Zomedica and iCAD Report Strong Q2 2024 Growth, Highlighting AI and Expansion Strategies

Earnings call: Zomedica sees steady growth and expansion in Q2 2024 By Investing.com

Zomedica (NYSE American: ZOM), a veterinary health company, reported a modest revenue increase in the second quarter of 2024, with a 2% growth from the same period in 2023, reaching $6.1 million. The growth was primarily driven by the Diagnostics segment, which saw a 68% increase, attributed to new assay launches and strong demand for the VETGuardian product. Despite this, the PulseVet line experienced subdued growth, and the company faced challenges with sales force performance and temporary headwinds. Zomedica is actively expanding its international reach, with expectations that these efforts will significantly bolster revenue in the latter half of the year. They also reported a net loss of $23.9 million for the quarter and announced the resignation of CFO Peter Donato. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Zomedica's expansion efforts, both in terms of product offerings and international market penetration, indicate a strategic approach to growth despite the current challenges. The company's focus on innovation and customer adoption through over-the-air updates and new product launches, such as the equine VetGuardian option, are set to enhance its market position. With a strong cash reserve and no debt, Zomedica is poised to continue its pursuit of profitability and market expansion in the veterinary health sector. InvestingPro Insights Zomedica's financial health and market performance present a mixed picture as of Q1 2024. The company's market capitalization stands at approximately $154.98 million, indicating a relatively small player in the industry but with potential for growth. One of the key metrics that stands out is the company's gross profit margin, which at 67.78% for the last twelve months, suggests that Zomedica has been effective at controlling the costs of goods sold and maintaining a profitable pricing strategy for its products. InvestingPro Tips reveal that Zomedica holds more cash than debt on its balance sheet, which is a positive sign of financial stability and aligns with the company's reported $83 million in cash at the end of Q2 2024. However, it is quickly burning through cash, which may raise concerns about long-term sustainability if not addressed. The company's liquid assets exceed short-term obligations, providing a cushion for near-term financial obligations and potential investments. In terms of profitability, Zomedica has not been profitable over the last twelve months, as reflected in the negative Price-to-Earnings (P/E) ratios of -4.02 and adjusted -5.32. This is consistent with the reported net loss of $23.9 million for Q2 2024. Additionally, Zomedica does not pay a dividend to shareholders, which is not uncommon for companies focused on growth and reinvestment. Investors interested in Zomedica's performance and future outlook may find additional InvestingPro Tips by visiting https://www.investing.com/pro/ZOM, where they can uncover more insights into the company's operations and potential investment opportunities. With several more tips available, this resource serves as a valuable tool for those looking to make informed decisions about their investments in Zomedica. Full transcript - Zomedica Pharmaceuticals Corp (NYSE:ZOM) Q2 2024: Operator: Good afternoon, ladies and gentlemen, and welcome to the Zomedica Q2 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Mr. [Mike Valle ] from ICR. Please go ahead. Unidentified Company Representative: Thank you, operator, and good afternoon, ladies and gentlemen. Welcome to Zomedica's second quarter 2024 earnings and business update call. Joining me on today's call are Zomedica's Chief Executive Officer, Larry Heaton and Chief Financial Officer, Peter Donato. Before we begin, we'd like to remind everyone that on this call, we will be making various remarks about future expectations, plans and prospects that constitute forward-looking statements. These forward-looking statements are based on assumptions, and there are risks that the results may differ materially from those statements. As such, Zomedica cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on them. We refer current and potential investors to the forward-looking information and Risk Factors section of our public filings available on SEDAR at www.sedarplus.ca and on EDGAR at sec.gov. Forward-looking statements made on this conference call represents Zomedica's expectations as of today, August 14. I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Larry? Larry Heaton: Thanks, Mike. I'd like to start by thanking our shareholders for your support, wishing and our prospective investors and analysts and others a good afternoon, and welcoming all to the Zomedica second quarter earnings results and business update call. I'll start by providing an update on the overall business, then our Chief Financial Officer, Peter Donato, will walk you through our financial results. After our prepared remarks, we'll open the phone line and the web to your questions. Earlier today, Zomedica released its financial results for the second quarter in 2024. Revenue for the quarter was $6.1 million, reflecting 2% growth over the second quarter of [2023] primarily driven by solid year-over-year growth of 68% within our Diagnostics segment as we are seeing the positive benefits of our recent assay launches with TRUFORMA as well as the continued demand for VETGuardian. This performance was offset by only 1% growth in our PulseVet product line with PulseVet consumables up 11%, but PulseVet capital down 15%, reflecting essentially three fewer new systems sold attributable to what we believe to be temporary headwinds within the PulseVet capital sales area. Capital sales performance within our U.S. direct sales force came in lower than expectations, largely as a result of several territories being open for a period of time during the quarter. While some of this was a result of our recently appointed Head of Sales, implementing his strategic plan to optimize performance, we were also impacted by some short-term unexpected productivity headwinds as a result of multiple reps being now on medical leave, reaching at its peak 14% of the sales force. These folks have since returned to their territories, so we expect these sales force specific issues to be mitigated moving forward as we are now back up to full strength with a reinvigorated and healthy sales force, and as a result, should see a rebound in new system installations during the back half of the year. We did also note some macroeconomic factors, potentially impacted new system purchases such as the current interest rate environment, potentially causing customers to wait to see if interest rates would decline. If this continues, we have a number of different pricing and placement model options at our disposal, which we will continue to leverage to provide greater access for veterinarians, looking to better serve their pet patients. While we expect the vast majority of system placements to be capital purchases, we may see more customers opt for one of our differentiated models over the coming quarters. With that said, we continue to be very encouraged by the underlying demand for and utilization of PulseVet among new and existing customers. Highlighting the fact was the 11% growth we saw year-over-year in PulseVet consumables revenue, unaffected by having fewer salespeople in the field as this is driven by customers' repeat usage in their practices, and we expect these trends to continue in the back half of the year. Despite the lower-than-anticipated revenue during the quarter, we made significant progress towards a number of our key initiatives to drive growth in 2024 and beyond to cash flow and then GAAP profitability. I'll start with our commercial expansion efforts. Our international initiatives continue to exceed expectations and look to be a significant contributor to revenue during the back half of the year. One key contributor to that belief is our recently expanded global reach through a strategic alliance with Leader Healthcare Group in key international markets. Leader will be the exclusive distributor of our entire product portfolio to veterinarians in the Middle East, along with Egypt and India. These are large geographies with significant animal health markets, and this partnership will allow for Zomedica products to enter new parks in the world that we have not previously had access to. In addition, we're in the process of adding our new products to existing distributors as well as adding new distributors in select international markets. Just today, we announced the signing of an agreement with SIRE Veterinario, a leading distributor of veterinary equipment in Costa Rica that will begin offering Zomedica products shortly. With CE marks in hand, we expect additional announcements throughout the rest of the year. Now I would note that these new distributors did not place initial product stocking orders during the second quarter. We expect to fulfill these orders this quarter and next. And as a result, we believe our international business to be a strong incremental contributor to revenue performance in the second half of this year. With the increasing demand we're seeing and growing scale of our footprint, we expect our international business to be a material growth driver for Zomedica in 2025 and beyond. We also achieved a number of significant milestones within our product portfolio. I'll start with the Assisi. During the quarter, we finalized an arrangement with our online retailer that markets through amazon.com that will now offer the product line in 10 additional countries around the world. And that's in addition to us establishing new distributor outlets that will sell directly to veterinarians. Turning to PulseVet. PulseVet continues to be our leading product, and we have made significant headway in growing its adoption across our customer base. We started with an installed base of around 1,200 systems, primarily with equine veterinarians. We now have had over 2,000 systems installed to date worldwide, including a growing number of mixed and small animal veterinarian customers. This highlights the benefits of the platform to help provide better care for pets. With a timely update as we all just witnessed the Olympics, PulseVet was named the official Shock Wave Therapy of U.S. Equestrian, which competed in Paris. We were thrilled to partner with the veterinarians caring for horses competing in the Olympics to support their efforts to improve the welfare of their horses and ensure our team had access to world-class technology to support their care in Paris and now back home. In support of those efforts on a wider scale, we are working to develop quality research to help expand clinical indications for use. We recently released a white paper showcasing the effectiveness of PulseVet therapy for treating exercise-induced pulmonary hemorrhage in quarter horses. But importantly, in addition, the paper highlights that PulseVet therapy offers a potential noninvasive drug-free treatment option for horses suffering from equine asthma, paving the way for new sales opportunities beyond the technology's historic applications. PulseVet therapy is well established in treating orthopedic issues like osteoarthritis and tendon and ligament issues and bone healing. Its effectiveness in treating lung conditions in asthma opens a new field of potential benefits, highlighting that we are just beginning to understand and tap the potential for this energy-based treatment technology. The white paper demonstrates the potential to extend PulseVet therapeutic use into new markets, including equine lung conditions in asthma, making it a vital component of Zomedica's growth strategy for the future. Of course, for small animal veterinarians who are just being introduced to the PulseVet system, essentially all of the 20 clinical indications for dogs and cats are new to them, providing compelling reasons to adopt the technology. Turning to an update on TRUVIEW. During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TRUVIEW system. When this is completed, each slide processed will be accompanied by an AI report. We expect to launch this feature later this year and will resume more aggressive marketing of the system when it is ready to launch. In addition, we have finalized and will be rolling out shortly a new protocol, specifically for ear cytology, reducing the time to produce