iCAD, Inc.
Q1 2021 Earnings Call Transcript

Published: 29 Apr 2021

[Operator:]

Greetings, welcome to the iCAD, Inc.'s First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation Please note this conference is being recorded. I would turn the call over to your host, Jeremy Feffer, Investor Relations. Thank you. You may begin.

[Jeremy Feffer:]

Thank you, Davin, and good afternoon, everyone. Thank you for participating in today's call. Joining me from iCAD are Michael Klein, Chairman and Chief Executive Officer; Stacey Stevens, President; and Scott Areglado, Chief Financial Officer.

[Michael Klein:]

Thank you, Jeremy, and good afternoon, everyone. I'd like to begin by highlighting a few financial metrics with a particular focus on iCAD's top-line revenue momentum. iCAD's first quarter total revenue of $8.6 million, represented a 32% increase over our first quarter 2020. I'd like to highlight the balance in our strong Q1 performance. We achieved year-over-year growth in both product and service revenue and in both segments of our business detection and therapy. Our detection business was up 28% as compared to Q1 of last year. This includes 34% year-over-year growth in product sales, and 13% year-over-year growth in service sales. Importantly, service revenue is becoming an increasingly important aspect of our overall business, especially in detection. Prior generation AI systems that are being replaced by newly installed ProFound 3D technology and are coming off of the initial warranty period associated with new installation. As these roll off of warranty, the result is growth and recognition of recurring revenue service contract sales on a go forward basis. Diving a little deeper into our detection business and Q1. As we indicated in a prior call. Our recently signed five-year exclusive agreement that Solis Mammography, a clear industry leader that operates in more than 80 branded centers in 11 states has already begun stimulating the accelerating adoption of ProFound AI by other local screening centers, in services markets and attachment areas. Local awareness campaigns activate both patient screening as well as clinical adoption.

[Scott Areglado:]

Good afternoon, everyone. And thank you, Mike for those kind words. I am fortunate to have spent the last 10 years that I can and to work with so many talented people on iCAD team. I'm particularly proud of our efforts over the past two years as iCAD is truly evolve into an industry-leading medical technology company. With that, I'll now summarize our financial results for the first quarter ended March 31, 2021. First quarter 2021 total revenues were $8.6 million, representing a year-over-year increase of $2 million or 32% as compared to $6.6 million in the first quarter 2020. Detection revenues were $5.7 million in the first quarter of '21, an increase of 28% over the first quarter of 2020 driven by a 34% increase in detection product revenue and a 13% increase in service revenue. Moving on to gross profit, on a percentage basis, gross profit was 73% for the first quarter of 2021 compared to 69% for the first quarter of 2020. On a pure dollar basis, gross profit for the first quarter of 2021 was $6.3 million, as compared to $4.5 million in the first quarter of 2020. Gross margin improvements in the first quarter of 2021 were driven primarily by improved service margins in the detection business. Total operating expenses for the first quarter of 2021 were $8.6 million, or 7% decrease from $8.4 million in the first quarter of 2020. As we noted on our prior call expenses in Q4 2020, had some onetime items on a higher revenue number in Q4. So Q1 is more representative of our 2021 expense run-rate. As Mike mentioned earlier, we expect to invest during 2021 to continue to drive sustainable long-term growth. However, we remain committed to a disciplined approach in managing these investments, which is reflected in the first quarter net loss of $1.6 million or $0.07 per share as compared to Q1 '20 loss of $11.8 million or $0.59 per share. Non-GAAP adjusted EBITDA for the first quarter of 2021 was a loss of $0.4 million, which represented an improvement of $2.7 million compared to the first quarter 2020 non-GAAP adjusted EBITDA loss of $3.1 million. Non-GAAP adjusted net loss for the first quarter of 2021 was $1.6 million or $0.07 per diluted share, as compared to a non-GAAP adjusted net loss of $3.9 million or $0.20 per diluted share for the first quarter of 2020. This metric highlights our improvements in margin and operating expenses, as it eliminates the onetime items in 2020 associated with retiring convertible debentures last year. Moving on to the balance sheet. As of March 31, 2021, the company had cash and cash equivalents of $46.9 million compared to cash and equivalent of $27.2 million at December 31, 2020. As Mike mentioned, during March, the company received $25.1 million in gross proceeds from the sale of approximately $1.4 million shares of our common stock at a public offering price of $18 per share. We were pleased with the number of leading healthcare-focused institutional investors that participated in offering. Finally, I would like to note that we retired our outstanding $7 million term loan with Western Alliance Bank which will eliminate interest costs going forward. This concludes the financial highlights of our presentation and I would now like to turn the call over to Stacey, Stacey?

[Stacey Stevens:]

