iCAD - Q2 2024

Executive Summary

• Q2 revenue rose 21% year over year to $5.03M on stronger product sales; gross margin expanded to 84% (from 81%), and GAAP net loss from continuing ops improved to $(1.71)M; diluted EPS was $(0.06) per press release, though the 8‑K statement of operations shows $(0.07) (small classification/rounding differences noted).
• Annual Recurring Revenue (ARR) reached $9.2M (+7% YoY), with Subscription ARR at $2.0M (+54% YoY) and first Cloud ARR at $0.2M, reflecting momentum in the SaaS transition; Maintenance ARR declined to $6.9M as customers migrate to subscription/cloud.
• Commercial traction: 99 orders closed (60 perpetual, 29 subscription, 10 cloud), with the 10 cloud deals adding >$1.2M to backlog for future billings and GAAP revenue recognition.
• Management emphasized early but better‑than‑expected adoption of the new ProFound Cloud SaaS platform, a multi‑year transition expected to improve profitability and cash flow predictability, albeit with near‑term GAAP revenue deferral as ratable recognition grows.
• Potential stock catalysts: accelerating cloud migrations and enterprise wins (e.g., Windsong Radiology/US Radiology, Change Healthcare, Ferrum/Sutter) and regulatory milestones (Detection v4.0, Heart Health, Risk de novo) over the next few quarters/quarters‑plus.

What Went Well and What Went Wrong

• What Went Well

  • Strong topline and mix: Q2 revenue +21% YoY to $5.03M, driven by product revenue +41% YoY; gross margin improved to 84% from 81%.
  • SaaS traction and visibility: Total ARR $9.2M (+7% YoY); Subscription ARR $2.0M (+~54% YoY), first Cloud ARR $0.2M; 10 cloud deals added >$1.2M to backlog; management sees “more predictable and robust economic model” from SaaS.
  • Execution momentum: 60 perpetual, 29 subscription, 10 cloud deals closed; management cited sales force expansion, territory balancing, and faster cloud trials driving velocity. Quote: “we closed 60 perpetual, 29 subscription, and 10 cloud deals… [cloud] has been received better than expected”.

• What Went Wrong

  • Services revenue down: Q2 services revenue fell 5% YoY to $1.78M as customers migrate to subscription/cloud, an intentional shift but a headwind to services line growth near‑term.
  • Operating expenses ticked up: Q2 operating expenses rose 4% YoY to ~$6.15M, with investment in R&D and regulatory for product/region expansion partially offset by G&A streamlining.
  • Near‑term GAAP revenue pressure from SaaS: Management reiterated that the shift to ratable SaaS recognition can lower near‑term GAAP revenue and cash flow even as recurring backlog builds.

Transcript

Dana Brown (President and CEO)

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 Rosalyn Christian of Investor Relations. The floor is yours.

Rosalyn Christian (Account Manager)

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 Lonnqvist, 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 U.S. 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 reflects 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'll turn the call over to Dana.

Dana Brown (President and CEO)

Thank you, Rosalind, and good afternoon, everyone. I opened our last call recapping the progress we have made executing a three-phase transformation plan. We completed Phases 1 and 2, in which we focused on stabilizing our cash burn, strengthening our leadership team, and divesting the Xoft business. Phase 3, 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, and 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 US Radiology Specialists, Inc.'s national network of premier providers of diagnostic imaging services.

