Alrighty. Okay, thanks everyone for joining. Today it's we, the Morgan Stanley Global Healthcare Conference, starting with the most exciting disclosures. MorganStanley.com/researchdisclosures. What a website. Not very interesting, but what is interesting is HeartFlow. I'm thrilled to have both John and Vikram, our CEO and CFO, respectively, here for FiveSurfs. Thanks so much for joining.
Yeah, thanks for having us. Great to be here.
How are you guys doing? I mean, like IPO, very recent. You know, you got a little bit of time back, but how is everything?
Yeah, good, good. It's amazing how much time's left in the day once you get on the other side of that event. It was tremendous. It was a long process, as you know, but one that I think turned out really well. We're very pleased with that. We had a wonderful event here in New York. We brought a lot of our long-tenured employees with us, which was great to celebrate them. We had family members there. Now we're on the other side of that and get to do the fun stuff, which is really run the business. You know, that's what Vikram and I enjoy, and things are going great.
I love it.
Yeah.
You know, new to the market, so I think it probably makes sense. Why don't you give a quick overview for those who are less familiar of FFRCT, how it compares to the standard care? Just the big picture of what you guys do and how you fit into the system.
Sure, sure. HeartFlow is a, we're a software company. We use AI. We use AI to more accurately diagnose coronary artery disease. I think, as you know, heart disease is a huge issue, world's number one killer. Coronary artery disease is the most prominent type. The current standard of care for diagnosing coronary artery disease is effectively just old technology. It's inaccurate. It's very well understood in clinical literature. High degree of false negatives. 30% of the time, someone's told they're okay, they're sent home, where in reality, they're not okay. They ought to be getting taken care of. 50% of the time, they're sent downstream into the cath lab when they don't need to be there. Huge, huge issue there. Our software sits on top of a coronary CTA. Coronary CTA is a frontline level 1A in the guidelines test for diagnosing coronary artery disease.
We deploy our AI software on that. We can find plaque or disease within the coronary arteries down to the cubic millimeter. We model the blood flow so the physicians know whether or not any disease that's found is significant and needs to be treated. We give all that insights to our physician partners, and they can manage their patients. They can treat their patients better. We're excited on the journey that we're on. HeartFlow was founded in 2010. Our first FDA clearance came in 2014. I really believe we're just getting started on creating this new standard of care with our technology.
It was a long journey to get to where we got to now, with a lot of training of the AI and building up that expertise. Could you maybe just walk people through a little bit of how that journey went? I know you were not there for the whole totality of it, but how that went, how we landed where we are today, and the criticality of building up that installed base of cases that the system's been through.
Yeah, and you know, like I said, the company was founded in 2010. First FDA clearance on our core technology was 2014. From the very early inception of the company, there's been a commitment to clinical evidence and generating the clinical evidence that's needed to really change physician behavior. We've got now over, HeartFlow's done over 100 clinical trials. We've been peer reviewed in over 600 reputable journals around the world. That's really the tip of the spear in everything we do. We like to say when you're dealing with cardiologists, you know, clinical data is the currency of the realm. Across that whole timeline, we've been acquiring images. Like I said, we digest or ingest coronary CTA images. At this point, we now have over 110 million annotated CT images. That's really the bedrock of everything our algorithm does.
We use that database to train new versions of the algorithm. Those new versions of the algorithm are more efficient, so we can take COGS out of production, which expands our gross margins, which we have a good history of doing. We can create new technology for our customers that have greater utility. We do this, we connect to hospitals and clinics. We put in bidirectional data pipes, taking their CTA images into our cloud. We do the analysis in our cloud and then send it back to the hospital or health system. Every new CT we get effectively adds to this snowball that's rolling downhill and serves for future innovation down the road.
Is there a, like, because the efficiencies of course have not done super well as you guys have used like endless time and everything.
Yeah.
Where's the sort of end of that process? Because you would need a human in some capacity or something.
