Spectral AI - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $5.1M, down 32% year over year, with gross margin of 45.2%; GAAP EPS was $(0.31), and the net loss expanded to $(7.9)M primarily due to a $5.4M increase in the fair value of warrant liabilities.
• Versus S&P Global consensus, Q2 revenue modestly missed ($5.07M actual vs. $5.44M est.) and EPS missed (Primary EPS -$0.094 vs. -$0.08 est.) while Q1 had beaten both revenue and EPS; FY 2025 revenue guidance of ~$21.5M remains above FY consensus ($18.47M), implying potential estimate revisions upward if execution continues.
• Strategic milestone: De Novo application to the FDA was completed in June, with management reiterating expectations for potential U.S. clearance in 1H 2026 and an active commercialization planning process in partnership with BARDA (rolled devices contemplated within contract language).
• Liquidity strengthened: cash rose to $10.5M at quarter-end; a second debt tranche of $6.5M and an attendant $7M equity raise are contingent on FDA approval, extending runway to commercialization.
• Near-term stock narrative catalysts: FDA review milestones, BARDA deployment path clarity, and confirmation of the handheld SnapShot M pathway leveraging predicate device strategy and military-funded development.

What Went Well and What Went Wrong

What Went Well

• Completed De Novo submission to the FDA earlier than projected; management highlighted this as a “major milestone” for bringing DeepView to market and improving patient outcomes (“Seeing the Unknown”).
• Improved operating efficiency: G&A down to $4.4M in Q2 (from $5.8M YoY), reflecting focused spend and effort on the submission and BARDA contract activities.
• Liquidity and financing plan in place: cash increased to $10.5M; facility provides potential additional $6.5M debt upon approval plus an attendant equity raise, supporting commercialization preparations (finance, focus, finish).

What Went Wrong

• Top-line decline and margin pressure: Q2 R&D revenue fell 32% YoY to $5.1M as BARDA-related reimbursed trial activity wound down; gross margin dipped to 45.2% from 46.6% due to higher non-reimbursed BARDA expenses.
• Non-operating headwinds: net loss widened to $(7.9)M mainly from a $(5.4)M increase in warrant liability fair value, overshadowing otherwise reduced operating expenses.
• Q2 missed consensus on both revenue and EPS while reiterating guidance that excludes potential sales contribution from burn indication in the UK/Australia in 2025, leaving upside from commercialization as 2026+ events.

Transcript

Speaker 1

Good afternoon, everyone, and welcome to the Spectral AI, Inc. Q2 2025 Financial Results Conference call. All participants will be in a listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touchscreen telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Sarah Prendergast, Assistant General Counsel. Please go ahead.

Speaker 3

Thank you, Jamie. Good afternoon, everyone, and thank you for joining us for Spectral AI's 2025 second quarter financial results conference call. Our speakers for today will be Dr. Michael DiMaio, the company's Chairman of the Board, and Vincent 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 U.S. 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, believes, 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 guarantees 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 could 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 other risks and uncertainties described in the risk factors sections of the company's filings with the SEC, including the 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 Dr.

DiMaio, Spectral AI's Chairman of the Board.

Speaker 0

Thank you, Sarah, and good afternoon, everyone. We appreciate you joining us today for our second quarter financial results conference call. As part of my mantra to the company's employees, I have discussed the three Fs: Finance, Focus, and Finish. To these three points, we have firstly addressed our finance piece, as well as in the first quarter of 2025, as we will discuss further in a minute. Secondly, we are moving forward with our focus on our burn indication and our submission of our De Novo application to the FDA, which has occurred in June, two months ago. Lastly, Finish is what we will continue to focus on as we look to work with our BARDA partners and bring the DeepView System device to the commercial marketplace.