the images needed for review by the veterinarian and streamlining practice workflow. This could be potentially impactful to our business as ear cytologies are performed daily at vet clinics to diagnose otitis, which affects between 10% and 20% of dogs and 2% to 6% of cats. Now TRUFORMA. We continue to be encouraged by the growing adoption of TRUFORMA as we're seeing an uptick in increases in our installed base. Importantly, we are seeing expansion into equine veterinary practices as we benefit from our growing portfolio penetration across both equine and small animal veterinary practices. As part of our push into new international markets, we're very excited that in June, we received CE Mark approval for TRUFORMA, which enables us to commercialize the platform across the European economic area. This is an important milestone as it allows us to bring the benefits of our one-of-a-kind diagnostic testing capabilities to the large and rapidly growing European veterinary diagnostics market. The distributors we recently announced will be carrying the TRUFORMA product in their respective markets, and we expect to introduce it into Europe during the current quarter. The core benefit of our acquisition of Qorvo (NASDAQ:QRVO) Biotechnologies, the developer of TRUFORMA, was our ability to accelerate the development and commercialization of new assays. And during 2024, in addition to the two new assays already launched for both small animals and horses, we continue to expect to launch at least three additional new assays during the balance of the year. With respect to our expansion into equine Diagnostics, following the successful launch late last year of our first equine assay, endogenous ACTH. During the second quarter of this year, we launched our second equine focused assay, cortisol for equine serum. Cortisol measurement is crucial for assessing the health of sick foals, and it's not been available at the point of care until now. Traditionally, equine veterinarians have had to send samples to reference labs and wait several days for results, potentially receiving them too late to make critical treatment decisions. Our new assay will bring a valuable diagnostic tool for equine veterinarians to use in clinic and stall site, empowering them to make real-time potentially life-saving treatment decisions. With several hundred thousand foals born each year in the United States alone, this assay will not only be a benefit to veterinarians and the foals they care for, but we'll also expand the market for the TRUFORMA system amongst equine best. In addition, in May, we launched an advanced canine cortisol assay. This assay, which is one of the most frequently used tests on the platform now features significant improvements, including an increased dynamic range that enhances its precision and accuracy. The cortisol assay is vital for veterinarians, allowing them to perform critical tests, such as the low-dose dex suppression test, with reference lab accuracy directly in their clinics. By improving what is already one of our most heavily used assays, we expect to further strengthen the TRUFORMA platforms position in the market. In addition to the launch of multiple assays during the year, we launched over-the-air update capability for TRUFORMA. Each time we launch a new assay, a software update for our installed base is needed to add the capability to run the new assay and provide appropriate reference ranges, et cetera. Up to now, this has required an in-person visit from our sales team. With the introduction of over-the-air updates, customers are prompted when a new software update is available on the device, and we'll be able to apply the update with the push of a button demonstrating our dedication to accelerating delivery of highly beneficial assays on the TRUFORMA diagnostic platform. These capabilities further reduced barriers for customer adoption of newly launched assays as well as provide efficient means for delivering timely enhancements for existing assays to customers. Turning now to VetGuardian. The sale of new VetGuardian systems continue to highlight the value of the technology and the benefits our customers are seeing. As we're now in the second year of offering this product, we will be receiving recurring annual revenue for cloud access and extended warranty coverage from charges that began after the first full year of adoption. In May, we announced the achievement of a significant milestone CE marking for VetGuardian. This certification allows the platform to be sold throughout the European Union and select other countries given veterinary professionals seeking an advanced solution to elevate patient care and streamline practice operations, access to this innovative technology. With CE Mark in hand, we're turning our attention to a formal international launch as we evaluate and onboard additional international distribution partners to help meet demand for this product. We're also excited about our development projects to bring VetGuardian to the equine market. Given our deep penetration within the equine vet market with PulseVet and now with TRUFORMA, we believe our launch of an equine VetGuardian option will be very well received, helped drive accelerated adoption by equine veterinarians in 2025 and beyond, and set the stage for potential expansion of the market opportunity to include horsetrainers, breeders, potentially owners. Now shifting to operational update. In June, we completed the expansion of our global manufacturing and distribution facility in Roswell, Georgia. The expansion, which increased the facility's total size to 18,400 square feet, adding 6,000 square feet of adjacent space, enhanced warehousing and sales order fulfillment efficiencies. This all resulted in us now having capacity from the Roswell facility to support a fivefold increase in demand for our products. In addition to adding capacity in our Georgia facility, in our Minnesota facility, we have installed a new automated robotic manufacturing line that automate steps that previously required high levels of manual labor. We're currently in process of validating this production line, which we expect to be completed during this quarter. This will not only benefit the efficiency of the process but will also allow us to realize cost benefits, which we expect to be reflected in our improving gross margins. While we did experience some short-term headwinds during the quarter that impacted our top line growth, we're very bullish on the future of Zomedica. We achieved a significant number of key commercial and operational milestones, which will support our growth strategy moving forward as we make progress toward our goal of cash flow and GAAP profitability. I'd now like to turn the call over to Peter to review our financial performance in more detail. Peter? Peter Donato: Thanks, Larry, and good afternoon, everyone. Total revenue for the second quarter of 2024 was $6.1 million. That's an increase of 2% over the prior year second quarter, primarily driven by growth within our Diagnostics segment. Second quarter 2024 capital revenues were $1.7 million, and that's down 12% from $2 million in the second quarter of last year. And as Larry said previously, this is primarily the result of falling about three units short this year as compared to last year, with also due to some short-term commercial headwinds, also, as Larry discussed. We have taken the appropriate steps to ensure that our commercial team is back on track and expect these issues to be resolved during the back half of the year as we return to a more normal capital sales trajectory. Also in the second quarter, consumable revenue was $4.4 million. That's an increase of approximately 8% from the second quarter of 2023 revenues, which were $4 million. Consumable revenue now represents 72% of total revenue in this quarter. Second quarter Therapeutic Devices segment revenues from PulseVet and Assisi product lines were $5.7 million. That's roughly flat compared to the prior year. With that said, we continue to be optimistic about a return to higher growth rates in the back half of the year as we expect capital sales to normalize. Second quarter Diagnostics segment revenues were about $420,000. That's an increase of 68% over the second quarter of last year. This was driven by significant year-over-year growth from VetGuardian and TRUFORMA. Within the Diagnostics segment, capital revenue grew over 87%, while consumable revenue grew nicely by 62%. Gross profit for the second quarter of 2024 was $4.4 million, and that compares to $4 million in the second quarter of last year. Gross profit margin for the second quarter was 71%. That's slightly better than the high end of our previously stated target range of 65% to 70% and much higher than last year's reported margin of 67%. In the quarter, accounting rules required us to take noncash charges of approximately $16 million to eliminate or reduce the carrying values of goodwill related to product lines associated with the S&P, Revo Squared and Assisi acquisitions. Please note that these are noncash charges and have no impact on the ability to drive the adoption of these products. And as such, we continue to believe in these products and the potential they have to take us to profitability and beyond. However, as a result of these charges, reported operating expenses for the second quarter of 2024 were $29.4 million. When adjusting for these noncash impairment charges, total operating expenses checked in at $13.4 million, and you can compare that to $10.8 million in the same period of 2023. That's an increase of about $2.6 million. In the second quarter, our R&D expenses were about $1.5 million. That's an increase of about $600,000 over the prior year quarter, with additional spending on AI-related programs, TRUFORMA and VETGuardian product development, and CE Marking for international regulatory approvals. Also in the second quarter, sales and marketing spend was $3.9 million, and that compares to $3.1 million during the same period of 2023, and that's primarily due to our expanded sales force and spending on new product marketing and their related launches. Also in the second quarter of 2024, our G&A expense was $8 million, and that compares to $6.8 million during the second quarter of 2023 with most of the increase due to accounting, legal, tax, and audit expenses, and they're primarily related to acquisitions and other compliance-related programs. Net loss for our second quarter was $23.9 million. That's $0.024 per share, and it compares to a net loss of $5.2 million, or about $0.005 per share in the second quarter of 2023. Our non-GAAP EBITDA loss, which includes adjustments for non-cash stock compensation for the three months ended June 30, 2024, was $22.3 million and compares to a loss of $3.7 million for the same period last year. When adjusting for non-cash and non-recurring items our adjusted non-GAAP EBITDA loss was approximately $5.2 million. Turning to the balance sheet, Zomedica ended the second quarter with $83 million in cash, cash equivalents and available for sales securities. Our cash used in the second quarter was approximately $7.9 million and included $2.7 million of non-recurring items with the remaining $5.2 million used for operating expenses. With the non-cash impairment charges taken during the quarter, our balance sheet and related valuation are now more in line with our current market capitalization. And as an always reminder, we have a zero debt. Before wrapping up my prepared remarks, I'd like to announce that this morning I tendered my resignation from Zomedica, making this my last earnings call with the company before I moved back into human health, where I've spent most of my senior career. Since joining the company in March of 2023, I've led efforts that enhance our control environment. We built a maturing and good finance and accounting function led by our VP and Corporate Controller. In addition, we've implemented a variety of strategic initiatives aimed at driving growth and putting us in a position to achieve profitability. In other words, Zomedica is in good hands. The company is currently in the process of identifying my replacement, and I will continue consulting with the company for a period of time to ensure a smooth transition until a new CFO is in the seat and up to speed on our business. Now, turning to an update on guidance. With the transition to a new CFO, and to defer to that new CFO, we are suspending our previously issued revenue guidance for 2024. The company will revisit issuing guidance once a new CFO