Q2 2021 ICAD Inc Earnings Call
[music].
Good day and welcome to the ICANN, Inc. Second quarter 2021 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Jeremy Feffer with lifestyle Advisors. Please go ahead Sir.
Thank you Ana and good afternoon, everyone. Thank you for participating in today's call joining.
Joining me for my Cat are Michael Klein, Chairman, and Chief Executive Officer, Stacey Stevens, President and Charles Carter, Chief Financial Officer.
Earlier this afternoon Ikat announced financial results for the 3 and 6 months ended June 32021.
Before we begin I would like to caution the comments made during this conference call by management contain forward looking statements involve risks and uncertainties regarding the operations and future results of Ikat I would also note that management may refer to certain non-GAAP financial measures management believes that these measures provide meaningful information for investors and reflects the view of the weighted.
They view the operating performance of the company you can find the reconciliation of our GAAP to non-GAAP measures at the end of this earnings release I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitations forms 10-Q, and 10-K, which identifies specific risk factors that may cause actual results or events to differ materially from those described.
The forward looking statements. Furthermore of the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast August 5.2021, ikat undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this conference call with us.
That said, it's my pleasure to turn the call over to Michael Klein Mike.
Thank you Jeremy and good afternoon, everyone I'd like to begin by highlighting several key aspect of aspects of I can't second quarter performance as well as provide a brief snapshot of the current business and operating conditions as we move into Q3.
As presented in our earnings release high cash second quarter total revenue was $7.8 million well. This was a 41% increase over the second quarter of 2022nd quarter 2021, total revenue was negatively impacted by a longer than expected enterprise sales.
Cycles, which impacted the timing of several large accounts.
We began to close some of these longer cycle deals in July.
While we anticipate that the longer enterprise sales cycle, we will continue to be a meaningful component of our pipeline. The addition of these enterprise sales will increase our addressable market and average deal size can be clear for the longer cycle deals that didn't close in Q2, we're not wants to come.
Competition.
We continue to see little evidence of.
And the slippage of some larger enterprise deals in Q2 are well qualified customers actively seeking cads detection and risk assessment AI solution and of dollars budgeted and allocated for purchase.
And as stated July was the successful month.
Of capturing several of these important deals it is worth spending a moment. The detailed the makeup of these enterprise deals and how we are evolving our commercial infrastructure personnel and go to market strategy to efficiently secure than we have been tracking of the emergence of this unique customer segment.
As it has become more prominent in recent months the.
These are typically large and often geographically diverse accounts their decisions on the healthcare procurement are driven by our commitment to enhancing workflow productivity among a large number of stakeholders.
Overall quality consistency and uniformity of care and measurable rois.
Our outcomes that are essential to enterprise customers and some.
Price customers represent a unique linkage or triad of economic clinical and now technical decision makers typically with the title of Chief technology, or Chief Information Officer will referred to the ladder as C. I O while in out of there.
And often the helpful upstream Powerpoint the inclusion of the CIO and the enterprise deal decision process can and has moderately extended ourselves cycle. The emergence of the C. I of enterprise deals However presents us with a highly receptive.
Hi, centric and knowledgeable customer that provides a clear advantage the igen.
The CIO or title of similar to represent a new category of final decision makers that understand the nuances and advantages of the AI software and importantly, the difference between a clinically validated and algorithmic Rebased solution. This allows us to speak of common language.
<unk> engaged in more informed discussions and allows us to even illustrate our performance superiority productivity yields and broad healthcare economic value proposition across all of ikat profound AI offerings and is just 1 example, 1 of the reasons that we are encouraged by the <unk>.
<unk> of it or the Chief information Officer, and enterprise customer is there high receptivity to our new risk offering and its importance across not only clinical and patient constituents, but for all C level stakeholders.
Our risk offering allows us screening sites clinicians and patients to look 1 to 2 years ahead and determine level of patient risk of <unk>.
<unk> cancer. The patient can then be assigned unique screening of regiments with higher risk patients scheduled with unique personal protocols and with more frequency than lower risk patients the.
The result is more cancers found rural.
Earlier intervention and an improvement in health care economics across the spectrum from providers to payers to patients enterprise customers will be of priority call point for our new 3 day risk assessment offering that we are very excited to announce today will be released in this quarter.
