ICAD Inc

NASDAQ:ICAD

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the iCAD, Inc. Second Quarter 2024 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Rosalyn Christian of Investor Relations. The floor is yours.

[Rosalyn Christian]

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for iCAD's Second Quarter 2024 Earnings Call. On the call today, we have Dana Brown, our President and Chief Executive Officer; and Eric Lonnqvist, our Chief Financial Officer.

Before turning the call over to Dana, 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 iCAD's 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. iCAD undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Also, please note that management will refer to certain non-GAAP financial measures. Management believes that these measures provide meaningful information for investors and reflects 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.

And with that, I'll turn the call over to Dana.

[Dana Brown, executive]

Thank you, Rosalyn, and good afternoon, everyone. I opened our last call recapping the progress we have made executing a 3-phase transformation plan. We completed Phases 1 and 2, in which we focused on stabilizing our cash burn, strengthening our leadership team and divesting the Xoft business. Phase 3, investing in growth initiatives, began in first quarter 2024 with a focus on expanding into key accounts and new markets with our existing solutions. This phase is focused on maximizing revenue from our sizable installed base, upgrading customers to new versions, including the transition to cloud or SaaS, and accelerating deployment across large national accounts.

This quarter continued the strategic momentum from Q1, during which we secured numerous new deals, announced the commercial availability of our ProFound Cloud platform and reported growth in our ARR metrics. I'm pleased to announce Q2 was another successful quarter for iCAD, with revenue growth of 21% compared to the second quarter of 2023.

Before we dive into the highlights of this quarter, let's take a moment to step back and review the sizable market opportunity ahead of us and how iCAD is positioned for long-term growth.

First, iCAD is the leading provider of AI-powered breast cancer detection solutions. Our technology is backed by over 50 clinical studies and has received global clearances, including FDA clearance, CE marking and Health Canada licensing. With a 52% reduction in reading time and enhanced clinical performance, our solutions deliver superior accuracy and efficiency, which we believe significantly elevates us above our peers.

Second, we all need to keep sight of the fact that the market for AI in mammography is vastly underpenetrated, with only 37% of U.S. mammography sites currently using AI. This presents a substantial opportunity for iCAD to expand its market leadership globally.

Third, while we're still a relatively small company, we have a global presence, with more than 4,000 lifetime customers across 50 countries.

Fourth, our strategic partnerships, including a 20-year collaboration with Google Health, enhanced the strength and precision of our technology and expand access to millions of women and providers worldwide. These partnerships not only validate our technology, but also provide a robust platform for future innovation and growth.

And finally, with the release of our cloud platform, we're at the front end of evolving to a SaaS model. This shift is not only creating a more robust service offering for our customers given its ease of integration and faster deployment, but will also create a more predictable, high-margin economic engine. It will take some time, but as SaaS grows sequentially as a percentage of our revenue, this transformation should ultimately drive enhanced profitability and cash flow. While early days, the adoption of our SaaS offering has been going better than planned. With our leading technology, significant market potential, global scale, strong partnerships and exciting strategic shift to SaaS, iCAD is well positioned to capitalize on the vast opportunities ahead.

Now let's discuss the Q2 deal highlights. In the second quarter, we closed 60 perpetual deals, 29 subscription deals and 10 cloud deals.

Some of these included Windsong Radiology, one of US Radiology Specialists Inc.'s national network of premier providers of diagnostic imaging services. They signed a 3-year deal for ProFound Detection and ProFound Density on ProFound Cloud. Windsong provides over 100,000 exams a year.

Steinberg Diagnostic, located in Nevada, reduced their hardware footprint and migrated to iCAD's cloud platform. In fact, their CIO noted it was the smoothest cloud conversion they had experienced. Steinberg provides over 75,000 annual exams and made a 4-year commitment for ProFound Detection and ProFound Density.

Baylor Scott & White Health System signed a 3-year subscription agreement for 8 of their sites, securing a long-term commitment for ProFound Detection 2D and 3D.

We closed our first opportunity with Change Healthcare, one of our PACS partners for Washington Hospital in California. This was also a subscription deal.

And through our Ferrum partnership, we're expanding at Sutter Health in Northern California. We're expanding to 4 more locations for a total of 8 locations out of 31 using iCAD. This is a cloud deal for us, and we're pleased to report they're experiencing very fast turnaround times, under 4 minutes round trip. We've also improved our cancer detection rate, from 4.8 to 6.3 per 1,000, a 30% improvement.

