Q3 2022 ICAD Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the Icahn incorporated third quarter 2022 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.
Now my pleasure to turn the floor over to your highest.
There's little feedback executive assistant to the Chief Executive Officer, and I know the floor issue.
Thank you operator, good afternoon, everyone. Thank you for joining us today for <unk> third quarter 2022 earnings conference call on the call today, we have Stacey Stevens, our president and Chief Executive Officer, and Steve Sarno, Our interim Chief Financial Officer.
Before turning the call over to Stacey 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 <unk> 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 U S Securities and Exchange Commission.
<unk> undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this conference call.
I'd also 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.
That I will turn the call over to Stacy.
Thank you Lynn and good afternoon, everyone as we close out another quarter and look ahead towards 2023, I continue to be optimistic about the company and its prospects with a portfolio of market leading first in kind technologies. We are addressing significant unmet needs in global health and I am confident that we are taking the <unk>.
Right steps and that we are building the right team to ensure continued growth for the company and create additional shareholder value.
That said this is a transformational time for us in many ways as we shift our business towards even more sustainable future driven models of business that are positioned to propel our company to new heights in the last quarter. We have continued to make significant strides to ensure we meet and exceed our desired endpoints.
Looking at the detection side of the business I cats breast AI suite remains the only complete AI solution for breast cancer detection density evaluation and risk assessment solution available on the market today and we continue to see this world leading technology as the ultimate value driver for the company with strong <unk>.
<unk> differentiation and a superior value proposition, particularly when it comes to efficiency performance and workflow benefits underlying demand for our technology remained strong but more importantly, our solutions continue to have a positive impact on patient lives and we believe they will over time become.
Standard of care.
As we continue to assess future opportunities for our business evolving customer needs and our existing operations. It is clear that things will look different going forward and this has necessitated several meaningful changes in how <unk> does business. The first is to optimize our operational model to better address our largest <unk>.
<unk> in the most effective and efficient manner to that end, we are implementing major changes one of which involve shifting to a more partnership focus go to market approach. As an example of this is our new relationship with the largest radiology practice in the United States Radiology partners, which we announced this afternoon.
I will discuss the rationale and benefits of this partnership in more detail later on the call, but we are very excited by the initial order. We received this month that allows access to our technology to hundreds of thousands of patients as well as the developing potential of this new relationship.
Another major change is our ongoing transition to a subscription software model. This model offers a number of benefits for the company and our customers as it offers an accelerated way for customers to adopt deploy and scale, our technologies with significantly lower upfront costs compared to a onetime license sale.
The subscription model also offers customers the ability to add new functionality is more easily than a onetime license sale model and without costly capital outlays. This model not only drive significant long term recurring revenue opportunities for the company. We believe it can generate at least twice the amount of revenue per customer over five years.
Compared to the onetime perpetual model.
We have also seen a marked increase in customer demand in this more flexible model with more subscriptions sold in Q3 than in the entire first half of 2022 and no subscription we have ever booked has ever been cancelled. This validates our decision to move to this model and offers tangible proof of the strength of the.
Underlying demand for our AI technology.
However, as previously mentioned measuring subscription revenue in the near term poses a unique reporting challenge at the revenue. It generates is recognized over time, therefore based on your feedback and in order to help our investment community better measure and follow the success of our transition we are introducing a new metric subscription any.
Recurring revenue or <unk>.
Sure.
At its most basic S.
For a given subscription is the amount of recurring annual revenue that the subscription is expected to generate Steve will further explain the specific S. Our financial metrics shortly.
As part of the transition to this new model, we are proactively aligning our cost structure to better match. The revenue trajectory of these subscriptions and other anticipated recurring revenue models to that end, we have proactively taken out over $3 million in annualized expenses, while maintaining investments in key growth initiatives.
On a go forward basis.
We believe that as we evolve to a more efficient partner focused approach. This will ultimately enable a lower cost structure for the company.
Very importantly, I want to stress that based on our strategic plan and including these cost reduction efforts, we do not have any plans to raise additional equity or debt at this time.
Turning now to the third quarter the environment continued to be overshadowed by macro factors continuing to impact and delayed capital budgets, such as high inflation rising interest rates supply chain issues for some gantry manufacturers and the associated concerns brought about by these issues. In addition, there are ongoing customer challenges with.