We had a strong start to the year with significant accomplishments in our FDA submission being completed in the second quarter of 2025 and continued operating efficiencies. We also strengthened our financial profile in Q1 of 2025 and created a cash runway to support our growth initiatives through the foreseeable future. We have had some significant developments in the second quarter of 2025. First, financing. As previously announced in March of 2025, the company successfully completed a debt financing agreement with Avenue Venture Opportunities Fund II, a fund of Avenue Capital Group, of up to $15 million in funding with an initial draw of $8.5 million. In connection with this debt financing, the company also raised $2.7 million of equity financing from institutional and existing investors.

With total cash on hand at the end of June 2025 of over $10 million, potential access to an additional $6.5 million of debt, and a reduced spending rate, Spectral AI has significant financing on hand for the foreseeable future that enables us to continue to work on our product commercialization efforts, including the planned U.S. launch of our DeepView System. Second, our FDA submission. Our FDA submission in the second quarter of 2025 was a huge milestone in our company's development. I am very proud of our team for their hard work and dedication in meeting this very important timeline. The submission is a key driver in the evolution of our business, and I'd like to provide further information about this. We had a number of pre-submission meetings with the FDA, which also included our BARDA partners funding a majority of this burn indication.

Our team delivered the materials that we discussed back and forth with the FDA in the pre-submission meetings, and we expect to fully meet the expectations and requirements of the submission. We look forward to further interaction with the FDA on our De Novo application in the months ahead. Next, Spectral IP. My last update is about our healthcare intellectual property-focused subsidiary, Spectral IP Inc. We are fortunate to have Erik Spangenberg as our largest shareholder, who is an expert in this space. He is a well-known expert in intellectual property and a CEO of this subsidiary. His primary focus with respect to this entity has been to identify assets for this entity. This entity continues through the SEC registration process for its IPO. It is important to note once again that the activities of this IP-focused subsidiary require limited management resources and no additional capital from the company.

Additionally, no core operating assets of the company will be involved in the subsidiary. I thank you again for your attention to our company, and with that, I will turn things over to our Chief Financial Officer, Vincent Capone. Vince.

Speaker 5

Thank you, Dr. DiMaio. Thank you all for joining us this afternoon. We issued our earnings release earlier this afternoon, which contains additional details of our operating results, and we will be filing our Form 10-Q with the SEC this evening. With that in mind, I will focus my remarks on select highlights and key financial items. Our research and development revenue in the second quarter of 2025 was reduced to $5.1 million from $7.5 million in the second quarter of last year. This reduction reflects our anticipated reduced reimbursements under the BARDA Project BioShield contract, which was awarded to the company in September 2023. In the second quarter of 2025, we also incurred less clinical trial and other reimbursed costs from the prior year's quarter.

Gross margin decreased slightly to 45.2% from 46.6% in the second quarter of last year due to a lower percentage of reimbursed expenses under the Project BioShield BARDA contract as well. General and administrative expenses for the second quarter of 2025 were significantly reduced from $5.8 million in the second quarter of 2024 to $4.4 million. The reduction in general and administrative expenses primarily relates to our continued focus on operating efficiencies and our overall corporate focus on the completion of our De Novo submission to the FDA. The company reported a net loss in the second quarter of 2025 of $7.9 million as compared to a net loss of $2.9 million in the second quarter of 2024, as the company recorded an increase in the fair value of its publicly traded warrant liability of $5.4 million.

Even with the larger warrant liability for the six-month period ended 6/30/2025, the company reported a net loss of $5.1 million as compared to a net loss of $6.1 million for the first six months of last year, a reduction of over $1 million from the prior period. At June 30, 2025, we had 25,737,820 shares outstanding. Moving to the balance sheet, as of June 30, 2025, cash and cash equivalents totaled $10.5 million, up from $5.2 million on December 31, 2024. This is primarily due to the company completing its financing, as earlier discussed. Please note that 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 $7 million upon FDA approval of our De Novo application.

