Spectral AI, Inc. ($MDAI)

Good day, and welcome to the Spectral AI Inc. Q1 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Devin Sullivan from the Equity Group. Please go ahead.

Thank you, Nick. Good afternoon, everyone, and thank you for joining us for Spectral AI's 2026 First Quarter Financial Results Conference Call. Our speakers for today will be Vincent Capone, the company's Chief Executive Officer; and David McGuire, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements made are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the company's strategies, plans, objectives, initiatives and financial outlook. When used in this call, the words estimates, projected, expects, anticipates, forecasts, plans, intends, believes, seeks, may, will, should, future, propose and variations of these words or similar expressions or the negative versions of such words or expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the company's control that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. As such, listeners are cautioned not to place undue reliance on any forward-looking statements. Investors should carefully consider the foregoing factors and other risks and uncertainties and described in the Risk Factors section of the company's filings with the SEC, including the registration statement and other documents filed by the company. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. With that said, I would now like to turn the call over to Vincent Capone, Spectral AI's Chief Executive Officer. Please go ahead.

Thanks, Devin, and thank you all for joining us today. We issued our earnings release this afternoon, which contains additional details of our operating results, and we will also file our Form 10-Q with the SEC this evening as well. I'd like to start the call by welcoming David McGuire to his first earnings call as our new Chief Financial Officer. David joined us last week and has been quickly getting up to speed. He brings to MDAI more than 20 years of experience across a variety of accounting and finance functions. Needless to say, we're thrilled to have him join the leadership team. It has been just a short time since we last spoke, so I will keep my remarks fairly brief. As previously announced, we submitted our de novo application to the FDA and in June of 2025. Since then, we have replied to additional requests for information and have maintained an active dialogue with the agency. We continue to anticipate a response from the FDA before the end of the second quarter of this year, after which time we hope to move quickly to commercialize our DeepView system by the end of 2026. We are executing our strategic priorities with a well-capitalized balance sheet that includes approximately $11.4 million of cash at the end of this quarter. With that as our backdrop, the first quarter was defined really by two words: progress and preparation. Progress as it relates to advancing the development of our deep use system and continuing to highlight its attributes to physicians and clinicians around the world. and preparation to continue our primary goal of commercializing the DeepView system for the burn indication. Progress was demonstrated when we announced our $31.7 million advanced funding from BARDA in March of 2026. This award included a no-cost extension of the base phase of our contract and the immediate acceleration of the second phase of our contract, which included funding to support and accelerate additional feature design and aspects of the DeepView system and the procurement of up to 30 devices for burn centers, Level 1 trauma centers and emergency departments. Preparation was demonstrated by expanding our leadership team. As noted, we've added the new CFO, we have expanded our Chief Commercial Officer search, and we are working towards completing that in the near term, and we can continue with the engagement with Deloitte Consulting to finalize our commercialization strategy. Lastly, the finalization of our protocol of our outcome study is also in the works. This outcome study will focus on the benefits derived from the use of the DeepView System across clinician workflows and patients' journeys with an intended scope of approximately 240 patients spread across 12 clinical sites. The outcome study is designed to demonstrate the surgical precision that results from a wound assessment made by the DeepView System, and how improving time to treatment decisions through the use of the DeepView System will beneficially impact a patient's overall care journey and, therefore, reduce the overall length of stay. We are also working to advance our international sales strategy. As we touched on at our 2025 year-end earnings call in March, upon FDA clearance, we will update our UKCA burn assessment approval, which we secured in 2024 to reflect the improved algorithm hardware and software included in our FDA submitted DeepView System. We continue to expect to begin initial sales in late 2026 and pending such expanded UKCA labeling, and that will either take place in the U.K., Australia or in the Gulf Cooperation Council countries. I'd also like to take a moment to provide an update on our handheld device, which we are developing as part of our Department of Defense contract through the contracting consortium called MTEC. On our 2025 year-end earnings call, just this recent March, I noted that we expected to deliver a fully functioning prototype of the device by the end of the second quarter of this year. I'm pleased to announce that we delivered a prototype to MTEC just last week. We hope to be asked to bid on the Phase III of that contract later this year and we would anticipate pursuing a 510(k) approval of our handheld device by utilizing our card-based DeepView System as its predicate. We had a great showing at this year's Annual Meeting of the American Burn Association, which was held in Orlando in April. The conference provided a welcome platform to showcase the DeepView System to more than 2,200 clinicians, researchers and burn care leaders from around the world. The DeepView System was prominent in a number of podium and poster presentations and Dr. Christopher Lewis presented an overview of the technology, including his real-world experience and results to attendees at the ABA Innovation Theater. These types of events continue to accelerate the awareness of our DeepView System. Lastly, we just recently received the Small Business Innovator award at the inaugural Texas Innovation Conference, which was held April 22 and 23 at the campus of TCU. The award highlights the years of disciplined research, close collaboration with clinicians and our commitment towards developing a technology with a real-world clinical need that can genuinely improve patient outcomes for burn victims. Our commitment goes beyond simply launching our DeepView System into the market. We are focused on delivering this innovative technology in the market in a way that drives real value for patients, clinicians, payers and of course, our shareholders. With that, I'll now turn things over to David for a review of our first quarter financial results.