Regard to staffing.
Environment was fairly consistent with what we've seen so far this year in fact at least two major health systems have expressed a strong desire to acquire our AI solutions, but full capital budget freezes are causing delays to their purchase plans. It is this overall economic climate along with the sharp rise in the number.
Subscriptions versus capital licenses that contributed to our reported $6 4 million in total revenue.
We're working diligently to mitigate these impacts via a heightened focus on subscription sales to drive long term recurring revenue companywide expense reductions and the expansion of strategic partnerships in enterprise deals such as with Radiology partners, we expect to announce additional key partnerships in the near term.
Taking a closer look at the detection business total detection revenue in the third quarter was $4 $4 million down 27% year over year. Although this quarter is particularly challenging to compare as Q3 of 2021 had not only multiple significant enterprise deals, but also a large inventory bulk purchase from one of our.
OEM partners.
As previously mentioned demand for our breast AI solutions remained strong as evidenced by the growth and success of the subscriptions. In fact further accelerating subscription sales is assisting us in overcoming several macro and capital budget challenges due to the favorable economics for the customer while also enabling us to further penetrate.
<unk> key enterprise customers.
We have also made great progress in expanding our strategic partnerships across the industry, including today's announcement of our developing nationwide agreement and first order with radiology partners the largest radiology practice in the U S.
National recognized for their clinical leadership in mammography Radiology partners provides mammography services to millions of women per year across more than 3000 facilities, including the top 10 largest health systems in the country, making them an exceptional partner.
This collaboration is expected to solidify <unk> position.
And as radiology partners provider of breast AI solutions, and will leverage radiology partners clinical expertise scale and leadership position to expand access to <unk> breast AI suite to potentially thousands of physicians and millions of patients.
I can.
<unk> technology can be deployed to the radiology partner network via RP cloud significantly increasing the potential for adoption across their network of practices and unleashing the ability to improve mammography screening for millions of women across the country.
This type of strategic relationship is a prime example of our more targeted and efficient go to market approach, we expect to explore similar partnerships in the future to further broaden access to <unk> breast AI suite.
Last quarter, we also announced an exciting partnership with Polish mammography, the largest independent provider of breast screening and diagnostic services in the U S. This multiyear strategic research and commercial collaboration is expected to result in a powerful AI solution that will quantify the presence of breast arterial calcification.
Patients in a mammogram to assess the risk of cardiovascular disease with heart disease being the number one killer among women in the U S. This collaboration not only offers the potential to address a significant unmet need and patient care, but also to penetrate a sizable new market given that approximately 40 million women are screened in the.
U S annually the evaluation of breast arterial calcification at the time of breast cancer screening could be as simple and efficient way to screen millions of women at risk for heart disease, each year as part of an overall preventative care strategy I, Kevin Silhouettes have worked closely together over the last two years in the fight against breast cancer.
Through the application of our breast AI suite across Solus has more than 100 locations and we look forward to working with our exceptional team to expand on our shared mission and take on one of the greatest threat to women's health in order to better support the expected expansion of the detection business, we are taking bolder steps to optum.
Our commercial team, particularly in the United States.
As we have reported in previous quarters, we have been working to strengthen our organization throughout the year with the new skill sets. We believe are crucial to achieving our goals in the future.
We have gone a step further and are now in the final stages or bringing on a new commercial leader for the detection business, who will focus exclusively on driving sales in the United States of our breast AI suite.
We believe this decision will enable greater focus and execution on our growing pipeline of opportunities as we move forward.
Now turning to our therapy business total third quarter therapy revenue was $2 million.
Q1, the results were impacted by the slower than expected ramp of one of our partners as they conducted our second financing round as well as our own decision to stop taking additional orders from partners with aging accounts receivable.
There continues to be strong underlying customer demand from dermatologists and we are working to bring at least one new partner on which we expect to improve results in this segment in Q4 in.
In terms of other application areas, we continue to progress our brain clinical study and expect to see early positive report on the safety and feasibility of the treatment to date presented at the upcoming society of Neuro oncology annual meeting later this month.