Moving to partnership updates. In April, we announced our partnership with Densitas. Through this partnership, iCAD will be reselling intelliMammo and intelliMaven, products designed to offer a scalable, sustainable, quality assurance system tailored for mammography facilities to maximize operational efficiency, optimize compliance with the FDA's Mammography Quality Standards Act EQUIP and meet ACR accreditation standards.

Densitas' operational AI solutions intelliMammo and intelliMaven, together with iCAD's AI-powered Breast Health Suite, elevate the standard for image quality, screening and diagnostic accuracy and comprehensive care with state-of-the-art AI innovations. This synergy ensures that every woman receives the most precise and personalized care journey possible.

In November, we announced our intent to partner with CancerIQ, and we formally executed this partnership agreement in April. CancerIQ helps providers traverse the challenges of managing cancer risk assessments to offer more personalized, evidence-based care pathways that lead to early cancer detection and prevention. Integrated with leading EHR workflows, CancerIQ's lifetime risk calculator offers Tyrer-Cuzick scores 7 and 8 scale and NCCN Guidelines. Coupled with iCAD's density and short-term AI risk from the ProFound suite, clinicians will have a clear picture of a patient's future breast cancer risk and if breast cancer is detected today. Through this partnership, and the combination of our solutions, we will provide a seamless way to uniquely inform physicians and patients of cancer risk across a variety of assessment models spanning from 1 year to lifetime risk, leading to earlier detection of breast cancer when treatments work best, are less invasive and costly and outcomes are improved.

In second quarter, we also expanded iCAD's global reach. We secured a deal for 8 detection and density licenses to a prestigious health group in Dusseldorf, Germany. We have a growing pipeline for our cloud-delivered solutions in Europe, Israel and Arab Emirates, with several of the opportunities being quite large. Availability of iCAD's commercial cloud platform also enables us to target small practices that we were not able to reach with our previous on-prem deployment model. And lastly, expansion opportunities are well underway in Chile, Argentina, Mexico and Japan. We expect to be active in these countries in the next 12 months.

Turning now to marketing and a quick review of our second quarter conference and publication activity. In April, we've participated in SBI, the Society of Breast Imaging Symposium held in Montreal, Canada. With over 1,600 attendees, nearly 90% of which are trained breast imagers, this is the largest dedicated meeting for key iCAD targets. This show delivers strong leads to our sales pipeline and advances the stages of deals and progress.

Over the course of the show, our team gave over 100 demos of the ProFound suite of solutions. Of note, Dr. Sherwin Chiu, a Breast Imaging Fellow at Washington University School of Medicine, received the Wendell Scott Research Award for his paper, The “Impact of Clinical Implementation of an Artificial Intelligence Program on Screening Mammography Outcomes”, which highlights the potential of AI-CAD to improve cancer detection rates and recall rates in clinical settings within the U.S. The award is presented to the most outstanding abstract submitted by a Breast Imaging Fellow to the symposium.

In May, we participated in HCP, the Health Connect Partners' Radiology and Imaging Reverse EXPO in Dallas. The audience' focus is radiology and imaging directors, health care administrators and executives. It's a more intimate and exclusive setting, with only 90 attendees.

We had over 50 meetings, which resulted in several new larger opportunities that are underway in the sales process.

In May, we also participated in our gantry partner's Siemens Innovations for Healthcare 2024 in Orlando, Florida. Over 900 of Siemens customers were present.

And lastly, to round out the quarter, in June, we participated in another important and large show for us, SIIM, the Society for Imaging Informatics in Medicine. With an audience of over 1,500 attendees, it's a very technically focused show with an audience of clinicians, imaging IT professionals, scientists and developers. At the show, our team delivered numerous demos and met with multiple current and new partners, OEMs, PACS and AI platform.

Also at this show, Dr. Mark Traill, a key KOL for iCAD, delivered his abstract titled Change in Image-Derived AI-Based Risk Scores to Identify Women at an Increased Likelihood of Breast Cancer. This retrospective study analyzed risk score changes between prior and current DBT mammograms in cohorts of 514 controls and 52 cancers.

ProFound AI Risk predicts 1-year breast cancer risk by analyzing mammographic features, density and age. The results indicate that a change in an AI-derived risk score between a woman's prior and current mammograms is a strong predictor of breast cancer risk, with a twofold increase in risk for every 0.2 unit increase in score. Notably, a significant proportion of women initially classified as low risk showed a substantial increase in risk at their subsequent mammogram.