Thanks, Vin. I'm excited to join Spectral at this pivotal time in its history, I spent my career helping public companies build scalable financial organizations, drive capital efficiencies and navigate funding opportunities. After meeting my new colleagues in getting enough close look at the DeepView System and its underlying technology, I believe Spectral is well positioned to capitalize on a significant market opportunity. To echo what Vince said, my focus will be on ensuring we have the right financial infrastructure and processes to execute on our strategy. As Vince noted, we delivered a solid start to the year. We remain confident in our ability to continue our R&D efforts and evolve in the commercial business. Starting with the top line. R&D revenue for Q1 of 2026 was $4 million compared to $6.7 million. The year-over-year decline was anticipated and primarily driven by the completion of work under the base case of the company's Project BioShield contract with BARDA. This decline was partially offset by increased activity under other U.S. government contracts including work on the handheld device that Vince referenced earlier. Gross margin for Q1 of 2026 improved by 360 bps to 50.8% and driven largely by a higher concentration of direct labor as a component of overall revenue. General and administrative expenses were down slightly to $4.0 million from $4.1 million in the prior period, reflecting continued cost discipline, partially offset by some increased public company infrastructure costs. Other expense for Q1 2016 was $1.5 million compared to other income of $3.9 million in the prior year period. The change was primarily driven by the noncash fair value adjustments related to our warrant liability. Net loss for Q1 2026 was $3.4 million or $0.11 per diluted share compared to net income of $2.9 million or $0.11 per diluted share. Excluding the impact of the warrant fair value adjustments in both periods, the underlying operating performance was generally in line with our expectations. With respect to our financial condition, as of March 31, 2026, cash was $11.7 million compared to $15.4 million as of December 31, '25. Cash usage during the quarter reflected continued investment in R&D and commercialization initiatives. We remain focused on disciplined capital allocation as we advance towards commercialization. As of March 31, 2026, total debt was $8.5 million with 31.8 million shares outstanding. Overall, we believe we are well positioned to support the next phase of growth, and I look forward to engaging with many of you in the quarters ahead. With that, I'll turn the call over to Vince.

Thanks, David. Before turning things over for questions, I want to address our 2026 revenue outlook. For this year, we are reiterating our revenue guidance of approximately $18.5 million which includes the effect of the accelerated BARDA funding. This guidance does not include any significant contributions from the sale of the DeepView System. With that, I'll open the floor to any questions. Thank you.

[Operator Instructions] And the first question will come from Ryan Zimmerman with BTIG.

Thanks for taking, Vince and David, welcome. Maybe to start just because FDA clearance is so close, potentially, Vince, it'd be good to expand a little bit on kind of the tenor of your conversations or what you're comfortable saying that gives you confidence that these time lines will stick for 2Q? And then if you talk about some of the commercial activities that you're doing in preparation for the commercial launch of DeepView? And then I have a follow-up.

Sure, Ryan, good to hear from you. I guess a few things. I don't -- we have had a number of pre-submission meetings with the FDA prior to the submission of our application in June of 2025. And frankly, I mean we had a number of those. So I felt like our submission was strong. We knew the -- we kind of knew what we needed to provide to the FDA. And I think since our submission date, some of the responses we've had, some of the additional requests for information, we've maintained, as I said earlier, an active dialogue with the FDA. And I don't think -- I think that we're I think that we're in a good -- as good a position as we can be. And I think our time line is -- remains solid where we expect a resolution of our application by the end of the second quarter. As far as some of the commercial activities that we have been doing in connection with looking to advance sales in 2026, the ABA was a great opportunity for us to meet with some of the participants that have been using our device in the U.K. and Australia over the last year or so. I continue to think that getting our UKCA expanded labeling to track to what we hope gets approved by the FDA, it will give us a strong balance to place devices in the U.K. We continue to do work with the teams in Australia. I know that a lot of the work that's done with Dr. Fiona Wood out of Perth continues to be strong. I know they continue to use our device and those are great opportunities for us, where we can really drive value towards a disparate group of burn patients to show real value in getting quick treatment decisions for their injuries.