We have carefully curated the release of the 3 D risked AI offering based on our experience with 2 day risk we intend to significantly promote this offering in September and October to align with breast cancer awareness month in the fall.
It is worth repeating that ICANN is unique in the market as the only vendor for a look into the future.
Risk assessment AI offering for both Judy and 3 D. Mammography it provide sites with the ability to identify problematic cases, 1 to 2 years the for breast cancers may be discernible to the naked eye or us even detectable on software that looks only of today's.
Yes.
Now moving onto our therapy business, we continue to be pleased with the performance from this segment in both product and service revenue areas total therapy revenues of $3 million represents a doubling of revenue over Q2 of last year year over year product revenue increased.
By 600% from Q2.2020, while service revenue increased 31% as compared to Q2.2020 for a business that has 50% of its revenue derived by recurring follow of sales the high volume of new installations in the first half of <unk>.
2021 is an encouraging lead indicator for increased recurring revenues as we look ahead.
The growth in our therapy business was driven by several factors, including the sale of 9 controllers in Q2 the <unk>.
Majority of the products in Q2 were due to the.
The.
The majority of the products of the house in Q2 were due to the continued surge in dermatology controller installations, which are being heavily influenced by the emergence of positive shifts in reimbursement payer coverage and regulatory changes basically we will provide additional detail on this in a few.
<unk> as well as highlight the timing of our full commercial launch into neurosurgery with our treatment for Glioblastoma.
Let me add debt Inspite of the dramatic increase in the number of Covid Delta there in cases, we anticipate minimal impact on our order patterns.
For mammals screening sites clinicians and patients it comes down to simple math as we head into the month 18 of Covid and the resultant rolling screening delays in backlog.
All health care professionals clinical sites and societies strongly agree the breast cancer, the risks and incidents vastly exceeds the probability of delta variant related disease severity hospitalization and mortality rates as such now more than ever continuing and.
Even accelerating catch up screening, particularly for high risk patients is the central not doing so with the knowledge that delays lead to more advanced cancers, and greater cancer accounts could emerge as 1 of the more detrimental long term impacts of this pandemic like.
Like you mentioned of wherever that the Covid pandemic has enhanced an already hard coded core competencies. The hike yet this is our ability to appropriately and prudently managed cash with just under $38 million of Q2, ending cash and all debt paid off we see ourselves continuing on fruit.
Approached the spending while enhancing our commercial position and technology leadership productivity tools and techniques refine during COVID-19 will continue to be of part of our managerial repertoire.
He is the start to announce 3 key new members of the <unk> team all 3 will be integral in maximizing and balancing our productivity and commercial yield with a strong cost effectiveness orientation of the first of these is Charlie Carter, who asked the 3 months as our interim.
<unk> will now serve as our full time CFO Charlie is a highly seasoned executive with both public and private company CFO experience and we are thrilled to now have him on our board on our team.
I'd also like to announce.
<unk> as <unk>, New Chief commercialization Officer, Jeff has run commercial operations that soft for the past 4 quarters and as highlighted in our financials was successfully responsible for taking previously lumpy sort of sales and has generated consistent and predictable.
The momentum, while demonstrating the highest level of commercial and operational acumen Jeff's unique experience growth adds up and in prior senior positions, particularly ones with very large account exposure with enterprise like characteristics makes them a particularly good fit at this time and of our growth.
We are also pleased to announce the appointment of Brian test the as Chief people Officer, Brian has extensive experience in supporting organizations and building efficient scalable and the high impact outcomes into their processes and culture and his tenure with the company today. He has played an essential role in <unk>.
<unk> executing the high octane transformation of our commercial capabilities, while also bolstering our innovative edge and our high productivity gain plan.
After a quarter of unique well defined and transient dynamics, we see ourselves as better equipped for our next phase of commercial adoption of.
Our continually improving commercial team led by individuals with clear track records of proven sales success combined with heart total prudent management of operational expenses. All added to the continued release of new innovations such as 3 D. Risks this quarter will allow us to continue our.
Success trajectory.
I'd now like to turn the call over to Charlie for his review of the financials Charlie Congratulations on officially joining the team and please take it from here Charlie.
Good afternoon, everyone and thank you Mike for the nice introduction.
Excited to join the <unk> team and look forward to supporting the continued growth of the business.
With that I'll now summarize our financial results for the 3 months ended June 30 of 2021 second.