The end will be greater than zero, because if it gets to zero, then it's a new regulatory filing, and we don't think there's a strong business case for that. I've been with the company for just a little over four years now. Since that time, we've reduced analyst processing time from about 70 minutes down to less than 30, where it is now. This is the algorithm getting smarter and smarter as we feed it more data. If you go back to the first iterations of the algorithm back in 2014, it was closer to 18 or 19 hours. We've got a long track record of taking time out through a smarter algorithm. That's going to continue to go down as our time comes down. Relative to gross margins moving forward, maybe Vikram, I'll let you speak to what to expect.
Yeah, continued margin expansion is going to be part of our story going forward. There are really three big drivers there. From an R&D perspective, we'll continue to innovate on the algorithm, which will help us reduce analyst touches, which reduces cost of revenue and improves gross margin. Second, we've got the emergence of Plaque Analysis, which is going to provide structural tailwinds, not just to gross margins but also operating margins, because it builds on the same CT and all of the foundational work is already done. Plaque Analysis is fully automated on top of that. Third, we've got the classic economies of scale. As the business scales, we're able to spread some of those fixed costs across larger volume bases. As a result, we remain confident in our ability to get to north of 80% on the gross margin line.
Better than almost all my other companies, so it's always good. You guys flashed Q2 as a part of the process, but today you obviously had a KO with the full Q2 for everyone to really see. Vikram, could you maybe walk us through that a little bit? For those in the audience who are less familiar, like the real sources of growth and the stuff that stuck out for you.
Absolutely. Happy to talk through that. Firstly, we're very pleased with the performance of the quarter. As you mentioned, Patrick, we dropped the 8K this morning, which reaffirmed the financial metrics on the top end of the range we'd already provided in the S1. From a revenue perspective, we did $43.4 million, which represents 40% year-over-year growth, strong sequential growth of about $6.2 million. Really strong commercial momentum underpinning all of this. The engine is humming. The install base is performing well. The sources of growth are twofold here. We've got the existing site growth continuing to perform well, driven by the category tailwinds that we've talked about in the past, and the new site activations driving incremental growth as well. To those less familiar, our growth is more tethered to the existing site growth, given the size of our install base.
On the gross margin front, we reported gross margins of 75.5%. Again, strong performance there. One note, we are making incremental capacity investments in captive revenue to support future demand. You will see a transitional dip and then eventually a reacceleration as we exit the year. From an OpEx perspective, we demonstrated strong operating leverage. OpEx as a percentage of revenue improved by about 15 points year over year. We feel very good about this glide path to profitability that we're on. Overall, for both John and myself, never felt more confident. The underlying trajectory of the business and the strength of the business overall. We look forward to hosting our first earnings call in November.
Loving it. I was a radiology guy in the sense that I've done a lot of my history on the sell side going through these companies. I speak to, you know, GE, I speak to, you know, SHL, and Rabnet. You can see the CT capacity in the U.S. just getting slammed down ever since the guideline changes, also before that to some degree. That's obviously a huge factor for you guys. You're also part of pushing that demand. How do you think about that CT capacity base as an ability to actually keep you guys growing? Enough actual systems to get the scans done to keep up with your growth.
Yeah, yeah. I think if you kind of step back and look at it at a high level, the first thing I'll say is I think we are on the right side of history here. CTA is a frontline test for the diagnosis of chest pain and coronary artery disease is in the guidelines. That sort of pendulum is going to continue to swing in that direction. When you look at the kind of underlying trends driving this, we know historically coronary CTA has grown about 22% a year. We know the number of readers that read coronary CTA are up about 17%. More and more physicians are raising their hand. If you look at where all this volume is being sourced from, it's SPECT imaging. All those trends are negative on SPECT. More and more people are coming there.
Relative to capacity, there's 2,900 accounts right now in the U.S. that are doing coronary CTA. That cohort grows by about 300 every year. More and more hospitals and clinics are picking up coronary CTA as part of a program. We're in roughly 1,100 of them. From an account standpoint, there's plenty of accounts to continue to add in. Our goal is to stress capacity as much as possible. We are growing a new category. We are a part of this demand generation, and we're going to continue to push in that regard.
One of the other things I'm imaging that RTO process that surprised me or sort of stood out was the utilization curve of new accounts. It's kind of like 18 months and then almost set up 100%. It's a really quick adoption time. What does that look like from the initial discussion through to that curve coming through? It's pretty quick.