We also have new updated data with longer patient follow up for both our breast and skin applications, both of which have been submitted for publication in peer reviewed journals and presentations at major upcoming industry events.
Im also pleased to report that the Steve Biko academic hospital in Pretoria, South Africa recently became the first site in Africa to offer <unk> treatments with soft gynecological cancers are some of the most common cancer among women worldwide, but Africa represents 20% of the world's new cervical cancers.
Each year and cervical cancer is the most common cancer in South Africa due to its small footprint mobility benefits and low energy high dose treatment those off system, it's particularly well suited to address these health challenges.
So in conclusion, we made significant strides over the last quarter that we will continue to yield benefits in the months and years ahead.
We know that there continues to be strong demand for our AI technology, especially as indicated by strong interest in the subscription offering.
We are demonstrating success in the transition to subscription as evidenced by the growth in <unk>.
And booked.
<unk> backlog, we are proactively aligning our cost structure to better match the flow of business and importantly market leaders such as radiology partners in solus are providing us with an efficient path to market, while also demonstrating their belief in our capabilities and future as they expand more of their business on <unk> technology.
While the near term reported results are not ideal I believe that these encouraging data points are indicators that we are making the right changes and that ikat is correctly positioning itself for success moving forward with that I will turn the call over to Steve for a detailed review of our Q3 financials.
Thank you Stacy and good afternoon to all of you all know summarize our financial results for the third quarter ended September 30 of 2022.
U S GAAP basis, our total revenues for the quarter was $6 $4 million decline of 32% from $9 $4 million in the third quarter of 2021.
Revenue was $3 2 million down 49% from $6 $3 billion, a year ago revenue from services and supplies was $3 1 million up 4% from $3 million in Q3 of last year.
Casey mentioned earlier, we believe the concerns regarding recessionary fears higher inflation and rising interest rates, along with tighter capital budgets of all had an impact on our business.
In addition, there was some business specific factors such as the growth of subscription that also impacted the comparison of our year.
Year over year results moving to our detection segment, our detection segment revenue in Q3 was $4 $4 million down 27% from $6 million in Q3, a year ago within detection. Our Q3 product revenue was $2 5 billion.
43% from $4 $5 billion a year ago.
Detection service revenue was $1 million up 17% from $1 6 billion a year ago.
We believe that the current macroeconomic headwind pressure on customer budgets and continued supply shortages impacting increased sales as well as our moving a greater portion of our sales to subscription revenue.
A large bulk inventory purchase from one of our OEM partners in Q3 of 2021 were all contributing factors in the decrease in our year over year detection revenues in regards to our move towards subscription revenue, we are providing a new metric subscription annual recurring revenue.
Yes.
To help measure our progress.
Subscription E R.
The metric used by management to measure the growth of its recurring revenue from subscription transactions with our detection business customers. We have two versions of this metric the first subscription.
From installed subscriptions that are earning revenue from ads over the last month of the reporting period.
This metric the most recent calendar months revenue earned is multiplied by 12 months to provide us with an estimate of revenue that will be earned from our installed subscription customers over the next 12 months.
Subscription.
<unk> from installed customers was $161000.
End of Q3.
Conversion of our subscription metric.
Metric and subscription.
From book subscription agreements, which is calculated by multiplying the monthly revenue that will be earned by all book subscription agreement. Once they are installed times 12 months.
Please note that subscription agreements that are booked by each month and typically takes six to eight weeks to be installed at our customers' locations are subscription.
From booked subscription agreements as of the end of Q3 was $530000.
A difference of $369000 between these two metrics represent subscription agreements that were booked at the end of Q3 that had not yet been installed.
In fact, none of the subscription deals booked in Q3 have been installed or recognized as revenue in Q3.
We expect all of these Q3 booked but not yet installed arrangement to be installed by the end of 2022.
This is a good indicator of the early success of the subscription offering and demonstrate accumulative revenue can grow very rapidly in this model.
Please note that each of these metrics represent an estimate of future revenue over the next 12 months as our subscription contracts allow for cancellation by our customers with 30 days notice.
To date, we have not experienced any cancellations and we expect very low churn on these subscriptions.