is on board, but directionally, we expect total revenue to grow versus the prior year, with a step up in revenue during the second half of this year, as we anticipate outsized seasonal trends in our third and fourth quarters. While we are suspending revenue guidance, we continue to expect gross margins to approach and maybe exceed 70% for the full year as we continue to see operational efficiencies. Turning to cash burn, we continue to expect our adjusted cash burn to be within our previously stated range, guidance range of $12 million to $18 million. That's likely at the high end of that range, and again, I'll defer to the new CFO coming in. With that, I'll turn the call back over to Larry for final remarks before the Q&A session. Larry? Larry Heaton: Thanks for the update, Peter, and thank you, Peter, for your contributions to Zomedica during your tenure. I appreciate all you've done to now, appreciate your ongoing commitment during the transition to a new CFO, and wish you the best in your future endeavors back in the human health market. Peter Donato: Thank you. Larry Heaton: As you can tell, we continue to be excited about the future of Zomedica. We have a significant number of initiatives in place to drive growth of the business, while doing the work behind the scenes to set ourselves up to achieve positive cash flow once we reach $50 million in annualized revenue, and beyond that, to GAAP profitability. We have plenty of capital, innovative products, and a professionally led sales force to introduce them to veterinarians for the benefit of our pets and yours. So, let me end our prepared remarks by again thanking those that have been supportive of Zomedica, including animal health professionals and pet parents worldwide, and the many shareholders of Zomedica. With that, I'd be happy to open the line for questions. Operator: [Operator Instructions] Our first question will be coming from Andrew Rem from Odinson Partners. Andrew Rem: Sorry. Can you guys just, Larry, could you talk about the sales force headwinds in the quarter in a little bit more detail. And then, how you guys will mitigate that going forward? Larry Heaton: Yes, and hi, Andrew. So, during the quarter, once Kevin Klass came to us from HESCO, he began the process of evaluating the existing sales force, and in some cases, there were salespeople that were replaced. And when you replace salespeople, then there's a little bit of lead time for them to get trained and up to speed and get the pipeline, funnel full and so on. That was a little bit of it. But at one point during the quarter, during the second quarter, we had five salespeople out on medical leave, for a variety of conditions. And we only have 35 sales territories. So, that's 14% of the reps were out at some point during the course of the second quarter. Now, I'm pleased to report that they all returned to work. They all recovered. They're all healthy. And they're all back in their territories as of the beginning of this quarter. So, we don't expect to have to do anything else. We've got now a full slate of salespeople out in the territories, and we're beginning to see - we are seeing the uptick in sales that comes from that. So, there's nothing left for us to do. We just have to sort of accept it, when they're out on sick leave. On the other side, I think we did see, I think all of us saw a little bit of reluctance in the second quarter from some customers to go ahead, and commit to financing a $32,000 piece of equipment. We saw fewer sales in the second quarter of this year than a year ago. And it could be interest rates. Maybe they think they're going to come down a little bit later. It could be that clinic owners, as has been reported by other animal health companies in the last few weeks, or over the last week or so, it could be that clinic owners saw visits decline in the second quarter. And so, they were going to wait and see what's happening to their business, before they make additional financing commitments. But the data that's out there shows that the visits have rebounded in July. And so, these are things that may or may not continue, as we move forward. And that's why I mentioned we've got some alternative programs to be able to place devices into these practices. I'll give you an example. We currently sell the system for $30,000 and the handpiece we call a trode for $2,000, actually $2,100. With a placement program, we may - place the device without requiring them to commit to the capital upfront. And instead of selling them the trode for $2,100, sell it for $6,000. Or even sell a half full trode for $3,000. These are ways for them to not have to make the long-term commitment and instead can get into offering the therapy right away. We're confident that once they start using it, they're going to see a very significant return on that investment. And we see this really as a bridge, to them being able then in a subsequent quarter, or once they go through their first trode to go ahead and order the system. That would then bring their trode costs down to $2,100. So we think we're well prepared as we move forward. A lot of the sort of realization that system sales were going to be light in the second quarter came at the end of the quarter, when typically most of the systems are closed, are sold. As we saw reluctance or delay. In fact, we believe that many of these will turn into customers - in a subsequent quarter. Just didn't happen in the second quarter. And caught us a little by surprise. Andrew Rem: Okay. Just maybe a couple things on the PulseVet. So when you give the alternative to sell the trode for $6,000, are they committing to a certain number of trode purchases, or you would, if they only buy one and then they don't re-up, there would be a point where you would pull the system back out of the field? Larry Heaton: Yes, absolutely. We're super clear that if you buy the trode, you use it. If you don't want to buy another one, then we'll take the system back. We have a loaner pool, so we don't have to take new systems off the shelf, or what have you. However, we don't have any need to put in a minimum reorder quantity of trodes, or whatnot because realistically, when you use the PulseVet device on a pet in your clinic. There's a discernible difference in the pet at the time. The vet sees it, the pet parent sees it, the tech sees it, and that's before it actually fully works. Because the way that the shockwave actually works in the animal is the sound-wave activates the body's own regenerative processes. It releases certain proteins that increase cytokine production, increase blood vessel formation, neural growth, reduces inflammation, and that process takes a couple of weeks to fully work. And so, we're super confident that once a veterinarian starts using the PulseVet system, they're going to keep using it. Plus, it's really profitable for them. Even at the higher trode price, if the veterinarian is charging the typical average price per treatment of $300, they're making $200 on each of those treatments. So there's economic motor, there's clinical motor, a driver for them to continue to use it. Andrew Rem: Yes, I mean, it sounds like they basically could fund a third of a future system purchase with the first trode if they roughly generate $15,000 in revenue, and then they got to pay you guys $6,000 for the trode. They're left with $9,000, not exactly a third, but close enough. So I guess that's interesting. Can you also - for the salespeople that were out, was there duration to that? I mean, were people out for a week or two? Larry Heaton: So we had - I'm just thinking now we had one, two, at least three that were out for a full 12 weeks, essentially the whole quarter. And then the other two, I don't recall off the top of my head, they may have been a lesser duration. But at one point during the course of the quarter, I think in mid to late, I think it was in May, we had - but the good news is, they're all healthy and they all came back. So, the issues that presented weren't sort of things that you would expect to happen again and again. Andrew Rem: All right. And then, Peter, on the $16 million in, I guess, charge-off, you guys did a similar expensing in the fourth quarter. I guess that was specifically related to a CC. So you've had some pretty material write-downs the past, well, this quarter and then fourth quarter. So is there more to go there, or what's driving this? Peter Donato: Yes. So I encourage you to look at what's left on the balance sheet. The short answer is there's not much left. And most of it is associated with PulseVet. There's a small amount left for a CC. But Revo has been eliminated. And there's, I believe, $2 million left for a CC. And VetGuardian is eliminated as well. So most of it is gone. Andrew Rem: All right. And then maybe lastly, if I got it right, you guys said cash from 7.9 to 2.7-ish was one-time related, leaves you just over $5 million in cash burn. But that's quite a bit higher than what you've demonstrated in prior quarters, which has been kind of $3 million-ish or below. And so should we be, I mean, I know you said cash burn towards the high end of the $12 million to $18 million. But can we infer that cash burn is actually going to be running a little bit higher than, well, below $5 million, but above $3 million? Peter Donato: So $3 million was never the guidance, right? That was last year's guidance. And it was prior to the Qorvo acquisition, right? So I've said very publicly that the headwind associated with the Qorvo acquisition is at least $1 million and probably close to, and I think you and I talked even in Minnesota, it's about $1.25 million per quarter. So roughly $5 million. So we're absorbing, we had to absorb that. But essentially, the shortfall can be attributed to two items. It's a revenue miss, right? Where we're falling behind on revenue. And if you adjust for some one-offs on the operating expense side, particularly on the G&A line, you'll get, towards the middle or bottom part of the range. But essentially, if the revenue bounces back, as we expect it will, the range still stands, right, the high end of the range. So, if you do the math on that, the 18 divided by 4, that's probably a burn rate that will, that looks right to me going forward. I'll defer to the new guy coming in to do his or her own math. But I'm comfortable. And if we miss, right, it's not going to be a huge material miss, and it'll be a retimed, if you recall. We gave a low watermark of cash of $65 million. So, if the revenue starts to bounce back before profitability, we shouldn't be in danger of missing that low watermark. And if we do, it's measured in singular millions of dollars. It's not going to be a big difference. Andrew Rem: And maybe just lastly, on your original guidance for revenue of $31 million to $35 million, how much of that was international sales related? Or what was the expectation for international sales? Peter Donato: Yes, so we didn't give an expectation on that. What we've said historically, that about 15% of that revenue, give or take a point or two, last year's 25 to about 14% or 15% of that was international. So, the expectation would be, right around that. And I think you and I have talked offline, it's tough to gauge it on a percentage basis, because the domestic business, could be growing faster. We could be hitting it out of the park internationally and that number could be 10%, right? Because of how domestic is growing, on a percentage basis. This quarter, in kind of the coming quarters, it should be a large chunk on a percentage basis, but it's tough to tell. If the capital sales recover like we think we do, then it'll probably gravitate right to the mid-teens as it were, it's been historically. Andrew Rem: All right, maybe my last, last one. If I'm just going to speculate here, and so if you could just comment on my speculation. If you have people going out on maternity or paternity leave on your sales force, is there a way that you can mitigate that type of, or those types of situations in the future? Larry Heaton: So, well first of all, if any reps go out on maternity or paternity leave, we respect the heck out of that and - we hold that territory open. But what we have done, when we were sort of caught a little bit by surprise, by the number of people out on medical leave. We have taken steps to make sure that we have additional salespeople that would be able to fill in. For example, as it affected, as we went through the quarter, we were able to find someone that was able to step into a territory that, had been vacated