Thank you, Scott. And good afternoon, everyone. Following a strong 2020 despite unprecedented challenges brought on by the pandemic, we are very pleased with the balanced performance across both segments of our business in Q1, with new product introductions, momentum and clinical studies and new market opportunities emerging, we continue to be well positioned for success as we look ahead and 2021 and beyond. Let's begin by highlighting the progress of our company's latest advancement ProFound AI Risk. On the last earnings call I reported that we were finalizing the data collection and validation of the Risk algorithm for 3D breast tomosynthesis. We are pleased to announce that we are on track with bringing this product to market this summer. As I highlighted, this process requires a collection of 3D cases for both training and validation. We have made significant progress in collecting the cases needed for each of the DBT imaging systems to be supported, and the preliminary performance results with the 3D images are very promising. The performance of the ProFound AI Risk model with 3D images is showing even better results compared to the model when used with 2D images, which is already far superior to traditional risk models based predominantly on family history. We anticipate that ProFound AI Risk will be particularly well positioned for success in the years ahead as mammography begins to transition from what is primarily an age-based screening paradigm today to a more effective and efficient risk-adjusted screening paradigm. This technology offers a practical solution that empowers physicians to offer more personalized screening that is truly individualized for each woman. Expanding the body of clinical evidence supporting our technologies with high impact clinical studies remains a priority focus area for us. ProFound AI Risk is already supported by a study published in Radiology in 2020. with the goal of conducting a global retrospective, multi-ethnic and multi-geographic analysis of 2D breast. Since January, we have completed a significant amount of work to finalize the agreements with the thought leader research groups in Italy, Spain and Germany. Despite the challenges of COVID travel restrictions together with our EU team, we plan to finalize equipment installation and begin validation at these sites in the upcoming months. As we have previously stated, a U.S. retrospective analysis study of ProFound AI Risk use with both 2D and 3D images will also be led by Dr. Emily Conant, Professor of Radiology at the hospital of the University of Pennsylvania, whose data also reflects an ethnically diverse group of women with a special focus on genetically predisposed women at high risk, such as younger African-American women. In the last couple of months, we have finalized the UPENN research agreement and protocol design, and we have moved on to the early stages of data analysis for 2D breast. As we near the final stages of 3D risk development, we have identified additional U.S. sites for inclusion of other ethnic groups including Southeast Asian-Americans and women of Hispanic origin. This research will contribute to the growing body of evidence supporting our technology and potentially paves the way towards more personalized screening recommendations by professional organizations that established clinical recommendations and guidelines for breast cancer screening such as the National Cancer Institute, the National Comprehensive Cancer Network, the American College of Radiology and others. So in summary, we continue to see strong interest for Risk in the market and remain very positive about the impact our innovative Risk solution will have on moving business forward. I look forward to providing further updates on ProFound Risk in the coming months. In addition to our focus on ProFound AI Risk, we are continuing to advance our flagship ProFound AI Breast Cancer Detection Solution for both 3D and 2D mammograms. As Mike mentioned, we received FDA clearance on the third generation ProFound AI in March, which includes additional clinical performance enhancements for new ProFound AI release is accompanied by a major platform release, which marks our ability now to track specific usage of the product, which will allow us to more widely offer an operational subscription license model. The new platform also significantly reduces the time it takes to process images as well as introduces the ProFound AI index cards, which provides our customers with a simplified summary of all iCAD AI results in a single view. Additionally, the release offers further enhancements to how our AI integrates with PAC, and mammography, reading stations to further improve reading workflow and efficiency for our customers. In the next few months, or near-term plans are to release the third generation ProFound AI for 2D mammography in the European and other markets outside of the U.S. ProFound AI for 2D will significantly improve the algorithm performance for all supported vendors. In addition, we plan to couple this release with a new and improved deep learning breast density assessment product, which will support synthesize 2D images from both GE and Hologic. We're also pleased to announce that just last month at the European Congress of Radiology, Dr. Emily Conant from UPENN presented research on ProFound AI indicating that our technology was able to triage one-third of 3D screening exams as normal mammograms with no missed cancers. When additional risk factors such as breast density and age are also considered the study found that almost 60% of cases could be triaged as normal, with no miss cancers. In the interview with 0

[Operator:]

At this time we will be conducting a question-and-answer session. Our first question comes from the line of Dave Turkaly with JMP Securities. Please proceed with your question.

[Dave Turkaly:]

Great, congrats. On the quarter coming in even above your present announcement. Mike, maybe just to start if I could, on the product side of your detection business. The 34% increase, and you called out in the press release that ProFound - continued adoption of ProFound AI. And then you also mentioned the Risk 2D here in the U.S. and Europe. I was wondering, can you give us any color as to sort of what was the biggest driver geographically? And then also anything you'd want to comment on maybe by Risk versus kind of core ProFound AI 3D?

[Michael Klein:]

Sure, Dave. Good to hear you. On a geographic basis, it really was a balanced effort. There were - it was also balance in terms of the contribution coming from multiple size deals without the mega deal that we typically get - that defines certain cores. The geographic disparity, probably the single biggest indicator to put your finger on is the Risk offering. What the Risk offering does is - to reiterate a point, it's finding things that are sub-visual. So it's allowing physicians to make informed choices about how to set up a screening regimen, a personalized regimen. Previously, they may not have had that information about things - in fact, it wasn't a May, they definitely didn't have this sub-visual capability to see things, we had to declare it as either there or not. If we didn't - even if it was sub-visual, if they couldn't see it, and verify it or biopsy it, we wouldn't show it, we couldn't show it would be considered a false positive. But now with this risk assessment product, we can show them what the algorithm sees two years in advance. That allows them to more precisely develop a prescription for that individual patient to call that patient back at six months, nine months and some rare cases even beyond the normal regimen, maybe it a longer interval. The other thing it does, Dave is that for people that are coming for sites that are delayed, and virtually everybody is backlogged in terms of patients treated. If you're trying to determine who to bring in first, and you basically were only screen 30 million and a 40 million last year, which is what we did basically every 25% behind. You want to know which patients might be the most problematic once a year ago that you missed, or what a lot of sites are beginning to do is use the risk product and examine the prior year's images to determine who to bring back earliest as screening centers open up and get used more widely. They're screening as much as they were before, they're spending their days, but this tool gives them from a rational basis for deciding who can go to the front of the line. That's the triage element, that's a bit of what Stacey was referring to.