Outside of the U.S., we participated: in ROKO, Germany, held in Wiesbaden; SERAM, the Spanish Radiology Society, in Barcelona; the SIFEM Congress in France; and SRC in Switzerland.

We were featured in numerous publications in the second quarter, and I'll highlight just a few for you.

First, a publication from the July issue of Radiology: Imaging Cancer titled AI-Enhanced Mammography with Digital Breast Tomosynthesis for Breast Cancer Detection: Clinical Value and Comparison with Human Performance. This paper reported on the results of a study designed to compare 2 deep learning-based commercially available artificial intelligence systems for mammography with digital breast tomosynthesis and benchmarked them against the performance of radiologists. The 2 AI systems were ours and ScreenPoint's. Of 419 female patients with a median age of 60 years, 58 had histologically proven breast cancer. The AUC was 0.86 for ScreenPoint's Transpara and 0.93 for iCAD's ProFound AI.

Radiology Today featured insights from Dr. Kathy Schilling of Lynn Women's Health & Wellness Institute at Baptist Health Boca Raton Regional Hospital. ProFound AI is featured, demonstrating how AI is revolutionizing breast cancer screening, helping their radiologists find 23% more cancers without increasing recall rates.

In a webinar titled Revolutionizing Cancer Care, the Role of AI in Breast Imaging, Dr. Nikki Gidwaney of Stony Brook Hospital, highlights her personal experience with AI and the power of iCAD's newest algorithm. She discusses how comprehensive breast imaging centers are staying at the forefront, with best-in-class AI cancer detection, risk evaluation and breast arterial calcification assessment solutions. This webinar is available for replay via our website.

And lastly, an op-ed from myself titled Uniting for Health Equity: Addressing Breast Cancer Disparities, was published on Juneteenth by AuntMinnie, a leading radiology news publication. The purpose of the op-ed was to acknowledge the persistent disparities in the realm of breast health, where minority groups faced disproportionately higher risks of certain aggressive breast cancers and poor outcomes compared to white women.

The statistics are sobering. Black women are not only more likely to be diagnosed with breast cancer at younger ages and later stages, but they also have a higher mortality rate. According to recent data from the American Cancer Society, black women are 40% more likely to die from breast cancer than white women. And this gap widens among younger age groups. Moreover, the Centers for Disease Control and Prevention report that black women have an 81% higher rate of triple-negative breast cancer, an aggressive subtype that can be more challenging to detect and treat through traditional screening methods.

This incident rate of triple negative is particularly concerning in light of the fact that black women are also given fewer digital breast tomosynthesis, DBT or 3D mammograms than other racial and ethnic groups, even though DBT is better able to detect aggressive cancers, especially when complemented with mammographic artificial intelligence solutions.

Black women face barriers to receiving the care they need due to a lack of representation in the health care system, lack of provider cultural competence and substandard care. The use of patient navigators who facilitate communication and help to navigate the complex health care system, along with enhanced physician education regarding health disparities, including the impact of systemic racism and implicit biases, could significantly improve breast cancer outcomes for black women and advocating for the inclusion of mammographic AI assessments within breast cancer screenings as an unbiased layer of informative data as the algorithm isn't biased by the color of the patient's skin or where she lives.

This dual approach of patient navigation and physician education, including unbiased AI, addresses both the interpersonal and systemic levels of health care, fostering an environment where black women feel heard, respected and adequately supported throughout their breast cancer journey.

Globally, over 2.3 million women are diagnosed annually with breast cancer and every 47 seconds, someone loses their life to this disease. Early detection is key in the fight against breast cancer, where the 5-year survival rate increases to over 99% for a Stage 1 disease, yet over 20% of breast cancers are missed in traditional mammogram screening workflows, leading to advanced, late-stage diagnoses for many breast cancer patients.

AI detection solutions, when added into a radiology workflow, are proven to improve cancer detection rates typically greater than 23% when compared to traditional, non-AI reader workflows. AI offers the potential to address disparities and improve outcomes by eliminating racial, geographic and socioeconomic biases. iCAD is committed to this goal by ensuring diversity within its AI training data set. By using large diverse data sets representing a wide range of backgrounds, our ProFound AI Breast Health Solutions deliver accurate and equitable results for all women regardless of race or ethnicity.