for medical leave. And then once the sales rep came back, then that person, we were using that person in their capacity. So, the other thing is that we have now, a full complement of professional services, veterinarians that are also able to step into territories when there is a vacancy. So, we have thought about that, and we have taken some steps to make sure that we won't be adversely affected should we have reps go out on medical leave going forward. Operator: [Operator Instructions] There are no further questions over the phone. Mr. Heaton, please proceed with web-based questions. Larry Heaton: Okay. So, let's see. We have a question from the web that is, can you give a rough timeline for when you expect to see meaningful sales from the recent CE in Europe for VetGuardian and TRUFORMA, as well as the Middle Eastern and Costa Rica agreements? Do you expect that to start in 2025 or earlier? So, we expect to see sales in Costa Rica and the Middle East and Africa this year, this quarter. Middle East and Africa, is really a slow time for businesses and vets there in July and August, but it picks up quite a bit in September. So, we expect to see, sort of the first sales to customers as we get closer to September. In Costa Rica, we've completed the training for the staff and we expect to see sales begin to customers in Costa Rica this quarter, potentially even this month when we just did the training. The difference is, of course, sales to the distributors for inventory stocking orders, and demo equipment and stuff that precedes sales to customers. So, in any event, we expect to see sales from those distributors during the quarter. Now, in Europe, which the CE mark applies to, I should say this, the CE mark is essential to import products, to export products into Europe. It's also useful, however, in other countries that look to the CE mark and say, well, if you have the CE mark, then you're clear to come market in our country right away. In Europe, of course, they take the month of August off for vacation, and that includes a lot of businesses around the continent. So, we expect to see some - uptake in new distributor arrangements as we get out of this month and into September. But there's a big world out there that's not all just Europe. And so, we have a number of initiatives underway, not just with brand new distributors, but also with distributors that currently sell PulseVet for equine. We have the opportunity to add PulseVet for small animal. We have the opportunity to add all the additional products now that we got the CE mark. So, from the beginning, the gating has been getting the CE mark. We have it for TRUFORMA. We have it for VetGuardian. We expect to have it shortly for TRUVIEW as well. But for the first two products, a PulseVet and a CC, you know, we expect that now that we have that CE mark, that's sort of the last thing that had to get done, before we could start exporting the products. So, international sales have run ahead of our expectations in the first half. And we expect international sales to contribute significantly in the second half, and be substantially above where we did what we did last year in international. Let's see. Is your team content with the results of Q2? In a word, no, we're not. We expected to do a little bit better in PulseVet, in particular in PulseVet Capital. We're super pleased with PulseVet consumable revenue. That was really good to see, because that's a reflection of the fact that our user base is expanding. Those new systems we put out there are being used, and our existing user base is using the product, and if they're using the product, they're gaining benefits for themselves, for their pet parent clients, and most of all for the pets that they're treating, right. So, we're very happy about that. We were happy with diagnostics up 68%. It's a small base, but it's significant growth. But we're happy with the VetGuardian uptake. There are a lot of things we're happy about, but very straightforwardly, we were not happy with the level of PulseVet system sales, and we intend to make it different in the second half of the year already started. How about getting access to European markets? I think we covered that. I should say that for equine, we're very well covered in Europe. We have a master distributor that has basically all of the EU. I think there might be one or two carve-outs where we had existing distributors there before, but it's pretty much all of Europe for them. And they're super excited to get their hands on TRUFORMA for equine application in the near term. And in the longer term when we have it ready for VetGuardian equine. But they're an equine-only distributor. And so, in this case, we'll be adding either a single pan-European distributor or multiple distributors, and you can expect that to happen here in the second half now that we have the CE Mark. What are the plans to best utilize cash on hand? Prudently, and maybe miserly, right. So, while we have a very solid foundation on the balance sheet, we have plenty of capital, we are focused - we are as focused on reducing operating expenses, and eliminating any extraneous expenses that might have popped up over the last two or three years, as we would be if we had very little cash on hand. Because in order for us to get to cash flow profitability, and beyond that GAAP profitability, in order to get there, we need revenue to increase. And we're working very hard to make that happen, remembering that most of our products are novel. Even though PulseVet's been established in the equine market, in the small animal market, it's a new product to small animal vets. VetGuardian, not only a new product, but a new category. TRUFORMA, each of the assays are new to the vet, to be able to do in the clinic. And TRUVIEW is completely novel in terms of slide prep, has competition in the marketplace with respect to AI reports. Adding AI to TRUVIEW then makes customers not have to choose between AI reports, and automatic slide prep. They get both in the TRUVIEW. But having said that, when you launch new products, it takes time. It takes time to get the word out. It takes time to build your early adopter base. So that you have testimonials, so that you can put key opinion leaders on the podium at conferences, and start - and have that word spread. In the classic way of looking at a venture product or a brand new product. They refer to sort of a hockey stick of growth, right? Where it starts out slow and grows modestly, and then at some point you reach an inflection point where it then takes off. And I'm not suggesting that we're all of a sudden going to go from zero to 100 in a minute. It takes a little time. So with that said, in order for us to get to cash flow profitability and GAAP profitability, we have to increase revenue, which we're doing. But also we can affect that time frame for that, by reducing expense. And while we made a lot of investments over the last two and a half years, just witness the facilities that we have to manufacture the products in Georgia and in Minnesota. We made acquisitions. And based on the impairment charge, maybe we paid a premium for them. But we've got novel products. We've got highly differentiated products. And so our cash, I think, is best used in making sure that we fund the appropriate initiatives to drive sales growth. And anything else we take a really long, hard look at and make sure that we're pressing two pennies together to see if we need to spend them both. I see there's a call, a question from someone on the, or is there? No? I thought I saw a hand raised. Oh, okay. Never mind. All right. Are there any updates on the second half earnings? Peter, you want to take that one? Peter Donato: Yes. I'm not sure what the question is. Larry Heaton: What do we expect to, I guess what do we expect to see in the second half? Peter Donato: Yes. So, I mean, what I said in the prepared remarks, right? So if you, the way I look at this, and I'm the guy who's parting, right? If you kind of look at what we did last year in the second half and historically have done, it's 55% or 56% of the revenue. So I think that assumption, that trend holds true. If you listen to my prepared remarks, we talked about oversize. So I think that you'll see a greater proportion of that. But even if you just take the historical 55% or 56%, that takes you to a number approaching $28 million, right? And then you can handicap the delta for the international sales, right? So I think that there's a tailwind internationally. And if you apply even a modest gross rate, it gets you a number approaching $30 million. So again, I'll let Larry and my successor come up with guidance. It might be to reiterate the guidance that we had out there, right? But at the end of the day, it's going to be higher, it should be higher, right? Than 25.2 for the reasons I cited. Sales force back at full strength and a variety of other initiatives. Forget about being at full strength, right? If you think about that Guardian, the consumable stream, albeit small, is starting to kick in. You get the first year free. So that's just starting to kick in, and will continue to multiply the multiple unit sales on VetGuardian are a nice growth driver going forward. So there's a variety of kind of upside in addition to mitigating some of the headwinds that we had. I think there's a variety of things that could push this company closer, to the guidance range as we exit the year and kind of reset the bar, to how we were thinking about 2025. And in fact, there might be even upside to some of the thinking initially on 2025. But I'm certainly not going to commit my successor to those numbers. Larry Heaton: Thanks, Peter. We have another one here is, where do we stand on compliance? I assume that's compliance with the NYSE exchange. And the answer would be that it is status quo. It's the same place we were a quarter ago, and then a month or so before that. The exchange continues to monitor our stock price and has, without giving us any date certain that we have to increase it to $0.20, has allowed us to stay listed. And we expect that to continue as we move forward. Let's see. Is there a program available to entice the small animal vet to consider purchasing? I think that - it's and first of all, there's two programs, right? So in particular with PulseVet, with our TRUFORMA system, we provide the capital at no charge. They simply have to buy the cartridges. And if they didn't want to buy the cartridges, they wouldn't want the capital in the first place. So that's pretty straightforward. The barrier to entry for TRUVIEW is not capital dependent. It's a $500 a month subscription. And then they pay on a per use basis for the telepathology services. The VetGuardian is $4,500 for the device. On the other hand, it provides a new revenue stream for the veterinarian. And so we haven't seen that be a significant barrier to getting into that product. Which brings us to PulseVet. So with PulseVet, our standard program is a finance program that is provided by a third-party, arm's length. We don't fund them or control them. So for $32,000 device and trode, they pay no money down and no money for six months. And then $100 a month for six months, at which point they begin to, the note begins to amortize over a five-year period. Now, having said that, you would think, and that trode will allow a small animal vet to do 30 to 35 procedures. And if you're doing, I'm sorry, 60 to 65 procedures. And if you're doing 60 procedures and you're charging $300 a piece, you're generating enough money, if you use the average number of trodes in a year, which is two for small animal vets. You're generating enough income, enough not only revenue, but income in that first year to pay that whole note off, and there's no prepayment penalty. That's a great program, and we've used that to great effect for the last several years. Having said that, it still requires a commitment on the part of that clinic owner, the practice owner, whoever's purchasing it, to finance that product. And we saw a little bit of pullback from that in the second quarter, and that's why we have a new program, which we'll make available if capital, a commitment to the capital. As I described earlier, where you simply buy a trode, and it costs more, it costs three times as much as if you bought the system, but you don't have that same barrier and you don't have to make the commitment, which is what I suspect certain pet owners have been averse to doing at this point. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your line.

