Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ICAD > SEC Filings for ICAD > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for ICAD INC

Form 10-Q for ICAD INC


13-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Certain information included in this Item 2 and elsewhere in this Form 10-Q that are not historical facts contain forward looking statements that involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, uncertainty of future sales and expense levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, regulatory changes and requirements applicable to our products, product market acceptance, possible technological obsolescence of products, increased competition, integration of the acquired businesses, the impact of litigation and/or government regulation, changes in Medicare reimbursement policies, competitive factors, the effects of a decline in the economy in markets served by the Company and other risks detailed in the Company's other filings with the Securities and Exchange Commission. The words "believe", "plan", "intend", "expect", "estimate", "anticipate", "likely", "seek", "should" "would", "could" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made.

Results of Operations

Overview

iCAD is an industry-leading provider of advanced image analysis, workflow solutions and radiation therapy for the early identification and treatment of cancer.

The Company has grown primarily through acquisitions including CADx, Qualia Computing, CAD Sciences and Xoft to become a broad player in the oncology market. Its industry-leading solutions include advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, a comprehensive range of high-performance, upgradeable Computer-Aided Detection (CAD) systems and workflow solutions for mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography CT, and an isotope-free cancer treatment platform technology.

The Company intends to continue the extension of its superior image analysis and clinical decision support solutions for mammography, MRI and CT imaging. iCAD believes that advances in digital imaging techniques should bolster its efforts to develop additional commercially viable CAD/advanced image analysis and workflow products. The Company's belief is that early detection in combination with earlier targeted intervention will provide patients and care providers with the best tools available to achieve better clinical outcomes resulting in a market demand that will drive top line growth.


Table of Contents

The Company's headquarters are located in Nashua, New Hampshire, with manufacturing and contract manufacturing facilities in New Hampshire and Massachusetts, a research and development facility in Ohio and, and, an operation, research, development, manufacturing and warehousing facility in San Jose, California.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition, results of operations, and cash flows are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to accounts receivable allowance, inventory valuation and obsolescence, intangible assets, income taxes, warranty obligations, contingencies and litigation. Additionally, the Company uses assumptions and estimates in calculations to determine stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a comprehensive list of the Company's critical accounting policies, reference should be made to the Annual Report on Form 10-K for the year ended December 31, 2011 filed on March 9, 2012.


Table of Contents

Three months ended September 30, 2012 compared to the three months ended September 30, 2011

Revenue:

Three months ended September 30:

Total revenue for the three month period ended September 30, 2012 was $8.2 million compared with revenue of $8.1 million for the three month period ended September 30, 2011, an increase of $0.1 million, or 1.6%. The increase in revenue was primarily due to an increase from the electronic brachytherapy products and an increase in service and supply revenue offset by a reduction in digital, MRI and film based revenues.

                                           Three months ended September 30,
                                    2012        2011        Change        % Change
        Digital & MRI revenue      $ 1,617     $ 3,791     $ (2,174 )         (57.4 )%
        Film based revenue             406         616         (210 )         (34.0 )%
        Electronic Brachytherapy     3,756       1,347        2,409           178.9 %
        Service & supply revenue     2,404       2,298          106             4.6 %

        Total revenue              $ 8,183     $ 8,052     $    131             1.6 %

Our Digital and MRI CAD revenue for three month period ended September 30, 2012 decreased $2.2 million or 57.4%, to $1.6 million compared to revenue of $3.8 million in the three month period ended September 30, 2011. The decrease was due primarily to decreases in sales to our OEM partners as a result of decreases in market share in their business combined with a declining market opportunity in the US digital CAD market.

Revenue from iCAD's film based products decreased 34.0% or $210,000, to $406,000 in the three month period ended September 30, 2012 from $616,000 in the three month period ended September 30, 2011. This decrease was primarily attributed to the decline in sales of our TotalLook MammoAdvantage. The TotalLook MammoAdvantage product is used for digitizing film based prior mammography exams for comparative reading and is sold to further optimize workflow in a digital mammography environment. This decrease continues to reflect the expected decrease in demand for film-based products and accessories as the marketplace continues to transition to digital technologies.