Through data transparency and continuous improvement, we strive to create a world where cancer can't hide from any patient population or community. With the availability of cloud-based AI solutions, geographical barriers are minimized. A mammogram can be uploaded, analyzed by AI and reviewed by a specialized breast radiologist from anywhere in the world.

This ensures that high-quality breast cancer screening and expert interpretations are accessible to all women regardless of their location, thereby promoting equitable health care access and outcomes. Inclusivity in AI development and access is critical, ensuring that no community is left behind.

Let's now turn to updates on our technology. Late last quarter, we announced commercial availability of ProFound Cloud, built on the Google Cloud platform. Our innovative Software as a Service, or SaaS, platform provides medical providers with a cost-effective, secure and scalable means to access and deploy the latest ProFound Breast Health suite of AI solutions.

Powered by Google's cloud architecture and Health AI innovations, ProFound Cloud integrates a lightweight edge client and cloud-based components. Together, they securely transport and process mammography screening data between imaging sources and the cloud-based AI.

The process data is seamlessly delivered to systems that utilize AI outputs, including mammography review workstations, PACS and image and data storage systems. As noted earlier, we've already secured multiple deals for our newly released cloud platform. Early performance results from the first 30,000 ProFound AI cloud cases delivered an impressive processing time that's over 50% faster compared to many traditional on-premise deployment solutions.

The health care landscape is shifting towards Technology as a Service model, avoiding the pitfalls of investing in rapidly outdated hardware and software. As AI relies heavily on specialized hardware like graphical processing units or GPUs, setting up and upgrading both software and hardware becomes increasingly complex. Cloud-based solutions like ProFound Cloud, address this challenge by providing Software as a Service to ensure that all customers access the latest technology without the initial hardware investment, support contracts and constant updates.

Moreover, Profound Cloud provides facility administrators the ability to update configurations and perform administrative tasks in multiple languages. ProFound Cloud is designed to support patients, providers and partners while facilitating the management of diverse data types critical for comprehensive health care analysis. This includes 2D and 3D mammography images alongside all cancer images. And in parallel, it stores limited images of benign recall and normal cases. ProFound Cloud also manages ProFound Detection and Density assessment results, radiology and pathology reports, while ensuring seamless access to critical diagnostic information.

Importantly, ProFound Cloud securely handles de-identified patient information and provider data, adhering to strict privacy and compliance standards. The comprehensive approach enables robust analytics for informed decision-making.

We're seeing greater than planned interest in our cloud platform, surpassing our initial expectations. This is good news for iCAD on many fronts, including ease of deployment and upgrades, faster releases of new features and functions for our customers and long-term enhanced economics that drive sustained stakeholder value. Now we're at the front end of this business evolution, with significant transformation expected over the next 3 years.

In the short term, as we promote and support more and more customers choosing our cloud platform, we will intentionally sacrifice immediate recognition of some GAAP revenue and cash flow, as we'll recognize revenue and receive cash on a monthly basis rather than upfront.

We will strategically deploy some capital from our strong cash position to support this strategy. And over time, this strategy should show strong economic returns as we become a more profitable company. Furthermore, as the reoccurring revenue build, we'll be entering each quarter with more and more visibility and predictability. As an example of the reoccurring build, the 10 cloud deals closed in Q2, add in excess of $1.2 million to our backlog for both billings and GAAP revenue.

I'll now turn the call over to Eric for a detailed review of our Q2 2024 financials.

[Eric Lonnqvist, executive]

Good afternoon, everyone, and thank you, Dana. I'll now summarize our financial results for the second quarter ended June 30, 2024. Revenue for the quarter was $5 million, an increase of $0.9 million or 21% over the first quarter of 2023. The increase is attributable to some of the key deals Dana noted earlier in the call, helping to continue the momentum of our recently expanded sales team.

Second quarter 2024 product revenue was $3.3 million, up 41% over the prior year. Service revenue was $1.8 million, down 5% over the prior year. This decline was largely driven by service customers migrating to our subscription core cloud products.

Moving on to gross profit. On a percentage of revenue basis, gross profit was 84% for the second quarter of 2024, which was up from 81% in the first quarter of 2023. On a pure dollar basis, gross profit for the quarter was $4.2 million as compared to $3.4 million last year.

Total operating expenses for the first quarter of 2024 were $6.2 million, a $0.3 million or a 4% increase year-over-year. The largest driver of the increase was investments in R&D and regulatory to support plans for both product and regional expansion. This increase was partially offset by additional streamlining of expenses in G&A.