Or should be viewed independently of revenue and does not represent a revenue under U S. GAAP on an annualized basis.
As it is an operating metric that can be impacted by contract start dates and.
Cancellations and renewal rates.
<unk> is not intended to be replacement for forecast of revenue.
Moving to our therapy segment Q3 therapy revenue was $2 million down 40% from $3 4 million in Q3 of 2021.
Within the therapy revenues product revenue was $671000 down 64% from $1 $9 million in Q3 of 2021, while revenue earned from service and supplies were $1 $3 million down 11% from $1 $5 billion in Q3.
Of 2021.
Moving to a discussion of our consolidated gross profits and gross margins. Our gross profit in Q3 was $4 4 million down 35% from $6 7 million.
Ago.
The lower gross profit this quarter was primarily due to the reduction in revenue as previously discussed.
Our gross profit margin for the third quarter of 2022 was 69% versus 72% in Q3 of last year.
The reduction in the overall margin was primarily driven by the decrease in gross margins in our therapy business that was partially offset by a slight increase in our detection business gross margin percentage.
Moving to operating expenses, our Q3 operating expenses were $8 $3 million down 6% from $8 $9 million in Q3, a year ago.
A decrease in operating expenses was primarily due to a reduction in our head count as we chose not to backfill some physicians that turnover.
Our Q3 operating loss was $4 million.
Seeing an increased loss of $1 8 million compared to $2 $2 million loss in Q3 of 2021.
Our increased loss was primarily a result of lower revenues, partially offset by the reduction in our operating expenses.
GAAP net loss for the third quarter of 2022 was $3 9 million or loss of <unk> 15 per basic and diluted share.
On a non-GAAP basis, our net loss for Q3 was $3 $9 million or loss of <unk> 15 cents per basic and diluted share.
Our Q3 non-GAAP adjusted EBITDA. This quarter was a loss of $3 4 million versus $1 $4 million in Q3, a year ago moving to the balance sheet as of September 32022, we had outstanding receivables of $8 5 million versus $10 2 million.
As of June 32022.
$1 $7 million reduction in our outstanding receivables is attributable to $1 $2 million of lower revenues by $5 million of stronger collections.
In some instances our focus on collecting past due balances and the quality of our receivables as a resulted in lower sales, particularly in our therapy business, which has some distributors that are still not as financially healthy as they were.
Prior to COVID-19.
Moving to inventory our net inventory as of September 32022 was $5 $6 million.
$6 million from June 30 of 2022, and $3 3 million as of September 32021, due to lower sales and the higher inventory purchases that were made in Q4 of last year in reaction to the supply shortages that existed and delivery of those purchases have been received.
2022.
As we move towards next year, we expect to reduce our inventory levels closer to their historical levels.
Moving to cash as of September 32022, we had cash and cash equivalents of $24 6 million a decrease of $2 6 million compared.
Compared to cash and cash equivalents of $27 2 million as of June 32022, and $35 8 million as of September 30 of 2021.
Cash and cash equivalents used during the third quarter was $2 $6 million.
$2 6 million of cash usage was the result of $2 7 million used in operations.
And $1 1 million used for Capex, partially offset by $2 million provided from financing inflows primarily related to the exercise of employee stock options. During Q3 and into Q4, we have been working to reduce spending and reaction to our evolving business model that Stacy discussed.
Earlier and have reduced our annual expenses on a go forward basis.
Of $3 million the.
<unk> of this reduction in spending has come from reducing our head count both through not back filling open positions and by a reduction in force that we took last week.
These actions, we have reduced our head count.
Ultimately, 17% from the beginning of the year.
Also taking a charge of about $125000 in the fourth quarter of 2022 associated with the reduction in force.
Does the majority of these actions were taking during Q4, we would expect to see only a slight reduction in our Q4 cash burn and then receive the full benefit beginning in Q1 of 2023.
This concludes the financial highlights portion of our presentation.
I would now like to turn the call back over to the operator to lead us through the Q&A.
Thank you very much ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone. We also are posing your question. Please pickup your handset if listing on a speaker phone to provide optimum sound quantity. Please hold falsely poll for questions.
Your first question is coming from per Ostlund of Craig Hallum capital.
<unk> is life.