Revenue from our Axxent Electronic Brachytherapy System and accessories was $3.8 million in the three month period ended September 30, 2012 an increase of 179.0% or $2.4 million from $1.4 million for the three month period ended September 30, 2011. Demand for the Axxent Electronic Brachytherapy System improved during the quarter, with sales increases for the controllers as well as the related accessories. Demand for for the Axxent Electronic Brachytherapy System has continued to increase primarily for its use in the intra-operative radiation therapy ("IORT") market, particularly the breast IORT market. We believe the sales growth for electronic brachytherapy products was also enhanced by continued sales increases for balloon and surface applicators, which we believe is based on market adoption of the systems resulting in increased procedure volumes.


Table of Contents

Service and supply revenue increased 4.6%, or $106,000 in the three month period ended September 30, 2012, to $2.4 million compared to $2.3 million in three months ended September 30, 2011. Service and supply revenue relating to our digital CAD and TotalLookMammoAdvantage systems was approximately $1.8 million for the three month period ended September 30, 2012 and decreased slightly as compared to the three months ended September 30, 2011. Service and supply revenue in the third quarter of 2012 included approximately $647,000 related to the Axxent Electronic Brachytherapy products, which represented an increase of $206,000 or 47.0% as compared to $441,000 in the three months ended September 30, 2011. Service and supply revenue related to our electronic brachytherapy products increased primarily due to increases in service and source agreements related to sales of the electronic brachytherapy system. We expect service and supply revenue for our electronic brachytherapy products to increase as our installed base increases.

Gross Profit:



                                                    Three months ended Sept 30,
                                           2012        2011       Change        % Change
   Products                               $ 1,527     $ 1,280     $   247            19.3 %
   Service & supply                           541         650        (109 )         (16.8 )%
   Amortization of acquired intangibles       233         233          -              0.0 %

   Total cost of revenue                  $ 2,301     $ 2,163     $   138             6.4 %

   Gross profit                           $ 5,882     $ 5,889     $    (7 )          (0.1 )%

Gross profit for the three month period ended September 30, 2012 was $5.9 million, or 71.9% of revenue as compared to $5.9 million or 73.1% of revenue in the three month period ended September 30, 2011. Gross profit percent decreased primarily due to changes in the mix of business driven by the increases in revenues from electronic brachytherapy products, which has a lower gross profit percentage than CAD products. Gross profit percent is also impacted by amortization of acquired technology, and costs related to the fixed cost of our manufacturing operation.

Operating Expenses:



                                                   Three months ended Sept 30,
                                         2012         2011         Change        Change %
  Operating expenses:
  Engineering and product development   $ 1,971     $  2,630      $    (659 )        (25.1 )%
  Marketing and sales                     2,842        3,108           (266 )         (8.6 )%
  General and administrative              1,710        2,147           (437 )        (20.4 )%
  Contingent consideration                   -        (3,800 )        3,800          100.0 %
  Goodwill impairment                        -        26,828        (26,828 )       (100.0 )%
  Loss on indemnification asset              -           508           (508 )       (100.0 )%

  Total operating expenses              $ 6,523     $ 31,421      $ (24,898 )        (79.2 )%


Table of Contents

Engineering and Product Development. Engineering and product development costs for the three month period ended September 30, 2012 decreased by $0.7 million or 25%, from $2.6 million in 2011 to $2.0 million in 2012. The decrease in engineering and product development costs was primarily due to a decrease in personnel expenses of approximately $200,000 combined with consulting costs, and expenses for CAD related reader studies of approximately $430,000 that were incurred in the three months ended September 30, 2011.