Zomedica Corp. (ZOM) Q2 2024 Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the Zomedica Q2 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Mr. [Mike Valle ] from ICR. Please go ahead. Unidentified Company Representative Thank you, operator, and good afternoon, ladies and gentlemen. Welcome to Zomedica's second quarter 2024 earnings and business update call. Joining me on today's call are Zomedica's Chief Executive Officer, Larry Heaton and Chief Financial Officer, Peter Donato. Before we begin, we'd like to remind everyone that on this call, we will be making various remarks about future expectations, plans and prospects that constitute forward-looking statements. These forward-looking statements are based on assumptions, and there are risks that the results may differ materially from those statements. As such, Zomedica cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on them. We refer current and potential investors to the forward-looking information and Risk Factors section of our public filings available on SEDAR at www.sedarplus.ca and on EDGAR at sec.gov. Forward-looking statements made on this conference call represents Zomedica's expectations as of today, August 14. I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Larry? I'd like to start by thanking our shareholders for your support, wishing and our prospective investors and analysts and others a good afternoon, and welcoming all to the Zomedica second quarter earnings results and business update call. I'll start by providing an update on the overall business, then our Chief Financial Officer, Peter Donato, will walk you through our financial results. After our prepared remarks, we'll open the phone line and the web to your questions. Earlier today, Zomedica released its financial results for the second quarter in 2024. Revenue for the quarter was $6.1 million, reflecting 2% growth over the second quarter of [2023] primarily driven by solid year-over-year growth of 68% within our Diagnostics segment as we are seeing the positive benefits of our recent assay launches with TRUFORMA as well as the continued demand for VETGuardian. This performance was offset by only 1% growth in our PulseVet product line with PulseVet consumables up 11%, but PulseVet capital down 15%, reflecting essentially three fewer new systems sold attributable to what we believe to be temporary headwinds within the PulseVet capital sales area. Capital sales performance within our U.S. direct sales force came in lower than expectations, largely as a result of several territories being open for a period of time during the quarter. While some of this was a result of our recently appointed Head of Sales, implementing his strategic plan to optimize performance, we were also impacted by some short-term unexpected productivity headwinds as a result of multiple reps being now on medical leave, reaching at its peak 14% of the sales force. These folks have since returned to their territories, so we expect these sales force specific issues to be mitigated moving forward as we are now back up to full strength with a reinvigorated and healthy sales force, and as a result, should see a rebound in new system installations during the back half of the year. We did also note some macroeconomic factors, potentially impacted new system purchases such as the current interest rate environment, potentially causing customers to wait to see if interest rates would decline. If this continues, we have a number of different pricing and placement model options at our disposal, which we will continue to leverage to provide greater access for veterinarians, looking to better serve their pet patients. While we expect the vast majority of system placements to be capital purchases, we may see more customers opt for one of our differentiated models over the coming quarters. With that said, we continue to be very encouraged by the underlying demand for and utilization of PulseVet among new and existing customers. Highlighting the fact was the 11% growth we saw year-over-year in PulseVet consumables revenue, unaffected by having fewer salespeople in the field as this is driven by customers' repeat usage in their practices, and we expect these trends to continue in the back half of the year. Despite the lower-than-anticipated revenue during the quarter, we made significant progress towards a number of our key initiatives to drive growth in 2024 and beyond to cash flow and then GAAP profitability. I'll start with our commercial expansion efforts. Our international initiatives continue to exceed expectations and look to be a significant contributor to revenue during the back half of the year. One key contributor to that belief is our recently expanded global reach through a strategic alliance with Leader Healthcare Group in key international markets. Leader will be the exclusive distributor of our entire product portfolio to veterinarians in the Middle East, along with Egypt and India. These are large geographies with significant animal health markets, and this partnership will allow for Zomedica products to enter new parks in the world that we have not previously had access to. In addition, we're in the process of adding our new products to existing distributors as well as adding new distributors in select international markets. Just today, we announced the signing of an agreement with SIRE Veterinario, a leading distributor of veterinary equipment in Costa Rica that will begin offering Zomedica products shortly. With CE marks in hand, we expect additional announcements throughout the rest of the year. Now I would note that these new distributors did not place initial product stocking orders during the second quarter. We expect to fulfill these orders this quarter and next. And as a result, we believe our international business to be a strong incremental contributor to revenue performance in the second half of this year. With the increasing demand we're seeing and growing scale of our footprint, we expect our international business to be a material growth driver for Zomedica in 2025 and beyond. We also achieved a number of significant milestones within our product portfolio. I'll start with the Assisi. During the quarter, we finalized an arrangement with our online retailer that markets through amazon.com that will now offer the product line in 10 additional countries around the world. And that's in addition to us establishing new distributor outlets that will sell directly to veterinarians. Turning to PulseVet. PulseVet continues to be our leading product, and we have made significant headway in growing its adoption across our customer base. We started with an installed base of around 1,200 systems, primarily with equine veterinarians. We now have had over 2,000 systems installed to date worldwide, including a growing number of mixed and small animal veterinarian customers. This highlights the benefits of the platform to help provide better care for pets. With a timely update as we all just witnessed the Olympics, PulseVet was named the official Shock Wave Therapy of U.S. Equestrian, which competed in Paris. We were thrilled to partner with the veterinarians caring for horses competing in the Olympics to support their efforts to improve the welfare of their horses and ensure our team had access to world-class technology to support their care in Paris and now back home. In support of those efforts on a wider scale, we are working to develop quality research to help expand clinical indications for use. We recently released a white paper showcasing the effectiveness of PulseVet therapy for treating exercise-induced pulmonary hemorrhage in quarter horses. But importantly, in addition, the paper highlights that PulseVet therapy offers a potential noninvasive drug-free treatment option for horses suffering from equine asthma, paving the way for new sales opportunities beyond the technology's historic applications. PulseVet therapy is well established in treating orthopedic issues like osteoarthritis and tendon and ligament issues and bone healing. Its effectiveness in treating lung conditions in asthma opens a new field of potential benefits, highlighting that we are just beginning to understand and tap the potential for this energy-based treatment technology. The white paper demonstrates the potential to extend PulseVet therapeutic use into new markets, including equine lung conditions in asthma, making it a vital component of Zomedica's growth strategy for the future. Of course, for small animal veterinarians who are just being introduced to the PulseVet system, essentially all of the 20 clinical indications for dogs and cats are new to them, providing compelling reasons to adopt the technology. Turning to an update on TRUVIEW. During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TRUVIEW system. When this is completed, each slide processed will be accompanied by an AI report. We expect to launch this feature later this year and will resume more aggressive marketing of the system when it is ready to launch. In addition, we have finalized and will be rolling out shortly a new protocol, specifically for ear cytology, reducing the time to produce the images needed for review by the veterinarian and streamlining practice workflow. This could be potentially impactful to our business as ear cytologies are performed daily at vet clinics to diagnose otitis, which affects between 10% and 20% of dogs and 2% to 6% of cats. Now TRUFORMA. We continue to be encouraged by the growing adoption of TRUFORMA as we're seeing an uptick in increases in our installed base. Importantly, we are seeing expansion into equine veterinary practices as we benefit from our growing portfolio penetration across both equine and small animal veterinary practices. As part of our push into new international markets, we're very excited that in June, we received CE Mark approval for TRUFORMA, which enables us to commercialize the platform across the European economic area. This is an important milestone as it allows us to bring the benefits of our one-of-a-kind diagnostic testing capabilities to the large and rapidly growing European veterinary diagnostics market. The distributors we recently announced will be carrying the TRUFORMA product in their respective markets, and we expect to introduce it into Europe during the current quarter. The core benefit of our acquisition of Qorvo Biotechnologies, the developer of TRUFORMA, was our ability to accelerate the development and commercialization of new assays. And during 2024, in addition to the two new assays already launched for both small animals and horses, we continue to expect to launch at least three additional new assays during the balance of the year. With respect to our expansion into equine Diagnostics, following the successful launch late last year of our first equine assay, endogenous ACTH. During the second quarter of this year, we launched our second equine focused assay, cortisol for equine serum. Cortisol measurement is crucial for assessing the health of sick foals, and it's not been available at the point of care until now. Traditionally, equine veterinarians have had to send samples to reference labs and wait several days for results, potentially receiving them too late to make critical treatment decisions. Our new assay will bring a valuable diagnostic tool for equine veterinarians to use in clinic and stall site, empowering them to make real-time potentially life-saving treatment decisions. With several hundred thousand foals born each year in the United States alone, this assay will not only be a benefit to veterinarians and the foals they care for, but we'll also expand the market for the TRUFORMA system amongst equine best. In addition, in May, we launched an advanced canine cortisol assay. This assay, which is one of the most frequently used tests on the platform now features significant improvements, including an increased dynamic range that enhances its precision and accuracy. The cortisol assay is vital for veterinarians, allowing them to perform critical tests, such as the low-dose dex suppression test, with reference lab accuracy directly in their clinics. By improving what is already one of our most heavily used assays, we expect to further strengthen the TRUFORMA platforms position in the market. In addition to the launch of multiple assays during the year, we launched over-the-air update capability for TRUFORMA. Each time we launch a new assay, a software update for our installed base is needed to add the capability to run the new assay and provide appropriate reference ranges, et cetera. Up to now, this has required an in-person visit from our sales team. With the introduction of over-the-air updates, customers are prompted when a new software update is available on the device, and we'll be able to apply the update with the push of a button demonstrating our dedication to accelerating delivery of highly beneficial assays on the TRUFORMA diagnostic platform. These capabilities further reduced barriers for customer adoption of newly launched assays as well as provide efficient means for delivering timely enhancements for existing assays to customers. Turning now to VetGuardian. The sale of new VetGuardian systems continue to highlight the value of the technology and the benefits our customers are seeing. As we're now in the second year of offering this product, we will be receiving recurring annual revenue for cloud access and extended warranty coverage from charges that began after the first full year of adoption. In May, we announced the achievement of a significant milestone CE marking for VetGuardian. This certification allows the platform to be sold throughout the European Union and select other countries given veterinary professionals seeking an advanced solution to elevate patient care and streamline practice operations, access to this innovative technology. With CE Mark in hand, we're turning our attention to a formal international launch as we evaluate and onboard additional international distribution partners to help meet demand for this product. We're also excited about our development projects to bring VetGuardian to the equine market. Given our deep penetration within the equine vet market with PulseVet and now with TRUFORMA, we believe our launch of an equine VetGuardian option will be very well received, helped drive accelerated adoption by equine veterinarians in 2025 and beyond, and set the stage for potential expansion of the market opportunity to include horsetrainers, breeders, potentially owners. Now shifting to operational update. In June, we completed the expansion of our global manufacturing and distribution facility in Roswell, Georgia. The expansion, which increased the facility's total size to 18,400 square feet, adding 6,000 square feet of adjacent space, enhanced warehousing and sales order fulfillment efficiencies. This all resulted in us now having capacity from the Roswell facility to support a fivefold increase in demand for our products. In addition to adding capacity in our Georgia facility, in our Minnesota facility, we have installed a new automated robotic manufacturing line that automate steps that previously required high levels of manual labor. We're currently in process of validating this production line, which we expect to be completed during this quarter. This will not only benefit the efficiency of the process but will also allow us to realize cost benefits, which we expect to be reflected in our improving gross margins. While we did experience some short-term headwinds