iCAD(ICAD) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis for the quarter Item 1 Financial Statements This section presents the unaudited condensed consolidated financial statements of iCAD, Inc. for the three months ended March 31, 2024 and 2023, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant events, and specific financial line items Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $20,284 | $21,670 | | Total current assets | $29,044 | $29,678 | | Total assets | $40,395 | $41,418 | | Total current liabilities | $6,160 | $6,748 | | Total liabilities | $7,935 | $8,001 | | Total stockholders' equity | $32,460 | $33,417 | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss for the three-month periods Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | YoY Change (in thousands) | YoY Change (%) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :------------------------ | :------------- | | Products Revenue | $3,102 | $2,460 | $642 | 26.1% | | Services Revenue | $1,852 | $1,874 | $(22) | (1.2)% | | Total Revenue | $4,954 | $4,334 | $620 | 14.3% | | Total Cost of Revenue | $841 | $791 | $50 | 6.3% | | Gross Profit | $4,113 | $3,543 | $570 | 16.1% | | Total Operating Expenses | $5,554 | $6,783 | $(1,229) | (18.1)% | | Loss from Operations | $(1,441) | $(3,240) | $1,799 | (55.5)% | | Net Loss | $(1,222) | $(3,778) | $2,556 | (67.7)% | | Net Loss per Share (Basic & Diluted) | $(0.05) | $(0.15) | $0.10 | (66.7)% | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including net loss and stock-based compensation * Total stockholders' equity decreased from $33,417 thousand to $32,460 thousand, primarily due to a net loss of $1,222 thousand, partially offset by $265 thousand in stock-based compensation[18] Condensed Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash used for operating activities | $(1,180) | $(1,528) | | Net cash used for investing activities | $(206) | $(122) | | Decrease in cash and cash equivalents | $(1,386) | $(1,650) | | Cash and cash equivalents, end of period | $20,284 | $19,663 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies, significant events like the Xoft business sale, fair value measurements, revenue recognition, and specific financial statement line items, offering crucial context to the unaudited financial statements * The Company operates in one segment, Cancer Detection ("Detection"), following the sale of its Xoft business line on October 23, 2023[24][26] * The financial statements are prepared in accordance with US GAAP and reflect all necessary adjustments for a fair presentation, though certain information normally included in footnotes has been omitted as permitted by SEC rules[23][25] * The Company is evaluating new FASB ASUs (2023-07 on Segment Reporting and 2023-09 on Income Tax Disclosures) which will be effective for fiscal years 2024/2025 and 2025 respectively[30][31] Note 1 – Basis of Presentation and Significant Accounting Policies This note describes the company's operational segment, economic impacts, and new accounting pronouncements * The Company operates solely in the Cancer Detection segment after the Xoft business sale in October 2023[24][26] * The Company continues to be impacted by slowness in the overall economic recovery following the COVID-19 pandemic and faces risks from ongoing global conflicts, with 18% of Q1 2024 revenue from outside the US[27][29] * New accounting pronouncements, ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), are being evaluated for their disclosure requirements, with effective dates in fiscal years 2024/2025 and 2025, respectively[30][31] Note 2 – Discontinued Operations This note details the sale of the Xoft business line and its financial impact as a discontinued operation * The Company completed the sale of its Xoft business line on October 23, 2023, for approximately $5.76 million in cash consideration, with $0.7 million held in escrow[33] * The Xoft business is reported as a discontinued operation, with a loss from discontinued operations of $(687) thousand for the three months ended March 31, 2023[36] * Cash provided by the Xoft business from operating activities was approximately $0.4 million for the three months ended March 31, 2023[37] Note 3 – Fair Value Measurements This note describes the company's assets measured at fair value, primarily money market accounts, classified as Level 1 * The Company's assets measured at fair value on a recurring basis consist solely of money market accounts, classified as Level 1 measurements[39][44] Fair Value Measurements (in thousands) | Date | Level 1 (in thousands) | Total (in thousands) | | :---------------- | :--------------------- | :------------------- | | March 31, 2024 | $16,042 | $16,042 | | December 31, 2023 | $15,475 | $15,475 | Note 4 – Revenue This note provides a breakdown of revenue by major goods/service lines, timing of recognition, and sales channels * One direct customer accounted for approximately 12% of total revenue for the three months ended March 31, 2024[45] Revenue Breakdown (in thousands) | Category | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Major Goods/Service Lines | | | | Products | $3,102 | $2,460 | | Service contracts | $1,852 | $1,874 | | Total | $4,954 | $4,334 | | Timing of Revenue Recognition | | | | Goods transferred at a point in time | $2,285 | $2,028 | | Services transferred over time | $2,669 | $2,306 | | Total | $4,954 | $4,334 | | Sales Channels | | | | Direct sales force | $3,572 | $2,778 | | OEM partners | $1,382 | $1,556 | | Total | $4,954 | $4,334 | * Deferred revenue increased from $4,374 thousand at the beginning of the period to $5,016 thousand at March 31, 2024, with $2,982 thousand deferred and $2,340 thousand recognized during the quarter[55] * The Company expects to recognize approximately $3.6 million of its remaining performance obligations as revenue over the next 12 months[55] Note 5 – Net Loss per Common Share This note details the calculation of net loss per common share, including discontinued operations and antidilutive options Net Loss per Common Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Loss from continuing operations | $(1,222) | $(3,091) | | Loss from discontinued operations | - | $(687) | | Net loss | $(1,222) | $(3,778) | | Shares used in calculation (000s) | 26,354 | 25,261 | | Net loss per share (basic and diluted) | $(0.05) | $(0.15) | * Stock options totaling 3,015,924 shares as of March 31, 2024, were excluded from diluted net loss per share calculation as their effect would have been antidilutive[57] Note 6 – Inventories This note provides a breakdown of inventory by category, including raw materials, work in process, and finished goods Inventory Breakdown (in thousands) | Category | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--------------- | :---------------------------- | :----------------------------- | | Raw materials | $504 | $583 | | Work in process | $50 | $55 | | Finished goods | $257 | $324 | | Inventory gross | $811 | $962 | | Inventory reserve | $(61) | $(45) | | Inventory net | $750 | $917 | Note 7 – Goodwill This note confirms that no goodwill impairment charges were recorded during the reporting periods * No impairment charges were recorded for goodwill during the three months ended March 31, 2024 or 2023, as no triggering events were identified[59] Note 8 – Long-lived Assets This note states that no impairment testing for long-lived assets was required during the reporting periods * The Company determined there were no triggering events during the three months ended March 31, 2024 or 2023 that would require impairment testing of long-lived assets[64] Note 9 – Lease Commitments This note details a new warehouse lease agreement and the company's total lease liabilities * In January 2024, the Company entered into a new 36-month lease for a warehouse in Nashua, NH, for approximately 3,000 square feet with annual rent payments of $46,000[71] * The Company recorded a right-of-use asset and lease liability of approximately $0.1 million upon commencement of the new lease[71] Lease Payments (in thousands) | Year | Lease Payments (in thousands) | | :--- | :---------------------------- | | 2024 | $190 | | 2025 | $250 | | 2026 | $131 | | 2027 | $4 | | Total lease payments | $575 | | Less: effects of discounting | $(53) | | Total lease liabilities | $522 | Note 10 – Stockholders Equity This note covers stock option grants, stock-based compensation expense, and unrecognized compensation costs * The Company granted options to purchase 429,328 shares during Q1 2024[76] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Cost of revenue | $1 | $1 | | Engineering and product development | $56 | $73 | | Marketing and sales | $62 | $131 | | General and administrative | $146 | $381 | | Total | $265 | $586 | * As of March 31, 2024, there was approximately $1.2 million of total unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 2.14 years[78] Stock Option Activity | Metric | Number of Options | Weighted Average Exercise Price | Intrinsic Value (in thousands) | | :-------------------------------- | :---------------- | :------------------------------ | :----------------------------- | | Outstanding as of Dec 31, 2023 | 2,897,663 | $5.57 | $252 | | Granted | 429,328 | $1.52 | | | Cancelled | (311,067) | $9.73 | | | Outstanding as of March 31, 2024 | 3,015,924 | $4.56 | $206 | Note 11 – Income Taxes This note discusses the company's income tax expense and the reasons for its low effective tax rates * Income tax expense was approximately $4 thousand for Q1 2024 and $5 thousand for Q1 2023, with effective tax rates less than 1% in both periods[83] * The low effective tax rates are primarily due to valuation allowances against substantially all net operating loss carryforwards and tax credit carryforwards[83] Note 12 – Commitments and Contingencies This note outlines the company's firm purchase and royalty obligations, and its assessment of legal proceedings * The Company is obligated to pay approximately $1.2 million for firm purchase obligations to suppliers and $0.4 million for minimum royalty obligations[85] * The Company believes there are no current legal proceedings or claims that would have a material adverse effect on its financial condition or results of operations[86] Note 13 – Restructuring This note