GAAP net loss for the second quarter of 2024 was $1.7 million or $0.07 per diluted share compared with a GAAP net loss of $2.3 million or $0.09 per diluted share from the second quarter of 2023. Non-GAAP adjusted EBITDA loss decreased $0.9 million to $1.2 million in the quarter ended June 30, 2024, from the same period in 2023.

Moving to the balance sheet. As of June 30, 2024, the company had cash and cash equivalents of $20.4 million compared to cash and cash equivalents of $21.7 million as of December 31, 2024. Net cash used from operating activities for the first 6 months ended June 30, 2024, was $1.1 million compared to $1.9 million for the first 6 months of 2023. This improvement of 43% year-over-year is due primarily to stronger sales performance in 2024. We believe we have sufficient cash resources to fund our planned current operations with no need to raise additional funding.

As noted in prior earnings calls, the steady shift to a recurring revenue model from a perpetual model has numerous benefits, including better business visibility, more efficient expense management and an improved ability to predict future cash flow. That said, this shift will also create lower GAAP revenue and negative cash flow as our SaaS revenues grow.

To help illustrate our progress in this transition, we began reporting the following annual recurring revenue metrics, or ARR, in Q3 '23. Total ARR, or T-ARR, represents the annualized value of subscription license, maintenance contracts and active cloud services at the end of a reporting period. Maintenance Services ARR, or M-ARR, represents the annualized value of active perpetual license maintenance service contracts at the end of a reporting period. Subscription ARR, or S-ARR, represents the annualized value of active subscription or term licenses at the end of a reporting period. Cloud ARR, or C-ARR, represents the annualized value of active cloud services contracts at the end of a reporting period.

Total ARR, or T-ARR, was $9.2 million as of June 30, 2024, up from $8.5 million in the second quarter of 2023. Maintenance services ARR, or M-ARR, was $6.9 million, down from $7.3 million at the end of the second quarter of 2023. This decline relates in part to service customers migrating to our subscription or cloud products. Subscription ARR, or S-ARR, was $2 million, up from $1.3 million at the end of the second quarter of 2023. Cloud ARR, or C-ARR, was $0.2 million, representing the first recurring revenue from our cloud products.

In addition to the recurring revenue metrics noted above, we also began disclosing the total number of orders relating to perpetual product, subscription and cloud deals. The intent of this metric is to illustrate the pure volume of sales without the complexity of multiple GAAP revenue streams.

We are pleased to report that in the second quarter of 2024, we closed 60 perpetual, 29 subscription and 10 cloud orders. Year-to-date, we have secured 136 perpetual, 44 subscription and 12 cloud orders. Please note that these counts include all new upsell and migration deals and exclude standard renewals. This concludes the financial highlights of our presentation.

I would now like to turn the call back over to the operator to lead the Q&A.

[Operator]

[Operator Instructions] Your first question is coming from Per Ostlund with Craig-Hallum Capital.

[Per Ostlund, analyst]

Lots of good stuff to process a year. So I guess, naturally, let's start out with the top line performance. The $5 million in the quarter was certainly more than we had and I think more than anybody had. Last quarter, you called out Raleigh and some of the Solis expansion in there as having been somewhat impactful to that quarter. And so I think we, and probably everybody else, tempered second quarter a little bit. Did anything stick out in second quarter like Raleigh or like Solis that you feel needs to be called out? I know you've mentioned a handful of deals, Dana, but are we at the point where there's just so much in the pipeline that it's really not worth suggesting that one deal or another in a quarter is going to move the needle? Or is there just enough going on that maybe we've kind of seen that we're at a new base here?

[Dana Brown, executive]

So first of all, thanks. Good to talk with you again. I'm going to ask Eric to also kind of chime in because he is looking at it right from a different point of view than myself. So speaking kind of from my point of view, I think one of the most important contributing factors to Q2 success was, as we mentioned, we added additional sales team members. One came on board in late December and the rest came on board in January. So in Q2, you're seeing them hit their stride as well as some of the work that we did to, I'm going to call it, reload balance, right, the territories, also putting an emphasis on renewals. So I think there was just a lot of things kind of beginning to work together. From my point of view, no one deal stands out.

Eric, I don't know if you have a different point of view or any additional like color you want to add?