Thank you good afternoon Stacy Steve.
Okay.
Let's start with radiology partners.
Thats obviously a.
That looks like a signature.
Win for you.
I guess I'd just.
Wanted to start with a little bit of maybe the backstory there was there.
<unk> been a customer to any extent before.
Was this something you see as a competitive win or a competitive takeaway.
And I guess, let's pair that with the solus agreement from not too long ago as well that expansion.
How critical too.
<unk> notable partners like these two.
Is the fact that you have a suite of products that you can go out with and have that have those partners not have to piecemeal it across.
Ross vendors.
Yeah.
Right yeah, thanks for that per.
So let me give you a little bit of background on the radiology partners relationship and we're obviously incredibly excited about the initial order we've received and the future potential prospects for this relationship just to kind of put it in perspective from kind of a size and scale perspective radiology.
Partners today controls the imaging or the reading of images for a total of around 50 million imaging exams, and thats kind of across all of modalities.
And for 22 million patients in the United States.
Today, they control the mammography mammography services for about $3 million of the total U S. Mammogram, so to close to 10% of the U S. Mammography market. They have 3000 radiologists and they serve 3000 sites with imaging services or in their own practice locations of which.
There are about 131.
They have coverage in all 50 states. They have onsite practices in 35 States and Theyre currently serving 17 of the 20 largest health systems in the United States. So obviously sort of much bigger scope and scale than anything else the company.
As ever announced or any other relationship in the company.
How this came about we do have some <unk>.
Products in some of our radiology partner sites today, that's kind of how it got started.
And this was a competitive win for us.
Excellent.
Yes.
Clearly youre going to be looking forward to see.
<unk>.
That agreement its not its not hard when you see the 3000 3000 locations.
And you see other.
Are there other wins that I think are legitimate wins vary.
Meaningful wins.
<unk> 3000 kind of dwarfs that I think to some degree.
I think it is important to understand that no revenue has been recognized from this order yet.
The great thing about this initial order.
Is that it is a recurring revenue model structure that is expected to build over time.
It's not a subscription model, but rather a mammography per exam pricing.
Pricing model and the implementation will be primarily on their internal cloud infrastructure.
So super exciting from that standpoint, as well in that it will over time contribute to our newly.
<unk> subscription AAR metric.
Absolutely.
Is it fair to say that radiology partners is taking your entire suite or are they focused predominantly on profound AI and perhaps risk at this point.
Entire suite as part of this.
Deal.
Fantastic.
So you mentioned in your in your prepared remarks and in the release.
You sold more subscriptions in Q3 than the first six months I think.
We're all starting to understand and we'll continue to better understand the market conditions of the revenue recognition aspect to that but.
Is it fair to say.
Given where numbers kind of came in for Q3, if you sold more subscriptions in Q3 than in the first six months of the year.
That may be this shift is turning into something.
Dare I say, a little more profound than you thought it might be six 912 months ago.
Yes, great use of the brand first of all.
And absolutely we do.
Do you see this accelerating a bit faster.
And part of that is increasing customer demand for the model and frankly part of that is that we.
We are positioning this greater amount at the time right as a better way to accelerate.
Winning business in what still is a challenging market environment now having said that.
It's a new model and we expect there to be some choppiness to it for a period of time, but overall we are.
Our positioning that positioning this as our model of choice I mean, if you look at the long term recurring revenue that it generates as I mentioned in the script over a five year period, we believe that it can generate at least twice the revenue rate. So this is a great model for the company and challenging optics and reporting in the short term obviously when.
It comes to revenue, but we really believe this is the model for the future and the model that can really build the growth of this company going forward.
Understood maybe.
Last one just to dovetail off of that Stacy so with the introduction of the <unk> metric and we'll see that unfold.
Over time, you also did mention backlog in your prepared remarks too and at.
At the risk of introducing metric overload is that is that something thats.
Somewhat quantifiable as well as backlog as opposed to more generic.
Pipeline, if you will or is that something that.
It's probably best for none of us to really focus on at this point.
Hey, Pierre Steve Sarno.
That is a metric that we can we can measure as we've said the.
There's two flavors of this.
