Earnings call transcript: iCAD Q3 2024 sees revenue rise, SaaS shift
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. There are positives like strong deal growth and cloud transition, but concerns about increased operating expenses and a wider net loss. The Q&A section highlights uncertainties, such as the impact of new regulations and the transition timeline for existing customers. The market's reaction may be muted as the company navigates these challenges, especially without clear guidance on key issues. Given these factors, the stock price is likely to remain stable in the short term.
Key Financial Performance
Total Revenue $4,200,000, an increase of $100,000 or 4% year-over-year, attributed to key deals closed during the quarter.
Product Revenue $2,500,000, up 14% year-over-year, driven by strong sales performance.
Service Revenue $1,700,000, down 9% year-over-year, largely due to service customers migrating to subscription or cloud products.
Gross Profit $3,600,000, compared to $3,500,000 last year, with a gross profit margin of 86%, consistent with Q3 of 2023.
Operating Expenses $5,600,000, a $900,000 or 19% year-over-year increase, primarily due to investments in R&D and regulatory support.
GAAP Net Loss $1,800,000 or $0.07 per diluted share, compared to a net loss of $1,000,000 or $0.04 per diluted share in Q3 of 2023.
Non-GAAP Adjusted EBITDA Loss $1,500,000, compared with $800,000 in Q3 of 2023.
Cash and Cash Equivalents $18,800,000 as of September 30, 2024, down from $21,700,000 as of December 31, 2023.
Net Cash Used for Operating Activities $2,600,000 for the 9 months ended September 30, 2024, compared to $3,500,000 for the same period in 2023, an improvement of 26% year-over-year.
Total Annual Recurring Revenue (TARR) $9,300,000 as of September 30, 2024, up from $8,400,000 in Q3 of 2023.
Maintenance Services ARR (MARR) $6,700,000, down from $7,000,000 at the end of Q3 of 2023, due to service customers migrating to subscription or cloud products.
Subscription ARR (SARR) $2,200,000, up from $1,400,000 at the end of Q3 of 2023.
Cloud ARR (CARR) $400,000, representing the accumulation of the first two quarters of recurring revenue from the cloud product.
Deal Counts Closed 85 deals in Q3 2024, up from 67 deals in Q3 2023, including 52 perpetual, 20 subscription, and 13 cloud orders.
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Operating Highlights
ProFound Detection Version 4.0: FDA clearance for ProFound Detection Version 4.0, offering a 22% improvement in detecting challenging cancers and an 18% reduction in false positives.
ProFound Cloud: Launch of ProFound Cloud, a SaaS model that enables scalable updates and creates a high-margin recurring revenue stream.
Global Expansion: Expansion into over 50 countries, with new distribution alliances in Dominican Republic, France, Spain, Turkey, UAE, and regulatory clearance in South Africa.
New Deals: Closed 85 deals in Q3, including significant contracts with UCSD and Charlotte Radiology.
Revenue Growth: Q3 revenue growth of 4% year-over-year, totaling $4.2 million.
Annual Recurring Revenue (ARR): Total ARR increased to $9.3 million, up from $8.4 million in Q3 2023.
Transition to SaaS: Strategic shift to a SaaS model, impacting revenue recognition and cash flow in the short term but expected to stabilize and grow in the long term.
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Risk or Challenges
Regulatory Issues: The FDA requires all mammogram reports in the U.S. to include a breast density assessment, which could impact operational processes and necessitate adjustments in service offerings.
Transition to SaaS Model: The shift from perpetual licensing to a Software as a Service (SaaS) model may lead to short-term revenue flattening or decline as the company recognizes revenue over time rather than upfront.
Competitive Pressures: The low adoption rate of AI in mammography (37% of U.S. sites) presents both an opportunity and a challenge, as competitors may also seek to capture this market.
Supply Chain Challenges: The complexity of setting up and upgrading specialized hardware for AI solutions may pose challenges in maintaining service efficiency and customer satisfaction.
Economic Factors: The ongoing economic environment may affect healthcare budgets and spending, potentially impacting the adoption of new technologies.
Insurance Coverage Issues: Challenges related to insurance coverage and access to additional screening modalities could hinder the implementation of new solutions in the market.
Seasonality in Deal Flow: Seasonal fluctuations, particularly in Q3, may affect deal counts and revenue recognition, as many customers are less active during summer months.
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Guidance & Outlook
Transformation Strategy: Continued progress with the transformation strategy, including the transition to cloud or software as a service through the growth of the ProFound Cloud platform.
AI Market Position: iCAD is positioned in the AI-powered breast cancer detection market, with solutions backed by over 50 clinical studies and FDA clearances.
ProFound Detection Version 4.0: FDA clearance for ProFound Detection Version 4.0, offering a 22% improvement in detecting aggressive cancers and an 18% reduction in false positives.
Global Expansion: Expansion of global reach with new distribution alliances in countries like Dominican Republic, France, Spain, Turkey, and UAE.
Cloud Transition: Shift to a SaaS model with ProFound Cloud, enabling scalable updates and creating a high-margin recurring revenue stream.