[Dave Turkaly:]

Got it. And then as a quick follow up, you mentioned the subscription business. And that, you may begin rolling that out midyear, I hope Charlie's up to the task here. That said, you mentioned maybe subscriptions only, as you kind of evolve into this new Risk 3D, maybe here in the U.S. I guess any thoughts you have - updated thoughts on that in terms of timing? I mean, as we move into next year, do we think that a majority of the contracts, that your - licenses that you've done in the past will be on that basis? Because you'll have that new product in hand, as well as ProFound AI and other versions. Thanks.

[Michael Klein:]

So 0

[Dave Turkaly:]

Thank you.

[Operator:]

Our next question comes from the line of Chris Pasquale with Guggenheim. Please proceed with your question.

[Chris Pasquale:]

Thanks, congrats on a nice quarter. A couple questions about the therapy business. First, I was hoping to go into a little bit more detail about the changes taking place in the derm segment. Where do you see that going? And given the history there, how do you make sure they're building something sustainable? And then on the new indications, exciting to see that the continued progress with neuro. Curious what plans you have in the rectal indication around data generation and a clinical program to support adoption there?

[Michael Klein:]

Well, I let Stacey fill that was when she addressed - made those comments in our opening dialogue. Stacey?

[Stacey Stevens:]

Sure, let me - Chris, let me take the questions about the dermatology market first. There have been two very important changes that have taken place in the market that give us a lot of confidence that we can be very successful, sort of going back into this dermatology segment, where we did have a successful business several years ago. The first change is that reimbursement coverage has been greatly expanded. Up until now - up until only really a few months ago, there was only positive reimbursement coverage in about 20 states in the country. And if you look at where that is today, and there were a lot of negative policies to at the time and in a bunch of states. Now, basically, we have coverage either positive policies or silent policies. And we have very good 0

[Michael Klein:]

Yes. Neuro, obviously, we're deeply entrenched in the trial, which I indicated. Will begin enrolling at multiple sites over eight sites. There actually are more than a dozen sites now that are interested in the technology. But we don't want to get too broad in the clinical study. So what we have done is begun to bifurcate, those that are interested in the study, and those that want to participate in what we call registry. Those people who are in the registry, which we'll use to accumulate additional data will be sites that we would expect to commercially procure the technology. Again, this is a FDA-cleared offering. This study is largely for validation purposes, and obviously to create further verification of the current results we sought out of our Eastern European study. And as we move forward, we are --to answer some questions I've said, the total market strategy that may have been embedded in your requesting, we are exploring the idea of a onetime sales model for the controllers, similar to our other areas versus a potential technology as a service model, which would basically mean instead of firing the controller, people would say, I want to do five or eight treatments per month. That would allow us to move controllers from maybe one to as many as three to four different locations. This is an ideal indication for this given the more episodic nature of neurosurgical treatment, and also the ability to optimize the return on this technology, that can use it in multiple sites, but it's also a win free site. Because you don't have to have a major capital procurement, we would get paid sort of on a procedure basis, quite similar to the recurring revenue model we're talking about on the software side. So instead of a SaaS model, more of a TaaS or Technology-as-a-service model. We're still playing with that. There are some obvious benefits to that there are some obvious logistical challenges to the other model, but it looks very beneficial. And last thing I'll say about it, whenever like we invented that model, we learned this from our Taiwanese partners, where we ship now 12 controllers and they are actually treating at 40 to 50 hospital locations. And the creation being generated is quite significant for them. And we in some ways, have watched what they've done. And that's allowed us to kind of go to school a little bit on this Fed 0

[Operator:]

Our next question comes from the line of Marie Thibault with BTIG. Please proceed with your question.

[Marie Thibault:]

Hi. Thank you for taking the questions. And Scott, I just wanted to say good luck with your next steps in your future plans. It was fun working with you.

[Scott Areglado:]

Thank you, Marie?

[Marie Thibault:]

Yeah. I wanted to ask my first year a two parter on the flagship ProFound AI product. Maybe if it's possible to get an update on the number of licenses sold for that product at this point. That's the metric I know some investors are interested in. And as far as the Gen 3 version of the product. What have you heard early feedback from the field at all? I know it's not launched, but we'd love to also hear sort of your launch plan for that product, whether you go to existing customers or look farther afield?

[Michael Klein:]

Yes, Marie. I'll take that one. So as you know, we announced our 1000 install of ProFound both 2D and 3D in the fourth quarter sort of midway through. So we have to have the benefit of the last month of Q, last year, as well as the first quarter. I don't have a precise number for you on this. I think we - I guess what we were focused on hitting 1000 of this and just focusing on the market. But I mean, I've got to say that we're probably between 1100 or 1200, installations systems at this point, just as the back of the envelope calculation. And in total, that's sort of a subset of the 7700 cases or rather installations that I mentioned earlier. As far as the second part of your question 3.0. We just begun to introduce that into the market having gotten the approval, latter part of Q1. But we already know the feedback, because we did run side by side this - before regulatory approval, we ran side by side this 3.0 version to both our current version, as well as a competitive offering out there. And I would say that 3.0 is what made the soul of steel, sort of a no brainer, significantly better results on the specificity which means the ability to have a little bit on the sensitivity, which is again, it's hard to do both. But specificity, which is the ability to rule out those things that aren't cancer. You heard Stacey mentioned that Emily Conant's data at 21 site showed that up to 60% of the cases that are screened show are normal. And those that show up in no marks, also had no cancers. So what we're seeing and being able to move that up by as much as 10%, that data was based on the prior accuracy before 3.0. What that would mean, potentially is that up to as much as 70% of cases, if they have no marks, they potentially have no cancers. Now, that's significant, because we always talked about the fact that we save 53% of reading time, when you use our product in combination with 3D TOMA 0

[Marie Thibault:]

All right. Thank you for that clear explanation, Mike. Maybe I'll ask my follow up here on therapy, like Chris asked. On Xoft derm, it certainly seemed like it contributed to the strength of therapy this quarter. And it sounds like it could be a sustainable trend. I guess I want to get a sense of whether we should expect kind of lumpiness since you're working with a partner and possibly there's orders ahead? Or how should we envision kind of the derm business rolling out? Was this a onetime event and we shouldn't expect the similar strength going forward? Thank you.

