Q3 2024 Earnings Summary
- Increasing deal counts and exceeding expectations in cloud adoption: In Q3 2024, iCAD closed 85 deals, up from 67 deals in Q3 2023. Cloud deals continue to exceed internal plans, with 13 cloud deals closed in Q3 2024, including major contracts with UCSD and Charlotte Radiology. This demonstrates strong demand and a successful transition to a recurring revenue model.
- Securing significant cloud contracts with prestigious institutions: iCAD signed strategic 3-year cloud deals with the University of California San Diego (UCSD), which performs around 90,000 exams per year, and Charlotte Radiology, part of US Radiology Specialists. These marquee deals with leading healthcare providers highlight iCAD's competitive edge and potential for substantial revenue growth.
- Improved affordability and accessibility driving customer base expansion: The shift to cloud and subscription models is improving affordability and accessibility for customers across the spectrum, enabling iCAD to attract more customers who may not have been able to adopt their solutions previously. This could lead to increased market share and revenue growth as more customers implement iCAD's advanced AI solutions.
- ICAD's transition to a cloud and subscription model may negatively impact short-term revenue and cash flow, as revenue from these deals is recognized over time rather than upfront, potentially flattening or reducing top-line revenue during the transition period.
- Dependence on perpetual revenue from GE, which remains 100% perpetual for new deals, could create a revenue gap as GE deals may not align with ICAD's shift towards subscription and cloud offerings, potentially affecting overall revenue if GE's perpetual deals decline.
- The new FDA mandate requiring breast density information in mammogram reports is not significantly boosting sales of ICAD's density solution, as customers were already aware of density challenges and the mandate is not a breakout market driver for the product.
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Version 4.0 Deployment
Q: When will version 4.0 be available across your different models?
A: Version 4.0 will start shipping in mid-December, right after RSNA. We'll begin with the deployment model preferred by our key customers, whether it's cloud, subscription, or perpetual. The other implementation platforms will follow just a few weeks later. -
Financial Impact of Subscription and Cloud Models
Q: Will the product revenue line decrease more quickly due to the increase in subscription and cloud?
A: The main drop in product revenue quarter-over-quarter is due to a decrease in perpetual deals. Subscription and cloud revenues are included in the product line, and as we transition to these models, the product revenue line may reflect this shift. -
Perpetual Deals and GE Partnership
Q: Is the continued presence of perpetual deals related to the GE part of the business?
A: Yes, GE is 100% perpetual for new deals. All new deals through GE continue to be perpetual, contributing significantly to our perpetual revenue. -
Deal Counts and Expectations
Q: How were Q3 deal counts versus expectations?
A: Q3 deal counts were 85, up from 67 in Q3 of the prior year. Cloud deals exceeded expectations with 13 deals this quarter, up from 10 last quarter. Despite typical Q3 seasonality due to holidays, especially in Europe, we are happy with the deal volume and expect a bump in ARR as these deals go live. -
Impact of New Density Regulations
Q: Is the new density regulation changing customer conversations?
A: While the nationwide density regulation isn't significantly increasing density license sales alone, it reinforces customers' decisions to adopt our density plus detection bundle. It adds confidence and makes the decision more straightforward, rather than driving a breakout market on its own. -
Cloud and Subscription Offering Competitiveness
Q: Does offering cloud and subscription help access customers with existing solutions?
A: Yes, subscription and cloud models improve affordability and accessibility for all customers, regardless of their current equipment configuration, including those with Hologic systems. It enables more customers to consider our solution, enhancing market penetration.