Marketing and Sales. Marketing and sales expenses decreased by $0.3 million or 9%, from $3.1 million in the three month period ended September 30, 2011 to $2.8 million in three month period ended September 30, 2012. The decrease in marketing and sales expenses primarily resulted from reductions in personnel, third party commissions and travel related expenses of approximately $250,000 as compared to the three months ended September 30, 2011.

General and Administrative. General and administrative expenses decreased by $0.4 million or 20%, from $2.1 million in the three month period ended September 30, 2011 to $1.7 million in the three month period ended September 30, 2012. The decrease in general and administrative expense is primarily due approximately $240,000 of legal expenses related to ongoing patent litigation that was settled in December 2011, which was incurred in the three months ended September 30, 2011 and reductions in facility costs of $126,000 for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 and a decrease in amortization expense of $96,000 in the three months ended September 30, 2012 as compared to 2011.

Contingent Consideration. Contingent consideration represents a gain of $3.8 million in the quarter ended September 30, 2011, as the Company determined that the revenue thresholds relating to the Xoft transaction as described in Note 4 of the accompanying Condensed Consolidated Financial Statements were unlikely to be met. There were no changes recorded during the three months ended September 30, 2012.

Goodwill impairment. We recognized an impairment charge of approximately $26.8 million in the three month period ended September 30, 2011. Due to the sustained decline in the market capitalization of the Company as of September 30, 2011, an impairment analysis was performed. The impairment charge was the result of determining the implied fair value of goodwill of our single reporting unit, which was less than the carrying value at September 30, 2011.

Loss on indemnification asset. The Company recorded an indemnification asset in connection with the acquisition of Xoft in 2010 in the period ended September 30, 2011. The loss of $508,000 represented a loss on the asset related to the fair value of the underlying stock.

Other Income and Expense:



                                                    Three months ended September 30,
                                              2012        2011       Change       Change %
Gain from change in fair value of warrants   $  126      $   -       $   126          100.0 %
Interest expense                               (883 )      (111 )       (772 )        695.5 %
Other income (expense)                          (67 )         6          (73 )      (1216.7 )%

                                             $ (824 )    $ (105 )    $  (719 )        684.8 %


Table of Contents

Gain from change in fair value of Warrants. The $126,000 gain from the change in fair value of the warrants for the period ended September 30, 2012 resulted from a decrease in the fair value of the warrants under the binomial lattice based valuation methodology, due primarily to an decrease in volatility, which is one of the key assumptions in determining the value of the warrants.

Interest Expense. Interest expense increased by $772,000 or 696% for the three month period ended September 30, 2012 as compared to interest expense of $111,000 in the three month period ended September 30, 2011. Interest expense is due primarily to $786,000 of interest expense related to credit facility entered into with certain entities affiliated with Deerfield Management in December 2011 described in Note 3 of the accompanying Condensed Consolidated Financial Statements. Interest related to the Hologic and Zeiss settlement obligations was $97,000 as compared to $111,000 in the third quarter of 2011.

Other Income and (Expense). Other expense of $67,000 is primarily related to the disposal of assets related due to the move of our California facility in September 2012. Interest income reflects income earned from our money market accounts which increased in 2012.

Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011

Revenue:

Nine months ended September 30:

Total revenue for the nine month period ended September 30, 2012 was $20.5 million compared with revenue of $22.0 million for the nine month period ended September 30, 2011, a decrease of $1.6 million, or 7.2%. The decrease in revenue was primarily due to a reduction in digital, MRI and film based revenues offset by increases from the electronic brachytherapy products and an increase in service and supply revenue.

                                           Nine months ended September 30,
                                    2012         2011        Change        % Change
       Digital & MRI revenue      $  6,128     $ 10,751     $ (4,623 )         (43.0 )%
       Film based revenue            1,198        1,670         (472 )         (28.2 )%
       Electronic Brachytherapy      6,107        3,042        3,065           100.8 %
       Service & supply revenue      7,024        6,579          445             6.8 %

       Total revenue              $ 20,457     $ 22,042     $ (1,585 )          (7.2 )%

Our digital and MRI CAD revenue for the nine month period ended September 30, 2012 decreased $4.6 million or 43%, to $6.1 million compared to revenue of $10.8 million in the nine month period ended September 30, 2011. The decrease was due primarily to decreases in sales to our OEM partners as a result of decreases in market share in their business combined with a declining market opportunity in the U.S. digital CAD market.

