Rosalyn Christian; Investor Relations; IMS Investor Relations
Dana Brown; Executive Chairman of the Board, President, Chief Executive Officer; ICAD Inc
Eric Lonnqvist; Chief Financial Officer; ICAD Inc
Per Ostlund; Analyst; Craig-Hallum Capital
Yale Jen; Analyst; Laidlaw & Company
Operator
Greetings. Welcome to the iCAD Incorporated third-quarter 2024 earnings call. (Operator Instructions)
Please note, this conference is being recorded. I will now turn the conference over to your host, Rosalyn Christian, Investor Relations. You may begin.
Rosalyn Christian
Thank you, operator. Good afternoon, everyone. Thank you for joining us today for iCAD’s third-quarter 2024 earnings call. On the call, we have Dana Brown, our President and Chief Executive Officer; and Eric Lonnqvist, our Chief Financial Officer. Before turning the call over to Dana, I would like to remind everyone that we’ll 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 GAAP to non-GAAP measures at the end of the earnings release.
With that, I will turn the call over to Dana.
Dana Brown
Thank you, Roslyn, and good afternoon, everyone. I’m pleased to announce Q3 was another successful quarter for iCAD with revenue growth of 4% compared to the third quarter of 2023. In the quarter, we saw continued progress with our transformation strategy, including the transition to cloud or Software-as-a-Service through the growth of our ProFound Cloud platform as well as global expansion of our products and technology. Before we dive into the highlights of this quarter, I’d like to provide some detail on how iCAD is positioned for sustained growth by multiple industry drivers. ICAD is uniquely positioned in the rapidly expanding AI-powered breast cancer detection market, where our solutions are backed by more than 50 clinical studies and presentations and key global clearances, including from the FDA.
Our technology can reduce radiologist reading time by 52% and we empower providers to detect cancer earlier and with greater confidence. While we have a market-leading position, AI adoption in mammography remains low, with approximately only 37% of U.S. sites currently using AI. This presents a substantial opportunity for expansion, particularly as our global presence spans more than 50 countries and is growing. In case you missed it, yesterday, we announced FDA clearance for iCAD’s ProFound Detection version 4.0.
This new version marks another significant milestone in our track record of industry-leading high-performance AI solutions for breast cancer detection. This latest version offers a 22% improvement in detecting challenging and aggressive cancers over our previous version, version 3, empowering radiologists to quickly and accurately identify hard-to-find cancers with greater precision. Version 4.0 now also integrates prior exam analysis in the AI calculation, emulating a radiologist’s own comparative approach, which enhances diagnostic confidence and accuracy. With an 18% reduction in false positives, it also improves reading efficiency, diagnostic accuracy and patient experience by minimizing unnecessary follow-ups. This clearance not only strengthens our competitive edge, but also supports revenue growth as both new and existing customers upgrade to version 4.0.
This new version, combined with the recent launch of ProFound Cloud, marks our shift to a Software-as-a-Service model, enabling scalable, seamless updates and creating a high-margin reoccurring revenue stream. With our pioneering technology, strong market foothold and strategic shift to SaaS, iCAD is well positioned to capture substantial growth opportunities in the years ahead. Turning to our Q3 deal highlights. In the third quarter, we closed a total of 85 deals, 52 perpetual, 20 subscription and 13 cloud. Some of these deals included the University of California San Diego or UCSD.
This was a large strategic 3-year cloud deal for us. UCSD licensed 2D and 3D detection plus density and UCSD performs around 90,000 exams per year. Last quarter, we announced our partnership with US Radiology Specialists and specifically that Windsong Radiology, one of their premier imaging providers, would be the first to champion implementation of our ProFound AI Breast Health Suite. You may recall, US Radiology is one of the country’s premier providers of diagnostic imaging services with more than 175 outpatient imaging centers across 13 states. This quarter, we secured Charlotte Radiology, another imaging provider for US Radiology.