They signed a 3-year deal for ProFound Detection and ProFound Density on ProFound Cloud. Windsong 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 4-year commitment for ProFound Detection and ProFound Density. Baylor Scott & White Health signed a 3-year subscription agreement for 8 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 4 more locations for a total of 8 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 4 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, iCAD will be reselling intelliMammo 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, EQUIP, and meet ACR accreditation standards. Densitas' operational AI solutions, intelliMammo and intelliMaven, together with iCAD's AI-powered breast health suite, elevate the standard for image quality, screening, and diagnostic accuracy, and 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 Tyrer-Cuzick scores seven and eight, Gail, and NCCN guidelines. Coupled with iCAD's density and short-term AI risk 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, in 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 1 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 8 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 Chiu, 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 AI CAD to improve cancer detection rates and recall rates in clinical settings within the US. 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 Health Connect 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. Lastly, to round out the quarter, in June, we participated in another important and large show for us, SIIM, the Society for Imaging Informatics in 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 platform. Also at this show, Dr. Mark Traill, 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 1-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 twofold 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 RöKo, Germany, held in Wiesbaden, SERAM, the Spanish Radiology Society in Barcelona, the SIFEM Congress in France, and SCR 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 ours and ScreenPoint. Of 419 female patients with a median age of 60 years, 58 had histologically proven breast cancer. The AUC was 0.86 for ScreenPoint's Transpara and 0.93 for iCAD's ProFound AI. Radiology Today featured insights from Dr. Kathy Schilling of Christine E. Lynn Women’s Health & 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 University 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. Lastly, an op-ed from myself titled Uniting for Health Equity: Addressing Breast Cancer Disparities, was published on Juneteenth by AuntMinnie, 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 poorer 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 incidence 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. 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 I 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 dataset. By using large, diverse datasets, 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 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. 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, PACS, 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 model, 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. 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'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 GAAP 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 recurring revenue builds, we'll be entering each quarter with more and more visibility and predictability.

As an example of the recurring build, the 10 cloud deals closed in Q2 add in excess of $1.2 million to our backlog for both billings and GAAP revenue. I'll now turn the call over to Eric for a detailed review of our Q2 2024 financials.

Eric Lonnqvist (CFO)

Good afternoon, everyone, and thank you, Dana. I'll now summarize our financial results for the second quarter ended June 30, 2024. Revenue for the quarter was $5 million, an increase of $0.9 million or 21% over the first quarter of 2023. The increase is attributable to some of the key deals Dana noted earlier in the call, helping to continue the momentum of our recently expanded sales team. Second quarter of 2024, product revenue was $3.3 million, up 41% over the prior year. Service revenue was $1.8 million, down 5% over the prior year. This decline was largely driven by service customers migrating to our subscription or cloud products. Moving on to gross profit.

On a percentage of revenue basis, gross profit was 84% for the second quarter of 2024, which was up from 81% in the first quarter of 2023. On a pure dollar basis, gross profit for the quarter was $4.2 million, as compared to $3.4 million last year. Total operating expenses for the first quarter of 2024 were $6.2 million, a $0.3 million or 4% increase year-over-year. The largest driver of the increase was investments in R&D and regulatory to support plans for both product and regional expansion. This increase was partially offset by additional streamlining of expenses in G&A.

GAAP net loss for the second quarter of 2024 was $1.7 million, or $0.07 per diluted share, compared with a GAAP net loss of $2.3 million, or $0.09 per diluted share from the second quarter of 2023. Non-GAAP adjusted EBITDA loss decreased $0.9 million to $1.2 million in the quarter ended June 30, 2024, from the same period in 2023. Moving to the balance sheet. As of June 30, 2024, the company had cash and cash equivalents of $20.4 million, compared to cash and cash equivalents of $21.7 million as of December 31st, 2024. Net cash used from operating activities for the first six months ended June 30, 2024, was $1.1 million, compared to $1.9 million for the first six months of 2023.

This improvement of 43% year-over-year is due primarily to stronger sales performance in 2024. We believe we have sufficient cash resources to fund our planned current operations with no need to raise additional funding. As noted in prior earnings calls, the steady shift to a recurring revenue model from a perpetual model has numerous benefits, including better business visibility, more efficient expense management, and an improved ability to predict future cash flow. That said, this shift will also create lower GAAP revenue and negative cash flow as our SaaS revenues grow. To help illustrate our progress in this transition, we began reporting the following annual recurring revenue metrics, or ARR, in Q3 2023. Total ARR, or TARR, represents the annualized value of subscription license, maintenance contracts, and active cloud services at the end of a reporting period.

Maintenance services ARR, or MARR, represents the annualized value of active perpetual license maintenance service contracts at the end of a reporting period. Subscription ARR, or SARR, represents the annualized value of active subscription or term licenses at the end of a reporting period. Cloud ARR, or CARR, represents the annualized value of active cloud services contracts at the end of a reporting period. Total ARR, or TARR, was $9.2 million as of June 30th, 2024, up from $8.5 million in the second quarter of 2023. Maintenance services ARR, or MARR, was $6.9 million, down from $7.3 million at the end of the second quarter of 2023. This decline relates in part to service customers migrating to our subscription or cloud products....