Customer Migration: Existing customers migrating to cloud solutions, enhancing service agreements and expanding product offerings.
Revenue Expectations: Top line revenue may flatten or drop in the short term due to the transition to cloud-based revenue recognition.
Annual Recurring Revenue (ARR): Total ARR was $9.3 million as of September 30, 2024, up from $8.4 million in Q3 2023.
Cloud Revenue Impact: Cloud deals closed in Q3 add more than $850,000 to backlog for both billings and GAAP revenue.
Long-term Growth Outlook: Transition to cloud expected to drive strong economic returns and create a more predictable revenue stream over time.
Investment in R&D: Increased operating expenses driven by investments in R&D and regulatory support for product and regional expansion.
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Shareholder Return Plan
Cloud ARR: Cloud ARR was $400,000 representing the accumulation of the first two quarters of recurring revenue from our cloud product.
Annual Recurring Revenue (ARR): Total ARR was $9,300,000 as of September 30, 2024, up from $8,400,000 in Q3 of 2023.
Cloud Deals Closed: The 13 cloud deals closed in Q3 add more than $850,000 to our backlog for both billings and GAAP revenue.
Revenue Recognition: With cloud deals, revenue is recognized and cash is collected over the term of the agreement, impacting short-term revenue.
Perpetual vs Cloud Revenue Impact: For a $36 perpetual deal, revenue is recognized upfront, while a $36 3-year cloud deal recognizes $3 per quarter.
Transition to SaaS: The transition to a SaaS model is expected to drive strong economic returns and create a more predictable revenue stream.
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Key Q&A
Q:How would you characterize 3rd quarter deal count versus your own expectations?
A:Q3 deal count was impacted by seasonality, particularly in Europe due to holidays. However, we saw an increase in deal count compared to last year, with 85 deals reported, up from 67 in Q3 of 2023. Cloud deals exceeded expectations, with 13 closed this quarter.
Q:Is the change in density regulations changing conversations with customers?
A:The new density regulations reinforce the need for our solutions but are not expected to significantly increase the quantity of additional density licenses sold. Customers already recognize the challenges of reading mammograms for women with dense breast tissue.
Q:How soon do you anticipate Version 4 will be incorporated into your product offerings?
A:We expect to ship Version 4 in mid-December, shortly after RSNA, and will assess customer preferences for deployment models.
Q:Will new customers immediately get Version 4?
A:Yes, most new customers will receive Version 4, while existing customers may have a transition period.
Q:With the increasing subscription and cloud model, will the product revenue line go down more quickly?
A:The main drop in product revenue is from perpetual deals, but cloud and subscription revenues will be included in the product line.
Q:Has the prevalence of perpetual deals been influenced by the GE part of the business?
A:Yes, all new deals through GE are perpetual, which contributes significantly to our perpetual revenue.
Q:Review of Unclear Management Responses
A:Management did not provide a clear answer regarding the specific impact of the new density regulations on sales or the expected timeline for existing customers to transition to Version 4.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI platform
AI solution
BI
Blackford
Cloud solution
GE
Hologic
Longquist Chief
Officer iCAD
ProFound Cloud
SaaS
Version
approach
availability ProFound
breast density
care technology
case
challenge
cloud product
deal cloud
deal count
decision
density solution
example
expansion
hardware
health care
iCAD Laidlaw
imaging
line Longquist
migration
month
percent
product line
radiologist
recognition
seasonality
service line
solution AI
solution ProFound
state
subscription model
tissue
trial
ICAD Transcript
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Earnings call transcript: iCAD Q3 2024 sees revenue rise, SaaS shift
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The earnings call presents a mixed outlook. There are positives like strong deal growth and cloud transition, but concerns about increased operating expenses and a wider net loss. The Q&A section highlights uncertainties, such as the impact of new regulations and the transition timeline for existing customers. The market's reaction may be muted as the company navigates these challenges, especially without clear guidance on key issues. Given these factors, the stock price is likely to remain stable in the short term.
iCAD, Inc. (ICAD) Q3 2024 Earnings Call Transcript
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The earnings call reveals strong financial performance with a 21% revenue growth YoY and strategic partnerships, including a 20-year collaboration with Google Health. The transition to a SaaS model and international expansion plans signal positive future prospects. Despite challenges in short-term cash flow visibility, the company's strategic moves, like expanding cloud ARR and backlog growth, are promising. The Q&A highlights positive sentiment towards subscription models and product updates. Overall, the positive developments outweigh the concerns, suggesting a positive stock price movement in the short term.
iCAD, Inc. (ICAD) Q2 2024 Earnings Call Transcript
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The earnings call reveals several concerns: the transition to a recurring revenue model is expected to negatively impact short-term GAAP revenue and cash flow, and there are risks related to market penetration, regulatory challenges, and competitive pressures. Although there is a 21% revenue increase, the absence of a share repurchase program and unclear management responses in the Q&A section add to the negative sentiment. Despite some positive financial metrics, the overall outlook suggests a negative stock price movement.
ICAD Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