[Eric Lonnqvist, executive]

Yes. Per, I think the Baylor Scott & White deal was really big because that was a subscription and we took a carve-out upfront. So that was impactful and kind of an unusual type of hit for -- a plus for revenue in Q1, similar to Raleigh Radiology in Q1. Some of the other bigger deals like the cloud deals for Windsong and Steinberg, those are ratable over 36 months. So those aren't really impacting the $5 million GAAP revenue number this quarter. So that's the one I'd call out. But the bigger impact, I think, supports what Dana is saying to a degree.

I think the sales team really did a good job of just getting volume up across the board. They've been more active. There's more feet, there's more people. The territories we've expanded in have been successful, particularly on the West Coast.

The other thing the team did, the migrations have been very successful. So clearly, the deal counts, so you'll see the volume is up. We had close to 100 deals this quarter, 29 subscriptions. So a number of those are migrations. So the team is -- as these service contracts come to an end, for perpetual maintenance, they've been working to convert customers to cloud or subscription products, and that's been going very well. So that was a contributor to the deals and the revenue in Q2 as well.

[Per Ostlund, analyst]

Okay. That makes sense. And I noticed the shift to subscription, so that makes a lot of sense. When you talk about the cloud count, because the cloud count was 10 in the quarter, and it was commercially available for something less than the whole quarter. Did you have the field pretty well seeded for when that was going to be available? Was there a bolus kind of waiting to kind of be that first 8 or 10 deals that we're going to sign on a dotted line? And is there a lot waiting behind that since there wasn't the full commercial availability for the total quarter?

[Eric Lonnqvist, executive]

Yes, Dana, I don't know if you want to take that. I have some thoughts on it.

[Dana Brown, executive]

Yes, you go first this time, and then I'll chime in if I need to add anything.

[Eric Lonnqvist, executive]

Yes. Well, I think the whole deal cycle didn't complete in 3 months for most of these. There was conversations in Q1 even before cloud was readily available. But that being said, I do think the deals close quicker and the performance that Dana mentioned of the product has helped. Some of the customers want to test the product in the environment, and they did, and the results were positive. So some of the bigger deals were sped up and closed quicker.

And then other deals in that 10 count, those were some migrations that we want the customers that weren't even thinking about cloud and their subscription -- or their service contract ended and they go, "Well, this sounds interesting." It moved kind of quickly some customers that wanted to get rid of hardware that they're tired of buying these boxes every 3 years and they're ready to move the technology forward and it just kind of clicked. But some of the bigger ones have been -- there've been talks in Q1 also before these came together.

But going forward, I think that just because of all the positives Dana mentioned in the opening remarks, there's going to be a natural push and it's with how the product is performing and the excitement in customers when you talk to it and just the ease to use it compared to the perpetual model. We're feeling a lot of pressure that it's moving quicker in this direction.

[Per Ostlund, analyst]

Okay. Excellent. Dana, did you have anything to add to that? Or should I ask another question?

[Dana Brown, executive]

No. Yes. I think my net was it's -- we did close more than we had planned. So that was great, as Eric mentioned. It's just their ability even to just do a trial, right, kind of test it out, is so much easier with it being cloud that it just enables the whole process to go faster. So...

[Per Ostlund, analyst]

Sure. That makes sense. Since you mentioned the sales reconfiguration, the new folks, fourth quarter, first quarter. You have the -- there's Peter Graham coming in as SVP. Is there anything left to do there? Are you -- is there momentum in the field that you feel you need to lean in on to add more people or anywhere? Or do you feel pretty good about where you're at?

[Dana Brown, executive]

Yes. Right now, I think the team is the right size. So we've still been a little bit of, I'll call it, just juggling a bit, right, as people are settling into roles and we're understanding kind of who's performing well, say, securing new business versus maintaining existing accounts and helping them through upgrades and upsells. So still just a little bit of load balancing happening.

But in terms of like a quantity, a team size, we're set for now. Our focus will really be as we begin to look at new territories, figuring out like the right mix there, right, of perhaps some direct support and then any additional partners or distributors we may need. But here, for the U.S., I think we're set.

[Operator]

Your next question is coming from Yale Jen with Laidlaw & Company.

[Yale Jen, analyst]

Congrats on the good quarters that you hear. The first question is that in your press release, you have an ARR change since the start of the subscription and you are comparing to the first quarter of '22 with the current quarters. Just curious why you used that particular quarter as a comp.