Yeah, you can kind of think of it as two chapters. There's the what does it take to take an account live? Then once you're live, I think your question is more around what happens once it's live. Just for context, our core technology, our FFRCT technology, is in the guidelines to be used as a decision tool for a stenosis that's between 40% and 90%. It's paid for if the stenosis is between 40% and 90%. 40% and 90% stenosis represents about 33% of the population, so about a third of all patients getting CTAs are applicable. When we start an account, it's very rare that they'll adopt, you know, month one at that 33% level. It takes them some time. They've got to get comfortable with the workflow. There are some kinks that need to get worked out.
Ultimately, it just takes some time before they experience the full benefit of the range. For instance, if they're exercising in a more narrow range earlier on, they might send a false positive downstream. Their interventional cardiologists might mention, "Hey, why did you send me this patient? They didn't need to be treated." It only takes a couple of those. God forbid they have a false negative and they've got a bad event for somebody that got sent home. It only takes a couple of those before you see that real adoption against the full range. We see in our accounts after about 12 months of going live, they're utilizing about 30% of that 33%.
To add to that, John, what we're seeing is it happens organically. There's not intervention on our side. We're not covering cases. There's no rep there standing on the shoulder of the reader. It really speaks to the fact that it's experience and comfort with the technology that's driving the utilization, which helps us demonstrate salesforce leverage as well.
Yeah, that's a good point. We're not traditional med tech in that we're hanging out managing inventory, obviously covering cases. Once we do the installation, the sales team is down the road looking for the next opportunity.
I guess for the doc as well, the risks of submitting a patient where maybe there were 38, I'm just making it up now. I mean, they make a good margin anyway on the business. On top of that, it's not like there's time lost for them. The risk profile of patient selection for them, what they send on for an FFRCT, is pretty low, right?
Totally. Yeah, totally. There's not a lot of downside in doing it. It's just going to help their decision-making that much more.
The second part of that therefore is the site activation that you were sort of talking about. What does that journey look like? Where you do have, you know, some reticence, what's driving that? Is it just the existing pitch done at the CT capacity or something?
Yeah. As I mentioned, the hunting ground is that 2,900 accounts. That's the number that's growing. We only target accounts that are already up and running with an active CTA program. We don't go to someone and try to get them to run up. That's GE's job, right? We target them. It's a multi-stakeholder alignment selling cycle. You need to get Cardiology, Radiology, Administration, Finance, IT, Information Security. It takes a while, depending on how complex and how potentially bureaucratic a health system is, to align all that. We see typical selling cycles of about 12 months from opportunity identification to close.
It's very rare that we go to an account that's up and running with a coronary CTA program and they say, "No, thanks, we don't want HeartFlow." We go to them and help them understand how HeartFlow can make their program even better and how we can help them grow it. It can be more efficient, etc. Typically, if we get pushback, it's because there are other constraints internally where they just don't want to take on the work right now. For instance, if they're upgrading or waiting for a new piece of capital that could come in, a lot of those resources like IT, InfoSec, those are shared resources and perhaps they can't get their allocation of that share for a quarter or two. You need to slow it down a little that way. That's what can take a little bit longer.
The beauty of it, to add, Patrick, is the headwind going in. Once you're in the account, it definitely creates stickiness, and there's a barrier to entry there for, you know, competitive threats. Could you give the audience an idea of how the analysis then helps later in the cath lab? The reason I ask is, you know, imagine you have a patient, they do receive CCTA, you know, they can see that the stenosis is very heavy, like really heavy. A high probability you're getting sent to the cath lab anyway, right? What is the benefit of running an FFRCT in that instance, given they would have been going to the cath lab anyway?
The degree of stenosis in and of itself doesn't tell a physician whether or not it needs to be treated with a stent. You have to model the blood flow. Prior to HeartFlow, the only way to do that is with an invasive FFR wire. With HeartFlow, you can do it all non-invasively upfront. That is well understood in the clinical literature. You can't eyeball a stenosis and say, "I need to treat this." What we do with our technology is, right now, if you think about what it takes to do a PCI procedure in the cath lab, it's really the last procedure that an Interventional Cardiologist is doing where they're planning it while the patient is on the table. Every other procedure, TAVRs, etc., are planned ahead of time.
