Good day, and welcome to the Spectral AI Third Quarter 2023 Financial Results Conference Call. [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Devin Sullivan of The Equity Group. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and thank you for joining us for Spectral AI's 2023 Third Quarter Financial Results Conference Call. Our speakers for today will be Wensheng Fan, Chief Executive Officer of Spectral AI; and Nils Windler, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements may be made that constitute 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 strategy, plans, objectives, initiatives and financial outlook. When used during these discussions, 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 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, investors are cautioned not to place undue reliance on any forward-looking statements. Investors should carefully consider the foregoing factors and other risks and uncertainties 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 forward-looking statements. Management will also be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the company's press release. With that said, I'd now like to turn the call over to Wensheng Fan, Spectral AI's Chief Executive Officer, Wensheng, go ahead.

Thank you, Devin, and good morning to all. Thank you all for joining us today for our third quarter financial results conference call. This is our very first conference call as a NASDAQ-listed company. I want to thank our executive team, board members, advisers and investors for their support and allowing us to achieve our objective as a U.S. public listed company and for their continued belief in Spectral AI and our mission. I will turn things over to Nils shortly to discuss our financial results. For now, given that many of you guys, maybe this is new to our company, and I'd like to spend a few minutes discussing Spectral AI, our technology, our accomplishments and most importantly, the significant opportunities we're addressing to change the standard of care in wound assessment and treatments. Spectral AI is a Dallas, Texas-based company. We specialize in predictive analytics with a platform that uses proprietary artificial intelligence AI to predict if a wound will heal. The name of our technology and our product is DeepView, D-E-E-P-V-I-E-W with a current focus in predictive medical diagnostics. Our DeepView system is a platform technology that uses proprietary AI algorithms, combined with multispectral imaging technology to determine if a wound will heal under routine care or will require advanced winter products and treatments to do so. The imaging takes less than 200 milliseconds and the AI-powered assessment is delivered in seconds. DeepView sees what the naked human eyes cannot, we think of it as a rapid response test that provides an immediate objective and statistically reproducible on healing assessment that allows the physician to make an informed decision regarding next steps treatment decisions. Right now, DeepView has 2 main areas of clinical indications, burn and Diabetic Foot Ulcer, DFU. Along with these 2 clinical indications, we're…

Thank you, Wensheng. And thank you, everyone, for joining us today. I would also like to remind everyone that our press release issued yesterday evening and our Form 10-Q that will be filed with the SEC today, both contain a good amount of detail on our operating results. With that in mind, I'll focus my remarks on selected highlights and key items. Research and development revenue was $3.4 million compared to $7 million in last year's third quarter. This was primarily driven by the wind down of the BARDABurn I contract, which was expected as clinical trials were nearing its completion. Importantly, we have transitioned to work under the new BARDA BioShield contract, the largest in our history with a value of up to $149 million. The initial $55 million of this contract has been executed and will spread over a 30-month period ending in March 2026 with options valued up to $ 95 million beyond that. We will see a full quarter of contribution from this new contract in the fourth quarter. As a reminder, especially for those who are new to Spectral AI, R&D revenue is driven by our research and development activities. We invoice the government monthly for our R&D expenditures with an added margin to cover expenses such as labor and third-party contractors and consultants. We generally receive payments against these inverses from the government within 2 weeks after the inverse submissions, which produces a positive and predictable effect on our P&L and cash flow. Our gross margin declined to 42.8% from $45.9 million. This quarter decline in gross margin was due to commencing the $4 million MTEC contract that was awarded to Spectra AI in the second quarter of 2023 and is scheduled to continue through the first quarter of 2025. This contract has a…

All right. Thank you, Nils. And Rocco, if it's okay, can we open the call for questions from analysts, please.

[Operator Instructions]. Today's first question comes from Ryan Zimmerman with BTIG.

Congrats on the first quarter here as the NASDAQ-listed company. I'm just curious what revenue composition you are contemplating for next year? It sounds like most of that is BARDA related, but I think it does assume some commercial sales. And I'm just curious if you could comment specifically on the thinking there as it relates to DeepView.

No, like I said, the majority of our 2024 revenue will come from the BARDA BioShield contract. A further revenue source will be the continued MTEC contract, and we're also planning on starting commercial sales. But again, to reiterate, the majority of our 2024 revenue will come from BARDA.

And then my other question is just around the technology itself, and this is probably more directed toward Wensheng. But when you think about the accuracy rate of DeepView, they're very impressive right now. But you're going to add another component, which is a 3D Wound feature, I think, in the years ahead. And so how do you think about what that can do for the technology Wensheng, from an accuracy standpoint, if you can get that accuracy level higher or what that could do either from an adoption perspective as you think about some of those features.

The 3D wound size measurement is actually a very complementary almost a required feature in my humble opinion to DeepView for its clinical adaptations. Why would I say that? For the past years, I always ask the question, how many imaging technology you would see in the future of hospitals, ERs and wound care clinic supply chain office for wound assessment. My answer always came back with just one. So the wound size measurement is a fundamental compliance issue. They need to better document the wound progression regardless of all these other perspectives because it's required. And the nurses, operators are very used familiar with the wound size measurement. Sadly today, there are not many useful tools for this. Many, many of the clinics are still using the rulers and other fundamental technologies to measure it. Thank God, there are already some imaging tools on the market to offer the wound size measurement. There are the true blazers help us educate the market already. I really appreciate their efforts, and I believe our 3D wound size measurement based upon our DeepView imaging technology offers one of the most accurate, easy to use and really reliable measurements and it measures the dimension, the areas in the 3D effects in volume, for example, for the DeepView wound. And in that perspective, it provides the current clinical users a very familiar to -- with the analogy to the Internet, this almost adds the stickiness of the users friendliness to our AI prediction side. in my humble opinion, I think if you will provide the AI predictions as the true differentiating factor while complementing that with the center of care using the 3D wound as management for deep standardized and digital documentation and compliance efforts. To me, that's very, very much complementary for each other to ensure the DeepView clinical adaptations.

And then I'll just sneak one more in, and then I'll hop back in queue. But you get $55 million upfront on the $149 million contract. Can you just remind us what unlocks the remainder of that $149 million contract from a milestone or development perspective as we think about some of the revenue that could come in from BARDA in the years ahead? Congrats again on the first quarter here out of the gate.

For up to $149 million contract received $55 million is already released and we're doing the monthly draw down from that $35 million right now. The clear and center focus of that is FDA clearance of DeepView’s burn indication. Upon the FDA clearance of DeepView’s AI burn, the rest of the $95 million will be triggered in a structured way so that we can start the federal procurement and deployment of our DeepViews into the ERs and the burn centers. That's how the contract is structured.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for the closing remarks.

Thank you, Rocco, and thank you again for your participation and continued interest in Spectral AI. We are very pleased with our progress and look forward to keeping you updated. We hope to speak with some of you at our upcoming conference presentations, including the Benchmark Conference in December in New York City, we’ll also be in San Francisco generally in connection with the JPMorgan conference. Thank you all. Thank you for your support, and have a great day. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.