First is based on what's been installed so think of that is contracted and installed in generating revenue in the most recent month and we take that that amount and multiply it by 12.
The other.
Patrick is contracted but not yet installed because theres a six to eight week delay.
And having it installed so.
That's an amount that we.
Reasonably believe would would flow in over the.
Over the fourth quarter, so that first metric is 161000.
And then.
Once everything from Q3's installed that.
That would jump it up to about 530000.
Sure.
That's helpful.
Yes, absolutely absolutely thanks for the color and thanks for the answers to the other questions as well.
Sure.
Thank you very much. Your next question is coming from Marie Thibault of BT AIG Murphy Your line is live.
Hey, Good afternoon. This is Sam LIBOR one for Murray.
For taking the questions here, maybe I can ask my first question on any more color or specifics you can give on how does the new commercial team a setup here.
The new partnership strategy.
And youre evaluating others. So any more details you can give on someone's behind the scenes work, there and maybe how the different approach.
We expect it to leverage growth going forward.
Sure.
Sure Sam So first off regarding the commercial setup, we are moving to a bit of an organizational structure. Prior to this our commercial team has sort of been combined into one organization. So both are as often and detection business under one leader and it's also been led kind of at the global.
Level, we really felt that we needed to bring greater focus on execution and particularly in the United States specific to the detection business.
So we are moving to a structure, bringing on a new national leader for the detection business. We're in the very final stages of doing that.
And that person will be much closer to the day to day execution of the sales opportunities salesforce customers and we think that that should be able to have a positive impact on our success in that geography.
I think you had a second question what was the second question just more on the partnerships and how you maybe the new team is evaluating some.
Potential new ones coming forward.
Yeah. So.
We are as I said in the script.
Moving to a model where we.
We're sort of in investing in this.
And what I would call deeper levels of relationships with key partners and collaborators in the market, where it's really more than just a transaction right. So it could include joint product development opportunities like what we're doing with solas clinical data sharing KOL input clinical trial in <unk>.
Steady work and even some elements of distribution and sales of the product that can complement our own sales team. So.
It's a little bit different way of going to market in a more partnership oriented model with some deeper level of investment in a number of partners relative to kind of the traditional way of knocking on the door of every hospital and radiology clinic and we think that this is a better model for the future to help us scale quicker and also too.
Enable us to have ultimately a lower cost structure for the company as well.
Okay very good.
Thanks for the added detail there and maybe just as a follow up.
Anything.
We can get on potential mix of subscription versus perpetual this quarter.
And maybe how youre expecting it to ship going forward I know youre still expecting a shift to some of the green no potentially maybe a faster acceleration here, but.
Something where we're expecting $75 25 subscription or perpetual.
Q4 or.
Any ballpark range as we can get there.
Sure. So when you talk about.
Mixed with the business is a little complicated in that.
When you recognize a perpetual license perpetual sale, you're taking 100% of that revenue basically upfront except for maybe a carve out on the maintenance piece.
On a on a subscription sale once you make that sale is first there is a six to eight week.
<unk> before you can even get it installed and then it begins to recognize revenue.
Recognizing basically on a daily or a monthly basis. So the amount of revenue that you get in any.
Particular month or quarter.
A fraction of what you would have on the perpetual so when you look at mix.
That way on a GAAP recognized revenue basis.
It's going to be very small.
And take time.
We've just begun selling those when you look at it so on a where is your where are you.
When you book these things.
You'd see.
The percentage there is.
Quite a bit.
Quite a bit higher and growing its more in the.
25.
30% plus range of what we're actually booking.
Great. Thanks for taking the questions sure Sam Thanks.
Thank you very much. Your next question is coming from Frank <unk> of Lake Street Capital Frank Your line is live.
Hey, Thanks for taking my questions maybe to start with one on radiology partners I was hoping you could just help us frame how many.
We'll call it the low hanging fruit opportunity.
For this partner and maybe it's helpful. If you could share I think along the lines of how many <unk> tomo is they have installed network wide or other figures like that to kind of gauge what the.
Overarching opportunity is within that partner.
Sure, yes, thanks for that Frank just to kind of put it in perspective, our radiology partners both owned their own imaging centers of which there are approximately 130 in the United States and then they provide mammography reading services for thousands of sites across the country I don't actually know.