What we can do with our technology, and we have a new technology coming out here in 2026 that we call that will help physicians plan better, is it allows them to plan off a CT so they know exactly what their approach should be. They know exactly precisely which lesions should be treated. They can tell the degree of the calcification so if they need to bring in a shockwave device or a more complex device, they know that upfront, which can inform site of care. It obviously informs the inventory that you have on hand. We provide that upfront, and then the Interventional Cardiologist can plan and make it that much more efficient.
To the new product side of things, 2026 could be a big year for you guys in terms of plaque.
Yeah.
Again, maybe for people who are less familiar with the Plaque Analysis product in the audience, a sense of how that fits in.
Yeah, so Plaque Analysis is kind of our second generation product that's coming in here. Just to step back, our strategy has been very prescriptive. We've started with symptomatic patients. We've started with the most disease symptomatic patients. Those are patients that need an FFRCT. Our next technology is our Plaque Analysis technology. These are still with symptomatic patients. This is FDA cleared, and it provides a completely different insight than our FFRCT does. What it informs the physician is, given the disease that's found, how do I best medically manage this patient? It's well understood in clinical literature that plaque really matters, meaning the more plaque you have, the greater at risk you are, and the type of plaque also matters. It's not all plaque's the same. Calcified plaque is a very different risk profile than low attenuation plaque.
Our Plaque Analysis technology can identify both the total amount and the type down to the cubic millimeter. We are clinically validated with prospective evidence proving the accuracy of this. We bring these insights to physicians, and they can then manage their patients better. They know whether or not, you know, a low-dose statin is more appropriate than a PCSK9 or, you know, or even a GLP-1. We're in the very early stages of launching this. I could not be more excited about what this kind of second wave of growth is going to mean to us. Incidentally, this is all off the same CCTA. It's the same patient. It's the same bidirectional, you know, data pipe. It's extremely efficient as we start to launch it. We're at the early innings. There are really two driving factors in driving adoption. The first is coverage.
We've got right now, we're at about 50% total covered lives. We've got some good commercial payers that have come on recently. We obviously have Medicare as well. We're going to continue to drive commercial coverage. With that, there's a large market development physician education effort that's required. We're publishing new clinical data that's helping physicians know how to use this new tool. Right now, there's no way in the market to measure plaque accurately unless you give an invasive procedure, which obviously is not practical. We can do that now, but we need to educate physicians on what to do with this technology and these insights. Early stages now, super excited. I could not be more excited about this next wave of growth for us. Just to kind of manage expectations, we're forecasting that tail end of 2026, early 2027, to have real material impact.
Okay, I guess for Plaque Analysis, there's kind of two components to it. One is that there's not a lot of incremental cost providing it as a product, that drop through is massive. Presumably you guys want to invest a fair bit behind it. How are you thinking about that interplay of like the contribution from plaque?
Oh yes, certainly. It's core to our investment philosophy. It's really going back to our strategic imperatives. First is really driving commercial adoption for our technologies. Plaque is going to be center stage there. Continuing to drive or expand the sales force is a key component of that. We've done that in 2025. We certainly will do that again in 2026. The second component is technology and innovation is going to be a huge beneficiary of the proceeds that we raised in the IPO. Looking to expand the product portfolio to John's earlier point, the launching PCI planner next year, and then continuing to innovate in the algorithm to expand gross margins. We feel very confident in our investment strategy there. Overall, we'll look to invest at a rate north of 50% of revenue growth with a disproportionate focus on plaque.
All that being said, we're confident we can get the company to profitability within three years of the IPO.
I'd say from my perspective, the only downside of the IPO that you guys did is that now every time I eat a croissant in the morning, I'm just constantly thinking about what I'm doing to my heart.
Yeah, that's good.
Yeah, it's problematic. You know, ignorance is bliss. We've done a whole bunch of work on endoscopy in that side of the market. You structurally screen patients, 45 and over, colorectal cancer. It makes sense. You remove the polyps. You deal with it, the sooner you know the better. Great. Coronary artery disease is the number one killer in the U.S., number three globally. We wait for people to be like, "Ow." It feels idiotic.