Second quarter 2021, total revenues for 7.8 million, an increase of $2.3 million of 41% as compared to $5.6 million for the second quarter of 2020 detect.
Detection revenues were $4.8 million of the second quarter of 2021, an increase of 17% over the second quarter of 2020, driven by of 17% increase in detection product revenue and of 15% increase in service revenue.
Therapy revenues were 3.0 million in the second quarter of 2021, an increase of 109% over the second quarter of 2020, driven by of 646% increase of therapy product revenue as controller sales for minimal due to COVID-19 in the second quarter of 2020, and the 31% increase in service.
From suppliers revenue.
Mike mentioned, we're not pleased by our detection product revenues, but anticipate being able to capitalize on the enterprise sales opportunity in the future.
Moving onto gross profit on a percentage of sales basis gross profit was 71% for the second quarter of 2021 compared to 78 per sub for the second quarter of 2020.
On a pure dollar basis gross profit for the second quarter of 2021 was $5.5 million as compared to $4.4 million in the second quarter of 2020.
The decrease as a percentage of sales was due to changing sales mix in the second quarter of 2021 therapy sales were higher as a percentage of total sales of therapy revenues currently yield lower margins than detection revenues.
Total operating expenses for the second quarter of 2021 were $8.4 million of $1.7 million or 26% increase from $6.7 million in the second quarter of 2020.
This is in line with the anticipated 2021 expense run rate, we discussed on our last call with us higher as a percentage of revenue given our Q2 revenue performance as in the past we are committed to a disciplined approach to spending and anticipate operating expense increases to be managed between 5 and 10% in Q3.
This expense rate will support the anticipated revenue growth while of correspondingly moderating overall expenses of cash burn and result in the expenses running at a lower percentage rate of revenue than in Q2.
Moving on our second quarter net loss was $3.3 million or <unk> 14 per share as compared to the second quarter of 2020 loss of $2.4 million or 11 cents per share.
Non-GAAP adjusted EBITDA for the second quarter of 2021 was the loss of $2.2 million, which represented the decline of $1.5 million compared to the second quarter 2020, non-GAAP adjusted EBITDA loss of <unk> 7 million. The decline is driven by Q2 revenues relative to operating expenses.
Non-GAAP adjusted net loss for the second quarter of 2021 was $2.8 million or <unk> 11 per diluted share as compared to a non-GAAP adjusted net loss of $2.5 million or <unk> 12 per diluted share for the second quarter of 2020.
Metric for Q2 of 2021 reflects adjustments to GAAP net loss for the cost of retiring our debt and the settlement of a decades old IP claim volume vivo relating to an abandoned the product line while the us.
Associated per share of non-GAAP adjusted net loss reflects the higher losses, but also the higher outstanding share count.
Moving onto the balance sheet as of June 30 of 2021, the company had cash and cash equivalents of $37.9 million.
Compared to cash and cash equivalents of $27.2 million at December 31, 2021.
Of an extremely strong cash position with no debt and are well positioned to continue executing on our growth strategy.
US disciplined spending will allow us to minimize our cash burn of preserve capital to sustain operations well beyond 2022, and 3 of the transition to cash positive operations.
1 other element of the balance sheet I'd like to comment on us accounts receivable.
<unk> increased to $11.2 million from the December 31, 2020 balance of $10 million.
Of the current balance of $3.1 million represents balances more than 60 days overdue with 9 customers representing $1.8 million of this balance the company has validated the intent to pay with all 9 larger customers. Overall, there is no perception of greater risk of non collectability and any of the past due amounts.
This concludes the financial highlights of our presentation I would now like to turn the call over to Stacy.
Okay.
Thank you Charlie I'm thrilled to have you on the team and good afternoon everyone.
Although we saw some impact on revenue in Q2 by longer than expected sales cycles for some of our enterprise opportunities. We remain confident in the unique value of our portfolio of technologies. The offers and are optimistic as we look ahead towards the second half of 2021 I'm pleased to report there is continued balanced performance and successes.
Both of the detection and therapy sides of our business with exciting next generation products coming down the pipeline a growing body of evidence that continues to support our technologies, including several ongoing clinical studies and the emerging new market opportunities. We believe we are well positioned for continued success actually of what they had to the remainder of.
Of the year.
