ICAD

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iCAD, Inc. (ICAD)

Q42012 Earnings Call

February 20, 2013 10:00 am ET

Executives

Anne Marie Fields - Investor Relations, Lippert/Heilshorn & Associates, Inc.

Ken Ferry - President, Chief Executive Officer

Kevin Burns - Executive Vice President, Finance and Chief Financial Officer

Analysts

Bill Bonello - Craig-Hallum

Brian Marckx - Zacks Investment Research

Jeb Terry - Aberdeen Investments

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter and year-end 2012 iCAD financial results conference call. My name is Shanae and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today, Ms. Anne Marie Fields, LHA. Please proceed, ma'am.

Anne Marie Fields

Thank you, Shane. Good morning, everyone. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from iCAD are Ken Ferry, Chief Executive Officer; and Kevin Burns, Executive Vice President of Finance and Chief Financial Officer.

Following the market close yesterday, iCAD announced financial results for the fourth quarter and year-end 2012. If you have not received this news release or if you would like to be added to the company's distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of iCAD. I encourage you to review the company's past and future filings with the Securities and Exchange Commission, including, without limitation, the company's forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 20, 2013. iCAD undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

So with that said, I would now turn the call over to Ken Ferry. Ken?

Ken Ferry

Thanks, Anne Marie, and good morning, everyone, and thanks for joining us. Our financial results for the fourth quarter of 2012 reflect continued progress with the execution of our oncology strategy. We were particularly pleased with the entire second half of the year as we achieved total revenues of $16 million which represents 30% revenue growth over the first half of the year with expenses increasing only 3%.

This combination of strong revenue growth and prudence expense management, enabled us to achieve adjusted EBITDA profitability for the second half of the year and positive cash flow for the fourth quarter. The major catalyst was this progress was growth in therapy product sales. Second half therapy revenues of $7.5 million more than doubled versus the first half of the year and well exceeded therapy revenues for all of 2011.

The market drivers for therapy growth have come from the growing interest in breast intraoperative radiation therapy or IORT and from increased demand for the use our system in the treatment of nonmelanoma skin cancers. The fourth quarter 2012 was the year's strongest for our cancer detection products.

The increased demand versus earlier quarters was primarily in service and to some extent digital mammography including our new product PowerLook AMP and by increased annual license sales. So to summarize, we are pleased with the progress in the execution our oncology strategy and the resulting improvement in key financial metrics that have followed.

With that, I will turn the call over to Kevin Burns, our CFO who will provide your with more financial detail on the 2012 fourth quarter and full year financial results. After Kevin's remarks, I will come back and provide a brief business update before we take your questions. Kevin?

Kevin Burns

Thank you, Ken and good morning, everyone. As Ken mentioned, we saw significant improvement in many financial metrics, including strong revenue growth from our cancer therapy products, a second consecutive quarter of adjusted EBITDA profitability and positive cash flow for the fourth quarter. We are pleased with our performance as these results confirm that our strategy is working and they give us even greater confidence in the future potential of our platform.

As discussed on previous calls, we enhanced our revenue reporting to reflect the two main oncology areas in which we operate, specifically cancer detection and therapy. Our cancer detection revenue includes all of our image analysis and workflow products, including mammography, MRI and CT CAD platforms, as well as service revenue from these product lines. Our cancer therapy revenue encompasses electronic brachytherapy, related accessories and service and source agreements.

Now let's move on to review of our revenue for the fourth quarter. Total revenue for the fourth quarter was $7.8 million, an increase of 18% from the fourth quarter of 2011 driven by 94% increase in our therapy revenue, offset by a 6% decrease in cancer detection revenue. The fourth quarter of 2012 was the year's strongest quarter for our cancer detection products with revenue of $4.7 million, including product revenue of $2.5 million and service revenue of $2.2 million.

The decrease in product revenue when compared to last year's fourth quarter was primarily due to lower sales of our digital mammography products as a result of the loss of market shares by our OEM partners, the near completion of the conversion of this market from film to digital, as well as product mix as we transition our revenue and business model to focus on product upgrades and annual service contracts.

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