Yeah, it's analogous to waiting till there's, you know, a woman waiting till there's a, you know, stage four tumor. I mean, heart disease is a silent killer. What you look like, what you feel like is not an indicator of risk. We're very confident our technology does not discriminate based on symptoms. Our technology finds disease, full stop. We think there's a great opportunity, and we're committed to tapping into it around asymptomatic, high-risk patients. That's going to be a classical indication expansion. I'm very confident our technology works and can find that disease. The long pole in the tent and the important pole, I think, luckily aligns really well with our core competencies as a business. There's going to be a large randomized controlled trial, and we've got a commitment to do that. We'll be able to share more. The team's done great work, great thinking.
We're going to share more details on that in 2026. If you take this back into our kind of overarching strategy, you start with symptomatic. We've got a very well-developed and clicking very nicely based business in FFRCT Analysis, I think with a lot of upside. You've got this kind of near to mid-term wave of growth coming with Plaque Analysis, which is going to make that business even stronger. Longer term, we're going to get into this asymptomatic opportunity. I think when we do that, we're leaning into what we do really well, which is create great technology and develop great clinical data. We're excited to do that. I do think one day the market's going to move towards screening for heart disease like you screen for other big killers like cancer.
Yeah, the only thing I'd add to that is even our strategy on the asymptomatic side, this isn't about screening the worried well or universal healthcare screening. We're approaching this with a very thoughtful mindset of a targeted approach focused on higher risk asymptomatic patients. This allows us for a couple of reasons. First, payers are more likely to cover technologies because the cost effectiveness proves itself out in a higher risk cohort. Second, a higher probability of demonstrating favorable clinical outcomes in a more enriched cohort of patients within the asymptomatic world. I mean, there's like 200 million people on statins, right? I mean, it depends how you define the risk parameters, but there's still a massive pool.
Sure. Yeah, I mean, there's a very large team.
I mean, meant in the best possible way, the dollar cost of your product is comparatively low in absolute terms as far as healthcare is concerned. Why wouldn't a life insurance company or the traditional sort of managed care providers essentially begin fairly systematic screening over time? Because the cost of that versus non-intervention dealing with later is, it's so low.
I think it comes down to the trial and what the trial proves. I think with the right data, that's a reasonable assumption.
We've seen it in the heart rhythm side of things for some of your payers who successfully began moving into asymptomatic, high-risk patients.
Yeah.
In a similar manner, with the relatively low dollar investment relative to clinical outcomes, at least from my perspective, you guys are a very U.S. company today. A lot of the time our companies can't easily move OUS because the product's extremely expensive and the system can't afford it. It's not like we're not doing FFRs OUS.
Yeah.
There is a big market there. Long term, how are you thinking about that?
I think long term, it's an opportunity. Obviously, heart disease isn't a U.S. issue. It's a global issue. Right now, when Vikram and I sit down and we allocate capital at the start of every year, the U.S. is getting the lion's share of that capital. I think the opportunity here in the U.S., given where we are and still very much our early stages of a growth company, warrants that decision. I think longer term, that could certainly change, but it's not core to our strategy currently. The other thing I'll say is, in a prior role, I ran an Asia-Pacific region for a different company, different business. It's one thing to recognize the opportunity. It's another thing to go do it, and I think you really need local feet on the street building that.
For a company of our size, we're bigger now than we've ever been, but we're still a startup. I think at some point we'll have the infrastructure to really get after that opportunity in a more material way. Right now, our core focus is the U.S.
Mentioning competitors in the U.S. is like talking about Lord Voldemort or something. I won't mention anybody by name. There are some ankle biters who are kind of tiny, and they're split into different little areas. Long term, as the market grows, you guys build the market. Presumably, there's going to be some others coming. How do you think about your competitive position and defending it?
Yeah. Our North Star, our competitor, what our commercial teams, what our medical education teams wake up every morning with conviction to go convert is the standard of care. When we do that, we will win, full stop. The standard of care, the majority of the volume in standard of care is SPECT imaging. SPECT imaging takes three times as long. It's got three times the radiation for a patient, and it's not, and it's below the guidelines where CTA is. We focus there. Any other competitor, God bless them. Our focus is there, and we're going to continue to keep it there.