[Michael Klein:]

I'll make a comment. And I'll let Stacey add color. I think Q1 was a little bit of a, I'd say surge in the sense that a lot of this data was new coverage. There's no negative coverage policies anymore. They're all positive coverage or silent, as they see indicated. And I think this came is good news to many folks. And then of course, the removal of this impediment to using the product, particularly in Florida is an enormous boon to the derm. So I do think that this business is on an upward trajectory. However, I would be remiss in saying that any kind of capital equipment in this market wouldn't have some degree - I hate the word lumpiness, some degree of let's say, time pressure elements associated with it. Because tuck capital equipment cycles are just longer than our software cycles. So I think the trajectory over time is clearly northward. But it would be hard to gain it precisely from quarter-to-quarter, given the inherent longer cycle, the capital it can take. I don't know if you want to add to that Stacey.

[Stacey Stevens:]

No, I think that's right, Mike. I think generally, that trajectory is upward. We may see some variation quarter-to-quarter, but I don't think it's going to be sort of steep ups and downs. I think, we have restarted this business. We've restarted investment in the business. We're doing a lot of promotional work marketing work back at the derms. And I think we have a lot of confidence to that, maybe it won't be exactly the same performance we sustained in Q1. But it's not going to be big up and down ups and downs, either. I think it's going to be a steady trajectory and we're going to see very strong performance from that particular segment throughout 2021.

[Michael Klein:]

I would just add to Stacey's comments that the one thing that can be lost on folks is that it's not businesses 60% our recurring revenue business, when you add service, and you add source contracts, and you add balloons are not going to be used in the case of skin but people would renew source contracts and at different volumes that may require a new contract. One of the things we like about having 10 new controllers installed, and having 100% increase in products, is the product placements are always a lead indicator for the recurring service, and source project revenues and also balloons, where they're used. So the more units that are placed, the more it can help the recurring revenue element of the service lines and in doing so may on a relative basis kind of ease back on some of the overall lumpiness in numbers.

[Operator:]

Our next question comes from the line of Per Ostlund with Craig-Hallum. Please proceed with your question.

[Per Erik Ostlund:]

Thanks. Good afternoon, everybody. I will start by adding my best wishes to you Scott as well. Good luck in in your future endeavors. We will miss you. So I guess my first question that you've talked about the ProFound AI roadmap, and I didn't hear not that it was may be said, but I didn't hear anything about the Priors product. I know there's been a fair amount of talk about Risk. And clearly that's helping drive adoption of the flagship. Just curious where priors sort of stands in the roadmap as you're viewing it today? And when you think about Priors specifically, I know we've talked about this a little bit in the past, Mike, but I think it could be helpful to kind of hear it again, how Priors is truly value add to radiologists and patients beyond simply applying the flagship ProFound AI product to a prior year mammogram?

[Michael Klein:]

That's a great question. Actually, I'm glad you have asked me clarify that. What we've done with Priors is that we took it off of the detection platform and put it on to the Risk platform. Because it was providing more important information on the ability to predict that it was on the ability to detect. It's very useful to compare the algorithm the results last year to this year's algorithm, but it's even more compelling for prediction - for the prediction algorithm to be able to go back multiple years, and then also look at the risk factors and tie it all together. And that makes for - what you previously heard us say is panorama, the ability to look forward and backwards. So by putting it on the risk platform, what we effectively did as we accelerated our Risk product, and we put the panorama or the Priors platform tied to our year-end anticipated release, which will be the next version of Risk. I mentioned earlier that the Risk product is going to go to subscription. And one of the reasons for that is that we expect continual innovation. So what we've done is we put the Priors program on the Risk platform, and where we get an even better yield and a bigger wow factor for customers than we do on the detection side.

[Per Erik Ostlund:]

Okay, that makes a lot of sense. Pivoting to the operating expense side of things. So I think your comment about the revenue growth of 32% and the operating expense reduction of 7% the quarter's prestart. As we are hopefully coming up on the other side of the pandemic, I know a question that I get fairly regularly is how much expense actually needs to come back? And how much might structurally stay out. And based on your commentary, it sounds like actually quite a lot of it'll probably stay out with 1Q representing more of a normal run-rate maybe with a little bit of investment layered on. Is that the right way to think about it? Or is there some expense that will ultimately come back in future periods?

[Michael Klein:]

I can make a comment, and Scott can color in. What's really been interesting, and I don't think we're alone in this is that the expense mix is going to change. All of these literally hundreds of thousands we're spending on trade shows, and travel and endless French meals, whatever, I think we've obviously haven't had those expenses. And I think we've actually learned a level of prudency and maybe these things - that I don't think these shows will be quite the same. The approach of doing web-based presentation demos is just so productive. And even the way we call on customers now, it's so productive. I don't think we'll ever fully go back to the way we used to work and therefore some of those expenses will just not come back. But having said that, we actually are finding that there are ways of now reaching customers that are really cost effective, but they're additives. So our search engine optimization tools, the ability to auto read people that hit our website and hit them back with customized information, the ability to do customized presentations, that's where we're going to be putting our dollars. And also, I mentioned, we're going to be adding some costs with direct sales depot, that will replace distributors, that'll be a bit of a hit. But when I say it hit, there'll be an expense. There will be offset by us climbing back 20% to 30%, of what we would have to give to a distributor in terms of a transfer price. So any of our investments will be designed to help the top-line grow faster. So I would just say that, I think we're going to have a steady state lower expense rate than before. But for sales acceleration purposes, we will invest where we believe we can create almost an unfair advantage in terms of - to support gains on the sales revenue side to offset the expense. But all these free-floating expenses that no one ever thought about getting rid of. It's time for us to - I think we've all become a lot smarter about both expenses and how we spend our time. So hopefully that sort of answer your question in two different ways. It's good question. Yeah.