It’s a 3-year cloud deal. Other new deals won this quarter include Alexandra Marine General Hospital, Madison Regional in Wisconsin, Allegheny Memorial in North Carolina and Parkview Medical in Texas. Turning to some examples of existing customer migrations. Orlando Health signed a deal to migrate from their on-prem solution with no support or service agreement to a 3-year subscription agreement. El Rio Health signed a migration deal to move to cloud as well as upgrade to the latest 3D solution.
Cleveland Clinic signed a support agreement for their on-prem solution to bridge them to a 2025 cloud migration and Citizens Memorial upgraded and expanded their on-prem solution to add in 3D. And SimonMed added 5 additional locations for ProFound to their existing footprint of over 300 locations. In this quarter, we also expanded iCAD’s growing global reach. We forged new commercial distribution alliances in countries such as Dominican Republic, France, Spain, Turkey, United Arab Emirates and with leading health care technology companies, including Tamer, Ozel and deepc, expanding the availability of our ProFound AI solutions globally. We received regulatory clearance in South Africa and secured our first deal in collaboration with our AI platform partner, Blackford, a subsidiary of Bayer.
Blackford is an experienced partner in the radiology AI space with over a decade of experience working in partnership with leading hospitals and groundbreaking health care technology providers. Blackford provides a core AI platform where iCAD solutions, including ProFound AI Detection, Density and Risk are delivered as a single source technology platform to improve patient outcomes. Our first joint customer is SCP Radiology in Cape Town, South Africa, who implemented 2D detection and density on the Blackford AI platform. SCP Radiology processes 22,000 exams per year. 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 for a quick review of our marketing efforts and third quarter conference and publication activity. In August, our U.S. team participated in the 28th Annual Mammography Conference in Santa Fe, New Mexico. This is a smaller, highly targeted show whose audience is primarily radiologists and imaging professionals.
We were selected to participate in the show’s AI workshop, where radiologists were able to compare their reading of up to 5 cases against selected AI detection technology. We also attended the Annual Meeting of the Association of Medical Imaging Management. With over 600 attendees, AHRA represents management at all levels of hospital imaging departments, freestanding imaging centers and group practices. Our commercial team generated numerous leads and met with several of our large key accounts. Also of note, as of September 10, 2024, the Food and Drug Administration requires that all mammogram reports in the United States include a breast density assessment.
The report must state whether the patient’s breasts are dense or not dense. The report should also include information about the risk of developing breast cancer and how dense tissue can make it harder to detect breast cancer on a patient’s mammogram. The decision was originally published as an update for U.S. mammography regulations in March 2023. Prior to the update, 39 states and the District of Columbia complied with dense breast reporting.
Breast density refers to the amount of fibro glandular tissue that relates to fat and is identified either visually or quantitatively on mammography. Based on the Breast Imaging Reporting Data System or BI-RADS, there are 4 categories of density. Mammograms are considered the gold standard in breast cancer detection and the only form of imaging modality proven to reduce breast cancer mortality. However, the effectiveness of mammograms can be compromised by breast density. More than half of U.S.
women over 40 years of age are classified as having dense breast tissue, typically making cancers more difficult to detect on a mammogram. It is important for patients to learn about their breast density because density often results in an increase in false positive findings and a reduction in cancer detection. ICAD’s ProFound density solution uses AI to analyze the mammography images to determine the BI-RADS density classification. Our solution is unique in that it is, one, an image-based 2-part AI algorithm; and two, more closely aligned to the current radiologist’s approach to assessing density versus other automated solutions. The FDA mandate for mammography facilities to disclose breast density information is a crucial step towards improving breast cancer detection and prevention.
While the requirement provides patients with valuable knowledge about their breast health, it’s also essential to address the ongoing challenges related to insurance coverage and access to additional screening modalities. Policies like the Find It Early Act ensure that all women, regardless of their financial circumstances, have equitable access to the necessary tools for early breast cancer diagnosis and improved outcomes. Let’s now turn to our research and technology updates. In the third quarter, we began participation in the RENAISSANCE trial sponsored by the National Cancer Institute. Detailed information about this trial can be found on the website, ClinicalTrials.gov.