Subscription ARR, or SARR, was $2 million, up from $1.3 million at the end of the second quarter of 2023. Cloud ARR, or CARR, was $0.2 million, representing the first recurring revenue from our cloud product. In addition to the recurring revenue metrics noted above, we also began disclosing the total number of orders relating to perpetual product, subscription, and cloud deals. The intent of this metric is to illustrate the pure volume of sales without the complexity of multiple GAAP revenue streams. We are pleased to report that in the second quarter of 2024, we closed 60 perpetual, 29 subscription, and 10 cloud orders. Year-to-date, we have secured 136 perpetual, 44 subscription, and 12 cloud orders. Please note that these counts include all new upsell and migration deals and exclude standard renewals.

This concludes the financial highlights of our presentation. I would now like to turn the call back over to the operator to lead the Q&A.

Operator (participant)

Certainly. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on a speakerphone, to provide optimum sound quality. Please hold just a moment while we pull for questions. Your first question is coming from Per Ostlund with Craig-Hallum Capital. Please pose your question. Your line is live.

Per Ostlund (Senior Research Analyst)

Thank you. Good afternoon, Dana and Eric. Lots of good stuff to process in here. So I guess, naturally, let's start out with the top-line performance. The $5 million in the quarter was, was certainly more than we had, and I think more than anybody had. Last year- or last quarter, you called out Raleigh and, and some of the, the Solis, expansion in there as having been, you know, somewhat impactful to, to that quarter. So I think, you know, we and probably everybody else, tempered second quarter a little bit. Did anything stick out in second quarter like Raleigh or like Solis, that, that you feel needs to be called out?

I know you, you mentioned a handful of deals, Dana, but, you know, are we at the point where there's just so much in the pipeline that it's really not worth suggesting that one deal or another in a quarter is gonna move the, move the needle, or is there just enough going on that maybe we're kind of seeing that we're at a new base here?

Dana Brown (President and CEO)

So first of all, thanks. Good to talk with you again. I'm gonna ask Eric to also kind of chime in, because he is looking at it, right, from a different point of view than myself. So speaking kind of from my point of view, I think, you know, one of the most important contributing factors to Q2 success was, as we mentioned, we added additional sales team members. One came on board in late December, and the rest came on board in January. So in Q2, you're seeing them hit their stride, as well as some of the work that we did to, I'm gonna call it rebalance, right, the territories. Also putting an emphasis on renewal. So I think it was just a lot of things kind of beginning to work together.

From my point of view, no one deal stands out. Eric, I don't know if you have a different point of view or any additional, like, color you wanna add?

Eric Lonnqvist (CFO)

Yeah. Hi there. I think the Baylor Scott & White deal was really big because it... That was a subscription, and we took a carve-out upfront. So that was impactful and kind of an unusual type of hit for plus for revenue in Q1, similar to Raleigh Radiology in Q1. Some of the other bigger deals like Cloud and the cloud deals for Windsong and Steinberg, those are ratable over 36 months, so those aren't really impacting the $5 million GAAP revenue number this quarter. So that's the one I'd call out. But the bigger impact, I think, is supports what Dana's saying to a degree. I think the sales team really did a good job of just getting volume up across the board.

They've been more active. There's more feet, there's more people. The territories we've expanded in have been successful, particularly on the West Coast. The other thing the team did is the migrations have been very successful, so we released the deal counts. So you'll see the volume is up. We had close to 100 deals this quarter, 29 subscriptions, so a number of those are migrations. So the team is... As these service contracts come to an end, for perpetual maintenance, they've been working to convert customers to cloud or subscription products, and that's been going very well. So that was a contributor to the deals and the revenue in Q2 as well.

Per Ostlund (Senior Research Analyst)

Okay, that makes sense. So I noticed the shift to subscription, so that makes a lot of sense.

When you talk about the cloud count, because the cloud count was 10 in the quarter, and it was, you know, commercially available for something less than the whole quarter, did you have the field pretty well seeded for when that was gonna be available? Was there a bolus kind of waiting, you know, to kind of be that first, you know, 8 or 10, you know, deals that were gonna sign on the dotted line? And is there a lot waiting behind that, since there wasn't the full commercial availability for the total quarter?