With our reduced spending levels, we believe this funding is sufficient to provide the company with the necessary capital to get us through the foreseeable future. For 2025, we are reiterating revenue guidance of approximately $21.5 million. Our revenue guidance does not include any contributions from sales of the DeepView System for the burn indication in either the United Kingdom or Australia, which, if any, are not expected to be material for 2025. Thank you for your time and attention today. With that, operator, let's open the call for questions from any participants.

Speaker 1

Ladies and gentlemen, at this time, we'll begin that question and answer session. To join the question queue, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask you to please pick up the handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Ryan Zimmerman from BTIG. Please go ahead with your question.

Speaker 2

Good afternoon. Thanks for taking our questions and appreciate the efficient remarks this afternoon. Maybe we could talk about the submission for DeepView. How you're thinking about preparing for clearance here in the U.S., what you're doing to potentially start to think about a commercial organization, and any other thoughts you have on timing. I think we had previously expected about maybe first half, 2026, for clearance. I just want to make sure that's still within the ballpark of what you guys are thinking. Thanks for taking the question.

Speaker 0

Hey, Ryan. Thank you. This is DiMaio. I appreciate the question. To refocus, we are, as you said, very proud that we've got this FDA submission in a timely manner. To that end, we expect the appropriate time coming back and forth with the FDA. Yes, in the first half of next year, we expect clearance of that. There's no guarantee, but we have all indications moving forward. What we've begun is developing a very thorough commercialization plan. As I keep emphasizing, there's three Fs. The third F is Finish. We have spent a lot of energy to get to this point. Now we are turning our attention carefully to the commercialization plan. That involves BARDA as well. The contract does involve some participation in BARDA, helping us roll out.

In some fashion, they will help us, quote, purchase, unquote, the initial devices that will be rolled out upon the clearance by the FDA. In addition to that, we are discussing actively the second indication, in addition to burns, that will be able to have a more widespread use applicability in the medical community. There's also some additional monies in the BARDA contract to help us begin our commercialization plan.

Speaker 2

Got it. I know you can't market to any expanded usage right now. I'm just curious, and I appreciate if you don't want to talk too much about this, given that you're still exploring it. Where are you seeing utility outside of burns? Is it wound care? Is it other assessments, maybe aesthetic? I'm just trying to think about some of the potential opportunities that may exist out there.

Speaker 0

Thank you, Ryan. I'll be careful what I say because I don't want to restrict ourselves. If you focus and understand, you do understand that we are a wound imaging device. Check that. Of course, what we are able to differentiate is non-healing tissue. In this case, with the burns, when you have a non-healing area, that tells the burn doctor to remove that and do skin grafting so that area will then have a new skin covering over that. If you can use your thoughts and imagination, there are other wounds that, having a device that can differentiate what is not healing versus what is healing or what is not viable from what is viable, you can have a very broad understanding or application that can be pursued.

Lastly, as you have asked, Ryan, if you have something, a part of the body, a part of a wound, be they traumatic, be they elective, be they ischemic, be they infected or whatever, you can also roll these out to companies that might find that useful in their products, be they skin substitutes, be they drugs, et cetera.

Speaker 2

Yeah, thank you, Dr. DiMaio. I appreciate the call.

Speaker 0

Thank you, Ryan. Appreciate your question.

Speaker 1

Our next question comes from John Vandermosten from Zacks. Please go ahead with your question.

Speaker 4

Great, and thank you. Good afternoon, Dr. DiMaio and Vince. You know, when we look at, you mentioned the U.S., United Kingdom, and Australia, and how we're not going to really see anything from them or very much from them this year. What activities are you taking for deployment in the United Kingdom and Australia coming up in coming years?