Understood. That's very helpful. And just as a follow-up, that additional BARDA contract that you guys picked up for that $31.7 million in funding. I know you're not going to guide 27% right now, Vince, but is there any conceptual commentary you can give us around kind of the cadence of how you think that contract plays out or whether that's evenly spread, as you begin to use some of that funding? Or is there troughs and valleys, if you will, around how the cadence of development may go with that as we think about our models?

Yes. I mean I think you're hitting on a good point on the $31.7 million accelerated funding under Phase 2, we'll see some of that in 2026. I mean revenue recognition is the issue upon why we won't generally see much of it in 2026. But you should see much of that being spread out in 2027, especially with us launching the economic outcome study. We've worked hard on the protocol -- that will take some time in 2026, but you should see much of that run through into 2027. So I mean, the cadence I would see would be some of the $31.7 million in most of it in 2027 and maybe a small component remaining in 2028.

Okay. I'm going to leave it there. I appreciate it. And congrats on all the progress you guys are making.

Thank you.

The next question will come from John Vandermosten with Zacks.

Start out with a question on -- it sounded like you guys had a great participation at the American Burn Association Meeting. And I'm wondering what you were hearing from stakeholders like our medical personnel, hospital administrators and things like that. If there's any anecdotal commentary you have on like your interactions or feedback that they're giving you.

John, good to hear from you. Yes. Look, ABA was good for us. It's an opportunity for us for people to actually touch and feel the device that may have not had the opportunity to do so. I was quite pleased with kind of the wait list that we got of potential installations as we move through the conference. Dr. Chris Lewis' presentation at the innovation theater was well attended and his results spoke very strongly to the benefits of using our technology in diagnosis, assessment of the severity of burn wounds. So for us, it was a great opportunity. And we are, frankly, kind of excited to move through the second, third and fourth quarter of this year. with an opportunity to hopefully commercialize this year.

Got it. And if you win that handheld contract, would you see any additional R&D revenues in 2026? Or would that be pushed out further?

Yes. No, that's a great question. That contract comes up. We don't expect to hear about whether or not we were selected to participate in Phase III of that contract until very late in 2026, I believe the decision time point in that is December of 2026. So we should see none of that in 2026 and hopefully, if we're lucky enough to be asked to participate in the quote process, we would see some of that in -- most of that in 2027 and 2028. I'm really proud of the work our team has done on our handheld device our ability to distribute to MTEC, a prototype last week really speaks to the effort of our team to get things done in a timely fashion. And we're just going to continue to plow forward with our goals and our time lines to really -- to see some real success in '26 and '27.

Got it. And how difficult would it be to layer on the total body services surface area module. You talked about that before as being kind of another investment that you guys might make into the product? How hard it would be to layer that on to the anticipated deployment coming up? And then are there any regulatory hurdles of that or timing hurdles? Or is that just kind of a software upgrade that you could provide?

So we do have a TBSA tool included in our FDA submitted device. So we're excited to roll that out if we get FDA approval. Our team has been working hard on an advancement on that. We affectionately call it TBSA 2 internally and that software upgrade should be available in 2027. And it should provide even additional support for clinicians and attending physicians to provide a patient with a strong image and analysis for them to understand how much of their body has been burned, what area will heal, what area will not heal. Almost as if you're going to provide a patient with an x-ray for them to see where their bone was broken. I'm excited that we can include TBSA component and the FDA submitted DeepView System. And I'm even more excited with the work that we're doing with the TBSA 2 and ultimately potentially TBSA 3 to really make this feature valuable for clinicians.

Are there any regulatory hoops you have to go through to add that TBSA 2 or 3 on -- we should be okay, provided that the DeepView System TBSA component is approved as a de novo as part of our de novo application. The rest of that may be 510(k), but it's no more complicated than that. It may not even rise to the level of a 510(k), but it will be no more complicated than that.

This concludes our question-and-answer session. I would like to turn the conference back over to Vincent Capone, Chief Executive Officer, for any closing remarks. Great.

Thank you. To close, I want to again thank our investors for your support in our company. I want to reiterate how excited we are about what lies ahead for our company. Our shareholders, patients and clinicians across the country and around the world. I also would like to remind you to vote your shares at our upcoming annual meeting. Lastly, I want to thank you all for your attendance and interest in our company, and I hope you all have a good evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.