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Spectral AI, Inc. (MDAI)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 R&D revenue was $5.29M, up sequentially vs Q3 2023 ($3.44M) but down year over year vs Q4 2022 ($6.10M); gross margin improved to 46.1% vs 41.1% in Q4 2022 .
  • EPS was $(0.22), improving materially vs $(0.77) in Q3 2023, but below Q4 2022’s $(0.13); operating loss narrowed sequentially to $(2.93)M from $(4.17)M in Q3 2023 .
  • FY 2023 R&D revenue of $18.1M exceeded the company’s prior FY 2023 guidance of ~$17.4M; FY 2024 revenue guidance of ~$28.0M was reiterated and excludes expected UK burn commercialization revenue in 2H 2024, implying potential upside if commercialization progresses as planned .
  • Catalysts: UKCA authorization for DeepView System (burn) and initial UK deployments (2 units active; targeting 6–8), progression of US burn pivotal trial (5–10% enrolled, pediatric cohort emphasis), and durable US Government funding via Project BioShield ($150M multi-year, $54.9M initial tranche) .

What Went Well and What Went Wrong

What Went Well

  • UK commercialization milestones: “In February 2024, we received UKCA Authorization to commence sales… We deployed our first burn device in March 2024 and expect to commence generating commercial revenues in the second half of 2024” .
  • Margin uplift driven by new government contract: “Gross margin in the fourth quarter rose to 46.1%… due primarily to the increase in the new governmental contract reimbursement rate associated with the BARDA PBS contract” .
  • Funding and liquidity strengthened: “Entered into a prepaid advance and standby equity purchase agreement… total capacity of $30M… $5M funded at a fixed conversion price of $3.16; expect additional $7.5M in Q2 2024” .

What Went Wrong

  • R&D revenue declined year over year as BARDA Burn II wound down: Q4 2023 revenue $5.29M vs $6.10M in Q4 2022; FY 2023 revenue $18.06M vs $25.37M in FY 2022 .
  • Operating expenses elevated: G&A in Q4 2023 was $5.37M vs $4.28M in Q4 2022, reflecting higher headcount and non-revenue R&D initiatives .
  • Net losses widened vs prior year quarter: Q4 2023 net loss $(3.55)M vs $(1.74)M in Q4 2022; warrant liability fair value change was a $(0.67)M expense in Q4 2023 .

Financial Results

MetricQ4 2022Q3 2023Q4 2023
Research & Development Revenue ($USD Millions)$6.10 $3.44 $5.29
Gross Margin %41.1% 42.8% 46.1%
Diluted EPS ($USD)$(0.13) $(0.77) $(0.22)
Operating Loss ($USD Millions)$(1.77) $(4.17) $(2.93)
Net Loss ($USD Millions)$(1.74) $(10.63) $(3.55)
G&A Expense ($USD Millions)$4.28 $5.64 $5.37

Segment breakdown: Revenue is entirely “Research and development revenue” (government-funded R&D) with no reported commercial product revenue in Q4 2023 .

KPIs

KPIQ4 2022Q3 2023Q4 2023
Cash & Cash Equivalents ($USD Millions)$14.17 $7.35 $4.79
Deferred Revenue ($USD Millions)$0.00 $0.80 $2.31
Project BioShield Contract (Total Potential)N/AUp to $149M Up to $150M; initial $54.9M funding

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2024~$28.0 ~$28.0 Maintained
UK Burn Commercialization Revenue InclusionFY 2024Excluded Excluded (UK revenue expected 2H 2024, not in guidance) Maintained
Gross Margin OutlookFY 2024N/A“Relatively consistent… maybe slightly higher” vs Q4 levels Qualitative improvement

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023)Current Period (Q4 2023)Trend
Commercialization (UK burn)SnapShot imaging UKCA achieved; pursuing full system approvals UKCA authorization for burn; first UK device deployed; targeting 6–8 deployments, revenue in 2H 2024 Accelerating
Government Funding$149M PBS award announced $150M PBS; $54.9M initial tranche; monthly billing with ~62% margin uplift mechanism Durable support
Regulatory OutlookPlan DFU submissions in 2024; burn in 2025 Reiterated DFU filings in 2024 (US/UK); burn filings in 2025 (US) On track
R&D ExecutionBurn II wind-down; lower activity Burn pivotal initiated Dec 2023; 5–10% enrolled; pediatric cohort 25–40% target Progressing
International ExpansionBuilding EMEA presence (UK EVP appointment) Middle East pathways via UKCA (GCC leveraging) under discussion Exploring
Monetization ModelN/ADevice sale plus annual AI license/service/maintenance annuity Clarified

Management Commentary

  • “We expect to realize our first commercial product revenue in the second half of this year… generate commercial revenue across four… platforms covering burn and DFU within the next three years” (CEO) .
  • “Gross margin in the fourth quarter rose to 46.1%… due… higher reimbursement rate under the BARDA PBS contract” (CFO) .
  • “We invoice the government monthly… with an added margin of approximately 62%… we generally receive payment… shortly after invoice submission” (CFO) .
  • “We received UKCA authorization to commence sales… deployed our first burn device in March and expect to commence generating commercial revenues in the second half of 2024” (CEO) .
  • “For the burn patient… DeepView has a clinically validated accuracy of 92%… can reduce [burn center] stay by as much as 3 days” (CEO) .

Q&A Highlights

  • UK rollout cadence and staffing: 2 devices in field, targeting 6–8 sites; small UK team (biomedical, clinician, sales) sufficient to support; revenue expected to start 2H 2024 .
  • Burn pivotal trial progress: 5–10% enrollment; nearly half of sites active by end of April; pediatric enrollment target at least 25%, potentially 40% .
  • Liquidity and funding: $30M SEPA capacity with $12.5M prepaid advances ($5M funded at $3.16 conversion); additional $7.5M expected in Q2 2024; PBS initial commitment $55M funds development through Q1 2026 .
  • 2024 margins: guidance tone indicates gross margin “consistent… maybe slightly higher” than Q4 2023 .
  • Business model: device revenue plus recurring license/service/maintenance fee; AI model updates via batch/annual cycles; device designed stand-alone for mass casualty readiness .

Estimates Context

Consensus estimates from S&P Global for Q4 2023 were unavailable at time of request due to provider limits; therefore, no Street beat/miss assessment can be provided at this time. Values would normally be retrieved from S&P Global; consensus was unavailable in this instance.*

Key Takeaways for Investors

  • Sequential recovery with margin expansion: R&D revenue rose QoQ to $5.29M; gross margin improved to 46.1%, reflecting the more favorable PBS reimbursement rate and monthly billing framework .
  • FY 2023 outperformed prior guidance: R&D revenue $18.1M vs ~$17.4M guided, demonstrating execution despite BARDA Burn II wind-down; this strengthens credibility into FY 2024 .
  • FY 2024 guide maintained at ~$28.0M and excludes UK commercialization revenue, creating potential upside if UK adoption materializes as deployments convert to paid arrangements in 2H 2024 .
  • Commercialization is underway: UKCA authorized; initial devices deployed; positive early feedback versus legacy tools; real-world data may aid payer/institutional adoption .
  • Regulatory path remains intact: DFU filings (US/UK) targeted in 2024; burn filings (US) in 2025; progress supported by PBS funding and the pivotal trial enrollment momentum .
  • Funding runway supported by non-dilutive PBS and equity facilities, providing 12–18 months of operating flexibility to accelerate commercialization hiring and activities .
  • Watch risks: Elevated G&A, continuing net losses, and the absence of product revenue in Q4 underscore execution risk in commercialization; monitor trial enrollment pace and UK site conversions to contracts .