Revenue from iCAD's film based products decreased 28% or $472,000, to $1.2 million in the nine month period ended September 30, 2012, from $1.7 million in the nine month period ended September 30, 2011. This decrease was primarily attributed to the decline in sales of our TotalLook MammoAdvantage. The TotalLook MammoAdvantage product is used for digitizing film based prior mammography exams for comparative reading and is sold to further optimize


Table of Contents

workflow in a digital mammography environment. This decrease continues to reflect the expected decrease in demand for film-based products and accessories as the marketplace continues to transition to digital technologies.

Revenue from our Axxent electronic brachytherapy system and accessories was $6.1 million in the nine month period ended September 30, 2012 an increase of 100% from $3.0 million for the nine month period ended September 30, 2011. Demand for the Axxent electronic brachytherapy System improved during the quarter, with sales increases for the controllers as well as the related accessories. Sales growth for electronic brachytherapy products was also enhanced by continued increases in the sales of balloon and surface applicators, which reflects increased procedure volumes.

Service and supply revenue increased 6.8% or $445,000 in the nine month period ended September 30, 2012, to $7.0 million from $6.6 million in nine month period ended September 30, 2011. Service and supply revenue relating to our digital CAD and TotalLookMammoAdvantage systems was approximately $5.3 million for the nine month period ended September 30, 2012 and remained flat as compared to the nine month period ended September 30, 2011. Service and supply revenue in the third quarter of 2012 included approximately $1.8 million related to the Axxent electronic brachytherapy products, which represented an increase of $560,000 or 45% as compared to $1.2 million in the nine month period ended September 30, 2011. Service and supply revenue related to our electronic brachytherapy products increased primarily due to increases in service agreements related to sales of the electronic brachytherapy system. We expect service and supply revenue for our electronic brachytherapy products to increase as sales of the Axxent Controller system increase.

Gross Profit:



                                                    Nine months ended Sept 30,
                                          2012         2011        Change        % Change
  Products                              $  3,603     $  3,627     $    (24 )          (0.7 )%
  Service & supply                         1,678        2,191         (513 )         (23.4 )%
  Amortization of acquired technology        698          699           (1 )          (0.1 )%

  Total cost of revenue                 $  5,979     $  6,517     $   (538 )          (8.3 )%

  Gross profit                          $ 14,478     $ 15,525     $ (1,047 )          (6.7 )%

Gross profit for the nine month period ended September 30, 2012 was $14.5 million, or 70.8% of revenue as compared to $15.5 million or 70.4% of revenue in the nine month period ended September 30, 2011. Gross profit percent remained flat despite the decrease in revenue, due to improved service and supply margins due to ongoing expense reductions which reduced fixed operating costs, offset by a change in the product mix for electronic brachytherapy products which has a lower gross profit percentage than CAD products. Gross profit percent is impacted by amortization of acquired technology, and costs related to the fixed cost of our manufacturing operation, as well as the mix of product sales.