Eric Lonnqvist (CFO)

... Yeah, Dana, I don't know if you wanna take that. I have some thoughts on it. I didn't-

Dana Brown (President and CEO)

Yeah, you go first this time, and then I'll chime in if I need to add anything.

Eric Lonnqvist (CFO)

Yeah. Yeah. Well, I think, you know, the whole deal cycle didn't complete in 3 months for most of these. There were conversations in Q1, even before cloud was readily available. But that being said, I do think the deals closed quicker, and the performance that Dana mentioned of the product has helped. You know, some of the customers wanted to test the product and the environments, and they did, and the results were positive. So some of the bigger deals were sped up and closed quicker. And then other deals in that 10 count, those were some migrations that we went to customers that weren't even thinking about cloud, and their subscription or their service contract ended, and they go, well, this sounds interesting, and it moved kinda quickly.

Some customers that wanted to get rid of hardware, that they, they're tired of buying these boxes every three years or, you know, and, they're ready to move their technology forward, and it just kinda clicked. But some of the bigger ones had been... There've been talks in Q1 also, before these came together. But going forward, I think that just because of all the positives Dana mentioned in the opening remarks, there's gonna be a natural push, and it's with how the product's performing and the excitement customers, when you talk to it, and just the ease to use it, compared to the perpetual model. We're feeling a lot of pressure that it's moving quicker in this direction.

Per Ostlund (Senior Research Analyst)

Okay. Excellent. Dana, did you have anything to add to that, or should I ask a different question?

Dana Brown (President and CEO)

No. Yeah.

I think, you know, my net was, we did close more than we had planned. So that was great. As Eric mentioned, it just, their ability even to just do a trial, right? Kinda test it out, is so much easier with it being cloud, that it just enabled the whole process to go faster, so.

Per Ostlund (Senior Research Analyst)

Sure. That makes sense. Since you mentioned the sales reconfiguration, the new folks fourth quarter, first quarter, you had, there's Peter Graham coming in to as SVP, is there anything left to do there? Are you- is there momentum in the field that you feel you need to lean in on to add more people or anywhere? Do you feel pretty good about where you're at?

Dana Brown (President and CEO)

Yeah. Right now, I think the team is the right size. So we've still done a little bit of, I'll call it just, you know, juggling a bit, right? As people are settling into roles, and we're understanding kinda who's performing well, say, you know, securing new business versus, maintaining existing accounts and helping them through upgrades and upsells. So still just a little bit of load balancing happening, but in terms of, like, a quantity, a team size, we're set for now. Our focus will really be, as we begin to look at, new territories, figuring out, like, the right mix there, right? Of, perhaps, you know, some direct support and then any additional partners or distributors we may need. But here for, you know, the U.S., I think we're set.

Per Ostlund (Senior Research Analyst)

Perfect. Thanks for the answers. Appreciate it.

Dana Brown (President and CEO)

Yeah. Mm-hmm, thanks.

Operator (participant)

Your next question is coming from Yale Jen with Laidlaw & Company. Please pose your question. Your line is live.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Thanks for taking the questions, and congrats on the good quarters that you hear. The first question is that in your press release, you have a ARR change since the start of the subscription, and you are comparing to the first quarter of 2022 with the current quarters. Just curious why you use that particular quarter as a comp?

Eric Lonnqvist (CFO)

Yeah, I can, I can jump on that. Hi, Yale.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Hi, Eric.

Eric Lonnqvist (CFO)

Good, thanks. So we, we started selling subscription deals in Q1 2022, so that's why we picked that quarter, to do it. So that's really the start of this company. We, we just released cloud last quarter, so that's gonna accelerate the shift, but we truly started this shift to a recurring model, in Q1 2022. So back then, we had just a little, you'll see in the press release, but just over $6 million of recurring revenue, and that was from our perpetual maintenance business. But once we started subscription and now that we have cloud, you can now see that as of the end of Q2 2024, we're up over $9 million of recurring revenue, so much more stable base, and just kinda wanted to show that cumulative, progression of getting to a bigger chunk of our revenue being from recurring sources.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Okay, great. That's very helpful. And, my next question is that, in terms of cloud versus subscription, are the customer getting a relatively similar things, except, the manner of the data being delivered or being in storage? And, if so, do you anticipate the cloud revenue to inc- you know, sus- people, customer will be increased much more than, subscribe, going forward?