Let's begin by highlighting the progress of our company is the latest advancement profound AI risk on the last earnings call I reported that we were finalizing the data collection and validation of the risk algorithm for 3 D. We also wanted to provide early access for several kols and luminary sites.
We are pleased to announce that despite the physical restrictions of the pandemic. We successfully collected 3 D cases, and key input for about the training and validation and we are on track to deliver the U S. Based version of the product within the September timeframe.
The launch of profound AI risk for 3 D will mark a significant milestone for <unk> as it will be the world's first commercially available Personalised image based short term clinical decision support tool for estimating breast cancer of rescue using 3 D. Mammography. Furthermore, the performance of profound AI risk for.
<unk> is showing even better results when compared to the algorithm for QD images, which is the already far superior to traditional risk models, which are based predominantly on family history. We believe this technology will lead to more appropriate utilization of supplemental imaging and biopsies less anxiety for women and decrease.
Cost of the system overall.
In addition to our focus on profound AI risk we are continuing to advance the flagship solution profound AI I recently had the opportunity to join our sales team for a prospective customer site visit with 1 of our Kols sites in Florida not.
Not only did the physical extremely well, but it was the strong reminder to me about how much what we do every day and I can truly makes the difference in women's lives. Our Kols, who is a world renowned breath of imager demonstrated the value of profound AI by showing our perspective customer many case.
That's where the cancer diagnosed diagnostics would have been missed or of delayed if it were not for profound AI.
These were of cases were subtle cancers would've been overlooked are the Smith and 1 in the other way Samsung with the normal mammogram not only was I personally touched by this knowing that these women were well served end of line, possibly sales by our technology, but our perspective enterprise customer with equal in the it isn't moments like these.
Is that really remind us all of the impact profound AI is having on patients' lives.
All of the awareness of profound AI and the unique value proposition it offers to patients and clinicians, particularly during the post pandemic recovery period we.
<unk> recently launched a robust marketing campaign.
As more people become vaccinated, our customers are still dealing with a massive backlog of patients who need to be screened and this highlights the need for advanced solutions like profound AI in light of this emerging trend we launched the surround sound marketing can campaign directed at book patients and clinicians with a blanket of DNI.
States with the Blitz of positive media coverage the campaign kicked off with an article which was picked up of nearly 900 digital media outlets, including the Los Angeles Times, The Chicago Tribune, Houston Chronicle in San Francisco Day. This content reached a total potential audience of more than 200 million readers across each day.
Total papers.
Additionally, we recently launched the eye catcher first ever satellite media tour featuring Dr. Randy <unk> CEO of regional medical imaging in Michigan. This media then involved a total of 28 live interviews and cleaning ABC NBC and CBS affiliates in many major media markets.
These segments are nearly 600 times across the us, reaching an audience of potentially $100 million I've seen the leverage the this incredible coverage with the strategic email came hand campaign targeted at clinicians directing them to key online and broadcast placements and further educating them about our <unk>.
Technology and the value of it offers.
On the last call. We mentioned we had recently received FDA clearance for profound AI version 3 point out which offers enhanced clinical performance benefits, including up to a 10% improvement in specificity performance, while maintaining an industry, leading high sensitivity level and approximately 40% faster processing on them.
The power platform.
And then this next generation technology received the CE Mark approval last month. We also now have clearance for the third generation of our product with the with an EU focused approval for the whole logic HD and Fuji <unk> systems also with the improved specificity of up to 10%. Additionally, we risk.
FDA approval for our latest power density for Legion, which is now of deep learning based algorithm. This new and improved deep learning breast density assessment product will support sympathize to the images from both GE and for logic and will be commercially launched globally with our September release of profound AI risks.
For 3 D. Altogether that is 3 regulatory clearances in the last several months, which really speaks to the agility and share power of our agile AI focused product and R&D teams. These clearances give us access to broader market opportunities going forward.
These new profound AI releases are accompanied by a major platform release, which includes the ability to track specific usage of the product, allowing us to more widely offer an operational subscription license model.
I'd now like to review our performance internationally and May Europe experienced a reduction in COVID-19 restrictions paving the road to renewed product demonstrations in clinics and hospitals.
We added a second direct rep in France to take advantage of this large mammography market in Germany has been officially opened as the direct sales region of customer event is already planned with of profound AI workshop in collaboration with GE and Dr. Axel grabbing hook, a leading expert in influential radiology radiology.