In summary, this trial is using iCAD’s ProFound density solution to evaluate the change in breast density over time for pre-menopausal women to determine a personalized approach for breast cancer prevention options by utilizing the lowest effective dose of tamoxifen. In addition, iCAD’s ProFound Risk will be used to evaluate change in the estimates of the likelihood of developing breast cancer from baseline to 18 months and compare changes by dose group. Selection for participation in this study not only validates our technology, but it also expands our reach with partners and potential customers. You may recall from prior calls that our ProFound Risk has been classified as a de novo device, first of its kind by the FDA, and we are working through the submission process with the FDA. In parallel, we received approval for the launch of our own ProFound Risk observational trial titled User Acceptance of a short-term image-derived risk tool in screening mammography.
This study is now IRB approved and site identification is underway. iCAD’s ProFound Risk will be available for prospective evaluation on those women who consent to the study. Outcome data and survey data will be utilized to assist in operationalizing risk in screening programs. Late first quarter, we announced commercial availability of ProFound Cloud, powered by Google’s cloud architecture and health AI initiatives. Our innovative Software-as-a-Service or SaaS 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.
ProFound Cloud continued the momentum that we reported last quarter and we’ve continued to secure more deals than anticipated for our newly released cloud platform. In its first 2 full quarters of U.S. availability, ProFound Cloud has processed over 100,000 cases, showing rapid early adoption. Achieving processing speeds more than 50% faster than many traditional on-premises solutions, the ProFound Cloud is an efficient solution for deploying the ProFound AI suite. With recent global distribution partnerships and regulatory clearances, the availability of ProFound Cloud is expanding around the globe.
The health care 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 have access to the latest technology without the initial hardware investment, support contracts and constant updates. Moreover, ProFound Cloud provides facility administrators with 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 health care 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. ProFound Cloud 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 are at the front end of this business evolution with significant transformation expected over the next 3 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 GAAP revenue and cash flow as we will recognize revenue and receive cash on a monthly basis rather than upfront. It would not be unusual to see top line revenue flatten out as we go through this transition. That is why as a metric of success, we provide our annual reoccurring revenue metrics and deal counts. Also, as we go through this transformation, we will deploy some capital from our strong cash position to support this strategy.
And over time, we believe this strategy should drive strong economic returns as we become a more profitable company. Furthermore, as the reoccurring revenue builds, we will be entering each quarter with more and more visibility and predictability. As an example of the reoccurring build, the 13 cloud deals closed in Q3, add more than $850,000 to our backlog for both billings and GAAP revenue. To illustrate this short-term impact on top line revenue and cash, let’s look at a hypothetical example. Assume a perpetual deal is worth $36.
With perpetual, we recognize revenue and bill all $36 upfront. Compare that to a $36 3-year cloud deal. With cloud, we recognize revenue and collect cash over the term of the agreement. Each quarter, we would recognize $3 as revenue. Billing would be annually in advance at $12.
To compare the impact on revenue in the quarter, we would recognize $36 for a perpetual deal versus $3 for cloud. This illustrates the short-term impact on revenue. As we’ve stated, we will be intentionally sacrificing immediate recognition of some GAAP revenue and cash flow as we go through the transition. Top line revenue may flatten or even drop in the short term as we go through this transition and more and more deals choose cloud versus perpetual. This is a normal cycle experienced by companies going through a perpetual to SaaS transition.
The long-term benefit of the cloud deal is that it would contribute $33 to backlog for revenue. Moving through this transition, our building backlog will result in revenue and cash flow becoming more stable and predictable. In addition to this benefit, iCAD will have the opportunity to renew the deal at the end of the 3 years, therefore, creating an ongoing revenue stream versus the perpetual one and done. I’ll now turn the call over to Eric for a detailed review of our Q3 2024 financials.