How many total gantries that that represents.
Obviously, a very large number but it's kind of a hybrid model between owned and serviced accounts.
For the initial order that they have now given us.
Again that is a per exam type.
Model.
That will enable them to use our technology to.
Read hundreds of thousands of mammogram.
And.
If you think.
It's sort of about the total opportunity going forward as I mentioned earlier between what they own and what they service, it's about $3 million total mammogram.
Okay. That's helpful and then.
Maybe staying with radiology partners.
Assuming it's an exclusive partner, but maybe just speak to that whether or not they're working with any other AI technology and then I heard your comment on it was a competitive win so maybe speak to the primary reasons radiology.
Our radiology chose ikat other over other competitors.
Sure I mean, there's lots of ways to talk about exclusivity both ways right and we're not able to disclose the details about that at this time.
Relative to the competitive win I think it was really a combination of factors and not too dissimilar from.
The reasons why we win in the marketplace versus competitors not only the performance of our product, but even increasingly so we're finding that the.
The piece of the value proposition that is being amplified right now is the workflow and efficiency and productivity gains that can be had from profound AI again, given their scope and scale the ability to sort of streamline and make more efficient the reading of mammogram is an important factor along with connecting.
<unk> and interoperability factors.
So we believe those were the primary reasons why we're able to.
Come out with this collaboration.
Okay, Great and then maybe one on the last one on the cost savings side, where should we expect those savings to be most predominant when youre looking at 2023.
Really throughout operating expenses.
The primary area that that's coming out of.
It's kind of spread evenly across the board.
Okay. That's helpful. I'll stop there thanks, and congrats on all the progress and thanks, so much Frank.
Thank you, ladies and gentlemen, as a reminder, if you do have any questions. Please press star one on your phone handset.
Our next question is coming from Francois <unk> from Oppenheimer Francois Your line is live.
Alright, thanks for taking the questions just a couple here.
The 17%.
Head count.
Can you just maybe talk a little bit more about.
Who are these.
These people were or was it more sales is that in the back office.
As disclosed a little more about the account where it came from.
Yes. It is.
Definitely more.
Back office part of the of the business.
Looking for efficiencies ways to consolidate two things better we also have some some new.
<unk> systems that are coming online probably over the next one to three months.
Helping to make that possible as well.
Okay. Thank you and then in terms of the capital model or <unk>.
Subscription do you have clients that maybe we are under contract or just used to at a certain way where I'm just trying to gauge.
Sufficient seems to be moving maybe faster than anticipated at the same time do you have a base of large clients that.
We are happy with the capital model and do not want to move.
Yes, we do.
There's still the capital model today is still the predominant way, we're doing business, although it's obviously evolving and changing.
Rapidly here, but there are still a number of customers for example, all of our existing OEM agreements right that we have with the imaging company manufacturers right, but those are still for.
Perpetual capital purchases right and we don't see that changing in the immediate future and there are still a segment of the market that is actually preferring to have on prem hardware and prefers to buy.
In a license model right I think that will continue to change over time, but I think for.
A fair degree longer period that we're still going to see a portion of our business that will be in that model.
I would just add it's not really a model that you're cannibalizing what we have today.
What it's doing is it's really expanding our market opportunity.
To allow us to get to to customers, who don't want to buy perpetual.
Might have gone to a competitor so.
It's expanding we've had maybe.
Only.
Paul.
A handful of customers that have changed from perpetual.
To subscription. This is this is mostly new customers that we otherwise may not have one.
Okay, that's interesting and obviously I understand.
The issue with comparing.
Subscription to.
Capital and licenses just based on the revenue recognition in the six to eight weeks and then obviously less of an upfront, but when you you mentioned there on someone else's question of 25% to 30% in terms of accounts that are that's 25, 80% that are about I assume subscription at this point, but at kind of peak perform.
Thats I guess a peak.
Peak penetration that you would want to deal would it be like a 50 50 or ultimately based on the fact that within five years, you can double the opportunity with the goal to be to completely move to subscription.
As Stacy mentioned, we do have a number of OEM partners and others.
Probably would not move to subscription at least not anytime in the short term. So we kind of see this as.