My favorite thing about SPECT imaging is, you know, the injection you can be given if you don't want to be on a treadmill to induce stress. One of the common side effects people don't know is an impending sense of doom, which is the best side effect I've ever had. You guys, you know, we sort of alluded to it as though you've got a bunch of time back to do your actual jobs now that, you know, you're public and the initial bit of the hard work is through. What have you mainly been focusing on with the incremental time that you were hoping to get to before, but you just couldn't?
Yeah, you know, the fun stuff is running the business, honestly. I mean, talking with you, it's a lot of fun to me. The IPO was a great milestone for the company, and I think certainly for a lot of our longer tenured employees, one that's worth celebrating. We really think of it just as that. It is a milestone, not a destination. Our final destination is to convert a standard of care, and that's what the focus is. My focus is really keeping the team's focus, and I think we've got a great plan. I have never been more optimistic about what the future holds for us. It comes down to the work we do every day. It's our jobs as leaders to keep the teams focused and help them understand what's in the plan and go do that.
What's not in the plan, please don't spend your time doing that. I've been spending a lot of time reiterating that message, and that's honestly the part of the job that I enjoy the most.
I'm very good. Similar thoughts, I think startups die of gluttony, not starvation. We were very pleased with the reception of the IPO. We raised, you know, $364 million. The original intent was to raise $200 million. That does not mean we change our operating plan significantly. We've got laser sharp focus on executing on the core. Now we have the proceeds to execute on our near-term plans while investing in longer-term value creation opportunities. To John's point, we believe we are on the right side of this trigger. When I think of you, I was always thinking about the sort of connection and partnership upstream to the radiology side. As you guys hinted, more involvement in the cath lab and the planning side.
Is there any kind of opportunity to have discussions on whether it's a partnership or sort of patient flow with the downstream, the IVL providers, that side? They must be interested in talking to you because the patient's getting funneled there.
I think there's certainly, we're fairly confident we can identify complex disease before the patient. One, we can make sure a patient that goes to the cath lab actually needs to be treated and not diagnosed. That's number one. Number two, we can identify whether or not that patient needs some type of complex intervention. Certainly there's opportunities for partnership there. We're very open to having those discussions. I will say strategically, both with the PCI product as well as the Roadmap Analysis product, which is a reading efficiency tool that we launched a couple of years ago, neither of those have separate revenue streams associated with them. We really view those as kind of pull-through and stickiness technology that our core technologies that have reimbursement, that have separate revenue streams, Plaque Analysis and FFRCT Analysis, get pulled through with.
Through the IPO process that you guys went through, you were on the receiving end of a lot of different questions. Was there anything you were surprised that you weren't asked? Alternatively, were there any questions that stuck with you where you're like, oh, okay, I just really wasn't expecting that? The kind of comparisons of what the external focus is on versus the day-to-day of actually running the business. Was there anything that we should have asked you that we didn't?
Yeah, that's a good question. Depending on who you're meeting with, you have to help the audience understand where we sort of are in the continuum. We are not in any way a replacement for an intervention in the cath lab, and sometimes you need to educate that. We are upstream for that. We're treating patients with symptoms, and ultimately, general cardiologists are managing these patients. We have to educate physicians in that regard. Sometimes, depending on who you're meeting with, you have to kind of orientate them the right way. A lot of the med tech investing world, rightly so, is very focused on what's going on in the cath lab. It's a little bit of a new conversation. I'm trying to think of any other interesting questions.
That was a big one.
It's reorienting folks to who we are. I mean, there's an element of specialty diagnostics, there's an element of med tech, and that's, you know, there's a sudden bias with investors that leads them to a certain line of questioning. The big one is the cath lab focus, I feel, and just reorienting them that we're much more upstream.
You guys are definitely something of a unique asset within the space. We don't get a lot of software businesses in that way.
Yeah, yeah. It's wonderful. It's a beautiful business. I've been here four years, and the more I'm here, the more I love it. You know, like I said, I could not be more excited. Certainly with the stronger balance sheet that we have now, I really believe we're just getting started here.
You can expect my resume in the post soon.
You got to lay off the croissants.
Okay, bye. Thank you so much. Appreciate it.
Thank you. Thank you.