[Eric Lonnqvist, executive]

Yes, I can jump on that. We started selling subscription deals in Q1 '22. So that's why we picked that quarter to do it. So that's really the start of this company. We just released cloud last quarter, so that's going to accelerate the shift, but we truly started the shift to a recurring model in Q1 '22. So back then, we had just a little -- you'll see in the press release, but just over $6 million of recurring revenue, and that was from our perpetual maintenance business.

But once we started subscription, and now that we have cloud, you can now see that as of the end of Q2 '24, we're up over $9 million of recurring revenue. So a much more stable base and just kind of want to show that cumulative progression of getting to a bigger chunk of our revenue being from recurring sources.

[Yale Jen, analyst]

Okay. Great. That's very helpful. And my next question is that in terms of cloud versus subscription, the customer getting a relatively similar things expect the manner of the data being delivered or being in storage? And if so, do you anticipate the cloud revenue to -- customer will be increased much more than subscription going forward.

[Dana Brown, executive]

Yes. I could take that one. So the physical method that the software is made available in subscription is still on-premise. So think of the software being loaded onto a server, either one we provide to the customer or the customer procures the server themselves. It's just a matter which they're paying for the usage of it is a subscription, right? So it's on a monthly basis. Versus the cloud, there is no server on site, right? So it's all hosted in the cloud. iCAD's native cloud environment is through Google, through that partnership that we announced a little bit over a year ago. So the data storage and the way in which we're able to manage the data is very different.

On prem, it's how they're in the server as well as other on-site storage facilities they may have versus with the cloud then we can store data, right, about the exam as well as other data that we can use over time to help analyze it and do trend analysis for customers in the cloud. So let me know if that did answer the question.

I think you had a second part, too, which was if we think we're going to see cloud being adopted more quickly, was that right? Was that the second part of your question?

[Yale Jen, analyst]

Right. Right. And if overall looks similar, would the cloud ultimately have a leg up in terms of convenience and other aspects? So more likely to be the one to grow faster than subscription.

[Dana Brown, executive]

Yes. I do believe that cloud is going to grow faster than subscription. At what point in time its growth rate overtakes subscription is still a little bit TBD since we've only had it commercially available for one quarter. But the early indicators are positive. So yes, we do see that as where the future is, right, for iCAD and for our customers.

[Yale Jen, analyst]

And maybe the last question here is that given that those kind of dynamics, if you look into your crystal ball at the end of the year, would you start seeing this faster versus potentially slightly slower growth trajectory being the trend become more clear and then we'll be able to even look further modeling for out years in the PACS?

[Dana Brown, executive]

Yes. I mean the faster transition, as we talked about kind of in the remarks, has maybe -- it's a little bit of a -- could be a counterintuitive effect on revenue, right? Because even though we may be securing and winning more cloud deals, recognized revenue in that particular quarter could actually go down, right? Because as Eric mentioned, we can recognize it ratably over the term of the contract. So if it's 36 months, we get one month at a time. But it also builds a really nice backlog of reoccurring revenue. So that makes our entering each new quarter more predictable and more stable. So to your point, I think we need a few more quarters since cloud is so new and see how the adoption rate is beginning to, like, stabilize and get predictable what its trend is going to be. But having that ARR should almost, I'm using air quotes here, form a soft guidance in terms of what revenue is already -- can be relied upon as we enter each quarter and then as we enter each new year. So...

[Yale Jen, analyst]

Okay. Great. That's very helpful. And congrats on the progress because I think people are looking forward to see more crowd there, and that will be in all the pieces in place.

[Dana Brown, executive]

Yes. Thank you.

[Eric Lonnqvist, executive]

Thank you.

[Operator]

There appear to be no additional questions in queue at this time. I would now like to turn the floor back over to Dana Brown for any closing remarks.

[Dana Brown, executive]

Thank you, operator. So in conclusion, I just want to reiterate the same comments I've made in past quarters. Hopefully, with the news that we've reported in the last 3 quarters, you're beginning to see the results of our efforts. So our demand for our technology continues to be strong. We do believe with cloud, it's going to increase.

The evidence, right, the clinical evidence and the validation continues to grow. And our team continues to secure opportunities with some of the most prestigious and esteemed health care providers around the world. I remain optimistic about the company in the future, and I firmly believe in our ability to generate significant shareholder value. Thank you so much, and have a great rest of your day.

[Operator]

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day.