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iCAD, Inc. (ICAD)
Q3 2012 Earnings Call
October 31, 2012 10:00 AM ET
Anne Marie Fields - Investor Relations, LHA
Kenneth Ferry - President and Chief Executive Officer
Kevin Burns - Executive Vice President, Finance and Chief Financial Officer
Jeb Terry - Aberdeen Investment
Brian Marckx - Zacks Investment
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Anne Marie Fields
Thank you. Good morning. 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, Finance and Chief Financial Officer.
Following the market closed yesterday, iCAD announced financial results for the 2012 third quarter. 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 of 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, October 31, 2012. 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'll now turn the call over to Ken.
Thanks, Anne Marie. And good morning, everyone, and thanks for joining us. During the third quarter, we demonstrated solid progress on our strategic plan as evidenced by the strong revenue growth with our cancer therapy products and continued financial discipline, including adjusted EBITDA profitability and an ongoing reduction in cash uses.
In fact, cancer therapy revenues were nearly 2.5 times what we were in Q3 of last year, and almost 3 times what we achieved in Q2 of this year. This is very encouraging related to hard work and ongoing investments that we've made in executing our oncology strategy since early 2011.
Conversely, we had a softer quarter than originally anticipated in cancer detection software, as we continue to shift this business to a more balanced mix of new business in recurring revenue. Overall, however, we're quite pleased to achieve over $8 million in total revenue for the quarter with solid progress with other important financial metrics on our income statement and balance sheet.
I'll now turn the call over to Kevin Burns, our CFO, who will provide you with more financial detail on the third quarter and nine months performance year-to-date. Kevin?
Thank you, Ken, and good morning, everyone. As Ken mentioned, we saw significant improvement in many financial metrics, including significant revenue growth in our cancer therapy products and positive adjusted EBITDA. We are pleased with these results, as they confirm that our strategy is working, and it gives us even greater confidence in the future potential of our platform.
As previously discussed, we enhanced our revenue reporting to reflect the two main oncology businesses we operate in, specifically cancer detection and therapy. Our cancer detection revenue includes all of our image analysis and workflow products, including mammography, MRI and CT CAD, as well as service revenue from these product lines, while our cancer therapy revenue encompasses electronic brachytherapy-related accessories and service and source agreement. Please note that all comparisons are made with the comparable 2011 period, unless otherwise, noted.
Now, let's move on to a review of our revenues for the third quarter. Overall, total revenue for the third quarter was $8.2 million, an increase of 2% from the third quarter of 2011. This increase was largely due to the significant growth in our therapy products, which was offset by weakness in cancer detection.
For the third quarter, cancer detection revenue was $3.8 million, down 40% from a year ago. The decrease was primarily due to lower sales of our digital mammography products as a result of the loss of market shares by our OEM partners in digital mammography, the near completion of the conversion of this market from film to digital, as well as product mix as we transition our business model to focus on new product upgrades and annual service contracts.
From a recurring revenue standpoint, we are seeing growth in a number of digital mammography products under service and subscription agreement. Although, this growth is partially offset by a reduction in the revenue generated from our analog service agreements as the renewal rates on the analog products continue to decline.
Year-to-date, cancer detection revenue was down 29% to $12.6 million from the same period of 2011. Again, this decrease reflects the slowing in the transition of mammography from film to digital as we near the completion of this cycle. Therapy revenue continued to post strong growth, increasing 146% to $4.4 million from the third quarter of 2011. Product sales, which include controllers, applicators and other accessories, increased 179% to $3.8 million.
In the third quarter, we sold a record 12 controllers and a record 190 balloon applicators, up from 5 controllers and 41 balloon applicators in the third quarter of 2011. Our therapy service and source revenue continued to increase and grew 47% year-over-year to approximately $650,000 in the third quarter of 2012.