first quarter. That is helping us with a long runway of the cash we have on hand. You know, I think this is going to provide us with what we need as we move forward. I would anticipate general and administrative expenses to stay consistent with our first quarter results. But, you know, that's what keeps me up at night and we'll continue to drive towards those numbers.

Excellent. Congrats again. Thanks.

Thanks, Carl. And your next question today will come from John VanderMosten with Zax. Please go ahead.

Great. And good afternoon, Vince. I thought I'd start out with just another question on snapshot, Em. I heard you say you had a couple of prototypes made already and I think we were expecting it to be available for military use in 2027. Is that, it sounds like maybe you might be able to beat that. What do you think about the timing at this point for snapshot, Em? Hi, John. Thanks

for participating on the call. No, look, I don't necessarily know if we're going to be able to beat the timeline. I think the message that should be taken away from here is that as we are focused on the FDA submission for the defuse system, we also continue to work very hard on the M-Tech contract. We see deep view snapshot, Em, as a very good second indication of our technology and we're working hard through those contracts to get into the position that we want to be with the device and our ability to assist the U.S. military really in the battlefield. It is an absolute fantastic use of our technology and one that we are quite pleased to support with the U.S. government and our military brothers and sisters.

Okay. And when you, you know, assuming you get approval, you kind of have a market that's there ready for you and which really limits the amount of effort you're going to have to put in on that. But will you have any, some kind of awareness campaign or something to perhaps sell a few extra devices outside of maybe the core area where BARDA is focusing? Or are you just going to focus mainly on just what BARDA will sell for you initially?

Look, it's a great question. You know, as I said earlier, BARDA has been a fantastic partner for us, not just with the, you know, non-dilutive financing that we've taken into date, but they've been a great sounding board. They've been a great partner. Obviously, we need to focus on that relationship and the parameters around that contract. But, you know, our commercialization team is working hard towards expanding our commercialization efforts once we get FDA approval as a vice and moving into the commercial phase, even outside of the BARDA environment. But I do want to say, you know, BARDA is our, you know, a strong partner and our primary focus.

Got it. And finally, after you submit, you know, I assume that'll be probably late June, you'll have the second half to kind of reorder your focus. What will that focus be on? I mean, Snapshot M is one of the big things. What else will you be spending your time doing, you know, with Spectral AI?

Well, John, we have continuing advancements of the D-Fuse system as part of not just the first phase of the PBS contract, but also as part of the second phase. We're going to be working hard on advancing it through the different stages of the BARDA contract so that once we get FDA clearance, if not before, we'll be able to access that second tranche of the BARDA contract, not just with respect to the delivering of devices, but also to the further advancement of the device. That is first and foremost. And then you know what I've already talked about. We'll continue to develop the M-Tech handheld device for the military. There may be other indications there. And our team is continuing to drill down on potential other indications as we focus in, as we move through 2025 into 2026. But I would tell you that I would expect a large portion of the work we do in the second half of this year will be to continue to refine and develop and expand the D-Fuse system as part of the PBS BARDA contract. Great.

Thanks, Vince. Thanks a lot, John. Your next question today will come from Vinnie Montgomery with SP Angel. Please go ahead.

Sorry, Vince. I think I got my name wrong, but it's Vinnie here. Thanks for all that. I think a lot of the questions have been answered on BARDA, but I'm interested in just kind of this is a little bit further in the future. But can you give us a little bit more color on how discussions go with the DOD? Because obviously, you know, if you could develop that into a similar relationship as you had with BARDA, it would be great diversification of revenues from an agency that's much larger. So, I mean, how does that develop? The contracts to date have been getting ever bigger. Obviously, they're not the size of the BARDA contracts, but they're obviously a bit earlier stage. But how is that going? I mean, how is that? How does that? Can you just give us a bit of an example of how those contracts develop?

Vadim, I appreciate you getting on this call, especially knowing your time zone in the UK. So, thank you. But, you know, I mean, we've had, you know, we've had the luxury of a longstanding relationship with BARDA. We've had a luxury of working hard with M-Tech and DHA, you know, throughout the DOD. We're continuing to work on those relationships. You're right. It takes time to develop those relationships. We're quite pleased with the development of the SnackShot M product so far, and we just need to continue to work hard through research and development to improve that device and further build on that DOD relationship. It's not something that I could, you know, point to and say, oh, well, you know, it's something that would render itself very easily, but we continue to drive that. And I think the continued development of our device will drive further development and relationships and contracts with the DOD.

Okay. Is it fair to say that it has BARDA equivalent potential in the future, or is that too early to tell?

Yeah, I don't want to, I can't make a statement like that. I can't make a statement like that. You know, you do know I'm still the general counsel of the company as well. Excellent.

Excellent.

Well, look, thanks, Vince.

That's all the questions for tonight.

Thanks, Udine. That concludes our question and answer session. I would like to turn the conference back over to Vince Capone for any closing remarks.

Nick, thank you. And thank you all again for your participation and continued interest in the progress we continue to make. And we remain optimistic about the prospects for the growth and the development of our company. We continue to work hard on our FDA submission, and we look forward to having future announcements on the progress of these goals in the near term. Again, thank you all, and have a nice night.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.