At radiology, a M theater and patter born Jeremy This is scheduled in Munich at the end of August the distribution network has grown to include both Saudi Arabia, and South Korea in Q2, and the regulatory process has begun for both countries. The registration process is expected to take approximately 6 months in the meantime.
Distributors will be trained and reference centers and Kols will be investigated.
Additionally, several advancements have been made with the distributors in Australia, and Thailand, which expected contract signatures in Q3.
Expansion into Japan is also under investigation regulatory requirements are being evaluated and calls with the potential kols are underway to help us prepare for market entry and possibly fulfill any clinical regulatory requirements.
On the dark side, we continue to see consistent results on revenue and momentum on the implementation of our 2 tier strategy to drive revenues around the current applications, while developing the new indications narrow anorectal through our clinical trials registry tail all sites and pre commercial efforts in Q2.
The das business exceeded $3 million in revenue and has now shipped the 18 controllers and the first half of the year. The breakdown has been 9 U S skin systems 6 from our China business and 3 to locations for general IOR teamwork, we've seen of quarter to quarter gradual uptick in our source and service business.
And expect this trend to continue as we saw more controllers and the Covid hospital of recovery continues.
The skin business, we restarted in Q4 of last year continues to show promise with favorable regulations in key states such as Florida. The addition of new partners, including our New West Coast edition Derma cure of RT and a pipeline that is growing 3 ex quarter to quarter. Additionally.
Additionally, we are restarting the collection of 5 year data from our skin study started in 2017. The objective is to complete this exercise in 2022 and begin leveraging the standout with negative policy private payer networks and key societies to the consistency of reimbursement across the Medicare and the price.
Of the payer network in the us moving on to new clinical applications. We have started the execution of new neuro sites with our <unk> trial and expect to treat our first patient in Q3. The integration of this trial has taken a little bit longer largely due to COVID-19 recovery in hospitals and lengthy budget cycles.
And processed on clinical trials expected full commercial launch with us FDA cleared offering us now Q1 of 2022.
We continue to monitor monitor key strategic areas, such as the us Ro APM ruling and progress in our SaaS growing skin segment that continues to be on a trajectory of significant growth year to year.
As we reflect upon our progress and achievements from the first half of 2021, we look ahead to the second half of the year with continued enthusiasm we look forward to providing you with additional updates as we continue to advance our business and technologies forward drive sustained leadership and create additional shareholder value. We will now open up the call for quest.
<unk> the operator.
Yes, ma'am, thank you and if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad. If you are using a speaker phone. Please make sure your mute function of turned off to allow your signal to reach our equipment.
We ask that you please limit yourself to 1 question and 1 follow up to allow everyone an opportunity the second of all at.
Once again that is star 1 if you would like to ask a question.
And well pause for just a moment.
And well now take our first question from Brooks O'neil with Lake Street capital markets.
Good afternoon, all and congrats Greg congratulations for the new members of the team.
I was hoping you might be able to give us a little color on the size of potential of some of these enterprise.
The customers Youre talking to guys and maybe just.
Share of little bit of.
Of color of the difference you're seeing from the ones you talked to do now versus for example, what you saw with Solas mammography towards the end of last year. Thank you very much.
Yes.
Okay.
Let me take that as Mike.
Say that the range of deals the average.
<unk>.
We know this pretty well range from deals that could be from 350000 to well over a million.
And they are geographically diverse which means.
Well dispersed.
They are different from let's say of solus deal or Sun and net deal that are regional in nature.
Net.
Isn't making regimen and the number of sites that are involved and the disparity of geography. This added a bit to our sales cycle, it's given us an additional call point.
Okay. That's very helpful out of it says 1 follow up obviously.
Everybody's kind of curious if you think some of these deals more of these deals will come through in Q3 or do you think it's kind of make sort of the process lumpy lumpier. So that maybe there is going to be a bunch of variability quarter to quarter going forward.
Thank you very much.
Yeah, I would just sound that last point, we we see a pretty good balance of these.
These deals with the the more traditional deals you mentioned that we understand the sales cycle of as well as smaller deals we saw a surge of them. This quarter. We <unk>, we basically re-engineered our sales force and continue to do that instead of July and August the D.
Deal with the these these new kinds of the decision makers, putting more technology oriented personnel on the front lines now I think we'll smoothed out where it.