during the quarter that impacted our top line growth, we're very bullish on the future of Zomedica. We achieved a significant number of key commercial and operational milestones, which will support our growth strategy moving forward as we make progress toward our goal of cash flow and GAAP profitability. I'd now like to turn the call over to Peter to review our financial performance in more detail. Peter? Total revenue for the second quarter of 2024 was $6.1 million. That's an increase of 2% over the prior year second quarter, primarily driven by growth within our Diagnostics segment. Second quarter 2024 capital revenues were $1.7 million, and that's down 12% from $2 million in the second quarter of last year. And as Larry said previously, this is primarily the result of falling about three units short this year as compared to last year, with also due to some short-term commercial headwinds, also, as Larry discussed. We have taken the appropriate steps to ensure that our commercial team is back on track and expect these issues to be resolved during the back half of the year as we return to a more normal capital sales trajectory. Also in the second quarter, consumable revenue was $4.4 million. That's an increase of approximately 8% from the second quarter of 2023 revenues, which were $4 million. Consumable revenue now represents 72% of total revenue in this quarter. Second quarter Therapeutic Devices segment revenues from PulseVet and Assisi product lines were $5.7 million. That's roughly flat compared to the prior year. With that said, we continue to be optimistic about a return to higher growth rates in the back half of the year as we expect capital sales to normalize. Second quarter Diagnostics segment revenues were about $420,000. That's an increase of 68% over the second quarter of last year. This was driven by significant year-over-year growth from VetGuardian and TRUFORMA. Within the Diagnostics segment, capital revenue grew over 87%, while consumable revenue grew nicely by 62%. Gross profit for the second quarter of 2024 was $4.4 million, and that compares to $4 million in the second quarter of last year. Gross profit margin for the second quarter was 71%. That's slightly better than the high end of our previously stated target range of 65% to 70% and much higher than last year's reported margin of 67%. In the quarter, accounting rules required us to take noncash charges of approximately $16 million to eliminate or reduce the carrying values of goodwill related to product lines associated with the S&P, Revo Squared and Assisi acquisitions. Please note that these are noncash charges and have no impact on the ability to drive the adoption of these products. And as such, we continue to believe in these products and the potential they have to take us to profitability and beyond. However, as a result of these charges, reported operating expenses for the second quarter of 2024 were $29.4 million. When adjusting for these noncash impairment charges, total operating expenses checked in at $13.4 million, and you can compare that to $10.8 million in the same period of 2023. That's an increase of about $2.6 million. In the second quarter, our R&D expenses were about $1.5 million. That's an increase of about $600,000 over the prior year quarter, with additional spending on AI-related programs, TRUFORMA and VETGuardian product development, and CE Marking for international regulatory approvals. Also in the second quarter, sales and marketing spend was $3.9 million, and that compares to $3.1 million during the same period of 2023, and that's primarily due to our expanded sales force and spending on new product marketing and their related launches. Also in the second quarter of 2024, our G&A expense was $8 million, and that compares to $6.8 million during the second quarter of 2023 with most of the increase due to accounting, legal, tax, and audit expenses, and they're primarily related to acquisitions and other compliance-related programs. Net loss for our second quarter was $23.9 million. That's $0.024 per share, and it compares to a net loss of $5.2 million, or about $0.005 per share in the second quarter of 2023. Our non-GAAP EBITDA loss, which includes adjustments for non-cash stock compensation for the three months ended June 30, 2024, was $22.3 million and compares to a loss of $3.7 million for the same period last year. When adjusting for non-cash and non-recurring items our adjusted non-GAAP EBITDA loss was approximately $5.2 million. Turning to the balance sheet, Zomedica ended the second quarter with $83 million in cash, cash equivalents and available for sales securities. Our cash used in the second quarter was approximately $7.9 million and included $2.7 million of non-recurring items with the remaining $5.2 million used for operating expenses. With the non-cash impairment charges taken during the quarter, our balance sheet and related valuation are now more in line with our current market capitalization. And as an always reminder, we have a zero debt. Before wrapping up my prepared remarks, I'd like to announce that this morning I tendered my resignation from Zomedica, making this my last earnings call with the company before I moved back into human health, where I've spent most of my senior career. Since joining the company in March of 2023, I've led efforts that enhance our control environment. We built a maturing and good finance and accounting function led by our VP and Corporate Controller. In addition, we've implemented a variety of strategic initiatives aimed at driving growth and putting us in a position to achieve profitability. In other words, Zomedica is in good hands. The company is currently in the process of identifying my replacement, and I will continue consulting with the company for a period of time to ensure a smooth transition until a new CFO is in the seat and up to speed on our business. Now, turning to an update on guidance. With the transition to a new CFO, and to defer to that new CFO, we are suspending our previously issued revenue guidance for 2024. The company will revisit issuing guidance once a new CFO is on board, but directionally, we expect total revenue to grow versus the prior year, with a step up in revenue during the second half of this year, as we anticipate outsized seasonal trends in our third and fourth quarters. While we are suspending revenue guidance, we continue to expect gross margins to approach and maybe exceed 70% for the full year as we continue to see operational efficiencies. Turning to cash burn, we continue to expect our adjusted cash burn to be within our previously stated range, guidance range of $12 million to $18 million. That's likely at the high end of that range, and again, I'll defer to the new CFO coming in. With that, I'll turn the call back over to Larry for final remarks before the Q&A session. Larry? Larry Heaton Thanks for the update, Peter, and thank you, Peter, for your contributions to Zomedica during your tenure. I appreciate all you've done to now, appreciate your ongoing commitment during the transition to a new CFO, and wish you the best in your future endeavors back in the human health market. As you can tell, we continue to be excited about the future of Zomedica. We have a significant number of initiatives in place to drive growth of the business, while doing the work behind the scenes to set ourselves up to achieve positive cash flow once we reach $50 million in annualized revenue, and beyond that, to GAAP profitability. We have plenty of capital, innovative products, and a professionally led sales force to introduce them to veterinarians for the benefit of our pets and yours. So, let me end our prepared remarks by again thanking those that have been supportive of Zomedica, including animal health professionals and pet parents worldwide, and the many shareholders of Zomedica. With that, I'd be happy to open the line for questions. [Operator Instructions] Our first question will be coming from Andrew Rem from Odinson Partners. Andrew Rem Sorry. Can you guys just, Larry, could you talk about the sales force headwinds in the quarter in a little bit more detail. And then, how you guys will mitigate that going forward? Larry Heaton Yes, and hi, Andrew. So, during the quarter, once Kevin Klass came to us from HESCO, he began the process of evaluating the existing sales force, and in some cases, there were salespeople that were replaced. And when you replace salespeople, then there's a little bit of lead time for them to get trained and up to speed and get the pipeline, funnel full and so on. That was a little bit of it. But at one point during the quarter, during the second quarter, we had five salespeople out on medical leave, for a variety of conditions. And we only have 35 sales territories. So, that's 14% of the reps were out at some point during the course of the second quarter. Now, I'm pleased to report that they all returned to work. They all recovered. They're all healthy. And they're all back in their territories as of the beginning of this quarter. So, we don't expect to have to do anything else. We've got now a full slate of salespeople out in the territories, and we're beginning to see - we are seeing the uptick in sales that comes from that. So, there's nothing left for us to do. We just have to sort of accept it, when they're out on sick leave. On the other side, I think we did see, I think all of us saw a little bit of reluctance in the second quarter from some customers to go ahead, and commit to financing a $32,000 piece of equipment. We saw fewer sales in the second quarter of this year than a year ago. And it could be interest rates. Maybe they think they're going to come down a little bit later. It could be that clinic owners, as has been reported by other animal health companies in the last few weeks, or over the last week or so, it could be that clinic owners saw visits decline in the second quarter. And so, they were going to wait and see what's happening to their business, before they make additional financing commitments. But the data that's out there shows that the visits have rebounded in July. And so, these are things that may or may not continue, as we move forward. And that's why I mentioned we've got some alternative programs to be able to place devices into these practices. I'll give you an example. We currently sell the system for $30,000 and the handpiece we call a trode for $2,000, actually $2,100. With a placement program, we may - place the device without requiring them to commit to the capital upfront. And instead of selling them the trode for $2,100, sell it for $6,000. Or even sell a half full trode for $3,000. These are ways for them to not have to make the long-term commitment and instead can get into offering the therapy right away. We're confident that once they start using it, they're going to see a very significant return on that investment. And we see this really as a bridge, to them being able then in a subsequent quarter, or once they go through their first trode to go ahead and order the system. That would then bring their trode costs down to $2,100. So we think we're well prepared as we move forward. A lot of the sort of realization that system sales were going to be light in the second quarter came at the end of the quarter, when typically most of the systems are closed, are sold. As we saw reluctance or delay. In fact, we believe that many of these will turn into customers - in a subsequent quarter. Just didn't happen in the second quarter. And caught us a little by surprise. Andrew Rem Okay. Just maybe a couple things on the PulseVet. So when you give the alternative to sell the trode for $6,000, are they committing to a certain number of trode purchases, or you would, if they only buy one and then they don't re-up, there would be a point where you would pull the system back out of the field? Larry Heaton Yes, absolutely. We're super clear that if you buy the trode, you use it. If you don't want to buy another one, then we'll take the system back. We have a loaner pool, so we don't have to take new systems off the shelf, or what have you. However, we don't have any need to put in a minimum reorder quantity of trodes, or whatnot because realistically, when you use the PulseVet device on a pet in your clinic. There's a discernible difference in the pet at the time. The vet sees it, the pet parent sees it, the tech sees it, and that's before it actually fully works. Because the way that the shockwave actually works in the animal is the sound-wave activates the body's own regenerative processes. It releases certain proteins that increase cytokine production, increase blood vessel formation, neural growth, reduces inflammation, and that process takes a couple of weeks to fully work. And so, we're super confident that once a veterinarian starts using the PulseVet system, they're going to keep using it. Plus, it's really profitable for them. Even at the higher trode price, if the veterinarian is charging the typical average price per treatment of $300, they're making $200 on each of those treatments. So there's economic motor, there's clinical motor, a driver for them to continue to use it. Andrew Rem Yes, I mean, it sounds like they basically could fund a third of a future system purchase with the first trode if they roughly generate $15,000 in revenue, and then they got to pay you guys $6,000 for the trode. They're left with $9,000, not exactly a third, but close enough. So I guess that's interesting. Can you also - for the salespeople that were out, was there duration to that? I mean, were people out for a week or two? Larry Heaton So we had - I'm just thinking now we had one, two, at least three that were out for a full 12 weeks, essentially the whole quarter. And then the other two, I don't recall off the top of my head, they may have been a lesser duration. But at one point during the course of the quarter, I think in mid to late, I think it was in May, we had - but the good news is, they're all healthy and they all came back. So, the issues that presented weren't sort of things that you would expect to happen again and again. Andrew Rem All right. And then, Peter, on the $16 million in, I guess, charge-off, you guys did a similar expensing in the fourth quarter. I guess that was specifically related to a CC. So you've had some pretty material write-downs the past, well, this quarter and then fourth quarter. So is there more to go there, or what's driving this? Peter Donato Yes. So I encourage you to look at what's left on the balance sheet. The short answer is there's not much left. And most of it is associated with PulseVet. There's a small amount left for a CC. But Revo has been eliminated. And there's, I believe, $2 million left for a CC. And VetGuardian is eliminated as well. So most of it is gone. Andrew Rem All right. And then maybe lastly, if I got it right, you guys said cash from 7.9 to 2.7-ish was one-time related, leaves you just over $5 million in cash burn. But that's quite a bit higher than what you've demonstrated in prior quarters, which has been kind of $3 million-ish or below. And so should we be, I mean, I know you said cash burn towards the high end of the $12 million to $18 million. But can we infer that cash burn is actually going to be running a little bit higher than, well, below $5 million, but above $3 million? Peter Donato So $3 million was never the guidance, right? That was last year's guidance. And it was prior to the Qorvo acquisition, right? So I've said very publicly that the headwind associated with