[Per Erik Ostlund:]

I would say that answered quite well. Last question, probably a very easy one. But realizing that the timelines and structure of the model have been fairly fluid. Has there been anything new on the RO-APM side? Or are we kind of just in a holding pattern until things get finalized more around the middle of the year?

[Michael Klein:]

Yeah, that's a good question. So Stacey monitors this very carefully, Stacey.

[Stacey Stevens:]

Sure. So as you know per the December 2020 COVID Relief Legislation was what delayed the radiation oncology model until no sooner than January of 2022. So since that time, we have been very actively engaged with CMS. I personally had a meeting with them along with one of our KOLs to really make the pitch to get IORT back included in the model for next year. We don't know what the outcome of that will be, but CMS was very open to hearing our perspective on that. We had a meeting with 5-6-7 people. They encouraged us to continue to submit updated data and we're going to have new data on our own expert clinical study, ready to go soon. And they encouraged further communication and really had an openness and willingness to discuss this topic, right. So we don't know what will happen. But we're continuing to work in the background with a DC-based health policy attorney, working directly with CMS. We are now engaging some patient advocacy organizations to stand behind the cause here, particularly organizations that support women who tend to have more challenging access to traditional forms of radiation. So we don't know where this will all end up. Right now, we think that it's going to go into place in January of next year. Even if we don't end up back in the model, it's still going to be favorable for us as a company, because now, 30% of the geographies that are mandated to be in the program that delta, as you and I have discussed between the six weeks treatment in IORT, that delta is much more narrow than it's been in the past. So that alone will help us be more competitive, but we're staying the course. We're doing everything we can, along with our KOLs to pitch the reasons why IORT is a primary example of high-quality cost-effective care, and it should be in the model. And it's going to take some time to know what the outcome of that will be.

[Per Erik Ostlund:]

Excellent. Thanks, Stacey.

[Operator:]

Our next question comes a from the line of Kyle Mikson with Cantor Fitzgerald. Please proceed with your question.

[Kyle Mikson:]

Great. Hi, guys. Thanks for taking the questions. Congrats on the nice quarter, and Scott, it's been great working with you. Good luck on your next future. So one of the things on the expense from the. So we've continued to expand pretty meaningfully during the quarter into multiple states, was wondering if ProFound AI was installed in any of those new sites during the first quarter, or maybe this could occur this quarter next quarter? I was wondering your visibility, your confidence level on that. And then also, recently, SimonMed is taken out by a private equity firm. So that happens often it's not uncommon, but would something like that generally be a headwind or a tailwind to SimonMed's expansion plans?

[Michael Klein:]

Yeah, let me take that in reverse order. Obviously, the first thing we did, I did when I heard the news was called up John Simon, and was glad to hear that he will still be with the program. And he's still very interested in growth. And in fact, growing in new and unique ways in new markets and potentially in other - even other indications. So that's without going into too much detail, that was very good to say, and it could develop, and he's got a mandate and dollars behind him to grow. They want to be the number one radiology chain in the country, which is interesting. Because that's exactly what they told would like to be. And the Solis agreement has worked quite well for us. I would say it's worked quite well for them in the sense that they already added in Q1 over a dozen locations, which then become part of the deal. As you know, it's a five-year deal, exclusive deal. So as they grow, we grow. It has already kind of had the intended effect that even in the end of Q4, after the announcement of this deal, you may recall that Wake Radiology, so it's 22 sites in North Carolina, was heavily influenced or impacted by Solis's - the Solis agreement, which was made quite loudly in the Southeast, which led to yet another large Hologic account to adopt our technology. And that is happening in - that has happened in multiple sites throughout Q1. And we expect this to continue as they continue to grow. And it's really interesting that we have the two Ss, Solis and SimonMed, both private equity-backed with a lot of capital, that have significant growth mandates. And we do expect it where are we seeing it. And we will expect their awareness campaign. And in particular, you'll see awareness campaigns that happen around Mother's Day, and mostly happened in Breast Cancer Awareness Month, that really get quite loud. Some of the campaigns that people want to do are direct-to-consumer, direct-to-patient campaigns, which we'd prefer to do with them. I don't have that effect. It's had the effects in Q4, it's had the effect in Q1. I expect it will continue to have an effect now with both company SimonMed and Solis.

[Kyle Mikson:]

That was great. Thanks a lot, Mike for that, I appreciate the color on the OpEx under the core and I guess, going forward. But in the past, we talked about how the Xoft - and I guess both sides of the business should be profitable by the second half of '21. Are we kind of getting - we're kind of pushing that timeline up a little bit like maybe in the second quarter, if Xoft to be profitable even sooner than you previously expected?