It's our our view of that that the lumpiness that could occur with dynamics like that if not well prepared we are well prepared to deal with that based on the work we have done to add additional firepower and ammunition to the front lines the smooth out the some signs of.
And obviously in doing so of driving towards the elimination of potential let me for a month or suddenly mitigation of lumpiness. Good questions books. Thank you.
Well now take our next question of from Francois of response from the Oppenheimer.
The last 1 there I know there's a couple of parts of the first 1 but the enterprise customers going forward. What gives you confidence there or is this something that you know there should be kind of a I guess like of pent up demand somewhat for revenues the hit on the back end or what gives you confidence that we can move forward and close these.
Yeah. These are all of the customers. We're talking about are ones that are budgeted.
<unk> debt.
Have already dead it of its technology and look towards us.
We did as indicated.
Have to deal with sort of another level of the involvement and getting the it folks too.
Tied into the process are we also are seeing an actual an increase preponderance of these sites because due to economics of our efficiencies are actually aggregating more of there's always been a train of trend with integrated delivery networks, but I think we're going to see more of these <unk>.
Heinz of deals and the reason that we've reoriented our sales force for the Mr kind of keep up with us very rapid pace.
Pace of change and literally we didn't really see the set at the beginning of the Colgate or it was it was minor, but we see it now, but but we do believe that we will keep pace with it as to whether or not well.
The move faster in other words, a catch up.
For let's say Q2 and sort of ahead, we'll have to see more as we go into the.
Into the couple of weeks and months ahead. These are more complexity of the good thing is that compliance that these deals is high they actually are even less price sensitive because they appreciate the the productivity opportunity. So we're going to learn a little bit more as we go through the quarter in terms of let's say how.
What's more we can accelerate ahead, but we're very confident that the.
Of the anomalies that we saw in Q2.
Our.
The ones that we are of good handle on as we move forward into Q3 and beyond.
Well now take our next question from.
The B T I D.
Great. Thank you for taking the questions maybe 1 quick follow up to the questions on the enterprise sales process what.
What do you think drove the surgeon interest side of that we're seeing now and what specifically are the C. I O us asking about it is it as simple as wanting to compare of reader times and sensitivity and the sorts of things that drive productivity or are they wanting to do more involved sorts of trials and little pilots before they commit.
It will then we're we're actually seeing a lot of folks ask us if they can buy multiple AI products from us because they want to have fewer vendors to work with which presents us with an opportunity. So this is something we you know I don't Wanna say, it's completely unique in that we've heard these things early in Covid, but as we went for them to COVID-19 in.
<unk> since December in the first quarter and then for the second quarter of the sheer we've just seen this the emerge in in in a big way. These chief Information Officer, you know they were always someone in the past that you should just check in with the make sure. Your agenda was the line with their agenda, but there are sitting right next to the C E O.
They have the seat of the table.
It used to be if you're not at the table you're on the menu. These folks are whether the I'll add the table or away from the table, they're being consulted with us being productivity consistency engineers N R. They've run the numbers and looked at I T as being integral for the success equation. So this unique trip triad.
Economic decision makers technical the political was there the they've been until the new what's your question that I Miss could you repeat it the.
The.
If you don't mind, you know I think I was I was asking specifically about what the C. I always want to see in terms of evidence whether it's just you know looking at the data and comparing it to other states that it or whether they wanna do sort of small pilots and tiling before they come in.
Yeah, well day, they're less inclined to the for on the evidence.
The the the the the radiology or clinical personnel the folks that that the the the Chief Technology Officer wanted to see if our technology and the way we're processing images and are proud day or on prime or or a hybrid solution.
And it runs parallel with where they are in their move into the crowd. So this is more of of technology interaction commingling of line that exercise and that has become you know.
Really keep part of the process of natural they've entered the good thing is that and maybe a little bit surprising as we go into the the second half of the year is that true.
Proud of that we always felt that clinically what's going to be adequate of combined with economics, and we knew the connectivity elements would be K, but we're seeing it now being a you know the very dominant part of the purchase process and they're probably equally weighted but they.
I want to make sure that your of lined with their I T strategy. He's solution of migration pattern and that's what they're looking for from US. So it's a whole different set of questions and it had some time for the process. The good thing is that when we get in there we get in there very deep.