details the restructuring plan implemented in March 2023, including workforce reductions and associated charges * In March 2023, the Company implemented a restructuring plan (RIF), reducing its workforce by approximately 28% (23 employees) in the detection business unit and furloughing 12 Xoft employees[87] * Total charges related to the RIF were $0.2 million in 2023, with $0.1 million recorded in Q1 2023, primarily in Cost of revenue and Marketing and sales, with no further charges expected[88] Note 14 – Issuances of Common Stock This note describes the company's at-the-market (ATM) issuance sales agreement and recent activity * The Company has an at-the-market (ATM) issuance sales agreement to sell up to $25 million of common stock, but no sales occurred during the three months ended March 31, 2024 or 2023[89] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and cash flows for the three months ended March 31, 2024, compared to the prior year, highlighting key drivers of revenue, expenses, and liquidity, and discussing the impact of external factors and strategic initiatives Overview This overview introduces iCAD, Inc. as a global leader in AI-powered cancer detection, detailing its core product suite and operational segment * iCAD, Inc. is a global leader in AI-powered cancer detection, offering the ProFound Breast Health Suite for breast cancer detection, density assessment, risk evaluation, and cardiovascular risk assessment[94][95] * The ProFound Breast Health Suite is FDA cleared, CE marked, and Health Canada licensed, used by thousands of providers in over 50 countries, and has been used for over 40 million mammograms worldwide in the last five years[96] * The Company now operates in a single segment, Detection, following the sale of its Xoft business line in October 2023[94] COVID-19 Impact This section discusses the lingering effects of the COVID-19 pandemic on the company's economic recovery and potential future results * While the worst disruptions from COVID-19 have subsided, the Company continues to experience the impact of slowness in the overall economic recovery, which could negatively affect future results[98] Global Conflicts Impact This section addresses the potential impact of ongoing global conflicts on the company's operations and revenue in various regions * Ongoing conflicts in Eastern Europe and the Middle East create economic, civil, military, and political uncertainty, potentially impacting regions where the Company operates or derives revenue[101] * Approximately 18% of the Company's total revenue for Q1 2024 was derived from customers outside the United States, up from 14% in Q1 2023[101] Xoft Sale This section confirms the completion of the Xoft business line sale and its reclassification as discontinued operations * The sale of the Xoft business line was completed on October 23, 2023, with its results now reflected as discontinued operations, and the Company operating as a single Detection segment[102] Critical Accounting Estimates This section explains the role of management judgments and estimates in financial reporting and confirms no material updates were required in the current period * The preparation of financial statements requires management judgments, assumptions, and estimates, which are evaluated ongoingly based on historical experience and current conditions[104] * No specific event or circumstance as of March 31, 2024, required an update to estimates or a revision of asset/liability carrying values, despite global economic uncertainties[105] Results of Operations This section details the financial performance for the three months ended March 31, 2024, compared to the same period in 2023, showing improvements in total revenue, gross profit, and a significant reduction in operating expenses and net loss Revenue This subsection analyzes the drivers of the company's revenue growth, highlighting increases in product sales and the shift towards subscription licenses Revenue (in thousands) | Category | 2024 (in thousands) | 2023 (in thousands) | $ Change | % Change | | :--------------- | :------------------ | :------------------ | :------- | :------- | | Product revenue | $3,102 | $2,460 | $642 | 26.1% | | Services | $1,852 | $1,874 | $(22) | (1.2)% | | Total revenue | $4,954 | $4,334 | $620 | 14.3% | * Total revenue increased by 14.3% YoY, primarily driven by a 26.1% increase in product revenue due to higher software license sales and a shift towards subscription licenses[108][109] * An increase in subscription revenue could negatively impact short-term revenue recognition as it is recognized over time, unlike perpetual licenses[108] Cost of Revenue and Gross Profit This subsection examines the changes in cost of revenue and gross profit, noting the impact of the ProFound Cloud solution Cost of Revenue and Gross Profit (in thousands) | Category | 2024 (in thousands) | 2023 (in thousands) | $ Change | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | :------- | | Products Cost | $480 | $425 | $55 | 12.9% | | Services Cost | $321 | $345 | $(24) | (7.0)% | | Amortization and depreciation | $40 | $21 | $19 | 90.5% | | Total cost of revenue | $841 | $791 | $50 | 6.3% | | Gross profit | $4,113 | $3,543 | $570 | 16.1% | * Gross profit increased by 16.1% to $4.1 million, representing 83% of revenue, up from 82% in the prior year[110] * Amortization and depreciation in cost of revenue increased by 90.5% due to expenses associated with the ProFound Cloud solution, which went live in March 2024[113] Operating Expenses This subsection analyzes the significant decrease in operating expenses, attributing it to cost-saving initiatives Operating Expenses (in thousands) | Category | 2024 (in thousands) | 2023 (in thousands) | $ Change | % Change | | :------------------------------ | :------------------ | :------------------ | :------- | :------- | | Engineering and product development | $1,507 | $1,516 | $(9) | (0.6)% | | Marketing and sales | $2,082 | $2,360 | $(278) | (11.8)% | | General and administrative | $1,902 | $2,853 | $(951) | (33.3)% | | Amortization and depreciation | $63 | $54 | $9 | 16.7% | | Total operating expenses | $5,554 | $6,783 | $(1,229) | (18.1)% | * Total operating expenses decreased by 18.1% YoY, primarily due to management's cost-saving actions implemented in early 2023, particularly impacting marketing and sales (down 11.8%) and general and administrative (down 33.3%) payroll costs[114][116][117] Other Income and Expense This subsection details changes in interest income, other income, and the impact of discontinued operations on the financial results Other Income and Expense (in thousands) | Category | 2024 (in thousands) | 2023 (in thousands) | $ Change | % Change | | :---------------------- | :------------------ | :------------------ | :------- | :------- | | Interest income | $203 | $151 | $52 | 34.4% | | Other income, net | $20 | $3 | $17 | 566.7% | | Tax expense | $(4) | $(5) | $1 | (100.0)% | | Loss from discontinued operations | $0 | $(687) | $687 | (100.0)% | * Interest income increased by 34.4% due to higher interest rates[120] * Other income, net, significantly increased due to services rendered under the transition services agreement related to the Xoft business sale[121] * The absence of loss from discontinued operations in Q1 2024 (compared to $(687) thousand in Q1 2023) reflects the sale of the Xoft business in October 2023[123] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, reviewing cash position, working capital, and cash flow activities * The Company believes its cash and cash equivalents of $20.3 million as of March 31, 2024, along with anticipated revenue and cost savings, are sufficient to sustain operations for at least the next 12 months[125] * Net working capital was $22.9 million as of March 31, 2024, with a current assets to current liabilities ratio of 4.72, an improvement from 4.40 at December 31, 2023[126] * Net cash used for operating activities improved to $(1.2) million in Q1 2024 from $(1.5) million in Q1 2023, primarily due to cost-saving initiatives[127] * Net cash used for investing activities increased to $(206) thousand in Q1 2024, primarily due to the completion of the ProFound Cloud software project[128] * The Company has firm purchase obligations of $1.2 million and minimum royalty obligations of $0.4 million[129] Recent Accounting Pronouncements This section refers to Note 1 for details on recently issued accounting pronouncements and their potential impact * The Company refers to Note 1 for details on recently issued accounting pronouncements, specifically ASU 2023-07 on Segment Reporting and ASU 2023-09 on Income Tax Disclosures[130][30][31] Item 3 Quantitative and Qualitative Disclosures about Market Risk This section states that the information is not applicable for the Company * The Company has no quantitative or qualitative disclosures about market risk to report[131] Item 4 Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2024, with no material changes to internal controls over financial reporting during the quarter * The Company's disclosure controls and procedures were evaluated as effective at a reasonable level of assurance as of March 31, 2024[132] * No material changes to the Company's internal controls over financial reporting occurred during the quarter ended March 31, 2024[134] PART II OTHER INFORMATION This section provides additional information, including risk factors, exhibits, and official signatures Item 1A Risk Factors This section refers readers to the Company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, stating that no material changes have occurred since that filing * There have been no material changes to the risk factors described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023[136] Item 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, a lease agreement, and XBRL financial data * Key exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2), a lease agreement (10.1), and Inline XBRL financial statements (101, 104)[138][139] Signatures This section contains the official signatures of the Company's Chief Executive Officer and Chief Financial Officer, certifying the filing of the report * The report is signed by Dana Brown, Chief Executive Officer, and Eric Lonnqvist, Chief Financial Officer, on May 14, 2024[140]