Basis of Presentation and Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

Note 1 – Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries (together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at March 31, 2021, the results of operations of the Company for the three -month periods ended March 31, 2021 and 2020, cash flows of the Company for the three-month periods ended March 31, 2021 and 2020, and stockholders’ equity for the Company for the three-month periods ended March 31, 2021 and 2020.

Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 15, 2020, as amended on April 30, 2021. The results for the three -month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021, or any future period.

Segments

The Company reports the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products. The Therapy segment consists of radiation therapy (“Axxent”) products.

Risk and Uncertainty

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of the COVID-19 pandemic, the United States, many countries in Europe, as well as Canada and China, imposed unprecedented restrictions on travel, and there have been business closures and reductions in economic activity in countries that have had significant outbreaks of COVID-19. As a provider of devices and services to the health care industry, the Company’s operations have been materially affected in part due to stay-at-home and social distancing orders as well as uncertainty in the market. Significant uncertainty remains as to the continuing impact of the COVID-19 pandemic on the Company’s operations and on the global economy as a whole. 

It is currently not possible to predict the duration of the pandemic or the time needed for economic activity to return to prior levels. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. Although the United States and other countries have made significant progress related to vaccinating significant portions of their populations, the efficacy of each individual vaccine against the multiple strains of the COVID-19 virus is unknown. Moreover, a new “wave” of COVID-19 cases may exacerbate the increased levels of market disruption and volatility seen in the recent past will have an adverse effect on the Company’s ability to access capital, on its business, results of operations and financial condition, and on the market price of its common stock.

The Company’s results for the quarter ending March 31, 2021 reflect a negative impact from the COVID-19 pandemic due to some healthcare facilities’ additional focus on COVID-19. Although the Company does not provide guidance to investors relating to its future results of operations, its results for the quarter ending June 30, 2021, and possibly future quarters, could reflect a continued negative impact from the COVID-19 pandemic for similar reasons. The duration and severity of the pandemic is unknown, and so the continued effect on the Company’s results over the long term is uncertain.

Although the Company did not experience any material impact to trade accounts receivable losses in the quarter ended March 31, 2021, the Company’s exposure may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. The Company has not historically experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response to the COVID-19 pandemic.

Recently Adopted Accounting Pronouncements

There are no significant recently adopted accounting pronouncements. For a full list of the Company’s response to all relevant recent accounting pronouncements, please refer to Note 13 below.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.

Disaggregation of Revenue

The following tables presents the Company’s revenues disaggregated by major good or service line, timing of revenue recognition, and sales channel, reconciled to its reportable segments (in thousands).

	Three months ended March 31, 2021
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	4,161	$	2,103	$	6,264
Service contracts		1,558		340		1,898
Supply and source usage agreements		—		481		481
Professional services		—		1		1
	$	5,719	$	2,925	$	8,644
Timing of Revenue Recognition
Goods transferred at a point in time	$	4,161	$	2,104	$	6,265
Services transferred over time		1,558		821		2,379
	$	5,719	$	2,925	$	8,644
Sales Channels
Direct sales force	$	3,875	$	674	$	4,549
OEM partners		1,844		—		1,844
Channel partners		—		2,251		2,251
	$	5,719	$	2,925	$	8,644

	Three months ended March 31, 2020
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	3,100	$	1,346	$	4,446
Service contracts		1,347		347		1,694
Supply and source usage agreements		—		371		371
Professional services		—		11		11
Other		29		—		29
	$	4,476	$	2,075	$	6,551
Timing of Revenue Recognition
Goods transferred at a point in time	$	3,129	$	1,383	$	4,512
Services transferred over time		1,347		692		2,039
	$	4,476	$	2,075	$	6,551
Sales Channels
Direct sales force	$	2,172	$	1,469	$	3,641
OEM partners		2,304		—		2,304
Channel partners		—		606		606
	$	4,476	$	2,075	$	6,551

Products. Product revenue consists of sales of cancer detection products, cancer therapy systems, cancer therapy applicators (including disposable applicators) and other accessories that are typically shipped with a cancer therapy system. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.

Service Contracts. The Company sells service contracts in which it provides professional services, including product installations, maintenance, training, and service repairs, and in certain cases leases equipment, to hospitals, imaging centers, radiology practices, radiation oncologists and treatment centers. These contracts represent separate performance obligations to the Company. The Company allocates revenue to each performance obligation based on the Standalone Selling Price (“SSP”). Revenue for lease and non-lease components, or the entire arrangement when accounted for under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), is recognized on a straight-line basis over the term of the agreement. The service contracts range from 12 months to 48 months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the agreement.

Supply and Source Usage Agreements. Revenue from supply and source usage agreements is recognized on a straight-line basis over the term of the supply or source usage agreement.

These agreements represent a separate performance obligation to the Company. The Company allocates revenue to each performance obligation based on the SSP.

Professional Services. Revenue from fixed fee service contracts is recognized on a straight-line basis over the term of the agreement. Revenue from professional service contracts entered into with customers on a time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.

Other. Other revenue consists primarily of miscellaneous products and services. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer or the installation services are performed.

Contract Balances

Contract liabilities are a component of deferred revenue, current contract assets are a component of prepaid and other assets and non-current contract assets are a component of other assets. The following table provides information about receivables, current and non-current contract assets, and contract liabilities from contracts with customers (in thousands).

Contract balances

	Balance at March 31, 2021		Balance at December 31, 2020
Receivables, which are included in ‘Trade accounts receivable’	$	10,649	$	10,027
Current contract assets, which are included in “Prepaid and other assets”		701		481
Non-current contract assets, which are included in “other assets”		1,478		1,434
Contract liabilities, which are included in “Deferred revenue”		6,377		6,384

Timing of revenue recognition may differ from timing of invoicing of customers. The Company records a receivable when revenue is recognized prior to receipt of cash payment and the Company has the unconditional right to such consideration, or unearned revenue when cash payments are received or due in advance of performance. For multi-year agreements, the Company generally invoices customers annually at the beginning of each annual service period.

The Company’s accounts receivable from contracts with customers, net of allowance for doubtful accounts, was $10.6 million and $10.0 million as of March 31, 2021 and December 31, 2020, respectively.

The Company records net contract assets or contract liabilities on a contract-by-contract basis. The Company records a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company classifies the net contract asset as either a current or non-current based on the expected timing of the Company’s right to bill under the terms of the contract. The current contract asset balance primarily relates to the net unbilled revenue balances with two significant customers, which the Company expects to be able to bill for within one year. The non-current contract asset balance consists of net unbilled revenue balances with one customer which the Company expects to be able to bill for in more than one year.

Contract liabilities, or deferred revenue from contracts with customers, is primarily composed of fees related to long-term service arrangements, which are generally billed in advance. Deferred revenue also includes payments for installation and training that has not yet been completed and other offerings for which the Company has been paid in advance and earn the revenue when it transfers control of the product or service. The balance of deferred revenue at March 31, 2021 and December 31, 2020 is as follows (in thousands):

Contract liabilities	March 31, 2021		December 31, 2020
Short term	$	5,957	$	6,117
Long term		420		267
Total	$	6,377	$	6,384

Changes in deferred revenue from contracts with customers were as follows (in thousands):

	Three Months Ended March 31, 2021
Balance at beginning of period	$	6,384
Deferral of revenue		3,259
Recognition of deferred revenue		(3,266	)
Balance at end of period	$	6,377