Speaker 0

That's a good question. Thanks, John. Working backwards, as you probably know, the UK market is, we've already approved there with certain release of it. You may also know, maybe you don't know, that the UK burn doctors have found it to be extremely useful, friendly for the care of their burn patients. I want to emphasize that the UK market is actually a great opening salvo, if you will, to care for burn patients. We want to use that and leverage that in the U.S. market. The same is for Australia. I would say that it's not the sales that we're looking forward to as much, but rather the usage of it and the learning lessons that we can gather from that. In terms of sales, we are thinking about that because, you know, it's a different market. It's a single-payer market for all intents and purposes.

The ability to get what's called the NICE approval, N-I-C-E, is something that's often useful and desired for the UK market to have more widespread applicability. We're currently, again, to my third F of Finish, studying how much effort and purpose there is in the UK market, as I repeated earlier, to be able to have that market and the information gleaned from that market to be used in the U.S., and then to determine how much time and energy will be useful to be dedicated to the UK for more widespread sales.

Speaker 4

Okay. Looking at the DeepView Snapshot M, assuming you get approval for the DeepView burn, what does the regulatory pathway look like for that? I think you have a little bit easier time of it since you've already got a predicate device.

Speaker 0

Yes, sir. John, making sure you're calling Snapshot the handheld. Is that what you're referring to, John?

Speaker 4

Yes. Yeah, DeepView Snapshot M, the handheld, yeah, the portable one.

Speaker 0

Yep. Yep. A great question, John. The answer is we are designing the, I'm going to call it handheld for simplicity. There are two things happening in that space. Number one, it's being designed with the essential components similar or identical to what I call the cart-based. John, permit me to call it cart-based and handheld. That will have a pathway for a 510(k) regulatory pathway based upon the cart-based clearance. Does that make sense?

Speaker 4

Yeah.

Speaker 0

The second part I want to tell you is that so far, the funding for that has been via a military pathway, Department of Defense, Defense Health Agency, and now what's called MTEC or the military pathway. What we're going to do as well is create a parallel or similar pathway for a commercial handheld device. In summary, we will use the cart-based device as a predicate for the handheld device, and we're going to use the funding for the military handheld device to be able to craft a handheld commercial device.

Speaker 4

Okay. Got it. All right. Thanks. I'll hop back in too.

Speaker 0

Thanks, John.

Speaker 4

Thanks, John.

Speaker 1

Our next question comes from Carl Byrnes from Northland Capital Markets. Please go ahead with your question.

Speaker 4

Thanks for the question and congratulations on your progress. I'm wondering if you can comment on any dialogue you might be having with BARDA with respect to how system rollout might transpire once approved, in, you call it, like year one, year two. Anything that you might be able to state there would be very helpful. Thanks.

Speaker 0

Thanks, Carl, for your question. You've asked the most telling question because, as you well know, if you read the newspapers, there's a lot of events happening in the D.C. governmental space. I would say BARDA would not look upon me favorably if I tried to explain, share, or guess what's going to happen. I will simply say that there is language in the contract that points towards some methodology of them helping us roll out devices and technology to the community. Carl, I would be very careful and remiss if I started trying to guess or predict, to what Sarah said at the beginning of this call, forward-looking statements of how BARDA is going to act. I don't mean to be facetious, Carl, but that would be a very treacherous spot for me to be in.

Speaker 4

Yeah, I hear you. Thanks so much. Congrats again.

Speaker 0

Thanks, Carl.

Speaker 4

Thank you.

Speaker 1

Ladies and gentlemen, with that, we'll wrap up today's question and answer session. I'd like to turn the conference call back over to Dr. DiMaio for any closing remarks.

Speaker 0

Again, to everyone, thank you again for your participation and continued interest in Spectral AI. We are very pleased with the progress we continue to make, and we remain optimistic about our prospects for the future. We have continued to focus on the three principles I mentioned earlier: Finance, Focus, and Finish. We've done very well with the first two Fs. Now it's our time to focus on commercialization, and indeed, we will. Please look forward to further announcements on our progress of these goals in the near term. Thanks to everyone, and have a good evening.

Speaker 1

Ladies and gentlemen, that does conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.