[Michael Klein:]

I think we're in a position where we're hovering around this positive EBITDA, positive cash flow, and we have to make some strategic decisions which is do we want to press our advantage and continue to build the top-line, or turn profitable or drive close to profitability. I think that having the $47 million of capital has enabled us to make decisions that are in the spirit of, hey, we've got a lot of a momentum, we coming out of COVID, we've got - they got a significant lead, let's press our advantage forward. And if it moves that timeline for being profitable, by quarter or two, that's a pretty good, but yet it moves the top-line. That's been sort of the thing we've been aiming for is that continued growth. But we always want to stay close enough that at any one quarter, that if there's any impact, like COVID, we can always kind of pull back on some of our, what I call surge capacity, or give the time of the workers to turn profitable as need be. The one thing I'd also want to say is that the further we pursue the - and again, I've indicated that the subscription model will have low single digits, let's call it 5% impact on year that is always a challenge also in terms of being profitable. Because we'll put in all the costs upfront, but most of the returns will happen in subsequent year. So our goal has been to stay hovering around the loop if you will, with the ability to turn profitable if we need to. But let's make no mistake that. As the business continues to grow, no matter how much we may think of investing in inevitably has to turn profitable with positive EBITDA and cash flow, because we're generating a lot of leverage in the business now. As the margins are picking up as the top-line grows and as we prudently manage expenses, it's inevitable that we're going to turn in that positive direction. I'm basically just saying - we're basically just saying that - that if it means having to sacrifice a quarter or two of profitability to get inordinately greater growth, which is why do that, because it makes sense.

[Kyle Mikson:]

Make sense. Mike, thanks a lot for taking the time. I'll leave it there. Congrats again.

[Operator:]

Our next question comes from the line of Francois Brisebois with Oppenheimer. Please proceed with your question.

[Francois Brisebois:]

Hey, thanks for taking the question. Just a quick one here. I'm sorry, if you mentioned this before, but is there - having numbers the top-line come in higher than the preliminary numbers? Is there something specific there from a certain section that was better than expected?

[Michael Klein:]

I think in Q1, the Xoft number of $2.9 million, which again, was related to this aforementioned version dermatology and our product up to 100% over first quarter of last year doubled. So I think that was clearly a breakout performance on the Xoft side, where we're seeing the continued growth on the AI side as well. But I would say that, if you were to chart it out, you would probably see a noticeable uptick in Xoft in the first quarter. And as indicated to some of the other questions, we can't predict that that spike will happen in any one particular quarter, given the inherent spike in this to use that word of capital equipment sales, but exactly, certainly northwards can exist on both sides.

[Francois Brisebois:]

Great and then just as we think down the road here with Risk becoming more of a thing you mentioned, maybe 5%, this year and a little more next year. Is this something in the income statement that you guys are thinking about breaking out just ProFound Risk? You separated ProFound AI, especially if it's might have more of this subscription model in the other parts of the business?

[Michael Klein:]

Yeah, we have been talking a while. And this is something that Charlie will be doing. We've been talking a while back, creating a sort of a third line. So we have product, services, and what we would call subscription. So we're just waiting for it to be a more meaningful part of the business to break it out. Certainly, as we ahead to 2022 that'll be the case. But we said that we will be providing that breakout this year. I think we're waiting - we don't want to force it to happen if it's not been significant enough. At that point, it's not been measurable enough to really warrant it. But I suspect that could change as you move forward. And certainly when we move to a subscription-only model for Risk which we said will be in the mid to latter part of the year, we will do that. And we will do that with ample notification. We may even have a special investor meeting, which we know we definitely have in the fall to do it. It would probably be in the fall to be earlier. But we would want to give ample notification that if you want to build them up.

[Francois Brisebois:]

Okay, great. And is the subscription - if I'm understanding this, right, is the ProFound AI detection, will that also maybe be on subscription? Or are we just focusing on subscription for Risk?

[Michael Klein:]

The model we're going with, is by ProFound. Let's say you pay, $30,000 to $40,000 for a license. And on top of that you can buy subscription for let's say, 1500 a month for risk. It may be that people and we'll only be offering Risk at a certain point in that format. We're not intending right away prize to detection business to a subscription only model. But there will be a choice that sites can make. We think we have a better argument. When we say arguments, we think the presentation of the two products lends itself to Risk. But as previously mentioned, products such as the introduction of Priors being into the Risk product, makes it very compelling to want to have a product later to keep replacing. So it really lends itself to that. If it drags detection along with kind of model that to a degree as well, we don't think it's going to happen at a pace faster than what we've indicated. But if that is the case, we'll certainly have ample notice of that. Keep in mind, you don't want to be overly weighted to a volume-based market right now given the current straining volumes, that would be something to think further about later this year.

[Francois Brisebois:]

Okay, great. And if I sneak in a quick last one. Is there a reason - I guess, what's the reason that the EU has been so slow or is just not necessarily going to 3D from 2D? Can you just remind us what the reason is there?

[Michael Klein:]

Yeah. Stacey, you want to handle that?

[Stacey Stevens:]

Yeah, absolutely. So you find with Europe, in most MedTech devices that Europe typically lagged by about three or four years the United States in terms of technology adoption. And so that's one impact. The other thing is that in Europe, there are a couple of different things going on. Now one, the screening population is done only on 2D. So 3D TOMO is only used for diagnostic mammography or women who are symptomatic. So they're still - and the other thing is that there is a double read protocol in Europe as well. So unlike in the U.S. where a single radiologist reads every mammogram, in Europe two radiologists read every mammogram. And there are clinical studies going on right now that are looking to prove that one radiologist plus AI is better than two radiologists. And there already is some data that shows that. But at the end of the day, there are still 6000 2D mammography systems in Europe that are actively in use. And so that gives us a great opportunity to go back and sell the 2D AI product there. Another big difference is that in the U.S. in the 2D world, there was about a 90% attachment rate of computer aided detection the rename that we called the 2D products back in the day, where it was only about 15% attachment rate in Europe. So a lot of those 2D systems never had any type of AI-type solution. So there's a big opportunity with ProFound AI, where the sensitivity is so high. And the specificity is so good. And that was a big reason why, they weren't adopting earlier versions of computer-aided detection to go back in and sell product there. So, we're seeing growth in TOMO. Definitely, the market is growing over there, but it's still predominantly a 2D market. And it's going to be a little bit of a slower adoption cycle than what's in the U.S.