the Qorvo acquisition is at least $1 million and probably close to, and I think you and I talked even in Minnesota, it's about $1.25 million per quarter. So roughly $5 million. So we're absorbing, we had to absorb that. But essentially, the shortfall can be attributed to two items. It's a revenue miss, right? Where we're falling behind on revenue. And if you adjust for some one-offs on the operating expense side, particularly on the G&A line, you'll get, towards the middle or bottom part of the range. But essentially, if the revenue bounces back, as we expect it will, the range still stands, right, the high end of the range. So, if you do the math on that, the 18 divided by 4, that's probably a burn rate that will, that looks right to me going forward. I'll defer to the new guy coming in to do his or her own math. But I'm comfortable. And if we miss, right, it's not going to be a huge material miss, and it'll be a retimed, if you recall. We gave a low watermark of cash of $65 million. So, if the revenue starts to bounce back before profitability, we shouldn't be in danger of missing that low watermark. And if we do, it's measured in singular millions of dollars. It's not going to be a big difference. Andrew Rem And maybe just lastly, on your original guidance for revenue of $31 million to $35 million, how much of that was international sales related? Or what was the expectation for international sales? Peter Donato Yes, so we didn't give an expectation on that. What we've said historically, that about 15% of that revenue, give or take a point or two, last year's 25 to about 14% or 15% of that was international. So, the expectation would be, right around that. And I think you and I have talked offline, it's tough to gauge it on a percentage basis, because the domestic business, could be growing faster. We could be hitting it out of the park internationally and that number could be 10%, right? Because of how domestic is growing, on a percentage basis. This quarter, in kind of the coming quarters, it should be a large chunk on a percentage basis, but it's tough to tell. If the capital sales recover like we think we do, then it'll probably gravitate right to the mid-teens as it were, it's been historically. Andrew Rem All right, maybe my last, last one. If I'm just going to speculate here, and so if you could just comment on my speculation. If you have people going out on maternity or paternity leave on your sales force, is there a way that you can mitigate that type of, or those types of situations in the future? Larry Heaton So, well first of all, if any reps go out on maternity or paternity leave, we respect the heck out of that and - we hold that territory open. But what we have done, when we were sort of caught a little bit by surprise, by the number of people out on medical leave. We have taken steps to make sure that we have additional salespeople that would be able to fill in. For example, as it affected, as we went through the quarter, we were able to find someone that was able to step into a territory that, had been vacated for medical leave. And then once the sales rep came back, then that person, we were using that person in their capacity. So, the other thing is that we have now, a full complement of professional services, veterinarians that are also able to step into territories when there is a vacancy. So, we have thought about that, and we have taken some steps to make sure that we won't be adversely affected should we have reps go out on medical leave going forward. [Operator Instructions] There are no further questions over the phone. Mr. Heaton, please proceed with web-based questions. Larry Heaton Okay. So, let's see. We have a question from the web that is, can you give a rough timeline for when you expect to see meaningful sales from the recent CE in Europe for VetGuardian and TRUFORMA, as well as the Middle Eastern and Costa Rica agreements? Do you expect that to start in 2025 or earlier? So, we expect to see sales in Costa Rica and the Middle East and Africa this year, this quarter. Middle East and Africa, is really a slow time for businesses and vets there in July and August, but it picks up quite a bit in September. So, we expect to see, sort of the first sales to customers as we get closer to September. In Costa Rica, we've completed the training for the staff and we expect to see sales begin to customers in Costa Rica this quarter, potentially even this month when we just did the training. The difference is, of course, sales to the distributors for inventory stocking orders, and demo equipment and stuff that precedes sales to customers. So, in any event, we expect to see sales from those distributors during the quarter. Now, in Europe, which the CE mark applies to, I should say this, the CE mark is essential to import products, to export products into Europe. It's also useful, however, in other countries that look to the CE mark and say, well, if you have the CE mark, then you're clear to come market in our country right away. In Europe, of course, they take the month of August off for vacation, and that includes a lot of businesses around the continent. So, we expect to see some - uptake in new distributor arrangements as we get out of this month and into September. But there's a big world out there that's not all just Europe. And so, we have a number of initiatives underway, not just with brand new distributors, but also with distributors that currently sell PulseVet for equine. We have the opportunity to add PulseVet for small animal. We have the opportunity to add all the additional products now that we got the CE mark. So, from the beginning, the gating has been getting the CE mark. We have it for TRUFORMA. We have it for VetGuardian. We expect to have it shortly for TRUVIEW as well. But for the first two products, a PulseVet and a CC, you know, we expect that now that we have that CE mark, that's sort of the last thing that had to get done, before we could start exporting the products. So, international sales have run ahead of our expectations in the first half. And we expect international sales to contribute significantly in the second half, and be substantially above where we did what we did last year in international. Let's see. Is your team content with the results of Q2? In a word, no, we're not. We expected to do a little bit better in PulseVet, in particular in PulseVet Capital. We're super pleased with PulseVet consumable revenue. That was really good to see, because that's a reflection of the fact that our user base is expanding. Those new systems we put out there are being used, and our existing user base is using the product, and if they're using the product, they're gaining benefits for themselves, for their pet parent clients, and most of all for the pets that they're treating, right. So, we're very happy about that. We were happy with diagnostics up 68%. It's a small base, but it's significant growth. But we're happy with the VetGuardian uptake. There are a lot of things we're happy about, but very straightforwardly, we were not happy with the level of PulseVet system sales, and we intend to make it different in the second half of the year already started. How about getting access to European markets? I think we covered that. I should say that for equine, we're very well covered in Europe. We have a master distributor that has basically all of the EU. I think there might be one or two carve-outs where we had existing distributors there before, but it's pretty much all of Europe for them. And they're super excited to get their hands on TRUFORMA for equine application in the near term. And in the longer term when we have it ready for VetGuardian equine. But they're an equine-only distributor. And so, in this case, we'll be adding either a single pan-European distributor or multiple distributors, and you can expect that to happen here in the second half now that we have the CE Mark. What are the plans to best utilize cash on hand? Prudently, and maybe miserly, right. So, while we have a very solid foundation on the balance sheet, we have plenty of capital, we are focused - we are as focused on reducing operating expenses, and eliminating any extraneous expenses that might have popped up over the last two or three years, as we would be if we had very little cash on hand. Because in order for us to get to cash flow profitability, and beyond that GAAP profitability, in order to get there, we need revenue to increase. And we're working very hard to make that happen, remembering that most of our products are novel. Even though PulseVet's been established in the equine market, in the small animal market, it's a new product to small animal vets. VetGuardian, not only a new product, but a new category. TRUFORMA, each of the assays are new to the vet, to be able to do in the clinic. And TRUVIEW is completely novel in terms of slide prep, has competition in the marketplace with respect to AI reports. Adding AI to TRUVIEW then makes customers not have to choose between AI reports, and automatic slide prep. They get both in the TRUVIEW. But having said that, when you launch new products, it takes time. It takes time to get the word out. It takes time to build your early adopter base. So that you have testimonials, so that you can put key opinion leaders on the podium at conferences, and start - and have that word spread. In the classic way of looking at a venture product or a brand new product. They refer to sort of a hockey stick of growth, right? Where it starts out slow and grows modestly, and then at some point you reach an inflection point where it then takes off. And I'm not suggesting that we're all of a sudden going to go from zero to 100 in a minute. It takes a little time. So with that said, in order for us to get to cash flow profitability and GAAP profitability, we have to increase revenue, which we're doing. But also we can affect that time frame for that, by reducing expense. And while we made a lot of investments over the last two and a half years, just witness the facilities that we have to manufacture the products in Georgia and in Minnesota. We made acquisitions. And based on the impairment charge, maybe we paid a premium for them. But we've got novel products. We've got highly differentiated products. And so our cash, I think, is best used in making sure that we fund the appropriate initiatives to drive sales growth. And anything else we take a really long, hard look at and make sure that we're pressing two pennies together to see if we need to spend them both. I see there's a call, a question from someone on the, or is there? No? I thought I saw a hand raised. Oh, okay. Never mind. All right. Are there any updates on the second half earnings? Peter, you want to take that one? What do we expect to, I guess what do we expect to see in the second half? Peter Donato Yes. So, I mean, what I said in the prepared remarks, right? So if you, the way I look at this, and I'm the guy who's parting, right? If you kind of look at what we did last year in the second half and historically have done, it's 55% or 56% of the revenue. So I think that assumption, that trend holds true. If you listen to my prepared remarks, we talked about oversize. So I think that you'll see a greater proportion of that. But even if you just take the historical 55% or 56%, that takes you to a number approaching $28 million, right? And then you can handicap the delta for the international sales, right? So I think that there's a tailwind internationally. And if you apply even a modest gross rate, it gets you a number approaching $30 million. So again, I'll let Larry and my successor come up with guidance. It might be to reiterate the guidance that we had out there, right? But at the end of the day, it's going to be higher, it should be higher, right? Than 25.2 for the reasons I cited. Sales force back at full strength and a variety of other initiatives. Forget about being at full strength, right? If you think about that Guardian, the consumable stream, albeit small, is starting to kick in. You get the first year free. So that's just starting to kick in, and will continue to multiply the multiple unit sales on VetGuardian are a nice growth driver going forward. So there's a variety of kind of upside in addition to mitigating some of the headwinds that we had. I think there's a variety of things that could push this company closer, to the guidance range as we exit the year and kind of reset the bar, to how we were thinking about 2025. And in fact, there might be even upside to some of the thinking initially on 2025. But I'm certainly not going to commit my successor to those numbers. Larry Heaton Thanks, Peter. We have another one here is, where do we stand on compliance? I assume that's compliance with the NYSE exchange. And the answer would be that it is status quo. It's the same place we were a quarter ago, and then a month or so before that. The exchange continues to monitor our stock price and has, without giving us any date certain that we have to increase it to $0.20, has allowed us to stay listed. And we expect that to continue as we move forward. Let's see. Is there a program available to entice the small animal vet to consider purchasing? I think that - it's and first of all, there's two programs, right? So in particular with PulseVet, with our TRUFORMA system, we provide the capital at no charge. They simply have to buy the cartridges. And if they didn't want to buy the cartridges, they wouldn't want the capital in the first place. So that's pretty straightforward. The barrier to entry for TRUVIEW is not capital dependent. It's a $500 a month subscription. And then they pay on a per use basis for the telepathology services. The VetGuardian is $4,500 for the device. On the other hand, it provides a new revenue stream for the veterinarian. And so we haven't seen that be a significant barrier to getting into that product. Which brings us to PulseVet. So with PulseVet, our standard program is a finance program that is provided by a third-party, arm's length. We don't fund them or control them. So for $32,000 device and trode, they pay no money down and no money for six months. And then $100 a month for six months, at which point they begin to, the note begins to amortize over a five-year period. Now, having said that, you would think, and that trode will allow a small animal vet to do 30 to 35 procedures. And if you're doing, I'm sorry, 60 to 65 procedures. And if you're doing 60 procedures and you're charging $300 a piece, you're generating enough money, if you use the average number of trodes in a year, which is two for small animal vets. You're generating enough income, enough not only revenue, but income in that first year to pay that whole note off, and there's no prepayment penalty. That's a great program, and we've used that to great effect for the last several years. Having said that, it still requires a commitment on the part of that clinic owner, the practice owner, whoever's purchasing it, to finance that product. And we saw a little bit of pullback from that in the second quarter, and that's why we have a new program, which we'll make available if capital, a commitment to the capital. As I described earlier, where you simply buy a trode, and it costs more, it costs three times as much as if you bought the system, but you don't have that same barrier and you don't have to make the commitment, which is what I suspect certain pet owners have been averse to doing at this point. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your line.

