Spectral AI, Inc. Form 10-Q for the Quarter Ended March 31, 2024

Press release · 05/10 09:14
Spectral AI, Inc. Form 10-Q for the Quarter Ended March 31, 2024

Spectral AI, Inc. Form 10-Q for the Quarter Ended March 31, 2024

In the first quarter of 2024, Spectral AI, Inc. reported a net loss of $10.5 million, a decrease of 10% compared to the same period in 2023. The company’s revenue increased by 25% to $15 million, driven by strong demand for its AI-powered products. The company’s cash and cash equivalents increased to $20 million, and they expect to achieve profitability in the next financial year.


Spectral AI is a medical technology company focused on developing an imaging device called the DeepView System to help doctors assess wounds and guide treatment decisions. The company does not currently generate product revenue and is spending most of its efforts on researching and developing the DeepView System.

In September 2023, Spectral AI signed a $150 million contract with the U.S. Biomedical Advanced Research and Development Authority (BARDA) to support continued development and FDA clearance of the DeepView System. This adds to over $270 million in previous government funding Spectral AI has received.

The company expects to start commercializing the DeepView System in the UK in 2024 after receiving regulatory clearance there for use in assessing burn wounds. The DeepView System uses artificial intelligence to analyze wound images and provide information to doctors on the healing potential of damaged tissue.

Financial Performance

For the first three months of 2024, Spectral AI reported:

  • Research and development revenue of $6.3 million, up 25% from $5.1 million in the same period last year, reflecting increased activity under the BARDA contract
  • Gross profit of $2.9 million, up 35% from $2.2 million, due to a higher reimbursement rate under the new BARDA contract
  • An operating loss of $2.1 million compared to $2.9 million, helped by higher revenue
  • A net loss of $3.2 million versus $3.6 million

The net loss reflects costs related to a recent financing transaction and other non-operating expenses. The company has accumulated losses to date of $36 million as product development continues.

Cash Resources

Spectral AI ended the first quarter of 2024 with $10.2 million in cash. The company has taken steps to secure additional financing:

  • A $10 million equity line of credit with B. Riley Principal Capital II LLC
  • A $30 million equity purchase agreement with YA II PN allowing the sale of common shares
  • $12.5 million in convertible note advances from YA II PN
  • $1 million investment from an affiliate of Spectral’s largest shareholder into a new IP subsidiary

Management believes this provides sufficient capital for at least the next 12 months as Spectral AI moves towards commercialization.


Key upcoming milestones for Spectral AI include:

  • Starting commercialization in the UK in 2024 after receiving regulatory clearance for use of the DeepView System in assessing burn wounds
  • Enrolling up to 240 patients into a new U.S. clinical trial seeking to validate the technology
  • Continuing product development under the recent $150 million BARDA contract through early 2026
  • Leveraging the artificial intelligence and imaging capabilities of the DeepView platform for additional clinical applications beyond wounds, such as diabetic foot ulcers

The DeepView System is positioned to provide doctors with more accurate and rapid information to guide wound treatment decisions and improve patient outcomes. Realizing the market potential will depend on execution by the Spectral AI team as they transition from a research and development stage company to commercializing and selling an innovative medical device.

Revenue Sources

Currently, Spectral AI generates revenue almost exclusively from government contracts, primarily with BARDA. The company will eventually seek commercial sales revenue once regulatory clearance is obtained.

There are two potential future revenue streams for the DeepView System:

  1. Software as a Medical Device (SaMD) Model: Software licensing fee for access to DeepView image analysis algorithms and wound healing assessments on a subscription basis

  2. Imaging Device Sales: Sales of the DeepView multispectral imaging hardware device

Pricing will be set strategically for each market and care setting to drive customer adoption.

Gross Margin

Gross margin in the first quarter of 2024 was 47%, up from 43% last year due to a higher reimbursement rate under the new BARDA agreement.

As Spectral AI transitions to commercial sales, pricing incentives and decisions could negatively impact margins initially as adoption is accelerated.

Managing Supply Chain

Spectral AI currently relies on third-party contract manufacturers and suppliers for components. The company could face risks from shortages, long lead times, or concentration among a small number of suppliers as production scales up.

Inability to obtain components or services on a timely, cost-effective basis could delay product delivery and installation, negatively impacting cash flow. However, management has not experienced disruptions in the current limited production.

Operating Expenses

Operating expenses are driven primarily by non-revenue R&D activities, salaries, consulting fees, facilities costs, and other administrative costs needed to support operations.

These costs are expected to increase as Spectral AI adds personnel and infrastructure to meet public company regulatory requirements following its recent business combination and as commercialization efforts expand.

Financing Transactions

In March 2024, Spectral AI received $5 million (less fees and discounts) from an investor, YA II PN, exchangeable into common shares on a periodic basis.

Related costs for this transaction and a fee paid to an investment bank were approximately $0.8 million in the quarter. Non-operating charges can create volatility in net income results.


After rapid product development aided by over $270 million in non-dilutive government contracts, Spectral AI is positioned to commercialize an innovative medical imaging technology in burn care and expand into other wound treatment applications.

Near-term performance will continue showing losses as costs outpace grant revenue, but the scale-up toward commercialization in 2024 could see accelerating top-line growth.

Achieving profitability will depend on execution by the management team and adoption of the DeepView platform to realize its disruptive potential in wound assessment and healing predictions based on artificial intelligence analysis.