[Francois Brisebois:]

Thank you.

[Operator:]

Our next question comes a line of Andrew DeSilva with B. Riley Securities. Please proceed with your question.

[Andrew DeSilva:]

Hey, good afternoon. Congrats on the strong quarter. And as Scott, I'll echo everybody else's comments. It's really been a pleasure working with you.

[Scott Areglado:]

Thanks, and you too.

[Andrew DeSilva:]

Awesome. So I just have a few quick questions here. We'll start on the Risk side, was you're actually going to get any material top-line benefit during the first quarter from Risk, since it's still another licensed-related sales model. And the acquisition of change healthcare by United or Nuance by Microsoft have any impact on, how would you think about the subscription business?

[Michael Klein:]

Yeah, I'll handle the second part of that. And Scott you may want to talk little bit about the impact of the Risk in terms of specifics. In Q1 we talked about the number of deals tend to be aided by a Risk or having Risk bundled in. But on the last point there, I said before about United and oftentimes call them 1

[Scott Areglado:]

Yeah. So the risk is probably less than 15% to 20% of our revenue in Q1. And I would say the answer to that is that we're still trying to get this launched up to luminary sites, KOLs, things like that. We're bundling it with as 3D. But putting it in, I would say is a lower ASP right now to try and get adoption. So it's helping drive 3D sales. But I expect it to grow over time here, as people start to realize we can continue to position the value of risk in the offering. Hope now this being move into context 1

[Michael Klein:]

I'll add to Scott's last point there. This is a concerted effort on our part to get this product in the hands of the luminary get the papers written, get the studies out. Because when we launched 3D detection. We launched it and we had to wait six to nine months for the validation studies to come out. This this is part of an effort to get these validation studies done in advance of our hard launch in advance of subscription. And also do it with a significant amount of direct-to-consumer awareness building with this product which we hope to do with some of the sites that we mentioned earlier, particularly in local markets. So there's a lot of forces that we're trying to pull together can also will align with when screening is back to full throttle, which we expect will happened towards the end of the summer.

[Andrew DeSilva:]

Very good? And then can you just help me reconcile the change from one detection to detect and plus Risk? And then to from having a perpetual license model to having a perpetual license model and subscription model and selling that with your OEM partners like GE. Is that something that they are going to manage that process? Or does that transfer over to direct sales? Just any color there, I guess, would be useful as we think about how those operations build out.

[Michael Klein:]

Yeah, we've been - we could probably have a one-on-one break out some of the unpack that a bit more. But I would say that, similar to other things we've done in terms of let's say, Technology Innovation Program, which gives you the ability to pay in advance for the next algorithm, but you have to pay a certain dollar amount. So just like, we called it a tip for the technology innovation. We've always sold that directly ourselves. We don't really offer that to our OEM partners, because that's stuff we need to manage closely. This is going to be the case right now for Risk as well, particularly on the subscription side. It's too complicated right now to run it through the OEMs until we have all the pieces of the model in place. In fact, the same thing applies to our PACs partners, which would be Nuance, and Change Healthcare, even those parties, where those inherently are contracts that would be cloud-based, more SaaS-like subscription contract. Those are going to say, stay for a while in the realm of our ProFound AI detection product only. So we want to --this is another way of saying we want to sort of closely guard and curate and keep an eye on precisely how the recurring revenue product line risk will be introduced. It's more complex if we actually start thinking about our other channels. So first, we want to get it right ourselves. And then we'll start moving into other channels overtime.

[Andrew DeSilva:]

That makes sense. And last question for me as it relates to Xoft. Obviously, you were touched on the reimbursement shift for the dermatology side of the business. If my memory serves me correct, I might be mixing some names about I think was Palmetto and Nordic, really open the reimbursement dynamic that benefited Xoft seven or so years ago? Is that dynamic at play with the current benefits now? Or is this more like a traditional or more of a durable benefit within the radiation side of the business?

[Michael Klein:]

Good question. And good memory, Andrew. It was Palmetto and Noridian those are the two big ones. And what we had is those sites and Florida as well, all these policies, I would say once Xoft turned into negative coverage policies. They said technology was experimental. And what happening towards the end of last year was that all of those local, you may call them medical, Medicare, fiscal intermediaries all of that is turned either positive or neutral. How? There were no remaining negative coverage policies. So all those - that were, let's say we call them red territory, they all slipped to yellow or green, which is great. At the same time that that happened, the overall global reimbursement on a national average basis that was being secured from all like 12 or 13 of these regions, was averaging about 4900. That was up from about 2000 two years ago. And in the areas you mentioned, Palmetto and Noridian that was direct to zero years ago. So those have been steadily coming back to the point that we now have this national average of 4900. And what Stacey mentioned, one of the big things on top of this issue of let's say coverage, as well as payment, the two elements I really just went through, was regulation. If I not having the doctor, I have to sit by the controller. That eliminates an enormous cost and a cost that was really not necessary, at least in our view from a safety perspective and efficacy that it's a really wonderful impediment that at the way 1

[Andrew DeSilva:]

Okay, that's very useful. Thank you very much for the color and best luck go forward. And again Scott, best of luck going forward on your new endeavors.