Table of Contents

Operating Expenses:



                                                   Nine months ended Sept 30,
 Operating expenses:                     2012         2011         Change        Change %
 Engineering and product development   $  6,158     $  8,710      $  (2,552 )        (29.3 )%
 Marketing and sales                      7,976       10,780         (2,804 )        (26.0 )%
 General and administrative               4,946        8,364         (3,418 )        (40.9 )%
 Contingent consideration                    -        (4,900 )        4,900          100.0 %
 Goodwill impairment                         -        26,828        (26,828 )       (100.0 )%
 Loss on indemnification asset               -           801           (801 )       (100.0 )%

 Total operating expenses              $ 19,080     $ 50,582      $ (31,502 )        (62.3 )%

Engineering and Product Development. Engineering and product development costs for the nine month period ended September 30, 2012 decreased by $2.6 million, or 29%, from $8.7 million for the same period in 2011 to $6.2 million for the same period in 2012. The decrease in engineering and product development costs was primarily due to decreases in personnel costs of approximately $1.0 million as compared to 2011, due to expense reduction initiatives in 2011, approximately $1.1 million in costs for a reader study that was incurred during the nine months ended September 30, 2011, and approximately $400,000 of costs related to the Axxent Flexishield that were incurred during the nine months ended September 30, 2011.

Marketing and Sales. Marketing and sales expenses decreased by $2.8 million or 26%, from $10.8 million in the nine month period ended September 30, 2011 to $8.0 million in nine month period ended September 30, 2012. The decrease in marketing and sales expenses primarily resulted from reductions of approximately $2.5 million in personnel and related expenses and approximately $300,000 in other overhead expenses due to operating expense reductions as a result of cost saving initiatives implemented in the second quarter of 2011.

General and Administrative. General and administrative expenses decreased by $3.4 million, or 41%, from $8.4 million in the nine month period ended September 30, 2011 to $5.0 million in the nine month period ended September 30, 2012. The decrease in general and administrative expense is primarily due to reductions in personnel costs of approximately $900,000 resulting primarily from cost saving initiatives implemented in the second quarter of 2011, approximately $1.4 million in legal expenses related to on-going patent litigation that was settled in December 2011, approximately $200,000 of transaction related costs incurred in the first quarter of 2011 due to the acquisition of Xoft, and the balance of $900,000 in other cost reductions during 2012 from ongoing expense controls.

Contingent Consideration. Contingent Consideration represents a gain of $4.9 million in the nine months ended September 30, 2011, as the Company determined that the revenue thresholds relating to the Xoft transaction as described in Note 4 of the accompanying Condensed Consolidated Financial Statements, were unlikely to be met. There were no changes recorded during the nine months ended September 30, 2012.

Goodwill impairment. We recognized an impairment charge of approximately $26.8 million in the three month period ended September 30, 2011. Due to the sustained decline in the market capitalization of the Company as of September 30, 2011, an impairment analysis was performed. The impairment charge was the result of determining the implied fair value of goodwill of our single reporting unit, which was less than the carrying value at September 30, 2011.


Table of Contents

Loss on indemnification asset. The Company recorded an indemnification asset in connection with the acquisition of Xoft in 2010 during the nine months ended September 30, 2011. The loss of $801,000 represented a loss on the asset related to the fair value of the underlying stock.

Other Income and Expense:



                                                        Nine months ended September 30,
                                                2012          2011         Change        Change %
Gain from change in fair value of warrants    $    512       $   -        $    512           100.0 %
Interest expense                                (2,549 )       (327 )       (2,222 )         679.5 %
Other income (expense)                             (33 )         24            (57 )        (237.5 )%

                                              $ (2,070 )     $ (303 )     $ (1,767 )         583.2 %

Gain from change in fair value of warrants. The $512,000 gain from change in fair value of the warrants for the nine months ended September 30, 2012 resulted from a reduction in the fair value of the Warrants under the binomial lattice based valuation methodology, due primarily to the decline in our stock price and a decrease in volatility, which are the primary determinants of the value of the warrants. We expect continued variability in the value of the warrants due to the nature of the underlying assumptions that determine the value of warrants.

Interest Expense. Interest expense increased by $2.2 million or 680% for the nine month period ended September 30, 2012 as compared to interest expense of $327,000 in the nine month period ended September 30, 2011. Interest expense was primarily due to $2.2 million of interest expense related to the financing obligation established in January 2012. Interest related to the Hologic and . . .

  Add ICAD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ICAD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.