We get in there with another can fit you receive it understands what would the they actually understand signal noise processing, the actually understand the difference between people who are showing real AI capability versus those that are just doing more general triaging in pattern recognition. So these spoke.
For hard to fool on the other hand, that's very intelligent questions and press you to be your best technically and that has been widely.
Literally spent a good portion of the queue to orienting ourselves the facing a lot better with these new kind of decision makers.
Cut back from camp.
As a binary minor the star want us to ask a question.
Well now take a question from the email.
Okay.
Oh, good off the Internet and thanks for taking the questions [laughter].
My first question is that the abuse look for what percentage of the future custom prospect will be of can be categorized us at the enterprise the echo.
<unk> first of your sort of traditional accounts and I have the phone up off of that.
Yeah. It's the question Yeah I in the U S and I think we're gonna see this first of all of mostly in the U S. Right now so.
That's the right there that's yeah, that's that's pretty much 85% of our business. So you'll see it mostly in the U S. Proud of this we thought of the market. The most people total of marked as being kind of like the entrepreneurial segment and then the more academic stagnant with idea of what we're saying is that these.
Enterprise networks are crossing the.
Horizontally, almost say diagonally across both segments and we'd say that they're probably around 30, 35% of the market. The interesting thing is that while they're only while they're 30% to 35% of the market the call of points my only the 15% so they have a disproportionately.
The high volume for the percentage of sites you call us, which translates into really needing to have the best kind of sales and a new type of sales rep, calling on the accounts because the yield for the sales process is going to be hard at this point about 35 per cent.
Online and they will allow they will create far more successful subscription.
Models are.
And then in the past because they understand how to set up the architecture that enables us. So I do believe that this will over time accelerate the movement to SaaS, but it's been interesting to see that the SaaS model has moved at a rather slow pace in part I think it's big.
Folks realize there's a lot more infrastructure set up people are waiting for 5 people are waiting for better tools. So part of the enterprise providers coming in is in fact to your point to drive towards more of these subscription based solutions.
That in mind, they're going to have to compete with those who are worried about privacy and the HIPAA and those dynamics and there are certain sites that don't like to have their data out there in the cloud. So it'll go to a certain point and it will probably move quicker towards subscription next year, but this year, it's actually moving to subscription.
Maybe a little bit slower than we thought because it's almost like they're going to of Pitstop and retooling themselves to get ready for subscription and interestingly. We are of correspondingly been doing the retooling ourselves to be able to face off of <unk>. So I think of the long run. This is going in the long run the doesn't mean like.
Too long out there for us because we are well underway here, we're gonna lineup better with these accounts they will move to subscription, but I think it's going to happen slower this year and a little more rapidly next year.
Bad debt.
The question answer session I'd like to turn the conference back over.
<unk> for any additional or closing remarks.
Well I would like to just close by summarizing the debt.
We're very confident in the AR and the new leadership positions. We've put in place. We do look at the end of Q2 as an intriguing anomaly that we believe we've got our hands around and have been very proactive in setting ourselves up to deal with enterprise accounts and solutions we will.
Turning to moving this direction through Q3 the costs of the.
These accounts continue to take on a unique forms and some are emerging as winners and some are lagging behind so it'll be an organic process, but we've got this well under well in hand, we are particularly encouraged that the pace of innovation has not stopped and we will.
The move so with 3 day will continue to manage our costs because as we learned during COVID-19.
Having a strong balance sheet is critically important and we're very very excited about the opportunities.
As it continues to move forward.
In a positive trajectory with dermatology powering the way they are providing us the runway and capital to continue down the path for neurosurgery. So we look forward to providing additional updates as we move forward.
As Stacy said, we're particularly bullish on the second half of the year all of the dynamics that existed before within the company are still here, we're grappling with the of.
New breed of the.
A new breed of customer you might say, but it's 1 that actually happens to be perfectly aligned with where we're going.
Especially in terms of subscription it just the longer call point pattern. That's been established that we believe we have adjusted to and have enhanced.
A significant range of VL sector debt smoothed out the lumpiness that could potentially.
Inveigle us if we didn't have a broad funnel and pipeline of deals, but with that I'd like to thank everybody for joining today.
We look forward to the future updates as we move ahead.
And that does conclude today's conference and we thank you all for your participation you may now disconnect.
Okay.
[music].
Okay.
Yeah.
Hum.