Being over 50% at some point, but.
What it will ultimately end up remains to be seen but we've kind of modeled it out that 50% 60% range.
Okay, so you'd be almost halfway there already.
Well.
Yes.
It's the beginning right and it can be it can be choppy and it is a matter of.
Last time, we spoke we kind of spoke about license counts. So we tend to find that.
A tough way to measure.
And the IRR is definitely a better way of looking at it from a customer perspective so.
It's when you say we're there.
The business, we won this quarter right.
The business, we had this quarter, it's not where we are overall.
So a little bit of two different ways of thinking about it.
Okay, great well, thank you very much.
Yeah. Thanks, Craig.
Thank you. Your next question is coming from per Ostlund from Craig Hallum Capital. Your line is live.
Thank you.
Wanted to circle back to the <unk> trial since.
We didn't really talk about it a lot in the remarks.
You did mention.
That.
Could get some measure of airtime here at the society for neuro oncology I believe that.
As soon as next week.
If I remember correctly can.
Can you, let us know kind of where the enrollment stands on the trial.
<unk>.
This discussion at the conference what form is that can it take are we to the point, where I mean.
Is this kind.
Kind of poster ready type stuff or is it really preliminary and it's going to just kind of find its way into.
Discussions sort of AD.
AD hoc almost as much as anything at the conference right. Yeah. Thanks Fair. It is actually a formal poster presentation at the event. However, it is not a recurrent straight presentation right. It is a sort of safety feasibility type presentation, it's still a bit too early.
To have enough patients who have enough follow up to really have a recurrence rate type presentation.
This is really sort of an initial study looking at how well does this treatment work what are some of the technical aspects of how feasible is it.
So it's more along those lines so but it is a formal presentation at that meeting.
Okay and on the <unk>.
Enrolment side can you get into that.
Yeah, I mean the enrolment.
<unk> is still going.
A little bit slower than what we would've expected I will say that we're treating a fair degree of brain pant patience right, but not necessarily ones that are meet the criteria or end up being enrolled in.
The <unk> study.
So we did I think treat another patient during the previous quarter, we are bringing on some new sites that we.
<unk> to add to the study and in Q4, so so treating more brain patients, but not as many as we would've expected specific to the <unk> trial.
Okay excellent. Thank you for that sure.
Thank you very much and your next question is coming from David <unk> of JMP Securities. David Your line is live.
Yes, Hi, this is actually Danny on for Dave. Thanks for taking the questions. Just one quick one from me I was hoping you could just give us some color on the mix between profound AI density and risk for both the one time licenses as well.
Subscriptions and then just any commentary as far as emerging trends in that area would be great. Thank you.
Sure.
It's really hard to sort of breakout all the detail that Danny because there are about four or five different bundles of products that a customer could buy both in a perpetual license model and in a subscription and those carry each have a different price tag.
But what we can talk a little bit about is attachment rates.
Because I think there's some meaningful information to come from that particularly when it comes to attachment rate of our risk product, which historically has been fairly low and what we saw in Q3 was that we had about a 40% attachment rate of risk to our perpetual licenses. So that's evidence that we're having more success.
Leading with our bundles of products, our whole portfolio of innovation and we actually saw a 55.
Percent attachment of risk in the subscription models. So we're finding very good luck with positioning the bundles and the subscription model and the benefit of that too is that we're actually getting a higher than expected average selling price or monthly subscription price on the subscriptions than we initially anticipated.
To support it.
Great. That's very helpful. Thank you sure.
Thank you very much therapy to be no further questions in the queue on I'm going to hand back over to Stacy for any closing remarks. Thank.
Thank you operator, so in summary, I believe we have made strong progress in Q3 towards implementation of our strategic realignment of ikat, resulting in several significant changes in the way we're doing business that we really expect to generate greater growth potential.
<unk> about the progress progress we have made in the transformation of the AI business towards more partner based long term recurring revenue model that will also accelerate access to our lifesaving technology to many many more patients I look forward to updating you all next quarter as we continue to scale our business enhance our team.
And drive towards substantial increase shareholder value. Thank you all and have a great night.
Thank you ladies and gentlemen, 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.