[Scott Areglado:]

Thanks, Andy.

[Operator:]

Our next question comes from the line of Brooks O'Neil with Lake Street Capital Markets. Please proceed with your question.

[Brooks O'Neil:]

Hey. Thank you. I have two quick ones, I hope. One, I wonder if you could give us your estimate of your penetration in the breast diagnostic market? And two, I wonder if you have any comments about the application of ProFound beyond the breast diagnostic market? Are there other opportunities for you going around the body? Thanks a lot and congratulations on a great quarter.

[Michael Klein:]

Yeah, Brook two questions. The first one penetration. We track ourselves, when we look at the 40 million images or women that get mammograms per year, we've been tracking ourselves for a while now. And having over 50%, that 56% 57% of all U.S. strains so that we're now talking about in the low-20 millions that are screened with our technology. The balance would either not using any AI, or maybe using an early generation competitive technology. No one else is out there with 3D that we've seen in spot or we paid for an install. We may see a 12 unit out there. So our goal obviously is to with 3D to get to not only the penetration we had with 2D where we're treating 20 million to 23 million patients, and more than half of the 18,000 sites or cameras that are out there but to go well above that. So our strategy is to replace 2D, and then go beyond that 56% 57% can just keep going. And we believe we have this tremendous opportunity and advantage as first mover and so pretty much the sole mover at this point, because we just haven't seen any sold units into the market. So that's back to my point earlier about moving quicker and wanting to drive the top-line. Now, when we think of other areas, there are a number of areas that we actually are already in. We already have an FDA-cleared product in colorectal AI, CT-scanning of the col, it's just that reimbursement is not there to support. So that's an area we continue with them. But the other areas that we look at are one category is extensions of breast, which is obviously breast MRI, breast ultrasounds and then the third area is the ability to detect coronary vascular disease in breast images. Raptorial calcifications can be seen overtime. And as we look at the Priors, we begin to see changes in the arteries that feed the cardiac tree. And in doing so, instead of focusing, let's say on the cancer, it's a matter of doing the pattern recognition on these vessels. And the biggest part, which is the collection of data is information we already have. So millions of images that could be mined for this. So we're looking to make strategic decisions to prioritize. The other area that we used to be in that we still have capabilities in that we will examine is the area of prostate. These are areas that where you might say we're a little bit of discipline dilettantes at the moment and that we're looking at these. And we're applying some very careful metrics about the competitive landscape reimbursement, how big is the market. So when we make the foray into an area, it's going to be a meaningful use of our jobs. But I want to say this, we're nowhere near done in breast. There is so much more to do with this risk product products that enable us to - as said earlier, control patterns care, giving women the information breast needed to even change their risk factors and change their scores is a long, long way to go. And imagine if we had 22 million patients today, giving us a pay per click, just that alone makes us. Wish that we had a pay per click revenue model years ago. Of course, we didn't have the software tools, the industry wasn't ready for it. But just getting our current market share we got a pay per click over time enormous implications for the business. So it's in breast.

[Brooks O'Neil:]

That's great. I'm sure you know this, but coronary artery disease is the number one killer of women in the world today. So that's a huge and important market as well. So I'm glad you're at least thinking about it.

[Michael Klein:]

Well, the ability to turn every breast cancer imaging center into a women's holistic imaging center we can detect two diseases at once potentially is enormous. And it's literally coming from the same set of images. So we're not ready to announce anything formal in this area. But we are actively looking at it.

[Brooks O'Neil:]

Great thank you.

[Operator:]

Our next question comes from the line of Gene Mannheimer with Colliers Securities. Please proceed with your question.

[Gene Mannheimer:]

Thanks. Good afternoon. Most of the questions been answered here, but I appreciate the color around the revenue over attainment in the quarter. And I just wanted to ask if you feel there was any - to what extent was there any COVID catch up, relative to maybe some of the delays you saw last year? Did that - any of that come in Q1? Essentially, I'm trying to get a feel for your comfort level with consensus numbers, because it looks like you're off to a great start out of the gate here. Thank you.

[Michael Klein:]

I would say that, there's certainly a little bit of catch up and that there were deals done in Q1 that would ever were hoped to have been done in the latter part of 2020. But we had very significant Q4. So - and that was in large part, a significant amount of catch up in that core. Because people were already starting to visualize even though we hadn't hit some of the peaks in January, early-February, people were already back to screen. I think that what we're still going to see, I think we're going to see it across in the second half of the year is that a lot of hospital does as much as 40% are on a July 1 to July 1 cycle. So for the ones that we're kicking off on an annual year in January, we may be seeing a little bit of that in the early part of the year, because they've got renewed budgets. But a lot of folks are going to be hitting their budget cycle in July. So that's just an interesting point to note, in terms of the cycle of the SaaS 1

[Michael Klein:]

Great, thank you, Mike.

[Operator:]

And with that this concludes our question-and-answer session. Now let's turn the floor back over to Mr. Klein for any closing marks.

[Michael Klein:]

I want to thank you everybody for hanging in with us. A lot of questions, a lot of great questions. Let me close by stating my thanks for all you joining us. Again, so we could summarize the highlights of our business. And I'll just wrap up by saying that, the takeaways that we want to bring forward to the quarters that we have continuing sales momentum driven by ProFound AI, which is being aided significantly by Risk. There is significant near-term commercial opportunity with ProFound Risk, which we see as a giant leap forward towards Risk-adaptive screening, and will play an increasingly larger role as we introduce 3D and also as we start broadening our footprint with additional sales resources and the application where appropriate of the subscription model. We see increased penetration, not only with large deals, but also with moderate-sized deals outside of 1

[Operator:]

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.