Dana Brown (President and CEO)

Yeah, I could take that one. So, so the physical method that the software is made available in subscription is still on premise. So think of the software being, you know, loaded onto a server, either one we provide to the customer or the customer procures the server themselves. It's just the matter in which they're paying for the usage of it is a subscription, right? So it's on a monthly basis. Versus the cloud, there is no server on-site, right? So it's all, all hosted in the cloud. iCAD's native cloud environment is through Google, through that partnership that we announced, a little bit over a year ago. So, the data storage and the way in which we're able, you know, to manage the data is very different.

You know, on-prem, it's housed there in the server, as well as other on-site storage facilities they may have. Versus with the cloud, then we can store data, right, about the exam, as well as other data that we can use over time, to help analyze it and do trend analysis for customers in the cloud. So let me know if that didn't answer the question. I think you had a second part, too, which was, if we think we're gonna see cloud being adopted more quickly. Was that right? Was that the second part of your question?

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Right.

Right, and if it overall looks similar with the cloud, ultimately have a lag off in terms of the convenience and other aspects.

Dana Brown (President and CEO)

Mm-hmm.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

So more likely to be the one grow faster than-

Dana Brown (President and CEO)

Yeah.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

-the subscription.

Dana Brown (President and CEO)

Yeah. I do believe that cloud is going to grow faster than subscription. At what point in time its growth rate overtakes subscription is still a little bit TBD, since we've only had it commercially available for one quarter. But the early indicators are positive. So yeah, we do see that as where, you know, the future is, right, for iCAD and for our customers.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Maybe the last question here is that, given that those kind of dynamics, if you look into your crystal ball for end of the year, would you start to seeing this, faster versus potentially slightly slower growth, you know, trajectory being

Dana Brown (President and CEO)

Mm-hmm.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

-the trend become more clear, and, then we'll be able to even look further at modeling-

Dana Brown (President and CEO)

Mm-hmm

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

for out years and the effects?

Dana Brown (President and CEO)

Yeah. I mean, the faster transition, as we talked about kind of in the remarks, has maybe a, you know, it's a little bit of a... Could be a counterintuitive effect on revenue, right? Because even though we may be securing and winning more cloud deals, recognized revenue in that particular quarter could actually go down, right? Because, as Eric mentioned, we can recognize it ratably over, you know, the term of the contract. You know, so if it's 36 months, we get one month at a time. But it also builds a really nice backlog of recurring revenue. So that, you know, makes our entering each new quarter more predictable and more stable.

So to your point, I think, you know, we need a few more quarters since cloud is so new, and see how the adoption rate is beginning to, like, stabilize and get predictable, what its trend is gonna be. But having that ARR should almost, you know, and I'm using air quotes here, you know, form a, a soft guidance in terms of what revenue is already can be, you know, relied upon as we enter each quarter and then as we enter each new year, so.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Okay, great. That's very helpful.

Dana Brown (President and CEO)

Mm-hmm.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

Congrats on the progress, because I think people are looking forward to seeing-

Dana Brown (President and CEO)

Yeah. Thank you.

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

... more clouds, and that will be-

Dana Brown (President and CEO)

Yeah

Yale Jen (Senior Managing Director and Senior Biotech Analyst)

get all the pieces in place.

Dana Brown (President and CEO)

Yeah, yeah. Thanks.

Eric Lonnqvist (CFO)

Thank you.

Operator (participant)

There appear to be no additional questions in queue at this time. I would now like to turn the floor back over to Dana Brown for any closing remarks.

Dana Brown (President and CEO)

Thank you, operator. So in conclusion, I just want to reiterate same comments I've made in past quarters. Hopefully, you know, with the news that we've reported in the last three quarters, you're beginning to see the results of our efforts. So our demand for our technology continues to be strong. We do believe with cloud, it's going to increase. The evidence, right, the clinical evidence and the validation continues to grow, and our team continues to secure opportunities with some of the most prestigious and esteemed healthcare providers around the world. I remain optimistic about the company and its future, and I firmly believe in our ability to generate significant shareholder value. Thank you so much, and have a great rest of your day.

Operator (participant)

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.