Earnings call: iCAD shows strong Q2 growth with focus on AI and SaaS By Investing.com

iCAD (NASDAQ:ICAD) Incorporated, a leader in AI-powered breast cancer detection solutions, has reported a significant 21% revenue increase in the second quarter of 2024, compared to the same period last year. The company, which trades under the ticker ICAD, has made substantial advances in its business model, transitioning to a Software as a Service (SaaS) platform and enhancing its offerings through strategic partnerships. iCAD's ProFound Cloud Platform, built on the Google (NASDAQ:GOOGL) Cloud Platform, is expected to improve profitability and cash flow, as the company leverages its strong market position in AI mammography solutions. iCAD's strategic moves, including the shift to a SaaS model and the launch of its cloud platform, underscore the company's commitment to innovation and growth in the AI healthcare market. With a strong focus on expanding its customer base and maximizing revenue from existing installations, iCAD is poised to continue its upward trajectory in the dynamic field of AI-powered breast cancer detection. iCAD Incorporated's transition to a SaaS model and its focus on AI mammography solutions have been pivotal in its strategy to enhance profitability and cash flow. The company's recent 21% revenue increase in Q2 2024 is a testament to the effectiveness of this shift. However, to provide a more comprehensive picture of iCAD's financial health and market position, let's consider some key metrics and insights from InvestingPro. InvestingPro Data highlights that iCAD holds a market capitalization of $36.9 million, which is reflective of investor valuation of the company's potential in the AI healthcare market. Despite the optimism surrounding its revenue growth, the company's P/E ratio stands at -16.07, suggesting that iCAD is currently not profitable. Moreover, the company's price/book ratio of 1.15 indicates that the stock is trading at a slight premium to the company's book value. One of the InvestingPro Tips indicates that iCAD has more cash than debt on its balance sheet, which is a positive sign for the company's financial stability and its ability to invest in further growth. Additionally, the company's liquid assets exceed its short-term obligations, providing it with financial flexibility. However, it's important to note that analysts do not anticipate the company to be profitable this year, and two analysts have revised their earnings downwards for the upcoming period. For readers interested in further insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/ICAD, which can provide more in-depth analysis and metrics on iCAD Incorporated's financial performance and market prospects. Operator: Good day and welcome to the iCAD Incorporated Second Quarter 2024 Earnings Call. At this time, all participants are in 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: 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 US 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 reflect 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. And with that, I'll turn the call over to Dana. Dana Brown: Thank you, Rosalyn, 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 the 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 US mammography sites currently using AI. This presents a substantial opportunity for iCAD to expand its market leadership globally. Thirds, 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 Incorporated's national network of premier providers of diagnostic imaging services. They signed a three year deal for ProFound Detection and ProFound Density on ProFound Cloud. Windsong provides over a 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 four year commitment for ProFound Detection and ProFound Density. Baylor Scott & White Health System signed a three year subscription agreement for eight of their sites, securing a long-term commitment for ProFound Detection 2D and 3D. We closed our first opportunity with Change Healthcare (NASDAQ:CHNG), 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 four more locations for a total of eight 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 four 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 7 and 8, 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 and 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, spending from one 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 eight 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 1600 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 focuses radiology and imaging directors, health care 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. And lastly, to round out the quarter, in June, we participated in another important and large show for us, SIM, the Society for Imaging Informatics and Medicine. With an audience of over 1500 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 one 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 US, we participated in ROKO Germany, held in Weisbaden, SERAM, the Spanish Radiology Society in Barcelona, the Saipem Congress in France, and SRC 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 and 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 hours and screen points. 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 Lynn Women's Health and Wellness Institute at Baptist Health, Boca Raton Regional Hospital. ProFound AI is featured demonstrating how AI is revolution izing 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 Gidwaney of Stony Brook 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. And 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 poor 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 incident 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 health care system, lack of provider cultural competence and substandard care. The use of patient navigators who facilitate communication and help to navigate the complex health care 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 and 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 health care, 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 1 disease. Yet over 20% of breast cancers are missed in traditional mammogram screening workflows, leading to advanced late stage diagnosis 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 data sets by using large diverse data sets 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 health care 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 health care 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 health care 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 reoccurring revenue build, we'll be entering each quarter with more and more visibility and predictability. As an example of the reoccurring 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: Good afternoon, everyone, and thank you, Dana. I'll now summarize our financial results for the second quarter ended June 30th, 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 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 30th, 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 30th, 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 T-ARR represents the annualized value of subscription license, maintenance contracts and active cloud services at the end of a reporting period. Maintenance services ARR or M-ARR represents the annualized value of active perpetual license maintenance service contracts at the end of a reporting period. Subscription ARR or S-ARR represents the annualized value of active subscription or term licenses at the end of a reporting period. Cloud ARR or C-ARR represents the annualized value of active cloud services contracts at the end of the reporting period. Total ARR or T-ARR was $9.2 million as of June 30th, 2024, up from $8.5 million in the second quarter of 2023. Maintenance services ARR or M-ARR 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 S-ARR was $2 million up from $1.3 million at the end of the second quarter of 2023. Cloud ARR or C-ARR 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: Certainly. The floor is now open for questions. [Operator Instructions] Your first question is coming from Per Ostlund with Craig-Hallum Capital. Please pose your question. Your line is live. Per Ostlund: Thank you. Good afternoon, Dana and Eric. Lots of good stuff to process a year. So I guess naturally let's start out with the top line performance. The $5 million in the quarter was certainly more than we had and I think more than anybody had. Last quarter, you called out Raleigh and some of the Solis expansion in there as having been somewhat impactful to that quarter. And so I think we and probably everybody else tempered second quarter a little bit. Did anything stick out in second quarter like Raleigh or like Solis that you feel needs to be called out? I know you mentioned a handful of deals, Dana, but 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 going to 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: So first of all thanks. Good to talk with you again. I'm going to 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 going to call it, reload balance, 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 want to add? Eric Lonnqvist: Yes. Hi, Per. I think the Baylor Scott & White deal was really big because 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 per 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 is 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, the migrations have been very successful. So they 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: Okay. That makes sense. And 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 commercially available for something less than the whole quarter. Did you have the field pretty well ceded for when that was going to be available? Was there a bolus kind of waiting to kind of be that first 8 or 10 deals that we're going to 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: Yes. Dana, I don't know if you want to take. I have some thoughts on it. Dana Brown: Yes. You go first this time and then I'll chime in if I need to add anything. Eric Lonnqvist: Yes. Well, I think the whole deal cycle didn't complete in three months for most of these. There was 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. Some of the customers wanted to test the product and their environment 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 kind of quickly, some customers that wanted to get rid of hardware that they're tired of buying these boxes every three years or -- and they're ready to move their technology forward and it just kind of clicked. But some of the bigger ones have been -- there have 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 going to be a natural push and it's with how the product is performing and the excitement in 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: Okay. Excellent. Dana, did you have anything to add to that or should I ask a question? Dana Brown: No. Yes, I think, 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, kind of test it out is so much easier with it being cloud that it just enabled the whole process to go faster. Per Ostlund: Sure. That makes sense. Since you mentioned the sales reconfiguration and the new folks fourth quarter, first quarter you have Peter Graham coming in 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: Yes. Right now, I think the team is the right size. So we've still been a little bit of, I'll call it, just juggling a bit, right, as people are settling into roles and we're understanding kind of who's performing well say 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 the US I think we're set. Operator: Your next question is coming from Yale Jen with Laidlaw & Company. Please pose your question. Your line is live. Yale Jen: 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 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: Good. Thanks. So 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 just released cloud last quarter, so that's going to 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 kind of want to show that cumulative progression of getting to a bigger chunk of our revenue being from recurring sources. Yale Jen: Okay, great. That's very helpful. And my next question is that in terms of cloud versus subscription, the customer getting a relatively similar thing, except that the manner of the data being delivered or being storage? And if so, do you anticipate the cloud revenue to people -- cost that will be increased much more than subscribed going forward? Dana Brown: Yeah. I can take that one. So the physical method that the software has 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 a matter 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 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 did answer the question. I think you had a second part too, which was if we think we're going to see cloud being adopted more quickly. Was that right? Was that the second part of your question? Yale Jen: Right. And if it overall looks similar would the cloud ultimately have a leg up in terms of the convenience and other aspects? So more likely to be the one grow faster than the subscription. Dana Brown: Yes, 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 the future is, right, for iCAD and for our customers. Yale Jen: And maybe the last question here is that given that those kind of dynamics, if you look into your crystal ball, for the end of the year, would you start to seeing this faster versus potentially slightly slower growth trajectory being the trend become more clear and then we'll be able to even look further modeling for our years in the PACS? Dana Brown: Yeah. I mean, the faster transition as we talked about kind of in the remarks has maybe a, 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 reoccurring 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 going to be. But having that ARR should almost you know and I'm using air quotes here you know form a soft guidance in terms of what revenue is already can be relied upon as we enter each quarter and then as we enter each New Year. Yale Jen: Okay. Great. That's very helpful and congrats on the progress because I think people are looking forward to see more crowd and that will be get all the pieces in place. Operator: 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: Thank you, operator. So in conclusion I just want to reiterate same comments I've made in past quarters. Hopefully 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 health care 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: 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.